INTRODUCTION AND PLAN OF THE WORK 8 

BOOK I OF THE CAUSES OF IMPROVEMENT IN THE PRODUCTIVE POWERS OF 
LABOUR, AND OF THE ORDER ACCORDING TO WHICH ITS PRODUCE IS NATU- 
RALLY DISTRIBUTED AMONG THE DIFFERENT RANKS OF THE PEOPLE 10 

CHAPTER I OF THE DIVISION OF LABOUR 10 

CHAPTER II OF THE PRINCIPLE WHICH GIVES OCCASION TO THE DIVISION OF 

LABOUR 18 

CHAPTER III THAT THE DIVISION OF LABOUR IS LIMITED BY THE EXTENT OF 

THE MARKET 21 

CHAPTER IV OF THE ORIGIN AND USE OF MONEY 25 

CHAPTER V OF THE REAL AND NOMINAL PRICE OF COMMODITIES, OR OF THEIR 

PRICE IN LABOUR, AND THEIR PRICE IN MONEY 31 

CHAPTER VI OF THE COMPONENT PART OF THE PRICE OF COMMODITIES 45 

CHAPTER VII OF THE NATURAL AND MARKET PRICE OF COMMODITIES 51 

CHAPTER VIII OF THE WAGES OF LABOUR 58 

CHAPTER IX OF THE PROFITS OF STOCK 77 

CHAPTER X OF WAGES AND PROFIT IN THE DIFFERENT EMPLOYMENTS OF 

LABOUR AND STOCK 86 

CHAPTER XI OF THE RENT OF LAND 124 



BOOK II OF THE NATURE, ACCUMULATION, AND EMPLOYMENT OF STOCK... 222 

INTRODUCTION 222 

CHAPTER I OF THE DIVISION OF STOCK 224 

CHAPTER II OF MONEY, CONSIDERED AS A PARTICULAR BRANCH OF THE GEN- 
ERAL STOCK OF THE SOCIETY, OR OF THE EXPENSE OF MAINTAINING THE 

NATIONAL CAPITAL 230 

CHAPTER III OF THE ACCUMULATION OF CAPITAL, OR OF PRODUCTIVE AND 

UNPRODUCTIVE LABOUR 270 

CHAPTER IV OF STOCK LENT AT INTEREST 286 

CHAPTER V OF THE DIFFERENT EMPLOYMENTS OF CAPITALS 293 

BOOK III OF THE DIFFERENT PROGRESS OF OPULENCE IN DIFFERENT NA- 
TIONS 307 

CHAPTER I OF THE NATURAL PROGRESS OF OPULENCE 307 

CHAPTER II OF THE DISCOURAGEMENT OF AGRICULTURE IN THE ANCIENT 

STATE OF EUROPE, AFTER THE FALL OF THE ROMAN EMPIRE 311 

CHAPTER III OF THE RISE AND PROGRESS OF CITIES AND TOWNS, AFTER THE 
FALL OF THE ROMAN EMPIRE 321 

CHAPTER IV HOW THE COMMERCE OF TOWNS CONTRIBUTED TO THE IM- 
PROVEMENT OF THE COUNTRY 330 

BOOK IV OF SYSTEMS OF POLITICAL ECONOMY 341 

CHAPTER I OF THE PRINCIPLE OF THE COMMERCIAL OR MERCANTILE SYSTEM 342 



CHAPTER II OF RESTRAINTS UPON IMPORTATION FROM FOREIGN COUNTRIES 
OF SUCH GOODS AS CAN BE PRODUCED AT HOME 361 

CHAPTER III OF THE EXTRAORDINARY RESTRAINTS UPON THE IMPORTATION 
OF GOODS OF ALMOST ALL KINDS, FROM THOSE COUNTRIES WITH WHICH 

THE BALANCE IS SUPPOSED TO BE DISADVANTAGEOUS 378 

Part I — Of the Unreasonableness of those Restraints, even upon the-Principles of the Commercial System 378 

PART II. — Of the Unreasonableness of those extraordinary Restraints, upon other Principles 391 

CHAPTER IV OF DRAWBACKS 400 

CHAPTER V OF BOUNTIES 405 

CHAPTER VI OF TREATIES OF COMMERCE 437 

CHAPTER VII OF COLONIES 447 

CHAPTER VIII CONCLUSION OF THE MERCANTILE SYSTEM 522 

CHAPTER IX OF THE AGRICULTURAL SYSTEMS, OR OF THOSE SYSTEMS OF PO- 
LITICAL ECONOMY WHICH REPRESENT THE PRODUCE OF LAND, AS EITHER 
THE SOLE OR THE PRINCIPAL SOURCE OF THE REVENUE AND WEALTH OF 

EVERY COUNTRY 539 

APPENDIX TO BOOK IV , 562 

BOOK V OF THE REVENUE OF THE SOVEREIGN OR COMMONWEALTH 564 

CHAPTER I OF THE EXPENSES OF THE SOVEREIGN OR COMMONWEALTH 564 

PART I Of the Expense of Defence 564 

PART II Of the Expense of Justice 579 

PART III Of the Expense of public Works and public Institutions 590 

PART IV Of the Expense of supporting the Dignity of the Sovereign 666 

CONCLUSION 667 



CHAPTER II OF THE SOURCES OF THE GENERAL OR PUBLIC REVENUE OF THE 
SOCIETY 668 

PART I Of the Funds, or Sources, of Revenue, which may peculiarly belong to the Sovereign or Commonwealth 668 

PART II Of Taxes 676 

CHAPTER III OF PUBLIC DEBTS 749 



The Wealth of Nations 



AN INQUIRYINTOTHE 

NATURE AND CAUSES 

OF 

THE WEALTH OF 
NATIONS 

by 

Adam Smith 

INTRODUCTION AND PLAN OFTHE 
WORK 

The annual labour of every nation is the fund which 
originally supplies it with all the necessaries and 
conveniences of life which it annually consumes, and 
which consist always either in theimmediateproduceofthatlabour, 
or in what is purchased with that produce from other nations. 



According, therefore, as this produce, or what is purchased with 
it, bearsagreater or smaller proportion to thenumber of those who 
are to consume it, the nation will be better or worse supplied with 
all the necessaries and conveniences for which it has occasion. 

But this proportion must in every nation be regulated by two 
different circumstances: first, bytheskill, dexterity, andjudgment 
with which its labour is generally applied; and, secondly, by the 
proportion between the number of those who are employed in 
useful labour, and that of those who are not so employed. W hat- 
ever be the soil, climate, or extent of territory of any particular 
nation, the abundance or scantiness of its annual supply must, in 
that particular situation, depend upon those two circumstances. 

The abundance or scantiness of this supply, too, seems to de- 
pend moreupon theformer of those two circumstances than upon 
the latter. Among the savage nations of hunters and fishers, every 
individual whoisableto work is more or less employed in useful 
labour, and endeavours to provide, as well as he can, the neces- 
saries and conveniences of life, for himself, and such of hisfamily 
or tribe as are either too old, or too young, or too infirm, to go a- 
huntingand fishing. Such nations, however, areso miserably poor, 
that, from mere want, they are frequently reduced, or at least think 
themselves reduced, to the necessity someti mes of di rectly destroy- 
ing, and sometimesof abandoning their infants, their old people, 



8 



Adam Smith 



and those afflicted with lingering diseases, to perish with hunger, 
or to be devoured by wild beasts. Among civilized and thriving 
nations, on the contrary, though a great number of people do not 
labour at all, many of whom consume the produce of ten times, 
frequently of a hundred times, more labour than the greater part 
of those who work; yet the produce of the whole labour of the 
society is so great, that all are often abundantly supplied; and a 
workman, even of the lowest and poorest order, if heisfrugal and 
industrious, may enjoy a greater share of the necessaries and 
conveniencies of life than it is possiblefor any savage to acquire. 

The causes of this improvement in the productive powers of 
labour, and the order according to which its produce is naturally 
distributed among the different ranks and conditions of men in 
the society, make the subject of the first book of this Inquiry. 

W hatever be the actual state of the skill, dexterity, and judg- 
ment, with which labour is applied in any nation, the abundance 
or scantiness of its annual supply must depend, during the con- 
tin u an ce of that state, upon the proportion between the number 
of those who are annually employed in useful labour, and that of 
those who are not so employed. The number of useful and pro- 
ductive labourers, it will hereafter appear, is everywhere in pro- 
portion to the quantity of capital stock which is employed in set- 
ting them to work, and to the particular way in which it is so 



employed. The second book, therefore, treatsof thenatureof capital 
stock, of the manner in which it is gradually accumulated, and of 
the different quantities of labour which it puts into motion, ac- 
cording to the different ways in which it is employed. 

N ations tolerably well advanced as to skill, dexterity, and judg- 
ment, in theapplication of labour, havefollowed very different plans 
in the general conduct or direction of it; and those plans have not 
all been equallyfavourabletothegreatnessof itsproduce.Thepolicy 
of some nations has given extraordinary encouragement to the in- 
dustry of thecountry; that of others to theindustry of towns. Scarce 
any nation has dealt equally and impartially with every sort of in- 
dustry. Since thedown-fall of the Rom an em pi re, thepolicyof Eu- 
ropehasbeen morefavourabletoarts, manufactures, and commerce, 
theindustry of towns, than to agriculture, the Industry of thecoun- 
try. The circumstances which seem to have introduced and estab- 
lished this policy are explained in the third book. 

Though those different plans were, perhaps, first introduced by 
the private interests and prejudicesof particular orders of men, with- 
out any regard to, or foresight of, their consequences upon thegen- 
eral welfare of the society; yet they have given occasion to very dif- 
ferent theories of political economy; of which some magnify the 
importance of that industry which iscarried on in towns, othersof 
that which iscarried on in thecountry. Those theories have had a 



The Wealth of Nations 



considerableinfluence, not only upon theopinionsof men of learn- 
ing, but upon the public conduct of princes and sovereign states. I 
have endeavoured, in the fourth book, to explain as fully and dis- 
tinctly as I can those different theories, and the principal effects 
which they have produced in different ages and nations. 

To explain in what has consisted the revenue of the great body 
of the people, or what has been the nature of those funds, which, 
in different ages and nations, have supplied their annual consump- 
tion, istheobjectof these four first books. Thefifth and last book 
treats of the revenue of the sovereign, or commonwealth. In this 
book I have endeavoured to shew, first, what are the necessary 
expenses of the sovereign, or commonwealth; which of those ex- 
penses ought to be defrayed by the general contribution of the 
whole society, and which of them, by that of some particular part 
only, or of some particular members of it: secondly, what are the 
different methods in which the whole society may be made to 
contribute towardsdefrayingtheexpenses incumbent on the whole 
society, and what are the principal advantages and inconvenien- 
ces of each of those methods; and, thirdly and lastly, what are the 
reasonsand causeswhich haveinduced almost all modern govern- 
ments to mortgage somepart of thisrevenue, or to contract debts; 
and what have been theeffectsof thosedebtsupon thereal wealth, 
the annual produce of the land and labour of the society. 



BOOK I 

OF THE CAUSES OF IMPROVEMENT IN 
THE PRODUCTIVE POWERSOF 
LABOUR, AND OF TH E ORDER AC- 
CORDING TO WH ICH ITSPRODUCEIS 
NATURALLY DISTRIBUTED AMONG 
THE DIFFERENT RANKSOFTHE 
PEOPLE. 

CHAPTER I 

OFTHE DIVISION OF LABOUR 

The greatest improvements in theproductivepowersof 
labour, and the greater part of the skill, dexterity, and 
judgment, with which it is anywhere directed, or ap- 
plied, seem to have been theeffectsof the division of labour. The 
effects of the division of labour, in thegeneral business of society, 
will be more easily understood, by considering in what manner it 
operates in some particular manufactures. It is commonly sup- 
posed to be carried furthest in some very trifling ones; not per- 
haps that it really iscarried further in them than in others of more 



10 



Adam Smith 



importance: but in those trifling manufactureswhich are destined 
to supply the small wants of but a small number of people, the 
whole number of workmen must necessarily be small; and those 
employed in every different branch of the work can often be col- 
lected into the same workhouse, and placed at once under the 
view of the spectator. 

In those great manufactures, on the contrary, which are des- 
tined to supply the great wants of the great body of the people, 
every different branch of the work employs so great a number of 
workmen, that it is impossible to collect them all into the same 
workhouse. We can seldom see more, at one time, than those 
employed in one single branch. Though in such manufactures, 
therefore, the work may really bedivided into a much greater num- 
ber of parts, than in thoseof a more trifling nature, thedivision is 
not near so obvious, and has accordingly been much less observed. 

To takean example, therefore, from a very trifling manufacture, 
but one in which thedivision of labour has been very often taken 
notice of, the trade of a pin-maker: a workman not educated to 
this business (which thedivision of labour has rendered a distinct 
trade, nor acquainted with the use of the machinery employed in 
it (totheinvention of which thesamedivision of labour has prob- 
ably given occasion), could scarce, perhaps, with his utmost in- 
dustry, makeonepin in aday, and certainly could not maketwenty 



But in the way in which this business is now carried on, not only 
thewhole work isa peculiar trade, but it isdivided into a number 
of branches, of which the greater part are likewise peculiar trades. 
Oneman draws out the wire; an other straights it; a third cutsit; a 
fourth pointsit; afifth grinds it at the top for receiving the head; 
to makethehead requires two or threedistinct operations; to put 
it on is a peculiar business; to whiten the pins is another; it iseven 
a trade by itself to put them into the paper; and the important 
business of making a pin is, in this manner, divided into about 
eighteen distinct operations, which, in some manufactories, are 
all performed by distinct hands, though in others the same man 
will sometimes perform two or three of them. I have seen a small 
manufactory of this kind, where ten men only were employed, 
and where some of them consequently performed two or three 
distinct operations. But though they were very poor, and there- 
fore but indifferently accommodated with the necessary machin- 
ery, they could, when they exerted themselves, makeamong them 
about twelve pounds of pins in aday. There are in a pound up- 
wards of four thousand pins of a middling size. Those ten per- 
sons, therefore, could make among them upwards of forty-eight 
thousand pins in a day. Each person, therefore, making a tenth 
part of forty-eight thousand pins, might be considered asmaking 
four thousand eight hundred pins in a day. But if they had all 



11 



The Wealth of Nations 



wrought separately and independently, and without any of them 
having been educated to thispeculiar business, they certainly could 
not each of them have made twenty, perhapsnotonepin in aday; 
that is, certainly, not the two hundred and fortieth, perhaps not 
thefour thousand eight hundredth, part of what they are at present 
capable of performing, in consequence of a proper division and 
combination of their different operations. 

In every other art and manufacture, th e effects of the d i vi si on of 
labour are similar to what they are in this very trifling one, though, 
in many of them, the labour can neither be so much subdivided, 
nor reduced to so great a simplicity of operation. The division of 
labour, however, so far as it can be introduced, occasions, in every 
art, a proportionable increase of the productive powers of labour. 
The separation of different trades and employments from one 
another, seems to have taken place in consequence of this advan- 
tage. This separation, too, is generally carried furthest in those 
countries which enjoy thehighestdegreeof industry and improve- 
ment; what is the work of one man, in a rude state of society, 
being generally that of several in an improved one. In every im- 
proved society, the farmer is generally nothing but a farmer; the 
manufacturer, nothing but a manufacturer. The labour, too, which 
is necessary to produce any one complete manufacture, is almost 
always divided among a great number of hands. H ow many dif- 



ferent trades are em ployed in each branch of thelinen and woollen 
manufactures, from the growers of the flax and the wool, to the 
bleachers and smoothers of thelinen, or to the dyers and dressers 
of the cloth ! T he nature of agriculture, indeed, does not admit of 
so many subdivisions of labour, nor of so completea separation of 
one business from another, as manufactures. It is impossible to 
separate so entirely the business of the grazier from that of the 
corn-farmer, as the trade of the carpenter is commonly separated 
from that of the smith. The spinner is almost always a distinct 
person from the, weaver; but the ploughman, the harrower, the 
sower of the seed, and the reaper of the corn, are often the same. 
The occasions for those different sorts of labour returning with 
the different seasons of the year, it is impossible that one man 
should be constantly employed in any oneof them. Thisimpossi- 
bility of making so complete and entire a separation of all the 
different branches of labour employed in agriculture, is perhaps 
the reason why the improvement of the productive powers of 
labour, in this art, does not always keep pace with their improve- 
ment in manufactures. The most opulent nations, indeed, gener- 
ally excel all their neighboursin agriculture as well asin manufac- 
tures; but they are commonly moredistinguished by their superi- 
ority in the latter than in the former. Their lands are in general 
better cultivated, and having more labour and expense bestowed 



12 



Adam Smith 



upon them, produce more in proportion to the extent and natural 
fertility of the ground. But this superiority of produce is seldom 
much more than in proportion to the superiority of labour and 
expense. In agriculture, the labour of the rich country is not al- 
ways much more productive than that of the poor; or, at least, it is 
never so much more productive, as it commonly is in manufac- 
tures. The corn of the rich country, therefore, will not always, in 
the same degree of goodness, come cheaper to market than that of 
the poor. The corn of Poland, in the same degree of goodness, is as 
cheap as that of France, notwithstanding the superior opulence 
and improvement of the latter country. The corn of France is, in 
the corn -provinces, fully as good, and in most years nearly about 
thesamepricewith thecorn of England, though, in opulence and 
improvement, France is perhaps inferior to England. The corn- 
lands of England, however, are better cultivated than those of 
France, and the corn-lands of France are said to be much better 
cultivated than those of Poland. But though the poor country, 
notwithstanding the inferiority of its cultivation, can, in some 
measure, rival the rich in the cheapness and goodness of its corn, 
it can pretend to no such competition in its manufactures, at least 
if those manufactures suit the soil, climate, and situation, of the 
rich country. T hesilksof Franceare better and cheaper than those 
of England, because thesilk manufacture, at least under the present 



high dutiesupon the importation of raw silk, doesnot so well suit 
the climate of England as that of France. But the hardware and 
the coarse woollens of England are beyond all comparison supe- 
rior to those of France, and much cheaper, too, in the same degree 
of goodness. I n Poland there are said to be scarce any manufac- 
tures of any kind, a few of those coarser household manufactures 
excepted, without which no country can well subsist. 

This great increase in the quantity of work, which, in conse- 
quence of the division of labour, the same number of people are 
capable of performing, is owing to three different circumstances; 
first, to theincreaseof dexterity in every particular workman; sec- 
ondly, to thesaving of thetimewhichiscommonly lost in passing 
from one species of work to another; and, lastly, to the invention 
of a great number of machines which facilitate and abridgelabour, 
and enable one man to do the work of many. 

First, the improvement of the dexterity of theworkmen, neces- 
sarily increases the quantity of the work he can perform; and the 
division of labour, by reducing every man's business to someone 
simple operation, and by making this operation the sole employ- 
ment of his life, necessarily increases very much the dexterity of 
the workman. A common smith, who, though accustomed to 
handle the hammer, has never been used to make nails, if, upon 
some particular occasion, he is obliged to attempt it, will scarce, I 



13 



The Wealth of Nations 



am assured, beableto make above two or three hundred nailsin a 
day, and those, too, very bad ones. A smith who has been accus- 
tomed to makenails, but whose sole or principal business has not 
been that of a nailer, can seldom, with hisutmost diligence, make 
more than eight hundred or a thousand nailsin a day. I have seen 
several boys, under twenty years of age, who had never exercised 
any other trade but that of making nails, and who, when they 
exerted themselves, could make, each of them, upwards of two 
thousand three hundred nailsin aday.Themakingofanail, how- 
ever, is by no means one of the simplest operations. The same 
person blows the bellows, stirs or mends the fire as there is occa- 
sion, heats the iron, and forges every part of the nail: in forging 
the head, too, he is obliged to change his tools. T he different op- 
erations into which the making of a pin, or of a metal button, is 
subdivided, are all of them much more simple, and the dexterity 
of the person, of whose life it has been the sole business to per- 
form them, is usually much greater. The rapidity with which some 
of the operations of those manufactures are performed, exceeds 
what the human hand could, by those who had never seen them, 
he supposed capable of acquiring. 

Secondly, The advantage which is gained by saving the time 
commonly lost in passing from one sort of work to another, is 
much greater than weshould at first view beapttoimagineit.lt is 



impossibleto pass very quickly from onekind of work to another, 
that is carried on in a different place, and with quite different 
tools. A country weaver, who cultivatesa small farm, must loosea 
good deal of timein passing from his loom tothefield, and from 
thefield to hisloom. W hen thetwo trades can be carried on in the 
same workhouse, the loss of time is, no doubt, much less It is, 
even in this case, however, very considerable. A man commonly 
saunters a little in turning his hand from one sort of employment 
to another. W hen he first begins the new work, he is seldom very 
keen and hearty; his mind, as they say, does not go to it, and for 
sometime he rather trifles than applies to good purpose. The habit 
of sauntering, and of indolent careless application, which isnatu- 
rally, or rather necessarily, acquired by every country workman 
who is obliged to change his work and histools every half hour, 
and to apply his hand in twenty different ways almost every day of 
hislife, rendershim almost always slothful and lazy, and incapable 
of any vigorous application, even on the most pressing occasions. 
Independent, therefore, of hisdefici en cy in point of dexterity, this 
cause alone must always reduce considerably thequantity of work 
which he is capable of performing. 

Thirdly, and lastly, everybody must besensiblehow much labour 
isfacilitated and abridged bytheapplication of proper machinery. 
It is unnecessary to give any example. I shall only observe, there- 



14 



Adam Smith 



fore, that the invention of all those machines by which labour is 
so much facilitated and abridged, seems to have been originally 
owing to the division of labour. M en are much more likely to 
discover easier and readier methods of attaining any object, when 
the whole attention of their minds is directed towards that single 
object, than when itisdissipated among a great variety of things. 
But, in consequence of the division of labour, the whole of every 
man's attention comes naturally to be directed towards some one 
very simple object. It is naturally to be expected, therefore, that 
some one or other of those who are employed in each particular 
branch of labour should soon find out easier and readier methods 
of performing their own particular work, whenever the nature of 
itadmitsof such improvement. A great part of the machines made 
useof in those manufactures in which labour is most subdivided, 
were originally the invention of common workmen, who, being 
each of them employed in some very simple operation, naturally 
turned their thoughts towardsfinding out easier and readier meth- 
odsof performing it. W hoever has been much accustomed to visit 
such manufactures, must frequently have been shewn very pretty 
machines, which were the inventions of such workmen, in order 
to facilitate and quicken their own particular part of the work. In 
the first fire engines {this was the current designation for steam 
engines}, a boy was constantly employed to open and shut alter- 



nately the communication between the boiler and the cylinder, 
accordingasthepiston either ascended or descended. Oneof those 
boys, who loved to play with his companions, observed that, by 
tyingastringfromthehandleofthevalvewhich opened thiscom- 
munication to another part of the machine, the valve would open 
and shut without his assistance, and leavehim at liberty to divert 
himself with his play-fellows. ne of the greatest improvements 
that has been madeupon thismachine, sinceit was first invented, 
was in this manner the discovery of a boy who wanted to save his 
own labour. 

All the improvements in machinery, however, haveby no means 
been the inventions of those who had occasion to use the ma- 
chines. Many improvements have been made by the ingenuity of 
themakersof the machines, when to makethem became the busi- 
ness of a peculiar trade; and some by that of those who are called 
philosophers, or men of speculation, whose trade it is not to do 
any thing, but to observe every thing, and who, upon that ac- 
count, areoften capableof combining together thepowers of the 
most distant and dissimilar objects in the progress of society, phi- 
losophy or speculation becomes, like every other employment, 
the principal or sole trade and occupation of a particular class of 
citizens Likeevery other employment, too, it issubdivided into a 
great number of different branches, each of which affords occupa- 



15 



The Wealth of Nations 



tion to a peculiar tribe or classof philosophers; and thissubdivision 
of employment in philosophy, as well as in every other business, 
improve dexterity, and saves time. Each individual becomes more 
expert in his own peculiar branch, more work is done upon the 
whole, and the quantity of science is considerably increased by it. 

It isthegreat multiplication of the productions of all thediffer- 
ent arts, in consequence of the division of labour, which occa- 
sions, in a well-governed society, that universal opulence which 
extends itself to the lowest ranks of the people. Every workman 
hasa great quantity of hisown work to dispose of beyond what he 
himself has occasion for; and every other workman being exactly 
in thesamesituation, heisenabled to exchangea great quantity of 
his own goods for a great quantity or, what comes to the same 
thing, for the priceof a great quantity of theirs. H esuppliesthem 
abundantly with what they have occasion for, and they accommo- 
date him as amply with what he has occasion for, and a general 
plenty diffuses itself through all the different ranks of the society. 

bservethe accommodation of the most common artificer or 
daylabourer in a civilized and thriving country, and you will per- 
ceive that thenumber of people, of whoseindustry a part, though 
but a small part, has been employed in procuring him thisaccom- 
modation, exceedsall computation. The woollen coat, for example, 
which covers the day-labourer, as coarse and rough as it may ap- 



pear, is the produce of the joint labour of a great multitude of 
workmen. Thesh epherd, thesorter of thewool, the wool-comber 
or carder, thedyer, thescribbler, thespinner, the weaver, thefuller, 
the dresser, with many others, must all join their different arts in 
order to complete even this homely production. H ow many mer- 
chants and carriers, besides, must have been employed in trans- 
porting the materials from some of those workmen to others who 
often live in a very distant part of the country? How much com- 
merce and navigation in particular, how many ship-builders, sail- 
ors, sail-makers, rope-makers, must have been employed in order 
to bring together the different drugs made use of by the dyer, 
which often comefrom the remotest corners of the world?W hat a 
variety of labour, too, is necessary in order to produce thetoolsof 
the meanest of those workmen! To say nothing of such compli- 
cated machines as the ship of the sailor, the mill of thefuller, or 
even the loom of the weaver, let us consider only what a variety of 
labour is requisite in order to form that very simple machine, the 
shears with which the shepherd clips the wool. The miner, the 
builder of thefurnace for smelting the ore thefeller of thetimber, 
the burner of the charcoal to be made use of in the smelting- 
house, the brickmaker, the bricklayer, the workmen who attend 
thefurnace, themillwright, theforger, thesmith, must all of them 
join their different arts in order to produce them. Were we to 



16 



Adam Smith 



examine, in the same manner, all the different parts of his dress 
and household furniture, the coarse linen shirt which he wears 
next hisskin, theshoes which cover his feet, the bed which helies 
on, and all thedifferent partswhich composeit, the kitchen-grate 
at which he prepares his victuals, the coals which he makes use of 
for that purpose, dug from the bowels of the earth, and brought 
to him, perhaps, by a long sea and a long I and -carriage, all the 
other utensilsof hiskitchen, all thefurnitureof histable, theknives 
and forks, the earthen or pewter plates upon which he serves up 
and divides his victuals, thedifferent hands employed in prepar- 
ing his bread and his beer, the glass window which letsin theheat 
and the light, and keeps out the wind and the rain, with all the 
knowledge and art requisitefor preparing that beautiful and happy 
invention, without which these northern parts of the world could 
scarce have afforded a very comfortable habitation, together with 
thetoolsof all thedifferent workmen employed in producing those 
different conveniences; if we examine, I say, all these things, and 
consider what a variety of labour is employed about each of them, 
we shall be sensible that, without the assistance and co-operation 
of many thousands, thevery meanest person in a civilized country 
could not be provided, even according to, what we very falsely 
imagine, the easy and simple manner in which he is commonly 
accommodated. Compared, indeed, with the more extravagant 



luxury of the great, his accommodation must no doubt appear 
extremely simple and easy; and yet it may be true, perhaps, that 
the accommodation of an European prince does not always so 
much exceed that of an industriousand frugal peasant, as the ac- 
commodation of the latter exceeds that of many an African king, 
the absolute masters of the lives and liberties of ten thousand na- 
ked savages. 



17 



The Wealth of Nations 



CHAPTER II 

OFTHEPRINCIPLEWHICH GIVESOC- 
CASION TO THE DIVISION OF LABOUR 

This division of labour, from which so many advantages are de- 
rived, is not originally the effect of any human wisdom, which 
foresees and intends that general opulence to which it gives occa- 
sion. It isthenecessary, though very slow and gradual, consequence 
of a certain propensity in human nature, which has in view no 
such extensive utility; the propensity to truck, barter, and exchange 
onething for another. 

W hether this propensity be one of those original principles in 
human nature, of which no further account can be given, or 
whether, as seems more probable, it be the necessary consequence 
of the faculties of reason and speech, it belongsnotto our present 
subject to inquire. Itiscommontoall men,andtobefoundin no 
other race of animals, which seem to know neither this nor any 
other species of contracts. Two greyhounds, in running down the 
samehare, have sometimes the appearance of acting in some sort 
of concert. Each turns her towards his companion, or endeavours 
to intercept her when his companion turns her towards himself. 
T his, however, is not the effect of any contract, but of the acci- 



dental concurrence of their passions in the same object at that 
particular time. N obody ever saw a dog makea fair and deliberate 
exchange of one bone for another with another dog. Nobody ever 
saw one animal, by its gestures and natural cries signify to an- 
other, this is mine, that yours; I am willing to give this for that. 
W hen an animal wants to obtain something either of a man, or of 
another animal, it has no other means of persuasion, but to gain 
thefavour of those whose service it requires. A puppy fawns upon 
its dam, and a spaniel endeavours, by a thousand attractions, to 
engage theattention of its master who is at dinner, when it wants 
to be fed by him. M an sometimes uses the same arts with his 
brethren, and when he has no other means of engaging them to 
act according to his inclinations, endeavours by every servile and 
fawning attention to obtain their good will. H ehasnot time, how- 
ever, to do this upon every occasion. In civilized society he stands 
at all times in need of the co-operation and assistance of great 
multitudes, whilehiswholelifeisscarcesufficientto gain thefriend- 
shipof a few persons. In almost every other race of animals, each 
individual, when it is grown up to maturity, is entirely indepen- 
dent, and in its natural state has occasion for the assistance of no 
other living creature. But man has almost constant occasion for 
the help of his brethren, and it is in vain for him to expect it from 
their benevolence only. Hewill be more likely to prevail if hecan 



18 



Adam Smith 



interest their self- love in his favour, and shew them that it is for 
their own advantage to do for him what he requires of them. 
Whoever offers to another a bargain of any kind, proposes to do 
this. Give me that which I want, and you shall have this which 
you want, is the meaning of every such offer; and it is in this 
manner that we obtain from one another the far greater part of 
those good offices which we stand in need of. It is not from the 
benevolence of the butcher the brewer, or the baker that we expect 
our dinner, but from their regard to their own interest. We ad- 
dress ourselves, not to their humanity, but to their self-love, and 
never talk to them of our own necessities, but of their advantages. 
N obody but a beggar chooses to depend chiefly upon thebenevo- 
lenceof his fellow-citizens. Even a beggar does not depend upon 
it entirely. The charity of well-disposed people, indeed, supplies 
him with the wholefund of his subsistence. But though this prin- 
ciple ultimately provides him with all the necessaries of life which 
he has occasion for, it neither does nor can provide him with them 
as he has occasion for them. The greater part of his occasional 
wants are supplied in the same manner as those of other people, 
by treaty, by barter, and by purchase. With the money which one 
man giveshim he purchases food. The old clothes which another 
bestows upon him he exchanges for other clothes which suit him 
better, or for lodging, or for food, or for money, with which he 



can buy either food, clothes, or lodging, as he has occasion. 

As it is by treaty, by barter, and by purchase, that we obtain 
from one another the greater part of those mutual good offices 
which we stand in need of, so it isthissame trucking disposition 
which originally givesoccasion tothedivision of labour. In a tribe 
of hunters or shepherds, a particular person makes bows and ar- 
rows, for example, with more readiness and dexterity than any 
other. H efrequently exchanges them for cattleor for venison, with 
his companions; and he finds at last that he can, in this manner, 
get more cattle and venison, than if he himself went to thefield to 
catch them. From a regard to hisown interest, therefore, themak- 
ing of bows and arrows grows to be his chief business, and he 
becomes a sort of armourer. Another excels in making theframes 
and covers of their little huts or moveable houses H e is accus- 
tomed to be of use in this way to his neighbours, who reward him 
in the same manner with cattle and with venison, till at last he 
finds it his interest to dedicate himself entirely to this employ- 
ment, and to become a sort of house-carpenter. I n the same man- 
ner a third becomes a smith or a brazier; a fourth, a tanner or 
dresser of hides or skins, the principal part of the clothing of sav- 
ages. And thus the certainty of being able to exchange all that 
surplus part of the produce of his own labour, which is over and 
abovehisown consumption, for such parts of theproduceof other 



19 



The Wealth of Nations 



men's labour as he may have occasion for, encourages every man 
to apply himself to a particular occupation, and to cultivate and 
bring to perfection whatever talent of genius he may possess for 
that particular species of business. 

The difference of natural talents in different men, is, in reality, 
much less than weare aware of; andtheverydifferentgeniuswhich 
appears to distinguish men of different professions, when grown 
up to maturity, is not upon many occasions so much the cause, as 
the effect of the division of labour. The difference between the 
most dissimilar characters, between a philosopher and a common 
street porter, for example, seemsto arisenot so much from nature, 
as from habit, custom, and education. When they came in to the 
world, and for the first six or eight years of their existence, they 
were, perhaps, very much alike, and neither their parentsnor play- 
fellows could perceive any remarkable difference. About that age, 
or soon after, they cometo be employed in very different occupa- 
tions. The difference of talents comes then to betaken notice of, 
and widens by degrees, till at last the vanity of the philosopher is 
willing to acknowledge scarce any resemblance. But without the 
disposition to truck, barter, and exchange, every man must have 
procured to himself every necessary and conveniency of life which 
hewanted. All must havehad the same dutiesto perform, and the 
same work to do, and there could have been nosuchdifferenceof 



employment as could alone give occasion to any great difference 
of talents. 
Asit isthisdisposition which formsthat differenceof talents, so 

remarkable among men of different professions, so it is this same 
disposition which renders that difference useful. M any tribes of 
animals, acknowledged to be all of the same species, derive from 
natureamuch moreremarkabledistinction of genius, than what, 
antecedent to custom and education, appearsto take place among 
men. By nature a philosopher isnot in geniusand disposition half 
so different from a street porter, asa mastiff isfrom a grey-hound, 
or a grey-hound from a spaniel, or this last from a shepherd's dog. 
Those different tribes of animals, however, though all of the same 
species are of scarce any use to one another. T he strength of the 
mastiff is not in the least supported either by the swiftness of the 
greyhound, or by the sagacity of the spanid, or by the docility of 
thesh epherd's dog. The effects of thosedifferent geniuses and tal- 
ents, for want of the power or disposition to barter and exchange, 
cannot be brought into a common stock, and do not in the least 
contribute to the better accommodation and conveniency of the 
species. Each animal is still obliged to support and defend itsdf, 
separately and independently, and derives no sort of advantage 
from that variety of talents with which nature has distinguished 
itsfdlows. Among men, on the contrary, the most dissimilar ge- 



20 



Adam Smith 



niuses are of use to one another; the different produces of their 
respective talents, by the general disposition to truck, barter, and 
exchange, being brought, as it were, into a common stock, where 
every man may purchase whatever part of the produce of other 
men's talents he has occasion for, 



CHAPTER III 

THATTHE DIVISION OF LABOUR IS LIM- 
ITED BYTHE EXTENT OFTHE MARKET 

As it is the power of exchanging that gives occasion to the divi- 
sion of labour, so the extent of this division must always be lim- 
ited by the extent of that power, or, in other words, by the extent 
of the market. When the market is very small, no person can have 
any encouragement to dedicate himself entirely to one employ- 
ment, for want of the power to exchange all that surplus part of 
the produce of his own labour, which is over and above his own 
consumption, for such parts of the produce of other men's labour 
as he has occasion for. 

There are some sorts of industry, even of thelowest kind, which 
can be carried on nowhere but in a great town. A porter, for ex- 
ample, can find employment and subsistence in no other place. A 
village is by much too narrow a sphere for him; even an ordinary 
market-town is scarce large enough to afford him constant occu- 
pation. In the lone houses and very small villages which are scat- 
tered about in so desert a country as the highlands of Scotland, 
every farmer must be butcher, baker, and brewer, for hisown fam- 
ily. In such situations we can scarce expect to find even a smith, a 



21 



The Wealth of Nations 



carpenter, or a mason, within less than twenty miles of another of 
thesametrade. The scattered families that live at eight or ten miles 
distance from the nearest of them, must learn to perform them- 
selves a great number of little pieces of work, for which, in more 
populouscountries, they would call in the assistance of thosework- 
men. Country workmen are almost everywhere obliged to apply 
themselves to all the different branches of industry that have so 
much affinity to one another as to be employed about the same 
sort of materials. A country carpenter deals in every sort of work 
that is madeof wood; a country smith in every sort of work that is 
made of iron. The former is not only a carpenter, but a joiner, a 
cabinet-maker, and even acarverin wood, as well asawheel-wright, 
a plough-wright, a cart and waggon-maker. T he employments of 
the latter are still more various It is impossible there should be 
such a trade as even that of a nailer in the remote and inland parts 
of the highlands of Scotland. Such a workman at the rate of a 
thousand nailsa-day, and threehundred workingdaysin theyear, 
will make three hundred thousand nails in theyear. But in such a 
situation it would be impossible to dispose of one thousand, that 
is, of one day's work in theyear. As by means of water-carriage, a 
more extensive market is opened to every sort of industry than 
what land-carriage alone can afford it, so it is upon the sea- coast, 
and along the banks of navigable rivers, that industry of every 



kind naturally begins to subdivide and improve itself, and it is 
frequently not till a long time after that those improvements ex- 
tend themselvestotheinland partsofthecountry A broad-wheeled 
waggon, attended by two men, and drawn by eight horses, in about 
six weeks time, carries and brings back between London and 
Edinburgh near four ton weight of goods. In about thesametime 
aship navigated by sixor eight men, and sailing between theports 
of London and Leith, frequently carries and brings back two hun- 
dred ton weight of goods. Six or eight men, therefore, by the help 
of water-carriage, can carry and bring back, in thesametime, the 
same quantity of goods between London and Edinburgh as fifty 
broad-wheeled waggons, attended by a hundred men, and drawn 
by four hundred horses. Upon two hundred tons of goods, there- 
fore, carried by the cheapest land-carriage from London to 
Edinburgh, theremust be charged the maintenance of a hundred 
men for three weeks, and both the maintenance and what is nearly 
equal to maintenancethe wear and tear of four hundred horses, as 
well as of fifty great waggons. W hereas, upon thesamequantity of 
goods carried by water, there is to be charged only the mainte- 
nance of six or eight men, and the wear and tear of a ship of two 
hundred tons burthen, together with the value of the superior 
risk, or the difference of the insurance between land and water- 
carriage. Were there no other communication between those two 



22 



Adam Smith 



places, therefore, but by land-carriage, as no goodscould be trans- 
ported from the one to the other, except such whose price was 
very considerable in proportion to their weight, they could carry 
on but a small part of that commerce which at present subsists 
between them, and consequently could give but a small part of 
that encouragement which they at present mutually afford to each 
other's industry. Therecould be littleor no commerce of any kind 
between thedistant partsof theworld. What goodscould bear the 
expenseof land-carriage between London and Calcutta?Or if there 
were any so precious as to be able to support this expense, with 
what safety could they be transported through theterritoriesof so 
many barbarous nations? Those two cities, however, at present 
carry on a very considerable commerce with each other, and by 
mutually affording a market, give a good deal of encouragement 
to each other's industry. 

Since such, therefore, are the advantages of water-carriage, it is 
natural that the first improvements of art and industry should be 
made where thisconveniencyopensthewholeworld for a market 
to the produceof every sort of labour, and that they should always 
bemuch later in extending themselvesintotheinland parts of the 
country. T he inland partsof thecountry can for a long time have 
no other market for the greater part of their goods, but the coun- 
try which lies round about them, and separates them from the 



sea- coast, an d th e great n avi gab I e ri vers. T h e exten t of th e m arket, 
therefore, must for a long time be in proportion to the riches and 
populousness of that country, and consequently their improve- 
ment must always be posterior to the improvement of that coun- 
try. In our North American colonies, the plantations have con- 
stantly followed either the sea-coast or the banks of the navigable 
rivers, and have scarce anywhere extended themselves to any con- 
siderable distance from both. 

The nations that, according to the best authenticated history, 
appear to have been first civilized, were those that dwelt round the 
coast of the M editerranean sea. That sea, by far the greatest in let 
thatisknown intheworld, having no tides, nor consequently any 
waves, except such as are caused by the wind only, was, by the 
smoothnessof its surface, aswell asbythemultitudeof itsislands, 
and theproximity of itsneighbouring shores, extremely favourable 
to the infant navigation of theworld; when, from their ignorance 
of thecompass, men were afraid to quit the view of thecoast, and 
from theimperfection of theart of ship-building, to abandon them- 
selves to the boisterous waves of the ocean. To pass beyond the 
pillars of H ercules, that is, to sail out of the straits of Gibraltar, 
was, in the ancient world, long considered as a most wonderful 
and dangerous exploit of navigation. It was late before even the 
Phoenicians and Carthaginians, the most skilful navigators and 



23 



The Wealth of Nations 



ship-buildersof those old times, attempted it; and they were, for a 
longtime, the only nations that did attempt it. 

f all thecountrieson thecoast of the M editerranean sea, Egypt 
seems to have been the first in which either agriculture or manu- 
factures were cultivated and improved to any considerabledegree. 
U pper Egypt extends itself nowhere above a few miles from the 
N ile; and in Lower Egypt, that great river breaks itself into many 
different canals, which, with the assistance of a little art, seem to 
have afforded a communication by water-carriage, not only be- 
tween all the great towns, but between all the considerable vil- 
lages, and even to many farm-houses in the country, nearly in the 
samemannerastheRhineandtheM aesedoin Holland at present. 
The extent and easiness of this inland navigation was probably 
one of the principal causes of the early improvement of Egypt. 

The improvements in agriculture and manufactures seem like- 
wise to have been of very great antiquity in the provinces of Ben- 
gal, in the East Indies, and in some of the eastern provinces of 
China, though the great extent of this antiquity is not authenti- 
cated by any histories of whose authority we, in this part of the 
world, are well assured. In Bengal, the Ganges, and several other 
great rivers, form a great number of navigable canals, in the same 
manner as the N ile does in Egypt. In the eastern provinces of 
China, too, several great riversform, by their different branches, a 



multitude of canals, and, by communicating with one another, af- 
ford an inland navigation much more extensive than that either of 
theN ileortheGanges, or, perhaps, than both of them put together. 
I tisremarkable, that neither theancient Egyptians, nor the Indians, 
nor the Chinese, encouraged foreign commerce, but seem all to 
havederived their great opulence from this inland navigation. 

All theinland parts of Africa, and all that part of Asia which lies 
any considerable way north of the Euxine and Caspian seas, the 
ancient Scythia, the modern Tartary and Siberia, seem, in all ages 
of the world, to have been in the same barbarous and uncivilized 
state in which we find them at present. The sea of Tartary is the 
frozen ocean, which admits of no navigation; and though someof 
the greatest rivers in the world run through that country, they are 
at too great a distance from one another to carry commerce and 
communication through the greater part of it. There are in Africa 
none of those great inlets, such as the Baltic and Adriatic seas in 
Europe, the M editerranean and Euxine seas in both Europe and 
Asia, and the gulfs of Arabia, Persia, India, Bengal, and Siam, in 
Asia, to carry maritime commerce into the interior parts of that 
great continent; and the great rivers of Africa are at too great a 
distance from one another to give occasion to any considerable 
inland navigation. The commerce, besides, which any nation can 
carry on by means of a river which does not break itself into any 



24 



Adam Smith 



great number of branches or canals, and which runs into another 
territory before it reaches the sea, can never be very considerable, 
because it is always in the power of the nations who possess that 
other territory to obstruct the communication between the upper 
country and thesea.Thenavigation of theDanubeisof very little 
use to the different states of Bavaria, Austria, and H ungary, in 
comparison of what it would be, if any of them possessed the 
whole of its course, till it falls into the Black sea. 



CHAPTER IV 

OF THE ORIGIN AN D USE OF M ON EY 

When the division of labour has been once thoroughly estab- 
lished, it is but a very small part of a man's wants which the pro- 
duceofhisown labour can supply. H esuppliesthefar greater part 
of them by exchanging that surplus part of the produceof his own 
labour, which is over and above his own consumption, for such 
parts of the produce of other men's labour as he has occasion for. 
Every man thus lives by exchanging, or becomes, in some mea- 
sure, a merchant, and the society itself grows to be what is prop- 
erly a commercial society. 

But when the division of labour first began to take place, this 
power of exchangi ng must frequently have been very much clogged 
and embarrassed in its operations. One man, we shall suppose, 
has mo re of a certain commodity than hehimself has occasion for, 
while another has less. The former, consequently, would be glad 
to dispose of; and the latter to purchase, a part of this superfluity. 
But if this latter should chance to have nothing that the former 
stands in need of, no exchange can be made between them. The 
butcher has more meat in hisshop than hehimself can consume, 
and the brewer and the baker would each of them be willing to 



25 



The Wealth of Nations 



purchase a part of it. But they have nothing to offer in exchange, 
except thedifferent productions of their respective trades, and the 
butcher is already provided with all the bread and beer which he 
hasimmediateoccasion for. N o exchange can, in thiscase, bemade 
between them. H e cannot be their merchant, nor they his cus- 
tomers; and they are all of them thus mutually less serviceable to 
one another. In order to avoid the inconveniency of such situa- 
tions, every prudent man in every period of society, after thefirst 
establishment of the division of labour, must naturally have en- 
deavoured to manage his affairs in such amanner, as to have at all 
times by him, besides the peculiar produce of his own industry, a 
certain quantity of someonecommodity or other, such asheimag- 
ined few people would be likely to refuse in exchange for the pro- 
duce of their industry. M any different commodities, it is prob- 
able, were successively both thought of and employed for this 
purpose. I n the rude ages of society, cattle are said to have been 
the common instrument of commerce; and, though they must 
have been a most inconvenient one, yet, in old times, we find 
things were frequently valued according to the number of cattle 
which had been given in exchange for them. The armour of 
Diomede, says Homer, cost only nine oxen; but that of Glaucus 
cost a hundred oxen. Saltissaidtobethecommon instrument of 
commerce and exchanges in Abyssinia; a species of shells in some 



parts of the coast of India; dried cod at N ewfoundland; tobacco in 
Virginia; sugar in someof ourWest India colonies; hides or dressed 
leather in someother countries; and thereisatthisday a villageln 
Scotland, where it is not uncommon, I am told, for a workman to 
carry nails instead of money to the baker's shop or the ale-house. 
I n all countries, however, men seem at last to have been deter- 
mined by irresistible reasons to give the preference, for this em- 
ployment, to metals above every other commodity. M etals can 
not only be kept with as little loss as any other commodity, scarce 
any thing being less perishable than they are, but they can like- 
wise, without any loss, bedivided into any number of parts, as by 
fusion those parts can easily be re-united again; a quality which 
no other equally durable commodities possess, and which, more 
than any other quality, renders them fit to be the instruments of 
commerce and circulation. The man who wanted to buy salt, for 
example, and had nothing but cattle to give in exchange for it, 
must have been obliged to buy salt to the value of a whole ox, or a 
whole sheep, at a time. H e could seldom buy less than this, be- 
cause what he was to give for it could seldom bedivided without 
loss; and if he had a mind to buy more, he must, for the same 
reasons, have been obliged to buy double or triple the quantity, 
the value, to wit, of two or threeoxen, or of two or three sheep. I f, 
on the contrary, instead of sheep or oxen, he had metals to give in 



26 



Adam Smith 



exchange for it, he could easily proportion the quantity of the 
metal to the precise quantity of the commodity which he had 
immediate occasion for. 

D ifferent metals have been made use of by different nationsfor 
this purpose. Iron was the common instrument of commerce 
among the ancient Spartans, copper among the ancient Romans, 
and gold and silver among all rich and commercial nations. 

Those metals seem originally to have been made use of for this 
purpose in rude bars, without any stamp or coinage. Thus we are 
told by Pliny (Plin. Hist Nat. lib. 33, cap. 3), upon theauthority 
of Timaeus, an ancient historian, that, till the time of Servius 
Tullius, the Romans had no coined money, but made use of 
unstamped bars of copper, to purchase whatever they had occa- 
sion for. These rude bars, therefore, performed at this time the 
function of money. 

Theuseof metalsin this rude state was attended with two very 
considerable inconveniences; first, with the trouble of weighing, 
and secondly, with that of assaying them. I n the precious metals, 
where a small difference in the quantity makes a great difference 
in thevalue, even thebusinessof weighing, with proper exactness, 
requires at I east very accurate weights and scales. The weighing of 
gold, in particular, is an operation of some nicety In the coarser 
metals, indeed, wherea small error would beof little consequence, 



less accuracy would, no doubt, be necessary. Yet weshould find it 
excessively troublesome if every time a poor man had occasion 
either to buy or sell a farthing's worth of goods, he was obliged to 
weigh the farthing. The operation of assaying is still more diffi- 
cult, still more tedious; and, unless a part of the metal is fairly 
melted in the crucible, with proper dissolvents, any conclusion 
that can bedrawn from it is extremely uncertain. Before the insti- 
tution of coined money, however, unless they went through this 
tedious and difficult operation, people must always have been li- 
abletothegrossest frauds and impositions; and instead of a pound 
weight of pure silver, or pure copper, might receive, in exchange 
for their goods, an adulterated composition of the coarsest and 
cheapest materials, which had, however, in their outward appear- 
ance, been madetoresemblethose metals. To prevent such abuses, 
to facilitate exchanges, and thereby to encourage all sorts of in- 
dustry and commerce, it has been found necessary, in all countries 
that have made any considerable advances towards improvement, 
to affix a public stamp upon certain quantities of such particular 
metals, aswerein those countries commonly made use of to pur- 
chase goods. H encetheorigin of coined money, and of those pub- 
lic offices called mints; institutionsexactlyofthesamenaturewith 
those of the aulnagers and stamp-masters of woollen and linen 
cloth. All of them are equally meant to ascertain, by means of a 



27 



The Wealth of Nations 



public stamp, the quantity and uniform goodness of those differ- 
ent commodities when brought to market. 

The first public stamps of this kind that were affixed to the 
current metals, seem in many cases to have been intended to as- 
certain, what it was both most difficult and most important to 
ascertain, the goodness or fineness of the metal, and to have re- 
sembled the sterling mark which is at present affixed to plate and 
bars of silver, or the Spanish mark which is sometimes affixed to 
ingots of gold, and which, being struck only upon onesideofthe 
piece, and not covering the wholesurface, ascertains the fineness, 
but not the weight of the metal. Abraham weighs to Ephron the 
four hundred shekels of silver which he had agreed to pay for the 
field of M achpel ah. T hey are said, however, to bethecurrent money 
of the merchant, and yet are received by weight, and not by tale, in 
the same manner as ingots of gold and bars of silver are at present. 
T he revenues of the ancient Saxon kingsof England are said to have 
been paid, not in money, but in kind, that is, in victualsand provi- 
sions of all sorts. William theConqueror introduced thecustom of 
paying them in money. This money, however, was for a long time, 
received at the exchequer, by weight, and not by tale. 

Theinconveniency and difficulty of weighing those metals with 
exactness, gave occasion to the institution of coins, of which the 
stamp, covering entirely both sides of the piece, and sometimes 



theedges too, was supposed to ascertain not only thefinen ess, but 
the weight of the metal. Such coins, therefore, were received by 
tale, as at present, without thetroubleof weighing. 

The denominations of those coins seem originally to have ex- 
pressed the weight or quantity of metal contained in them. In the 
timeof ServiusTullius, who first coined money at Rome, the Ro- 
man as or pondo contained a Roman pound of good copper. It 
wasdivided, inthesamemannerasourTroyespound, into twelve 
ounces, each of which contained a real ounceof good copper. The 
English pound sterling, in thetimeof Edward I . contained a pound, 
Tower weight, of silver of a known fineness. The Tower pound 
seems to have been something more than the Roman pound, and 
something less than theTroyes pound. This last was not intro- 
duced into the mint of England till the 18th of Henry the VI II. 
TheFrenchlivrecontained, in thetimeof Charlemagne, apound, 
Troyes weight, of silver of a known fineness. The fair of Troyes in 
Champaign was at that time frequented by all the nations of Eu- 
rope, and the weights and measures of so famous a market were 
generally known and esteemed. TheScotsmoney pound contained, 
from the time of Alexander the First to that of Robert Bruce, a 
pound of silver of the same weight and fineness with the English 
pound sterling. English, French, and Scots pennies, too, contained 
all of them originally a real penny-weight of silver, the twentieth 



28 



Adam Smith 



part of an ounce, and the two hundred-and-fortieth part of a 
pound. The shilling, too, seems originally to have been the de- 
nomination of a weight. "W hen wheat is at twelve shillings the 
quarter," says an ancient statute of H enry III. "then wastel bread 
of a farthing shall weigh eleven shillings and fourpence". The pro- 
portion, however, between the shilling, and either the penny on 
the one hand, or the pound on the other, seems not to have been 
so constant and uniform as that between thepenny and thepound. 
During the first race of the kings of France, the French sou or 
shilling appears upon different occasions to have contained five, 
twelve, twenty, and forty pennies. Among the ancient Saxons, a 
shilling appears at onetime to have contained only five pennies, 
and it is not improbable that it may have been as variable among 
them as among their neighbours, the ancient Franks. From the 
time of Charlemagne among the French, and from that of Will- 
iam the Conqueror among the English, the proportion between 
the pound, the shilling, and the penny, seems to have been uni- 
formly the same as at present, though the value of each has been 
very different; for in every country of the world, I believe, the 
avarice and injustice of princes and sovereign states, abusing the 
confidence of their subjects, have by degrees diminished the real 
quantity of metal, which had been originally contained in their 
coins. The Roman as, in the latter ages of the republic, was re- 



duced to the twenty-fourth part of itsoriginal value, and, instead 
of weighing a pound, came to weigh only half an ounceTheEn- 
glish pound and penny contain at present about a third only; the 
Scots pound and penny about a thirty-sixth; and theFrench pound 
and penny about a sixty-sixth part of their original value. Bymeans 
of those operations, the princes and sovereign states which per- 
formed them were enabled, in appearance, to pay their debts and 
fulfil theirengagem en tswith a smaller quantity of silver than would 
otherwise have been requisite. It was indeed in appearance only; 
for their creditors were really defrauded of a part of what was due 
to them. All other debtorsinthestatewere allowed thesameprivi- 
lege, and might pay with the same nominal sum of the new and 
debased coin whatever they had borrowed in theold. Such opera- 
tions, therefore, have always proved favourable to the debtor, and 
ruinous to the creditor, and have sometimes produced a greater 
and more universal revolution in the fortunes of private persons, 
than could have been occasioned by a very great public calamity. 

It is in this manner that money has become, in all civilized na- 
tions, the universal instrument of commerce, by the intervention 
of which goods of all kinds are bought and sold, or exchanged for 
one another. 

What are therules which men naturally observe, in exchanging 
them either for money, or for one another, I shall now proceed to 



29 



The Wealth of Nations 



examine. These rules determine what may be called the relative or 
exchangeable value of goods. 

Theword VALUE, it is to be observed, has two different mean- 
ings, and sometimes expresses the utility of some particular ob- 
ject, and sometimes the power of purchasing other goods which 
thepossession of that object conveys. Theonemaybecalled 'value 
in use;' the other, 'valuein exchange.' The things which have the 
greatest value in usehave frequently littleor no valuein exchange; 
and, on the contrary, those which have the greatest value in ex- 
change have frequently little or no value in use. N othing is more 
useful than water; but it will purchase scarceany thing; scarce any 
thing can behad in exchange for it. A diamond, on thecontrary, 
has scarce any value in use; but a very great quantity of other 
goods may frequently be had in exchange for it. 

In order to investigate theprinciples which regulate the exchange 
able value of commodities, I shall endeavour to shew, 

First, what is the real measure of this exchangeable value; or 
wherein consists the real price of all commodities. 

Secondly, what are the different parts of which this real price is 
composed or made up. 

And, lastly, what are the different circumstances which some- 
times raise some or all of these different parts of price above, and 
sometimes sink them below, their natural or ordinary rate; or, what 



are the causes which sometimes hinder the market price, that is, 
theactual price of commodities, from coinciding exactly with what 
may be called their natural price. 

I shall endeavour to explain, as fully and distinctly as I can, 
those three subjects in the three following chapters, for which I 
must very earnestly entreat both thepatienceand attention of the 
reader: his patience, in order to examine a detail which may, per- 
haps, in some places, appear unnecessarily tedious; and hisatten- 
tion, in order to understand what may perhaps, after the fullest 
explication which I am capable of giving it, appear still in some 
degree obscure. I am always willing to run some hazard of being 
tedious, in order to be sure that I am perspicuous; and, after tak- 
ing the utmost pains that I can to be perspicuous, some obscurity 
may still appear to remain upon a subject, in its own nature ex- 
tremely abstracted. 



30 



Adam Smith 



CHAPTERV 

OF THE REAL AND NOM INAL PRICE OF 
COMMODITIES, OR OF THEIR PRICE IN 
LABOUR, ANDTHEIR PRICE IN MONEY 

Everyman is rich or poor according to the degree in which he 
can afford to enjoy thenecessaries, conveniences, and amusements 
of human life. But after thedivision of labour hasonce thoroughly 
taken place, it is but a very small part of these with which a man's 
own labour can supply him. Thefar greater part of them he must 
derive from the labour of other people, and he must be rich or 
poor according to the quantity of that labour which he can com- 
mand, or which hecan afford to purchase. The valueof any com- 
modity, therefore, to the person who possesses it, and who means 
not to use or consume it himself, but to exchange it for other 
commodities, is equal to the quantity of labour which it enables 
him to purchase or command. Labour therefore, isthereal mea- 
sure of the exchangeable value of all commodities. 

Thereal price of every thing, what every thing really costs to the 
man who wants to acquire it, is the toil and trouble of acquiring 
it. What every thing is really worth to the man who has acquired 
it and who wants to dispose of it, or exchange it for something 



else, isthetoil and trouble which it can save to himself, and which 
it can impose upon other people. W hat is bought with money, or 
with goods, is purchased by labour, as much as what we acquire 
by the toil of our own body. That money, or those goods, indeed, 
save us this toil. They contain the value of a certain quantity of 
labour, which we exchange for what is supposed at the time to 
contain the value of an equal quantity. Labour was thefirst price, 
the original purchase money that was paid for all things. It was 
not by gold or by silver, but by labour, that all the wealth of the 
world was originally purchased; and its value, to those who pos- 
sess it, and who want to exchange it for some new productions, is 
precisely equal to thequantity of labour which it can enablethem 
to purchase or command. 

Wealth, as M rHobbes says, is power. But the person who either 
acquires, or succeeds to a great fortune, does not necessarily ac- 
quire or succeed to any political power, either civil or military. H is 
fortune may, perhaps, afford him the means of acquiring both; 
but the mere possession of that fortune does not necessarily con- 
vey to him either. The power which that possession immediately 
and directly conveys to him, isthe power of purchasing a certain 
command over all the labour, or over all the produce of labour 
which isthen in themarket. H isfortuneisgreateror less, precisely 
in proportion to theextent of this power, or to thequantity either 



31 



The Wealth of Nations 



of other men's labour, or, whatisthesamething, of theproduceof 
other men's labour, which it en ableshim to purchase or command. 
The exchangeable value of every thing must always be precisely 
equal to the extent of this power which it conveys to its owner. 

But though labour be the real measure of theexchangeablevalue 
of all commodities, it is not that by which their value is com- 
monly estimated. It is often difficult to ascertain the proportion 
between two different quantities of labour. Thetime spent in two 
different sorts of work will not always alone determine this pro- 
portion. The different degrees of hardship endured, and of inge- 
nuity exercised, must likewise be taken into account. There may 
be more labour in an hour's hard work, than in two hours easy 
business; or in an hour's application to a trade which it cost ten 
years labour to learn, than in a month's industry, at an ordinary 
and obvious employment. But it is not easy to find any accurate 
measure either of hardship or ingenuity. In exchanging, indeed, 
the different productions of different sorts of labour for one an- 
other, some allowance iscommonlymadefor both. Itisadjusted, 
however, not by any accurate measure, but by the higgling and 
bargaining of the market, according to that sort of rough equality 
which, though not exact, is sufficient for carrying on the business 
of common life. 

Every commodity, besides, Is more frequently exchanged for, 



and thereby compared with, other commodities, than with labour. 
1 1 is more natural, therefore, to estimate its exchangeable value by 
the quantity of some other commodity, than by that of the labour 
which it can produce. The greater part of people, too, understand 
better what is meant by a quantity of a particular commodity, 
than by a quantity of labour. The one is a plain palpable object; 
the other an abstract notion, which though it can be made suffi- 
ciently intelligible, is not altogether so natural and obvious. 

But when barter ceases, and money has become the common 
instrument of commerce, every particular commodity is more fre- 
quently exchanged for money than for any other commodity. T he 
butcher seldom carries his beef or his mutton to the baker or the 
brewer, in order to exchange them for bread or for beer; but he 
carries them to the market, where he exchanges them for money, 
and afterwards exchanges that money for bread and for beer. T he 
quantity of money which hegetsfor them regulates, too, thequan- 
tityof bread and beer which hecan afterwards purchase. Itismore 
natural and obvious to him, therefore, to estimate their value by 
thequantityof money, the commodity for which he immediately 
exchanges them, than by that of bread and beer, the commodities 
for which he can exchange them only by the intervention of an- 
other commodity; and rather to say that hisbutcher'smeat isworth 
three-pence or fourpence a-pound, than that it is worth three or 



32 



Adam Smith 



four poundsof bread, or three or four quarts of small beer. H ence 
it comes to pass, that the exchangeable value of every commodity 
is more frequently estimated by the quantity of money, than by 
the quantity either of labour or of any other commodity which 
can be had in exchange for it. 

Gold and silver, however, like every other commodity, vary in 
their value; are sometimes cheaper and sometimes dearer, some- 
times of easier and sometimes of more difficult purchase. The 
quantity of labour which any particular quantity of them can pur- 
chase or command, or the quantity of other goods which it will 
exchange for, depends always upon the fertility or barrenness of 
the mines which happen to be known about the time when such 
exchanges are made. The discovery of the abundant mines of 
America, reduced, in the sixteenth century, the value of gold and 
silver in Europe to about a third of what it had been before. As it 
cost less labour to bring those metals from the mine to the mar- 
ket, so, when they were brought thither, they could purchase or 
command less labour; and this revolution in their value, though 
perhaps thegreatest, isby no meanstheonlyoneof which history 
gives someaccount. But asameasureof quantity, such asthenatural 
foot, fathom, or handful, which is continually varying in its own 
quantity, can never bean accurate measure of the quantity of other 
things; so a commodity which is itself continually varying in its 



own value, can never bean accurate measure of the valueof other 
commodities. Equal quantities of labour, at all times and places, 
may be said to be of equal value to the labourer. In his ordinary 
state of health, strength, and spirits; in the ordinary degree of his 
skill and dexterity, he must always lay down the same portion of 
his ease, his liberty, and his happiness. The price which he pays 
must always be the same, whatever may be the quantity of goods 
which he receives in return for it. Of these, indeed, it may some- 
times purchase a greater and sometimesa smaller quantity; but it 
istheir value which varies, not that of the labour which purchases 
them. At all times and places, that is dear which it is difficult to 
comeat, or which itcostsmuch labour to acquire; and that cheap 
which is to be had easily, or with very little labour. Labour alone, 
therefore, never varying in its own value, isalonetheultimateand 
real standard by which the value of all commodities can at all 
times and places be estimated and compared. It istheir real price; 
money istheir nominal price only. 

But though equal quantities of labour are always of equal value 
to the labourer, yet to the person who employs him they appear 
sometimes to be of greater, and sometimes of smaller value. H e 
purchases them sometimes with a greater, and sometimes with a 
smaller quantity of goods, and to him the price of labour seemsto 
vary likethat of all other things. It appears to him dear in theone 



33 



The Wealth of Nations 



case, and cheap in the other. In reality, however, it is the goods 
which are cheap in the one case, and dear in the other. 

In this popular sense, therefore, labour, like commodities, may 
be said to have a real and a nominal price. Its real price may be 
said to consist in thequantity of the necessaries and conveniences 
of life which are given for it; its nominal price, in the quantity of 
money. The labourer is rich or poor, is well or ill rewarded, in 
proportion to the real, not to the nominal price of his labour. 

Thedistinction between the real andthenominal price of com- 
modities and labour is not a matter of mere speculation, but may 
sometimes be of considerable use in practice. The same real price 
is always of the same value; but on account of the variationsin the 
value of gold and silver, the same nominal price is sometimes of 
very different values. W hen a landed estate, therefore, issold with 
a reservation of a perpetual rent, if it is intended that this rent 
should always be of the same value, it is of importance to the 
family in whose favour it is reserved, that it should not consist in 
a particular sum of money. Itsvaluewould inthiscasebeliableto 
variations of two different kinds: first, to those which arise from 
the different quantities of gold and silver which are contained at 
different times in coin of the same denomination; and, secondly, 
to those which arise from the different values of equal quantities 
of gold and silver at different times. 



P ri n ces an d soverei gn states h ave f req u en tl y f an ci ed th at th ey h ad 
a temporary interest to diminish the quantity of pure metal con- 
tained in their coins; but they seldom have fancied that they had 
any to augment it. T he quantity of metal contained in the coins, I 
believe of all nations, has accordingly been almost continually di- 
minishing, and hardly ever augmenting. Such variations, therefore, 
tend almost always to diminish thevalueof a money rent. 

The discovery of the mines of America diminished the value of 
gold and silver in Europe. Thisdiminution, it is commonly sup- 
posed, though I apprehend without any certain proof, is still go- 
ing on gradually, and is likely to continue to do so for a longtime. 
Upon this supposition, therefore, such variations are more likely 
to diminish than to augment the value of a money rent, even 
though it should be stipulated to be paid, not in such a quantity 
of coined money of such a denomination (in so many pounds 
sterling, for example), but in so many ounces, either of pure silver, 
or of silver of a certain standard. 

Therents which have been reserved in corn, havepreserved their 
valuemuch better than those which have been reserved in money, 
even where thedenomination of thecoin hasnotbeen altered. By 
the 18th of Elizabeth, it wasenacted, that athird of therent of all 
college leases should be reserved in corn, to be paid either in kind, 
or according to the current prices at the nearest public market. 



34 



Adam Smith 



The money arising from this corn rent, though originally but a 
third of the whole, is, in the present times, according to Dr. 
Blackstone, commonly near double of what arises from the other 
two-thirds. The old money rents of colleges must, according to 
this account, have sunk almost to a fourth part of their ancient 
value, orareworth little more than afourth part of thecorn which 
they were formerly worth. But since the reign of Philip and Mary, 
the denomination of the English coin has undergone little or no 
alteration, and the same number of pounds, shillings, and pence, 
have contained very nearly the same quantity of pure silver. This 
degradation, therefore, in thevalue of the money rents of colleges, 
has arisen altogether from the degradation in the price of silver. 

When the degradation in the value of silver is combined with 
the diminution of the quantity of it contained in the coin of the 
same denomination, the loss is frequently still greater. In Scot- 
land, where the denomination of the coin has undergone much 
greater alterationsthan iteverdid in England, and in France, where 
it has undergone still greater than it ever did in Scotland, some 
ancient rents, originally of considerable value, have, in this man- 
ner, been reduced almost to nothing. 

Equal quantities of labour will, at distant times, be purchased 
more nearly with equal quantities of corn, the subsistence of the 
labourer, than with equal quantities of gold and silver, or, per- 



haps, of any other commodity. Equal quantities of corn, there- 
fore, will, at distant times, be more nearly of the same real value, 
or enable the possessor to purchase or command more nearly the 
same quantity of the labour of other people. They will do this, I 
say, more nearly than equal quantities of almost any other com- 
modity; for even equal quantities of corn will not do it exactly. 
The subsistence of the labourer, or the real price of labour, as I 
shall endeavour to shew hereafter, is very different upon different 
occasions; moreliberal in a society advancing to opulence, than in 
onethat is standing still, and in onethat is standing still, than in 
one that is going backwards. Every other commodity, however, 
will, at any particular time, purchase a greater or smaller quantity 
of labour, in proportion to the quantity of subsistence which it 
can purchase at that time. A rent, therefore, reserved in corn, is 
liable only to the variations in the quantity of labour which a 
certain quantity of corn can purchase. But a rent reserved in any 
other commodity is liable, not only to the variations in thequan- 
tity of labour which any particular quantity of corn can purchase, 
but to the variations in the quantity of corn which can be pur- 
chased by any particular quantity of that commodity. 

Though the real value of acorn rent, itisto be observed, how- 
ever, varies much less from century to century than that of a money 
rent, it varies much more from year to year. T he money price of 



35 



The Wealth of Nations 



labour, as I shall endeavour to shew hereafter, does not fluctuate 
from year to year with the money price of corn, but seems to be 
everywhere accommodated, not to the temporary or occasional, 
but to the average or ordinary price of that necessary of life. T he 
average or ordinary price of corn, again is regulated, as I shall 
likewise endeavour to shew hereafter, by the valueof silver, by the 
richness or barrennessofthemines which supply the market with 
that metal, or by the quantity of labour which must be employed, 
and consequently of corn which must be consumed, in order to 
bring any particular quantity of silver from the mineto the mar- 
ket. Butthevalueof silver, though it sometimes varies greatly from 
century to century, seldom varies much from year to year, but 
frequently continues the same, or very nearly the same, for half a 
century or a century together. The ordinary or average money 
price of corn, therefore, may, during so long a period, continue 
thesame, or very nearly thesame, too, and along with itthemoney 
price of labour, provided, at least, the society continues, in other 
respects, in the same, or nearly in the same, condition. In the 
mean time, the temporary and occasional price of corn may fre- 
quently be double one year of what it had been the year before, or 
fluctuate, for example, from five-and-twenty to fifty shillings the 
quarter. But when corn isat thelatter price, not onlythenominal, 
butthereal valueof acorn rent, will bedoubleof whatitiswhen 



at theformer, or will command doublethequantity either of labour, 
or of the greater part of other commodities; the money price of 
labour, and along with it that of most other things, continuing 
the same during all these fluctuations. 

Labour, therefore, it appears evidently, istheonly universal, as 
well as the only accurate, measure of value, or the only standard 
by which we can compare the values of different commodities, at 
all times, and at all places. We cannot estimate, it is allowed, the 
real value of different commodities from century to century by 
the quantities of silver which were given for them. We cannot 
estimate it from year to year by the quantities of corn. By the 
quantities of labour, we can, with the greatest accuracy, estimate 
it, both from century to century, and from year to year. From 
century to century, corn is a better measure than silver, because, 
from century to century, equal quantities of corn will command 
the same quantity of labour more nearly than equal quantities of 
silver. From year to year, on thecontrary, silver isa better measure 
than corn, because equal quantities of it will more nearly com- 
mand the same quantity of labour. 

But though, in establishing perpetual rents, or even in letting 
very long leases, it may be of use to distinguish between real and 
nominal price; it is of none in buying and selling, the more com- 
mon and ordinary transactions of human life. 



36 



Adam Smith 



Atthesametimeand place, thereal and thenominal priceof all 
commodities are exactly in proportion to one another. The more 
or less money you get for any commodity in the London market, 
for example, the more or less labour it will at that time and place 
enable you to purchase or command. Atthesametimeand place, 
therefore, money is the exact measure of the real exchangeable 
value of all commodities. It is so, however, atthesametimeand 
place only. 

T hough at distant places there isno regular proportion between 
the real and the money price of commodities, yet the merchant 
who carries goods from the one to the other, has nothing to con- 
sider but the money price, or the difference between the quantity 
of silver for which he buys them, and that for which he is likely to 
sell them. Half an ounce of silver at Canton in China may com- 
mand a greater quantity both of labour and of the necessaries and 
conveniencies of life, than an ounce at London. A commodity, 
therefore, which sells for half an ounce of silver at Canton, may 
there be really dearer, of more real importance to the man who 
possesses it there, than a commodity which sells for an ounce at 
London is to the man who possesses it at London. If a London 
merchant, however, can buy at C anton, for half an ounce of silver, 
a commodity which hecan afterwards sell at London for an ounce, 
he gains a hundred percent, by the bargain, just as much as if an 



ounceof silver was at London exactly of thesamevalueasatCan- 
ton. It is of no importance to him that half an ounceof silver at 
Canton would have given him the command of more labour, and 
of a greater quantity of the necessaries and conveniencies of life 
than an ouncecan do at London. An ounce at London will always 
give him the command of double the quantity of all these, which 
half an ounce could have done there, and this is precisely what he 
wants. 

As it is the nominal or money priceof goods, therefore, which 
finally determines the prudence or imprudence of all purchases 
and sales, and thereby regulates almost thewholebusinessof com- 
mon life in which price is concerned, we cannot wonder that it 
should have been so much more attended to than the real price. 

In such a work as this, however, it may sometimes be of use to 
compare the different real values of a particular commodity at 
different times and places, or the different degrees of power over 
thelabourof other people which it may, upon different occasions, 
have given to those who possessed it. We must in this case com- 
pare, not so much the different quantities of silver for which it 
was commonly sold, as the different quantities or labour which 
those different quantities of silver could have purchased. But the 
current prices of labour, at distant times and places, can scarce 
ever be known with any degreeof exactness. Those of corn, though 



37 



The Wealth of Nations 



they havein few places been regularly recorded, arein general better 
known, and have been more frequently taken notice of by histori- 
ans and other writers. We must generally, therefore, content our- 
selves with them, not as beingalways exactlyin thesameproportion 
as the current prices of labour, but as being the nearest approxima- 
tion which can commonly behad to that proportion. I shall hereaf- 
ter have occasion to makeseveral comparisonsof this kind. 

In the progress of industry, commercial nations have found it 
convenient to coin several different metals into money; gold for 
larger payments, silver for purchases of moderate value, and cop- 
per, or some other coarse metal, for thoseof still smaller consider- 
ation, They have always, however, considered one of those metals 
as more peculiarly the measure of value than any of the other two; 
and thispref erenceseems generally to have been given to themetal 
which they happen first to makeuseof as theinstrument of com- 
merce. Having once begun to use it as their standard, which they 
must have done when they had no other money, they have gener- 
ally continued to do so even when the necessity was not thesame. 

T he Romansaresaid to have had nothing but copper money till 
within five years before the first Punic war (Pliny, lib. xxxiii. cap. 
3), when they first began to coin silver. Copper, therefore, appears 
to havecontinued always themeasure of valuein that republic. At 
Rome all accounts appear to have been kept, and the value of all 



estates to have been computed, either in asses or in sestertii. The 
as was always the denomination of a copper coin. The word 
sestertius signifies two asses and a half. T hough the sestertius, there- 
fore, was originally a silver coin, its value was estimated in copper. 
At Rome, one who owed a great deal of money was said to have a 
great deal of other people's copper. 

T he northern nations who established themselves upon the ru- 
insoftheRoman empire, seem to have had silver money from the 
first beginning of their settlements, and not to have known either 
gold or copper coins for several ages thereafter. T here were silver 
coins in England in the time of the Saxons; but there was little 
gold coined till thetime of Edward III nor any copper till that of 
James I. of Great Britain. In England, therefore, and for thesame 
reason, I believe, in all other modern nations of Europe, all ac- 
counts are kept, and the value of all goods and of all estates is 
generally computed, in silver: and when we mean to express the 
amount of a person's fortune, we seldom mention the number of 
guineas, but the number of pounds sterling which we suppose 
would be given for it. 

riginally, in all countries, I believe, a legal tender of payment 
could bemadeonly in thecoin of that metal which was peculiarly 
considered as the standard or measure of value. In England, gold 
was not considered as a legal tender for a long time after it was 



38 



Adam Smith 



coined into money. The proportion between the values of gold 
and silver money was not fixed by any public law or proclama- 
tion, but was left to be settled by the market. I f a debtor offered 
payment in gold, the creditor might either reject such payment 
altogether, or accept of it at such a valuation of the gold as he and 
his debtor could agreeupon. Copper is not at present a legal ten- 
der, except in the change of the smaller silver coins. 

In this state of things, the distinction between the metal which 
was thestandard, and that which wasnotthestandard, was some- 
thing more than a nominal distinction. 

In process of time, and as people became gradually more famil- 
iar with the use of the different metals in coin, and consequently 
better acquainted with the proportion between their respective 
values, it has, in most countries, I believe, been found convenient 
to ascertain this proportion, and to declare by a public law, that a 
guinea, for example, of such a weight and fineness, should ex- 
change for one-and-twenty shillings, or be a legal tender for a 
debt of that amount. In this state of things, and during the con- 
tinuanceof any oneregulated proportion of thiskind, thedistinc- 
tion between the metal, which is the standard, and that which is 
not the standard, becomes little more than a nominal distinction. 

In consequence of any change, however, in this regulated pro- 
portion, this distinction becomes, or at least seems to become, 



something more than nominal again. If the regulated value of a 
guinea, for example, was either reduced to twenty, or raised to 
two-and-twenty shillings, all accounts being kept, and almost all 
obligations for debt being expressed, in silver money, the greater 
part of payments could in either case bemadewith thesamequan- 
tity of silver money as before; but would require very different 
quantities of gold money; a greater in the one case, and a smaller 
in theother. Silver would appear to bemoreinvariablein its value 
than gold. Silver would appear to measure the value of gold, and 
gold would not appear to measure the valueofsilver.Thevalueof 
gold would seem to depend upon the quantity of silver which it 
would exchange for, and the value of silver would not seem to 
depend upon the quantity of gold which it would exchange for. 
This difference, however, would be altogether owing to the cus- 
tom of keeping accounts, and of expressing theamount of all great 
and small sums rather in silver than in gold money. ne of M r 
Drummond's notes for five-and-twenty or fifty guineas would, 
after an alteration of thiskind, bestill payablewith five-and-twenty 
or fifty guineas, in thesamemanner as before. It would, after such 
an alteration, be payablewith the same quantity of gold as before, 
but with very different quantities of silver. I n the payment of such 
a note, gold would appear to bemoreinvariablein itsvaluethan 
silver. Gold would appear to measure thevalueof silver, and silver 



39 



The Wealth of Nations 



would not appear to measure the value of gold. If the custom of 
keeping accounts, and of expressing promissory-notes and other 
obligations for money, in this manner should ever become gen- 
eral, gold, and not silver, would be considered asthemetal which 
was peculiarly the standard or measure of value. 

In reality, duringthecontinuanceof any one regulated propor- 
tion between the respective values of the different metals in coin, 
the value of the most precious metal regulates the value of the 
whole coin. Twelve copper pence contain half a pound avoirdu- 
poisof copper, of not the best quality, which, before it iscoined, is 
seldom worth seven-pencein silver. But as, bytheregulation, twelve 
such pence are ordered to exchange for a shilling, they are in the 
market considered as worth a shilling, and a shilling can at any 
time be had for them. Even before thelate reformation ofthegold 
coin of Great Britain, the gold, that part of it at least which circu- 
lated in London and its neighbourhood, was in general less de- 
graded below its standard weight than the greater part of the sil- 
ver. ne- and -twenty worn and defaced shillings, however, were 
considered asequivalenttoaguinea, which, perhaps, indeed, was 
worn and defaced too, but seldom so much so. The late regula- 
tions have brought the gold coin as near, perhaps, to its standard 
weight asit is possibleto bring thecurrent coin of any nation; and 
the order to receive no gold at the public offices but by weight, is 



likely to preserve it so, as long as that order is enforced. The silver 
coin still continuesin thesameworn and degraded state as before 
the reformation of the cold coin. In the market, however, one- 
and-twenty shillings of this degraded silver coin are still consid- 
ered as worth a guinea of this excellent gold coin. 

The reformation ofthegold coin has evidently raised the value 
of the silver coin which can be exchanged for it. 

I n the English mint, a pound weight of gold iscoined into forty- 
four guineas and ahalf, which at one-and-twentyshillingstheguinea, 
isequal to forty-six poundsfourteen shillings and sixpence. An ounce 
of such gold coin, therefore, is worth £ 3:17:10V2 in silver. In En- 
gland, no duty or seignorage is paid upon the coinage, and hewho 
carries a pound weight or an ounce weight of standard gold bullion 
tothemint, getsbackapound weight or an ounceweightof gold in 
coin, without any deduction. Three poundsseventeen shillings and 
tenpence halfpenny an ounce, therefore, issaid to bethemint price 
of gold in England, or the quantity of gold coin which the mint 
gives in return for standard gold bullion. 

Before the reformation of the gold coin, the price of standard 
gold bullion in the market had, for many years, been upwards of 
£3:18s. sometimes £ 3:19s, and very frequently £4 an ounce; that 
sum, it is probable, in the worn and degraded gold coin, seldom 
containing more than an ounce of standard gold. Sincetherefor- 



40 



Adam Smith 



mation of thegold coin, themarket priceof standard gold bullion 
seldom exceeds £ 3:17:7 an ounce. Before the reformation of the 
gold coin, the market price was always more or less above the 
mint price. Sincethat reformation, themarket pricehas been con- 
stantly below the mint price. But that market price is the same 
whether it is paid in gold or in silver coin. The late reformation of 
thegold coin, therefore, has raised not only thevalue of thegold 
coin, but likewise that of the silver coin in proportion to gold 
bullion, and probably, too, in proportion to all other commodi- 
ties; though the price of the greater part of other commodities 
being influenced by so many other causes, therisein thevalueof 
either gold or silver coin in proportion to them may not be so 
distinct and sensible. 

In the English mint, a pound weight of standard silver bullion 
iscoined into sixty-two shillings, containing, in thesamemanner, 
a pound weight of standard silver. Five shillings and twopence an 
ounce, therefore, is said to be the mint priceof silver in England, 
or the quantity of silver coin which the mint gives in return for 
standard silver bullion. Before the reformation of thegold coin, 
the market price of standard silver bullion was, upon different 
occasions, five shillings and fourpence, five shillings and fivepence, 
five shillings and sixpence, five shillings and sevenpence, and very 
often five shillings and eightpencean ounce. Five shillings and 



sevenpence, however, seemsto have been themost common price. 
Since the reformation of thegold coin, themarket priceof stan- 
dard silver bullion has fallen occasionally to five shillings and 
threepence, five shillings and fourpence, and five shillings and 
fivepence an ounce, which last price it has scarce ever exceeded. 
Though themarket priceof silver bullion has fallen considerably 
since the reformation of thegold coin, it has not fallen so low as 
the mint price. 

In the proportion between the different metals in the English 
coin, as copper is rated very much above its real value, so silver is 
rated somewhat below it. In themarket of Europe, in the French 
coin and in the Dutch coin, an ounce of fine gold exchanges for 
about fourteen ouncesoffinesilver. In theEnglish coin, it exchanges 
for about fifteen ounces, that is, for more silver than it is worth, 
according to thecommon estimation of Europe. Butasthepriceof 
copper in bars is not, even in England, raised by the high priceof 
copper in English coin, so the price of silver in bullion is not sunk 
by the low rate of silver in English coin. Silver in bullion still pre- 
serves itsproper proportion to gold, for the same reason that copper 
in bars preserves its proper proportion to silver. 

Upon the reformation of thesilver coin, in thereign of William 
III., the price of silver bullion still continued to be somewhat above 
the mint price. M r Locke imputed this high price to the permis- 



41 



The Wealth of Nations 



sion of exporting silver bullion, and to the prohibition of export- 
ing silver coin. Thispermission of exporting, hesaid, rendered the 
demand for silver bullion greater than the demand for silver coin. 
But the number of people who want silver coin for the common 
uses of buying and selling at home, is surely much greater than 
that of those who want silver bullion either for the use of exporta- 
tion or for any other use. There subsists at present a like permis- 
sion of exporting gold bullion, and alikeprohibition of exporting 
gold coin; and yet the price of gold bullion has fallen below the 
mint price. But in the English coin, silver was then, in thesame 
manner as now, under-rated in proportion to gold; and the gold 
coin (which at that time, too, was not supposed to require any 
reformation) regulated then, as well as now, the real value of the 
whole coin. As the reformation of the silver coin did not then 
reduce the price of silver bullion to the mint price, it is not very 
probablethat a like reformation will do so now. 

Were the silver coin brought back as near to its standard weight 
as thegold, a guinea, it isprobable, would, according to thepresent 
proportion, exchange for more silver in coin than it would pur- 
chasein bullion.Thesilver coin containing itsfull standard weight, 
there would in this case, be a profit in melting it down, in order, 
first to sell the bullion for gold coin, and after wards to exchange 
thisgold coin for silver coin, to be melted down in thesame man- 



ner. Some alteration in the present proportion seems to be the 
only method of preventing this i neon veniency. 

Theinconveniency, perhaps, would be less, if silver was rated in 
the coin as much above its proper proportion to gold as it is at 
present rated below it, provided it was at the same time enacted, 
that silver should not bea legal tender for more than thechangeof 
a guinea, in the same manner as copper is not a legal tender for 
more than thechangeof a shilling. No creditor could, inthiscase, 
be cheated in consequence of the high valuation of silver in coin; 
as no creditor can at present be cheated in consequence of the 
high valuation of copper. The bankers only would suffer by this 
regulation. W hen a run comes upon them, they sometimes en- 
deavour to gain time, by paying in sixpences, and they would be 
precluded by this regulation from this discreditable method of 
evading immediate payment. They would be obliged, in conse- 
quence, to keep at all times in their coffers a greater quantity of 
cash than at present; and though this might, no doubt, be a con- 
siderable inconveniency to them, it would, at the same time, bea 
considerable security to their creditors. 

T hree pounds seventeen shillings and tenpence halfpenny (the 
mint priceof gold) certainly does not contain, even in our present 
excellent gold coin, more than an ounce of standard gold, and it 
may be thought, therefore, should not purchase more standard 



42 



Adam Smith 



bullion. But gold in coin is more convenient than gold in bullion; 
and though, in England, the coinage is free, yetthegold which is 
carried in bullion to the mint, can seldom be returned in coin to 
theowner till after a delay of several weeks. In thepresent hurry of 
themint, it could not be returned till after a delay of several months. 
This delay is equivalent to a small duty, and renders gold in coin 
somewhat more valuable than an equal quantity of gold in bul- 
lion. If, in theEnglish coin, silver was rated according to itsproper 
proportion to gold, the price of silver bullion would probably fall 
below themint price, even without any reformation of the silver 
coin; the value even of the present worn and defaced silver coin 
being regulated by thevalueoftheexcellent gold coin for which it 
can be changed. 

A small seignorageor duty upon the coinage of both gold and 
silver, would probably increase still more the superiority of those 
metals in coin above an equal quantity of either of them in bul- 
lion. The coinage would, in this case, increase the value of the 
metal coined in proportion to theextent of thissmall duty, for the 
same reason that the fashion increases the value of plate in pro- 
portion tothepriceof that fashion. The superiority of coin above 
bullion would prevent the melting down of the coin, and would 
discourage its exportation. If, upon any public exigency, it should 
become necessary to export the coin, the greater part of it would 



soon return again, of itsown accord. Abroad, it could sell only for 
its weight in bullion. At home, it would buy more than that weight. 
Therewould bea profit, therefore, in bringing it home again. In 
France, a seignorageof about eight per cent, isimposed upon the 
coinage, and the French coin, when exported, is said to return 
home again, of itsown accord. 

The occasional fluctuations in the market price of gold and sil- 
ver bullion arise from the same causes as the like fluctuations in 
that of all other commodities. T he frequent loss of those metals 
from various accidents by sea and by land, the continual waste of 
them in gilding and plating, in lace and embroidery, in the wear 
and tear of coin, and in that of plate, require, in all countries 
which possess no mines of their own, a continual importation, in 
order to repair this loss and this waste. The merchant importers, 
like all other merchants, we may believe, endeavour, as well as 
they can, to suit their occasional importationsto what they judge 
is likely to be the immediate demand. With all their attention, 
however, they sometimes overdo the business, and sometimes 
underdo it. W hen they import morebullion than is wanted, rather 
than incur therisk and troubleof exporting it again, they aresome- 
times willing to sell a part of it for something less than the ordi- 
nary or average price. W hen, on the other hand, they import less 
than iswanted, they get somethingmore than thisprice. But when, 



43 



The Wealth of Nations 



under all those occasional fluctuations, the market price either of 
gold or silver bullion continues for several years together steadily 
and constantly, either more or less above, or more or less below 
the mint price, we may be assured that this steady and constant, 
either superiority or inferiority of price, istheeffect of something 
in the state of the coin, which, at that time, renders a certain quan- 
tity of coin either of more value or of less value than the precise 
quantity of bullion which it ought to contain. T heconstancy and 
steadiness of the effect supposes a proportionable constancy and 
steadiness in the cause. 

The money of any particular country is, at any particular time 
and place, more or less an accurate measure or value, according as 
the current coin ismoreor less exactly agreeableto its standard, or 
contains more or less exactly the precise quantity of pure gold or 
pure silver which it ought to contain. If in England, for example, 
forty-four guineas and a half contained exactly a pound weight of 
standard gold, or eleven ounces of fine gold, and one ounce of 
alloy, the gold coin of England would be as accurate a measure of 
the actual value of goods at any particular time and place as the 
nature of the thing would admit. But if, by rubbing and wearing, 
forty-four guineas and a half generally contain less than a pound 
weight of standard gold, the diminution, however, being greater 
in some pieces than in others, the measure of value comes to be 



liable to the same sort of uncertainty to which all other weights 
and measures are commonly exposed. As it rarely happens that 
these are exactly agreeableto their standard, the merchant adjusts 
the price of his goods as well as he can, not to what those weights 
and measures ought to be, but to what, upon an average, hefinds, 
by experience, they actually are. In consequence of alikedisorder 
in the coin, the price of goods comes, in the same manner, to be 
adjusted, not to the quantity of pure gold or silver which the coin 
ought to contain, but to that which, upon an average, itisfound, 
by experience, it actually does contain. 

By the money price of goods, it is to be observed, I understand 
always the quantity of pure gold or silver for which they are sold, 
without any regard to the denomination of the coin. Six shillings 
and eight pence, for example, in thetimeof Edward I., I consider 
as thesamemoney price with a pound sterling in the present times, 
because it contained, as nearly as we can judge, the same quantity 
of pure silver. 



44 



Adam Smith 



CHAPTERVI 

OF THE COMPONENT PART OF THE 
PRICEOFCOMMODITIES 

In that early and rude state of society which precedes both the 
accumulation of stock and the appropriation of land, the propor- 
tion between the quantities of labour necessary for acquiring dif- 
ferent objects, seemsto be theonly circumstance which can afford 
any rule for exchanging them for one another. I f among a nation 
of hunters, for example, it usually costs twice the labour to kill a 
beaver which it does to kill a deer, one beaver should naturally 
exchange for or be worth two deer. It is natural that what is usu- 
ally theproduce of two daysor two hourslabour, should beworth 
double of what is usually the produce of one day's or one hour's 
labour. 

If theonespecies of labour should be more severe than theother, 
someallowancewill naturally be madeforthissuperior hardship; 
and the produce of one hour's labour in the one way may fre- 
quently exchange for that of two hour's labour in theother. 

Orif the one species of labour requires an uncommon degreeof 
dexterity and ingenuity, the esteem which men have for such tal- 
ents, will naturally giveavalueto their produce, superior to what 



would be due to the time employed about it. Such talents can 
seldom be acquired but in consequence of long application, and 
the superior value of their produce may frequently be no more 
than a reasonable compensation for the time and labour which 
must be spent in acquiring them. In the advanced state of society, 
allowances of this kind, for superior hardship and superior skill, 
arecommonly madein thewagesof labour; and something of the 
same kind must probably have taken placein its earliest and rud- 
est period. 

I n this state of things, the whole produce of labour belongs to 
the labourer; and the quantity of labour commonly employed in 
acquiring or producing any commodity, is the only circumstance 
which can regulate the quantity of labour which it ought com- 
monly to purchase, command, or exchange for. 

As soon as stock has accumulated in the hands of particular 
persons, some of them will naturally employ it in setting to work 
industrious people, whom they will supply with materials and 
subsistence, in order to make a profit by the sale of their work, or 
by what their labour adds to the value of the materials. In ex- 
changing the complete manufacture either for money, for labour, 
or for other goods, over and above what may be sufficient to pay 
the price of the materials, and the wages of the workmen, some- 
thing must be given for the profits of the undertaker of the work, 



45 



The Wealth of Nations 



who hazards his stock in thisadventureThe value which thework- 
men add to the materials, therefore, resolves itself in this case into 
two parts, of which theone pays their wages, theothertheprofitsof 
their employer upon thewholestock of materialsand wages which 
he advanced. He could have no interest to employ them, unless he 
expected from thesaleof their work something more than what was 
sufficient to replace his stock to him; and he could have no interest 
to employ a great stock rather than a small one, unless his profits 
were to bear some proportion to theextent of hisstock. 

T he profits of stock, it may perhaps be thought, are only a dif- 
ferent namefor the wages of a particular sort of labour, the labour 
of inspection and direction. T hey are, however, altogether differ- 
ent, are regulated by quite different principles, and bear no pro- 
portion to the quantity, the hardship, or theingenuity of thissup- 
posed labour of inspection and direction. They are regulated alto- 
gether by the value of the stock employed, and aregreater or smaller 
in proportion to the extent of this stock. Let us suppose, for ex- 
ample, that in some particular place, where the common annual 
profits of manufacturing stock are ten per cent, there are two dif- 
ferent manufactures, in each of which twenty workmen are em- 
ployed, at the rate of fifteen pounds a year each, or at the expense 
of three hundred a-year in each manufactory. Let ussuppose, too, 
thatthecoarsematerialsannuallywroughtupintheonecostonly 



seven hundred pounds, whilethefiner materialsin theother cost 

seven thousand. Thecapital annually employed in theonewill, in 
thiscase, amount only to onethousand pounds; whereas that em- 
ployed in theother will amount to seven thousand three hundred 
pounds. At the rate of ten per cent, therefore, the undertaker of 
the one will expect a yearly profit of about one hundred pounds 
only; whilethat of theother will expect about seven hundred and 
thirty pounds. But though their profits are so very different, their 
labour of inspection and direction may be either altogether or 
very nearly the same. In manygreat works, almost thewholelabour 
of thiskind iscommitted to someprincipal clerk. H iswages prop- 
erly express the value of this labour of inspection and direction. 
Though in settling them some regard is had commonly, not only 
to his labour and skill, but to the trust which is reposed in him, 
yet they never bear any regular proportion to thecapital of which 
he oversees the management; and theowner of thiscapital, though 
he is thus discharged of almost all labour, still expects that his 
profit should bear a regular proportion to his capital. In the price 
of commodities, therefore, the profits of stock constitute a com- 
ponent part altogether different from the wages of labour, and 
regulated by quite different principles. 

I n this state of things, the whole produce of labour does not 
al ways bd on g to the labourer. Hemustin most cases share it with 



46 



Adam Smith 



the owner of the stock which employs him. N either is the quan- 
tity of labour commonly employed in acquiring or producing any 
commodity the only circumstance which can regulate the quan- 
tity which it ought commonly to purchase, command or exchange 
for. An additional quantity itisevident, mustbeduefortheprof- 
itsof the stock which advanced thewagesand furnished themate- 
rialsof that labour. 

Assoon astheland of any country hasall become private prop- 
erty the landlords, like all other men, love to reap where they 
never sowed, and demand a rent even for its natural produce. The 
wood of the forest, the grass of the field, and all the natural fruits 
of the earth, which, when land was in common, cost the labourer 
only thetroubleof gathering them, come, even to him, to have an 
additional price fixed upon them. H e must then pay for the li- 
cence to gather them, and must give up to the landlord a portion 
of what his labour either collects or produces. This portion, or, 
what comes to the same thing, the price of this portion, consti- 
tutes the rent of land, and in the price of the greater part of com- 
modities, makes a third component part. 

The real value of all the different component parts of price, it 
must be observed, is measured by the quantity of labour which 
they can, each of them, purchase or command. Labour measures 
the value, not only of that part of price which resolves itself into 



labour, but of that which resolves itself into rent, and of that which 
resolves itself into profit. 

I n every society, the price of every commodity finally resolves 
itself into some one or other, or all of those three parts; and in 
every improved society, all the three enter, more or less, ascompo- 
nent parts, into the price of the far greater part of commodities. 

I n the price of corn, for example, one part pays the rent of the 
landlord, another pays the wages or mai ntenance of the labourers 
and labouring cattle employed in producing it, and thethird pays 
the profit of the farmer. These three parts seem either immedi- 
ately or ultimately to make up the whole price of corn. A fourth 
part, it may perhapsbe thought isnecessary for replacing thestock 
of thefarmer, or for compensating the wear and tear of his labouring 
cattle, and other instruments of husbandry. But it must be con- 
sidered, that the price of any instrument of husbandry, such as a 
labouring horse, is itself made up of the same time parts; therent 
of the land upon which he is reared, the labour of tending and 
rearing him, and the profits of thefarmer, who advances both the 
rentof thisland, and thewagesof thislabour.Though thepriceof 
thecorn, therefore, may pay the price as well as the maintenance 
ofthehorse, thewholepricestill resolves itself, either immediately 
or ultimately, into the same three parts of rent, labour, and profit. 

I n the price of flour or meal, we must add to the price of the 



47 



The Wealth of Nations 



corn, the prof its of the mi Her, and the wages of his servants; in the 
price of bread, the profits of the baker, and the wages of his ser- 
vants; and in theprice of both, thelabour of transporting the corn 
from the house of the farmer to that of the miller, and from that 
of the mil ler to that of the baker, together with the profits of those 
who advance the wages of that labour. 

T he price of flax resolves itself into the same three parts as that 
of corn. In the price of linen we must add to this price the wages 
of the flax-dresser, of the spinner, of the weaver, of the bleacher, 
etc. together with the profits of their respective employers. 

As any particular commodity comes to be more manufactured, 
that part of the price which resolves itself into wages and profit, 
comes to be greater in proportion to that which resolves itself into 
rent. I n the progress of the manufacture, not only the number of 
profits increase, but every subsequent profit is greater than the 
foregoing; because the capital from which it is derived must al- 
ways be greater. The capital which employs the weavers, for ex- 
ample, must be greater than that which employs thespinners; be- 
cause it not only replaces that capital with its profits, but pays, 
besides, the wages of the weavers: and theprofitsmust always bear 
some proportion to the capital. 

In the most improved societies, however, there are always a few 
commodities of which the price resolves itself into two parts only 



the wages of labour, and the profits of stock; and a still smaller 
number, in which it consists altogether in the wages of labour. In 
the price of sea-fish, for example, one part pays the labour of the 
fisherman, and theother the profits of thecapital employed in the 
fishery. Rent very seldom makes any part of it, though it does 
sometimes, asl shall shew hereafter. Itisotherwise, at least through 
thegreater part of Europe, in river fisheries. A salmon fishery pays 
a rent; and rent, though it cannot well be called the rent of land, 
makes a part of the price of a salmon, as well as wares and profit. 
In some parts of Scotland, a few poor people make a trade of 
gathering, along the sea-shore, those little variegated stones com- 
monly known by the name of Scotch pebbles. The price which is 
paid to them by the stone-cutter, is altogether the wages of their 
labour; neither rent nor profit makes an part of it. 

But the whole price of any commodity must still finally resolve 
itself into someoneor other or all of those three parts; as whatever 
part of it remainsafter paying therent of theland, and the priceof 
the whole labour employed in raising, manufacturing, and bring- 
ing it to market, must necessarily be profit to somebody. 

As the price or exchangeable value of every particular commod- 
ity, taken separately, resolves itself into someoneor other, or all of 
those three parts; so that of all the commodities which compose 
the whole annual produce of the labour of every country, taken 



48 



Adam Smith 



complexly, must resolve itself into the same three parts, and be 
parcelled out among different inhabitants of thecountry, either as 
the wages of their labour, the profits of their stock, or the rent of 
their land. The wholeof what isannually either collected or pro- 
duced by the labour of every society, or, what comes to the same 
thing, the whole price of it, is in this manner originally distrib- 
uted among some of its different members. Wages, profit, and 
rent, are the three original sources of all revenue, as well as of all 
exchangeable value. All other revenue is ultimately derived from 
some one or other of these. 

W hoever derives his revenuefrom afund which ishisown, must 
draw it either from his labour, from his stock, or from his land. 
The revenue derived from labour iscalled wages; that derived from 
stock, by the person who manages or employs it, is called profit; 
that derived from it by the person who does not employ it him- 
self, but lends it to another, is called the interest or the use of 
money. It is the compensation which the borrower pays to the 
lender, for the profit which he has an opportunity of making by 
the use of the money. Part of that profit naturally belongs to the 
borrower, who runstherisk and takes thetroubleof employing it, 
and part to the lender, who affords him the opportunity of mak- 
ing this profit. T he interest of money is always a derivative rev- 
enue, which, if it is not paid from the profit which is made by the 



use of the money, must be paid from some other source of rev- 
enue, unless perhaps the borrower is a spendthrift, who contracts 
a second debt in order to pay the interest of the first. The revenue 
which proceeds altogether from land, iscalled rent, and belongs 
to the landlord. T he revenue of the farmer is derived partly from 
his labour, and partly from his stock. To him, land is only the 
instrument which enables him to earn the wages of this labour, 
and to make the profits of this stock. All taxes, and all the revenue 
which isfounded upon them, all salaries, pensions, and annuities 
of every kind, are ultimately derived from some one or other of 
those three original sources of revenue, and are paid either imme- 
diately or mediately from the wages of labour, the profits of stock, 
or the rent of land. 

W hen those three different sorts of revenue belong to different 
persons, they are readily distinguished; but when they belong to 
the same, they are sometimes confounded with one another, at 
least in common language. 

A gentleman who farms a part of his own estate, after paying 
the expense of cultivation, should gain both the rent of the land- 
lord and the profit of the farmer. H e is apt to denominate, how- 
ever, his whole gain, profit, and thus confounds rent with profit, 
at least in common language. T he greater part of our N orth Ameri- 
can and West Indian planters areinthissituation. They farm, the 



49 



The Wealth of Nations 



greater part of them, their own estates: and accordingly we sel- 
dom hear of the rent of a plantation, but frequently of its profit. 

Common farmers seldom employ any overseer to direct the gen- 
eral operations of thefarm. They generally, too, work a good deal 
with their own hands, as ploughmen, harrowers, etc. What re- 
mains of the crop, after paying the rent, therefore, should not 
only replace to them their stock employed in cultivation, together 
with its ordinary prof its, but pay them the wages which aredueto 
them, both as labourers and overseers. Whatever remains, how- 
ever, after paying the rent and keeping up thestock, iscalled profit. 
But wages evidently makea part of it. T hefarmer, by saving these 
wages, must necessarily gain them. Wages, therefore, are in this 
case confounded with profit. 

An independent manufacturer, who has stock enough both to 
purchase materials, and to maintain himself till he can carry his 
work to market, should gain both the wages of a journeyman who 
works under a master, and the profit which that master makes by 
the sale of that journeyman's work. H is whole gains, however, are 
commonly called profit, and wages are, in this case, too, con- 
founded with profit. 

A gardener who cultivates his own garden with his own hands, 
unites in his own person the three different characters, of land- 
lord, farmer, and labourer. H isproduce, therefore, should pay him 



the rent of the first, the profit of the second, and the wages of the 
third. The whole, however, is commonly considered astheearn- 
ingsof hislabour. Both rent and profit are, in thiscase, confounded 
with wages. 

Asinacivilized country there arebut few commodities of which 
the exchangeable value arises from labour only, rent and profit 
contributing largely to that of the far greater part of them, so the 
annual produce of its labour will always be sufficient to purchase 
or command a much greater quantity of labour than what was 
employed in raising, preparing, and bringing that produce to 
market. If thesociety were annuallyto employ all thelabour which 
it can annually purchase, asthequantity of labour would increase 
greatly every year, so the produce of every succeeding year would 
be of vastly greater value than that of the foregoing. But there is 
no country in which the whole annual produce is employed in 
maintaining the industrious. T he idleeverywhereconsumea great 
part of it; and, according to the different proportions in which it 
is annually divided between those two different orders of people, 
its ordinary or average value must either annually increase or di- 
minish, or continue the same from oneyear to another. 



50 



Adam Smith 



CHAPTER VII 

OFTHE NATURAL AND MARKET PRICE 
OFCOMMODITIES 

There is in every society or neighbourhood an ordinary or aver- 
age rate, both of wages and profit, in every different employment 
of labour and stock. This rate is naturally regulated, as I shall shew 
hereafter, partly by the general circumstances of the society, their 
richesor poverty, their advancing, stationary, or declining condi- 
tion, and partly by the particular nature of each employment. 

Thereislikewisein every society or neighbourhood an ordinary 
or average rate of rent, which is regulated, too, as I shall shew 
hereafter, partly by the general circumstances of the society or 
neighbourhood in which the land is situated, and partly by the 
natural or improved fertility of the land. 

T hese ordinary or average rates may be called the natural rates 
of wages, profit and rent, at the time and place in which they 
commonly prevail. 

W hen thepriceof any commodity is neither more nor less than 
what is sufficient to pay the rent of the land, the wages of the 
labour, and the profits of the stock employed in raising, prepar- 
ing, and bringing it to market, according to their natural rates, the 



commodity is then sold for what may be called its natural price. 

T he commodity is then sold precisely for what it is worth, or for 
what it really costs the person who brings it to market; for though, 
in common language, what is called the prime cost of any com- 
modity does not comprehend the profit of the person who isto sell 
it again, yet, if he sells it at a price which does not allow him the 
ordinary rate of profit in his neighbourhood, he is evidently a loser 
by the trade; since, by employing his stock in some other way, he 
might have made that profit. Hisprofit, besides, is his revenue, the 
proper fund of his subsistence. As, while he is preparing and bring- 
ing the goods to market, he advances to his workmen their wages, 
or their subsistence; so headvancesto himself, in the same manner, 
his own subsistence, which is generally suitable to the profit which 
he may reasonably expect from the sale of his goods. U nless they 
yield him this profit, therefore, they do not repay him what they 
may very properly be said to have really cost him. 

Though the price, therefore, which leaves him this profit, is not 
always the lowest at which a dealer may sometimes sell hisgoods, 
it is the lowest at which he is likely to sell them for any consider- 
able time; at least where there is perfect liberty, or where he may 
ch an ge h i s trad e as often as h e pi eases. 

The actual price at which any commodity is commonly sold, is 
called its market price. It may either be above, or below, or exactly 



51 



The Wealth of Nations 



the same with its natural price. 

T he market priceof every particular commodity is regulated by 
the proportion between the quantity which isactually brought to 
market, and the demand of those who are willing to pay the natu- 
ral priceof thecommodity or the whole value of the rent, labour, 
and profit, which must be paid in order to bring it thither. Such 
people may be called the effectual demanders, and their demand 
the effectual demand; since it maybe sufficient to effectuate the 
bringing of the commodity to market. It is different from the ab- 
solute demand. A very poor man may be said, in some sense, to 
havea demand for a coach and six; he might liketohaveit; but his 
demand is not an effectual demand, as the commodity can never 
be brought to market in order to satisfy it. 

W hen thequantity of any commodity which isbroughtto mar- 
ket fallsshort of theeffectual demand, all thosewho are willing to 
paythewholevalueof therent, wages, and profit, which must be 
paid in order to bring it thither, cannot be supplied with thequan- 
tity which they want. Rather than want it altogether, someof them 
will be willing to give more. A competition will immediately be- 
gin among them, and themarket price will risemoreor less above 
the natural price, according as either the greatness of the defi- 
ciency, or the wealth and wanton luxury of the competitors, hap- 
pen to animate more or less the eagerness of the competition. 



Among competitorsof equal wealth and luxury, thesamedefici en cy 
will generally occasion a more or less eager competition, according 
as the acquisition of the commodity happens to be of more or less 
importance to them. H encethe exorbitant priceof the necessaries 
of life during the blockade of a town, or in a famine. 

When thequantity brought to market exceeds the effectual de- 
mand, it cannot be all sold to those who are willing to pay the 
whole value of therent, wages, and profit, which must be paid in 
order to bri ng it thither. Some part must be sold to those who are 
willing to pay less, and the low price which they give for it must 
reduce the price of the whole. The market price will sink more or 
less below the natural price, according as the greatness of the ex- 
cess increases more or less the competition of the sellers, or ac- 
cording as it happens to be more or less important to them to get 
immediately rid of the commodity. The same excess in the impor- 
tation of perishable, will occasion a much greater competition than 
in that of durablecommodities; in the importation of oranges, for 
example, than in that of old iron. 

When thequantity brought to market is just sufficient to sup- 
ply theeffectual demand, and no more, themarket price naturally 
comes to be either exactly, or as nearly as can be judged of, the 
same with the natural price. T he whole quantity upon hand can 
be disposed of for this price, and can not be disposed of for more. 



52 



Adam Smith 



Thecompetition of thedifferent dealers obliges them all to accept 
of this price, but does not oblige them to accept of less. 

T he quantity of every commodity brought to market naturally 
suits itself to the effectual demand. It is the interest of all those 
who employ their land, labour, or stock, in bringing any com- 
modity to market, that thequantity never should exceed theeffec- 
tual demand; and it isthe interest of all other peoplethat it never 
should fall short of that demand. 

If at any time it exceeds the effectual demand, someof thecom- 
ponent parts of itspricemustbepaid below their natural rate. If it 
isrent, theinterest of thelandlordswill immediately prompt them 
to withdraw a part of their land; and if it is wages or profit, the 
interest of the labourers in the one case, and of their employers in 
the other, will prompt them to withdraw a part of their labour or 
stock, from this employment. The quantity brought to market 
will soon be no more than sufficient to supply the effectual de- 
mand. All thedifferent parts of its price will rise to their natural 
rate, and the whole price to its natural price. 

If, on the contrary, the quantity brought to market should at 
any time fall short of the effectual demand, some of the compo- 
nent parts of its price must rise above their natural rate. If it is 
rent, the interest of all other landlordswill naturally prompt them 
to prepare more land for the raising of this commodity; if it is 



wages or profit, the interest of all other labourers and dealers will 
soon prompt them to employ more labour and stock in preparing 
and bringing it to market. Thequantity broughtthither will soon 
besufficient to supply theeffectual demand. All thedifferent parts 
of its price will soon sink to their natural rate, and the whole price 
to its natural price. 

T he natural price, therefore, is, as it were, the central price, to 
which the prices of all commodities are continually gravitating. 
D ifferent accidents may sometimes keep them suspended a good 
deal above it, and sometimes force them down even somewhat 
below it. But whatever may be the obstacles which hinder them 
from settling in this centre of repose and continuance, they are 
constantly tending towards it. 

T he whole quantity of industry annually employed in order to 
bring any commodity to market, naturally suitsitself in thisman- 
ner to the effectual demand. It naturally aims at bringing always 
that precise quantity thither which may be sufficient to supply, 
and no more than supply, that demand. 

But, in some employments, the same quantity of industry will, 
in different years, produce very different quantities of commodi- 
ties; while, in others, it will produce always thesame, or very nearly 
the same. The same number of labourers in husbandry will, in 
different years, produce very different quantities of corn, wine, 



53 



The Wealth of Nations 



oil, hops, etc. But the same number of spinners or weavers will 
every year produce the same, or very nearly the same, quantity of 
linen and woollen cloth. It is only the average produce of the one 
species of industry which can be suited, in any respect, to the 
effectual demand; and as its actual produce is frequently much 
greater, and frequently much less, than its average produce, the 
quantity of the commodities brought to market will sometimes 
exceed a good deal, and sometimes fall short a good deal, of the 
effectual demand. Even though that demand, therefore, should 
continuealwaysthesame, their market pricewill beliableto great 
fluctuations, will sometimes fall a good deal below, and some- 
times rise a good deal above, their natural price. In the other spe- 
cies of industry, the produce of equal quantities of labour being 
always the same, or very nearly the same, it can be more exactly 
suited to theeffectual demand. W hilethat demand continues the 
same, therefore, the market price of the commodities is likely to 
do so too, and to be either altogether, or as nearly as can bejudged 
of, the same with the natural price. That the price of linen and 
woollen cloth is liable neither to such frequent, nor to such great 
variations, asthepriceof corn, every man's experience will inform 
him. The price of the one species of commodities varies only with 
the variations in the demand; that of the other varies not only 
with thevariationsin thedemand, but with themuch greater, and 



more frequent, variations in the quantity of what is brought to 
market, in order to supply that demand. 

The occasional and temporary fluctuations in the market price 
of any commodity fall chiefly upon those parts of its price which 
resolve themselves into wages and profit. That part which resolves 
itself into rent is less affected by them. A rent certain in money is 
not in the least affected by them, either in its rate or in its value. A 
rent which consists either in a certain proportion, or in a certain 
quantity, of the rude produce, is no doubt affected in its yearly 
value by all the occasional and temporary fluctuationsin themar- 
ket price of that rudeproduce; butitisseldom affected by them in 
its yearly rate. In settling the terms of the lease, the landlord and 
farmer endeavour, according to their best judgment, to adjust that 
rate, not to the temporary and occasional, but to the average and 
ordinary price of the produce. 

Such fluctuations affect both the value and the rate, either of 
wages or of profit, according as the market happens to be either 
overstocked or understocked with commodities or with labour, 
with work done, or with work to be done. A public mourning 
raises the price of black cloth ( with which the market is almost 
alwaysunderstocked upon such occasions), and augments the prof- 
its of themerchants who possess any considerablequantityofit.lt 
has no effect upon the wages of the weavers. The market is 



54 



Adam Smith 



understocked with commodities, not with labour, with work done, 
not with work to be done. It raisesthe wages of journeymen tailors. 
The market is here understocked with labour. There is an effectual 
demand for more labour, for more work to be done, than can be 
had. It sinks the price of coloured silks and cloths, and thereby re- 
ducestheprofitsof themerchants who have any considerablequan- 
tity of them upon hand. It sinks, too, the wages of the workmen 
employed in preparing such commodities, for which all demand is 
stopped for six months, perhaps for a twelvemonth. T he market is 
here overstocked both with commodities and with labour. 

But though the market price of every particular commodity is 
in thismanner continually gravitating, if one may say so, towards 
the natural price; yet sometimes particular accidents, sometimes 
natural causes, and sometimes particular regulationsof policy, may, 
in many commodities, keep up the market price, for a long time 
together, a good deal above the natural price. 

When, by an in crease in the effectual demand, the market price 
of some particular commodity happens to rise a good deal above 
thenatural price, those who employ their stocks in supplying that 
market, are generally careful to conceal thischange. If itwas com- 
monly known, their great profit would tempt so many new rivals 
to employ their stocksin thesameway, that, theeffectual demand 
being fully supplied, the market price would soon be reduced to 



thenatural price, and, perhaps, for sometimeeven below it. If the 
market is at a great distance from the residence of those who sup- 
ply it, they may sometimes be able to keep the secret for several 
years together, and may so long enjoy their extraordinary profits 
without any new rivals Secrets of this kind, however, it must be 
acknowledged, can seldom be long kept; and the extraordinary 
profit can last very little longer than they are kept. 

Secrets in manufactures are capable of being longer kept than 
secrets in trade. A dyer who has found the means of producing a 
particular colour with materials which cost only half the price of 
those commonly made use of, may, with good management, en- 
joy the advantage of his discovery as long as he lives, and even 
leave it as a legacy to his posterity. H is extraordinary gains arise 
from the high price which is paid for his private labour. They 
properly consist in the high wages of that labour. But as they are 
repeated upon every part of his stock, and as their wholeamount 
bears, upon that account, a regular proportion to it, they are com- 
monly considered as extraordinary profits of stock. 

Such enhancements of themarket price are evidently theeffects 
of particular accidents, of which, however, theoperation may some- 
times last for many years together. 

Somenatural productions require such a singularity of soil and 
situation, that all the land in a great country, which isfit for pro- 



55 



The Wealth of Nations 



ducing them, may not be sufficient to supply the effectual de- 
mand. T he whole quantity brought to market, therefore, may be 
disposed of to those who are willing to give more than what is 
sufficient to pay the rent of the land which produced them, to- 
gether with the wages of the labour and the profits of the stock 
which were employed in preparing and bringing them to market, 
according to their natural rates. Such commodities may continue 
for wholecenturies together to be sold at this high price; and that 
part of it which resolves itself into the rent of land, is in this case 
the part which is generally paid above its natural rate. T he rent of 
the land which affords such singular and esteemed productions, 
liketherentofsomevineyardsin Franceof a peculiarly happy soil 
and situation, bears no regular proportion to the rent of other 
equally fertileand equally well cultivated land in its neighbourhood. 
T he wages of the labour, and the profits of the stock employed in 
bringing such commodities to market, on the contrary, are sel- 
dom out of their natural proportion to those of the other employ- 
ments of labour and stock in their neighbourhood. 

Such enhancements of the market price are evidently the effect 
of natural causes, which may hinder the effectual demand from 
ever being fully supplied, and which may continue, therefore, to 
operate for ever. 

A monopoly granted either to an individual or to a trading com- 



pany, has the same effect as a secret in tradeor manufactures. The 
monopolists, by keeping the market constantly understocked by 
never fully supplying the effectual demand, sell their commodi- 
ties much above the natural price, and raise their emoluments, 
whether they consist in wagesor profit, greatly above their natural 
rate. 

Thepriceof monopoly isupon every occasion thehighest which 
can be got. The natural price, or the price of free competition, on 
the contrary, is the lowest which can betaken, not upon every 
occasion indeed, butforanyconsiderabletimetogether.Theone 
is upon every occasion the highest which can be squeezed out of 
the buyers, or which it is supposed they will consent to give; the 
other isthe lowest which the sellers can commonly afford to take, 
and at the same time continue their business. 

T he exclusive privileges of corporations, statutes of apprentice- 
ship, and all those laws which restrain in particular employments, 
the competition to a smaller number than might otherwise go 
into them, have thesame tendency, though in a less degree. They 
are a sort of enlarged monopolies, and may frequently, for ages 
together, and in whole classes of employments, keep up the mar- 
ket price of particular commodities above the natural price, and 
maintain boththewagesofthelabourandtheprofitsofthestock 
employed about them somewhat above their natural rate. 



56 



Adam Smith 



Such enhancements of the market price may last as long as the 
regulations of policy which give occasion to them. 

T he market price of any particular commodity though it may 
continue long above, can seldom continue long below, its natural 
price. Whatever part of it was paid below the natural rate, the 
persons whose interest it affected would immediately feel theloss, 
and would immediately withdraw either so much land or no much 
labour, or so much stock, from being employed about it, that the 
quantity brought to market would soon be no more than suffi- 
cient to supply the effectual demand. Its market price, therefore, 
would soon rise to the natural price; thisat least would be thecase 
where there was perfect liberty. 

Thesamestatutesof apprenticeship and other corporation laws, 
indeed, which, when a manufacture is in prosperity, enable the 
workman to raise his wages a good deal above their natural rate, 
sometimes oblige him, when it decays, to let them down a good 
deal below it. As in the one case they exclude many people from 
his employment, so in the other they exclude him from many 
employments. The effect of such regulations, however, is not near 
so durable in sinking the workman's wages below, as in raising 
them above their natural rate. Their operation in theonewaymay 
endure for many centuries, but in the other it can last no longer 
than the lives of some of the workmen who were bred to the busi- 



nessin thetimeof its prosperity. W hen they are gone, the number 
of those who are afterwards educated to the trade will naturally 
suit itself to theeffectual demand. Thepolicy must be as violent as 
that of I ndostan or ancient Egypt (whereevery man was bound by 
a principle of religion to follow the occupation of his father, and 
was supposed to commit the most horrid sacrilegeif hechanged it 
for another), which can in any particular employment, and for 
several gen erations together, sink either the wages of labour or the 
profits of stock below their natural rate. 

This is all that I think necessary to be observed at present con- 
cerning the deviations, whether occasional or permanent, of the 
market price of commodities from the natural price. 

The natural price itself varies with the natural rate of each of its 
component parts, of wages, profit, and rent; and in every society 
thisrate varies according to their circumstances, according to their 
riches or poverty, their advancing, stationary, or declining condi- 
tion. I shall, in thefour following chapters, endeavour to explain, 
as fully and distinctly as I can, the causes of those different varia- 
tions. 

First, I shall endeavour to explain what are the circumstances 
which naturally determinethe rate of wages, and in what manner 
those circumstances are affected by the riches or poverty, by the 
advancing, stationary, or declining state of the society. 



57 



The Wealth of Nations 



Secondly, I shall endeavour to shew what are the circumstances 
which naturally determinethe rate of profit; and in what manner, 
too, those circumstances are affected by the like variations in the 
state of the society. 

Though pecuniary wages and profit are very different in the 
different employments of labour and stock; yet a certain propor- 
tion seems commonly to take place between both the pecuniary 
wages in all the different employments of labour, and the pecuni- 
ary profitsin all the different employments of stock. This propor- 
tion, it will appear hereafter, depends partly upon the nature of 
the different employments, and partly upon the different laws and 
policy of the society in which they are carried on. But though in 
many respects dependent upon the laws and policy, this propor- 
tion seems to be little affected by the riches or poverty of that 
society, by its advancing, stationary, or declining condition, but to 
remain the same, or very nearly the same, in all those different 
states. I shall, in the third place, endeavour to explain all the dif- 
ferent circumstances which regulate this proportion. 

In the fourth and last place, I shall endeavour to shew what are 
the circumstances which regulate the rent of land, and which ei- 
ther raise or lower the real price of all the different substances 
which it produces. 



CHAPTER VIM 

OFTHEWAGESOFLABOUR 

The produce of labour constitutes the natural recom pence or 
wages of labour 

In that original state of things which precedes both the appro- 
priation of land and the accumulation of stock, the whole pro- 
duce of labour belongs to the labourer. H e has neither landlord 
nor master to share with him. 

H ad this state continued, the wages of labour would have aug- 
mented with all those improvements in its productive powers, to 
which thedivision of labour gives occasion. All things would gradu- 
ally have become cheaper. They would have been produced by a 
smaller quantity of labour; and as the commodities produced by 
equal quantities of labour would naturally in this state of things 
be exchanged for one another, they would have been purchased 
likewise with the produce of a smaller quantity. 

But though all things would have become cheaper in reality, in 
appearance many things might have become dearer, than before, 
or have been exchanged for a greater quantity of other goods. Let 
us suppose, for example, that in the greater part of employments 
the productive powers of labour had been improved to tenfold, or 



58 



Adam Smith 



that a day's labour could produce ten times the quantity of work 
which it had doneoriginally; but that in a particular employment 
they had been improved only to double, or that a day's labour 
could produce only twice thequantity of work which it had done 
before. In exchanging the produce of a day's labour in the greater 
part of employments for that of a day's labour in this particular 
one, ten times the original quantity of work in them would pur- 
chase only twice the original quantity in it. Any particular quan- 
tity in it, therefore, a pound weight, for example, would appear to 
be five times dearer than before. In reality, however, it would be 
twice ascheap. Though it required five times thequantity of other 
goods to purchase it, it would require only half the quantity of 
labour either to purchase or to produce it. T he acquisition, there- 
fore, would be twice as easy as before. 

But this original state of things, in which the labourer enjoyed 
the whole produce of his own labour, could not last beyond the 
first introduction of the appropriation of land and theaccumula- 
tion of stock. It was at an end, therefore, long before the most 
considerable improvements were made in the productive powers 
of labour; and it would be to no purpose to trace further what 
might have been its effectsupon therecompenceor wagesof labour. 

Assoon asland becomes private property, thelandlord demands 
a share of almost all the produce which the labourer can either 



raise or collect from it. H is rent makes the first deduction from 
the produce of the labour which is employed upon land. 

Itseldom happensthat the person whotillstheground has where- 
withal to maintain himself till he reaps the harvest. H is mainte- 
nanceisgenerally advanced to him from thestock of a master, the 
farmer who employs him, and who would have no interest to 
employ him, unless he was to share in the produce of his labour, 
or unless his stock was to be replaced to him with a profit. This 
profit makes a second deduction from the produce of the labour 
which is employed upon land. 

T he produce of almost all other labour is liable to the like de- 
duction of profit. In all arts and manufactures, the greater part of 
the workmen stand in need of a master, to advance them the ma- 
terials of their work, and their wages and maintenance, till it be 
completed. H e shares in the produce of their labour, or in the 
value which it adds to the materials upon which it is bestowed; 
and in this share consists his profit. 

It sometimes happens, indeed, that a single independent work- 
man has stock sufficient both to purchase the materials of his work, 
and to maintain himself till it be completed. H e is both master 
and workman, and enjoys the whole produce of his own labour, 
or the wholevalue which it addsto the materials upon which it is 
bestowed. It includes what are usually two distinct revenues, be- 



59 



The Wealth of Nations 



longing to two distinct persons, theprofitsof stock, and the wages 
of labour. 

Such cases, however, are not very frequent; and in every part of 
Europe twenty workmen serve under a master for onethat is inde- 
pendent, and the wages of labour are everywhere understood to 
be, what they usually are, when the labourer is one person, and 
the owner of the stock which employs him another. 

W hat are the common wages of labour, depends everywhere 
upon thecontract usually made between those two parties, whose 
interests are by no means the same. The workmen desi re to get as 
much, the masters to give as little, as possible. The former are 
disposed to combine in order to raise, the latter in order to lower, 
the wages of labour. 

It is not, however, difficult to foresee which of the two parties 
must, upon all ordinary occasions, have the advantage in thedis- 
pute, and force the other into a compliance with their terms. The 
masters, being fewer in number, can combine much more easily: 
and the law, besides, authorises, or at least does not prohibit, their 
combinations, while it prohibits those of the workmen. We have 
no acts of parliament against combining to lower thepriceof work, 
but many against combining to raise it. In all such disputes, the 
masters can hold out much longer. A landlord, a farmer, a master 
manufacturer, or merchant, though they did not employ a single 



workman, could generally I ive a year or two upon thestocks, which 
they have already acquired. M any workmen could not subsist a 
week, few could subsist a month, and scarce any a year, without 
employment. I n the long run, the workman may be as necessary 
to his master as his master is to him; but the necessity is not so 
immediate. 

Werarely hear, it has been said, of thecombinationsof masters, 
though frequently of those of workmen. But whoever imagines, 
upon this account, that masters rarely combine, is as ignorant of 
the world as of the subject. M asters are always and everywhere in 
a sort of tacit, but constant and uniform, combination, not to 
raise the wages of labour above their actual rate. To violate this 
combination iseverywherea most unpopular action, and a sort of 
reproach to a master among his neighbours and equals. We sel- 
dom, indeed, hear of this combination, because it is the usual, 
and, one may say, the natural state of things, which nobody ever 
hears of. M asters, too, sometimes enter into particular combina- 
tions to sink the wages of labour even below this rate. These are 
always conducted with the utmost silence and secrecy till the mo- 
ment of execution; and when the workmen yield, as they some- 
timesdo without resistance, though severely felt by them, they are 
never heard of by other people. Such combinations, however, are 
frequently resisted by a contrary defensive combination of the 



60 



Adam Smith 



workmen, who sometimes, too, without any provocation of this 
kind, combine, of their own accord, to raise tile price of their 
labour. Their usual pretencesare, sometimes thehigh priceof pro- 
visions, sometimes the great profit which their masters make by 
their work. But whether their combinationsbeoffensiveor defen- 
sive, they are always abundantly heard of. In order to bring the 
pointto aspeedy decision, they have always recourse to theloud- 
est clamour, and sometimes to the most shocking violence and 
outrage. They are desperate, and act with the folly and extrava- 
gance of desperate men, who must either starve, or frighten their 
masters into an immediate compliance with their demands. The 
masters, upon these occasions, arejustasclamorousupon theother 
side, and never cease to call aloud for the assistance of the civil 
magistrate, and the rigorous execution of those laws which have 
been enacted with so much severity against the combination of 
servants, labourers, and journeymen. The workmen, accordingly, 
very seldom derive any advantage from the violence of those tu- 
multuous combinations, which, partly from the interposition of 
the civil magistrate, partly from the superior steadiness of the 
masters, partly from the necessity which the greater part of the 
workmen are under of submitting for the sake of present subsis- 
tence, generally end in nothing but the punishment or ruin of the 
ringleaders. 



But though, in disputes with their workmen, masters must gen- 
erally have the advantage, there is, however, a certain rate, below 
which it seems impossible to reduce, for any considerable time, 
th e ord i n ary wages even of th e I owest sped es of I abou r. 

A man mustalwayslivebyhiswork, and hiswagesmust at least 
be sufficient to maintain him. They must even upon most occa- 
sions be somewhat more, otherwise it would be impossible for 
him to bring up afamily, and theraceof such workmen could not 
last beyond the first generation. M r Cantillon seems, upon this 
account, to suppose that the lowest species of common labourers 
must everywhere earn at least double their own maintenance, in 
order that, one with another, they may be enabled to bring up two 
children; the labour of the wife, on account of her necessary at- 
tendanceon thechildren, being supposed no more than sufficient 
to provide for herself: But one half the children born, it is com- 
puted, diebeforetheageof manhood. Thepoorest labourers, there- 
fore, according to this account, must, one with another, attempt 
to rear at least four children, in order that two may have an equal 
chance of living to that age. But the necessary maintenance of 
four children, it is supposed, may be nearly equal to that of one 
man.Thelabourof an able-bodied slave, thesameauthor adds, is 
computed to be worth double his maintenance; and that of the 
meanest labourer, he thinks, cannot be worth less than that of an 



61 



The Wealth of Nations 



able-bodied slave. Thusfar at least seems certain, that, in order to 
bring up a family, the labour of the husband and wife together 
must, even in the lowest species of common labour, be able to 
earn something more than what is precisely necessary for their 
own maintenance; but in what proportion, whether in that above- 
mentioned, or many other, I shall nottakeupon meto determine. 

There are certain circumstances, however, which sometimes give 
the labourers an advantage, and enablethem to raise their wages 
considerably above this rate, evidently the lowest which isconsis- 
tent with common humanity. 

When in any country the demand for those who live by wages, 
labourers, journeymen, servants of every kind, is continually in- 
creasing; when every year furnish esemploymentforagreaternum- 
ber than had been employed the year before, the workmen have 
no occasion to combine in order to raise their wages. The scarcity 
of hands occasionsa competition among masters, who bid against 
oneanother in order to get workmen, and thus voluntarily break 
through the natural combination of masters not to raise wages. 
The demand for those who live by wages, it is evident, cannot 
increase but in proportion to the increase of the funds which are 
destined to the payment of wages. These funds are of two kinds, 
first, the revenue which is over and above what is necessary for the 
maintenance; and, secondly, the stock which is over and above 



what is necessary for the employment of their masters. 

When the landlord, annuitant, or monied man, has a greater 
revenue than what hejudges sufficient to maintain his own fam- 
ily, he employs either the whole or a part of the surplus in main- 
taining oneor more menial servants. Increase this surplus, and he 
will naturally increase thenumber of those servants. 

W hen an independent workman, such asa weaver or shoemaker, 
has got more stock than what is sufficient to purchase the materi- 
alsof hisown work, and to maintain himself till hecan disposeof 
it, he naturally employs one or more journeymen with the sur- 
plus, in order to makea profit by their work. Increasethissurplus, 
and he will naturally increase the number of hisjourneymen. 

The demand for those who live by wages, therefore, necessarily 
increases with the increase of the revenue and stock of every coun- 
try, and cannot possibly increase without it. T heincreaseof revenue 
and stock is the increase of national wealth. T he demand for those 
who liveby wages, therefore, naturally increases with theincreaseof 
national wealth, and cannot possibly increase without it. 

It is not the actual greatness of national wealth, but its con- 
tinual increase, which occasionsa risein the wages of labour. It is 
not, accordingly, in therichest countries, but in the most thriving, 
or in those which are growing rich the fastest, that the wages of 
labour are highest. England is certainly, in the present times, a 



62 



Adam Smith 



much richer country than any part of N orth America. T he wages 
of labour, however, are much higher in North America than in 
any part of England. In the province of New York, common 
labourers earned in 1773, before the commencement of the late 
disturbances, three shillings and sixpence currency, equal to two 
shillings sterling, a-day; ship-carpenters, ten shillings and sixpence 
currency, with a pint of rum, worth sixpence sterling, equal in all 
to six shillings and sixpence sterling; house-carpenters and brick- 
layers, eight shillings currency, equal to four shillings and sixpence 
sterling; journeymen tailors, five shillings currency, equal to about 
two shillings and tenpence sterling. These prices are all above the 
London price; and wages are said to be as high in the other colo- 
niesasin New York. The price of provisionsiseverywherein North 
America much lower than in England. A dearth has never been 
known there. I n the worst seasons they have always had a suffi- 
ciency for themselves, though less for exportation. If the money 
price of labour, therefore, be higher than it is anywhere in the 
mother-country, its real price, the real command of the neces- 
saries and conveniencies of life which it conveys to the labourer, 
must be higher in a still greater proportion. 

But though N orth America is not yet so rich as England, it is 
much more thriving, and advancing with much greater rapidity 
to thefurther acquisition of riches. T he most decisive mark of the 



prosperity of any country is the increase of the number of its in- 
habitants. In Great Britain, and most other European countries, 
they are not sup posed to double in less than fivehundred years. In 
the British colonies in N orth America, it has been found that they 
double i n twenty or five-and-twenty years. N or i n the present ti mes 
is this increase principally owing to the continual importation of 
new inhabitants, but to the great multiplication of the species. 
Thosewholivetooldage, it issaid, frequently see there from fifty 
to a hundred, and sometimes many more, descendants from their 
own body. Labour isthereso well rewarded, that a numerousfam- 
ily of children, instead of being a burden, is a source of opulence 
and prosperity to the parents. The labour of each child, before it 
can leave their house, iscomputed to be worth a hundred pounds 
clear gain to them. A young widow with four or five young chil- 
dren, who, among the middling or inferior ranks of people in 
Europe, would have so littlechance for a second husband, isthere 
frequently courted asasortof fortune. Thevalueof children isthe 
greatest of all encouragements to marriage. Wecannot, therefore, 
wonder that the people in N orth America should generally marry 
very young. Notwithstanding the great increase occasioned by such 
early marriages, there is a continual complaint of the scarcity of 
hands in North America. The demand for labourers, the funds 
destined for maintaining them increase, it seems, still faster than 



63 



The Wealth of Nations 



they can find labourers to employ. 

Though the wealth of a country should be very great, yet if it 
has been long stationary we must not expect to find the wages of 
labour very high in it. The funds destined for the payment of 
wages, the revenue and stock of its inhabitants, may be of the 
greatest extent; but if they have continued for several centuries of 
thesame, or very nearly of the same extent, thenumber of labourers 
employed every year could easily supply, and even more than sup- 
ply, thenumber wanted the following year. There could seldom 
be any scarcity of hands, nor could the masters be obliged to bid 
against one another in order to get them. T he hands, on the con- 
trary, would, in thiscase, naturally multiply beyond their employ- 
ment. T here would bea constant scarcity of employment, and the 
labourers would be obliged to bid against one an other in order to 
get it. If in such a country the wages off labour had ever been 
more than sufficient to maintain the labourer, and to enable him 
to bring up a family, the competition of the labourers and the 
interest of the masters would soon reduce them to the lowest rate 
which is consistent with common humanity. China has been long 
one of the richest, that is, one of the most fertile, best cultivated, 
most industrious, and most populous, countries in the world. It 
seems, however, to have been long stationary. M arco Polo, who 
visited it more than five hundred years ago, describes its cultiva- 



tion, industry, and populousness, almost in thesametermsin which 
they are described by travellers in the present times. It had, per- 
haps, even long before his time, acquired that full complement of 
riches which the nature of its laws and institutions permits it to 
acquire. The accounts of all travellers, inconsistent in many other 
respects, agree in the low wages of labour, and in the difficulty 
which a labourer finds in bringing up a family in China. If by 
digging the ground a whole day he can get what will purchase a 
small quantity of rice in the evening, he is contented. The condi- 
tion of artificersis, if possible, still worse. Instead of waiting indo- 
lently in their work-houses for the calls of their customers, as in 
Europe, they are continually running about the streets with the 
tools of their respective trades, offering their services, and, as it 
were, begging employment. The poverty of the lower ranks of 
people in China far surpasses that of the most beggarly nations in 
Europe. In the neighbourhood of Canton, many hundred, it is 
commonly said, many thousand families have no habitation on 
theland, but live constantly in littlefishing-boats upon the rivers 
and canals. Thesubsistence which they find thereisso scanty, that 
they are eager to fish up the nastiest garbage thrown overboard 
from any European ship. Any carrion, the carcase of a dead dog or 
cat, for example, though half putrid and stinking, is as welcome 
tothemasthemostwholesomefoodtothepeopleof other coun- 



64 



Adam Smith 



tries. M arriage is encouraged in C hina, not by the profitableness 
of children, but by the liberty of destroying them. In all great 
towns, several are every night exposed in the street, or drowned 
like puppies in the water. The performance of this horrid officeis 
even said to be the avowed business by which some people earn 
their subsistence. 

China, however, though it may, perhaps, stand still, does not 
seem to go backwards. Its towns are nowhere deserted by their 
inhabitants. The lands which had once been cultivated, are no- 
whereneglected.Thesame, or very nearly the same, annual labour, 
must, therefore, continue to be performed, and the funds des- 
tined for maintaining it must not, consequently, be sensibly di- 
minished. The lowest class of labourers, therefore, notwithstand- 
ing their scanty subsistence, must some way or another makeshift 
to continue their race so far as to keep up their usual numbers. 

But it would be otherwise in a country where the funds des- 
tined for the maintenance of labour were sensibly decaying. Every 
year the demand for servants and labourers would, in all the dif- 
ferent classes of employments, be less than it had been the year 
before. M any who had been bred in the superior classes, not being 
able to find employment in their own business, would be glad to 
seek it in the lowest. The lowest class being not only overstocked 
with its own workmen, but with the overflowings of all the other 



classes, the competition for employment would be so great in it, 
as to reduce the wages of labour to the most miserable and scanty 
subsistence of the labourer. Many would not be able to find em- 
ployment even upon these hard terms but would either starve, or 
bedriven to seek a subsistence, either by begging, or by the perpe- 
tration perhaps, of thegreatest enormities. Want, famine, and mor- 
tality, would immediately prevail in that class, and from thence 
extend themselves to all the superior classes, till the number of 
inhabitants in the country was reduced to what could easily be 
maintained by the revenue and stock which remained in it, and 
which had escaped either the tyranny or calamity which had de- 
stroyed the rest. T his, perhaps, is nearly the present state of Ben- 
gal, and of someother of theEnglish settlem en tsin theEast Indies. 
In a fertile country, which had before been much depopulated, 
where subsistence, consequently, should not be very difficult, and 
where, notwithstanding, three or four hundred thousand people 
die of hunger in one year, we maybe assured that the funds des- 
tined for themaintenanceofthelabouring poor are fast decaying. 
T hedifference between thegeniusof theBritish constitution, which 
protects and governs N orth America, and that of the mercantile 
company which oppresses and domineers in theEast Indies, can- 
not, perhaps, be better illustrated than by the different state of 
those countries. 



65 



The Wealth of Nations 



The liberal reward of labour, therefore, as it is the necessary 
effect, so it is the natural symptom of increasing national wealth. 
T he scanty maintenance of the labouring poor, on theother hand, 
isthenatural symptom that things are at a stand, and their starv- 
ing condition, that they are going fast backwards. 

In Great Britain, thewages of labourseem, in the present times, 
to be evidently more than what isprecisely necessary to en ablethe 
labourer to bring up a family. In order to satisfy ourselves upon 
this point, it will not be necessary to enter into any tedious or 
doubtful calculation of what may be the lowest sum upon winch 
it is possible to do this There are many plain symptoms, that the 
wages of labour are nowhere in thiscountry regulated by thislow- 
est rate, which is consistent with common humanity. 

First, in almost every part of Great Britain thereisadistinction, 
even in the lowest species of labour, between summer and winter 
wages. Summer wages are always highest. But, on account of the 
extraordinary expenseof fuel, the maintenance of a family is most 
expensivein winter. Wages, therefore, being highest when thisex- 
pense is lowest, it seems evident that they are not regulated by 
what is necessary for this expense, but by the quantity and sup- 
posed valueof thework. A labourer, it may be said, indeed, ought 
to save part of his summer wages, in order to defray his winter 
expense; and that, through the whole year, they do not exceed 



what isnecessary to maintain hisfamily through thewholeyear. A 
slave, however, or one absolutely dependent on us for immediate 
subsistence, would not be treated in thismanner. H isdaily subsis- 
tence would be proportioned to his daily necessities. 

Secondly, thewagesof labour do not, in Great Britain, fluctuate 
with the price of provisions. T hese vary everywhere from year to 
year, frequently from month to month. But in many places, the 
money price of labour remains uniformly the same, sometimes 
for half a century together. If, in these places, therefore, the 
labouring poor can maintain their familiesin dear years, they must 
be at their ease in times of moderate plenty, and in affluence in 
those of extraordinary cheapness. The high price of provisions 
during these ten years past, has not, in many parts of the king- 
dom, been accompanied with any sensiblerisein themoney price 
of labour. It has, indeed, in some; owing, probably, more to the 
increase of the demand for labour, than to that of the price of 
provisions. 

T hirdly, as the priceof provisions varies more from year to year 
than the wages of labour, so, on the other hand, the wages of 
labour vary more from place to place than the price of provisions. 
The prices of bread and butchers' meat are generally the same, or 
very nearly the same, through the greater part of the united king- 
dom. These, and most other things which are sold by retail, the 



66 



Adam Smith 



way in which the labouring poor buy all things, are generally fully 
as cheap, or cheaper, in great towns than in the remoter parts of 
the country, for reasons which I shall have occasion to explain 
hereafter. But the wages of labour in a great town and its 
neighbourhood, are frequently a fourth or a fifth part, twenty or 
five- and— twenty per cent, higher than at a few miles distance. 
Eighteen penceaday may be reckoned thecommon priceof labour 
in London and itsneighbourhood.Atafewmilesdistance, itfalls 
to fourteen and fifteen pence. Tenpence may be reckoned itsprice 
in Edinburgh and its neighbourhood. At a few miles distance, it 
falls to eightpence, theusual priceof common labour through the 
greater part of the low country of Scotland, where it varies a good 
deal less than in England. Such a difference of prices, which, it 
seems, is not always sufficient to transport a man from one parish 
to another, would necessarily occasion so great a transportation of 
the most bulky commodities, not only from one parish to an- 
other, but from one end of the kingdom, almost from one end of 
theworld to the other, as would soon reduce them morenearlyto 
a level. After all that has been said of the levity and inconstancy of 
human nature, it appears evidently from experience, that man is, 
of all sorts of luggage, the most difficult to be transported. If the 
labouring poor, therefore, can maintain theirfamiliesin those parts 
of the kingdom where the price of labour is lowest, they must be 



in affluence where it is highest. 

Fourthly, the variations in the price of labour not only do not 
correspond, either in place or time, with those in the price of pro- 
visions, but they are frequently quite opposite. 

Grain, the food of the common people, is dearer in Scotland 
than in England, whence Scotland receives almost every year very 
large supplies. But English corn must be sold dearer in Scotland, 
the country to which it is brought, than in England, the country 
from which it comes; and in proportion to itsquality it cannot be 
sold dearer in Scotland than the Scotch corn that comes to the 
same market in competition with it. The quality of grain depends 
chiefly upon the quantity of flour or meal which it yields at the 
mill; and, in this respect, English grain issomuch superior to the 
Scotch, that though often dearer in appearance, or in proportion 
to the measure of its bulk, it is generally cheaper in reality, or in 
proportion to itsquality, or even to themeasureof its weight. The 
priceof labour, on thecontrary, isdearerin England than in Scot- 
land. If the labouring poor, therefore, can maintain their families 
in the one part of the united kingdom, they must be in affluence 
in the other. Oatmeal, indeed, supplies the common people in 
Scotland with the greatest and the best part of their food, which 
is, in general, much inferior to that of their neighbours of the 
same rank in England. This difference, however, in the mode of 



67 



The Wealth of Nations 



their subsistence, is not the cause, but the effect, of the difference 
in their wages; though, by a strange misapprehension, I have fre- 
quently heard it represented as the cause. It is not because one 
man keepsacoach, whilehisneighbourwalksa-foot, thattheone 
isrich, and the other poor; but because the one is rich, hekeepsa 
coach, and because the other ispoor, he walks a-foot. 

D uring the course of the last century, taking oneyear with an- 
other, grain was dearer in both parts of the united kingdom than 
during that of the present. This is a matter of fact which cannot 
now admit of any reasonable doubt; and the proof of it is, if pos- 
sible, still more decisive with regard to Scotland than with regard 
to England. It is in Scotland supported by the evidence of the 
public fiars, annual valuations made upon oath, according to the 
actual state of the markets, of all the different sorts of grain in 
every different county of Scotland. If such direct proof could re- 
quire any collateral evidence to confirm it, I would observe, that 
this has likewise been the case in France, and probably in most 
other partsof Europe. With regard to France, there istheclearest 
proof. But though it is certain, that in both parts of the united 
kingdom grain was somewhat dearer in the last century than in 
the present, it is equally certain that labour was much cheaper. If 
the labouring poor, therefore, could bring up their families then, 
they must be much mo re at their ease now. In the last century, the 



most usual day-wages of common labour through the greater part 
of Scotland were sixpence in summer, and fivepence in winter. 
Three shillings a-week, the same price, very nearly still continues 
to be paid in some parts of the H ighlands and Western islands. 
T hrough thegreater part of the Low country, the most usual wages 
of common labour are now eight pence a-day; tenpence, some- 
times a shilling, about Edinburgh, in the counties which border 
upon England, probably on account of that neighbourhood, and 
in afew other pi aces where there has lately been a considerable rise 
in the demand for labour, about Glasgow, Carron, Ayrshire, etc. 
In England, the improvements of agriculture, manufactures, and 
commerce, began much earlier than in Scotland. Thedemand for 
labour, and consequently itsprice, must necessarily haveincreased 
with those improvements. In the last century, accordingly, as well 
as in the present, the wages of labour were higher in England than 
in Scotland. They have risen, too, considerably since that time, 
though, on account of the greater variety of wages paid there in 
different places, it is more difficult to ascertain how much. In 
1614, the pay of a foot soldier was the same as in the present 
times, eightpence a-day. When it was first established, it would 
naturally be regulated by the usual wages of common labourers, 
the rank of people from which foot soldiers are commonly drawn. 
Lord-chief-justice H ales, who wroteinthetimeof Charlesll.com- 



68 



Adam Smith 



putes the necessary expense of a labourer's fami ly, consisti ng of six 
persons, the father and mother, two children able to do some- 
thing, and two not able, at ten shillings a-week, or twenty-six 
pounds a-year. I f they cannot earn this by their labour, they must 
make it up, hesupposes, either by begging or stealing. H eappears 
to have enquired very carefully into this subject {See his scheme 
for the maintenance of the poor, in Burn's H istory of the Poor 
Laws.}. In 1688, M r Gregory King, whose skill in political arith- 
metic is so much extolled by Dr Davenant, computed the ordi- 
nary incomeof labourers and out-servants to be fifteen poundsa- 
yeartoafamily, which he supposed to consist, one with another, 
of three and a half persons. H iscalculation, therefore, though dif- 
ferent in appearance, correspondsvery nearly at bottom with that 
of JudgeH ales. Both suppose the weekly expenseof such families 
tobeabouttwenty-pencea-head. Boththepecuniaryincomeand 
expense of such families have increased considerably since that 
timethrough thegreater part of thekingdom, in some places more, 
and in some less, though perhaps scarce anywhere so much as 
some exaggerated accounts of the present wages of labour have 
lately represented them to the public. T he priceof labour, it must 
be observed, cannot be ascertained very accurately anywhere, dif- 
ferent prices being often paid at the same place and for the same 
sort of labour, not only according to the different abilities of the 



workman, but according to the easiness or hardness of the mas- 
ters. W here wages are not regulated by law, all that wecan pretend 
to determine is, what are the most usual; and experience seems to 
shew that law can never regulate them properly, though it has 
often pretended to do so. 

T he real recompence of labour, the real quantity of the neces- 
saries and convenienciesof life which it can procure to thelabourer, 
has, duringthecourseofthepresent century, increased perhapsin 
a still greater proportion than its money price. Not only grain has 
become somewhat cheaper, but many other things, from which 
the industrious poor derive an agreeableand wholesomevariety of 
food, have become a great deal cheaper. Potatoes, for example, do 
not at present, through the greater part of the kingdom, cost half 
theprice which they used to do thirty or forty years ago. Thesame 
thing may be said of turnips, carrots, cabbages; things which were 
formerly never raised but by the spade, but which are now com- 
monly raised by the plough. All sort of garden stuff, too, has be- 
come cheaper. Thegreater part of the apples, and even of the on- 
ions, consumed in Great Britain, were, in the last century, im- 
ported from Flanders. The great improvements in the coarser 
manufactoriesof both linen and woollen cloth furnish thelabourers 
with cheaper and better clothing; and those in the manufactories 
of the coarser metals, with cheaper and better instruments of trade, 



69 



The Wealth of Nations 



as well as with many agreeable and convenient pieces of house- 
hold furniture. Soap, salt, candles, leather, and fermented liquors, 
have, indeed, become a good deal dearer, chiefly from the taxes 
which have been laid upon them. The quantity of these, however, 
which thelabouring poor an under any necessity of consuming, is 
so very small, that the increase in their price does not compensate 
the diminution in that of so many other things. The common 
complaint, that luxury extends itself even to the lowest ranks of 
the people, and that the labouring poor will not now be con- 
tented with thesamefood, clothing, and lodging, which satisfied 
them in former times, may convince us that it is not the money 
priceof labour only, but its real recompence, which hasaugmented. 
Is this improvement in the circumstances of the lower ranks of 
thepeopleto be regarded as an advantage, or as an inconveniency, 
to the society? The answer seems at first abundantly plain. Ser- 
vants, labourers, and workmen of different kinds, makeup thefar 
greater part of every great political society. But what improves the 
circumstances of the greater part, can never be regarded as any 
inconveniency to the whole. N o society can surely be flourishing 
and happy, of which thefar greater part of the members are poor 
and miserable. It isbut equity, besides, that they who feed, clothe, 
and lodge thewholebody of thepeople, should have such a share 
of the produce of their own labour as to be themselves tolerably 



well fed, clothed, and lodged. 

Poverty, though it no doubt discourages, does not always pre- 
vent, marriage. It seems even to be favourable to generation. A 
half-starved H ighland woman frequently bears more than twenty 
children, while a pampered fine lady is often in capable of bearing 
any, and is generally exhausted by two or three. Barrenness, so 
frequent among women of fashion, is very rare among those of 
inferior station. Luxury, in thefair sex, whileit inflames, perhaps, 
thepassion for enjoyment, seems always to weaken, and frequently 
to destroy altogether, the powers of generation. 

But poverty, though it does not prevent the generation, is ex- 
tremely unfavourable to the rearing of children. The tender plant 
is produced; but in so cold a soil, and so severe a climate, soon 
withersand dies. It isnot uncommon, I have been frequently told, 
in the H ighlandsof Scotland, for a mother who has born twenty 
children not to have two alive. Several officers of great experience 
have assured me, that, so far from recruiting their regiment, they 
have never been able to supply it with drums and fifes, from all 
the soldiers' children that were born in it. A greater number of 
finechildren, however, isseldom seen anywhere than about a bar- 
rack of soldiers. Very few of them, it seems, arrive at the age of 
thirteen or fourteen. In some places, one half the children die 
before they are four years of age, in many places before they are 



70 



Adam Smith 



seven, and in almost all places before they are nine or ten. This 
great mortality, however will everywhere be found chiefly among 
the children of the common people, who cannot afford to tend 
them with the same care as those of better station. Though their 
marriages are generally more fruitful than thoseof people of fash- 
ion, a smaller proportion of their children arrive at maturity. In 
foundling hospitals, and among the children brought up by par- 
ish charities, the mortality is still greater than among those of the 
common people. 

Every species of animals naturally multiplies in proportion to 
the means of their subsistence, and no species can ever multiply 
be yond it. But in civilized society, it is only among the inferior 
ranks of people that the scantiness of subsistence can set limits to 
thefurther multiplication of the human species; and it can do so 
in no other way than by destroying a great part of the children 
which their fruitful marriages produce. 

Theliberal reward of labour, by enablingthem to providebetter 
for their children, and consequently to bring up a greater number, 
naturally tendsto widen and extend those limits It deserves to be 
remarked, too, that it necessarily does this as nearly as possible in 
the proportion which the demand for labour requires. If this de- 
mand is continually increasing, the reward of labour must neces- 
sarily encourage in such a manner the marriage and multiplica- 



tion of labourers, as may enable them to supply that continually 
increasing demand by a continually increasing population. If the 
reward should at any time be less than what was requisite for this 
purpose, the deficiency of hands would soon raise it; and if it 
should at any time be more, their excessive multiplication would 
soon lower it to this necessary rate. The market would be so much 
understocked with labour in theonecase, and so much overstocked 
in the other, as would soon force back its price to that proper rate 
which thecircumstancesofthesociety required. Itisin thisman- 
ner that the demand for men, like that for any other commodity, 
necessarily regulates the production of men, quickens it when it 
goes on too slowly, and stopsitwhen it advances too fast. Itisthis 
demand which regulates and determines the state of propagation 
in all the different countries of the world; in N orth America, in 
Europe, and in China; which renders it rapidly progressive in the 
first, slow and gradual in the second, and altogether stationary in 
the last. 

Thewearandtearofaslave, it has been said, is at the expense of 
his master; but that of a free servant is at his own expense. T he 
wear and tear of the latter, however, is, in reality, as much at the 
expense of his master as that of the former. The wages paid to 
journeymen and servants of every kind must be such as may en- 
able them, one with another to continue the race of journeymen 



71 



The Wealth of Nations 



and servants, according as the increasing, diminishing, or station- 
ary demand of thesociety, may happen to require. But though the 
wear and tear of a free servant be equally at the expense of his 
master, it generally costs him much less than that of a slave. The 
fund destined for replacing or repairing, if I may say so, the wear 
and tear of the slave, is commonly managed by a negligent master 
or careless overseer. T hat destined for performing the same office 
with regard to the freeman is managed by the freeman himself. 
The disorders which generally prevail in theeconomyof the rich, 
naturally introduce them selves into themanagement of theformer; 
the strict frugality and parsimoniousattention of the poor as natu- 
rally establish themselves in that of the latter. U nder such differ- 
ent management, the same purpose must require very different 
degrees of expense to execute it. It appears, accordingly, from the 
experience of all ages and nations, I believe, that theworkdoneby 
freemen comes cheaper in the end than that performed by slaves. 
It isfound to do so even at Boston, N ew-York, and Philadelphia, 
where the wages of common labour are so very high. 

The liberal reward of labour, therefore, as it is the effect of in- 
creasing wealth, so it is the cause of increasing population. To 
complain of it, is to lament over the necessary cause and effect of 
the greatest public prosperity. 

It deserves to be remarked, perhaps, that it is in the progressive 



state, while the society is advancing to the further acquisition, 
rather than when it has acquired its full complement of riches, 
that the condition of the labouring poor, of thegreat body of the 
people, seems to be the happiest and the most comfortable. It is 
hard in the stationary, and miserable in the declining state. The 
progressive state is, in reality, the cheerful and the hearty state to 
all the different orders of the society; the stationary is dull; the 
declining melancholy. 

The liberal reward of labour, as it encourages the propagation, 
so it increases the industry of the common people. The wages of 
labour are theencouragement of industry, which, I ike every other 
human quality, improves in proportion to theencouragement it 
receives. A plentiful subsistence increases the bodily strength of 
the labourer, and the comfortable hope of bettering hiscondition, 
and of ending hisdays, perhaps, in ease and plenty, animateshim 
to exert that strength to the utmost. W here wages are high, ac- 
cordingly, weshall alwaysfind theworkmen more active, diligent, 
and expeditious, than where they are low; in England, for example, 
than in Scotland; in the neighbourhood of great towns, than in 
remote country places. Some workmen, indeed, when they can 
earn in four days what will maintain them through the week, will 
be idle the other three. This, however, is by no means the case 
with the greater part. Workmen, on the contrary, when they are 



72 



Adam Smith 



liberally paid by the piece, are very apt to overwork themselves, 
and to ruin their health and constitution in a few years. A carpen- 
ter in London, and in someother places, is not supposed to last in 
his utmost vigour above eight years. Something of the same kind 
happensin many other trades, in which theworkmen are paid by 
thepiece; as they generally are in manufactures, and even in coun- 
trylabour, wherever wages are higher than ordinary. Almost every 
class of artificers is subject to some peculiar infirmity occasioned 
by excessive application to their peculiar species of work. 
Ramuzzini, an eminent Italian physician, has written a particular 
book concerning such diseases. Wedo not reckon our soldiers the 
most industrious set of people among us; yet when soldiers have 
been employed in someparticularsortsof work, and liberally paid 
by the piece, their officers have frequently been obliged to stipu- 
late with the undertaker, that they should not be allowed to earn 
aboveacertain sum everyday, accordingto the rate at which they 
were paid. Till this stipulation was made, mutual emulation, and 
thedesireof greater gain, frequently prompted them to overwork 
themselves, and to hurt their health by excessive labour. Excessive 
application, during four days of the week, is frequently the real 
cause of the idleness of the other three, so much and so loudly 
complained of. Great labour, either of mind or body, continued 
for several days together is, in most men, naturally followed by a 



great desire of relaxation, which, if not restrained by force, or by 
some strong necessity, isalmost irresistible. Itisthecall of nature, 
which requires to be relieved by some indulgence, sometimes of 
ease only, but sometimes too of dissipation and diversion. If it is 
not complied with, the consequences are often dangerous and 
sometimes fatal, and such as almost always, sooner or later, bring 
on the peculiar infirmity of the trade. If masters would always 
listen to the dictates of reason and humanity, they have frequently 
occasion rather to moderate, than to animate the application of 
many of their workmen. It will befound, I believe, in every sort of 
trade, that the man who works so moderately, as to be able to 
work constantly, not only preserves his health the longest, but, in 
the course of the year, executes the greatest quantity of work. 

In cheap yearsit ispret ended, workmen are generally moreidle, 
and in deartimesmoreindustriousthan ordinary. A plentiful sub- 
sistence, therefore, it has been concluded, relaxes, and a scanty 
one quickens their industry. That a little more plenty than ordi- 
nary may render some workmen idle, cannot be well doubted; but 
that it should have this effect upon thegreater part, or that men in 
general should work better when they are ill fed, than when they 
are well fed, when they are disheartened than when they are in 
good spirits, when they are frequently sick than when they are 
generally in good health, seemsnotvery probable. Years of dearth, 



73 



The Wealth of Nations 



it is to be observed, are generally among thecommon peopleyears 
of sickness and mortality, which cannot fail to diminish the pro- 
duce of their industry. 

I n years of plenty, servants frequently leave their masters, and 
trust their subsistence to what they can make by their own indus- 
try. But the same cheapness of provisions, by increasing the fund 
which is destined for the maintenance of servants, encourages 
masters, farmers especially, to employ a greater number. Farmers, 
upon such occasions, expect more profit from their corn by main- 
taining a few more labouring servants, than by selling it at a low 
pricein the market. The demand for servants increases, whilethe 
number of those who offer to supply that demand diminishes. 
The price of labour, therefore, frequently rises in cheap years. 

In years of scarcity, the difficulty and uncertainty of subsistence 
make all such people eager to return to service. But the high price 
of provisions, by diminishing the funds destined for the mainte- 
nance of servants, disposes masters rather to diminish than to in- 
crease the number of those they have. In dear years, too, poor 
independent workmen frequently consume the little stock with 
which they had used to supply themselves with the materials of 
their work, and are obliged to become journeymen for subsis- 
tence. M ore people want employment than easily get it; many are 
willing to take it upon lower terms than ordinary; and the wages 



of both servants and journeymen frequently sink in dear years. 

M asters of all sorts, therefore, frequently make better bargains 
with their servants in dear than in cheap years, and find them 
more humble and dependent intheformer than in the latter. They 
naturally, therefore, commend the former as more favourable to 
industry. Landlordsand farmers, besides, two of the largest classes 
of masters, have another reason for being pleased with dear years. 
The rents of the one, and the profits of the other, depend very 
much upon the price of provisions. Nothing can be more absurd, 
however, than to imagine that men in general should work less 
when they work for themselves, than when they work for other 
people. A poor independent workman will generally be more in- 
dustrious than even a journeyman who works by the piece. T he 
oneenjoysthewholeproduceof hisown industry, theother shares 
it with his master. The one, in his separate independent state, is 
lessliabletothetemptationsof bad company, which, in largemanu- 
factories, so frequently ruin themoralsof theother.Thesuperior- 
ity of the independent workman over those servants who arehired 
by the month or by the year, and whose wages and maintenance 
arethesame, whether they do much or do little, islikely to be still 
greater. Cheap years tend to increase the proportion of indepen- 
dent workmen to journeymen and servants of all kinds, and dear 
years to diminish it. 



74 



Adam Smith 



A French author of great knowledge and ingenuity, M r M essance, 
receiver of the taillies in the election of St Etienne, endeavours to 
shew that the poor do more work in cheap than in dear years, by 
comparing the quantity and value of the goods made upon those 
different occasions in three different manufactures; one of coarse 
woollens, carried on at Elbeuf; one of linen, and another of silk, 
both which extend through the whole generality of Rouen. It ap- 
pears from his account, which is copied from the registers of the 
public offices, that thequantity and valueofthegoodsmadein all 
those threemanufactorieshas generally been greater in cheap than 
in dear years, and that it has always been; greatest in the cheapest, 
and least in the dearest years. All the three seem to be stationary 
manufactures, or which, though their produce may vary some- 
what from year to year, are, upon the whole, neither going back- 
wards nor forwards. 

The manufacture of linen in Scotland, and that of coarse 
woollensin theWest Riding of Yorkshire, are growing manufac- 
tures, of which the produce is generally, though with some varia- 
tions, increasing both in quantity and value. Upon examining, 
however, the accounts which have been published of their annual 
produce, I have not been able to observe that its variations have 
had any sen si ble connection with thedearness or cheapness of the 
seasons. In 1740, a year of great scarcity, both manufactures, in- 



deed, appear to havedeclined very considerably. But in 1756, an- 
other year or great scarcity, the Scotch manufactures made more 
than ordinary advances. The Yorkshire manufacture, indeed, de- 
clined, and its produce did not rise to what it had been in 1755, 
till 1766, after the repeal of the American stamp act. In that and 
the following year, it greatly exceeded what it had ever been be- 
fore, and it has continued to advance ever since. 

T he produce of all great manufactures for distant salemust nec- 
essarily depend, not so much upon the dearness or cheapness of 
theseasonsin thecountries where they are carried on, asupon the 
circumstances which affect the demand in the countries where 
they are consumed; upon peace or war, upon the prosperity or 
declension of other rival manufactures and upon the good or bad 
humour of their principal customers. A great part of the extraor- 
dinary work, besides, which is probably donein cheap years, never 
enters thepublic registers of manufactures. T he men-servants, who 
leave their masters, become independent labourers. The women 
return to their parents, and commonly spin, in order to make 
clothes for themselves and their families. Even the independent 
workmen do not always, work for public sale, but are employed 
by some of their neighbours in manufactures for family use. The 
produce of their labour, therefore, frequently makes no figure in 
those public registers, of which the records are sometimes pub- 



75 



The Wealth of Nations 



lished with so much parade, and from which our merchants and 
manufacturers would often vainly pretend to announce the pros- 
perity or declension of the greatest empires. 

Through the variations in the price of labour not only do not 
always correspond with those in the price of provisions, but are 
frequently quiteopposite, we must not, upon thisaccount, imag- 
inethatthepriceof provisionshasnoinfluenceupon that of labour. 
T he money priceof labour is necessarily regulated by two circum- 
stances; the demand for labour, and the price of the necessaries 
and conveniences of life. The demand for labour, according as it 
happensto beincreasing, stationary, or declining, or to require an 
increasing, stationary, or declining population, determines the 
quantitiesof the necessariesand conveniences of life which must 
be given to the labourer; and the money price of labour is deter- 
mined by what is requisite for purchasing this quantity. Though 
the money priceof labour, therefore, is sometimes high where the 
price of provisions is low, it would be still higher, the demand 
continuing the same, if the price of provisions was high. 

It is because the demand for labour increases in years of sudden 
and extraordinary plenty, and diminishes in those of sudden and 
extraordinary scarcity, that the money price of labour sometimes 
rises in the one, and sinks in the other. 

In a year of sudden and extraordinary plenty, there are funds in 



thehandsof many of theemployersof industry, sufficientto main- 
tain and employ a greater number of industrious peoplethan had 
been employed the year before; and this extraordinary number 
cannot always be had. Those masters, therefore, who want more 
workmen, bid against one another, in order to get them, which 
sometimes raises both the real and themoney priceof their labour. 
T he contrary of this happens in a year of sudden and extraordi- 
nary scarcity. The funds destined for employing industry are less 
than they had been the year before. A considerable number of 
people are thrown out of employment, who bid one against an- 
other, in order to get it, which sometimes lowers both thereal and 
the money price of labour. I n 1740, a year of extraordinary scar- 
city, many people were willing to work for bare subsistence. In the 
succeeding years of plenty, it was more difficult to get labourers 
and servants. The scarcity of a dear year, by diminishing the de- 
mand for labour, tends to lower its price, as the high priceof pro- 
visions tends to raise it. T he plenty of a cheap year, on the con- 
trary, by increasing the demand, tendsto raise thepriceof labour, 
as the cheapness of provisions tends to lower it. In the ordinary 
variations of the prices of provisions, those two opposite causes 
seem to counterbalance one another, which is probably, in part, 
the reason why the wages of labour are everywhere so much more 
steady and permanent than the price of provisions. 



76 



Adam Smith 



The increase in the wages of labour necessarily increases the 
price of many commodities, by increasing that part of it which 
resolves itself into wages, and so far tends to diminish their con- 
sumption, both at home and abroad. The same cause, however, 
which raises the wages of labour, the increase of stock, tends to 
increase its productive powers, and to make a smaller quantity of 
labour produce a greater quantity of work. T heowner of thestock 
which employsa great number of labourers necessarily endeavours, 
for his own advantage, to make such a proper division and distri- 
bution of employment, that they may be enabled to produce the 
greatest quantity of work possible. For the same reason, he 
endeavours to supply them with the best machinery which either 
he or they can think of. W hat takes place among the labourers in 
a particular workhouse, takes place, for the same reason, among 
those of a great society. T he greater their number, the more they 
naturally dividethem selves into different classes and subdivisions 
of employments. More heads are occupied in inventing the most 
proper machinery for executing the work of each, and it is, there- 
fore, more likely to be invented. There me many commodities, 
therefore, which, in consequence of these improvements, cometo 
be produced by so much less labour than before, that the increase 
of its price is more than compensated by the diminution of its 
quantity. 



CHAPTER IX 

OFTHE PROFITS OF STOCK 

The rise and fall in the profits of stock depend upon the same 
causes with the rise and fall in the wages of labour, theincreasing 
or declining state of the wealth of the society; but those causes 
affect the one and the other very differently. 

Theincreaseof stock, which raiseswages, tends to lower profit. 
When the stocks of manyrich merchants are turned intothesame 
trade, their mutual competition naturally tendsto lower its profit; 
and when there is a like increase of stock in all the different trades 
carried on in the same society, the same competition must pro- 
duce the same effect in them all. 

It is not easy, it has already been observed, to ascertain what are 
the average wages of labour, even in a particular place, and at a 
particular time. Wecan, even in thiscase, seldom determinemore 
than what are the most usual wages. But even this can seldom be 
donewith regard to the profits of stock. Profit is so very fluctuat- 
ing, that the person who carries on a particular trade, cannot al- 
ways tell you himself what isthe average of hisannual profit. It is 
affected, not only by every variation of price in the commodities 
which he deals in, but by the good or bad fortune both of his 



77 



The Wealth of Nations 



rivals and of his customers, and by a thousand other accidents, to 
which goods, when carried either by sea or by land, or even when 
stored in a warehouse, are liable. It varies, therefore, not only from 
year to year, but from day to day, and almost from hour to hour. To 
ascertain what isthe average profit of all the different trades carried 
on in a great kingdom, must be much more difficult; and to judge 
of what it may have been formerly, or in remote periods of time, 
with any degreeof precision, must be altogether impossible. 

But though it may be impossible to determine, with any degree 
of precision, what are or were the average profits of stock, either in 
the present or in ancient times, some notion may be formed of 
them from the interest of money. It may belaid down asa maxim, 
that wherever a great deal can be made by the use of money, a 
greatdeal will commonly be given for theuse of it; and that, wher- 
ever little can be made by it, less will commonly he given for it. 
Accordingly, therefore, as the usual market rate of interest varies 
in any country, we may be assured that the ordinary profits of 
stock must vary with it, must sink as it sinks, and rise as it rises. 
The progress of interest, therefore, may lead us to form some no- 
tion of the progress of profit. 

By the 37th of Henry VII I. all interest above ten percent, was 
declared unlawful. M ore, it seems, had sometimes been taken be- 
fore that. In the reign of Edward VI. religious zeal prohibited all 



interest. Thisprohibition, however, likeall othersof thesamekind, 
is said to have produced no effect, and probably rather increased 
than diminished theevil of usury. The statute of Henry VII I. was 
revived by the 13th of Elizabeth, cap. 8. and ten percent, contin- 
ued to bethelegal rate of interest till the 21st of James I. when it 
was restricted to eight per cent. It was reduced to six per cent, 
soon after the Restoration, and by the 12th of Queen Anne, to 
five per cent. All these different statutory regulations seem to have 
been made with great propriety. They seem to have followed, and 
not to have gone before, the market rate of interest, or the rate at 
which people of good credit usually borrowed. Since the time of 
Q ueen Anne, five per cent, seems to have been rather above than 
below the market rate. Before the late war, the government bor- 
rowed at three per cent; and people of good credit in the capital, 
and in many other parts of the kingdom, at three and a-half, four, 
and four and a-half per cent. 

Since the time of Henry VIM. the wealth and revenue of the 
country have been continually advancing, and in the course of 
their progress, their pace seems rather to have been gradually ac- 
celerated than retarded. They seem not only to have been going 
on, but to have been going on faster and faster. The wages of 
labour have been continually increasing during the same period, 
and, in thegreaterpartof thedifferentbranchesof tradeand manu- 



78 



Adam Smith 



factures, the profits of stock have been diminishing. 

It generally requires a greater stock to carry on any sort of trade 
in a great town than in a country village. The great stocks em- 
ployed in every branch of trade, and the number of rich competi- 
tors, generally reduce the rateof profit in theformer below what it 
is in the latter. But the wages of labour are generally higher in a 
great town than in acountry village. In athrivingtown, thepeople 
who have great stocks to employ, frequently cannot get the num- 
ber of workmen they want, and thereforebid against one an other, 
in order to get as many as they can, which raises the wages of 
labour, and lowers the profits of stock. In the remote parts of the 
country, there is frequently not stock sufficient to employ all the 
people, who therefore bid against one another, in order to get 
employment, which lowers the wagesof labour, and raises theprof- 
its of stock. 

I n Scotland, though the legal rate of interest is the same as in 
England, the market rate is rather higher. People of the best credit 
there seldom borrow under five per cent. Even private bankers in 
Edinburgh give four per cent, upon their promissory-notes, of 
which payment, either in whole or in part may be demanded at 
pleasure. Private bankers in London give no interest for the money 
which is deposited with them. There are few trades which cannot 
be carried on with a smaller stock in Scotland than in England. 



The common rateof profit, therefore, must be somewhat greater. 
The wages of labour, it has already been observed, are lower in 
Scotland than in England. The country, too, is not only much 
poorer, but the steps by which it advances to a better condition, 
for it is evidently advancing, seem to be much slower and more 
tardy. The legal rateof interest in Francehasnotduringthecourse 
of the present century, been always regulated by the market rate 
{SeeDenisart, ArtideTauxdes Interests, torn, iii, p.13}. In 1720, 
interest was reduced from the twentieth to the fiftieth penny, or 
from five to two per cent. In 1724, it was raised to the thirtieth 
penny, ortothreeandathird percent. In 1725, itwasagain raised 
to the twentieth penny, or to five per cent. In 1766, during the 
administration of M r Laverdy, it was reduced to the twenty-fifth 
penny, or to four per cent. T he AbbeTerray raised it afterwardsto 
the old rate of five per cent. T he supposed purpose of many of 
those violent reductions of interest was to prepare the way for 
reducingthat of thepublic debts; apurpose which has sometimes 
been executed. Franceis, perhaps, in the present times, not so rich 
a country as England; and though the legal rateof interest has in 
France frequently been lower than in England, the market rate has 
generally been higher; for there, as in other countries, they have 
several very safe and easy methods of evading the law. T he profits 
of trade, I have been assured by British merchants who had traded 



79 



The Wealth of Nations 



in both countries, are higher in France than in England; and it is 
no doubt upon this account, that many British subjects chuse 
rather to employ their capitals in a country where trade is in dis- 
grace, than in one where it ishighly respected. The wages of labour 
are lower in France than in England. When you go from Scotland 
to England, the difference which you may remark between the 
dress and countenance of the common peoplein theonecountry 
and in theother, sufficiently indicates thedifference in their con- 
dition. The contrast is still greater when you return from France. 
France, though no doubt a richer country than Scotland, seems 
not to be going forward so fast. It isa common and even a popular 
opinion in the country, that it is going backwards; an opinion 
which I apprehend, isill-founded, even with regard to France, but 
which nobody can possibly entertain with regard to Scotland, who 
sees the country now, and who saw it twenty or thirty years ago. 
The province of Holland, on theother hand, in proportion to 
the extent of its territory and the number of its people, is a richer 
country than England. The government there borrow at two per 
cent, and private people of good credit at three. The wages of 
labour are said to be higher in Holland than in England, and the 
Dutch, it is well known, trade upon lower prof its than any people 
in Europe. The trade of Holland, it has been pretended by some 
people, is decaying, and it may perhaps be truethat some particu- 



lar branches of it are so; but these symptoms seem to indicate 
sufficiently that there is no general decay. When profit dimin- 
ishes, merchants are very apt to complain that trade decays, though 
thediminution of profit is the natural effect of its prosperity, or of 
a greater stock being employed in it than before. D uring the late 
war, theD utch gained thewholecarryingtradeof France, of which 
they still retain a very large share. T he great property which they 
possess both in French and English funds, about forty millions, it 
issaid in thelatter (in which, I suspect, however, there is a consid- 
erable exaggeration ), the great sums which they lend to private 
people, in countries where the rate of interest is higher than in 
their own, are circumstances which no doubt demonstrate the re- 
dundancy of theirstock, or that it hasincreased beyond what they 
can employ with tolerable profit in the proper business of their 
own country; but they do not demonstrate that that business has 
decreased. As the capital of a private man, though acquired by a 
particular trade, may increase beyond what he can employ in it, 
and yet that trade continue to increase too, so may likewise the 
capital of a great nation. 

In our North American and West Indian colonies, not only the 
wages of labour, but the interest of money, and consequently the 
profits of stock, are higher than in England. In the different colo- 
nies, both the legal and the market rate of interest run from six to 



80 



Adam Smith 



eight percent. H igh wages of labour and high profits of stock, 
however, are things, perhaps, which scarce ever go together, ex- 
cept in thepeculiar circumstances of new colonies A new colony 
must always, for sometime, be more understocked in proportion 
to the extent of its territory, and moreunderpeopled in propor- 
tion to the extent of its stock, than the greater part of other coun- 
tries. T hey have more land than they have stock to cultivate. W hat 
they have, therefore, is applied to the cultivation only of what is 
most fertile and most favourably situated, the land near the sea- 
shore, and along the banks of navigable rivers. Such land, too, is 
frequently purchased at a price below thevalueeven of its natural 
produce. Stock employed in the purchase and improvement of 
such lands, must yield a very large profit, and, consequently, af- 
ford to pay a very large interest. Its rapid accumulation in so prof- 
itablean employment enables the planter to increase the number 
of his hands faster than he can find them in a new settlement. 
Those whom he can find, therefore, are very liberally rewarded. 
As the colony increases, the profits of stock gradually diminish. 
When the most fertile and best situated lands have been all occu- 
pied, less profit can be made by the cultivation of what is inferior 
both in soil and situation, and I ess interest can be afforded for the 
stock which is so employed. In the greater part of our colonies, 
accordingly, both the legal and the market rate of interest have 



been considerably reduced during the course of the present cen- 
tury. Asriches, improvement, and population, have increased, in- 
terest hasdeclined. T he wagesof labour do not sink with the prof- 
its of stock. T he demand for labour increases with the increase of 
stock, whatever be its profits; and after these are diminished, stock 
may not only continueto increase, but to increase much faster than 
before. It iswith industrious nations, who are advancing in theac- 
quisition of riches, as with industrious individuals. A great stock, 
though with small profits, generally increases faster than a small 
stock with great profits. M oney, says the proverb, makes money. 
W hen you have got a little, it is often easy to get more. T he great 
difficulty is to get that little. The connection between the increase 
of stock and that of industry, or of the demand for useful labour, 
has partly been explained already, but will be explained more fully 
hereafter, in treating of the accumulation of stock. 

The acquisition of new territory, or of new branches of trade, 
may sometimes raise theprofitsof stock, and with them theinter- 
est of money, even in a country which is fast advancing in the 
acquisition of riches. The stock of the country, not being suffi- 
cient for the whole accession of business which such acquisitions 
present to the different people among whom it is divided, is ap- 
plied to those particular branches only which afford the greatest 
profit. Part of what had before been employed in other trades, is 



81 



The Wealth of Nations 



necessarily withdrawn from them, and turned into some of the 
new and more profitable ones. In all those old trades, therefore, 
the competition comes to be J ess than before. The market comes 
to be less fully supplied with many different sorts of goods. T heir 
price necessarily rises more or less, and yields a greater profit to 
those who deal in them, who can, therefore, afford to borrow at a 
higher interest. Forsometimeaftertheconclusionofthelatewar, 
not only private people of the best credit, but some of the greatest 
companiesin London, commonly borrowed at five per cent, who, 
before that, had not been used to pay more than four, and four 
and a half per cent. T hegreat accession both of territory and trade 
by our acquisitions in North America and the West Indies, will 
sufficiently account for this, without supposing any diminution 
in the capital stock of the society. So great an accession of new 
business to be carried on by the old stock, must necessarily have 
diminished thequantity employed in agreatnumber of particular 
branches, in which the competition being less, the profits must 
have been greater. I shall hereafter have occasion to mention the 
reasonswhichdisposemeto believe that thecapital stock of Great 
Britain wasnot diminished, even by the enormous expense of the 
late war. 

The diminution of the capital stock of the society, or of the 
fundsdestined for the maintenance of industry, however, asitlowers 



the wages of labour, so it raises the profits of stock, and conse- 
quently the interest of money. By the wages of labour being low- 
ered, the owners of what stock remains in the society can bring 
their goods at less expense to market than before; and less stock 
being employed in supplying the market than before, they can sell 
them dearer. Their goods cost them less, and they get more for 
them. Their profits, therefore, being augmented at both ends, can 
well afford a large interest. The great fortunes so suddenly and so 
easily acquired in Bengal and the other British settlements in the 
East Indies, may satisfy us, that as the wages of labour are very 
low, so theprofits of stock are very high in those ruined countries. 
The interest of money isproportionably so. In Bengal, money is 
frequently lenttothefarmersatforty, fifty, and sixty percent, and 
the succeeding crop is mortgaged for the payment. As the profits 
which can afford such an interest must eat up almost the whole 
rent of the landlord, so such enormous usury must in its turn eat 
up the greater part of those profits. Before the fall of the Roman 
republic, a usury of thesamekind seemsto have been common in 
the provinces, under the ruinous administration of their procon- 
suls. The virtuous Brutus lent money in Cyprusateight-and-forty 
per cent, as we learn from the letters of C icero. 

I n a country which had acquired that full complement of riches 
which the nature of its soil and climate, and its situation with 



82 



Adam Smith 



respect to other countries, allowed it to acquire, which could, there- 
fore, advance no further, and which was not going backwards, 
both the wages of labour and the profits of stock would probably 
be very low. In a country fully peopled in proportion to what 
either itsterritory could maintain, or its stock employ, thecompe- 
tition for employment would necessarily be so great as to reduce 
the wages of labour to what was barely sufficient to keep up the 
number of labourers, and thecountry being already fully peopled, 
th atnumber could never be augmented. In acountry fully stocked 
in proportion to all the business it had to transact, asgreat a quan- 
tity of stock would be employed in every particular branch as the 
nature and extent of the trade would admit. The competition, 
therefore, would everywhere be as great, and, consequently, the 
ordinary profit as low as possible. 

But, perhaps, no country has ever yet arrived at this degree of 
opulence. China seemsto have been long stationary, and had, prob- 
ably, long ago acquired that full complement of riches which is 
consistent with the nature of its laws and institutions. But this 
complement may be much inferior to what, with other laws and 
institutions, the nature of its soil, climate, and situation, might 
admit of. A country which neglects or despises foreign commerce, 
and which admits the vessel of foreign nationsintooneortwoof 
its ports only, cannot transact the same quantity of business which 



it might do with different laws and institutions. I n a country, too, 
where, though the rich, or the owners of large capitals, enjoy a 
good deal of security, the poor, or the owners of small capitals, 
enjoy scarce any, but areliable, under thepretenceof justice, to be 
pillaged and plundered at anytime by theinferior mandarins, the 
quantity of stock employed in all the different branches of busi- 
ness transacted within it, can never be equal to what the nature 
and extent of that business might admit. I n every different branch, 
the oppression of the poor must establish the monopoly of the 
rich, who, by engrossing the whole trade to themselves, will be 
able to make very large profits. Twelve per cent, accordingly, is 
said tobethecommon interest of money in China, and theordi- 
nary profitsof stock must be sufficient to afford thislargeinterest. 
A defect in the law may sometimes raise the rate of interest con- 
siderably above what thecondition of thecountry, as to wealth or 
poverty, would require. W hen the law does not enforce the per- 
formance of contracts, it puts all borrowers nearly upon the same 
footing with bankrupts, or people of doubtful credit, in better 
regu I ated cou n tri es. T h e u n certai n ty of recoveri n g h i s m on ey m akes 
the lender exact the same usurious interest which is usually re- 
quired from bankrupts. Among the barbarous nations who over- 
ran thewestern provincesof theRoman empire, the performance 
of contracts was left for many ages to the faith of the contracting 



83 



The Wealth of Nations 



parties. T he courts of justice of their kings seldom intermeddled 
in it. T he high rate of interest which took place in those ancient 
times, may, perhaps, be partly accounted for from this cause. 

When the law prohibits interest altogether, it does not prevent 
it. M any peoplemust borrow, and nobody will lend without such 
a consideration for the use of their money as is suitable, not only 
to what can be made by the use of it, but to the difficulty and 
danger of evading the law. The high rate of interest among all 
M ahometan nations is accounted for by M . M ontesquieu, not 
from their poverty, but partly from this, and partly from the diffi- 
culty of recovering the money. 

The lowest ordinary rate of profit must always be something 
more than what is sufficient to compensate the occasional losses 
to which every employment of stock is exposed. It is this surplus 
only which is neat or clear profit. W hat is called gross profit, com- 
prehends frequently not only thissurplus, but what isretained for 
compensating such extraordinary losses. The interest which the 
borrower can afford to pay is in proportion to the clear profit 
only. Thelowest ordinary rate of interest must, in thesame man- 
ner, be something more than sufficient to compensate the occa- 
sional losses to which lending, even with tolerable prudence, is 
exposed. Were it not, mere charity or friendship could be theonly 
motivesfor lending. 



In a country which had acquired its full complement of riches, 
where, in every particular branch of business, there was the great- 
est quantity of stock that could be employed in it, astheordinary 
rate of clear profit would be very small, so theusual market rate of 
interest which could be afforded out of it would be so low as to 
render it impossiblefor any but the very wealthiest peopleto live 
upon the interest of their money. All peopleof small or middling 
fortunes would be obliged to superintend themselves the employ- 
ment of their own stocks. It would be necessary that almost every 
man should be a man of business, or engage in some sort of trade. 
The province of H olland seems to be approaching near to this 
state. Itisthereunfashionablenottobeaman of business. Neces- 
sity makes it usual for almost every man to be so, and custom 
everywhere regulates fash ion. As it is ridiculous not to dress, so is 
it, in some measure, not to be employed like other people. As a 
man of a civil profession seems awkward in a camp or a garrison, 
andiseven in some danger of being despised there, so does an idle 
man among men of business. 

The highest ordinary rate of profit may be such as, in the price 
of the greater part of commodities, eats up the whole of what 
should go to the rent of the land, and leaves only what issufficient 
to pay the labour of preparing and bringing them to market, ac- 
cording to the lowest rate at which labour can anywhere be paid, 



84 



Adam Smith 



the bare subsistence of the labourer. T he workman must always 
have been fed in some way or other whilehewas about the work, 
but the landlord may not always have been paid. The profits of 
the trade which the servants of the East I ndia C ompany carry on 
in Bengal may not, perhaps, be very far from this rate. 

T heproportion which the usual market rateof interest ought to 
bear to theordinary rateof clear profit, necessarily varies as profit 
rises or falls. D ouble interest is in G reat Britain reckoned what the 
merchants call a good, moderate, reasonable profit; terms which, 
I apprehend, mean no more than a common and usual profit. In 
a country where the ordinary rateof clear profit is eight or ten per 
cent, it may be reasonablethat one half of it should go to interest, 
wherever business is carried on with borrowed money. The stock 
is at the risk of the borrower, who, as it were, insures it to the 
lender; and four or five per cent, may, in the greater part of trades, 
be both a sufficient profit upon the risk of this insurance, and a 
sufficient recompenceforthetroubleofemployingthestock. But 
the proportion between interest and clear profit might not be the 
same in countries where the ordinary rate of profit was either a 
good deal lower, or a good deal higher. If it were a good deal 
lower, one half of it, perhaps, could not be afforded for interest; 
and more might be afforded if it were a good deal higher. 

In countries which are fast advancing to riches, the low rateof 



profit may, in the price of many commodities, compensate the 
high wages of labour, and enablethose countries to sell as cheap as 
their less thriving neighbours, among whom the wagesof labour 
may be lower. 

In reality, high profits tend much more to raise the price of 
work than high wages. If, in the linen manufacture, for example, 
the wages of the different working people, the flax-dressers, the 
spinners, theweavers, etc. should all of them be advanced twopence 
a-day, it would be necessary to heighten the price of a piece of 
linen only by a number of twopences equal to thenumber of people 
that had been employed about it, multiplied by the number of 
days during which they had been so employed. That part of the 
priceof thecommodity which resolved itself into the wages, would, 
through all the different stages of the manufacture, rise only in 
arithmetical proportion to this rise of wages. But if the profits of 
all the different employers of thoseworking peopleshould be raised 
five per cent, that part of the price of the commodity which re- 
solved itself into profit would, through all the different stages of 
themanufacture, risein geometrical proportion to thisriseof profit. 
Theemployerof theflaxdresserswould, in selling hisflax, require 
an additional five per cent, upon thewholevalueof thematerials 
and wages which he advanced to his workmen. Theemployerof 
thespinners would require an additional five per cent, both upon 



85 



The Wealth of Nations 



the advanced price of the flax, and upon the wages of the spin- 
ners. And theemployer of theweavers would require alikefiveper 
cent, both upon the advanced price of the linen-yarn, and upon 
the wages of theweavers. In raising the price of commodities, the 
rise of wages operates in the same manner as simple interest does 
in the accumulation of debt. T he rise of profit operates like com- 
pound interest. Our merchants and master manufacturers com- 
plain much of the bad effects of high wages in raising the price, 
and thereby lessening the sale of their goods, both at home and 
abroad. They saynothingconcerningthebad effects of high prof- 
its; they are silent with regard to the pernicious effects of their 
own gains; they complain only of those of other people. 



CHAPTER X 

OF WAGES AND PROFIT IN THE DIF- 
FERENT EMPLOYMENTSOF LABOUR 
AND STOCK 

The whole of the advantages and di sad vantages of the different 
employments of labour and stock, must, in the same 
neighbourhood, be either perfectly equal, or continually tending 
to equality. If, in thesameneighbourhood,therewasany employ- 
ment evidently either more or less advantageous than the rest, so 
many people would crowd into it in the one case, and so many 
would desert it in theother, that its advantages would soon return 
tothelevel of other employments. This, at least, would bethecase 
in a society where things were left to follow their natural course, 
where there was perfect liberty, and where every man was per- 
fectly free both to choose what occupation he thought proper, 
and to change it as of ten as he thought proper. Every man's inter- 
est would prompt him to seek the advantageous, and to shun the 
disadvantageous employment. 

Pecuniary wages and profit, indeed, are everywhere in Europe 
extremely different, according to the different employments of 
labour and stock. But this difference arises, partly from certain 



86 



Adam Smith 



circumstances in the employments themselves, which, either re- 
ally, or at least in the imagination of men, make up for a small 
pecuniary gain in some, and counterbalance a great one in others, 
and partly from the policy of Europe, which nowhere I eaves things 
at perfect liberty. 

Theparticular consideration of those circumstances, and of that 
policy, will divide this Chapter into two parts. 

PART I. Inequalitiesarisingfromthenatureoftheemployments 
themselves. 

Thefive following are the principal circumstanceswhich,sofar 
as I have been able to observe, make up for a small pecuniary gain 
in some employments, and counterbalance a great one in others. 
First, the agreeableness or disagreeableness of the employments 
themselves; secondly, the easiness and cheapness, or the difficulty 
and expense of learning them; thirdly, the constancy or incon- 
stancy of employment in them; fourthly, the small or great trust 
which must be reposed in those who exercise them; and, fifthly, 
the probability or improbability of success in them. 

First, the wages of labour vary with the ease or hardship, the 
cleanliness or dirtiness, thehonourablen ess or dishonourableness, 
of the employment. Thus in most places, take the year round, a 
journeyman tailor earns less than ajourneyman weaver. H iswork 



is much easier. A journeyman weaver earns less than a journey- 
man smith. His work is not always easier, but it is much cleanlier. 
A journeyman blacksmith, though an artificer, seldom earns so 
much in twelve hours, as a collier, who is only a labourer, does in 
eight. His work is not quite so dirty, is less dangerous, and is car- 
ried on in day-light, and above ground. H onour makes a great 
part of the reward of all honourable professions. I n point of pecu- 
niary gain, all things considered, they are generally under-recom- 
pensed, as I shall endeavour to shew by and by. D isgrace has the 
contrary effect. T he trade of a butcher is a brutal and an odious 
business; butitisin most places more profitable than thegreater 
part of common trades. T he most detestable of all employments, 
that of public executioner, is, in proportion to the quantity of 
work done, better paid than any common trade whatever. 

Hunting and fishing, themost important employmentsof man- 
kind in the rude state of society, become, in its advanced state, 
their most agreeable amusements, and they pursue for pleasure 
what they once foil owed from necessity. In the advanced state of 
society, therefore, they are all very poor people who follow as a 
trade, what other peoplepursueasa pastime. Fishermen have been 
so si nee the time of Theocritus. -{See Idyllium xxi.}. A poacher is 
everywhere a very poor man in Great Britain. In countries where 
the rigour of the law suffers no poachers, the licensed hunter is 



87 



The Wealth of Nations 



not in a much better condition. The natural taste for those em- 
ployments makes more people follow them, than can live com- 
fortably by them; and the produce of their labour, in proportion 
to its quantity, comes always too cheap to market, to afford any 
thing but the most scanty subsistence to the labourers. 

D isagreeableness and disgrace affect the profits of stock in the 
same manner as the wages of labour. The keeper of an inn or 
tavern, who is never master of his own house, and who isexposed 
to the brutality of every drunkard, exercises neither a very agree- 
able nor a very creditable business. But there is scarce any com- 
mon trade in which a small stock yields so great a profit. 

Secondly, the wages of labour vary with the easi ness and cheap- 
ness, or the difficulty and expense, of learning the business. 

W hen any expensive machine is erected, the extraordinary work 
to be performed by it before it is worn out, it must be expected, 
will replace the capital laid out upon it, with at least the ordinary 
profits. A man educated at the expense of much labour and time 
to any of those employments which require extraordinary dexter- 
ity and skill, may be compared to one of those expensive ma- 
chines. The work which helearnsto perform, itmust be expected, 
over and above theusual wages of common labour, will replace to 
himthewholeexpenseof hiseducation, with at least theordinary 
profits of an equally valuable capital. It must do thistoo in a rea- 



sonable time, regard being had to the very uncertain duration of 
human life, in thesamemannerastothemore certain duration of 
the machine. 

The difference between the wages of skilled labour and those of 
common labour, is founded upon this principle. 

The policy of Europe considers the labour of all mechanics, 
artificers, and manufacturers, as skilled labour; and that of all coun- 
try labourers us common labour. It seems to suppose that of the 
former to be of a more nice and delicate nature than that of the 
latter. It is so perhaps in some cases; but in the greater part it is 
quite otherwise, as I shall endeavour to shew by and by. The laws 
and customs of Europe, therefore, in order to qualify any person 
for exercising theonespecies of labour, impose the necessity of an 
apprenticeship, though with different degrees of rigour in differ- 
ent places. T hey leave the other free and open to every body. D ur- 
ingthecontinuanceof theapprenticeship, the whole labour of the 
apprentice belongs to his master. In the meantime he must, in 
many cases, be maintained by his parents or relations, and, in 
almost all cases, must be clothed by them. Some money, too, is 
commonly given to the master for teaching him his trade. They 
who cannot give money, give time, or become bound for more 
than theusual number of years; a consideration which, though it 
is not always advantageous to the master, on account of the usual 



88 



Adam Smith 



idleness of apprentices, is always disadvantageous to the appren- 
tice. In country labour, on the contrary, the labourer, while he is 
employed about the easier, learns the more difficult parts of his 
business, and his own labour maintains him through all the dif- 
ferent stages of hisemployment. It is reasonable, therefore, that in 
Europe the wages of mechanics, artificers, and manufacturers, 
should besomewhat higher than thoseof common labourers. They 
are so accordingly, and their superior gains make them, in most 
places, be considered as a superior rank of people. This superior- 
ity, however, is generally very small: the daily or weekly earnings 
of journeymen in the more common sorts of manufactures, such 
as those of plain linen and woollen cloth, computed at an average, 
are, in most places, very little more than the day-wages of com- 
mon labourers. Their employment, indeed, is more steady and 
uniform, and the superiority of their earnings, taking the whole 
year together, may be somewhat greater. It seems evidently, how- 
ever, to be no greater than what is sufficient to compensate the 
superior expense of their education. Education in the ingenious 
arts, and in theliberal professions, isstill moretediousand expen- 
sive. The pecuniary recompence, therefore, of painters and sculp- 
tors, of lawyers and physicians, ought to be much more liberal; 
and it is so accordingly. 
T he profits of stock seem to be very little affected by the easi- 



nessor difficulty of learning thetradein which it is employed. All 
thedifferent waysin which stock is commonly employed in great 
townsseem, in reality, to be almost equally easy and equally diffi- 
cult to learn. One branch, either of foreign or domestic trade, 
cannot well be a much more intricate business than another. 

Thirdly, the wages of labour in different occupations vary with 
the constancy or inconstancy of employment. 

Employment is much more constant in some trades than in 
others. In the greater part of manufactures, a journeyman maybe 
pretty sure of employment almost every day in the year that he is 
able to work. A mason or bricklayer, on the contrary, can work 
neither in hard frost nor in foul weather, and hisemployment at 
all other timesdependsupon theoccasional callsof hiscustomers. 
He is liable, in consequence, to be frequently without any. What 
heearns, therefore, whileheisemployed, must not only maintain 
him while he is idle, but make him some compensation for those 
anxious and desponding moments which the thought of so pre- 
cariousasituation must sometimes occasion. W here thecomputed 
earnings of the greater part of manufacturers, accordingly, arenearly 
upon a level with the day-wages of common labourers, those of 
masonsand bricklayers aregenerally from one-half more to double 
those wages. Where common labourers earn four or five shillings 
a-week, masonsand bricklayers frequently earn seven and eight; 



89 



The Wealth of Nations 



where the former earn six, thelatter often earn nineand ten; and 
where theformer earn nineand ten, as in London, thelatter com- 
monly earn fifteen and eighteen. No species of ski I led labour, how- 
ever, seems more easy to learn than that of masons and bricklay- 
ers. Chairmen in London, during the summer season, are said 
sometimes to be employed as bricklayers. The high wagesof those 
workmen, therefore, arenot so much therecompenceof their skill, 
as the compensation for the inconstancy of their employment. 

A house-carpenter seems to exercise rather a nicer and a more 
ingenious trade than a mason. In most places, however, for it is 
not universally so, his day-wages are somewhat lower. H is em- 
ployment, though it depends much, does not depend so entirely 
upon theoccasional calls of hiscustomers; and it isnot liableto be 
interrupted by the weather. 

When the trades which generally afford constant employment, 
happen in a particular place not to do so, the wages of the work- 
men always rise a good deal above their ordinary proportion to 
those of common labour. In London, almost all journeymen arti- 
ficers are liable to be called upon and dismissed by their masters 
from day to day, and from week to week, in the same manner as 
day-labourers in other places. T he lowest order of artificers, jour- 
neymen tailors, accordingly, earn their half-a-crown a-day, though 
eighteen pence may be reckoned the wages of common labour. In 



small townsand country villages, the wagesof journeymen tailors 
frequently scarce equal those of common labour; but in London 
theyareoften many weeks without employment, particularly dur- 
ing the summer. 

When the inconstancy of employment is combined with the 
hardship, disagreeableness, and dirtiness of thework, it sometimes 
raises the wages of the most common labour above those of the 
most skilful artificers. A collier working by the piece is supposed, 
at N ewcastle, to earn commonly about double, and, in manyparts 
of Scotland, about three times, the wages of common labour. H is 
high wages arise altogether from the hardship, disagreeableness, 
and dirtinessof his work. H is employment may, upon most occa- 
sions, be as constant as he pleases. The coal-heavers in London 
exercise a trade which, in hardship, dirtiness, and disagreeable- 
ness, almost equals that of colliers; and, from the unavoidable ir- 
regularity in thearrivalsof coal-ships, theemployment of thegreater 
part of them is necessarily very inconstant. If colliers, therefore, 
commonly earn doubleandtriplethewagesof common labour, it 
ought not to seem unreasonable that coal-heavers should some- 
times earn four and five times those wages. In the inquiry made 
into their condition a few years ago, it was found that, at the rate 
at which they were then paid, they could earn from six to ten 
shillings a-day. Six shillings are about four times the wages of com- 



90 



Adam Smith 



mon labour in London; and, in every particular trade, the lowest 
common earnings may always be considered as those of the far 
greater number. H ow extravagant soever those earnings may ap- 
pear, if they were more than sufficient to compensate all the dis- 
agreeable circumstances of the business, there would soon be so 
great a number of competitors, as, in a trade which has no exclu- 
sive privilege, would quickly reduce them to a lower rate. 

T heconstancy or inconstancy of employment cannot affect the 
ordinary profitsof stock in any particular trade. W hether thestock 
isor isnot constantly employed, depends, not upon thetrade, but 
the trader. 

Fourthly, the wages of labour vary according to the small or 
great trust which must be reposed in the workmen. 

T he wages of goldsmiths and jewellers are everywhere superior 
to those of many other workmen, not only of equal, but of much 
superior ingenuity, on account of the precious materials with which 
they are entrusted. Wetrust our health to the physician, our for- 
tune, and sometimes our life and reputation, to the lawyer and 
attorney. Such confidence could not safely be reposed in peopleof 
a very mean or low condition. Their reward must be such, there- 
fore, as may give them that rank in the society which so important 
a trust requires. T he long time and the great expense which must 
belaid out in their education, when combined with this circum- 



stance, necessarily enhance still further thepriceof their labour. 

When aperson employs only hisown stock in trade, there is no 
trust; and the credit which he may get from other people, de- 
pends, not upon the nature of thetrade, but upon their opinion 
of hisfortune, probity and prudence. The different rates of profit, 
therefore, in thedifferent branches of trade, can not arise from the 
different degrees of trust reposed in the traders. 

Fifthly, the wages of labour in different employments vary ac- 
cording to the probability or improbability of success in them. 

The probability that any particular person shall ever be quali- 
fied fortheemploym en tsto which heiseducated, isvery different 
in different occupations. In the greatest part of mechanic trades 
success is almost certain; but very uncertain in the liberal profes- 
sions. Putyourson apprentice to ashoemaker, thereislittledoubt 
of his learning to make a pair of shoes; but send him to study the 
law, it as at least twenty to oneif heever makes such proficiency as 
will enable him to live by the business. In a perfectly fair lottery, 
those who draw the prizes ought to gain all that is lost by those 
who draw the blanks. In a profession, where twenty fail for one 
that succeeds, that one ought to gain all that should have been 
gained by the unsuccessful twenty. The counsellor at law, who, 
perhaps, at near forty years of age, begins to make something by 
his profession, ought to receive the retribution, not only of his 



91 



The Wealth of Nations 



own so tedious and expensive education, but of that of more than 
twenty others, whoareneverlikdytomakeanythingbyit. How 
extravagant soever the fees of counsellors at law may sometimes 
appear, their real retribution is never equal to this. Compute, in 
any particular place, what islikely to be annually gained, and what 
is likely to be annually spent, by all the different workmen in any 
common trade, such as that of shoemakers or weavers, and you 
will find that the former sum will generally exceed the latter. But 
makethesamecomputation with regard to all the counsellors and 
students of law, in all the different Inns of Court, and you will 
find that their annual gains bear but a very small proportion to 
their annual expense, even though you rate the former as high, 
and the latter as low, as can well be done. T he lottery of the law, 
therefore, isvery far from being a perfectly fair lottery; and that as 
well as many other liberal and honourable professions, is, in point 
of pecuniary gain, evidently under-recompensed. 

Those professions keep their level, however, with other occupa- 
tions; and, notwithstanding these discouragements, all the most 
generous and liberal spirits are eager to crowd into them. Two 
different causes contribute to recommend them. First, the desire 
of the reputation which attends upon superior excellence in any 
of them; and, secondly, the natural confidence which every man 
has, more or less, not only in his own abilities, but in his own 



good fortune. 

To excel in any profession, in which but few arrive at medioc- 
rity, itisthe most decisive mark of what iscalled genius, or supe- 
rior talents The public admiration which attends upon such dis- 
tinguished abilities makes always a part of their reward; a greater 
or smaller, in proportion asit ishigher or lower in degree. It makes 
a considerable part of that reward in the profession of physic; a 
still greater, perhaps, in that of law; in poetry and philosophy it 
makes almost the whole. 

T here are some very agreeable and beautiful talents, of which 
thepossession commands a certain sort of admiration, but of which 
theexercise, for the sake of gain, isconsidered, whether from rea- 
son or prejudice, as a sort of public prostitution. The pecuniary 
recompence, therefore, of those who exercise them in this man- 
ner, must be sufficient, not only to pay for the time, labour, and 
expense of acquiring the talents, but for the discredit which at- 
tends the employment of them as the means of subsistence. T he 
exorbitant rewards of players, opera-singers, opera-dancers, etc. 
are founded upon those two principles; the rarity and beauty of 
thetalents, andthediscreditofemployingtheminthismanner. It 
seems absurd at first sight, that we should despise their persons, 
and yet reward their talents with themost profuse liberality. W hile 
wedotheone, however, we must of necessity do theother, Should 



92 



Adam Smith 



the public opinion or prejudice ever alter with regard to such oc- 
cupations, their pecuniary recompence would quickly diminish. 
M ore people would apply to them, and the competition would 
quickly reduce the price of their labour. Such talents, though far 
from being common, are by no means so rare as imagined. Many 
people possess them in great perfection, who disdain to makethis 
use of them; and many more are capable of acquiring them, if any 
thing could be made honourably by them. 

T heover-weening conceit which thegreater part of men haveof 
their own abilities, isan ancient evil remarked bythephilosophers 
and moralists of all ages. Their absurd presumption in their own 
good fortune has been less taken notice of. It is, however, if pos- 
sible, still more universal. There is no man living, who, when in 
tolerable health and spirits, has not some share of it. The chance 
of gain is by every man more or less over-valued, and the chance 
of loss is by most men under-valued, and by scarce any man, who 
is in tolerable health and spirits, valued more than it is worth. 

That the chance of gain is naturally overvalued, we may learn 
from the universal success of lotteries. The world neither ever saw, 
nor ever will see, a perfectly fair lottery, oronein which thewhole 
gain compensated the whole loss; because the undertaker could 
make nothing by it. I n the state lotteries, the tickets are really not 
worth the price which is paid by the original subscribers, and yet 



commonly sell in the market for twenty, thirty, and sometimes 
forty per cent, advance. The vain hopes of gaining some of the 
great prizes is the sole cause of this demand. T he soberest people 
scarce look upon it as a folly to pay a small sum for the chance of 
gaining ten or twenty thousand pounds, though they know that 
even that small sum is perhaps twenty or thirty per cent, more 
than the chance is worth. In a lottery in which no prize exceeded 
twenty pounds, though in other respects it approached much nearer 
to a perfectly faironethan thecommon state lotteries, therewould 
not be the same demand for tickets. In order to have a better 
chance for some of the great prizes, some people purchase several 
tickets; and others, small shares in a still greater number. There is 
not, however, a more certain proposition in mathematics, than 
that the more ticketsyou ad ventureupon, themorelikelyyou are 
to bea loser. Adventure upon all theticketsin the lottery, and you 
lose for certain; and the greater the number of your tickets, the 
nearer you approach to this certainty. 

That the chance of loss is frequently undervalued, and scarce 
ever valued more than it is worth, we may learn from the very 
moderate profit of insurers. In order to make insurance, either 
from fire or sea- risk, a trade at all, thecommon premium must be 
sufficient to compensate the common losses, to pay the expense 
of management, and to afford such a profit as might have been 



93 



The Wealth of Nations 



drawn from an equal capital employed in any common trade. The 
person who pays no more than this, evidently pays no more than 
the real value of the risk, or the lowest price at which he can rea- 
sonably expect to insure it. But though many people have made a 
little money by insurance, very few have made a great fortune; 
and, from this consideration alone, it seems evident enough that 
the ordinary balance of profit and loss is not more advantageous 
in this than in other common trades, by which so many people 
make fortunes. M oderate, however, as the premium of insurance 
commonly is, many people despise the risk too much to care to 
pay it. Taking the whole kingdom at an average, nineteen houses 
in twenty, or rather, perhaps, ninety-nine in a hundred, are not 
insured from fire. Sea-risk is more alarming to the greater part of 
people; and the proportion of ships insured to those not insured is 
much greater. M any sail, however, at all seasons, and even in time 
of war, without any insurance. T his may sometimes, perhaps, be 
done without any imprudence. W hen a great company, or even a 
great merchant, has twenty or thirty ships at sea, they may, as it 
were, insure oneanother. The premium saved up on them all may 
more than compensate such losses as they are likely to meet with 
in the common course of chances. T he neglect of insurance upon 
shipping, however, in thesamemannerasupon houses, is, in most 
cases, the effect of no such nice calculation, but of mere thought- 



less rashness, and presumptuous contempt of the risk. 

T he contempt of risk, and the presumptuous hope of success, 
arein no period of life more active than at theage at which young 
people choose their professions. H ow littlethefear of misfortune 
is then capable of balancing the hope of good luck, appears still 
more evidently in the readiness of the common people to enlist as 
soldiers, or to go to sea, than in the eagerness of those of better 
fashion to enter into what are called the liberal professions. 

W hat a common soldier may lose is obvious enough. W ithout 
regarding the danger, however, young volunteers never enlist so 
readily as at the beginning of a new war; and though they have 
scarce any chance of preferment, they figure to them selves, in their 
youthful fancies, a thousand occasions of acquiring honour and 
distinction which never occur. These romantic hopes make the 
whole price of their blood. T heir pay is less than that of common 
labourers, and, in actual service, their fatigues are much greater. 

The lottery of the sea is not altogether so disadvantageous as 
that of the army. T he son of a creditable labourer or artificer may 
frequently go to sea with hisfather's consent; but if he enlists as a 
soldier, it is always without it. ther people see some chance of 
his making something by theonetrade; nobody but himself sees 
any of his making any thing by the other. Thegreat admiral is less 
the object of public admiration than the great general; and the 



94 



Adam Smith 



highest success in the sea service promises a less brilliant fortune 
and reputation than equal success in the land. The same differ- 
ence runs through all the inferior degrees of preferment in both. 
By the rules of precedency, a captain in the navy ranks with a 
colonel in the army; but he does not rank with him in the com- 
mon estimation. As the great prizes in the lottery are I ess, the smaller 
ones must be more numerous. Common sailors, therefore, more 
frequently get some fortune and preferment than common sol- 
diers; and thehope of thoseprizesiswhatprinci pally recommends 
the trade. Though their skill and dexterity are much superior to 
that of almost any artificers; and though their whole life is one 
continual scene of hardship and danger; yet for all this dexterity 
and skill, for all thosehardshipsand dangers, whilethey remain in 
the condition of common sailors, they receive scarce any other 
recompence but the pleasure of exercising the one and of sur- 
mounting the other. Their wages are not greater than those of 
common labourers at theport which regulates therate of seamen's 
wages. Asthey arecontinuallygoingfrom port to port, themonthly 
pay of those who sail from all the different ports of Great Britain, 
is more nearly upon a level than that of any other workmen in 
those different places; and the rate of the port to and from which 
the greatest number sail, that is, the port of London, regulates 
that of all the rest. At London, the wages of thegreater part of the 



different classes of workmen are about double those of the same 
classes at Edinburgh. But the sailors who sail from the port of 
London, seldom earn above three or four shillingsa month more 
than those who sail from the port of Leith, and the difference is 
frequently not so great. In time of peace, and in the merchant- 
service, the London price is from a guinea to about seven-and- 
twenty shillings thecalendar month. A common labourer in Lon- 
don, at the rate of nine or ten shillings a week, may earn in the 
calendar month from forty to five-and-forty shillings. The sailor, 
indeed, over and above his pay, issupplied with provisions. Their 
value, however, may not perhaps always exceed the difference be- 
tween his pay and that of the common labourer; and though it 
sometimes should, the excess will not be clear gain to the sailor, 
because he cannot share it with his wife and family, whom he 
must maintain out of his wages at home. 

The dangers and hair-breadth escapes of a life of adventures, 
instead of disheartening young people, seem frequently to recom- 
mend a trade to them. A tender mother, among the inferior ranks 
of people, is often afraid to send her son to school at a sea-port 
town, I est the sight of the ships, and the conversation and adven- 
tures of the sailors, should entice him to go to sea. The distant 
prospect of hazards, from which we can hope to extricate our- 
selves by courage and address, is not disagreeable to us, and does 



95 



The Wealth of Nations 



not raise the wages of labour in any employment. It is otherwise 
with those in which courage and address can be of no avail. In 
trades which are known to be very unwholesome, the wages of 
labour are always remarkably high. U nwholesomeness is a species 
of disagreeableness, and its effects upon thewagesof labour are to 
be ranked under that general head. 

In all the different employments of stock, the ordinary rate of 
profit varies more or less with the certainty or uncertainty of the 
returns. These are, in general, less uncertain in the inland than in 
the foreign trade, and in some branches of foreign trade than in 
others; in thetradeto N orth America, for example, than in that to 
Jamaica. T he ordinary rate of profit always rises more or less with 
the risk, it does not, however, seem to rise in proportion to it, or so 
as to compensate it completely. Bankruptcies are most frequent in 
the most hazardoustrades. T he most hazardous of all trades, that of 
a smuggler, though, when the adventure succeeds, it is likewise the 
most profitable, is the infallible road to bankruptcy. T he presump- 
tuous hope of success seems to act here as upon all other occasions, 
and to entice so many adventurers into those hazardoustrades, that 
their competition reducestheprofit below what issufficient to com- 
pensate the risk. To compensate it completely, thecommon returns 
ought, over and above the ordinary profits of stock, not only to 
makeupforall occasional losses, but to afford asurplusprofitto the 



adventurers, of the same nature with the profit of insurers. But if 
thecommon returns weresufficientfor all this, bankruptcies would 
not be more frequent in these than in other trades. 

f the five circumstances, therefore, which vary the wages of 
labour, two only affect the profits of stock; the agreeableness or 
disagreeablen ess of thebusiness, and therisk or security with which 
it is attended. In point of agreeableness or disagreeableness, there 
is little or no difference in the far greater part of the different 
employments of stock, but a great deal in those of labour; and the 
ordinary profit of stock, though it rises with the risk, does not 
always seem to rise in proportion to it. It should follow from all 
this, that, in the same society or neighbourhood, the average and 
ordinary ratesof profit in thedifferent employmentsof stock should 
be more nearly upon a level than the pecuniary wages of the dif- 
ferent sorts of labour. 

T hey are so accordingly. Thedifference between theearnings of 
a common labourer and thoseof a well employed lawyer or physi- 
cian, is evidently much greater than that between the ordinary 
profits in any two different branches of trade. T he apparent dif- 
ference, besides, in the profits of different trades, is generally a 
deception arising from our not always distinguishing what ought 
to be considered as wages, from what ought to be considered as 
profit. 



96 



Adam Smith 



Apothecaries' profit is become a bye-word, denoting something 
uncommonly extravagant. This great apparent profit, however, is 
frequently no more than the reasonablewagesof labour. Theskill 
of an apothecary is a much nicer and more delicate matter than 
that of any artificer whatever; and the trust which is reposed in 
him is of much greater importance. H e is the physician of the 
poor in all cases, and of therich when the distress or danger isnot 
very great. H is reward, therefore, ought to be suitable to his skill 
and his trust; and it arises generally from the price at which he 
sells hisdrugs. But thewholedrugs which thebest employed apoth- 
ecary in a large market-town, will sell in a year, may not perhaps 
cost him above thirty or forty pounds. Though heshould sell them, 
therefore, for three or four hundred, or at a thousand per cent, 
profit, this may frequently be no more than the reasonable wages 
of his labour, charged, in the only way in which he can charge 
them, upon the price of his drugs. T he greater part of the appar- 
ent profit is real wages disguised in the garb of profit. 

I n a small sea-port town, a little grocer will make forty or fifty 
percent, upon a stock of a singlehundred pounds, whilea consid- 
erablewholesalemerchantin thesameplacewill scarce make eight 
or ten per cent, upon a stock of ten thousand. The trade of the 
grocer may be necessary for the conveniency of the inhabitants, 
and the narrowness of themarket may not admit theemployment 



of a larger capital in the business. The man, however, must not 
only live by his trade, but live by it suitably to the qualifications 
which it requires. Besides possessing a little capital, he must be 
able to read, write, and account and must be a tolerable judge, 
too, of perhaps fifty or sixty different sorts of goods, their prices, 
qualities, and the markets where they are to be had cheapest. H e 
must have all theknowledge, in short, that is necessary for a great 
merchant, which nothing hinders him from becoming but the 
want of a sufficient capital. Thirty or forty pounds a year cannot 
be considered as too great a recompencefor thelabour of a person 
so accomplished. Deduct this from the seemingly great profits of 
hiscapital, and littlemorewill remain, perhaps, than theordinary 
profits of stock. The greater part of the apparent profit is, in this 
case too, real wages. 

T he difference between theapparent profit of theretail and that 
of the wholesale trade, is much less in the capital than in small 
towns and country villages. Where ten thousand pounds can be 
employed in the grocery trade, the wages of the grocer's labour 
must be a very trifling addition to the real profits of so great a 
stock. The apparent profits of the wealthy retailer, therefore, are 
there more nearly upon a level with those of the wholesale mer- 
chant. It is upon this account that goods sold by retail are gener- 
ally as cheap, and frequently much cheaper, in the capital than in 



97 



The Wealth of Nations 



small townsand country villages. Grocery goods, for example, are 
generally much cheaper; bread and butchers' meat frequently as 
cheap. It costs no more to bring grocery goods to the great town 
than to thecountry village; but it costs a great deal more to bring 
corn and cattle, as the greater part of them must be brought from 
a much greater distance. T he prime cost of grocery goods, there- 
fore, being the same in both places, they are cheapest where the 
least profit is charged upon them. The prime cost of bread and 
butchers' meat is greater in the great town than in the country 
village; and though the profit is less, therefore they are not always 
cheaper there, but often equally cheap. In such articles as bread 
and butchers' meat, the same cause which diminishes apparent 
profit, increases prime cost. The extent of the market, by giving 
employment to greater stocks, diminishes apparent profit; but by 
requiring supplies from a greater distance, it increases primecost. 
This diminution of the one and increase of the other, seem, in 
most cases, nearly to counterbalance one another; which is prob- 
ably the reason that, though the prices of corn and cattle are com- 
monly very different in different parts of the kingdom, those of 
bread and butchers' meat are generally very nearly the same through 
the greater part of it. 

Though the profits of stock, both in the wholesale and retail 
trade, are generally less in the capital than in small towns and 



country villages, yet great fortunes are frequently acquired from 
small beginnings in the former, and scarce ever in the latter. In 
small townsand country villages, on account of the narrowness of 
the market, trade cannot always be extended as stock extends. I n 
such places, therefore, though therateof a particular person's profits 
may be very high, the sum or amount of them can never be very 
great, nor consequently that of his annual accumulation. In great 
towns, on the contrary, trade can be extended as stock increases, 
and the credit of a frugal and thriving man increases much faster 
than hisstock. H istrade is extended in proportion totheamount 
of both; and the sum or amount of his profits is in proportion to 
the extent of his trade, and his annual accumulation in propor- 
tion to the amount of his profits. It seldom happens, however, 
that great fortunesare made, even in great towns, by any oneregu- 
lar, established, and well-known branch of business, but in conse- 
quence of a long life of industry, frugality, and attention. Sudden 
fortunes, indeed, are sometimes made in such places, by what is 
called thetradeof speculation. T hespeculative merchant exercises 
nooneregular, established, or well-known branch of business. H e 
isacorn merchant this year, and a wine merchant the next, and a 
sugar, tobacco, or tea merchant the year after. H e enters i nto every 
trade, when he foresees that it islikely to liemorethan commonly 
profitable, and he quits it when he foresees that its profits are 



98 



Adam Smith 



likely to return to the level of other trades. H is profits and losses, 
therefore, can bear no regular proportion to those of any one es- 
tablished and well-known branch of business. A bold adventurer 
may sometimes acquire a considerable fortune by two or three 
successful speculations, but is just as likely to lose one by two or 
three unsuccessful ones. This trade can be carried on nowhere but 
in great towns. It isonly in placesof the most extensive commerce 
and correspondence that the intelligence requisite for it can be 
had. 

Thefivecircumstancesabovementioned, though they occasion 
considerableinequalitiesin thewages of labourand profitsof stock, 
occasion none in the whole of the advantages and disadvantages, 
real or imaginary, of the different employments of either. The na- 
ture of those circumstances is such, that they make up for a small 
pecuniary gain in some, and counterbalance a great one in others. 

In order, however, that thisequality may takeplaceinthewhole 
of their advantages or disadvantages, three things are requisite, 
even where there is the most perfect freedom. First the employ- 
ments must be well known and long established in the 
neighbourhood; secondly, they must be in their ordinary, or what 
may be called their natural state; and, thirdly, they must be the 
sole or principal employments of those who occupy them. 

First, Thisequality can take place only in those employments 



which are well known, and have been long established in the 
neighbourhood. 

Where all other circumstances are equal, wages are generally 
higher in new than in old trades. When a projector attempts to 
establish a new manufacture, he must at first entice his workmen 
from other employments, by higher wages than they can either 
earn in their own trades, or than the nature of his work would 
otherwise require; and a considerable time must pass away before 
he can venture to reduce them to the common level. M anufac- 
tures for which the demand arises altogether from fashion and 
fancy, are continually changing, and seldom last long enough to 
be considered as old established manufactures. Those, on thecon- 
trary, for which the demand arises chiefly from use or necessity, 
are less liable to change, and the same form or fabric may con- 
tinued demand for wholecenturies together. The wagesof labour, 
therefore, are likely to be higher in manufactures of the former, 
than in thoseof the latter kind. Birmingham dealschiefly in manu- 
factures of the former kind; Sheffield in those of the latter; and 
the wages of labour in those two different places are said to be 
suitable to this difference in the nature of their manufactures. 

T he establishment of any new manufacture, of any new branch 
of commerce, or of any new practice in agriculture, is always a 
speculation from which the projector promises himself extraordi- 



99 



The Wealth of Nations 



nary profits. These profits sometimes are very great, and some- 
times, more frequently, perhaps, they are quite otherwise; but, in 
general, they bear no regular proportion to thoseof other old trades 
in theneighbourhood. If theproject succeeds, they are commonly 
at first very high. W hen the tradeor practice becomes thoroughly 
established and well known, the competition reducesthemtothe 
level of other trades. 

Secondly, this equality in the whole of the advantages and dis- 
advantages of thedifferent employments of labour and stock, can 
take place only in the ordinary, or what may be called the natural 
state of those employments. 

T hedemand for almost every different species of labour issome- 
times greater, and sometimes less than usual. In theonecase, the 
advantages of the employment rise above, in the other they fall 
below thecommon level. T hedemand for country labour isgreater 
at hay-time and harvest than during the greater part of the year; 
and wages rise with the demand. In time of war, when forty or 
fifty thousand sailors are forced from the merchant service into 
that of the king, the demand for sailors to merchant ships neces- 
sarily rises with their scarcity; and their wages, upon such occa- 
sions, commonly rise from a guinea and seven-and-twenty shil- 
lings to forty shilling's and three pounds a-month. In a decaying 
manufacture, on the contrary, many workmen, rather than quit 



their own trade, are contented with smaller wages than would 
otherwise be suitable to the nature of their employment. 

T he profits of stock vary with the price of the commodities in 
which it is employed. As the price of any commodity rises above 
the ordi nary or average rate, the profits of at least some part of the 
stock that is employed in bringing it to market, rise above their 
proper level, and asitfallsthey sink below it. All commodities are 
moreor lessliableto variationsof price, but some are much more 
so than others. In all commoditieswhich are produced byhuman 
industry, the quantity of industry annually employed is necessar- 
ily regulated by the annual demand, in such a manner that the 
average annual produce may, as nearly as possible, be equal to the 
average annual consumption. In someemployments, ithasalready 
been observed, thesame quantity of industry will always produce 
thesame, or very nearly the same quantity of commodities. In the 
linen or woollen manufactures, for example, the same number of 
handswill annually work up very nearly thesamequantity of linen 
and woollen cloth. Thevariationsin themarket price of such com- 
modities, therefore, can ariseonlyfrom some accidental variation 
in thedemand. A public mourning raises the price of black cloth. 
But asthedemand for most sortsof plain linen and woollen cloth 
is pretty uniform, so islikewisetheprice. But there are other em- 
ployments in which thesamequantity of industry will not always 



100 



Adam Smith 



produce the same quantity of commodities. T he same quantity of 
industry for example, will, in different years, produce very differ- 
ent quantities of corn, wine, hops, sugar tobacco, etc.Thepriceof 
such commodities, therefore, varies not only with the variations 
of demand, but with the much greater and more frequent varia- 
tions of quantity, and is consequently extremely fluctuating; but 
the profit of some of the dealers must necessarily fluctuate with 
the price of the commodities. The operations of the speculative 
merchant are principally employed about such commodities. H e 
endeavours to buy them up when he foresees that their price is 
likely to rise, and to sell them when it is likely to fall. 

Thirdly, thisequality in the whole of the advantages and disad- 
vantages of the different employments of labour and stock, can 
take pi ace only in such as are the sole or principal employmentsof 
those who occupy them. 

W hen a person derives his subsistence from one employment, 
which doesnot occupy thegreater part of histime, intheintervals 
of his leisure he is often willing to work at another for less wages 
than would otherwise suit the nature of the employment. 

There still subsists, in many parts of Scotland, a set of people 
called cottars or cottagers, though they were more frequent some 
years ago than they are now. T hey are a sort of out-servants of the 
landlords and farmers. The usual reward which they receive from 



their master is a house, a small garden for pot-herbs, as much 
grass as will feed acow, and, perhaps, an acre or two of bad arable 
land. When their master has occasion for their labour, he gives 
them, besides, two pecks of oatmeal a-week, worth about sixteen 
pence sterling. During a great part of the year, he has little or no 
occasion for their labour, and the cultivation of their own little 
possession isnotsufficienttooccupythetimewhich isleft at their 
own disposal. When such occupiers were more numerous than 
they are at present, they are said to have been willing to give their 
spare time for a very small recompenceto any body, and to have 
wrought for less wages than other labourers. I n ancient times, they 
seem to have been common all over Europe. In countriesill culti- 
vated, and worseinhabited, thegreater part of landlordsand farm- 
ers could not otherwise providethem selves with the extraordinary 
number of hands which country labour requires at certain sea- 
sons. Thedaily or weekly recompence which such labourers occa- 
sionally received from their masters, was evidently not the whole 
price of their labour. Their small tenement made a considerable 
part of it. This daily or weekly recompence, however, seems to 
have been considered as thewholeof it, by many writers who have 
collected the prices of labour and provisions in ancient times, and 
who have taken pleasure in representing both as wonderfully low. 
T he produce of such labour comes frequently cheaper to mar- 



101 



The Wealth of Nations 



ket than would otherwise be suitable to its nature. Stockings, in 
many partsof Scotland, are knit much cheaper than they can any- 
where be wrought upon the loom. T hey are the work of servants 
and labourers who derive the principal part of their subsistence 
from some other employment. More than athousand pairof Sh- 
etland stockings are annually imported into Leith, of which the 
priceisfrom fivepenceto seven-pencea pair. At Lerwick, thesmall 
capital of the Shetland islands, tenpence a-day, I have been as- 
sured, is a common price of common labour. In the same islands, 
they knit worsted stockings to the value of a guinea a pair and 
upwards. 

The spinning of linen yarn is carried on in Scotland nearly in 
the same way as the knitting of stockings, by servants, who are 
chiefly hired for other purposes T hey earn but a very scanty sub- 
sistence, who endeavour to get their livelihood by either of those 
trades. I n most parts of Scotland, she is a good spinner who can 
earn twentypencea-week. 

I n opulent countries, the market is generally so extensive, that 
any one trade is sufficient to employ the whole labour and stock 
of those who occupy it. Instances of people living by oneemploy- 
ment, and, at the same time, deriving some little advantage from 
another, occur chiefly in pour countries. The following instance, 
however, of something of the same kind, is to be found in the 



capital of a very rich one. There is no city in Europe, I believe, in 
which house-rent is dearer than in London, and yet I know no 
capital in which a furnished apartment can be hired so cheap. 
Lodging is not only much cheaper in London than in Paris; it is 
much cheaper than in Edinburgh, of the same degree of goodness; 
and, what may seem extraordinary, the dearness of house-rent is 
the cause of the cheapness of lodgi ng. T he dearness of house-rent 
in London arises, not only from those causes which render it dear 
in all great capitals, the dearness of labour, the dearness of all the 
materials of building, which must generally be brought from a 
great distance, and, above all, the dearness of ground-rent, every 
landlord acting the part of a monopolist, and frequently exacting 
a higher rent for a single acre of bad land in a town, than can be 
had for a hundred of the best in the country; but it arises in part 
from thepeculiar manners and customsof thepeople, which oblige 
every master of a family to hire a whole house from top to bot- 
tom. A dwelling-house in England means every thing that is con- 
tained under the same roof. In France, Scotland, and many other 
partsof Europe, it frequently means no more than a single storey. 
A tradesman in London is obliged to hire a whole house in that 
part of the town where his customers live. H is shop is upon the 
ground floor, and he and his family sleep in the garret; and he 
endeavoursto pay a part of his house-rent by letting thetwo middle 



102 



Adam Smith 



storeys to lodgers. H eexpectsto maintain hisfamily by histrade, 
and not by his lodgers. W hereas at Paris and Edinburgh, people 
who let lodgings have commonly no other means of subsistence; 
and the price of the lodging must pay, not only the rent of the 
house, but the whole expense of the family. 

PART II.— Inequalities occasioned by the Policy of Europe. 

Such are the inequalities in the whole of the advantages and 
disadvantages of the different employments of labour and stock, 
which the defect of any of the three requisites above mentioned 
must occasion, even where there is the most perfect liberty. But 
thepolicy of Europe, by not leaving things at perfect liberty, occa- 
sions other inequalities of much greater importance. 

Itdoesthischiefly in thethree following ways. First, by restrain- 
ing the competition in some employments to a smaller number 
than would otherwise be disposed to enter into them; secondly, 
by increasing it in others beyond what it naturally would be; and, 
thirdly, by obstructing the free circulation of labour and stock, 
both from employment to employment, and from place to place. 

First, The policy of Europe occasions a very important inequal- 
ity in the whole of the advantages and disadvantages of thediffer- 
ent employmentsof labour and stock, by restraining thecompeti- 
tion in someemploymentsto a smaller number than might other- 



wise be disposed to enter into them. 

The exclusive privilegesofcorporationsare the principal means 
it makes use of for this purpose. 

The exclusive privilege of an incorporated trade necessarily re- 
strains the competition, in the town where it is established, to 
those who are free of the trade. To have served an apprenticeship 
in the town, under a master properly qualified, is commonly the 
necessary requisite for obtaining this freedom. The bye-laws of 
the corporation regulate sometimes the number of apprentices 
which any master is all owed to have, and almost always thenum- 
ber of years which each apprentice is obliged to serve. The inten- 
tion of both regulations is to restrain the competition to a much 
smaller number than might otherwise be disposed to enter into 
the trade. T he limitation of the number of apprentices restrains it 
directly. A longterm of apprenticeship restrainsit moreindirectly, 
but as effectually, by increasing the expense of education. 

In Sheffield, no master cutler can have more than one appren- 
tice at a time, by a bye-law of the corporation. In Norfolk and 
N orwich, no master weaver can have more than two apprentices, 
under pain of forfeiting five pounds a-month to the king. No 
master hatter can have more than two apprentices anywhere in 
England, or in the English plantations, under pain of forfeiting; 
five pounds a-month, half to the king, and half to him who shall 



103 



The Wealth of Nations 



sue in any court of record. Both these regulations, though they 
have been confirmed by a public law of the kingdom, are evi- 
dently dictated by the same corporation-spirit which enacted the 
bye-law of Sheffield. Thesilk-weaversin London had scarce been 
incorporated a year, when they enacted a bye-law, restraining any 
master from having more than two apprentices at a time. It re 
quired a particular act of parliament to rescind this bye-law. 

Seven years seem anciently to have been, all over Europe, the 
usual term established for the duration of apprenticeships in the 
greater part of incorporated trades. All such incorporations were 
anciently called universities, which, indeed, is the proper Latin 
name for any incorporation whatever. The university of smiths, 
the university of tailors, etc. are expressions which wecommonly 
meet with in the old charters of ancient towns. When those par- 
ticular incorporations, which are now peculiarly called universi- 
ties, werefirst established, theterm of years which it was necessary 
to study, in order to obtain the degree of master of arts, appears 
evidently to have been copied from theterm of apprenticeship in 
common trades, of which the incorporations were much more 
ancient. As to have wrought seven years under a master properly 
qualified, was necessary, in order to entitle my person to become a 
master, and to have himself apprentices in a common trade; so to 
have studied seven years under a master properly qualified, was 



necessary to entitle him to become a master, teacher, or doctor 
(words anciently synonymous), in the liberal arts, and to have 
scholars or apprentices(wordslikewiseoriginally synonymous) to 
study under him. 

By the 5th of Elizabeth, commonly called the Statute of Ap- 
prenticeship, it was en acted, that no person should, for thefuture, 
exercise any trade, craft, or mystery, at that time exercised in En- 
gland, unless he had previously served to it an apprenticeship of 
seven years at least; and what before had been the bye-law of many 
particular corporations, becamein England the general and pub- 
lic law of all trades carried on in market towns. For though the 
words of the statute are very general, and seem plainly to include 
thewholekingdom, by interpretation its operation has been lim- 
ited to market towns; it having been held that, in country villages, 
a person may exercise several different trades, though he has not 
served a seven years apprenticeship to each, they being necessary 
for the conveniency of the inhabitants, and the number of people 
frequently not being sufficient to supply each with a particular set 
of hands. By a strict interpretation of the words, too, the opera- 
tion of this statute has been limited to those trades which were 
established in England before the 5th of Elizabeth, and has never 
been extended to such as have been introduced since that time. 
This limitation has given occasion to several distinctions, which, 



104 



Adam Smith 



considered as rules of police, appear as foolish as can well beimag- 
ined. It has been adjudged, for example, that a coach-maker can 
neither himself make nor employ journeymen to make hiscoach- 
wheels, but must buy them of a master wheel-wright; this latter 
trade having been exercised in England before the 5th of Eliza- 
beth. But a wheel-wright, though he has never served an appren- 
ticeship to a coachmaker, may either himself makeor employ jour- 
neymen to make coaches; the trade of a coachmaker not being 
within the statute, because not exercised in England at the time 
when it was made. The manufactures of M anchester, Birming- 
ham, and Wolverhampton, are many of them, upon this account, 
not within the statute, not having been exercised in England be- 
fore the 5th of Elizabeth. 

In France, theduration of apprenticeships isdifferent in differ- 
ent towns and in different trades. In Paris, five years is the term 
required in a great number; but, before any person can be quali- 
fied to exercise the trade as a master, he must, in many of them, 
serve five years more as a journeyman. During this latter term, he 
is called thecompanion of hismaster, and theterm itself is called 
his companionship. 

In Scotland, there is no general law which regulates universally 
the duration of apprenticeships. Theterm is different in different 
corporations. Where it is long, a part of it may generally be re- 



deemed by paying a small fine. In most towns, too, a very small fine 
is sufficient to purchase thefreedom of any corporation. Theweav- 
ers of linen and hempen cloth, the principal manufactures of the 
country, as well as all other artificers subservient to them, wheel- 
makers, reel-makers, etc. may exercise their tradesin anytown-cor- 
porate without paying any fine. In all towns-corporate, all persons 
are free to sell butchers' meat upon any lawful day of the week. 
Threeyearsis, in Scotland, acommon term of apprenticeship, even 
in some very nice trades; and, in general, I know of no country in 
Europe, in which corporation laws are so little oppressive. 

The property which every man hasin hisown labour, as it isthe 
original foundation of all other property, so it is the most sacred 
and inviolable. The patrimony of a poor man lies in the strength 
and dexterity of his hands; and to hinder him from employing 
thisstrength and dexterity in what manner hethinksproper, with- 
out injury to his neighbour, isa plain violation of this most sacred 
property. It isa manifest encroachment upon thejust liberty, both 
of the workman, and of those who might be disposed to employ 
him. As it hinders theonefrom working at what hethinksproper, 
so it hinders theothers from employing whom they think proper. 
To judge whether he is fit to be employed, may surely be trusted 
to the discretion of the employers, whose interest it so much con- 
cerns. T he affected anxiety of the lawgiver, lest they should em- 



105 



The Wealth of Nations 



ploy an improper person, is evidently as impertinent as it is op- 
pressive. 

T he institution of long apprenticeships can giveno security that 
insufficient workmanship shall not frequently be exposed to pub- 
lic sale. When this is done, it is generally the effect of fraud, and 
not of inability; and the longest apprenticeship can give no secu- 
rity against fraud. Q uitedifferent regulations are necessary to pre- 
vent this abuse. The sterling mark upon plate, and the stamps 
upon linen and woollen cloth, give the purchaser much greater 
security than any statute of apprenticeship. He generally looks at 
these, but never thinksit worth whileto enquire whether thework- 
man had served a seven years apprenticeship. 

Theinstitution of long apprenticeships hasno tendency to form 
young people to industry. A journeyman who works by the piece 
is likely to be industrious, because he derives a benefit from every 
exertion of his industry. An apprentice is likely to be idle, and 
almost always is so, because he has no immediate interest to be 
otherwise. I n the inferior employments, thesweetsof labour con- 
sist altogether in the recompence of labour. T hey who are soonest 
in a condition to enjoy the sweets of it, are likely soonest to con- 
ceive a relish for it, and to acquire the early habit of industry. A 
young man naturally conceives an aversion to labour, when for a 
long ti me he receives no benefit from it. T he boys who are put out 



apprentices from public charities are generally bound for more 
than the usual number of years, and they generally turn out very 
idle and worthless. 

Apprenticeships were altogether unknown to the ancients. The 
reciprocal duties of master and apprentice make a considerable ar- 
ticle in every modern code. The Roman law is perfectly silent with 
regard to them. I know no Greek or Latin word (I might venture, I 
believe, to assert that thereisnone) which expressestheideawenow 
annex to the word apprentice, a servant bound to work at a particu- 
lar trade for the benefit of a master, during a term of years, upon 
condition that the master shall teach him that trade. 

Long apprenticeshipsare altogether unnecessary. T hearts, which 
are much superior to common trades, such as those of making 
clocks and watches, contain no such mystery as to require a long 
course of instruction. The first invention of such beautiful ma- 
chines, indeed, and even that of someoftheinstruments employed 
in making them, must no doubt have been the work of deep 
thought and long time, and may justly be considered as among 
the happiest efforts of human ingenuity. But when both have been 
fairly invented, and are well understood, to explain to any young 
man, in the completest manner, how to apply the instruments, 
and how to construct themachines, cannot well require more than 
the lessons of a few weeks; perhaps those of a few days might be 



106 



Adam Smith 



sufficient. In the common mechanic trades, those of a few days 
might certainly be sufficient. The dexterity of hand, indeed, even 
in common trades, cannot be acquired without much practice 
and experience. But a young man would practice with much more 
diligence and attention, if from the beginning he wrought as a 
journeyman, being paid in proportion to the little work which he 
could execute, and paying in his turn for the materials which he 
might sometimes spoil through awkwardness and inexperience. 
H iseducation would generally in this way be more effectual, and 
always less tedious and expensive. The master, indeed, would be a 
loser. H ewould lose all thewagesof theapprentice, which henow 
saves, for seven years together. I n theend, perhaps, theapprentice 
himself would bealoser. In a trade so easily learnt he would have 
more competitors, and his wages, when hecameto bea complete 
workman, would be much less than at present. The same increase 
of competition would reduce the profits of the masters, as well as 
thewagesof workmen. T hetrades, thecrafts, themysteries, would 
all be losers. But the public would be a gainer, the work of all 
artificers coming in this way much cheaper to market. 

It isto prevent hisreduction of price, and consequently of wages 
and profit, by restraining that freecompetition which would most 
certainly occasion it, that all corporations, and thegreater part of 
corporation lawshavebeen established. In order to erect a corpo- 



ration, no other authority in ancient times was requisite, in many 
parts of Europe, but that of the town-corporate in which it was 
established. In England, indeed, a charter from the king was I ike- 
wise necessary. But this prerogative of the crown seems to have 
been reserved rather for extorting money from the subject, than 
for the defence of the common liberty against such oppressive 
monopolies. U pon paying a fine to the king, the charter seems 
generally to have been readily granted; and when any particular 
class of artificers or traders thought proper to act as a corporation, 
without a charter, such adulterineguilds, as they were called, were 
not always disfranchised upon that account, but obliged to fine 
annually to the king, for permission to exercise their usurped privi- 
leges {See M adox Firma Burgi p. 26 etc.}. The immediate inspec- 
tion of all corporations, and of the bye-laws which they might 
think proper to enact for their own government, belonged to the 
town-corporate in which they were established; and whatever dis- 
cipline was exercised over them, proceeded commonly, not from 
theking, but from that greater incorporation of which those sub- 
ordinate ones were only parts or members. 

T hegovernment of towns-corporate was altogether in the hands 
of traders and artificers, and it was the manifest interest of every 
particular class of them, to prevent the market from being over- 
stocked, as they commonly express it, with their own particular 



107 



The Wealth of Nations 



species of industry; which is in reality to keep it always 
understocked. Each dasswas eager to establish regulations proper 
for this purpose, and, provided it was all owed to do so, was will- 
ing to consent that every other class should do thesame. I n conse- 
quence of such regulations, indeed, each class was obliged to buy 
thegoodstheyhad occasion for from every other within thetown, 
somewhat dearer than they otherwise might have done. But, in 
recompence, they were enabled to sell their own just asmuch dearer; 
so that, so far it was as broad as long, as they say; and in the 
dealings of thedifferent classes within thetown with one an other, 
none of them were losers by these regulations. But in their deal- 
ings with the country they were all great gainers; and in these 
latter dealings consist the whole trade which supports and en- 
riches every town. 

Every town draws its whole subsistence, and all the materials of 
its industry, from the: country. It pays for these chiefly in two 
ways. First, by sending back to the country a part of those materi- 
als wrought up and manufactured; in which case, their price is 
augmented by the wages of the workmen, and the profits of their 
masters or immediate employers; secondly, by sending to it a part 
both of therudeand manufactured produce, either of other coun- 
tries, or of distant parts of the same country, imported into the 
town; in which case, too, the original price of those goods is aug- 



mented bythewagesof thecarriersor sailors, and by the profits of 
themerchants who employ them. In whatisgained upon thefirst 
of those branches of commerce, consists the advantage which the 
town makes by its manufactures; in what is gained upon the sec- 
ond, the advantage of its inland and foreign trade. The wages of 
the workmen, and the profits of their different employers, make 
up the whole of whatisgained upon both. Whatever regulations, 
therefore, tend to increase those wages and profits beyond what 
they otherwise: would be, tend to enable the town to purchase, 
with asmaller quantity of itslabour, theproduceofagreaterquan- 
tity of the labour of the country. T hey give the traders and artifi- 
cers in the town an advantage over the landlords, farmers, and 
labourers, in the country, and break down that natural equality 
which would otherwise take place in the commerce which iscar- 
riedon between them. T he wholeannual produce of thelabour of 
thesociety isannually divided between those two different sets of 
people. Bymeansofthoseregulations, a greater share of it isgiven 
to the inhabitants of thetown than would otherwise fall to them, 
and a less to those of 'the country. 

The price which the town really pays for the provisions and 
materials annually imported into it, is the quantity of manufac- 
tures and other goods annually exported from it. T he dearer the 
latter are sold, the cheaper theformer are bought. T he industry of 



108 



Adam Smith 



the town becomes more, and that of the country less advanta- 
geous. 

That the industry which is carried on in towns is, everywhere in 
Europe, more advantageous than that which is carried on in the 
country, without entering into any very nicecomputations, wemay 
satisfy ourselves by one very simple and obvious observation. In 
every country of Europe, we find at least a hundred people who 
have acquired great fortunes, from small beginnings, by trade and 
manufactures, the industry which properly belongs to towns, for 
one who hasdoneso by that which properly bdongsto thecountry, 
the raising of rude produce by the improvement and cultivation of 
land. I ndustry, therefore, must be better rewarded, thewagesof labour 
and the profits of stock must evidently be greater, in the one situa- 
tion than in the other. But stock and labour naturally seek themost 
advantageous employment. They naturally, therefore, resort asmuch 
as they can to the town, and desert the country. 

The inhabitants of a town being collected into one place, can 
easily combine together. The most insignificant trades carried on 
in towns have, accordingly, in some place or other, been incorpo- 
rated; and even where they havenever been incorporated, yet the 
corporation-spirit, the jealousy of strangers, the aversion to take 
apprentices, or to communicate thesecret of theirtrade, generally 
prevail in them, and often teach them, by voluntary associations 



and agreements, to prevent that free competition which they can- 
not prohibit by bye-laws. The trades which employ but a small 
number of hands, run most easily into such combinations. H alf- 
a-dozen wool-combers, perhaps, are necessary to keep a thousand 
spinners and weavers at work. By combining not to take appren- 
tices, they can not only engross the employment, but reduce the 
whole manufacture into a sort of slavery to themselves, and raise 
the price of their labour much above what is due to the nature of 
their work. 

The inhabitants of thecountry, dispersed in distant places, can- 
not easily combinetogether. T hey have not only never been incor- 
porated, but the incorporation spirit never has prevailed among 
them. N o apprenticeship has ever been thought necessary to qualify 
for husbandry, the great trade of thecountry. After what are called 
thefinearts, and theliberal professions, however, there is perhaps 
notradewhich requ ires so great a variety of knowledge and expe- 
rience.Theinnumerablevolumes which have been written upon 
it in all languages, may satisfy us, that among the wisest and most 
learned nations, it has never been regarded as a matter very easily 
understood. And from all those volumes we shall in vain attempt 
to collect that knowledge of its various and complicated opera- 
tions which is commonly possessed even by the common farmer; 
how contemptuously soever the very contemptible authors of some 



109 



The Wealth of Nations 



of them may sometimes affect to speak of him. There isscarce any 
common mechanic trade, on the contrary of which all the opera- 
tions may not be as completely and distinctly explained in a pam- 
phlet of a very few pages, as it is possiblefor words illustrated by 
figures to explain them. In the history of the arts, now publishing 
by the French Academy of Sciences, several of them are actually 
explained in this manner. The direction of operations, besides, 
which must be varied with every change of the weather, as well as 
with many other accidents, requires much more judgment and 
discretion, than that of those which are always the same, or very 
nearly the same. 

Not only the art of the farmer, the general direction of the op- 
erations of husbandry, but many inferior branches of country 
labour require much more skill and experience than the greater 
part of mechanic trades. T heman who works upon brass and iron, 
works with instruments, and upon materialsof which thetemper 
is always the same, or very nearly the same. But the man who 
ploughs the ground with a team of horses or oxen, works with 
instruments of which the health, strength, and temper, are very 
different upon different occasions. Thecondition of the materials 
which he works upon, too, isasvariableasthatoftheinstruments 
which heworkswith, and both require to bemanaged with much 
judgmentand discretion. Thecommon ploughman, though gen- 



erally regarded as the pattern of stupidity and ignorance, is sel- 
dom defective in this judgment and discretion. He is less accus- 
tomed, indeed, to social intercourse, than themechanic who lives 
in a town. His voice and language are more uncouth, and more 
difficult to be understood by those who are not used to them. H is 
understanding, however, being accustomed to consider a greater 
variety of objects, is generally much superior to that of the other, 
whose whole attention, from morning till night, is commonly 
occupied in performing one or two very simple operations. How 
much the lower ranks of people in the country are really superior 
to those of the town, is well known to every man whom either 
businessor curiosity hasled to conversemuch with both. I n C hina 
and Indostan, accordingly, both the rank and the wages of coun- 
try labourers are said to be superior to those of the greater part of 
artificers and manufacturers. They would probably be so every- 
where, if corporation laws and the corporation spirit did not pre- 
vent it. 

T hesuperiority which the industry of thetowns has everywhere 
in Europe over that of the country, is not altogether owing to 
corporations and corporation laws. Itissupported by many other 
regulations.Thehigh dutiesupon foreign manufactures, and upon 
all goods imported by alien merchants, all tend to the same pur- 
pose. Corporation laws enable the inhabitants of towns to raise 



110 



Adam Smith 



their prices, without fearing to be undersold by the free com peti- 
tion of theirown countrymen. Thoseotherregulationssecure them 
equally against that of foreigners. T heenhancement of price occa- 
sioned by both is everywhere finally paid by the landlords, farm- 
ers, and labourers, of the country, who have seldom opposed the 
establishment of such monopolies. T hey have commonly neither 
inclination nor fitness to enter into combinations; and thedamour 
and sophistry of merchants and manufacturers easily persuade 
them, that the private interest of apart, and of a subordinate part, 
of thesociety, isthe general interest of the whole. 

In Great Britain, the superiority of the industry of the towns 
over that of thecountryseemsto have been greater formerly than 
in thepresenttimes.Thewagesofcountrylabour approach nearer 
to those of manufacturing labour, and the profits of stock em- 
ployed in agriculture to those of trading and manufacturing stock, 
than they are said to have none in the last century, or in the begin- 
ning of the present. Thischange may be regarded as the necessary, 
though very late consequence of the extraordinary encouragement 
given to the industry of the towns. The stocks accumulated in 
them come in time to be so great, that it can no longer be em- 
ployed with theancient profit in that species of industry which is 
peculiar to them. That industry has its limits like every other; and 
the increase of stock, by increasing the competition, necessarily 



reduces the profit. T he lowering of profit in the town forces out 
stock to the country, where, by creating a new demand for coun- 
try labour, it necessarily raises its wages. It then spreads itself, if I 
my say so, over the face of the land, and, by being employed in 
agriculture, is in part restored to the country, at the expense of 
which, in a great measure, it had originally been accumulated in 
the town. That everywhere in Europe the greatest improvements 
of thecountry have been owingtosuch overflowingsofthestock 
originally accumulated in the towns, I shall endeavour to shew 
hereafter, and at the same time to demonstrate, that though some 
countries have, by thiscourse, attained to aconsiderabledegree of 
opulence, itisin itself necessarily slow, uncertain, liableto bedis- 
turbed and interrupted by innumerable accidents, and, in every 
respect, contrary to the order of nature and of reason The inter- 
ests, prejudices, laws, and customs, which have given occasion to 
it, I shall endeavour to explain as fully and distinctly as I can in 
thethird and fourth books of this Inquiry. 

People of the same trade seldom meet together, even for merri- 
ment and diversion, but the conversation ends in a conspiracy 
against the public, or in some contrivance to raise prices. It is 
impossible, indeed, to prevent such meetings, by any law which 
either could be executed, or would be consistent with liberty and 
justice. But though thelaw cannot hinder peopleof thesametrade 



111 



The Wealth of Nations 



from sometimes assembling together, it ought to do nothing to 
facilitate such assemblies, much less to render them necessary. 

A regulation which obliges all those of the same trade in a par- 
ticular town to enter their names and places of abode in a public 
register, facilitates such assemblies. It connects individuals who 
might never otherwise be known to one another, and gives every 
man of the trade a direction whereto find every other man of it. 

A regulation which enables those of the same trade to tax them- 
selves, in order to provide for their poor, their sick, their widows 
and orphans, by giving them a common interest to manage, ren- 
ders such assemblies necessary. 

An incorporation not only renders them necessary, but makes 
theact of the majority binding upon thewhole. In a free trade, an 
effectual combination cannot be established but by the unani- 
mous consent of every single trader, and it cannot last longer than 
every single trader continues of the same mind. The majority of a 
corporation can enact a bye- 1 aw, with proper penalties, which will 
limit the competition more effectually and moredurablythan any 
voluntary combination whatever. 

T he pretence that corporations are necessary for the better gov- 
ernment of the trade, is without any foundation. The real and 
effectual disciplinewhich isexercised over a workman, isnotthat 
of hiscorporation, butthatof his customers. It isthefear of losing 



their employment which restrainshisfraudsandcorrectshisneg- 
ligence. An exclusive corporation necessarily weakens the force of 
this discipline. A particular set of workmen must then be em- 
ployed, let them behave well or ill. It is upon this account that, in 
many large incorporated towns, no tolerable workmen are to be 
found, even in some of the most necessary trades. If you would 
have your work tolerably executed, it must be done in the sub- 
urbs, where theworkmen, having no exclusive privilege, havenoth- 
ing but their character to depend upon, and you must then smuggle 
it into the town as well as you can. 

Itisin thismanner that thepolicy of Europe, by restraining the 
competition in someemploym en ts to asmaller number than would 
otherwise bedisposed to enterinto them, occasions a very impor- 
tant inequality in the whole of the advantages and disadvantages 
of the different employments of labour and stock. 

Secondly, The policy of Europe, by in creasing the com petition 
in some employments beyond what it naturally would be, occa- 
sions another inequality, of an opposite kind, in the whole of the 
advantages and disadvantages of the different employments of 
labour and stock. 

It has been considered as of so much importance that a proper 
number of young people should be educated for certain profes- 
sions, that sometimes the public, and someti mes the piety of pri- 



112 



Adam Smith 



vate founders, have established many pensions, scholarships, ex- 
hibitions, bursaries, etc. for this purpose, which draw many more 
people into those trades than could otherwise pretend to follow 
them. In all Christian countries, I believe, the education of the 
greater part of churchmen is paid for in this manner. Very few of 
them are educated altogether at their own expense. The long, te- 
dious, and expensive education, therefore, of those who are, will 
not always procure them a suitable reward, the church being 
crowded with people, who, in order to get employment, are will- 
ing to accept of a much smaller recom pence than what such an 
education would otherwise have entitled them to; and in this 
manner the competition of the poor takes away the reward of the 
rich. It would be indecent, no doubt, to compare either a curate 
or a chaplain with a journeyman in any common trade. The pay 
of a curate or chaplain, however, may very properly be considered 
as of thesame nature with the wages of a journeyman. They are all 
three paid for their work according to the contract which they 
may happen to make with their respective superiors. Till after the 
middleof thefourteenth century, fivemerks, containing about as 
much silver as ten pounds of our present money, wasin England 
the usual pay of a curate or a stipendiary parish priest, as we find 
it regulated by the decrees of several different national councils. 
At the same period, fourpence a-day, containing the same quan- 



tity of silver as a shilling of our present money, was declared to be 
the pay of a master mason; and threepence a-day, equal to 
ninepence of our present money, that of a journeyman mason. 
{See the Statute of Labourers, 25, Ed. 1 1 1 . > T he wages of both 
these labourer's, therefore, supposingthem to have been constantly 
employed, were much superior to those of the curate. The wages 
of the master mason, supposing him to have been without em- 
ployment one-third of the year, would have fully equalled them. 
By the 12th of Queen Anne, c. 12. it is declared, "That whereas, 
for want of sufficient maintenance and encouragement to curates, 
thecureshave, in several places, been meanly supplied, the bishop 
is, therefore, empowered to appoint, by writing under his hand 
and seal, a sufficient certain stipend or allowance, not exceeding 
fifty, and not less than twenty pounds a-year". Forty pounds a- 
year is reckoned at present very good pay for a curate; and, not- 
withstanding this act of parliament, there are many curacies un- 
der twenty pounds a-year. T here are journeymen shoemakers in 
London who earn forty pounds a-year, and there is scarce an in- 
dustrious workman of any kind in that metropolis who does not 
earn more than twenty. This last sum, indeed, does not exceed 
what frequently earned by common labourers in many country 
parishes. W henever thelaw has attempted to regulate the wages of 
workmen, it has always been rather to lower them than to raise 



113 



The Wealth of Nations 



them. But the law has, upon many occasions, attempted to raise 
the wages of curates, and, for the dignity of the church, to oblige 
therectorsof parishes to give them more than thewretched main- 
tenance which they them selves might be willing to accept of. And, 
in both cases, the law seemsto have been equally ineffectual, and 
has never either been ableto raise the wages of curates, or to sink 
those of labourers to the degree that was intended; because it has 
never been able to hinder either the one from being willing to 
accept of less than the legal allowance, on account of the indi- 
gence of tho r situation and the multitude of thei r competitors, or 
theotherfrom receiving more, on account of thecontrary compe- 
tition of those who expected to derive either profit or pleasure 
from employing them. 

Thegreat benefices and other ecclesiastical dignities support the 
honour of the church, notwithstanding the mean circumstances 
of some of its inferior members. The respect paid to the profes- 
sion, too, makes some compensation even to them for the mean- 
ness of their pecuniary recompence. In England, and in all Ro- 
man catholic countri es, thelottery of thechurchisin reality much 
moreadvantageousthanisnecessary.Theexampleofthechurches 
of Scotland, of Geneva, and of several other protestant churches, 
may satisfy us, that in so creditable a profession, in which educa- 
tion isso easily procured, thehopesof much more moderate ben- 



efices will draw a sufficient number of learned, decent, and re- 
spectable men into holy orders. 

I n professions in which there are no benefices, such as law and 
physic, if an equal proportion of people were educated atthepub- 
lic expense, thecompetition would soon be so great as to sink very 
much their pecuniary reward. It might then not be worth any 
man's while to educate his son to either of those professions at his 
own expense. T hey would be entirely abandoned to such as had 
been educated by those public charities, whose numbers and ne- 
cessities would oblige them in general to content themselves with 
a very miserable recompence, to the en tire degradation of thenow 
respectable professions of law and physic. 

T hat unprosperous race of men, commonly called men of let- 
ters, are pretty much in the situation which lawyers and physi- 
cians probably would be in, upon the foregoing supposition. In 
every part of Europe, the greater part of them have been educated 
for the church, but have been hindered by different reasons from 
entering into holy orders. They have generally, therefore, been edu- 
cated at the public expense; and their numbers are everywhere so 
great, as commonly to reduce the price of their labour to a very 
paltry recompence. 

Before the invention of the art of printing, the only employ- 
ment by which a man of letters could make any thing by his tal- 



114 



Adam Smith 



en ts, was that of a public or private teacher, or by communicating 
to other people the curious and useful knowledge which he had 
acquired himself; and this is sti II surely a more honourable, a more 
useful, and, in general, even a more profitable employment than 
that other of writing for a bookseller, to which the art of printing 
has given occasion. The time and study, the genius, knowledge, 
and application requisite to qualify an eminent teacher of the sci- 
ences, are at least equal to what is necessary for the greatest practi- 
tioners in law and physic. But the usual reward of the eminent 
teacher bears no proportion to that of the lawyer or physician, 
becausethetradeoftheoneiscrowded with indigent people, who 
have been brought up to it at the public expense; whereas those of 
the other two are encumbered with very few who have not been 
educated at their own. The usual recompence, however, of public 
and private teachers, small as it may appear, would undoubtedly 
be less than it is, if the competition of those yet more indigent 
men of letters, who write for bread, was not taken out of the mar- 
ket. Before the invention of the art of printing, a scholar and a 
beggar seem to have been terms very nearly synonymous. T he dif- 
ferent governors of the universities, before that time, appear to 
have often granted licences to their scholars to beg. 

In ancient times, before any charities of this kind had been es- 
tablished for the education of indigent peopleto the learned pro- 



fessions, the rewards of eminent teachers appear to have been much 
more considerable. Isocrates, in what iscalled his discourse against 
thesophists, reproaches theteachersof hisown times with incon- 
sistency "T hey makethemost magnificent promisesto their schol- 
ars," sayshe, "and undertaketo teach them to bewise, to behappy, 
and to bejust; and, in return for so important a service, they stipu- 
late the paltry reward of four or five minae." "They who teach 
wisdom," continues he, "ought certainly to be wise themselves; 
but if any man were to sell such a bargain for such a price, he 
would be convicted of the most evident folly." H e certainly does 
not mean here to exaggerate the reward, and we may be assured 
that it was not less than he represents it. Four minae were equal to 
thirteen poundssixshillingsand eightpence; fiveminaeto sixteen 
pounds thirteen shillings and fourpence. Something not less than 
the largest of those two sums, therefore, must at that time have 
been usually paid to themost eminent teachers at Athens. Isocrates 
himself demanded ten minae, or £ 33:6:8 from each scholar. W hen 
he taught at Athens, he is said to have had a hundred scholars. I 
understand thisto bethenumber whom hetaught at onetime, or 
who attended what we would call one course of lectures; a num- 
ber which will not appear extraordinary from so great a city to so 
famous a teacher, who taught, too, what was at that timethemost 
fashionable of all sciences, rhetoric. H e must have made, there- 



115 



The Wealth of Nations 



fore, by each course of lectures, athousand minae, or £ 3335:6:8. 
A thousand minae, accordingly, is said by Plutarch, in another 
place, to have been hisdidactron, or usual priceof teaching. M any 
other eminent teachers in those times appear to have acquired 
great fortunes. G eorgias made a present to the temple of D elphi 
of his own statue in solid gold. We must not, I presume, suppose 
that it was as large as the life. His way of living, as well as that of 
H ippiasand Protagoras, two other eminent teachers of those times, 
isrepresented by Plato as splendid, even to ostentation. Plato him- 
self issaid to havelived with a good deal of magnificence. Aristotle, 
after having been tutor to Alexander, and most munificently re- 
warded, as it is universally agreed, both by him and his father, 
Philip, thought it worth while, notwithstanding, to return to Ath- 
ens, in order to resumetheteachingof hisschool. Teachers of the 
scienceswereprobably in those timesless common than they came 
to be in an age or two afterwards, when the competition had prob- 
ably somewhat reduced both the price of their labour and the 
admiration for their persons. The most eminent of them, how- 
ever, appear alwaysto have enjoyed a degreeof consideration much 
superior to any of the like profession in the present times. The 
Athenians sent Carneades the academic, and Diogenes the stoic, 
upon a solemn embassy to Rome; and though their city had then 
declined from its former grandeur, it was still an independent and 



considerable republic. 

Carneades, too, was a Babylonian by birth; and as there never 
wasapeoplemorejealousof admitting foreigners to public offices 
than the Athenians, their consideration for him must have been 
very great. 

Thisinequality is, upon the whole, perhaps rather advantageous 
than hurtful to the public. It may somewhat degrade the profes- 
sion of a public teacher; but the cheapness of literary education is 
surely an advantage which greatly overbalances this trifling incon- 
veniency. The public, too, might derive still greater benefit from 
it, if the constitution of those schools and colleges, in which edu- 
cation is carried on, was more reasonable than it is at present 
through the greater part of Europe. 

Thirdly, the policy of Europe, by obstructing the free circula- 
tion of labour and stock, both from employment to employment, 
and from place to place, occasions, in some cases, a very inconve- 
nient inequality in the whole of the ad vantages and disadvantages 
of their different employments. 

T he statute of apprenticeship obstructs the free circulation of 
labour from one employment to another, even in the same place. 
T heexdusive privileges of corporationsobstruct it from one place 
to another, even in the same employment. 

It frequently happens, that while high wages are given to the 



116 



Adam Smith 



workmen in one manufacture, those in another are obliged to 
content themselves with bare subsistence. The one is in an ad- 
vancing state, and hasthereforea continual demand for new hands; 
the other is in a declining state, and the superabundance of hands 
iscontinually increasing. Those two manufactures may sometimes 
bein thesametown, and sometimesin the same neighbourhood, 
without being able to lend the least assistance to oneanother. The 
statute of apprenticeship may oppose it in the one case, and both 
that and an exclusive corporation in the other. In many different 
manufactures, however, theoperationsareso much alike, that the 
workmen could easily change trades with one another, if those 
absurd lawsdid not hinder them. Theartsof weaving plain linen 
and plain silk, for example, are almost entirely the same. That of 
weaving plain woollen is somewhat different; butthedifferenceis 
so insignificant, that either a linen or a silk weaver might become 
a tolerable workman in a very few days. If any of those three capi- 
tal manufactures, therefore, were decaying, the workmen might 
find a resource in oneof the other two which wasin a more pros- 
perous condition ; and their wages would neither rise too high in 
the thriving, nor sink too low in the decaying manufacture. The 
linen manufacture, indeed, is in England, by a particular statute, 
open to every body; but as it is not much cultivated through the 
greater part of thecountry, it can afford no general resourceto the 



work men of other decaying manufactures, who, wherever thestat- 
uteof apprenticeship takesplace, haveno other choice, but dither 
to come upon the parish, or to work as common labourers; for 
which, by their habits, they are much worse qualified than for any 
sort of manufacture that bears any resemblance to their own. T hey 
generally, therefore, chuseto come upon the parish. 

Whatever obstructs thefree circulation of labour from oneem- 
ployment to another, obstructs that of stock likewise; thequantity 
of stock which can be employed in any branch of business de- 
pending very much upon that of the labour which can be em- 
ployed in it. Corporation laws, however, give less obstruction to 
the free circulation of stock from one place to another, than to 
that of labour. It is everywhere much easier for a wealthy mer- 
chantto obtain the privilege of trading in a town-corporate, than 
for a poor artificer to obtain that of working in it. 

The obstruction which corporation laws give to the free circula- 
tion of labour is common, I believe, to every part of Europe. That 
which isgiven to it by the poor laws is, so far as I know, peculiar to 
England. It consists in the difficulty which a poor man finds in 
obtaining a settlement, or even in being allowed to exercise his in- 
dustry in any parish but that to which hebelongs It isthelabour of 
artificers and manufacturers only of which the free circulation is 
obstructed by corporation laws. The difficulty of obtaining settle- 



117 



The Wealth of Nations 



merits obstructs even that of common labour. It may be worth while 
to give some account of the rise, progress, and present state of this 
disorder, thegreatest, perhaps, of anyin thepolice of England. 

When, by the destruction of monasteries, the poor had been 
deprived of the charity of those religious houses, after some other 
ineffectual attempts for their relief, it was enacted, by the 43d of 
Elizabeth, c. 2. that every parish should be bound to provide for 
its own poor, and that overseers of the poor should be annually 
appointed, who, with the church -ward ens, should raise, by a par- 
ish rate, competent sums for this purpose. 

By this statute, the necessity of providing for their own poor 
was indispensably imposed upon every parish. Who were to be 
considered as the poor of each parish became, therefore, a ques- 
tion of someimportanceThisquestion, after some variation, was 
at lastdetermined bythel3th and 14th of Charlesl I. when it was 
enacted, that forty days undisturbed residence should gain any 
person a settlement in any parish; but that within that time it 
should be lawful for two justices of the peace, upon complaint 
made by the church-wardens or overseers of the poor, to remove 
any new inhabitant to the parish where he was last legally settled; 
unless he either rented a tenement of ten pounds a-year, or could 
give such security for the discharge of the parish where he was 
then living, as thosejustices should judge sufficient. 



Some frauds, it is said, were committed in consequence of this 
statute; parish officers sometime's bribing their own poor to go 
clandestinely to an other parish, and, by keeping themselves con- 
cealed for forty days, to gain a settlement there, to thedischargeof 
that to which they properly belonged. It was enacted, therefore, 
by the 1st of J ames 1 1 . that theforty days undisturbed residence of 
any person necessary to gain a settlement, should be accounted 
onlyfromthetimeof hisdelivering notice, in writing, of theplace 
of his abode and the number of hisfamily, to one of the church- 
wardens or overseers of the parish where he came to dwell. 

But parish officers, it seems, were not always more honest with 
regard to their own than they had been with regard to other par- 
ishes, and sometimes connived at such intrusions, receiving the 
notice, and taking no proper steps in consequence of it. As every 
person in a parish, therefore, was supposed to have an interest to 
prevent as much as possible their being burdened by such intrud- 
ers, it was further enacted by the 3rd of William 1 1 1, that theforty 
days residence should be accounted only from the publication of 
such noticein writing on Sunday in thechurch, immediately after 
divine service. 

"After all," says Doctor Burn, "this kind of settlement, by con- 
tinuing forty days after publication of notice in writing, is very 
seldom obtained; and the design of the acts is not so much for 



118 



Adam Smith 



gaining of settlements, as for the avoiding of them by persons 
coming into a parish clandestinely, for thegiving of noticeisonly 
putting a force upon the parish to remove. But if a person's situa- 
tion issuch, that it isdoubtful whether heisactuallyremovableor 
not, hesh all, by givingof notice, compel theparish either to allow 
him a settlement uncontested, by suffering him to continueforty 
days, or by removing him to try the right." 

This statute, therefore, rendered it almost impracticable for a 
poor man to gain a new settlement in the old way, by forty days 
inhabitancy. But that it might not appear to preclude altogether 
the common people of one' parish from ever establishing them- 
selves with security in another, it appointed four other ways by 
which a settlement might be gained without any notice delivered 
or published. The first was, by being taxed to parish rates and 
paying them; the second, by being elected into an annual parish 
office, and serving in it ayear; thethird, by serving an apprentice- 
ship in theparish; thefourth, by being hired into service there for 
ayear, and continuingin the same serviceduring the wholeof it. 
N obody can gain a settlement by either of thetwo first ways, but 
by the public deed of the whole parish, who are too well aware of 
the consequences to adopt any new-comer, who has nothing but 
his labour to support him, either by taxing him to parish rates, or 
by electing him into a parish office. 



N o married man can well gain any settlement in either of the 
two last ways. An apprentice is scarce ever married; and it is 
expressly enacted, that no married servant shall gain any settle- 
ment by being hired for a year. The principal effect of introduc- 
ing settlement by service, has been to put out in a great measure 
the old fashion of hiring for a year; which before had been so 
customary in England, that even at this day, if no particular term 
is agreed upon, the law intends that every servant is hired for a 
year. But masters are not always willing to give their servants a 
settlement by hiring them in this manner; and servants are not 
always willing to be so hired, because, as every last settlement 
discharges all theforegoing, they might thereby lose their origi- 
nal settlement in the places of their nativity, the habitation of 
their parents and relations. 

No independent workman, it is evident, whether labourer or 
artificer, islikelyto gain anynew settlement, either by apprentice- 
ship or by service. When such a person, therefore, carried his in- 
dustry to a new parish, he was liable to be removed, how healthy 
and industrioussoever, at thecapriceof any churchwarden or over- 
seer, unless he either rented a tenement of ten pounds a-year, a 
thing impossible for one who has nothing but his labour to live 
by, or could give such security for the discharge of the parish as 
two justices of the peace should judge sufficient. 



119 



The Wealth of Nations 



What security they shall require, indeed, is left altogether to 
their discretion; but they cannot well require less than thirty 
pounds, it having been enacted, that the purchase even of a free- 
hold estate of less than thirty pounds value, shall not gain any 
person asettl em ent, asnot being sufficient for thedischargeof the 
parish. But this is a security which scarce any man who lives by 
labour can give; and much greater secu rity isfrequ en tly demanded. 

In order to restore, in some measure, that free circulation of 
labour which those different statutes had almost entirely taken 
away, the invention of certificates was fall en upon. Bythe8th and 
9th of William III. it was enacted that if any person should bring 
a certificate from the parish where he was last legally settled, sub- 
scribed by the church -ward ens and overseers of the poor, and al- 
lowed by two justices of the peace, that every other parish should 
beobliged to receivehim; that heshould not be removable merely 
upon account of his being likely to become chargeable, but only 
upon his becoming actually chargeable; and that then the parish 
which granted thecertificate should beobliged to pay theexpense 
both of his maintenance and of his removal. And in order to give 
themost perfect security to theparish wheresuch certificated man 
should come to reside, it was further enacted by the same statute, 
that he should gain no settlement there by any means whatever, 
except either by renting a tenement of ten pounds a-year, or by 



serving upon his own account in an annual parish office for one 
wholeyear; and consequently neither by notice nor by service, nor 
by apprenticeship, nor by paying parish rates. Bythel2th of Queen 
Anne, too, stat. 1, c.18, it was further enacted, that neither the 
servants nor apprentices of such certificated man should gain any 
settlement in the parish where he resided under such certificate. 

H ow far thisinvention has restored that free circulation of labour, 
which the preceding statutes had almost entirely taken away, we 
may learn from thefollowing very judicious observation of Doc- 
tor Burn. "It is obvious," says he, "that there are divers good rea- 
sonsfor requiring certificateswith personscoming to settlein any 
place; namely, that persons residing under them can gain no settle- 
ment, neither by apprenticeship, nor by service, nor by giving 
notice, nor by paying parish rates; that they can settle neither ap- 
prentices nor servants; that if they become chargeable, it is cer- 
tainly known whither to remove them, and the parish shall be 
paid for the removal, and for their maintenance in the mean time; 
and that, if they fall sick, and cannot be removed, theparish which 
gave the certificate must main tain them; noneof all which can be 
without a certificate. Which reasons will hold proportionablyfor 
parishes not granting certificates in ordinary cases; for it is far 
more than an equal chance, butthat they will have the certificated 
personsagain, and in aworse condition. "Themoral of thisobser- 



120 



Adam Smith 



vation seemsto be, that certificates ought always to be required by 
the parish where any poor man comes to reside, and that they 
ought very seldom to be granted by that which he purposes to 
leave. "There is somewhat of hardship in this matter of certifi- 
cates," says the same very intelligent author, in his History of the 
Poor Laws, "by putting it in the power of a parish officer to im- 
prison a man as it were for life, however inconvenient it may be 
for him to continue at that place where he has had the misfortune 
to acquire what is called a settlement, or whatever advantage he 
may propose himself by living elsewhere." 

Though a certificate carries along with it no testimonial of good 
behaviour, and certifies nothing but that the person belongs to 
the parish to which he really does belong, it is altogether discre- 
tionary in the parish officers either to grant or to refuse it. A man- 
damus was once moved for, says Doctor Burn, to compel the 
church -ward en sand overseers to sign a certificate; but the Court 
of King's Bench rejected themotion as a very strange attempt. 

The very unequal price of labour which we frequently find in 
England, in pi aces at no great distance from oneanother, is prob- 
ably owing to the obstruction which the law of settlements gives 
to a poor man who would carry his industry from one parish to 
another without a certificate. A single man, indeed who is healthy 
and industrious, may sometimes resideby sufferance without one; 



but a man with a wife and family who should attempt to do so, 
would, in most parishes, be sure of being removed; and, if the 
single man should afterwards marry, he would generally be re- 
moved likewise. The scarcity of hands in one parish, therefore, 
cannot always be relieved by their superabundance in another, as 
it is constantly in Scotland, and. I believe, in all other countries 
where there is no difficulty of settlement. I n such countries, though 
wages may sometimes risea little in the neighbourhood of agreat 
town, or wherever else thereisan extraordinary demand forlabour, 
and sink gradually as the distance from such places increases, till 
they fall back to the common rate of the country; yet we never 
meet with those sudden and unaccountabledifferencesin thewages 
ofneighbouringplaceswhichwesometimesfindin England, where 
it isoften moredifficultforapoormantopasstheartificial bound- 
ary of a parish, than an arm of the sea, or a ridge of high moun- 
tains, natural boundaries which sometimes separate very distinctly 
different rates of wages in other countries. 

To remove a man who has committed no misdemeanour, from 
the parish where he chooses to reside, is an evident violation of 
natural liberty and justice. Thecommon peopleof England, how- 
ever, so jealous of their liberty, but like the common people of 
most other countries, never rightly understanding wherein it con- 
sists, have now, for more than a century together, suffered them- 



121 



The Wealth of Nations 



selves to be exposed to this oppression without a remedy. T hough 
men of reflection, too, have some, times complained of the law of 
settlements as a public grievance; yet it has never been the object 
of any general popular clamour, such as that against general war- 
rants, an abusive practice undoubtedly, but such a one as was not 
likely to occasion any general oppression. There is scarce a poor 
man in England, of forty years of age, I will venture to say, who 
hasnot, in somepart of his life, felt himself most cruelly oppressed 
by this ill-contrived law of settlements. 

I shall conclude this long chapter with observing, that though 
anciently it was usual to rate wages, first by general laws extending 
overthewholekingdom, and afterwards by particular orders of the 
justices of peace in every particular county, both these practices have 
now gone entirely into disuse. "By the experience of above four 
hundred years," says Doctor Burn, "it seems time to lay aside all 
endeavoursto bring under strict regulations, what in its own nature 
seems incapable of minute limitation; for if all persons in the same 
kind of work were to receiveequal wages, there would beno emula- 
tion, and no room left for industry or ingenuity." 

Particular acts of parliament, however, still attempt sometimes 
to regulate wages in particular trades, and in particular places. 
Thus the 8th of George II I. prohibits, under heavy penalties, all 
master tailors in London, and five miles round it, from giving, 



and their workmen from accepting, more than two shillings and 
sevenpencehalfpennya-day, except in thecaseof a general mourn- 
i n g. W h en ever th e I egi si atu re attem pts to regu I ate th e d i ff eren ces 
between masters and their workmen, its counsellorsare always the 
masters. W hen the regulation, therefore, is in favour of the work- 
men, it isalwaysjust and equitable; but it issometimes otherwise 
when in favour of the masters. Thus the law which obliges the 
mastersin several different trades to pay their workmen in money, 
and not in goods, is quite just and equitable. It imposes no real 
hardship upon the masters. It only obligesthem to pay that value 
in money, which they pretended to pay, but did not always really 
pay, in goods. Thislaw isin favour of the workmen; butthe8th of 
George III. is in favour of the masters. W hen masters combine 
together, in order to reduce the wages of their workmen, they 
commonly enter into a private bond or agreement, not to give 
more than a certain wage, under a certain penalty. Were the work- 
men to enter into a contrary combination of the same kind, not to 
accept of a certain wage, under a certain penalty, the law would 
punish them very severely; and, if it dealt impartially, it would 
treat the masters in the same manner. But the 8th of George III. 
enforces by law that very regulation which masters sometimes at- 
tempt to establish by such combinations. The complaint of the 
workmen, that it puts the ablest and most industrious upon the 



122 



Adam Smith 



same footing with an ordinary workman, seems perfectly well 
founded. 

In ancient times, too, it was usual to attempt to regulate the 
profits of merchants and other dealers, by regulating the price of 
provisionsand ether goods. T heassizeof bread is, so far as I know, 
the only remnant of this ancient usage. W here there is an exclu- 
sive corporation, it may, perhaps, be proper to regulate the price 
of the first necessary of life; but, wherethereisnone, the compe- 
tition will regulate it much better than any assize. The method of 
fixing the assize of bread, established by the 31st of George II. 
could not be put in practice in Scotland, on account of a defect in 
the law, its execution depending upon the office of clerk of the 
market, which does not exist there. This defect was not remedied 
till the third of George 1 1 1. The want of an assize occasioned no 
sensible inconveniency; and the establishment of one in the few 
places where it has yet taken place has produced no sensible ad- 
vantage. In the greater part of the towns in Scotland, however, 
thereisan incorporation of bakers, who claim exclusiveprivileges, 
though they arenot very strictly guarded. Theproportion between 
the different rates, both of wages and profit, in the different em- 
ployments of labour and stock, seems not to be much affected, as 
has already been observed, by therichesor poverty, theadvancing, 
stationary, or declining state of thesociety Such revolutionsinthe 



public welfare, though they affect the general rates both of wages 
and profit, must, in the end, affect them equally in all different 
employments. The proportion between them, therefore, must re- 
main the same, and cannot well be altered, at least for any consid- 
erabletime, by any such revolutions. 



123 



The Wealth of Nations 



CHAPTER XI 

OFTHE RENT OFLAND 

Rent, considered as the price paid for theuseof land, isnaturally 
the highest which the tenant can afford to pay in the actual cir- 
cumstances of the land. In adjusting the terms of the lease, the 
landlord endeavours to leave him no greater share of the produce 
than what is sufficient to keep up the stock from which he fur- 
nishes the seed, pays the labour, and purchases and maintainsthe 
cattleand other instruments of husbandry, together with theordi- 
nary profits of farming stock in the neighbourhood. This is evi- 
dently thesmallest share with which the tenant can content him- 
self, without being a loser, and the landlord seldom meansto leave 
him any more. W hatever part of the produce, or, what is the same 
thing, whatever part of its price, is over and above this share, he 
naturally endeavours to reserve to himself as the rent of his land, 
which is evidently the highest the tenant can afford to pay in the 
actual circumstances of the land. Sometimes, indeed, the liberal- 
ity, more frequently the ignorance, of the landlord, makes him 
accept of somewhat less than this portion; and sometimes, too, 
though more rarely, the ignorance of the tenant makes him un- 
dertake to pay somewhat more, or to content himself with some- 



what less, than the ordinary profits of farming stock in the 
neighbourhood. This portion, however, may still be considered as 
the natural rent of land, or the rent at which it is naturally meant 
that land should, for the most part, be let. 

The rent of land, it may bethought, is frequently no more than a 
reasonable profit or interest for the stock laid out by the landlord 
upon its improvement. This, no doubt, maybepartlythecaseupon 
some occasions; for it can scarce ever be more than partly the case. 
The landlord demands a rent even for unimproved land, and the 
supposed interest or profit upon the expense of improvement is 
generally an addition to this original rent. Those improvements, 
besides, arenot always made by the stock of thelandlord, but some- 
times by that of the tenant. W hen the lease comes to be renewed, 
however, thelandlord commonly demandsthe same augmentation 
of rent as if they had been all made by his own. 

Hesometimes demands rent for what is altogether incapable of 
human improvements. Kelpisaspeciesof sea-weed, which, when 
burnt, yieldsan alkalinesalt, useful for making glass, soap, and for 
several other purposes. It grows in several parts of Great Britain, 
particularly in Scotland, upon such rocks only as lie within the 
high-water mark, which are twice every day covered with the sea, 
and of which the produce, therefore, was never augmented by 
human industry. Thelandlord, however, whose estate is bounded 



124 



Adam Smith 



by a kelp shore of this kind, demands a rent for it as much as for 
his corn-fields. 

Theseaintheneighbourhood of theislandsof Shetland ismore 
than commonly abundant in fish, which makes a great part of the 
subsistence of their inhabitants But, in order to profit by thepro- 
duce of the water, they must have a habitation upon the 
neighbouring land. The rent of the landlord is in proportion, not 
to what thefarmer can make by the land, but to what he can make 
both by the land and the water. It is partly paid in sea-fish; and 
one of the very few instances in which rent makes a part of the 
price of that commodity, isto be found in that country. 

The rent of land, therefore, considered as the price paid for the 
use of the land, is naturally a monopoly price. It is not at all pro- 
portioned to what the landlord may have laid out upon the im- 
provement of the land, or to what he can afford to take, but to 
what thefarmer can afford to give. 

Such partsonlyof theproduceof land can commonly be brought 
to market, of which the ordinary price is sufficient to replace the 
stock which must be employed in bringing them thither, together 
with its ordinary profits. If the ordinary price is more than this, 
the surplus part of it will naturally go to the rent of the land. If it 
is not more, though the commodity may be brought to market, it 
can afford no rent to the landlord. W hether the price is, or is not 



more, depends upon the demand. 

T here are some parts of the produce of land, for which the de- 
mand must always be such as to afford a greater pricethan what is 
sufficient to bring them to market; and there are others for which 
it either may or may not be such as to afford this greater price. 
The former must always afford a rent to the landlord. The latter 
sometimes may and sometimes may not, according to different 
circumstances. 

Rent, it isto be observed, therefore, enters into thecomposition 
of the price of commodities in a different way from wages and 
profit. High or low wages and prof it are the causes of high or low 
price; high or low rent is the effect of it. It is because high or low 
wages and profit must be paid, in order to bring a particular com- 
modity to market, that its price is high or low. But it is because its 
price is high or low, a great deal more, or very little more, or no 
more, than what is sufficient to pay those wages and profit, that it 
affords a high rent, or a low rent, or no rent at all. 

The particular consideration, first, of those parts of theproduce 
of land which always afford some rent; secondly, of those which 
sometimes may and sometimes may not afford rent; and, thirdly, 
of the variations which, in the different periods of improvement, 
naturally take place in the relative value of those two different 
sorts of rude produce, when compared both with one another and 



125 



The Wealth of Nations 



with manufactured commodities, will divide this chapter into three 
parts. 

PART I.— Of the Produce of Land which alwaysaffordsRent. 

Asmen, likeall other animals, naturally multiply in proportion 
to the means of their subsistence, food is always more or less in 
demand. It can always purchase or command a greater or smaller 
quantity of labour, and somebody can always be found who is 
willing to do something in order to obtain it. The quantity of 
labour, indeed, which it can purchase, is not always equal to what 
it could maintain, if managed in the most economical manner, on 
account of the high wages which are sometimes given to labour; 
but it can always purchase such a quantity of labour as it can 
maintain, according to the rate at which that sort of labour is 
commonly maintained in the neighbourhood. 

But land, in almost any situation, produces a greater quantity of 
food than what is sufficient to maintain all the labour necessary 
for bringing it to market, in the most liberal way in which that 
labour is ever maintained. The surplus, too, is always more than 
sufficient to replace the stock which employed that labour, to- 
gether with its profits. Something, therefore, always remains for a 
rent to the landlord. 

T he most desert moors in N orway and Scotland produce some 



sort of pasture for cattle, of which the milk and the increase are 
always more than sufficient, not only to maintain all the labour 
necessary for tending them, and to pay the ordinary profit to the 
farmer or the owner of the herd or flock, but to afford somesmall 
rent to thelandlord. The rent increases in proportion to thegood- 
nessof the pasture. The same extent of ground not only maintains 
a greater number of cattle, but as they webrought within asmaller 
compass, less labour becomes requisite to tend them, and to col- 
lect their produce. Thelandlord gains both ways; by the increase 
of the produce, and by the diminution of the labour which must 
be maintained out of it. 

The rent of land not only varies with its fertility, whatever be its 
produce, but with its situation, whatever be its fertility. Land in 
the neighbourhood of a town givesa greater rent than land equally 
fertile in a distant part of the country. Though it may cost no 
more labour to cultivate the one than the other, it must always 
cost more to bring the produce of the distant land to market. A 
greater quantity of labour, therefore, must be maintained out of 
it; and the surplus, from which are drawn both the profit of the 
farmer and the rent of the landlord, must be diminished. But in 
remote parts of the country, the rate of profit, as has already been 
shewn, is generally higher than in the neighbourhood of a large 
town. A smaller proportion of this diminished surplus, therefore, 



126 



Adam Smith 



must belong to the landlord. 

Good roads, canals, and navigable rivers, by diminishing the 
expen seof carriage, put theremote parts of thecountrymorenearly 
upon a level with those in the neighbourhood of the town. They 
are upon that account the greatest of all improvements. They en- 
courage the cultivation of the remote, which must always be the 
most extensive cirdeof thecountry. T hey are advantageous to the 
town by breaking down the monopoly of the country in its 
neighbourhood. They are advantageous even to that part of the 
country. Though they introduce some rival commodities into the 
old market, they open many new markets to its produce. M o- 
nopoly, besides, is a great enemy to good management, which can 
never be universally established, but in consequence of that free 
and universal competition which forces every body to have re 
course to it for the sake of self defence. It is not more than fifty 
years ago, that someofthecountiesintheneighbourhood of Lon- 
don petitioned the parliament against the extension of theturn- 
pikeroadsintotheremotercounties.Thoseremotercounties, they 
pretended, from the cheapness of labour, would be able to sell 
their grass and corn cheaper in the London market than them- 
selves, and would thereby reduce their rents, and ruin their culti- 
vation. Their rents, however, have risen, and their cultivation has 
been improved si nee that time. 



A corn field of moderatefertility producesa much greater quan- 
tity of food for man, than the best pastureof equal extent. T hough 
its cultivation requires much more labour, yet the surplus which 
remainsafter replacing the seed and maintaining all that labour, is 
likewisemuch greater. If apound of butcher's meat, therefore, was 
never supposed to be worth more than a pound of bread, this 
greater surplus would everywhere be of greater value and consti- 
tute a greater fund, both for the profit of the farmer and the rent 
of the landlord. It seems to have done so universally in the rude 
beginnings of agriculture. 

But the relative values of those two different species of food, 
bread and butcher's meat, are very different in the different peri- 
ods of agriculture. In its rude beginnings, the unimproved wilds, 
which then occupy thefar greater part of thecountry, are all aban- 
doned to cattle. There is more butcher's meat than bread; and 
bread, therefore, isthefood for which thereisthegreatest compe- 
tition, and which consequently brings thegreatest price. At Buenos 
Ayres, we are told by Ulloa, four reals, one-and-twenty pence 
halfpenny sterling, was, forty or fifty years ago, the ordinary price 
of an ox, chosen from a herd of two or three hundred. H e says 
nothing of thepriceof bread, probably because hefound nothing 
remarkable about it. An ox there, he says, costs little more than 
the labour of catching him. But corn can nowhere be raised with - 



127 



The Wealth of Nations 



out a great deal of labour; and in a country which lies upon the 
river Plate, at that time the direct road from Europe to the silver 
minesof Potosi,themoney-priceof labour could be very cheap. It 
is otherwise when cultivation is extended over the greater part of 
the country. T here is then more bread than butcher's meat. T he 
competition changes its direction, and the price of butcher's meat 
becomes greater than the price of bread. 

By the extension, besides, of cultivation, the unimproved wilds 
become insufficient to supply the demand for butcher's meat. A 
great part of the cultivated landsmust be employed in rearing and 
fattening cattle; of which the price, therefore, must be sufficient 
to pay, not only the labour necessary for tending them, but the 
rent which the landlord, and the profit which the farmer, could 
have drawn from such land employed in tillage. The cattle bred 
upon the most uncultivated moors, when brought to the same 
market, are, in proportion to their weight or goodness, sold at the 
same price as those which are reared upon the most improved 
land. The proprietors of those moors profit by it, and raise the 
rent of their land in proportion to thepriceof their cattle. Itisnot 
more than a century ago, that in many parts of the Highlands of 
Scotland, butcher's meat was as cheap or cheaper than even bread 
madeof oatmeal T heU nion opened the market of England to the 
H ighland cattle. Their ordinary price, at present, is about three 



times greater than at thebeginningof thecentury, and therentsof 
many H ighland estates have been tripled and quadrupled in the 
same time. In almost every part of Great Britain, a pound of the 
best butcher's meat is, in the present times, generally worth more 
than two pounds of the best white bread; and in plentiful years it 
is sometimes worth three or four pounds. 

It is thus that, in the progress of improvement, the rent and 
profit of unimproved pasture come to be regulated in some mea- 
sure by the rent and profit of what is improved, and these again by 
therentand profitof corn. Corn isan annual crop; butcher's meat, 
a crop which requiresfour or five years to grow. Asan acreof land, 
therefore, will produceamuch smaller quantity of theonespecies 
of food than of the other, the inferiority of the quantity must be 
compensated by the superiority of the price. I f it was more than 
compensated, more corn-land would be turned into pasture; and 
if it was not compensated, part of what was in pasture would be 
brought back into corn. 

Thisequality, however, between therentand profitof grass and 
those of corn; of theland of which the immediate produce isfood 
for cattle, and of that of which the immediate produce isfood for 
men, must be understood to take place only through the greater 
part of the improved lands of a great country. I n some particular 
local situations it is quite otherwise, and the rent and profit of 



128 



Adam Smith 



grass are much superior to what can be made by corn. 

T hus, in the neighbourhood of a great town, the demand for 
milk, and for forage to horses, frequently contribute, together with 
the high price of butcher's meat, to raise the value of grass above 
what may be called its natural proportion to that of corn. This 
local advantage, it isevident, cannot be communicated to thelands 
at a distance. 

Particular circumstances have sometimes rendered some coun- 
tries so populous, that the whole territory, like the lands in the 
neighbourhood of a great town, has not been sufficient to pro- 
duce both the grass and the corn necessary for the subsistence of 
their inhabitants Their lands, therefore, have been principally 
employed in the production of grass, the more bulky commodity, 
and which cannot be so easily brought from a great distance; and 
corn, the food of the great body of the people, has been chiefly 
imported from foreign countries. H olland isat present in thissitu- 
ation; and a considerable part of ancient Italy seems to have been 
so during the prosperity of the Romans. To feed well, old Cato 
said, as we are told by C icero, was the first and most profitable 
thing in the management of a private estate; to feed tolerably well, 
thesecond; and to feed ill, thethird. To plough, heranked only in 
the fourth place of profit and advantage. Tillage, indeed, in that 
part of ancient Italy which lay in the neighbour hood of Rome, 



must have been very much discouraged by the distributions of 
corn which were frequently made to the people, either gratuitously, 
or at a very low price. T his corn was brought from the conquered 
provinces, of which several, instead of taxes, were obliged to fur- 
nish a tenth part of their produceat a stated price, about sixpence 
a-peck, to the republic. T he low price at which this corn was dis- 
tributed to the people, must necessarily have sunk the price of 
what could be brought to the Roman market from Latium, or the 
ancient territory of Rome, and must have discouraged its cultiva- 
tion in that country. 

I n an open country, too, of which theprincipal produceiscorn, 
a well-inclosed piece of grass will frequently rent higher than any 
cornfield in its neighbourhood. It is convenient for the mainte- 
nance of the cattle employed in the cultivation of thecorn; and its 
high rent is, in this case, not so properly paid from the value of its 
own produce, as from that of thecorn lands which are cultivated 
bymeansof it. 1 1 is likely to fall, if evertheneighbouringlandsare 
completely inclosed. The present high rent of inclosed land in 
Scotland seems owing to the scarcity of indosure, and will prob- 
ably last no longer than that scarcity. Theadvantage of inclosu re is 
greater for pasture than for corn. It saves the labour of guarding 
the cattle, which feed better, too, when they are not liable to be 
disturbed by their keeper or his dog. 



129 



The Wealth of Nations 



But where there is no local advantage of this kind, the rent and 
profit of corn, or whatever else is the common vegetable food of 
the people, must naturally regulate upon the land which isfit for 
producing it, the rent and profit of pasture. 

The use of the artificial grasses, of turnips, carrots, cabbages, 
and the other expedients which have been fallen upon to make an 
equal quantity of land feed a greater number of cattle than when 
in natural grass, should somewhat reduce, it might be expected, 
thesuperiority which, in an improved country, thepriceof butcher's 
meat naturally has over that of bread. It seems accordingly to have 
done so; and there issome reason for believing that, at least in the 
London market, thepriceof butcher's meat, in proportion to the 
price of bread, isagood deal lower in the present times than it was 
in the beginning of the last century. 

In the Appendix to the life of Prince Henry, Doctor Birch has 
given us an account of the prices of butcher's meat as commonly 
paid by that prince. It istheresaid, thatthefour quartersof an ox, 
weighing six hundred pounds, usually cost him nine pounds ten 
shillings, or thereabouts; that isthirty-oneshillings and eight-pence 
per hundred pounds weight. Prince H enry died on the 6th of 
November 1612, in the nineteenth year of hisage. 

In M arch 1764, therewasa parliamentary inquiry into thecauses 
of the high price of provisions at that time. It was then, among 



other proof to the same purpose, given in evidence by a Virginia 
merchant, that in M arch 1763, he had victualled his ships for 
twentyfour or twenty-five shillings the hundred weight of beef, 
which he considered as the ordinary price; whereas, in that dear 
year, he had paid twenty-seven shillings for the same weight and 
sort. This high price in 1764 is, however, four shillingsand eight- 
pencecheaper than theordinary price paid by Prince H enry; and 
it isthe best beef only, it must beobserved, which isfit to besalted 
for those distant voyages. 

Theprice paid by PrinceH enry amounts to 3d. 4/5thsper pound 
weight of the whole carcase, coarse and choice pieces taken to- 
gether; and at that rate thechoice pieces could not have been sold 
by retail for less than 4%d. or 5d. the pound. 

I n the parliamentary inquiry in 1764, the witnesses stated the 
price of the choice pieces of the best beef to be to the consumer 
4d. and 4Y2d. the pound; and the coarse pieces in general to be 
from seven farthingsto IViti, and 2 3 /4d.; and this, they said, was in 
general one halfpenny dearer than the same sort of pieces had 
usually been sold in themonth of M arch. But even this high price 
is still a good deal cheaper than what we can well suppose the 
ordinary retail price to have been in thetime of PrinceH enry. 

D uring thefirst twel veyears of thelast century, theaverage price 
of the best wheat at the Windsor market was £ l:18:3%d. the 



130 



Adam Smith 



quarter of nineW inchester bushels. 

But in the twelve years preceding 1764 including that year, the 
average price of the same measure of the best wheat at the same 
market was £ 2:l:9^d. 

I n thefirst twelve years of the last century therefore, wheat ap- 
pears to have been a good deal cheaper, and butcher's meat a good 
deal dearer, than in the twelve years preceding 1764, including 
that year. 

In all great countries, thegreater part of thecultivated landsare 
employed in producing either food for men or food for cattle. T he 
rent and profit of these regulate the rent and profit of all other 
cultivated land. If any particular produce afforded less, the land 
would soon be turned into corn or pasture; and if any afforded 
more, some part of the lands in corn or pasture would soon be 
turned to that produce. 

Those productions, indeed, which requireeither a greater origi- 
nal expense of improvement, or a greater annual expense of culti- 
vation in order to fit the land for them, appear commonly to af- 
ford, the one a greater rent, theother a greater profit, than corn or 
pasture. Thissuperiority however, will seldom befound to amount 
to more than a reasonable interest or compensation for this supe- 
rior expense. 

I n a hop garden, a fruit garden, a kitchen garden, both the rent 



of the landlord, and the profit of the farmer, are generally greater 
than in acorn or grass field. But to bring the ground into this 
condition requires more expense. H ence a greater rent becomes 
dueto the landlord. It requires, too, a more attentive and skilful 
management. H ence a greater profit becomes due to the farmer. 
The crop, too, at least in the hop and fruit garden, is more pre- 
carious. Its price, therefore, besides compensating all occasional 
losses, must afford something like the profit of insurance. The 
circumstances of gardeners, generally mean, and always moder- 
ate, may satisfy usthat their great ingenuity is not commonly over- 
recompensed. Their delightful art is practised by so many rich 
peoplefor amusement, that littleadvantageistobemadeby those 
who practise it for profit; because the persons who should natu- 
rally be their best customers, supply themselves with all their most 
precious productions. 

The advantage which the landlord derives from such improve- 
ments, seemsatnotimeto have been greater than what was suffi- 
cient to compensate theoriginal expense of making them. In the 
ancient husbandry, after the vineyard, a well-watered kitchen gar- 
den seems to have been the part of the farm which was supposed 
to yield the most valuable produce. But D emocritus, who wrote 
upon husbandry about two thousand years ago, and who was re- 
garded by the ancients as one of the fathers of the art, thought 



131 



The Wealth of Nations 



they did not act wisely who inclosed a kitchen garden. The profit, 
he said, would not compensate the expense of a stone-wall: and 
bricks (he meant, I suppose, bricks baked in the sun) mouldered 
with the rain and the winter-storm, and required continual re- 
pairs. Columella, who reports thisjudgment of Democritus, does 
not controvert it, but proposes a very frugal method of inclosing 
with a hedge of brambles and briars, which he says he had found 
by experience to be both a lasting an dan impenetrablefence; but 
which, it seems, was not commonly known in the time of 
Democritus. Palladius adopts the opinion of Columella, which 
had before been recommended byVarro. Inthejudgmentofthose 
ancient improvers, the produce of a kitchen garden had, it seems, 
been little more than sufficient to pay the extraordinary culture 
and the expense of watering; for in countries so near the sun, it 
was thought proper, in thosetimesasin the present, to have the 
command of a stream of water, which could be conducted to ev- 
ery bed in thegarden. T hrough thegreater part of Europe, a kitchen 
garden is not at present supposed to deserve a better in closure 
than mat recommended by Columella. In Great Britain, and some 
other northern countries, the finer fruits cannot Be brought to 
perfection but by the assi stan ce of a wal I . T hei r pri ce, therefore, in 
such countries, must be sufficient to pay the expense of building 
and maintaining what they cannot behad without.Thefruit-wall 



frequently surroundsthekitchen garden, which thus enjoys the ben- 
efit of an indosure which its own produce could seldom pay for. 

That the vineyard, when properly planted and brought to per- 
fection, was the most valuable part of the farm, seems to have 
been an undoubted maxim in the ancient agriculture, as it is in 
the modern, through all the wine countries. But whether it was 
advantageous to plant a new vineyard, was a matter of dispute 
among the ancient Italian husbandmen, as we learn from Col- 
umella. He decides, like a true lover of all curious cultivation, in 
favour of the vineyard; and endeavours to shew, by a comparison 
of the profit and expense, that it was a most advantageous im- 
provement. Such comparisons, however, between the profit and 
expenseof new projects arecommonly very fallacious; and in noth- 
ing more so than in agriculture. H ad the gain actually made by 
such plantations been commonly as great as heimagined itmight 
have been, there could have been no dispute about it. The same 
point isfrequently at thisday a matter of controversy in the wine 
countries. T heir writerson agriculture, indeed, thelovers and pro- 
moters of high cultivation, seem generally disposed to decidewith 
Columellain favour of the vineyard. In France, the anxiety of the 
proprietors of the old vineyards to prevent the planting of any 
new ones, seems to favour their opinion, and to indicate a con- 
sciousness in those who must have the experience, that this spe- 



132 



Adam Smith 



cies of cultivation is at present in that country more profitable 
than any other. It seems, at the same time, however, to indicate 
another opinion, that this superior profit can last no longer than 
thelaws which at present restrain the free cultivation of thevine. 
I n 1731, they obtained an order of council, prohibiting both the 
planting of new vineyards, and the renewal of these old ones, of 
which the cultivation had been interrupted for two years, without 
a particular permission from the king, to be granted only in con- 
sequence of an information from the intendant of the province, 
certifying that he had examined the land, and that it was inca- 
pable of any other culture. The pretence of this order was the 
scarcity of corn and pasture, and the superabundance of wine. 
But had this superabundance been real, it would, without any 
order of council, have effectually prevented the plantation of new 
vineyards, by reducing the profits of this species of cultivation 
below their natural proportion to those of corn and pasture. W ith 
regard to the supposed scarcity of corn occasioned by the multi- 
plication of vineyards, corn is nowhere in France more carefully 
cultivated than in the wine provinces, where the land is fit for 
producing it: asin Burgundy, Guienne, andtheUpperLanguedoc. 
The numerous hands employed in the one species of cultivation 
necessarily encourage theother, by affording a ready market for its 
produce. To diminish the number of those who are capable of 



paying it, issurely a most unpromising expedient for encouraging 
the cultivation of corn. It is like the policy which would promote 
agriculture, by discouraging manufactures. 

The rent and profit of those productions, therefore, which re- 
quire either a greater original expenseof improvement in order to 
fit the land for them, or a greater annual expense of cultivation, 
though often much superior to thoseof corn and pasture, yet when 
they do no more than com pen sate such extraordinary expense, are 
in reality regulated by the rent and profit of those common crops. 

It sometimes happens, indeed, that the quantity of land which 
can befitted for some particular produce, is too small to supply 
the effectual demand. T he whole produce can be disposed of to 
those who are willing to give somewhat more than what is suffi- 
cient to pay the whole rent, wages, and profit, necessary for rais- 
ing and bringing it to market, according to their natural rates, or 
according to the rates at which they are paid in the greater part of 
other cultivated land. Thesurpluspart of theprice which remains 
after defraying the whole expense of improvement and cultiva- 
tion, may commonly, in this case, and in this case only, bear no 
regular proportion to the like surplus in corn or pasture, but may 
exceed it in almost any degree; and the greater part of this excess 
naturally goes to the rent of the landlord. 

The usual and natural proportion, for example, between the 



133 



The Wealth of Nations 



rent and profit of wine, and those of corn and pasture, must be 
understood to take placeonly with regard to those vineyards which 
produce nothing but good common wine, such as can be raised 
almost anywhere, upon any light, gravelly, or sandy soil, and which 
hasnothing to recommend it but its strength and wholesomeness. 
It iswith such vineyardsonly, thatthecommon land of thecoun- 
try can be brought into competition; for with those of a peculiar 
quality it is evident that it cannot. 

The vine is more affected by the difference of soils than any 
other fruit-tree. From some it derives a flavour which no culture 
or management can equal, it is supposed, upon any other. This 
flavour, real or imaginary, issometimes peculiar to theproduceof 
afew vineyards; sometimesit extendsthrough thegreater part of a 
small district, and sometimes through a considerable part of a 
large province. T he whole quantity of such wines that is brought 
to market falls short of the effectual demand, or the demand of 
those who would be willing to pay the whole rent, profit, and 
wages, necessary for preparing and bringing them thither, accord- 
ing to theordinary rate, or according to the rate at which they are 
paid in common vineyards. T he wholequantity, therefore, can be 
disposed of to those who are willing to pay more, which necessar- 
ily raises their price above that of common wine. Thedifference is 
greater or less, according as thefashionableness and scarcity of the 



wine render the competition of the buyers more or less eager. 
W hatever it be, the greater part of it goes to the rent of the land- 
lord. For though such vineyards are in general more carefully cul- 
tivated than most others, the high price of the wine seems to be, 
not so much the effect, as the cause of this careful cultivation. In 
so valuablea produce, theloss occasioned by negligence is so great, 
as to force even themost careless to attention. A small part of this 
high price, therefore, is sufficient to pay the wages of the extraor- 
dinary labour bestowed upon their cultivation, and the profits of 
the extraordinary stock which puts that labour into motion. 

The sugar colonies possessed by the European nations in the 
West Indies may be compared to those precious vineyards. Their 
whole produce falls short of the effectual demand of Europe, and 
can be disposed of to those who are willing to give more than 
what is sufficient to pay the whole rent, profit, and wages, neces- 
sary for preparing and bringing it to market, according to the rate 
at which they arecommonly paid by any other produce. I n C ochin 
C hina, the finest white sugar generally sells for three piastres the 
quintal, about thirteen shillings and sixpenceof our money, as we 
are told by M r Poivre -{Voyages d'un Philosophe.}, a very careful 
observer of the agriculture of that country. W hat is there called 
thequintal, weighsfrom a hundred and fifty to two hundred Paris 
pounds, or a hundred and seventy-five Paris pounds at a medium, 



134 



Adam Smith 



which reduces the price of the hundred weight English to about 
eight shillings sterling; not a fourth part of what is commonly 
paid for the brown or muscovada sugars imported from our colo- 
nies, and not a sixth part of what is paid for thefinest white sugar. 
The greater part of the cultivated lands in Cochin China are em- 
ployed in producing corn and rice, the food of the great body of 
the people. The respective prices of corn, rice, and sugar, are there 
probably in the natural proportion, or in that which naturally 
takes place in the different crops of the greater part of cultivated 
land, and which recompensesthe landlord and farmer, as nearly as 
can be computed, according to what is usually the original ex- 
penseof improvement, and the annual expense of cultivation. But 
in our sugar colonies, the price of sugar bears no such proportion 
to that of the produce of a rice or corn field either in Europe or 
America. It is commonly said that a sugar planter expects that the 
rum and the molasses should defray the whole expense of his cul- 
tivation, and that his sugar should be all clear profit. If this be 
true, fori pretend not to affirm it, itisasif acorn farmer expected 
to defray the expense of his cultivation with the chaff and the 
straw, and that the grain should be all clear profit. We see fre- 
quently societies of merchantsin London, and other trading towns, 
purchase waste lands in our sugar colonies, which they expect to 
improve and cultivate with profit, by means of factors and agents, 



notwithstanding thegreat distance and theuncertain returns, from 
thedefective administration of justicein those countries. N obody 
will attempt to improve and cultivate in the same manner the 
most fertile lands of Scotland, Ireland, or the corn provinces of 
N orth America, though, from the more exact administration of 
justicein thesecountries, moreregularreturnsmight be expected. 
In Virginia and M aryland, the cultivation of tobacco is pre- 
ferred, as most profitable, to that of corn. Tobacco might be culti- 
vated with advantage through the greater part of Europe; but, in 
almost every part of Europe, it has become a principal subject of 
taxation; and to collect a tax from every different farm in thecoun- 
try where thisplant might happen to be cultivated, would be more 
difficult, it has been supposed, than to levy one upon its importa- 
tion at the custom-house. The cultivation of tobacco has, upon 
this account, been most absurdly prohibited through the greater 
part of Europe, which necessarily givesa sort of monopoly to the 
countries where it is allowed; and as Virginia and M aryland pro- 
duce the greatest quantity of it, they share largely, though with 
some competitors, in the advantage of this monopoly. The culti- 
vation of tobacco, however, seems not to be so advantageous as 
that of sugar. I have never even heard of any tobacco plantation 
that was improved and cultivated bythecapital of merchants who 
resided in Great Britain; and our tobacco colonies send us home 



135 



The Wealth of Nations 



no such wealthy planters as we see frequently arrivefrom oursugar 
islands. Though, from the preference given in those colonies to 
the cultivation of tobacco above that of corn, itwould appear that 
the effectual demand of Europefor tobacco isnot completely sup- 
plied, it probably is morenearly so than that for sugar; and though 
the present price of tobacco is probably more than sufficient to 
pay the whole rent, wages, and profit, necessary for preparing and 
bringing it to market, according to therate at which they are com- 
monly paid in corn land, it must not be so much more as the 
present price of sugar. Our tobacco planters, accordingly, have 
shewn thesamefear of thesuperabundanceof tobacco, which the 
proprietors of the old vineyardsin France have of thesuperabun- 
danceof wine. By act of assembly, they have restrained its cultiva- 
tion to six thousand plants, supposed to yield a thousand weight 
of tobacco, for every negro between sixteen and sixty yearsof age. 
Such a negro, over and above this quantity of tobacco, can man- 
age, they reckon, four acres of I ndian corn. To prevent the market 
from being overstocked, too, they have sometimes, in plentiful 
years, we are told by Dr Douglas {Douglas's Summaryvol. ii. p. 
379, 373.} (I suspect he has been ill informed), burnt a certain 
quantity of tobacco for every negro, in the same manner as the 
D utch are said to do of spices. I f such violent methods are neces- 
sary to keep up the present price of tobacco, the superior advan- 



tage of its culture over that of corn, if it still has any, will not 
probably be of long continuance. 

It isin thismannerthattherentof thecultivated land, of which 
the produce is human food, regulates the rent of the greater part 
of other cultivated land. No particular produce can long afford 
less, because the land would immediately be turned to another 
use; and if any particular produce commonly affords more, it is 
because the quantity of land which can befitted for it istoo small 
to supply the effectual demand. 

In Europe, corn is the principal produce of land, which serves 
immediately for human food. Except in particular situations, there 
fore, the rent of corn land regulates in Europe that of all other cul- 
tivated land. Britain need envy neither the vineyards of France, nor 
the olive plantations of Italy. Except in particular situations, the 
value of these is regulated by that of corn, in which the fertility of 
Britain isnot much inferior to that of either of those two countries. 

If, in any country, the common and favourite vegetable food of 
the people should be drawn from a plant of which the most com- 
mon land, with the same, or nearly the same culture, produced a 
much greater quantity than the most fertile does of corn; the rent 
of the landlord, or the surplus quantity of food which would re- 
main to him, after paying the labour, and replacing the stock of 
thefarmer, together with itsordinary profits, would necessarily be 



136 



Adam Smith 



much greater. W hatever was the rate at which labour was com- 
monly maintained in that country, this greater surplus could al- 
ways maintain a greater quantity of it, and, consequently, enable 
the landlord to purchase or command a greater quantity of it. T he 
real value of his rent, his real power and authority, his command 
of the necessaries and conveniences of life with which the labour 
of other people could supply him, would necessarily be much 
greater. 

A rice field produces a much greater quantity of food than the 
most fertile corn field. Two crops in the year, from thirty to sixty 
bushelseach, are said to betheordinary produceof an acre Though 
its cultivation, therefore, requires more labour, a much greater sur- 
plus remains after maintaining all that labour. In those rice coun- 
tries, therefore, where rice is the common and favourite vegetable 
food of thepeople, and where the cultivators are chiefly maintained 
with it, a greater share of this greater surplus should belong to the 
landlord than in corn countries. In Carolina, where the planters, as 
in other British colonies, are generally both farmers and landlords, 
and where rent, consequently, is confounded with profit, the culti- 
vation of riceisfound to bemoreprofitablethan that of corn, though 
their fields produceonly onecrop in theyear, and though, from the 
prevalence of the customs of Europe, rice is not there the common 
and favourite vegetable food of thepeople. 



A good rice field isa bog at all seasons, and at oneseason a bog 
covered with water. It is unfit either for corn, or pasture, or vine- 
yard, or, indeed, for any other vegetable produce that is very use- 
ful to men; and the lands which are fit for those purposes are not 
fit for rice. Even in the rice countries, therefore, the rent of rice 
lands cannot regulate the rent of the other cultivated land which 
can never be turned to that produce. 

Thefood produced by afield of potatoesisnot inferior in quan- 
tity to that produced by afield of rice, and much superior to what 
is produced by a field of wheat. Twelve thousand weight of pota- 
toes from an acre of land is not a greater produce than two thou- 
sand weight of wheat. Thefood or solid nourishment, indeed, 
which can be drawn from each of those two plants, is not alto- 
gether in proportion to their weight, on account of the watery 
nature of potatoes. Allowing, however, half the weight of this root 
to go to water, a very large allowance, such an acreof potatoes will 
still produce sixthousand weight of solid nourishment, three times 
thequantity produced by theacreof wheat. An acreof potatoesis 
cultivated with less expense than an acreof wheat; the fallow, which 
generally precedes the sowing of wheat, more than compensating 
the hoeing and other extraordinary culture which is always given 
to potatoes. Should this root ever become in any part of Europe, 
like rice in some rice countries, the common and favourite veg- 



137 



The Wealth of Nations 



etablefood of the people, so as to occupy the same proportion of 
the lands in tillage, which wheat and other sorts of grain for hu- 
man food do at present, thesamequantity of cultivated land would 
maintain a much greater number of people; and the labourers 
being generally fed with potatoes, a greater surplus would remain 
after replacing all the stock, and maintaining all the labour em- 
ployed in cultivation. A greater share of this surplus, too, would 
belongto thelandlord. Population would increase, and rentswould 
rise much beyond what they are at present. 

The land which is fit for potatoes, is fit for almost every other 
useful vegetable. If they occupied the same proportion of culti- 
vated land which corn does at present, they would regulate, in the 
same manner, the rent of thegreater part of other cultivated land. 

In some parts of Lancashire, it is pretended, I have been told, 
that bread of oatmeal is a heartier food for labouring people than 
wheaten bread, and I have frequently heard the same doctrine 
held in Scotland. I am, however, somewhat doubtful of thetruth 
of it. The common people in Scotland, who are fed with oatmeal, 
are in general neither so strong nor so handsome as the same rank 
of peoplein England, who are fed with wheaten bread. They nei- 
ther work so well, nor look so well; and as there is not the same 
difference between the people of fashion in the two countries, 
experience would seem to shew, that the food of the common 



peoplein Scotland is not so suitableto the human constitution as 
thatoftheirneighboursofthesamerankin England. But it seems 
to be otherwise with potatoes. The chairmen, porters, and coal- 
heavers in London, and those unfortunate women who live by 
prostitution, the strongest men and the most beautiful women 
perhaps in the British dominions, are said to be, thegreater part 
of them, from thelowest rank of peoplein Ireland, who are gener- 
ally fed with thisroot. No food can afford a more decisive proof of 
its nourishing quality, or of its being peculiarly suitable to the 
health of the human constitution. 

It is difficult to preserve potatoes through the year, and impos- 
sibleto store them likecorn, for two or three years together. The 
fear of not being able to sell them before they rot, discourages 
their cultivation, and is, perhaps, the chief obstacle to their ever 
becoming in any great country, like bread, the principal vegetable 
food of all the different ranks of the people. 

PART II. — Of the Produce of Land, which sometimes does, 
and sometimes does not, afford Rent. 

H uman food seems to be the only produce of land, which al- 
ways and necessarily affordssomerentto thelandlord. Other sorts 
of produce sometimes may, and sometimes may not, accordingto 
different circumstances. 



138 



Adam Smith 



After food, clothing and lodging arethetwo great wants of man- 
kind. 

Land, in its original rudestate, can afford the materials of cloth- 
ing and lodging to a much greater number of people than it can 
feed. In itsimproved state, itcan sometimes feed a greater number 
of people than itcan supply with those materials; at least in the 
way in which they require them, and are willing to pay for them. 
I n the one state, therefore, there is always a superabundance of 
these materials, which are frequently, upon that account, of little 
or no value. In the other, there is often a scarcity, which necessar- 
ily augments their value. In the one state, a great part of them is 
thrown away as useless and the price of what is used is considered 
as equal only to the labour and expense of fitting it for use, and 
can, therefore, afford no rent to the landlord. In the other, they 
are all made use of, and there is frequently a demand for more 
than can be had. Somebody is always willing to give more for 
every part of them, than what is sufficient to pay the expense of 
bringing them to market. Their price, therefore, can always afford 
some rent to the landlord. 

The skins of the larger animals were the original materials of 
clothing. Among nations of hunters and shepherds, therefore, 
whosefood consists chiefly in theflesh of those animals, everyman, 
by providing himself with food, provideshimself with themateri- 



als of more clothing than he can wear. If there was no foreign 
commerce, the greater part of them would be thrown away as 
things of no value. This was probably thecase among the hunting 
nationsof North America, before theircountrywasdiscovered by 
the Europeans, with whom they now exchange their surplus peltry, 
for blankets, fire-arms, and brandy, which gives it some value. In 
thepresent commercial stateof the known world, themostbarba- 
rousnations, I believe, among whom land property isestablished, 
have some foreign commerce of this kind, and find among their 
wealthier neighbours such adem and for all thematerialsof cloth- 
ing, which their land produces, and which can neither bewrought 
up nor consumed at home, as raises their price above what it costs 
to send them to those wealthier neighbours. It affords, therefore, 
some rent to the landlord. W hen the greater part of the H ighland 
cattle were consumed on their own hills, the exportation of their 
hides made the most considerable article of the commerce of that 
country, and what they were exchanged for afforded some addi- 
tion to the rent of the H ighland estates. The wool of England, 
which in old times, could neither be consumed nor wrought up at 
home, found a market in thethen wealthier and more industrious 
country of Flanders, and its price afforded something to the rent 
of the land which produced it. In countries not better cultivated 
than England was then, or than the H ighlands of Scotland are 



139 



The Wealth of Nations 



now, and which had no foreign commerce, the materials of cloth- 
ing would evidently beso superabundant, that a great part of them 
would be thrown away as useless, and no part could afford any 
rent to the landlord. 

The materials of lodging cannot always be transported to so 
great a distance as those of clothing, and do not so readily become 
an object of foreign commerce. When they are superabundant in 
the country which produces them, it frequently happens, even in 
the present commercial state of the world, that they are of no 
value to the landlord. A good stone quarry in the neighbourhood 
of London would afford a considerable rent. In many parts of 
Scotland and Wales it affords none. Barren timber for building is 
of great value in a populous and well-cultivated country, and the 
land which produces it affords a considerable rent. But in many 
parts of North America, the landlord would be much obliged to 
any body who would carry away the greater part of his large trees. 
I n some parts of the H ighlands of Scotland, the bark is the only 
part of the wood which, for want of roads and water-carriage, can 
be sent to market; thetimber is left to rot upon theground. W hen 
the materials of lodging are so superabundant, the part made use 
of is worth only the labour and expense of fitting it for that use. 1 1 
affords no rent to the landlord, who generally grants the use of it 
to whoever takes thetroubleof asking it. T hedemand of wealthier 



nations, however, sometimes enables him to get a rent for it. The 
paving of the streets of London has enabled the owners of some 
barren rocks on the coast of Scotland to draw a rent from what 
never afforded any before. The woods of Norway, and of thecoasts 
of the Baltic, find a market in many parts of Great Britain, which 
they could not find at home, and thereby afford some rent to their 
proprietors. 

Countries are populous, not in proportion to the number of 
people whom their produce can clothe and lodge, but in propor- 
tion to that of those whom it can feed. W hen food is provided, it 
is easy to find the necessary clothing and lodging. But though 
these are at hand, it may often be difficult to find food. In some 
parts of theBritish dominions, what iscalled a house may be built 
by oneday's labour of one man. T he simplest species of clothing, 
the skins of animals, require somewhat more labour to dress and 
prepare them for use. They do not, however, require a great deal. 
Among savage or barbarous nations, a hundredth, or little more 
than a hundredth part of the labour of the whole year, will be 
sufficient to provide them with such clothing and lodging as sat- 
isfy the greater part of the people. All the other ninety-nine parts 
are frequently no more than enough to provide them with food. 

But when, by the improvement and cultivation of land, the 
labour of one family can provide food for two, the labour of half 



140 



Adam Smith 



the society becomes sufficient to providefood for the whole. T he 
other half, therefore, or at least the greater part of them, can be 
employed in providing other things, or in satisfying theother wants 
and fancies of mankind. Clothing and lodging, household furni- 
ture, and what is called equipage, are the principal objects of the 
greater part of those wants and fancies. The rich man consumes 
no more food than his poor neighbour. In quality it may be very 
different, and to select and prepare it may require more labour 
and art; but in quantity it is very nearly the same. But compare 
the spacious palace and great wardrobe of the one, with the hovel 
and the few rags of the other, and you will be sensible that the 
difference between their clothing, lodging, and household furni- 
ture, isalmost asgreat in quantity as it is in quality. Thedesireof 
food islimited in every man bythenarrow capacity of the human 
stomach; but the desire of the conveniences and ornaments of 
building, dress, equipage, and household furniture, seemsto have 
no limit or certain boundary. Those, therefore, who havethecom- 
mand of morefood than they them selves can consume, are always 
willing to exchange the surplus, or, what is the same thing, the 
price of it, for gratifications of this other kind. W hat is over and 
above satisfying the limited desire, is given for the amusement of 
those desires which cannot be satisfied, but seem to be altogether 
endless. The poor, in order to obtain food, exert themselves to 



gratify those fancies of the rich; and to obtain it more certainly, 
theyviewith oneanotherin the cheapness and perfection of their 
work. Thenumber of workmen increases with theincreasing quan- 
tity of food, or with the growing improvement and cultivation of 
thelands; and as thenatureof their business admits of the utmost 
subdivisions of labour, the quantity of materials which they can 
workup, increases in a much greater proportion than their num- 
bers. H ence arises a demand for every sort of material which hu- 
man invention can employ, either usefully or ornamentally, in 
building, dress, equipage, or household furniture; for the fossils 
and minerals contained in the bowels of the earth, the precious 
metals, and the precious stones. 

Food is, in this manner, not only theoriginal sourceof rent, but 
every other part of the produce of land which afterwards affords 
rent, derives that part of its value from the improvement of the 
powers of labour in producing food, by means of the improve- 
ment and cultivation of land. 

Those other parts of the produce of land, however, which after- 
wards afford rent, do not afford it always. Even in improved and 
cultivated countries, thedemand for them isnot always such as to 
afford a greater price than what issufficient to pay the labour, and 
replace, together with its ordinary profits, the stock which must 
be employed in bringing them to market. Whether it is or isnot 



141 



The Wealth of Nations 



such, depends upon different circumstances. 

Whether a coal mine, for example, can afford any rent, depends 
partly upon its fertility, and partly upon its situation. 

A mine of any kind may be said to be either fertile or barren, 
according as the quantity of mineral which can be brought from it 
by a certain quantity of labour, is greater or less than what can be 
brought by an equal quantity from the greater part of other mines 
of the same kind. 

Some coal mines, advantageously situated, cannot be wrought 
on account of their barrenness. The produce does not pay the 
expense. T hey can afford neither profit nor rent. 

There are some, of which the produce is barely sufficient to pay 
thelabour, and replace, together with itsordinary profits, thestock 
employed in workingthem. They afford someprofitto theunder- 
takerofthework, butnorenttothelandlord. They can be wrought 
advantageously by nobody but the landlord, who, being himself 
the undertaker of the work, gets the ordi nary profit of the capital 
which heemploysin it. M any coal minesin Scotland are wrought 
in this manner, andean bewroughtin no other. The landlord will 
allow nobody else to work them without paying some rent, and 
nobody can afford to pay any. 

Other coal minesin the same country, sufficiently fertile, can- 
not be wrought on account of their situation. A quantity of min- 



eral, sufficient to defray theexpenseof working, could bebrought 
from the mine by the ordinary, or even less than the ordinary 
quantity of labour: but in an inland country, thinly inhabited, 
and without either good roadsor water-carriage, thisquantity could 
not be sold. 

Coals are a less agreeable fuel than wood: they are said too to be 
less wholesome. Theexpenseof coals, therefore, at theplacewhere 
they are consumed, must generally be somewhat less than that of 
wood. 

The price of wood, again, varies with the state of agriculture, 
nearly in the same manner, and exactly for the same reason, as the 
price of cattle. In its rude beginnings, the greater part of every 
country is covered with wood, which isthen amereincumbrance, 
of no value to the landlord, who would gladly give it to any body 
for thecutting. Asagri culture advances, thewoods are partly cleared 
by the progress of tillage, and partlygo to decayin consequence of 
the increased number of cattle. These, though they do not in- 
crease in the same proportion as corn, which is altogether the ac- 
quisition of human industry, yet multiply under thecareand pro- 
tection of men, who store up in the season of plenty what may 
maintain them in that of scarcity; who, through the whole year, 
furnish them with a greater quantity of food than uncultivated 
natureprovides for them; and who, by destroying and extirpating 



142 



Adam Smith 



their enemies, secure them in the free enjoyment of all that she 
provides. Numerous herds of cattle, when allowed to wander 
through thewoods, though they do not destroy theold trees, hinder 
any young ones from coming up; so that, in the course of a cen- 
tury or two, the whole forest goes to ruin. The scarcity of wood 
then raises its price. It affords a good rent; and thelandlord some- 
times findsthathecan scarce employ his best lands more advanta- 
geously than in growing barren timber, of which the greatness of 
theprofit often compen sates thelatenessofthereturnsThisseems, 
in the present times, to benearly thestate of thingsin several parts 
of Great Britain, where the profit of planting is found to be equal 
to that of either corn or pasture. The advantage which the land- 
lord derives from planting can nowhere exceed, at least for any 
considerable time, the rent which these could afford him; and in 
an inland country, which is highly cultivated, it will frequently 
not fall much short of this rent. Upon the sea-coast of a well- 
improved country, indeed, if coals can conveniently be had for 
fuel, it may sometimes be cheaper to bring barren timber for build- 
ing from less cultivated foreign countries than to raise it at home. 
Inthenewtown of Edinburgh, built within these few years, there 
is not, perhaps, a singlestick of Scotch timber. 

W hatever may be the price of wood, if that of coals is such that 
the expense of a coal fire is nearly equal to that of a wood one we 



may be assured, that at that place, and in these circumstances, the 
priceof coalsisashigh asit can be. Itseemsto be so in someof the 
inland parts of England, particularly in Oxfordshire, where it is 
usual, even in the fires of the common people, to mix coals and 
wood together, and where the difference in the expense of those 
two sorts of fuel cannot, therefore, be very great. Coals, in thecoal 
countries, are everywhere much below this highest price. If they 
were not, they could not bear the expense of a distant carriage, 
either by land or by water. A small quantity only could be sold; 
and thecoal mastersand thecoal proprietorsfind it more for their 
interest to sell a great quantity at a price somewhat above the low- 
est, than a small quantity at the highest. The most fertile coal 
mine, too, regulates the price of coal sat all the other mines in its 
neighbourhood. Both the proprietor and the undertaker of the 
work find, the one that he can get a greater rent, the other that he 
can get a greater profit, by somewhat underselling all their 
neighbours. Their neighbours are soon obliged to sell atthesame 
price, though they cannot so well afford it, and though it always 
diminishes, and sometimes takes away altogether, both their rent 
and their profit. Some works are abandoned altogether; others 
can afford no rent, and can be wrought only by the proprietor. 

The lowest price at which coalscan be sold for any considerable 
time, is, likethatof all other commodities, theprice which isbardy 



143 



The Wealth of Nations 



sufficient to replace, together with its ordinary profits, the stock 
which must be employed in bringing them to market. At a coal 
mine for which the landlord can get no rent, but, which he must 
either work himself or let it alone altogether, the price of coals 
must generally be nearly about this price. 

Rent, even where coals afford one, has generally a smaller share 
in their price than in that of most other parts of the rude produce 
of land. T he rent of an estate above ground, commonly amounts 
to what is supposed to be a third of the gross produce; and it is 
generally a rent certain and independent of the occasional varia- 
tions in the crop. In coal mines, a fifth of the gross produce is a 
very great rent, a tenth the common rent; and it is seldom a rent 
certain, but depends upon the occasional variations in the pro- 
duce. These are so great, that in a country where thirty years pur- 
chase isconsideredasa moderate pricefor the property of a landed 
estate, ten years purchase is regarded as a good pricefor that of a 
coal mine. 

T he value of a coal mine to the proprietor, frequently depends 
as much upon its situation as upon its fertility. That of a metallic 
mine depends more upon its fertility, and less upon its situation. 
The coarse, and still more the precious metals, when separated 
from the ore, are so valuable, that they can generally bear the ex- 
pense of a very long land, and of the most distant sea carriage. 



Their market isnot confined to thecountriesin theneighbourhood 
of the mine, but extends to the whole world. The copper of Japan 
makes an article of commerce in Europe; theiron of Spain in that 
of Chili and Peru. The silver of Peru finds its way, not only to 
Europe, but from Europe to China. 

Theprice of coalsin Westmoreland or Shropshire can havelittle 
effect on their price at Newcastle; and their price in the Lionnois 
can have none at all. The productions of such distant coal mines 
can never be brought into competition with one another. But the 
productions of the most distant metallic mines frequently may, 
and in fact commonly are. 

The price, therefore, of the coarse, and still more that of the 
precious metals, at the most fertile mines in theworld, must nec- 
essarily more or less affect their price at every other in it. The price 
of copper in Japan must have some influence upon itspriceatthe 
copper minesin Europe. The price of silver in Peru, orthequan- 
tity either of labour or of other goods which it will purchase there, 
must have some influence on itsprice, not only at thesilver mines 
of Europe, but at those of C hina. After the discovery of the mines 
of Peru, thesilver mines of Europe were, thegreater part of them, 
abandoned. The value of silver was so much reduced, that their 
produce could no longer pay the expense of working them, or 
replace, with a profit, thefood, clothes, lodging, and other neces- 



144 



Adam Smith 



saries which were consumed in that operation. This was the case, 
too, with theminesof Cuba and St. Domingo, and even with the 
ancient mines of Peru, after the discovery of those of Potosi . 

T he price of every metal, at every mine, therefore, being regu- 
lated in some measure by its price at the most fertile mine in the 
world that isactually wrought, it can, at thegreater part of mines, 
do very little more than pay the expense of working, and can sel- 
dom afford a very high rent to the landlord. Rent accordingly, 
seemsat thegreater part of mines to have but a small share in the 
price of the coarse, and a still smaller in that of the precious met- 
als. Labour and profit makeup thegreater part of both. 

A sixth part of the gross produce may be reckoned the average 
rent of thetin mines of Cornwall, the most fertilethat are known 
in the world, as we are told by the Rev. M r. Borlace, vice-warden 
of the stannaries. Some, he says, afford more, and some do not 
afford so much. A sixth part of the gross produce is the rent, too, 
of several very fertile lead mines in Scotland. 

I n thesilver minesof Peru, wearetold by Frezier and U lloa, the 
proprietor frequently exacts no other acknowledgment from the 
undertaker of the mine, but that he will grind the ore at his mill, 
paying him the ordinary multure or price of grinding. Till 1736, 
indeed, thetaxof the king of Spain amounted toonefifth of the 
standard silver, which till then might be considered asthereal rent 



of the greater part of the silver mines of Peru, the richest which 
have been known in theworld. If therehad been no tax, this fifth 
would naturally have belonged to the landlord, and many mines 
might have been wrought which could not then be wrought, be- 
cause they could not afford thistax. T hetax of thedukeof C orn wall 
upon tin is supposed to amount to more than five per cent, or one 
twentieth part of the value; and whatever may be his proportion, 
it would naturally, too, belong to theproprietor of themine, if tin 
wasdutyfree. But if you add onetwentieth to one sixth, you will 
find that the whole average rent of thetin minesof Cornwall, was 
to thewholeaverage rent of thesilver minesof Peru, as thirteen to 
twelve. But thesilver minesof Peru are not now able to pay even 
this low rent; and thetax upon silver was, in 1736, reduced from 
one fifth to one tenth. Even thistax upon silver, too, gives more 
temptation to smuggling than thetaxof onetwentieth upon tin; 
and smuggling must be much easier in the precious than in the 
bulky commodity. Thetax of the king of Spain, accordingly, is 
said to be very ill paid, and that of thedukeof Cornwall very well. 
Rent, therefore, it is probable, makes a greater part of the price of 
tin at the most fertile tin mines than it does of silver at the most 
fertile silver mines in the world. After replacing the stock em- 
ployed in working those different mines, together with its ordi- 
nary profits, theresiduewhich remainsto theproprietor isgreater, 



145 



The Wealth of Nations 



it seems, in the coarse, than in the precious metal. 

N either are the profits of the undertakers of silver mines com- 
monly very great in Peru. The same most respectable and well- 
informed authors acquaint us, that when any person undertakes 
to work a new mine in Peru, he is universally looked upon as a 
man destined to bankruptcy and ruin, and is upon that account 
shunned and avoided by every body. M ining, it seems, is consid- 
ered therein thesame light ashere, asa lottery, in which the prizes 
do not compensate the blanks, though thegreatnessof sometempts 
many adventurers to throw away their fortunes in such unpros- 
perous projects. 

As the sovereign, however, derivesaconsiderablepartof hisrev- 
enuefromtheproduceof silvermines, thelawin Peru gives every 
possibleencouragement to thediscovery and working of new ones. 
Whoever discovers a new mine, is entitled to measure off two 
hundred and forty-six feet in length, according to what he sup- 
poses to be the direction ofthevein,and half asmuch in breadth. 
He becomes proprietor of this portion of the mine, andean work 
it without paving any acknowledgment to the landlord. T he in- 
terest of the duke of C ornwall has given occasion to a regulation 
nearly of the same kind in that ancient dutchy. In waste and unin- 
closed lands, any person who discovers a tin mine may mark out 
itslimitsto acertain extent, which iscalled bounding amineThe 



bounder becomes the real proprietor of the mine, and may either 
work it himself, or giveit in lease to another, without theconsent 
of theowner of theland, to whom, however, avery small acknowl- 
edgment must be paid upon working it. I n both regulations, the 
sacred rights of private property are sacrificed to the supposed 
interests of public revenue. 

The same encouragement is given in Peru to the discovery and 
working of new gold mines; and in gold the king's tax amounts 
only to a twentieth part of the standard rental. Itwasonceafifth, 
and afterwards a tenth, as in silver; but it was found that the work 
could not bear even the lowest of these two taxes. If it is rare, 
however, say the same authors, Frezier and U lloa, to find a person 
who has made his fortune by a silver, it is still much rarer to find 
onewhohasdonesobyagold mine. Thistwentieth part seemsto 
be the whole rent which is paid by the greater part of the gold 
mines of Chili and Peru. Gold, too, is much more liable to be 
smuggled than even silver; not only on account of the superior 
value of the metal in proportion to its bulk, but on accountof the 
peculiar way in which nature produces it. Silver is very seldom 
found virgin, but, like most other metals, is generally mineralized 
with someother body, from which it isimpossibleto separateit in 
such quantities as will pay for the expense, but by a very laborious 
and tedious operation, which cannot well be carried on but in 



146 



Adam Smith 



work-houses erected for the purpose, and, therefore, exposed to 
the inspection of the king's officers. Gold, on the contrary, is al- 
most always found virgin. Itissometimesfoundin pieces of some 
bulk; and, even when mixed, in small and almost insensible par- 
ticles, with sand, earth, and other extraneous bodies, it can be 
separated from them by a very short and simple operation, which 
can be carried on in any private house by any body who is pos- 
sessed of a smal I quantity of mercury. I f the king's tax, therefore, is 
but ill paid upon silver, it is likely to be much worse paid upon 
gold; and rent must make a much smaller part of the price of gold 
than that of silver. 

The lowest price at which the precious metals can be sold, or 
the smallest quantity of other goods for which they can be ex- 
changed, during any considerable time, is regulated by the same 
principles which fix the lowest ordinary price of all other goods. 
T hestock which must commonly be employed, thefood, clothes, 
and lodging, which must commonly be consumed in bringing 
them from the mine to the market, determine it. It must at least 
be sufficient to replace that stock, with the ordinary profits. 

Their highest price, however, seems not to be necessarily deter- 
mined by any thing but the actual scarcity or plenty of these met- 
als them selves. Itisnot determined bythat of any other commod- 
ity, in the same manner as the price of coals is by that of wood, 



beyond which no scarcity can ever raiseit. Increase the scarcity of 
gold to a certain degree, and the smallest bit of it may become 
more precious than a diamond, and exchange for a greater quan- 
tity of other goods. 

T hedemand for those metalsarises partly from their utility, and 
partly from their beauty. If you except iron, they are more useful 
than, perhaps, any other metal. As they are less liable to rust and 
impurity, they can more easily be kept clean; and the utensils, 
either of the table or the kitchen, are often, upon that account, 
more agreeable when madeofthem. A silver boiler ismore cleanly 
than a lead, copper, or tin one; and thesamequality would render 
a gold boiler still better than a silver one. Their principal merit, 
however, arises from their beauty, which renders them peculiarly 
fit for the ornaments of dress and furniture. No paint or dye can 
give so splendid a colour as gilding. The merit of their beauty is 
greatly enhanced by their scarcity. With the greater part of rich 
people, the chief enjoyment of riches consists in the parade of 
riches; which, in their eye, is never so complete as when they ap- 
pear to possess those decisive marks of opulence which nobody 
can possess but themselves. I n their eyes, the merit of an object, 
which is in any degree either useful or beautiful, is greatly en- 
hanced by its scarcity, or by the great labour which it requires to 
collect any considerablequantity of it; a labour which nobody can 



147 



The Wealth of Nations 



afford to pay but themselves. Such objects they are willing to pur- 
chase at a higher price than things much more beautiful and use- 
ful, but morecommon.Thesequalitiesof utility beauty and scar- 
city are the original foundation of the high price of those metals, 
or of the great quantity of other goods for which they can every- 
where be exchanged. T his value was antecedent to, and indepen- 
dent of their being employed as coin, and was the quality which 
fitted them for that employment. T hat employment, however, by 
occasioning a new demand, and by diminishingthequantity which 
could be employed in any other way, may have afterwards con- 
tributed to keep up or in crease their value. 

Thedemand for theprecious stones arises altogether from their 
beauty. They are of no use but as ornaments; and the merit of 
their beauty is greatly enhanced by their scarcity, or by the diffi- 
culty and expenseof getting them from the mine. Wages and profit 
accordingly makeup, upon most occasions, almost the whole of 
thehigh price. Rentcomesin but for a very small share, frequently 
for no share; and the most fertile mines only afford any consider- 
able rent. When Tavern ier, a jeweller, visited the diamond mines 
ofGolcondaandVisiapour, hewasinformed that the sovereign of 
thecountry for whose benefit they were wrought, had ordered all 
of them to be shut up except those which yielded the largest and 
finest stones. T heother, it seems, were to theproprietor not worth 



the working. 

As the prices, both of the precious metals and of the precious 
stones, is regulated all over the world by their price at the most 
fertile mine in it, the rent which a mine of either can afford to its 
proprietor is in proportion, not to its absolute, but to what may 
be called its relative fertility, or to its superiority over other mines 
ofthesamekind. If new mines were discovered, as much superior 
to those of Potosi, as they were superior to those of Europe, the 
value of silver might be so much degraded as to render even the 
mines of Potosi not worth the working. Before the discovery of 
the Spanish West Indies, the most fertile mines in Europe may 
have afforded as great a rent to their proprietors as the richest 
mines in Peru do at present. Though the quantity of silver was 
much less, itmighthaveexchangedforan equal quantity of other 
goods, and the proprietor's share might have enabled him to pur- 
chase or command an equal quantity either of labour or of com- 
modities. 

The value, both of theproduceand of the rent, the real revenue 
which they afforded, both to the public and to the proprietor, 
might have been the same. 

T he most abundant mines, either of the precious metals, or of 
the precious stones, could add little to the wealth of the world. A 
produce, of which the value is principally derived from its scar- 



148 



Adam Smith 



city, is necessarily degraded by its abundance. A service of plate, 
and theother frivolous ornamentsof dress and furniture, could be 
purchased for a smaller quantity of commodities; and in thiswould 
consist thesolead vantage which theworld could derive from that 
abundance. 

It isotherwisein estates above ground. Thevalue, both of their 
produce and of their rent, is in proportion to their absolute, and 
not to their relative fertility. The land which produces a certain 
quantity of food, clothes, and lodging, can always feed, clothe, 
and lodge, a certain number of people; and whatever may be the 
proportion of the landlord, it will always give him a proportion- 
able command of the labour of those people, and of the com- 
modities with which thatlabourcan supply him. Thevalueof the 
most barren land is not diminished by the neighbourhood of the 
most fertile. n the contrary, it is generally increased by it. The 
great number of people maintained by the fertile lands afford a 
market to many parts of the produce of the barren, which they 
could never have found among those whom their own produce 
could maintain. 

Whatever in creases the fertility of land in producing food, in- 
creases not only thevalue of the lands upon which the improve- 
ment isbestowed, but contributeslikewise to increase that of many 
other lands, by creating a new demand for their produce. That 



abundanceof food, of which, in consequence of the improvement 
of land, many people have the disposal beyond what they them- 
selves can consume, isthegreatcauseof thedemand, both for the 
precious metals and the precious stones, as well as for every other 
conveniency and ornament of dress, lodging, household furni- 
ture, and equipage. Food not only constitutes the principal part 
of the riches of the world, but it is the abundance of food which 
givestheprincipal part of theirvalueto many other sortsof riches. 
T he poor inhabitants of C uba and St. D omingo, when they were 
first discovered by the Spaniards, used to wear little bits of gold as 
ornaments i n thei r hai r and other parts of thei r dress. T hey seemed 
tovaluethem as we would do any littlepebblesof somewhat more 
than ordinary beauty, and to consider them asjust worth thepick- 
ing up, but not worth the refusing to any body who asked them, 
They gave them to their new guests at the first request, without 
seeming to think that they had made them any very valuable 
present.They were astonished to observe therage of theSpaniards 
to obtain them; and had no notion that there could anywhere be 
a country in which many people had the disposal of so great a 
superfluity of food; so scanty always among themselves, that, for a 
very small quantity of those glittering baubles, they would will- 
ingly give as much as might maintain a whole family for many 
years. Could they have been madeto understand this, the passion 



149 



The Wealth of Nations 



of the Spaniards would not have surprised them. 

PART III. — Of the variations in the Proportion between the 
respectiveValuesof that sort of Produce which always affordsRent, 
and of that which sometimes does, and sometimes does not, af- 
ford Rent. 

The increasing abundance of food, in consequence of the in- 
creasing improvement and cultivation, must necessarily increase 
the demand for every part of the produce of land which is not 
food, and which can be applied either to use or to ornament. I n 
the whole progress of improvement, it might, therefore, be ex- 
pected there should beonlyonevariation in the comparative val- 
ues of those two different sorts of produce. The value of that sort 
which sometimes does, and sometimesdoesnot afford rent, should 
constantly rise in proportion to that which always affords some 
rent. As art and industry advance, the materials of clothing and 
lodging, the useful fossils and materials of the earth, the precious 
metals and the precious stones, should gradually come to be more 
and more in demand, should gradually exchange for a greater and 
a greater quantity of food; or, in other words, should gradually 
become dearer and dearer. This, accordingly, has been the case 
with most of these things upon most occasions, and would have 
been the case with all of them upon all occasions, if particular 



accidents had not, upon some occasions, increased the supply of 
some of them in a still greater proportion than the demand. 

The value of a free-stone quarry, for example, will necessarily 
increase with the increasing improvement and population of the 
country round about it, especially if it should be the only one in 
the neighbourhood. But the value of a silver mine, even though 
thereshould not be another within athousand milesof it, will not 
necessarily increase with the improvement of thecountry in which 
it is situated. T he market for the produce of a free-stone quarry 
can seldom extend more than a few miles round about it, and the 
demand must generally be in proportion to the improvement and 
population of that small district; but the market for the produce 
of a silver mine may extend over the whole known world. Unless 
the world in general, therefore, be advancing in improvement and 
population, thedemand for silver might not beat all increased by 
the improvement even of a largecountry in the neighbourhood of 
the mine. Even though the world in general were improving, yet 
if, in thecourseof its improvements, new mines should bediscov- 
ered, much more fertile than any which had been known before, 
though the demand for silver would necessarily increase, yet the 
supply might increase in so much a greater proportion, that the 
real price of that metal might gradually fall; that is, any given 
quantity, a pound weight of it, for example, might gradually pur- 



150 



Adam Smith 



chase or command a smaller and a smaller quantity of labour, or 
exchange for a smaller and a smaller quantity of corn, the princi- 
pal part of the subsistence of the labourer. 

Thegreat market for silver is the commercial and civilized part 
of the world. 

If, by the general progress of improvement, thedemand of this 
market should increase, while, at the same time, the supply did 
not increase in the same proportion, the value of silver would 
gradually rise in proportion to that of corn. Any given quantity of 
silver would exchange for a greater and a greater quantity of corn; 
or, in other words, the average money price of corn would gradu- 
ally become cheaper and cheaper. 

If, on the contrary, the supply, by some accident, should in- 
crease, for many years together, in a greater proportion than the 
demand, that metal would gradually becomecheaper and cheaper; 
or, in other words, the average money price of corn would, in 
spite of all improvements, gradually become dearer and dearer. 

But if, on the other hand, the supply of that metal should in- 
creasenearly in thesame proportion as thedemand, it would con- 
tinuetopurchaseor exchange for nearly thesamequantity of corn; 
and the average money price of corn would, in spite of all im- 
provements, continuevery nearly thesame. 

These three seem to exhaust all the possible combinations of 



events which can happen in the progress of improvement; and 
during the course of the four centuries preceding the present, if 
we may judge by what has happened both in France and Great 
Britain, each of those three different combinations seemsto have 
taken place in the European market, and nearly in the same order, 
too, in which I have here set them down. 

Digression concerningtheVariationsin thevalueof Silver dur- 
ing the C ourse of the Four last C enturies. 

First Period. — In 1350, and for some time before, the average 
price of the quarter of wheat in England seems not to have been 
estimated lower than fourouncesof silver, Tower weight, equal to 
about twenty shillings of our present money. From this price it 
seems to have fallen gradually to two ounces of silver, equal to 
about ten shillings of our present money, the price at which we 
find it estimated in the beginning of the sixteenth century, and at 
which it seemsto havecontinued to be estimated till about 1570. 

In 1350, being the 25th of Edward III. was enacted what is 
called theStatuteof Labourers. In the preamble, itcomplainsmuch 
of the insolence of servants, who endeavoured to raise their wages 
upon their masters. It therefore ordains, that all servants and 
labourers should, forthefuture, becontented with thesame wages 
and liveries (liveries in those times signified not only clothes, but 
provisions) which they had been accustomed to receive in the 20th 



151 



The Wealth of Nations 



year of the king, and the four preceding years; that, upon this 
account, their livery-wheat should nowhere be estimated higher 
than ten pence a-bush el, and that it should always bein theoption 
of the master to deliver them either the wheat or the money. 
Tenpence: a-bushel, therefore, had, in the 25th of Edward III. 
been reckoned a very moderate price of wheat, since it required a 
particular statute to oblige servants to accept of it in exchange for 
their usual livery of provisions; and it had been reckoned a reason- 
able price ten years before that, or in the 16th year of the king, the 
term to which the statute refers. But in the 16th year of Edward 
III. ten pence contained about half an ounceof silver, Tower weight, 
and was nearly equal to half-a-crown of our present money. Four 
ouncesof silver, Tower weight, therefore, equal to six shillings and 
eightpenceof the money of those times, and to near twenty shi I- 
lingsof that of the present, must have been reckoned a moderate 
price for the quarter of eight bushels. 

Thisstatute is surely a better evidence of what was reckoned, in 
those times, a moderate price of grain, than the prices of some 
particular years, which have generally been recorded by historians 
and other writers, on account of their extraordinary dearnessor 
cheapness, and from which, therefore, it is difficult to form any 
judgment concerning what may have been theordinary priceT here 
are, besides, other reasons for believing that, in the beginning of 



the fourteenth century, and for some time before, the common 
price of wheat was not less than four ounces of silver the quarter, 
and that of other grain in proportion. 

In 1309, Ralph de Born, prior of St Augustine's, Canterbury, 
gave a feast upon his installation-day, of which William Thorn 
has preserved, not only the bill of fare, but the prices of many 
particulars. In that feast were consumed, 1st, fifty-three quarters 
of wheat, which cost nineteen pounds, or seven shillings, and 
twopence a-quarter, equal to about one-and-twenty shillings and 
sixpence of our present money; 2dly, fifty-eight quarters of malt, 
which cost seventeen poundsten shillings, or six shillings a-quar- 
ter, equal to about eighteen shillings of our present money; 3dly, 
twenty quarters of oats, which cost four pounds, or four shillings 
a-quarter, equal to about twelve shillings of our present money. 
The prices of malt and oats seem here to lie higher than their 
ordinary proportion to the price of wheat. 

These prices are not recorded, on account of their extraordinary 
dearnessor cheapness, but arementioned accidentally, as theprices 
actually paid for large quantities of grain consumed at a feast, 
which was famous for its magnificence. 

I n 1262, being the 51st of H enry III. was revived an ancient 
statute, called the assize of bread and ale, which, the king says in 
thepreamble, had been madein thetimesof his progenitors, some 



152 



Adam Smith 



time kings of England. It is probably, therefore, as old at least as 
thetime of his grandfather, H enry II. and may have been as old as 
theConquest. It regulates the price of bread according as the prices 
of wheat may happen to be, from one shilling to twenty shillings 
the quarter of the money of those times. But statutes of this kind 
are generally presumed to provide with equal care for all devia- 
tionsfromthemiddleprice, for those below it, aswell as for those 
above it. Ten shillings, therefore, containing six ounces of silver, 
Tower weight, and equal to about thirty shillings of our present 
money, must, upon this supposition, have been reckoned the 
middle price of the quarter of wheat when this statute was first 
enacted, and must have continued to be so in the 51st of Henry 
1 1 1 . We cannot, therefore, be very wrong in supposing that the 
middle price was not less than one-third of the highest price at 
which thisstatute regulates the priceof bread, or than six shillings 
and eightpenceof themoney of those times, containing four ounces 
of silver, Tower weight. 

From these different facts, therefore, weseem to havesomerea- 
son to concludethat, about themiddleofthefourteenth century, 
and for a considerable time before, the average or ordinary price 
of the quarter of wheat was not supposed to be less than four 
ounces of silver, Tower weight. 

From about the middle of the fourteenth to the beginning of 



the sixteenth century, what was reckoned the reasonable and mod- 
erate, that is, theordinary or average price of wheat, seemsto have 
sunk gradually to about one half of this price; so as at last to have 
fallen to about two ounces of silver, Tower weight, equal to about 
ten shillingsof our present money. It continued to be estimated at 
this price till about 1570. 

In the household book of Henry, the fifth earl of 
Northumberland, drawn up in 1512 there are two different esti- 
mations of wheat. In oneof them it iscomputed at sixshillingand 
eightpencethequarter, in theother at five shillings and eightpence 
only. In 1512, six shillings and eightpence contained only two 
ounces of silver, Tower weight, and were equal to about ten shil- 
lings of our present money. 

From the 25th of Edward 1 1 1 . to the beginning of the reign of 
Elizabeth, during the space of more than two hundred years, six 
shillings and eightpence, it appears from several different statutes, 
had continued to be considered as what iscalled the moderate and 
reasonable, that is, the ordinary or average price of wheat. The 
quantity of silver, however, contained in that nominal sum was, 
during the course of this period, continually diminishing in con- 
sequence of some alterations which were made in the coin. But 
the increase of thevalue of silver had, itseems, so far compensated 
thediminution of the quantity of it contained in thesamenomi- 



153 



The Wealth of Nations 



nal sum, that the legislature did not think it worth whileto attend 
to this circumstance. 

Thus, in 1436, it was enacted, that wheat might be exported 
without a licence when the price was so low as six shillings and 
eightpence: and in 1463, it was enacted, that no wheat should be 
imported if the price was not above six shillings and eightpence 
thequarter: T he legislature had imagined, that when the price was 
so low, there could be no inconveniency in exportation, but that 
when it rose higher, it became prudent to allow of importation. 
Six shillings and eightpence, therefore, containing about thesame 
quanti ty of silver as thirteen shillings and fourpenceof our present 
money (one-third part less than thesamenominal sum contained 
in theti me of Edward III), had, in those times, been considered as 
what is called the moderate and reasonable price of wheat. 

In 1554, by the 1st and 2nd of Philip and Mary, and in 1558, 
by the 1st of Elizabeth, the exportation of wheat was in thesame 
manner prohibited, whenever the price of the quarter should ex- 
ceed six shillings and eightpence, which did not then contain two 
penny worth more silver than the same nominal sum does at 
present. But it had soon been found, that to restrain the exporta- 
tion of wheat till the price was so very low, was, in reality, to pro- 
hibit it altogether. In 1562, therefore, by the 5th of Elizabeth, the 
exportation of wheat was allowed from certain ports, whenever 



the price of thequarter should not exceed ten shillings, contain- 
ing nearly the same quantity of silver as thelikenominal sum does 
at present. This price had atthistime, therefore, been considered 
as what is called the moderate and reasonable price of wheat. It 
agrees nearly with the estimation of the Northumberland book in 
1512. 

That in F ranee theaveragepriceof grain was, in thesame man- 
ner, much lower in the end of the fifteenth and beginning of the 
sixteenth century, than in the two centuries preceding, has been 
observed both by M r D upre de St M aur, and by the elegant au- 
thor of theEssay on the Policy of Grain. Itsprice, duringthesame 
period, had probably sunk in thesamemanner through thegreater 
part of Europe. 

This rise in the value of silver, in proportion to that of corn, 
may either have been owing altogether to the increase of the de- 
mand for that metal, in consequence of increasing improvement 
and cultivation, thesupply, in themean time, continuing thesame 
as before; or, the demand continuing the same as before, it may 
have been owing altogether to the gradual diminution of thesup- 
ply: thegreater part of the mines which were then known in the 
world being much exhausted, and, consequently, the expense of 
working them much increased; or it may have been owing partly 
to the one, and partly to the other of those two circumstances. In 



154 



Adam Smith 



the end of the fifteenth and beginning of the sixteenth centuries, 
thegreater part of Europe was approaching towardsa moresettled 
from of government than it had enjoyed for several ages before. 
The increase of security would naturally increase industry and 
improvement; and thedemand for the precious metals, as well as 
for every other luxury and ornament, would naturally increase 
with the increase of riches. A greater annual produce would re- 
quire a greater quantity of coin to circulate it; and a greater num- 
ber of rich people would require a greater quantity of plate and 
other ornaments of silver. It is natural to suppose, too, that the 
greater part of the mines which then supplied the European mar- 
ket with silver might be a good deal exhausted, and have become 
more expensive in the working. They had been wrought, many of 
them, from the time of the Romans. 

It has been the opinion, however, of the greater part of those 
who have written upon thepricesofcommoditiesinancienttimes, 
that, from theConquest, perhaps from theinvasion of JuliusCae- 
sar, till the discovery of the mines of America, the value of silver 
was continually diminishing. Thisopinion they seem to have been 
led into, partly by the observations which they had occasion to 
make upon the prices both of corn and of some other parts of the 
rude produce of land, and partly by the popular notion, that as 
the quantity of silver naturally increases in every country with the 



increase of wealth, so its value diminishes as it quantity increases. 

In their observations upon the prices of corn, three different 
circumstances seem frequently to have misled them. 

First, in ancient times, almost all rents were paid in kind; in a 
certain quantity of corn, cattle, poultry, etc. It sometimes hap- 
pened, however, that the landlord would stipulate, that he should 
beat liberty to demand ofthetenant, either the annual payment 
in kind or a certain sum of money instead of it. T he priceat which 
the payment in kind was in this manner exchanged for a certain 
sum of money, is in Scotland called the conversion price. As the 
option isalwaysin thelandlord totakeeitherthesubstanceor the 
price, it is necessary, for the safety of the tenant, that the conver- 
sion price should rather be below than above the average market 
price. In many places, accordingly, it is not much above one half 
of this price. Through the greater part of Scotland this custom 
still continues with regard to poultry, and in some places with 
regard to cattle. It might probably have continued to take place, 
too, with regard to corn, had not the institution of the public fiars 
put an end to it. These are annual valuations, according to the 
judgment of an assize, of theaveragepriceof all the different sorts 
of grain, and of all thedifferent qualities of each, according to the 
actual market pricein every different county. Thisinstitution ren- 
dered it sufficiently safe for the tenant, and much more conve- 



155 



The Wealth of Nations 



nient for the landlord, to convert, as they call it, the corn rent, 
rather at what should happen to be the price of the fiars of each 
year, than at any certain fixed price. But the writers who have 
collected the prices of corn in ancient times seem frequently to 
have mistaken what is called in Scotland the conversion price for 
theactual market price. Fleetwood acknowledges, upon oneocca- 
sion, that he had made this mistake. As he wrote his book, how- 
ever, for a particular purpose, he does not think proper to make 
this acknowledgment till after transcribing this conversion price 
fifteen times. Thepriceiseight shillings thequarter of wheat. This 
sum in 1423, the year at which he begins with it, contained the 
same quantity of silver as sixteen shillings of our present money. 
But in 1562, the year at which he ends with it, it contained no 
more than the same nominal sum does at present. 

Secondly, they have been misled by theslovenly manner in which 
some ancient statutes of assizehad been sometimestranscribed by 
lazy copiers, and sometimes, perhaps, actually composed by the 
legislature. 

The ancient statutes of assize seem to have begun always with 
determining what ought to be the price of bread and ale when the 
price of wheat and barley were at the lowest; and to have pro- 
ceeded gradually to determine what it ought to be, according as 
the prices of those two sorts of grain should gradually rise above 



this lowest price. But the transcribers of those statutes seem fre- 
quently to have thought it sufficient to copy the regulation as far 
as the three or four first and lowest prices; saving in thismanner 
theirown labour, and judging, I suppose, that this was enough to 
show what proportion ought to be observed in all higher prices 

T hus, in theassizeof bread and ale, of the51st of H enry 1 1 1 . the 
price of bread was regulated according to the different prices of 
wheat, from one shilling to twenty shillings the quarter of the 
money of those times. But in the manuscripts from which all the 
different editions of the statutes, preceding that of M rRuffhead, 
were printed, the copiers had never transcribed this regulation 
beyond thepriceof twelve shillings. Several writers, therefore, be- 
ing misled by this faulty transcription, very naturally conclude 
that the middle price, or six shillings the quarter, equal to about 
eighteen shillingsof our present money, was theordinary or aver- 
age price of wheat at that time. 

In the statute of Tumbrel and Pillory, enacted nearly about the 
sametime, thepriceof ale is regulated according to every sixpence 
rise in thepriceof barley, from two shillings, to four shillings the 
quarter. That four shillings, however, was not considered as the 
highest price to which barley might frequently rise in those times, 
and that theseprices were only given as an example of the propor- 
tion which oughtto be observed in all other prices, whether higher 



156 



Adam Smith 



or lower, we may infer from the last words of the statute: "Et sic 
deincepscrescetur vd diminuetur per sex denarios." The expres- 
sion is very slovenly but the meaning is plain enough, "that the 
price of ale is in this manner to be increased or diminished ac- 
cording to every sixpence rise or fall in the price of barley." In the 
composition of thisstatute, thelegislatureitsdfseemsto have been 
as negligent as the copiers were in the transcription of the other. 
In an ancient manuscript of the Regiam M ajestatem, an old 
Scotch law book, there is a statute of assize, in which the price of 
bread is regulated according to all the different prices of wheat, 
from tenpenceto three shillings the Scotch boll, equal to about 
half an English quarter. Three shillings Scotch, at the time when 
this assize is supposed to have been enacted, were equal to about 
nineshillings sterling of our present moneyM rRuddiman seems 
{See his Preface to Anderson's D iplomata Scotiae.} to conclude 
from this, that three shillingswasthehighest price to which wheat 
ever rose in those times, and thattenpence, a shilling, or at most 
two shillings, were theordinary prices. Upon consulting themanu- 
script, however, it appears evidently, that all these prices are only 
set down as examples of the proportion which ought to be ob- 
served between the respective prices of wheat and bread. T he last 
words of the statute are "rdiqua judicabis secundum praescripta, 
habendo respectum ad pretium bladi." — "You shall judge of the 



remaining cases, according to what is above written, having re- 
spect to the price of corn." 

Thirdly, they seem to have been misled too, by the very low 
price at which wheat was sometimes sold in very ancient times; 
and to haveimagined, that as its lowest price was then much lower 
than in later timesitsordinarypricemustlikewisehave been much 
lower. They might havefound, however, that in those ancient times 
its highest price was fully as much above, as its lowest price was 
bdow any thing that had ever been known in later times. Thus, in 
1270, Fleetwood givesustwo prices of the quarter of wheat. The 
one is four pounds sixteen shillings of the money of those times, 
equal to fourteen poundsdght shillings of that of the present; the 
other is six pounds dght shillings, equal to nineteen poundsfour 
shillings of our present money. No price can be found in the end 
of the fifteenth, or beginning of the sixteenth century, which ap- 
proaches to the extravagance of these. T he price of corn, though 
at all times liable to variation varies most in those turbulent and 
disorderly societies, in which the interruption of all commerce 
and communication hinders theplenty of onepart of thecountry 
from relieving the scarcity of another. In the disorderly state of 
England underthePlantagenets, who governed it from about the 
middleof thetwelfth till towardstheend of thefifteenth century, 
one district might be in plenty, while another, at no great dis- 



157 



The Wealth of Nations 



tance, by having its crop destroyed, either by so me accident of the 
seasons, or by the incursion of some neighbouring baron, might 
be suffering all the horrors of a famine; and yet if the lands of 
some hostile lord were interposed between them, the one might 
not be able to give the least assistance to the other. U nder the 
vigorous administration of theTudors, who governed England 
during the latter part of the fifteenth, and through the whole of 
the sixteenth century, no baron was powerful enough to dare to 
disturb the public security. 

The reader will find at the end of this chapter all the prices of 
wheat which have been collected by Fleetwood, from 1202 to 1597, 
both inclusive, reduced to the money of the present times, and 
digested, according to the order of time, into seven divisions of 
twelve years each. Attheend of each division, too, he will find the 
average price of the twelve years of which it consists. In that long 
period of time, Fleetwood has been ableto collect the pricesof no 
more than eighty years; so that four yearsare wanting to makeout 
the last twelve years. I haveadded, therefore, from theaccountsof 
Eton college, the prices of 1598, 1599, 1600, and 1601. Itisthe 
only addition which I have made. The reader will see, that from 
the beginning of the thirteenth till after the middle of the six- 
teenth century, theaveragepriceof each twelve yearsgrows gradu- 
ally lower and lower; and that towards the end of the sixteenth 



century it beginstoriseagain.Theprices, indeed, which Fleetwood 
has been able to collect, seem to have been those chiefly which 
were remarkable for extraordinary dearnessor cheapness; and I do 
not pretend that any very certain conclusion can be drawn from 
them. So far, however, as they prove any thing at all, they confirm 
the account which I have been endeavouring to give. Fleetwood 
himself, however, seems, with most other writers, to have believed, 
that, during all this period, the value of silver, in consequence of 
its increasing abundance, was continually diminishing. The prices 
of corn, which he himself has collected, certainly do not agree 
with this opinion. T hey agree perfectly with that of M r D upre de 
St M aur, and with that which I have been endeavouring to ex- 
plain. Bishop Fleetwood and M r DupredeSt M aur are the two 
authors who seem to have collected, with the greatest diligence 
and fidelity, the prices of things in ancient times. Itissomewhat 
curiousthat, though their opinionsareso very different, theirfacts, 
so far as they relate to the price of corn at least, should coincides) 
very exactly. 

It is not, however, so much from the low price of corn, as from 
that of some other parts of the rude produce of land, that the 
most judicious writers have inferred the great value of silver in 
those very ancient times. Corn, it has been said, being a sort of 
manufacture, was, in those rude ages, much dearer in proportion 



158 



Adam Smith 



than the greater part of other commodities; it is meant, I suppose, 
than the greater part of unmanufactured commodities, such as 
cattle, poultry, game of all kinds, etc. That in those times of pov- 
erty and barbarism these were proportionably much cheaper than 
corn, is undoubtedly true. But this cheapness was not the effect of 
thehigh valueof silver, but of thelowvalueof those commodities. 
It was not because silver would in such times purchase or repre- 
sent a greater quantity of labour, but because such commodities 
would purchaseor represent a much smaller quantity than in times 
of more opulence and improvement. Silver must certainly be 
cheaper in Spanish America than in Europe; in the country where 
it is produced, than in the country to which it is brought, at the 
expense of a long carriage both by land and by sea, of a freight, 
and an insurance. ne-and-twentypencehalfpennysterling, how- 
ever, we are told by U lloa, was, not many years ago, at Buenos 
Ayres, the price of an ox chosen from a herd of three or four hun- 
dred. Sixteen shillings sterling, we are told byM r Byron, was the 
priceofagood horse in the capital of Chili. In acountry naturally 
fertile, but of which thefar greater part is altogether uncultivated, 
cattle, poultry, gameof all kinds, etc. as they can be acquired with 
a very small quantity of labour, so theywill purchaseor command 
but a very small quantity. The low money price for which they 
may be sold, is no proof that the real valueof silver is there very 



high, but that the real value of those commodities is very low. 

Labour, it must always be remembered, and not any particular 
commodity, or set of commodities, isthereal measure of the value 
both of silver and of all other commodities. 

But in countries almost waste, or but thinly inhabited, cattle, 
poultry, game of all kinds, etc. as they are the spontaneous pro- 
ductions of Nature, so she frequently produces them in much 
greater quantities than theconsumption of theinhabitants requires. 
I n such a state of things, the supply commonly exceeds the de- 
mand. I n different statesof society, in different statesof improve- 
ment, therefore, such commodities will represent, or be equiva- 
lent, to very different quantities of labour. 

I n every state of society, in every stage of improvement, corn is 
the production of human industry. But the average produce of 
every sort of industry is always suited, more or less exactly, to the 
average consumption; the average supply to the average demand. 
In every different stage of improvement, besides, the raising of 
equal quantities of corn in the same soil and climate, will, at an 
average, require nearly equal quantities of labour; or, what comes 
to the same thing, the price of nearly equal quantities; the con- 
tinual increase of the productive powers of labour, in an improved 
state of cultivation, being more or less counterbalanced by the 
continual increasing price of cattle, the principal instruments of 



159 



The Wealth of Nations 



agriculture. Upon all these accounts, therefore, we may rest as- 
sured, that equal quantities of corn will, in every state of society, 
in every stage of improvement, more nearly represent, or be equiva- 
lent to, equal quantities of labour, than equal quantities of any 
other part of the rude produce of land. Corn, accordingly, it has 
already been observed, is, in all the different stages of wealth and 
improvement, a more accurate measure of value than any other 
commodity or set of commodities. In all those different stages, 
therefore, we can judge better of the real value of silver, by com- 
paring it with corn, than by comparing it with any other com- 
modity or set of commodities. 

Corn, besides, or whatever else is the common and favourite 
vegetablefood of thepeople, constitutes, in every civilized coun- 
try, the principal part of the subsistence of the labourer. In conse- 
quence of the extension of agriculture, the land of every country 
producesamuch greater quantity of vegetablethan of animal food, 
and the labourer everywhere lives chiefly upon the wholesome 
food that is cheapest and most abundant. Butcher's meat, except 
in the most thriving countries, or where labour is most highly 
rewarded, makes but an insignificant part of hissubsistence; poultry 
makes a still smaller part of it, and game no part of it. I n France, 
and even in Scotland, where labour is somewhat better rewarded 
than in France, the labouring poor seldom eat butcher's meat, 



except upon holidays, and other extraordinary occasions. The 
money price of labour, therefore, depends much more upon the 
average money price of corn, thesubsistenceof the labourer, than 
upon that of butcher's meat, or of any other part of the rude pro- 
duce of land. The real value of gold and silver, therefore, the real 
quantity of labour which they can purchase or command, depends 
much moreupon the quantity of corn which they can purchase or 
command, than upon that of butcher's meat, or any other part of 
the rude produce of land. 

Such slight observations, however, upon theprices either of corn 
or of other commodities, would not probably have misled so many 
intelligent authors, had they not been influenced at thesametime 
by the popular notion, that as the quantity of silver naturally in- 
creases in every country with the increase of wealth, so its value 
diminishes as its quantity increases. This notion, however, seems 
to be altogether groundless. 

T he quantity of the precious metals may increase in any coun- 
try from two different causes; either, first, from the increased abun- 
dance of the mines which supply it; or, secondly, from the in- 
creased wealth of thepeople, from the increased produce of their 
annual labour. The first of these causes is no doubt necessarily 
connected with the diminution of the value of the precious met- 
als; but the second is not. 



160 



Adam Smith 



When mo re abundant mines are discovered, a greater quantity 
of the precious metals is brought to market; and the quantity of 
the necessaries and conveniences of life for which they must be 
exchanged being the same as before, equal quantitiesof themetals 
must be exchanged for smaller quantitiesof commodities. So far, 
therefore, as the increase of the quantity of the precious metals in 
any country arises from the increased abundance of the mines, it 
is necessarily connected with some diminution of their value. 

When, on the contrary, the wealth of any country increases, 
when the annual produce of its labour becomes gradually greater 
and greater, a greater quantity of coin becomes necessary in order 
to circulatea greater quantity of commodities: and the people, as 
they can afford it, as they have more commodities to give for it, 
will naturally purchase a greater and a greater quantity of plate. 
The quantity of their coin will increase from necessity; the quan- 
tity of their plate from vanity and ostentation, or from the same 
reason that the quantity of fine statues, pictures, and of every other 
luxury and curiosity, islikely to increase among them. But as statu- 
aries and painters are not likely to be worse rewarded in times of 
wealth and prosperity, than in times of poverty and depression, so 
gold and silver are not likely to be worse paid for. 

The price of gold and silver, when the accidental discovery of 
more abundant mines does not keep it down, as it naturally rises 



with the wealth of every country; so, whatever be the state of the 
mines, it is at all times naturally higher in a rich than in a poor 
country. Gold and silver, likeall other commodities, naturally seek 
the market where the best price is given for them, and the best 
price iscommonly given for every thing in the country which can 
best afford it. Labour, it must be remembered, istheultimate price 
which is paid for every thing; and in countries where labour is 
equally well rewarded, the money price of labour will be in pro- 
portion to that of the subsistence of the labourer. But gold and 
silver will naturally exchange for a greater quantity of subsistence 
in a rich than in a poor country; in a country which abounds with 
subsistence, than in one which is but indifferently supplied with 
it. I f the two countries are at a great distance, the difference may 
be very great; because, though the metals naturally fly from the 
worse to the better market, yet it may be difficult to transport 
them in such quantities as to bring their price nearly to a level in 
both. If the countries are near, the difference will be smaller, and 
may sometimes be scarce perceptible; becausein thiscasethetrans- 
portation will be easy. China is a much richer country than any 
part of Europe, and the difference between the price of subsis- 
tence in China and in Europe is very great. RiceinChinaismuch 
cheaper than wheat is any where in Europe. England is a much 
richer country than Scotland, but thedifference between themoney 



161 



The Wealth of Nations 



price of corn in those two countries is much smaller, and is but 
just perceptible. In proportion to thequantity or measure, Scotch 
corn generally appears to be a good deal cheaper than English; 
but, in proportion to its quality, it is certainly somewhat dearer. 
Scotland receives almost every year very large supplies from En- 
gland, and every commodity must commonly be somewhat dearer 
in the country to which it is brought than in that from which it 
comes. English corn, therefore, must be dearer in Scotland than 
in England; and yet in proportion to itsquality, or to thequantity 
and goodness of the flour or meal which can be made from it, it 
cannot commonly be sold higher there than theScotch corn which 
comes to market in competition with it. 

Thedifferencebetweenthemoneypriceof labourinChinaand 
in Europe, is still greater than that between the money price of 
subsistence; because the real recompence of labour is higher in 
Europe than in China, the greater part of Europe being in an 
improving state, whileChinaseemstobestandingstill.Themoney 
price of labour is lower in Scotland than in England, because the 
real recompence of labour is much lower: Scotland, though ad- 
vancing to greater wealth, advances much more slowly than En- 
gland. Thefrequency of emigration from Scotland, and the rarity 
of it from England, sufficiently prove that the demand for labour 
isvery different in thetwo countries. The proportion between the 



real recompenceof labour in different countries, it must be remem- 
bered, is naturally regulated, not by their actual wealth or poverty, 
but by their advancing, stationary, or declining condition. 

Gold and silver, as they are naturally of thegreatestvalueamong 
therichest, sotheyarenaturallyoftheleastvalueamongthepoorest 
nations. Among savages, the poorest of all nations, they are scarce 
of any value. 

In great towns, corn is always dearer than in remote parts of the 
country. This, however, isthe effect, not of the real cheapness of 
silver, but of the real dearnessof corn. It does not cost less labour 
to bring silver to the great town than to the remote parts of the 
country; but it costs a great deal more to bring corn. 

In some very rich and commercial countries, such as H olland 
and theterritory of G enoa, corn is dear for thesame reason that it 
is dear in great towns. They do not produce enough to maintain 
their inhabitants. They are rich in the industry and skill of their 
artificers and manufacturers, in every sort of machinery which 
can facilitate and abridge labour; in shipping, and in all theother 
instruments and means of carriage and commerce: but they are 
poor in corn, which, as it must be brought to them from distant 
countries, must, by an addition to its price, pay for the carriage 
from those countries. It does not cost less labour to bring silver to 
Amsterdam than to D antzic; but it costsa great deal more to bring 



162 



Adam Smith 



corn. The real cost of silver must be nearly the same in both places; 
but that of corn must be very different. D iminish the real opu- 
lence either of H olland or of the territory of Genoa, while the 
number of their inhabitants remainsthesame; diminish their power 
of supplying themselves from distant countries; and the price of 
corn, instead of sinking with that diminution in the quantity of 
their silver, which must necessarily accompany this declension, 
either as itscauseor as its effect, will rise to the price of a famine. 
When we are in want of necessaries, we must part with all super- 
fluities, of which the value, as it rises in times of opulence and 
prosperity, so it sinks in times of poverty and distress. It is other- 
wise with necessaries. Their real price, thequantity of labourwhich 
they can purchase or command, risesin times of poverty and dis- 
tress, and sinks in times of opulence and prosperity, which are 
always times of great abundance; for they could not otherwise be 
times of opulence and prosperity. Corn isa necessary, silver isonly 
a superfluity. 

W hatever, therefore, may have been the increase in thequantity 
of the precious metals, which, during the period between the 
middle of the fourteenth and that of the sixteenth century, arose 
from the increase of wealth and improvement, it could have no 
tendency to diminish their value, either in Great Britain, or in my 
other part of Europe. If those who have collected the prices of 



things in ancient times, therefore, had, during thisperiod, no rea- 
son to infer the diminution of the value of silver from any obser- 
vations which they had made upon the prices either of corn, or of 
other commodities, they had still less reason to infer it from any 
supposed increase of wealth and improvement. 

Second Period. — But how various soever may have been the 
opinions of the learned concerning the progress of the value of 
silver during the first period, they are unanimous concerning it 
during the second. 

From about 1570 to about 1640, during a period of about sev- 
enty years, the variation in the proportion between the value of 
silver and that of corn held a quite opposite course. Silver sunk in 
its real value, or would exchange for a smaller quantity of labour 
than before; and corn rose in its nominal price, and, instead of 
being commonly sold for about two ounces of silver the quarter, 
or about ten shillingsof our present money, cameto be sold for six 
and eight ounces of silver the quarter, or about thirty and forty 
shillingsof our present money. 

Thediscoveryoftheabundantminesof America seemsto have 
been the sole cause of this diminution in the value of silver, in 
proportion to that of corn. It isaccounted for, accordingly, in the 
same manner by every body; and there never has been any dis- 
pute, either about the fact, or about the cause of it. The greater 



163 



The Wealth of Nations 



part of Europe was, during this period, advancing in industry and 
improvement, and the demand for silver must consequently have 
been increasing; but the increase of the supply had, it seems, so far 
exceeded that of the demand, that the value of that metal sunk 
considerably. The discovery of the mines of America, it is to be 
observed, does not seem to have had any very sensible effect upon 
the prices of things in England till after 1570; though even the 
minesof Potosi had been discovered morethan twenty years before. 

From 1595 to 1620, both inclusive, the average price of the 
quarter of nine bushels of the best wheat, at Windsor market, 
appears, from the accounts of Eton college, to have been £ 2:1:6 
9/13. From which sum, neglecting thefraction, and deducting a 
ninth, or 4s. 7 l/3d., the price of the quarter of eight bushels 
comes out to have been £ 1:16:10 2/3. And from this sum, ne- 
glecting likewise the fraction, and deducting a ninth, or 4s. 1 1/ 
9d., for the difference between the price of the best wheat and that 
of the middle wheat, the price of the middle wheat comes out to 
have been about £ 1:12:8 8/9, or about six ounces and one-third 
of an ounce of silver. 

From 1621 to 1636, both inclusive, the average price of the same 
measure of the best wheat, at the same market, appears, from the 
same accounts, to have been £ 2:10s.; from which, making the like 
deductionsasin theforegoingcase, the average price of the quarter 



of eight bushels of middle wheat comes out to have been £ 1:19:6, 
or about seven ounces and two-thirds of an ounce of silver. 

Third Period. — Between 1630 and 1640, or about 1636, the 
effect of the discovery of the mines of America, in reducing the 
value of silver, appears to have been completed, and the value of 
that metal seems never to havesunk lower in proportion to that of 
corn than it was about that time. It seems to have risen somewhat 
in the course of the present century, and it had probably begun to 
do so, even some time before the end of thelast. 

From 1637 to 1700, both inclusive, being the sixty-four last 
years of the last century the average price of the quarter of nine 
bushels of the best wheat, at W indsor market, appears, from the 
same accounts, to have been £ 2:11:0 1/3, which is only Is. 1/ 
3d. dearer than it had been during thesixteen years before. But, in 
the course of these sixty-four years, there happened two events, 
which must have produced a much greater scarcity of corn than 
what the course of the season iswould otherwisehave occasioned, 
and which, therefore, without supposing any further reduction in 
the value of silver, will much morethan account for thisvery small 
enhancement of price. 

Thefirst of these events was the civil war, which, by discourag- 
ingtillageand interrupting commerce, must have raised the price 
of corn much above what the course of the seasons would other- 



164 



Adam Smith 



wise have occasioned. It must have had this effect, moreor less, at 
all the different markets in the kingdom, but particularly at those 
in the neighbourhood of London, which require to be supplied 
from the greatest distance. In 1648, accordingly, the price of the 
best wheat, at Windsor market, appears, from the same accounts, 
to have been £ 4:5s., and, in 1649, to have been £ 4, the quarter of 
nine bushels. The excess of those two years above £ 2:10s. (the 
average price of thesixteen years preceding 1637 isf 3:5s., which, 
divided among the sixty four last years of the last century, will 
alone very nearly account for that small enhancement of price 
which seemsto have taken placein them.) These, however, though 
the highest, are by no means the only high prices which seem to 
have been occasioned by the civil wars. 

Thesecond event was the bounty upon the exportation of corn, 
granted in 1688. The bounty, it has been thought by many people, 
by encouraging tillage, may, in a long course of years, have occa- 
sioned a greater abundance, and, consequently, a greater cheap- 
ness of corn in the home market, than what would otherwise have 
taken place there. H ow far the bounty could produce this effect at 
anytime I shall examine hereafter: I shall only observe at present, 
that between 1688 and 1700, it had not timeto produce any such 
effect. During thisshort period, its only effect must have been, by 
encouraging the exportation of the surplus produceof every year, 



and thereby hindering the abundance of one year from compen- 
sating the scarcity of another, to raise the price in the home mar- 
ket. The scarcity which prevailed in England, from 1693 to 1699, 
both inclusive, though no doubt principally owing to thebadness 
of the seasons, and, therefore, extending through a considerable 
part of Europe, must have been somewhat enhanced by the bounty. 
In 1699, accordingly, thefurther exportation of corn was prohib- 
ited for nine months. 

There was a third event which occurred in the course of the 
same period, and which, though it could not occasion any scar- 
city of corn, nor, perhaps, any augmentation in the real quantity 
of silver which wasusually paid for it, must necessarily have occa- 
sioned some augmentation in the nominal sum. This event was 
the great debasement of the silver coin, by clipping and wearing. 
This evil had begun in the reign of Charles 1 1, and had gone on 
continually increasing till 1695; at which time, as we may learn 
from M r Lowndes, thecurrent silver coin was, at an average, near 
five- and -twenty per cent, below its standard value. But the nomi- 
nal sum which constitutes the market priceof every commodity is 
necessarily regulated, not so much by thequantity of silver, which, 
according to the standard, ought to be contained in it, as by that 
which, it isfound by experience, actually is contained in it. This 
nominal sum, therefore, is necessarily higher when thecoin ismuch 



165 



The Wealth of Nations 



debased by clipping and wearing, than when near to its standard 
value. 

In the course of the present century, the silver coin has not at 
anytimebeen more below its standard weight than it isat present. 
But though very much defaced, its value has been kept up by that 
ofthegold coin, for which it is exchanged. For though, before the 
late recoinage, the gold coin was a good deal defaced too, it was 
less so than the silver. In 1695, on the contrary, the value of the 
silver coin was not kept up by the gold coin; a guinea then com- 
monly exchanging for thirty shillings of the worn and dipt silver. 
Before thelaterecoinageofthegold,thepriceof silver bullion was 
seldom higher than five shillings and sevenpencean ounce, which 
is but fivepence above the mint price. But in 1695, the common 
price of silver bullion was six shillings and fivepence an ounce, 
{Lowndes's Essay on the Silver Coin, 68.} which is fifteen pence 
above the mint price. Even before the I ate recoinage of the gold, 
therefore, thecoin, gold and silver together, when compared with 
silver bullion, was not supposed to be more than eight per cent, 
below its standard value, In 1695, on the contrary, it had been 
supposed to be near five-and-twenty per cent, below that value. 
But in the beginning of the present century, that is, immediately 
after thegreat recoinage in King William'stime, thegreaterpartof 
the current silver coin must have been still nearer to its standard 



weight than it is at present. I n the course of the present century, 
too, there has been no great public calamity, such as a civil war, 
which could either discourage til I age, or interrupt theinterior com- 
merce of the country. And though the bounty which has taken 
place through the greater part of this century, must always raise 
the price of corn somewhat higher than it otherwise would be in 
the actual state of tillage; yet, as in the course of this century, the 
bounty has had full time to produce all the good effects com- 
monly imputed to it to en courage til I age, and thereby to increase 
the quantity of corn in the home market, it may, upon the prin- 
ciples of a system which I shall explain and examine hereafter, be 
supposed to have done something to lower the price of that com- 
modity the one way, as well as to raise it the other. It is by many 
people supposed to have done more. I n the sixty-four years of the 
present century, accordingly, the average price of the quarter of 
nine bushels of the best wheat, at W indsor market, appears, by 
theaccountsof Eton college, to have been £ 2:0:6 10/32, which is 
about ten shillings and sixpence, or more than five-and-twenty 
percent, cheaper than it had been during the sixty-four last years 
of the last century; and about nineshillings and sixpence cheaper 
than it had been during the sixteen years preceding 1636, when 
thediscovery of theabundant mines of America may be supposed 
to have produced its full effect; and about one shilling cheaper 



166 



Adam Smith 



than it had been in the twenty-six years preceding 1620, before 
that discovery can well be supposed to have produced its full ef- 
fect. According to this account, the average price of middle wheat, 
during these sixty-four first years of the present century, comes 
out to have been about thirty-two shillings the quarter of eight 
bushels. 

The value of silver, therefore, seems to have risen somewhat in 
proportion to that of corn during the course of the present cen- 
tury, and it had probably begun to do so even sometime before 
the end of the last. 

In 1687, thepriceofthequarter of ninebushelsof thebest wheat, 
at Windsor market, wasf 1:5:2, the lowest price at which it had 
ever been from 1595. 

In 1688, M rGregory King, aman famousfor his knowledge in 
mattersof thiskind, estimated theaveragepriceof wheat, in years 
of moderate plenty, to be to the grower 3s. 6d. the bushel, or 
eight-and-twenty shillingsthequarter. Thegrower'spricel under- 
stand to be the same with what is sometimes called the contract 
price, or the price at which a farmer contracts for a certain num- 
ber of years to deliver a certain quantity of corn to a dealer. As a 
contract of this kind saves the farmer the expense and trouble of 
marketing, the contract price is generally lower than what is sup- 



posed to be the average market price. M r King had judged aght- 
and-twenty shillings the quarter to be at that time the ordinary 
contract price in years of moderate plenty. Before the scarcity oc- 
casioned by the I ate extraordinary course of bad seasons, it was, I 
have been assured, theordinary contract pricein all common years. 
I n 1688 was granted the parliamentary bounty upon theexpor- 
tation of corn. Thecountry gentlemen, who then composed astill 
greater proportion of the legislature than they do at present, had 
fdt that the money price of corn was falling. T he bounty was an 
expedient to raise it artificially to the high price at which it had 
frequently been sold in the times of Charles I. and II. It was to 
take place, therefore, till wheat was so high asfortyeight shillings 
the quarter; that is, twenty shillings, or 5-7ths dearer than M r 
King had, in that very year, estimated the grower's price to be in 
times of moderate plenty. If his calculations deserve any part of 
the reputation which they have obtained very universally, aght- 
and-forty shillings the quarter was a price which, without some 
such expedient as the bounty, could not at that time be expected, 
except in years of extraordinary scarcity. But the government of 
King William wasnotthen fully settled. It was in no condition to 
refuse anything to the country gentlemen, from whom it was, at 
that very time, soliciting thefirst establishment of theannual land- 
tax. 



167 



The Wealth of Nations 



Thevalueof silver, therefore, in proportion to that of corn, had 
probably risen somewhat before theend of the last century; and it 
seemsto havecontinued to do so during the course of the greater 
part of the present, though the necessary operation of the bounty 
must havehindered that rise from being so sensibleasit otherwise 
would have been in the actual state of tillage. 

In plentiful years, the bounty, by occasioning an extraordinary 
exportation, necessarily raises theprice of corn above what it oth- 
erwise would be in those years. To encourage tillage, by keeping 
up the price of corn, even in the most plentiful years, was the 
avowed end of the institution. 

I n years of great scarcity, indeed, the bounty has generally been 
suspended. It must, however, have had some effect upon the prices 
of many of those years. By the extraordinary exportation which it 
occasions in years of plenty, it must frequently hinder the plenty 
of one year from compensating the scarcity of another. 

Both in years of plenty and in years of scarcity, therefore, the 
bounty raises the priceof corn above what it naturally would bein 
the actual state of tillage. If during the sixty-four first years of the 
present century, therefore, the average price has been lower than 
during the sixty-four last years of the last century, it must, in the 
same state of tillage, have been much more so, had it not been for 
this operation of the bounty. 



But, without the bounty, itmay besaid thestateof tillagewould 
not have been the same. W hat may have been the effects of this 
institution upon the agriculture of the country, I shall endeavour 
to explain hereafter, when I cometo treat particularly of bounties. 
I shall only observe at present, that this rise in thevalueof silver, 
in proportion to that of corn, hasnotbeen peculiar to England. It 
has been observed to have taken placein France during the same 
period, and nearly in thesame proportion, too, by three very faith- 
ful, diligent, and laborious collectors of the prices of corn, M r 
DupredeSt Maur, M r Messance, and the author of the Essay on 
the Police of Grain. But in France, till 1764, the exportation of 
grain was by law prohibited; and it is somewhat difficult to sup- 
pose, that nearly the same diminution of price which took place 
in one country, notwithstanding this prohibition, should, in an- 
other, be owing to the extraordinary encouragement given to ex- 
portation. 

It would bemoreproper, perhaps, to consider this variation in 
theaveragemoney priceof corn astheeffect rather of somegradual 
rise in the real valueof silver in the European market, than of any 
fall in the real average value of corn. Corn, it has already been 
observed, is, at distant periods of time, a more accurate measure 
of valuethan either silver or, perhaps, any other commodity. W hen, 
after the disco very of the abundant mines of America, corn rose to 



168 



Adam Smith 



three and four times its former money price, this change was uni- 
versally ascribed, not to any rise in the real value of corn, but to a 
fall in the real value of silver. If, during thesixty-four first yearsof 
the present century, therefore, the average money price of corn 
has fallen somewhat below what it had been during the greater 
part of the last century, we should, in the same manner, impute 
this change, not to any fall in the real value of corn, but to some 
rise in the real value of silver in the European market. 

The high price of corn during these ten or twelve years past, 
indeed, has occasioned a suspicion that the real valueof silver still 
continues to fall in the European market. This high priceof corn, 
however, seems evidently to have been the effect of the extraordi- 
nary unfavourableness of the seasons, and ought, therefore, to be 
regarded, not as a permanent, but as a transitory and occasional 
event. T he seasons, for these ten or twelve years past, have been 
unfavourable through the greater part of Europe; and the disor- 
ders of Poland have very much increased the scarcity in all those 
countries, which, in dear years, used to be supplied from that 
market. So long a course of bad seasons, though not a very com- 
mon event, is by no means a singular one; and whoever has in- 
quired much intothehistoryof thepricesof corn in former times, 
will be at no loss to recollect several other examples of the same 
kind. Ten years of extraordinary scarcity, besides, are not more 



wonderful than ten yearsof extraordinary plenty. The low priceof 
corn, from 1741 to 1750, both inclusive, may very well beset in 
opposition to its high price during these last eight or ten years. 
From 1741 to 1750, theaverage priceof thequarter of ninebush- 
els of the best wheat, at W indsor market, it appears from the ac- 
counts of Eton college, was only £ 1:13:9 4/5, which is nearly 
6s.3d. below the average price of the sixty-four first years of the 
present century. T he average price of the quarter of eight bushels 
of middle wheat comes out, according to this account, to have 
been, during these ten years, only £ 1:6:8. 

Between 1741 and 1750, however, the bounty must have hin- 
dered the price of corn from falling so low in the home market as 
it naturally would havedone. D uring these ten years, thequantity 
of all sorts of grain exported, it appears from the custom-house 
books, amounted to no less than 8,029,156 quarters, one bushel. 
T he bounty paid for this amounted to £ 1,514,962:17:4 1/2. 1 n 
1749, accordingly, M r Pelham, at that time prime minister, ob- 
served to the house of commons, that, for the three years preced- 
ing, a very extraordinary sum had been paid as bounty for the 
exportation of corn. H e had good reason to make this observa- 
tion, and in the following year he might have had still better. In 
that single year, the bounty paid amounted to no less than £ 
324,176:10:6. £>ee Tracts on the Corn Trade, Tract 3,} It is un- 



169 



The Wealth of Nations 



necessary to observe how much thisforced exportation must have 
raised the price of corn above what it otherwise would have been 
in the home market. 

At the end of the accounts annexed to this chapter the reader 
will find the particular account of those ten years separated from 
the rest. H ewill find there, too, the particular account of the pre- 
ceding ten years, of which the average is likewise below, though 
not so much below, thegeneral average of the sixty- four first years 
of the century. T he year 1740, however, was a year of extraordi- 
nary scarcity. T hese twenty years preceding 1750 may very well be 
set in opposition to the twenty preceding 1770. As the former 
were a good deal below the general average of the century, not- 
withstanding the intervention of one or two dear years; so the 
latter have been a good deal above it, notwithstanding the inter- 
vention of one or two cheap ones, of 1759, for example. If the 
former have not been as much below the general average as the 
latter have been above it, we ought probably to impute it to the 
bounty. T he change has evidently been too sudden to be ascri bed 
to any change in the value of silver, which is always slow and 
gradual. The suddenness of the effect can be accounted for only 
by a cause which can operate suddenly, the accidental variations 
of the seasons. 

The money price of labour in Great Britain has, indeed, risen 



during the course of the present century. This, however, seems to 
betheeffect, not so much of any diminution in the value of silver 
in the European market, asofan increaseinthedemand for labour 
in Great Britain, arising from thegreat, and almost universal pros- 
perity of the country. In France, a country not altogether so pros- 
perous, the money price of labour has, since the middleof the last 
century, been observed to sink gradually with the average money 
priceof corn. Both in the last century and in the present, theday 
wages of common labour are there said to have been pretty uni- 
formly about the twentieth part of the average price of the septier 
of wheat; a measure which contains a little more than four Win- 
chester bushels. In Great Britain, the real recompenceof labour, it 
has already been shewn, the real quantities of the necessaries and 
con ven i en cies of life which are given to the labourer, has increased 
considerably during thecourseofthepresent century. Therisein its 
money priceseemsto havebeen theeffect, not of anydiminution of 
the value of silver in thegeneral market of Europe, but of arisein 
the real price of labour, in the particular market of Great Britain, 
owing to the peculiarly happy circumstances of the country. 

For sometime after thefirst discovery of America, silver would 
continue to sell at its former, or not much below its former price. 
The profits of mining would for some time be very great, and 
much above their natural rate. Those who imported that metal 



170 



Adam Smith 



into Europe, however, would soon find that the whole annual 
importation could not be disposed of at this high price. Silver 
would gradually exchange for a smaller and a smaller quantity of 
goods. Its price would sink gradually lower and lower, till it fell to 
itsnatural price; or to what wasjust sufficient to pay, accordingto 
their natural rates, thewagesofthelabour, theprofitsofthestock, 
and the rent of the land, which must be paid in order to bring it 
from the mi neto the market. In thegreater part of thesilver mines 
of Peru, the tax of the king of Spain, amounting to a tenth of the 
gross produce, eats up, it has already been observed, the whole 
rent of the land. Thistax was originally a half; it soon afterwards 
fell to a third, then to a fifth, and at last to a tenth, at which late it 
still continues. In the greater part of the silver mines of Peru, this, 
it seems, isall that remains, after replacing the stock of theunder- 
taker of the work, together with its ordinary profits; and it seems 
to beuniversally acknowledged that these profits, which were once 
very high, are now as low as they can well be, consistently with 
carrying on the works. 

The tax of the king of Spain was reduced to a fifth of the regis- 
tered silver in 1504 {Solorzano, vol, ii.}, one-and-forty years be- 
fore 1545, the date of the discovery of the mines of Potosi. I n the 
course of ninety years, or before 1636, these mines, the most fer- 
tilein all America, had time sufficient to produce their full effect, 



or to reducethevalueof silver in the European market as low as it 
could well fall, while it continued to pay thistax to the king of 
Spain. Ninety yearsistimesufficientto reduce any commodity, of 
which there is no monopoly, to its natural price, or to the lowest 
price at which, while it paysa particular tax, it can continue to be 
sold for any considerabletime together. 

Thepriceof silver in the European market might, perhaps, have 
fallen still lower, and it might have become necessary either to 
reduce the tax upon it, not only to one-tenth, as in 1736, but to 
one twentieth, in the same manner as that upon gold, or to give 
up working the greater part of the American mines which are now 
wrought. The gradual increase of the demand for silver, or the 
gradual enlargement of the market for the produce of the silver 
mines of America, is probably the cause which has prevented this 
from happening, and which has not only kept up the value of 
silver in theEuropean market, buthasperhapseven raised it some- 
what higher than it was about the middle of the last century. 

Sincethefirst discovery of America, the market for the produce 
of its silver mines has been growing gradually more and more ex- 
tensive. 

First, themarket of Europehasbecomegradually more and more 
extensive. Si nee the discovery of America, thegreater part of Eu- 
rope has been much improved. England, Holland, France, and 



171 



The Wealth of Nations 



Germany; even Sweden, Denmark, and Russia, have all advanced 
considerably, both in agriculture and in manufactures. Italy seems 
not to have gone backwards. The fall of Italy preceded the con- 
quest of Peru. Si nee that time it seems rather to have recovered a 
little. Spain and Portugal, indeed, aresupposed to havegoneback- 
wards. Portugal, however, is but a very small part of Europe, and 
the declension of Spain is not, perhaps, so great as is commonly 
imagined. In the beginning of the sixteenth century, Spain was a 
very poor country, even in comparison with France, which has 
been so much improved since that time. It was the well known 
remark of the emperor C harles V. who had travelled so frequently 
through both countries, that everything abounded in France, but 
that everything was wanting in Spain. The increasing produceof 
theagricultureand manufactures of Europe must necessarily have 
required a gradual increase in the quantity of silver coin to circu- 
late it; and the increasing number of wealthy individuals must 
have required the like increase in the quantity of their plate and 
other ornaments of silver. 

Secondly, America is itself a new market, for the produce of its 
own silver mines; and as its advances in agriculture, industry, and 
population, are much more rapid than those of the most thriving 
countries in Europe, its demand must increase much more rap- 
idly. The English colonies are altogether a new market, which, 



partly for coin, and partly for plate, requiresa continual augment- 
ing supply of silver through a great continent where there never 
was any demand before. T he greater part, too, of the Span ish and 
Portuguese colonies, are altogether new markets. New Granada, 
theYucatan, Paraguay, and the Brazils, were, before discovered by 
the Europeans, inhabited by savage nations, who had neither arts 
nor agriculture. A considerable degree of both has now been in- 
troduced into all of them. Even M exico and Peru, though they 
cannot beconsidered as altogether new markets, arecertainly much 
more extensive ones than they ever were before. After all the won- 
derful tales which have been published concerning the splendid 
state of those countries in ancient times, whoever reads, with any 
degree of sober judgment, the history of their first discovery and 
conquest, will evidently discern that, in arts, agriculture, and com- 
merce, their inhabitants were much more ignorant than theTar- 
tars of the U kraine are at present. Even the Peruvians, the more 
civilized nation of the two, though they made use of gold and 
silver as ornaments, had no coined money of anykind.Theirwhole 
commerce was carried on by barter, and there was accordingly 
scarce any division of labour among them. T hose who cultivated 
theground, were obliged to build their own houses, to maketheir 
own household furniture, their own clothes, shoes, and instru- 
ments of agriculture. The few artificers among them are said to 



172 



Adam Smith 



have been all maintained by the sovereign, the nobles, and the 
priests, and were probably their servants or slaves. All the ancient 
artsof M exicoand Peru have never furnished onesinglemanufac- 
ture to Europe. T he Spanish armies, though they scarce ever ex- 
ceeded five hundred men, and frequently did not amount to half 
that number, found almost everywhere great difficulty in procur- 
ing subsistence. The famines which they are said to have occa- 
sioned almost wherever they went, in countries, too, which at the 
same time are represented as very populous and well cultivated, 
sufficiently demonstrate that the story of this populousness and 
high cultivation isin a great measure fabulous. The Spanish colo- 
nies are under a government in many respects less favourable to 
agriculture, improvement, and population, than that of the En- 
glish colonies They seem, however, to be advancing in all those 
much more rapidly than any country in Europe. In a fertile soil 
and happy climate, the great abundance and cheapness of land, a 
circumstancecommontoall new colonies, is, it seems, so great an 
advantage, as to compensate many defects in civil government. 
Frezier, who visited Peru in 1713, represents Lima as containing 
between twenty-five and twenty-eight thousand inhabitants. U lloa, 
who resided in the same country between 1740 and 1746, repre- 
sentsit as containing more than fifty thousand. Thedifferencein 
their accounts of thepopulousn ess of several other principal towns 



of Chili and Peru is nearly the same; and as there seems to be no 
reason to doubt of the good information of either, it marks an 
increase which is scarce inferior to that of the English colonies. 
America, therefore, is a new market for the produce of its own 
silver mines, of which thedemand must increase much more rap- 
idly than that of the most thriving country in Europe. 

Thirdly, the East Indies isanother market for the produceof the 
silver minesof America, and a market which, from thetimeof the 
first discovery of those mines, has been continually taking off a 
greater and a greater quantity of silver. Since that time, thedirect 
trade between America and the East Indies, which is carried on by 
means of the Acapulco ships, has been continually augmenting, 
and the indirect intercourse by the way of Europe has been aug- 
menting in a still greater proportion. During the sixteenth cen- 
tury, the Portuguese were the only European nation who carried 
on any regular trade to the East I ndies. I n the last years of that 
century, the Dutch began to encroach upon this monopoly, and 
in a few years expelled them from their principal settlements in 
India. During the greater part of the last century, those two na- 
tions divided the most considerable part of the East India trade 
between them; thetradeof the D utch continually augmenting in 
a still greater proportion than that of the Portuguese declined. 
The English and French carried on some trade with India in the 



173 



The Wealth of Nations 



last century, but it has been greatly augmented in the course of the 
present. The East India trade of the Swedes and Danes began in 
the course of the present century. Even the M uscovites now trade 
regularly with China, by a sort of caravans which go over land 
through Siberia and Tartary to Pekin. The East India trade of all 
these nations, if we except that of the French, which the last war 
had well nigh annihilated, has been almost continually augment- 
ing. The increasing consumptions of East India goods in Europe 
is, it seems, so great, as to afford a gradual increase of employment 
to them all. Tea, for example, was a drug very little used in Eu- 
rope, before themiddleof thelast century. At present, thevalueof 
thetea annually imported by theEnglish East India company, for 
the use of their own countrymen, amountsto more than a million 
and a half a year; and even this is not enough; a great deal more 
being constantly smuggled into the country from the ports of 
Holland, from Gottenburgh in Sweden, and from the coast of 
France, too, as long as the French East India company was in 
prosperity. The consumption of the porcelain of China, of the 
spiceries of the M oluccas, of the piece goods of Bengal, and of 
innumerable other articles, hasincreased very nearly in alikepro- 
portion. The tonnage, accordingly, of all the European shipping 
employed in the East India trade, at any one time during the last 
century, was not, perhaps, much greater than that of the English 



East India company before the late reduction of their shipping. 

But in the East Indies, particularly in China and Indostan, the 
value of the precious metals, when the Europeans first began to 
trade to those countries, wasmuch higher than in Europe; and it 
still continues to be so. In rice countries, which generally yield 
two, sometimes three crops in theyear, each of them moreplenti- 
ful than any common crop of corn, the abundance of food must 
be much greater than in any corn country of equal extent. Such 
countries are accordingly much more populous. In them, too, the 
rich, having a greater superabundance of food to dispose of be- 
yond what they themselves can consume, have the means of pur- 
chasing a much greater quantity of the labour of other people. 
The retinue of a grandee in China or Indostan accordingly is, by 
all accounts, much more numerous and splendid than that of the 
richest subjects in Europe. The same superabundance of food, of 
which they have thedisposal, enables them to givea greater quan- 
tity of it for all those singular and rare productions which nature 
furnishes but in very small quantities; such as the precious metals 
and the precious stones, the great objects of the competition of 
the rich. Though the mines, therefore, which supplied the Indian 
market, had been as abundant as those which supplied the Euro- 
pean, such commodities would naturally exchange for a greater 
quantity of food in India than in Europe. But the mines which 



174 



Adam Smith 



supplied the Indian marketwiththepreciousmetalsseemtohave 
been a good deal less abundant, and those which supplied it with 
the precious stones a good deal more so, than the mines which 
supplied theEuropean.Thepreciousmetals, therefore, would natu- 
rally exchange in India for a somewhat greater quantity of the 
precious stones, and for a much greater quantity of food than in 
Europe. The money price of diamonds, the greatest of all super- 
fluities, would be somewhat lower, and that of food, thefirstof all 
necessaries, a great deal lower in theonecountry than in theother. 
But the real price of labour, the real quantity of the necessaries of 
life which is given to the labourer, it has already been observed, is 
lower both in C hina and I ndostan, thetwo great marketsof I ndia, 
than it is through the greater part of Europe. The wages of the 
labourer will there purchasea smaller quantity of food: and as the 
money price of food is much lower in I ndia than in Europe, the 
money priceof labour isthere lower upon a doubleaccount; upon 
account both of thesmall quantity of food which it will purchase, 
and of the low priceof that food. But in countries of equal art and 
industry, the money priceof the greater part of manufactures will 
be in proportion to the money price of labour; and in manufac- 
turing art and industry, China and I ndostan, though inferior, seem 
not to be much inferior to any part of Europe. The money price 
of the greater part of manufactures, therefore, will naturally be 



much lower in those great empires than it is anywhere in Europe. 
Through the greater part of Europe, too, the expense of land- 
carriage increases very much both the real and nominal price of 
most manufactures. It costs more labour, and therefore more 
money, to bring first the materials, and afterwards the complete 
manufacture to market. In China and I ndostan, the extent and 
variety of inland navigations save the greater part of this labour, 
and consequently of this money, and thereby reduce still lower 
both the real and the nominal price of the greater part of their 
manufactures. Upon all these accounts, the precious metals are a 
commodity which it always has been, and still continues to be, 
extremely advantageous to carry from Europe to India. There is 
scarceany commodity which brings a better pricethere; or which, 
in proportion to thequantity of labour and commodities which it 
costs in Europe, will purchase or command a greater quantity of 
labour and commoditiesin India. It is more advantageous, too, to 
carry silver thither than gold; because in China, and the greater 
part of the other markets of India, the proportion between fine 
silver and fine gold is but as ten, or at most as twelve to one; 
whereasin Europeitisasfourteenorfifteentoone. In China, and 
the greater part of the other markets of India, ten, or at most 
twelve ounces of silver, will purchase an ounceof gold; in Europe, 
it requires from fourteen to fifteen ounces. In the cargoes, there- 



175 



The Wealth of Nations 



fore, of the greater part of European ships which sail to India, 
silver has generally been one of the most valuable articles. Itisthe 
most valuable article in theAcapuko ships which sail to Manilla. 
The silver of the new continent seems, in this manner, to be one 
of the principal commodities by which the commerce between 
thetwoextremitiesoftheoldoneiscarriedon;and it is by means 
of it, in a great measure, that those distant parts of the world are 
connected with one another. 

I n order to supply so very widely extended a market, the quan- 
tity of silver annually brought from the mines must not only be 
sufficient to support that continued increase, both of coin and of 
plate, which isrequired in all thriving countries; but to repair that 
continual waste and consumption of silver which takesplacein all 
countries where that metal is used. 

The continual consumption of the precious metals in coin by 
wearing, and in plate both by wearing and cleaning, is very sen- 
sible; and in commodities of which the use is so very widely ex- 
tended, would alone require a very great annual supply. The con- 
sumption of those metals in someparticular manufactures, though 
it may not perhaps be greater upon the whole than this gradual 
consumption, is, however, much moresensible, asitismuch more 
rapid. In the manufactures of Birmingham alone, the quantity of 
gold and silver annually employed in gilding and plating, and 



thereby disqualified from ever afterwards appearing in the shape 
of those metals, is said to amount to more than fifty thousand 
poundssterling.Wemayfromthenceformsomenotion how great 
must be the annual consumption in all the different parts of the 
world, either in manufactures of thesame kind with those of Bir- 
mingham, or in laces, embroideries, gold and silver stuffs, thegild- 
ing of books, furniture, etc. A considerablequantity, too, must be 
annually lost in transporting those metals from one place to an- 
other both by sea and by land. In the greater part of the govern- 
ments of Asia, besides, the almost universal custom of concealing 
treasures in the bowels of the earth, of which the knowledge fre- 
quently dies with the person who makes the concealment, must 
occasion the loss of a still greater quantity. 

The quantity of gold and silver imported at both Cadiz and 
Lisbon (including not only what comes under register, but what 
may be supposed to be smuggled) amounts, according to the best 
accounts, to about six millions sterling a-year. 

AccordingtoM rM eggens {Postscript to the Universal M erchant 
p. 15 and 16.Thispostscriptwasnot printed till 1756, three years 
after the publication of the book, which has never had a second 
edition. The postscript is, therefore, to be found in few copies; it 
corrects several errorsin thebook.}, theannual importation of the 
precious metals into Spain, at an average of six years, viz. from 



176 



Adam Smith 



1748 to 1753, both inclusive, and into Portugal, at an average of 
seven years, viz. from 1747 to 1753, both inclusive, amounted in 
silver to 1,101,107 pounds weight, and in gold to 49,940 pounds 
weight. The silver, at sixty two shillings the pound troy, amounts 
to £ 3,413,431:10s. sterling. Thegold, at forty-four guineas and a 
half the pound troy, amounts to £ 2,333,446:14s. sterling. Both 
together amount to £ 5, 746,878:4s. sterling. Theaccount of what 
was imported under register, he assures us, is exact. H e gives us 
the detail of the particular places from which the gold and silver 
were brought, and of the particular quantity of each metal, which, 
according to the register, each of them afforded. H e makes an 
allowance, too, for the quantity of each metal which, hesupposes, 
may have been smuggled. The great experience of this judicious 
merchant renders his opinion of considerable weight. 

According to the eloquent, and sometimes well-informed, au- 
thor of the Philosophical and Political H istory of the Establish- 
ment of the Europeans in the two Indies, the annual importation 
of registered gold and silver into Spain, at an average of eleven 
years, viz. from 1754 to 1764, both inclusive, amounted to 
13,984,185 3/5 piastres of ten reals. On account of what may 
have been smuggled, however, the whole annual importation, he 
supposes, may have amounted to seventeen millions of piastres, 
which, at 4s. 6d. the piastre, is equal tof 3,825,000 sterling. He 



gives the detail, too, of the particular places from which thegold 
and silver were brought, and of the particular quantities of each 
metal, which according to the register, each of them afforded. H e 
informs us, too, that if we were to judge of the quantity of gold 
annually imported from the Brazils to Lisbon, by the amount of 
thetax paid to theking of Portugal, which it seems, is one-fifth of 
the standard metal, we might value it at eighteen millions of 
cruzadoes, or forty-five millions of French livres, equal to about 
twenty millions sterling. On account of what may have been 
smuggled, however, we may safely, he says, add to this sum an 
eighth more, or £ 250,000 sterling, so that the whole will amount 
to £ 2,250,000 sterling. According to this account, therefore, the 
whole annual importation of the precious metals into both Spain 
and Portugal, mounts to about £ 6,075,000 sterling. 

Several other very well authenticated, though manuscript ac- 
counts, I have been assured, agree in making this whole annual 
importation amount, at an average, to about six millionssterling; 
sometimes a little more, sometimes a little less. 

T he annual importation of the precious metals into C adiz and 
Lisbon, indeed, is not equal to the whole annual produce of the 
mines of America. Some part is sent annually by the Acapulco 
ships to M anilla; some part is employed in a contraband trade, 
which theSpanish colonies carry on with thoseof other European 



177 



The Wealth of Nations 



nations; and some part, no doubt, remains in the country. The 
mines of America, besides, are by no means the only gold and 
silver minesin theworld. They, are, however, by far the most abun- 
dant. The produce of all the other mines which are known is in- 
significant, it is acknowledged, in comparison with their's; and 
thefar greater part of theirproduce, itislikewise acknowledged, is 
annually imported into Cadiz and Lisbon. But the consumption 
of Birmingham alone, at the rate of fifty thousand pounds a-year, 
isequal tothehundred-and-twentieth part of this annual impor- 
tation, at the rate of six millions a-year. The whole annual con- 
sumption of gold and silver, therefore, in all the different coun- 
tries of theworld where those metals are used, may, perhaps, be 
nearly equal tothewholeannual produce. The remainder may be 
no more than sufficient to supply the increasing demand of all 
thriving countries. It may even have fallen so far short of this de- 
mand, as somewhat to raise the priceof those metals in the Euro- 
pean market. 

Thequantity of brass and iron annually brought from the mine 
to the market, is out of all proportion greater than that of gold 
and silver. We do not, however, upon this account, imagine that 
those coarse metals are likely to multiply beyond the demand, or 
to become gradually cheaper and cheaper. W hy should we imag- 
ine that the precious metals are likely to do so?T he coarse metals, 



indeed, though harder, are put to much harder uses, and, as they 
are of less value, less care is employed in their preservation. The 
precious metals, however, are not necessarily immortal any more 
than they, but areliable, too, to belost, wasted, and consumed, in 
a great variety of ways. 

The priceof all metals, though liableto slow and gradual varia- 
tions, varies less from year to year than that of almost any other 
part of the rude produce of land: and the price of the precious 
m etal s i s even I ess I i ab I e to su d d en vari ati on s th an th at of th e coarse 
ones. T he durableness of metals is the foundation of this extraor- 
dinary steadiness of price. T hecorn which was brought to market 
last year will be all, or almost all, consumed, long before the end 
of this year. But some part of the iron which was brought from: 
the mine two or three hundred years ago, may be still in use, and, 
perhaps, some part of the gold which was brought from it two or 
three thousand years ago. The different masses of corn, which, in 
different years, must supply the consumption of the world, will 
always be nearly in proportion to the respective produce of those 
different years. But the proportion between the different masses 
of iron which may be in use in two different years, will be very 
little affected by any accidental difference in the produce of the 
iron mines of those two years; and the proportion between the 
masses of gold will be still less affected by any such difference in 



178 



Adam Smith 



the produce of the gold mines.Thoughtheproduceofthegreater 
part of metallic mines, therefore, varies, perhaps, still more from 
year to year than that of thegreater part of corn fields, those varia- 
tions have not thesameeffect upon the price of theonespeciesof 
commodities as upon that of the other. 

Variations in the Proportion between the respective Values of 
Gold and Silver. 

Before the discovery of the mines of America, the value of fine 
gold to finesilver was regulated in the different mines of Europe, 
between the proportions of one to ten and one to twelve; that is, 
an ounce of finegold was supposed to beworth from ten to twelve 
ounces of fine silver. About the middleof the last century, it came 
to be regulated, between the proportions of one to fourteen and 
oneto fifteen; that is, an ounce of finegold came to be supposed 
worth between fourteen and fifteen ounces of fine silver. Gold 
rose in its nominal value, or in the quantity of silver which was 
given for it. Both metalssunk in their real value, or in thequantity 
of labour which they could purchase; but silver sunk more than 
gold. Though both thegold and silver mines of America exceeded 
in fertility all those which had ever been known before, thefertil- 
ityof thesilver mineshad, it seems, been proportionally still greater 
than that of the gold ones. 

The great quantities of silver carried annually from Europe to 



India, have, in someof the English settlements, gradually reduced 
the value of that metal in proportion to gold. In the mint of 
Calcutta, an ounce of fine gold is supposed to be worth fifteen 
ounces of fine silver, in thesame manner asin Europe. Itisin the 
mint, perhaps, rated too high for the value which it bears in the 
market of Bengal. In China, the proportion of gold to silver still 
continues as oneto ten, or oneto twelve. I n Japan, itissaid to be 
as one to eight. 

The proportion between thequantitiesofgold and silver annu- 
ally imported into Europe, according to M r M eggens" account, is 
as one to twenty-two nearly; that is, for one ounce of gold there 
are imported a little more than twenty-two ounces of silver. The 
great quantity of silver sent annually to the East I ndies reduces, he 
supposes, the quantities of those metals which remain in Europe 
to the proportion of one to fourteen or fifteen, the proportion of 
their values. The proportion between their values, he seems to 
think, must necessarily be the same as that between their quanti- 
ties, and would therefore be as one to twenty-two, were it not for 
this greater exportation of silver. 

But the ordinary proportion between the respective values of 
two commodities is not necessarily the same as that between the 
quantities of them which arecommonlyin the market. The price 
of an ox, reckoned at ten guineas, is about three score times the 



179 



The Wealth of Nations 



price of a lamb, reckoned at 3s. 6d. It would be absurd, however, 
to infer from thence, that there arecommonly in the market three 
score lambs for one ox; and it would be just as absurd to infer, 
because an ounce of gold will commonly purchase from fourteen 
or fifteen ounces of silver, that there are commonly in the market 
only fourteen or fifteen ounces of silver for one ounce of gold. 

T he quantity of silver commonly in the market, it is probable, 
is much greater in proportion to that of gold, than the value of a 
certain quantity of gold is to that of an equal quantity of silver. 
T he whole quantity of a cheap commodity brought to market is 
commonly not only greater, but of greater value, than the whole 
quantity of a dear one. The whole quantity of bread annually 
brought to market, is not only greater, but of greater value, than 
the whole quantity of butcher's meat; the whole quantity of 
butcher's meat, than thewholequantity of poultry; and the whole 
quantity of poultry, than the whole quantity of wild fowl. There 
are so many more purchasers for the cheap than for the dear com- 
modity, that, not only a greater quantity of it, but a greater value 
can commonly be disposed of. The whole quantity, therefore, of 
the cheap commodity, must commonly be greater in proportion 
to the whole quantity of the dear one, than the value of a certain 
quantity of the dear one, istothevalueof an equal quantity of the 
cheap one. W hen we compare the precious metals with one an- 



other, silver is a cheap, and gold a dear commodity. We ought 
naturally to expect, therefore, that there should always be in the 
market, not only a greater quantity, but a greater value of silver 
than of gold. Let any man, who has a little of both, compare his 
own silver with hisgold plate, and he will probably find, that not 
onlythequantity, butthevalueof theformer, greatly exceedsthat 
of the latter. M any people, besides, have a good deal of silver who 
have no gold plate, which, even with those who have it, is gener- 
ally confined to watch-cases, snuff-boxes, and such like trinkets, 
of which thewholeamount isseldom of great value. In the British 
coin, indeed, the value of the gold preponderates greatly, but it is 
not so in that of all countries In the coin of some countries, the 
value of the two metals is nearly equal. In theScotch coin, before 
theunion with England, thegold preponderated very little, though 
it did somewhat {See Ruddiman's Preface to Anderson's D iplomata, 
etc. Scotiae.}, as it appears by the accounts of the mint. In thecoin 
of many countries the silver preponderates. In France, thelargest 
sums are commonly paid in that metal, and it isthere difficult to 
get more gold than what is necessary to carry about in your pocket. 
T he superior value, however, of the silver plate above that of the 
gold, which takes placein all countries, will much more than com- 
pensate thepreponderancy of thegold coin above the silver, which 
takes place only in some countries. 



180 



Adam Smith 



Though, in one sense of the word, silver always has been, and 
probably always will be, much cheaper than gold; yet, in another 
sense, gold may perhaps, in the present state of the Spanish mar- 
ket, be said to be somewhat cheaper than silver. A commodity 
may be said to bedear or cheap not only according to theabsolute 
greatness or smallness of itsusual price, but according as that price 
is more or less above the lowest for which it is possible to bring it 
to market for any considerable time together. This lowest price is 
that which barely replaces, with a moderateprofit,thestock which 
must be employed in bringing the commodity thither. It is the 
price which affords nothing to the landlord, of which rent makes 
not any component part, but which resolves itself altogether into 
wages and profit. But, in the present state of the Spanish market, 
gold is certainly somewhat nearer to this lowest price than silver. 
Thetaxof the king of Spain upon gold isonly one-twentieth part 
of thestandard metal, or five per cent.; whereas histax upon silver 
amounts to one-tenth part of it, or to ten percent. In these taxes, 
too, it has already been observed, consists the whole rent of the 
greater part of the gold and silver mines of Spanish America; and 
that upon gold isstill worse paid than that upon silver. The profits 
of the undertakers of gold mines, too, as they more rarely make a 
fortune, must, in general, be still more moderate than those of the 
undertakers of silver mines. The price of Spanish gold, therefore, 



as it affords both less rent and less profit, must, in the Spanish 
market, be somewhat nearer to the lowest price for which it is 
possible to bring it thither, than the price of Spanish silver. W hen 
all expenses are computed, thewholequantityof theonemetal, it 
would seem, cannot, in the Spanish market, be disposed of so 
advantageously as the whole quantity of the other. T he tax, in- 
deed, of the king of Portugal upon the gold of the Brazils, is the 
same with theancient tax of theking of Spain upon the silver of 
Mexico and Peru; or one-fifth part of thestandard metal. It may 
therefore be uncertain, whether, to the general market of Europe, 
the whole mass of American gold comes at a price nearer to the 
lowest for which it is possible to bring it thither, than the whole 
mass of American silver. 

The price of diamonds and other precious stones may, perhaps, 
be still nearer to the lowest price at which it is possible to bring 
them to market, than even the price of gold. 

T hough it is not very probable that any part of a tax, which is 
not only imposed upon one of the most proper subjects of taxa- 
tion, a mereluxury and superfluity, but which affords so very im- 
portant a revenue as the tax upon silver, will ever be given up as 
long as it is possibleto pay it; yet thesame impossibility of paying 
it, which, in 1736. madeit necessary to reduceit from one-fifth to 
one-tenth, may in time make it necessary to reduce it still further; 



181 



The Wealth of Nations 



in thesamemanner asit madeit necessary to reduce thetax upon 
gold to one-twentieth. That the silver mines of Spanish America, 
likeall othermines, becomegradually more expen si vein thework- 
ing, on account of the greater depths at which it is necessary to 
carry on the works, and of the greater expense of drawing out the 
water, and of supplying them with fresh air at those depths, is 
acknowledged by everybody who has inquired into the state of 
those mines. 

These causes, which are equivalent to a growing scarcity of sil- 
ver (for a commodity may be said to grow scarcer when it be- 
comes morediffi cult and expen si veto collect a certain quantity of 
it), must, in time, produce one or other of the three following 
events: T he increase of the expense must either, first, be compen- 
sated altogether by a proportionable increase in the price of the 
metal; or, secondly, it must be compensated altogether by a pro- 
portionablediminution of the tax upon silver; or, thirdly, it must 
be compensated partly by the one and partly by the other of those 
two expedients. This third event is very possible. As gold rose in 
its price in proportion to silver, notwithstanding a great diminu- 
tion of the tax upon gold, so silver might rise in its price in pro- 
portion to labour and commodities, notwithstanding an equal 
diminution of thetax upon silver. 

Such successive reductionsof thetax, however, though they may 



not prevent altogether, must certainly retard, more or less, the rise 
of the value of silver in the European market. In consequence of 
such reductions, many minesmay be wrought which could not be 
wrought before, because they could not afford to pay the old tax; 
and the quantity of silver annually brought to market, must al- 
ways be somewhat greater, and, therefore, the value of any given 
quantity somewhat less, than it otherwise would have been. In 
consequence of the reduction in 1736, the value of silver in the 
European market, though it may not at this day be lower than 
before that reduction, is, probably, at least ten per cent, lower 
than it would have been, had the court of Spain continued to 
exact the old tax. 

That, notwithstanding this reduction, the value of silver has, 
during the course of the present century, begun to rise somewhat 
in the European market, thefactsand arguments which have been 
alleged above, dispose me to believe, or more properly to suspect 
and conjecture; for the best opinion which I can form upon this 
subject, scarce, perhaps, deserves the name of belief. The rise, in- 
deed, supposing therehas been any, hashitherto been so very small, 
that after all that has been said, it may, perhaps, appear to many 
people uncertain, not only whether this event has actually taken 
place, but whether the contrary may not have taken place, or 
whether the value of silver may not still continue to fall in the 



182 



Adam Smith 



European market. 

It must be observed, however, that whatever may be the sup- 
posed annual importation of gold and silver, there must be a cer- 
tain period at which the annual consumption of those metal swill 
be equal to that annual importation. Their consumption must 
increase as their mass increases, or rather in a much greater pro- 
portion. As their mass increases, their value diminishes. They are 
moreused, and less cared for, and their consumption consequently 
increases in a greater proportion than their mass. After a certain 
period, therefore, the annual consumption of those metals must, 
in this manner, become equal to their annual importation, pro- 
vided that importation is not continually increasing; which, in 
the present times, is not supposed to be the case. 

If, when the annual consumption has become equal to the an- 
nual importation, the annual importation should gradually di- 
minish, the annual consumption may, for sometime, exceed the 
annual importation. T he mass of those metals may gradually and 
insensibly diminish, and their value gradually and insensibly rise, 
till theannual importation becoming again stationary, theannual 
consumption will gradually and insensibly accommodate itself to 
what that annual importation can maintain. 

Grounds of the suspicion that theValueof Silver still continues 
to decrease. 



The increase of the wealth of Europe, and the popular notion, 
that as thequantity of thepreciousmetalsnaturally increases with 
the increase of wealth, so their value diminishes as their quantity 
increases, may, perhaps, dispose many peopleto believe that their 
value still continues to fall in the European market; and the still 
gradually increasing price of many parts of the rude produce of 
land may confirm them still farther in this opinion. 

That that increasein thequanti ty of the precious metals, which 
arisesin any country from theincrease of wealth, hasno tendency 
to diminish their value, I have endeavoured to shew already. Gold 
and silver naturally resort to a rich country, for the same reason 
that all sorts of luxuries and curiosities resort to it; not because 
they are cheaper there than in poorer countries, but because they 
are dearer, or because a better price is given for them. It is the 
superiority of price which attracts them; and as soon as that supe- 
riority ceases, they necessarily cease to go thither. 

I f you except corn, and such other vegetables as are raised alto- 
gether by human industry, that all other sorts of rude produce, 
cattle, poultry, gameof all kinds, the useful fossilsand mineralsof 
the earth, etc. naturally grow dearer, as the society advances in 
wealth and improvement, I have endeavoured to shew already. 
Though such commodities, therefore, come to exchange for a 
greater quantity of silver than before, it will not from thence fol- 



183 



The Wealth of Nations 



low that silver has become really cheaper, or will purchase less 
labour than before; but that such commodities have become re- 
ally dearer, or will purchase more labour than before. It is not 
their nominal price only, but their real price, which rises in the 
progress of improvement. The rise of their nominal price is the 
effect, not of any degradation of the valueof silver, but of therise 
in their real price. 

Different Effects of the Progress of Improvement upon three 
different sorts of rude Produce. 

These different sorts of rude produce may be divided into three 
classes. Thefirstcomprehendsthose which it isscarcein thepower 
of human industry to multiply at all. The second, those which it 
can multiply in proportion to the demand. The third, those in 
which theefficacyof industry is either limited or uncertain. In the 
progress of wealth and improvement, the real price of the first 
may rise to any degree of extravagance, and seems not to be lim- 
ited by any certain boundary. That of the second, though it may 
rise greatly, has, however, a certain boundary, beyond which it 
cannot well pass for any considerable time together. That of the 
third, though itsnatural tendencyisto risein the progress of im- 
provement, yet in the same degree of improvement it may some- 
times happen even to fall, sometimes to continue the same, and 
sometimes to rise more or less, according as different accidents 



render the efforts of human industry, in multiplying this sort of 
rude produce, more or less successful. 

First Sort. — Thefirst sort of rude produce, of which the price 
rises in the progress of improvement, is that which it is scarce in 
thepower of human industry to multiply at all. It consistsin those 
things which nature produces only in certain quantities, and which 
being of a very perishable nature, it is impossible to accumulate 
together theproduceof many different seasons. Such arethegreater 
part of rare and singular birds and fishes, many different sorts of 
game, almost all wild-fowl, all birds of passage in particular, as 
well as many other things. When wealth, and the luxury which 
accompanies it, increase, thedemand for theseislikely to increase 
with them, and no effort of human industry may be able to in- 
crease the supply much beyond what it was before this increase of 
thedemand. Thequantity of such commodities, therefore, remain- 
ing the same, or nearly the same, while the competition to pur- 
chase them is continually increasing, their price may rise to any 
degreeof extravagance, and seems not to be limited by any certain 
boundary. If woodcocks should become so fashionable as to sell 
for twenty guineas a-piece, no effort of human industry could 
increase the number of those brought to market, much beyond 
what it is at present. The high price paid by the Romans, in the 
time of their greatest grandeur, for rare birds and fishes, may in 



184 



Adam Smith 



this manner easily be accounted for. These prices were not the 
effects of the low value of silver in those times, but of the high 
value of such rarities and curiosities as human industry could not 
multiply at pleasure. The real value of silver was higher at Rome, 
for sometime before, and after the fall of the republic, than it is 
through thegreater part of Europe at present. T hree sestertii equal 
to about sixpence sterling, was the price which the republic paid 
for the modius or peck of the tithe wheat of Sicily. This price, 
however, wasprobably below the average market price, theobliga- 
tion to deliver their wheat at this rate being considered as a tax 
upon the Sicilian farmers. When the Romans, therefore, had oc- 
casion to order more corn than the tithe of wheat amounted to, 
they were bound by capitulation to pay for the surplus at the rate 
of four sestertii, or eightpencesterling the peck; and thishad prob- 
ably been reckoned the moderate and reasonable, that is, theordi- 
nary or average contract price of those times; it is equal to about 
one-and-twenty shillings the quarter. Eight-and-twenty shillings 
the quarter was, before thelate years of scarcity, the ordinary con- 
tract price of English wheat, which in quality is inferior to the 
Sicilian, and generally sellsfor a lower price in the European mar- 
ket. The value of silver, therefore, in those ancient times, must 
have been to itsvaluein thepresent, as three to four inversely; that 
is, threeouncesof silver would then havepurchased thesamequan- 



tity of labour and commodities which four ounces will do at 
present. When we read in Pliny, therefore, that Seius {Lib. X, c. 
29.} bought a white nightingale, as a present for the empress 
Agrippina, at the price of six thousand sestertii, equal to about 
fifty pounds of our present money; and that Asinius Celer -{Lib. 
IX, c. 17.} purchased a surmullet at the price of eight thousand 
sestertii, equal to about sixty-six pounds thirteen shillings and 
fourpenceof our present money; the extravagance of those prices, 
how much soever it may surprise us, is apt, notwithstanding, to 
appear to us about one third less than it really was. Their real 
price, thequantity of labour and subsistencewhich was given away 
for them, was about one-third more than their nominal price is 
apt to express to us in the present times. Seiusgavefor thenight- 
ingalethecommand of a quantity of labour and subsistence, equal 
to what £ 66:13: 4d. would purchase in the present times; and 
Asinius Celer gave for a surmullet the command of a quantity 
equal to what £ 88:17: 9d. would purchase. W hat occasioned the 
extravagance of those high priceswas, not so much the abundance 
of silver, as the abundance of labour and subsistence, of which 
those Romans had the disposal, beyond what was necessary for 
their own use. Thequantity of silver, of which they had the dis- 
posal, was a good deal less than what the command of the same 
quantity of labour and subsistence would have procured to them 



185 



The Wealth of Nations 



in the present times. 

Second sort. —The second sort of rude produce, of which the 
price rises in the progress of improvement, is that which human 
industry can multiply in proportion tothedemand. It consists in 
thoseuseful plants and animals, which, in uncultivated countries, 
nature produces with such profuse abundance, that they are of 
littleor no value, and which, ascultivation advances, are therefore 
forced to give place to some more profitable produce. D uring a 
long period in the progress of improvement, the quantity of these 
is continually diminishing, while, at the same time, the demand 
for them iscontinually increasing. Their real value, therefore, the 
real quantity of labour which they will purchase or command, 
gradually rises, till at last it gets so high as to render them asprof- 
itablea produce as any thing elsewhich human industry can raise 
uponthemostfertileand best cultivated land. When it has got so 
high, it cannot well go higher. If it did, more land and more in- 
dustry would soon be employed to increase their quantity. 

When the price of cattle, for example, rises so high, that it is as 
profitable to cultivate land in order to raise food for them as in 
order to raise food for man, it cannot well go higher. If it did, 
morecorn land would soon be turned into pasture. T heextension 
of tillage, by diminishing thequantity of wild pasture, diminishes 



the quantity of butcher's meat, which the country naturally pro- 
duces without labour or cultivation; and, by increasing the num- 
ber of those who have either corn, or, what comes to the same 
thing, the price of corn, to give in exchange for it, increases the 
demand. Thepriceofbutcher'smeat, therefore, and, consequently, 
of cattle, must gradually rise, till it gets so high, that it becomes as 
profitable to employ the most fertile and best cultivated lands in 
raisingfood forthem asin raising corn. But it must always be late 
in the progress of improvement before tillage can be so far ex- 
tended as to raise the price of cattle to this height; and, till it has 
got to this height, if the country is advancing at all, their price 
must be continually rising. There are, perhaps, some parts of Eu- 
rope in which the price of cattle has not yet got to this height. It 
had notgotto thisheight in anypart of Scotland before theUnion. 
H ad theScotch cattlebeen always confined to the market of Scot- 
land, in a country in which thequantity of land, which can be 
applied to no other purposebut thefeeding of cattle, isso great in 
proportion to what can be applied to other purposes, it is scarce 
possible, perhaps, that their price could ever have risen so high as 
to render it profitable to cultivate land for the sake of feeding 
them. In England, the price of cattle, it has already been observed, 
seems, in the neighbourhood of London, to have gotto thisheight 
about the beginning of the last century; but it was much later, 



186 



Adam Smith 



probably, before it got through the greater part of the remoter 
counties, in someof which, perhaps, itmayscarceyethavegotto 
it. Of all the different substances, however, which compose this 
second sort of rude produce, cattle is, perhaps, that of which the 
price, in the progress of improvement, rises first to this height. 

Till the price of cattle, indeed, has got to this height, it seems 
scarce possible that the greater part, even of those lands which are 
capable of the highest cultivation, can be completely cultivated. 
In all farms too distant from any town to carry manure from it, 
that is, in the far greater part of those of every extensive country, 
the quantity of well cultivated land must be in proportion to the 
quantity of manure which thefarm itself produces; and this, again, 
mustbein proportion to thestock of cattlewhich are maintained 
upon it. T he land is manured, either by pasturing the cattle upon 
it, or by feeding them in thestable, and from thence carrying out 
their dung to it. But unless the price of the cattle be sufficient to 
pay both the rent and profit of cultivated land, thefarmer cannot 
afford to pasture them upon it; and hecan still less afford to feed 
them in thestable. It iswith the produce of improved and culti- 
vated land only that cattle can be fed in the stable; because, to 
collect thescanty and scattered produceof waste and unimproved 
lands, would require too much labour, and be too expensive. It 
the price of the cattle, therefore, is not sufficient to pay for the 



produceof improved and cultivated land, when they are allowed 
to pasture it, that price will be still less sufficient to pay for that 
produce, when it must be collected with a good deal of additional 
labour, and brought into thestableto them. I n these circumstances, 
therefore, no more cattle can with profit be fed in the stable than 
what are necessary for tillage. But these can never afford manure 
enough for keeping constantly in good condition all the lands 
which they are capable of cultivating. What they afford, being 
insufficient for the whole farm, will naturally be reserved for the 
landsto which it can be most advantageously or conveniently ap- 
plied; the most fertile, or those, perhaps, in the neighbourhood of 
the farm-yard. These, therefore, will be kept constantly in good 
condition, and f i t for ti 1 1 age. The rest will, the greater part of them, 
be allowed to liewaste, producing scarce any thing but somemis- 
erable pasture, just sufficient to keep alive a few straggling, half- 
starved cattle; thefarm, though much overstocked in proportion 
to what would be necessary for its complete cultivation, being 
very frequently overstocked in proportion to its actual produce. A 
portion of this waste land, however, after having been pastured in 
this wretched manner for six or seven years together, may be 
ploughed up, when it will yield, perhaps, a poor crop or two of 
bad oats, or of some other coarse grain; and then, being entirely 
exhausted, it must be rested and pastured again as before, and 



187 



The Wealth of Nations 



another portion ploughed up, to beinthesamemanner exhausted 
and rested again in its turn. Such, accordingly, was the general 
system of management all over the low country of Scotland before 
the Union. The lands which were kept constantly well manured 
and in good condition seldom exceeded a third or fourth part of 
the whole farm, and sometimes did not amount to a fifth or a 
sixth part of it. T he rest were never manured, but a certain por- 
tion of them wasin its turn, notwithstanding, regularly cultivated 
and exhausted. U nder this system of management, it is evident, 
even that part of the lands of Scotland which is capable of good 
cultivation, could produce but little in comparison of what it may 
becapableof producing. But how disadvantageoussoeverthissys- 
tem may appear, yet, before the Union, the low price of cattle 
seems to have rendered it almost unavoidable. If, notwithstanding 
a great rise in the price, it still continues to prevail through a con- 
siderablepart of thecountry, it isowing in many places, no doubt, 
to ignorance and attachment to old customs, but, in most places, 
to theunavoidableobstructionswhichthenaturalcourseof things 
opposes to theimmediateor speedy establishment of a better sys- 
tem: first, to the poverty of the tenants, to their not having yet 
had time to acquire a stock of cattle sufficient to cultivate their 
landsmore completely, thesameriseof price, which would render 
it advantageousfor them to maintain a greater stock, rendering it 



more difficult for them to acquire it; and, secondly, to their not 
having yet had time to put their lands in condition to maintain 
this greater stock properly, supposing they were capableof acquir- 
ing it. The increase of stock and the improvement of land are two 
events which must go hand in hand, and of which the one can 
nowhere much outrun the other. W ithout some i ncrease of stock, 
there can be scarce any improvement of land, but there can beno 
considerable increase of stock, but in consequence of a consider- 
able improvement of land; because otherwise the land could not 
maintain it. These natural obstructions to the establishment of a 
better system, cannot be removed but by a long course of frugality 
and industry; and half a century or a century more, perhaps, must 
pass away before the old system, which is wearing out gradually, 
can be completely abolished through all the different parts of the 
country. Of all the commercial advantages, however, which Scot- 
land has derived from the Union with England, this rise in the 
price of cattle is, perhaps, the greatest. It has not only raised the 
value of all highland estates, but it has, perhaps, been the princi- 
pal cause of the improvement of the low country. 

In all new colonies, the great quantity of wasteland, which can 
for many years be applied to no other purpose but the feeding of 
cattle, soon renders them extremely abundant; and in everything 
great cheapness isthe necessary consequence of great abundance. 



188 



Adam Smith 



Though all the cattle of the European colonies in America were 
originally carried from Europe, they soon multiplied so much there, 
and becameof so little value, that even horses were allowed to run 
wild in the woods, without any owner thinking it worth whileto 
claim them. It must be a long time after the first establishment of 
such colonies, before it can become profitableto feed cattle upon 
the produce of cultivated land. The same causes, therefore, the 
want of manure, and the disproportion between the stock em- 
ployed in cultivation and the land which it isdestined to cultivate, 
are likely to introduce there a system of husbandry, not unlike 
that which still continues to take place in so many parts of Scot- 
land. M rK aim, the Swedish traveller, when hegives an account of 
the husbandry of some of the English colonies in N orth America, 
as he found it in 1749, observes, accordingly, that he can with 
difficulty discover there the character of the English nation, so 
well skilled in all the different branches of agriculture. They make 
scarce any manure for their corn fields, he says; but when one 
piece of ground has been exhausted by continual cropping, they 
clear and cultivate another piece of fresh land; and when that is 
exhausted, proceed to a third. Their cattle are allowed to wander 
through the woods and other uncultivated grounds, where they 
are half -starved; having long ago extirpated almost all the annual 
grasses, by cropping them too early in the spring, before they had 



time to form their flowers, or to shed their seeds. {Kalm'sTravels, 
vol 1, pp. 343, 344.}T he annual grasses were, it seems, the best 
natural grasses in that part of N orth America; and when the Euro- 
peans first settled there, they used to grow very thick, and to rise 
three or four feet high. A piece of ground which, when he wrote, 
could not maintain one cow, would in former times, he was as- 
sured, havemaintained four, each of which would have given four 
times the quantity of milk which that one was capable of giving. 
The poorness of the pasture had, in his opinion, occasioned the 
degradation of their cattle, which degenerated sensibly from me 
generation to another. T hey were probably not unlikethat stunted 
breed which was common all over Scotland thirty or forty years 
ago, and which is now so much mended through the greater part 
of the low country, not so much by a change of the breed, though 
that expedient has been employed in some places, as by a more 
plentiful method of feeding them. 

Though it is late, therefore, in the progress of improvement, be- 
fore cattle can bring such a price as to render it profitableto culti- 
vate land for the sake of feeding them; yet of all the different parts 
which compose this second sort of rude produce, they are perhaps 
the first which bring this price; because, till they bring it, it seems 
impossiblethat improvement can be brought near even to that de- 
gree of perfection to which it has arrived in many parts of Europe. 



189 



The Wealth of Nations 



As cattle are among the first, so perhaps venison is among the 
last parts of this sort of rude produce which bring this price. The 
price of venison in Great Britain, how extravagant soever it may 
appear, is not near sufficient to compensate the expense of a deer 
park, as is well known to all those who have had anyexperiencein 
thefeeding of deer. If it was otherwise, thefeeding of deer would 
soon become an article of common farming, in the same manner 
as the feeding of those small birds, called turdi, was among the 
ancient Romans. Varro and Columella assure us, that it wasa most 
profitableartide. Thefattening of ortolans, birdsof passage which 
arrive lean in the country, is said to be so in some parts of France. 
If venison continuesin fashion, and thewealth and luxury of Great 
Britain increase as they have done for some time past, its price 
may very probably rise still higher than it is at present. 

Between that period in the progress of improvement, which 
brings to its height the price of so necessary an article as cattle, 
and that which brings to itthepriceof such a superfluity as veni- 
son, there is a very long interval, in the course of which many 
other sorts of rude produce gradually arrive at their highest price, 
somesooner and somelater, accordingto different circumstances. 

Thus, in every farm, the offals of the barn and stablewill main- 
tain a certain number of poultry. These, as they are fed with what 
would otherwise be lost, are a mere save-all; and as they cost the 



farmer scarce any thing, so he can afford to sdl them for very 
little. Almost all that hegets is pure gain, and thar price can scarce 
be so low as to discourage him from feeding this number. But in 
countries ill cultivated, and therefore but thinly inhabited, the 
poultry, which are thus raised without expense, are often fully 
sufficient to supply the whole demand. In this state of things, 
therefore, they are often as cheap as butcher's meat, or any other 
sort of animal food. But the whole quantity of poultry which the 
farm in this manner produces without expense, must always be 
much smaller than the whole quantity of butcher's meat which is 
reared upon it; and in times of wealth and luxury, what is rare, 
with only nearly equal merit, is always preferred to what is com- 
mon. As wealth and luxury increase, therefore, in consequenceof 
improvement and cultivation, the price of poultry gradually rises 
above that of butcher's meat, till at last it gets so high, that it 
becomes profitable to cultivate land for the sake of feedi ng them. 
W hen it has got to this haght, it cannot wdl go higher. I f it did, 
more land would soon be turned to this purpose. In several prov- 
inces of France, thefeeding of poultry isconsidered asa very im- 
portant artidein rural economy, and sufficiently profitableto en- 
courage thefarmer to raiseaconsiderablequantity of Indian corn 
and buckwheat for this purpose. A middling farmer will there 
sometimes have four hundred fowls in his yard. Thefeeding of 



190 



Adam Smith 



poultry seems scarce yet to be generally considered as a matter of 
so much importancein England. They arecertainly, however, dearer 
in England than in France, as England receives considerable sup- 
plies from France. In the progress of improvements, theperiod at 
which every particular sort of animal food is dearest, must natu- 
rally be that which immediately precedes the general practice of 
cultivating land for the sake of raising it. For some time before 
this practice becomes general, the scarcity must necessarily raise 
the price. After it has become general, new methods of feeding are 
commonly fallen upon, which enablethefarmer to raiseupon the 
same quantity of ground a much greater quantity of that particu- 
lar sort of animal food. The plenty not only obliges him to sell 
cheaper, but, in consequence of these improvements, he can af- 
ford to sell cheaper; for if he could not afford it, the plenty would 
not be of long continuance. It has been probably in this manner 
that the introduction of clover, turnips, carrots, cabbages, etc. has 
contributed to sink the common price of butcher's meat in the 
London market, somewhat below what it was about the begin- 
ning of the last century. 

The hog, that finds his food among ordure, and greedily de- 
vours many things rejected by every other useful animal, is, like 
poultry, originally kept as a save-all. As long as the number of 
such animals, which can thus be reared at little or no expense, is 



fully sufficient to supply the demand, this sort of butcher's meat 
comes to market at a much lower price than any other. But when 
the demand rises beyond what this quantity can supply, when it 
becomes necessary to raise food on purpose for feeding and fat- 
tening hogs, in the same manner as for feeding and fattening other 
cattle, the price necessarily rises, and becomes proportionably ei- 
ther higher or lower than that of other butcher's meat, according 
as the nature of the country, and the state of its agriculture, hap- 
pen to render thefeeding of hogs more or less expensive than that 
of other cattle. In France, according to M r Buffon, the price of 
pork is nearly equal to that of beef. I n most parts of G reat Britain 
it is at present somewhat higher. 

The great rise in the price both of hogs and poultry, has, in 
Great Britain, been frequently imputed to the diminution of the 
number of cottagers and other small occupiers of land; an event 
which hasin every part of Europebeen theimmediateforerunner 
of improvement and better cultivation, but which at the same 
timemay have contributed to raise theprice of those articles, both 
somewhat sooner and somewhat faster than it would otherwise 
have risen. As the poo rest family can often maintain a cat or a dog 
without any expense, so the poorest occupiers of land can com- 
monly maintain a few poultry, or a sow and a few pigs, at very 
little. The little offals of their own table, their whey, skimmed 



191 



The Wealth of Nations 



milk, and butter milk, supply those animals with a part of their 
food, and they find the rest in the neighbouring fields, without 
doing any sensible damage to any body. By diminishing the num- 
ber of those small occupiers, therefore, the quantity of this sort of 
provisions, which is thus produced at little or no expense, must 
certainly have been a good deal diminished, and their price must 
consequently have been raised both sooner and faster than it would 
otherwise have risen. Sooner or later, however, in the progress of 
improvement, it must at any rate have risen to the utmost height 
to which it is capable of rising; or to the price which pays the 
labour and expense of cultivating the land which furnishes them 
with food, as well as these are paid upon the greater part of other 
cultivated land. 

The business of the dairy, likethefeedingof hogs and poultry, 
is originally carried on as a save-all. The cattle necessarily kept 
upon thefarm produce more milk than either the rearing of their 
own young, or the consumption of the farmer's family requires; 
and they produce most at one particular season. But of all the 
productions of land, milk is perhaps the most perishable. In the 
warm season, when it is most abundant, it will scarce keep four- 
and-twenty hours. Thefarmer, by making it into fresh butter, stores 
a small part of it for a week; by making it into salt butter, for a 
year; and by making it into cheese, he stores a much greater part 



of it for several years. Part of all these is reserved for the use of his 
own family; the rest goes to market, in order to find the best price 
which isto be had, and which can scarce be so low isto discourage 
him from sending thither whatever isover and abovetheuseof his 
own family. If it is very low indeed, he will be likely to manage his 
dairy in a very slovenly and dirty manner, and will scarce, per- 
haps, think it worth while to have a particular room or building 
on purpose for it, but will suffer the business to be carried on 
amidst the smoke, filth, and nastinessof his own kitchen, as was 
the case of almost all the farmers' dairies in Scotland thirty or 
forty years ago, and as is the case of many of them still. T he same 
causes which gradually raise the price of butcher's meat, the in- 
creaseof thedemand, and, in consequenceof the improvement of 
the country, the diminution of the quantity which can be fed at 
littleor no expense, raise, in thesamemanner, that of the produce 
of the dairy, of which the price naturally connects with that of 
butcher's meat, or with theexpenseof feeding cattle. The increase 
of price pays for more labour, care, and cleanliness. The dairy 
becomes more worthy of thefarmer's attention, and thequality of 
its producegradually improves. Theprice at last gets so high, that 
it becomes worth while to employ some of the most fertile and 
best cultivated lands in feeding cattle merely for the purpose of 
the dairy; and when it has got to this height, it cannot well go 



192 



Adam Smith 



higher. If it did, moreland would soon be turned to thispurpose. 
It seems to have got to this height through the greater part of 
England, where much good land is commonly employed in this 
manner. If you except the neighbourhood of a few considerable 
towns, it seems not yet to have got to this height anywhere in 
Scotland, wherecommon farmers seldom employ much good land 
in raising food for cattle, merely for the purpose of the dairy. T he 
priceof the produce, though it has risen very considerably within 
these few years, is probably still too low to admit of it. The inferi- 
ority of the quality, indeed, compared with that of the produce of 
English dairies, isfully equal to that of theprice. But this inferior- 
ity of quality is, perhaps, rather the effect of this lowness of price, 
than the cause of it. Though the quality was much better, the 
greater part of what is brought to market could not, I apprehend, 
in the present circumstances of the country, be disposed of at a 
much better price; and the present price, it isprobable, would not 
pay the expense of the land and labour necessary for producing a 
much better quality. Through the greater part of England, not- 
withstanding the superiority of price, the dairy is not reckoned a 
more profitable employment of land than the raising of corn, or 
thefattening of cattle, thetwo great objects of agriculture. T hrough 
the greater part of Scotland, therefore, it cannot yet be even so 
profitable. 



T he lands of no country, it is evident, can ever be completely 
cultivated and improved, till oncethepriceof every produce, which 
human industry is obliged to raise upon them, has got so high as 
to pay for the expense of complete improvement and cultivation. 
I n order to do this, the price of each particular produce must be 
sufficient, first, to pay the rent of good corn land, as it is that 
which regulates the rent of the greater part of other cultivated 
land; and, secondly, to pay the labour and expense of the farmer, 
as well as they are commonly paid upon good corn land; or, in 
other words, to replace with the ordinary profits the stock which 
he employs about it. T his rise in the price of each particular pro- 
duce; must evidently be previoustotheimprovement and cultiva- 
tion of the land which isdestined for raising it. Gain istheendof 
all improvement; and nothing could deserve that name, of which 
loss was to be the necessary consequence. But loss must be the 
necessary consequence of improving land for the sake of a pro- 
duceof which thepricecould never bring back theexpense. Ifthe 
complete improvement and cultivation of the country be, as it 
most certainly is, the greatest of all public advantages, this rise in 
the price of all those different sorts of rude produce, instead of 
being considered asa public calamity, ought to be regarded as the 
necessary forerunner and attendant of the greatest of all public 
advantages. 



193 



The Wealth of Nations 



This rise, too, in the nominal or money price of all thosediffer- 
ent sorts of rude produce, has been the effect, not of any degrada- 
tion in the value of silver, but of a rise in their real price. They 
have become worth, not only a greater quantity of silver, but a 
greater quantity of labour and subsistence than before. As it costs 
a greater quantity of labour and subsistence to bring them to mar- 
ket, so, when they are brought thither they represent, or areequiva- 
lenttoagreaterquantity 

Third Sort. — Thethird and last sort of rude produce, of which 
the price naturally rises in the progress of improvement, isthatin 
which the efficacy of human industry, in augmenting the quan- 
tity, is either limited or uncertain. Though the real price of this 
sort of rude produce, therefore, naturally tends to rise in the 
progress of improvement, yet, according as different accidents 
happen to render the efforts of human industry more or less suc- 
cessful in augmenting thequantity, it may happen sometimeseven 
to fall, sometimes to continue the same, in very different periods 
of improvement, and sometimes to rise more or less in the same 
period. 

There are some sorts of rude produce which nature has ren- 
dered a kind of appendages to other sorts; so that thequantity of 
the one which any country can afford, is necessarily limited by 



that of the other. The quantity of wool or of raw hides, for ex- 
ample, which any country can afford, is necessarily limited by the 
number of great and small cattlethatarekeptin it. The state of its 
improvement, and the nature of its agriculture, again necessarily 
determinethis number. 

T hesamecauses which, in theprogressof improvement, gradu- 
ally raise the price of butcher's meat, should have the same effect, 
it may be thought, upon the prices of wool and raw hides, and 
raise them, too, nearly in the same proportion. It probably would 
be so, if, in the rude beginnings of improvement, the market for 
the latter commodities was confined within as narrow bounds as 
that for the former. But the extent of their respective markets is 
commonly extremely different. 

T he market for butcher's meat isalmost everywhere confined to 
the country which produces it. I reland, and some part of British 
America, indeed, carry on a considerable trade in salt provisions; 
but they are, I bdieve, theonlycountriesinthecommercial world 
which do so, or which export to other countries any considerable 
part of thar butcher's meat. 

The market for wool and raw hides, on the contrary, is, in the 
rude beginnings of improvement, very sddom confined to the 
country which produces them. They can easily be transported to 
distant countries; wool without any preparation, and raw hides 



194 



Adam Smith 



with very little; and as they are the materials of many manufac- 
tures, the industry of other countries may occasion a demand for 
them, though that of the country which produces them might 
not occasion any. 

In countries ill cultivated, and therefore but thinly inhabited, 
the price of the wool and the hide bears always a much greater 
proportion to that of the whole beast, than in countries where, 
improvement and population beingfurther advanced, thereismore 
demand for butcher's meat. M r Hume observes, that in the Saxon 
times, the fleece was estimated at two-fifths of the value of the 
whole sheep and that this was much above the proportion of its 
present estimation. In some provinces of Spain, I have been as- 
sured, the sheep is frequently killed merely for the sake of the 
fleece and the tallow. The carcase is often left to rot upon the 
ground, or to bedevoured by beasts and birdsof prey. If thissome- 
timeshappenseven in Spain, it happensalmost constantly in Chili, 
at Buenos Ayres, and in many other parts of Spanish America, 
where thehorned cattleare almost constantly killed merelyforthe 
sake of the hide and the tallow. This, too, used to happen almost 
constantly in H ispaniola, while it was infested by the buccaneers, 
and before the settlement, improvement, and populousnessof the 
French plantations (which now extend round the coast of almost 
the whole western half of the island) had given some value to the 



cattle of the Spaniards, who still continueto possess, not only the 
eastern part of the coast, but the whole inland mountainous part 
of the country. 

Though, in the progress of improvement and population, the 
price of the whole beast necessarily rises, yet the price of the car- 
caseislikely to bemuch more affected bythisrise than that of the 
wool and the hide. The market for the carcase being in the rude 
state of society confined always to thecountry which producesit, 
must necessarily be extended in proportion to the improvement 
and population of that country. But the market for the wool and 
the hides, even of a barbarous country, often extending to the 
whole commercial world, it can very seldom be enlarged in the 
same proportion. The state of the whole commercial world can 
seldom be much affected by the improvement of any particular 
country; and the market for such commodities may remain the 
same, or very nearly the same, after such improvements, as before. 
It should, however, in the natural course of things, rather, upon 
the whole, be somewhat extended in consequence of them. If the 
manufactures, especially, of which those commodities are the 
materials, should ever come to flourish in the country, the mar- 
ket, though it might not be much enlarged, would at least be 
brought much nearer to the place of growth than before; and the 
price of those materials might at least be increased by what had 



195 



The Wealth of Nations 



usually been the expense of transporting them to distant coun- 
tries. Though it might not rise, therefore, in the same proportion 
as that of butcher's meat, it ought naturally to rise somewhat, and 
it ought certainly not to fall. 

In England, however, notwithstanding the flourishing state of 
its woollen manufacture, thepriceof English wool has fallen very 
considerably since the time of Edward III. There are many au- 
thentic records which demonstrate that, during the reign of that 
prince (towards the middle of the fourteenth century, or about 
1339), what was reckoned the moderate and reasonable price of 
the tod, or twenty-eight pounds of English wool, was not less 
than ten shillings of the money of those times {See Smith's M em- 
oirsof Wool, vol. i c. 5, 6, 7. also vol. ii.}, containing, attherateof 
twenty-pence the ounce, six ounces of silver, Tower weight, equal 
to aboutthirtyshillingsof our present money. I n the present times, 
one-and-twenty shillings the tod may be reckoned a good price 
for very good English wool. The money price of wool, therefore, 
in the time of Edward 1 1 1 . was to its money price in the present 
times as ten to seven. The superiority of its real price was still 
greater. Attherateof six shillings and eightpencethe quarter, ten 
shillings was in those ancient times the price of twelve bushels of 
wheat. At the rate of twenty-eight shillings the quarter, one-and- 
twenty shillings is in the present times the price of six bushels 



only. The proportion between the real price of ancient and mod- 
ern times, therefore, is as twelve to six, or as two to one. In those 
ancienttimes, atod of wool would havepurchased twice thequan- 
tity of subsistence which it will purchase at present, and conse- 
quently twice the quantity of labour, if the real recompence of 
labour had been the same in both periods. 

This degradation, both in the real and nominal value of wool, 
could never have happened in consequence of the natural course 
of things. It has accordingly been the effect of violence and arti- 
fice. First, of the absolute prohibition of exporting wool from 
England: secondly, of the permission of importing it from Spain, 
dutyfree: thirdly, of the prohibition of exporting it from Ireland 
to another country but England. In consequence of these regula- 
tions, the market for English wool, instead of being somewhat 
extended, in consequence of the improvement of England, has 
been confined to the home market, where thewool of several other 
countries is allowed to come into competition with it, and where 
that of Ireland isforced into competition with it. As the woollen 
manufactures, too, of Ireland, are fully as much discouraged as is 
consistent with justice and fair dealing, the I rish can work up but 
a smaller part of their own wool at home, and are therefore obliged 
to send a greater proportion of it to G reat Britain, theonly market 
they are allowed. 



196 



Adam Smith 



I havenot been ableto find any such authentic recordsconcern- 
ing the price of raw hides in ancient times. Wool was commonly 
paid as a subsidy to the king, and its valuation in that subsidy 
ascertains, at I east i n somedegree, whatwasits ordinary price. But 
this seems not to have been the case with raw hides. Fleetwood, 
however, from an account in 1425, between theprior of Burcester 
Oxford and oneof hiscanons, givesustheir price, at least asit was 
stated upon that particular occasion, viz. five ox hides at twelve 
shillings; five cow hides at seven shillings and threepence; thirtysix 
sheep skins of two years old at nine shillings; sixteen calf skins at 
two shillings. In 1425, twelve shillings contained about the same 
quantity of si Iverasfour-and-twentyshillingsof our present money. 
An oxhide, therefore, wasin thisaccount valued atthesamequan- 
tityof silver as 4s. 4/5ths of our present money. Its nominal price 
was a good deal lower than at present. But at the rate of six shil- 
lings and eightpence the quarter, twelve shillings would in those 
times have purchased fourteen bushels and four-fifths of a bushel 
of wheat, which, at three and sixpence the bushel, would in the 
present times cost 51s. 4d. An ox hide, therefore, would in those 
timeshave purchased asmuch corn as ten shillings and threepence 
would purchase at present. Its real value was equal to ten shillings 
and threepenceof our present money. I n those ancient times, when 
the cattle were half starved during the greater part of the winter, 



we cannot suppose that they were of a very large size. An ox hide 
which weighs four stone of sixteen pounds of avoirdupois, is not 
in the present times reckoned a bad one; and in those ancient 
times would probably have been reckoned averygood one. But at 
half-a-crown the stone, which at this moment (February 1773) I 
understand to bethecommon price, such a hidewould at present 
cost only ten shillings. Through its nominal price, therefore, is 
higher in the present than it was in those ancient times, its real 
price, the real quantity of subsistence which it will purchase or 
command, is rather somewhat lower. The price of cow hides, as 
stated in the above account, is nearly in the common proportion 
to that of ox hides. That of sheep skins is a good deal above it. 
They had probably been sold with the wool. That of calves skins, 
on the contrary, isgreatly below it. In countries where thepriceof 
cattle is very low, the calves, which are not intended to be reared 
in order to keep up the stock, are generally killed very young, as 
was the case in Scotland twenty or thirty years ago. It saves the 
milk, which their price would not pay for. Their skins, therefore, 
are commonly good for little. 

Thepriceofrawhidesisagooddeal lower at present than it was 
a few years ago; owing probably to the taking off the duty upon 
sealskins, and to theallowing, for a limited time, the importation 
of raw hides from Ireland, and from the plantations, duty free, 



197 



The Wealth of Nations 



which wasdonein 1769. Take the whole of the present century at 
an average, their real price has probably been somewhat higher 
than it was in those ancient times. T he nature of the commodity 
renders it not quite so proper for being transported to distant 
markets as wool. It suffers more by keeping. A salted hideisreck- 
oned inferior to afresh one, and sells for a lower price. This cir- 
cumstance must necessarily have some tendency to sink the price 
of raw hides produced in a country which does not manufacture 
them, but is obliged to export them, and comparatively to raise 
that of those produced in a country which does manufacture them. 
It must havesometendency to sink their pricein a barbarous, and 
to raise it in an improved and manufacturing country. It must 
have had some tendency, therefore, to sink it in ancient, and to 
raiseitin modern times Ourtanners, besides, havenotbeen quite 
so successful as our clothiers, in convincing the wisdom of the 
nation, that the safety of the commonwealth depends upon the 
prosperity of their particular manufacture. T hey have accordingly 
been much less favoured. The exportation of raw hides has, in- 
deed, been prohibited, and declared a nuisance; but their impor- 
tation from foreign countries has been subjected to a duty; and 
though this duty has been taken off from those of Ireland and the 
plantations (for the limited time of five years only), yet Ireland 
has not been confined to the market of Great Britain for the sale 



of its surplus hides, or of those which are not manufactured at 
home. The hides of common cattle have, but within these few 
years, been put among the enumerated commodities which the 
plantations can send nowhere but to the mother country; neither 
has the commerce of Ireland been in this case oppressed hitherto, 
in order to support the manufactures of Great Britain. 

W hatever regulationstend to sink the price, either of wool or of 
rawhides, below what it naturally would he, must, in an improved 
and cultivated country, havesometendency to raise the price of 
butcher'smeat.Thepriceboth of thegreatand small cattle, which 
are fed on improved and cultivated land, must be sufficient to pay 
the rent which the landlord, and the profit which the farmer, has 
reason to expect from improved and cultivated land. If it is not, 
they will soon cease to feed them. Whatever part of this price, 
therefore, is not paid by the wool and the hide, must be paid by 
the carcase. T he less there is paid for the one, the more must be 
paid for theother. In what manner thispriceistobedivided upon 
the different parts of the beast, is indifferent to the landlords and 
farmers, provided it is all paid to them. In an improved and culti- 
vated country, therefore, their interest as landlords and farmers 
cannot be much affected by such regulations, though their inter- 
est as consumers may, by the rise in the price of provisions. It 
would bequite otherwise, however, in an unimproved and uncul- 



198 



Adam Smith 



tivated country, where the greater part of the lands could be ap- 
plied to no other purpose but thefeeding of cattle, and where the 
wool and the hide made the principal part of the value of those 
cattle. Their interest as landlords and farmers would in this case 
be very deeply affected by such regulations, and their interest as 
consumers very little. The fall in the price of the wool and the 
hide would not in this case raise the price of the carcase; because 
thegreater part of the lands of the country being applicableto no 
other purpose but the feeding of cattle, the same number would 
still continueto be fed. The same quantity of butcher'smeat would 
still come to market. The demand for it would be no greater than 
before. Its price, therefore, would bethesameasbeforeThewhole 
price of cattle would fall, and along with it both the rent and the 
profit of all those landsof which cattle was the principal produce, 
that is, of the greater part of the lands of the country. T he per- 
petual prohibition of the exportation of wool, which iscommonly, 
but very falsely, ascribed to Edward III., would, in the then cir- 
cumstances of thecountry, have been the most destructive regula- 
tion which could well have been thought of. It would not only 
have reduced theactual valueof thegreater part of thelandsin the 
kingdom, but by reducing the priceof the most important species 
of small cattle, it would have retarded very much its subsequent 
improvement. 



Thewool of Scotland fell very considerably in itspricein conse- 
quenceoftheunion with England, by which it was excluded from 
the great market of Europe, and confined to the narrow one of 
Great Britain. The value of the greater part of the lands in the 
southern counties of Scotland, which are chiefly a sheep country, 
would have been very deeply affected by this event, had not the 
risein the priceof butcher'smeat fully compensated thefall in the 
priceof wool. 

As the efficacy of human industry, in increasing the quantity 
either of wool or of raw hides, islimited, so far asit depends upon 
theproduceofthecountrywhereitisexerted;soitisuncertainso 
far as it depends upon the produce of other countries. It so far 
depends not so much upon the quantity which they produce, as 
upon that which they do not manufacture; and upon therestraints 
which they may or may not think proper to impose upon the 
exportation of this sort of rude produce. These circumstances, as 
they are altogether independent of domestic industry, so they nec- 
essarily render the efficacy of its efforts more or less uncertain. In 
multiplying this sort of rude produce, therefore, the efficacy of 
human industry is not only limited, but uncertain. 

In multiplying another very important sort of rude produce, 
the quantity of fish that is brought to market, it is likewise both 
limited and uncertain. It is limited by the local situation of the 



199 



The Wealth of Nations 



country, by the proximity or distance of its different provinces 
from the sea, by the number of its lakes and rivers, and by what 
may be called the fertility or barrenness of those seas, lakes, and 
rivers, asto this sort of rude produce. As population increases, as 
the annual produce of the land and labour of the country grows 
greater and greater, there come to be more buyers of fish; and 
those buyers, too, have a greater quantity and variety of other 
goods, or, what is the same thing, the price of a greater quantity 
and variety of other goods, to buy with. But it will generally be 
impossibleto supply thegreat and extended market, without em- 
ploying a quantity of labour greater than in proportion to what 
had been requisite for supplying the narrow and confined one. A 
market which, from requiring only one thousand, comes to re- 
quire annually ten thousand ton offish, can seldom be supplied, 
without employing more than ten times the quantity of labour 
which had before been sufficient to supply it. The fish must gen- 
erally be sought for at a greater distance, larger vessels must be 
employed, and more expensive machinery of every kind made use 
of. The real price of this commodity, therefore, naturally rises in 
the progress of improvement. It has accordingly done so, I be- 
lieve, more or less in every country. 

Though the success of a particular day's fishing maybe a very 
uncertain matter, yetthelocal situation of thecountry being sup- 



posed, the general efficacy of industry in bringing a certain quan- 
tity offish to market, taking the course of a year, or of several years 
together, it may, perhaps, bethought iscertain enough; and it, no 
doubt, is so. As it depends more, however, upon the local situation 
of the country, than upon the state of its wealth and industry; as 
uponthisaccountitmayin different countries be the same in very 
different periods of improvement, and very different in the same 
period; its connection with the state of improvement is uncertain; 
and itisof this sort of uncertainty that I am here speaking. 

In increasing the quantity of the different minerals and metals 
which are drawn from the bowels of the earth, that of the more 
precious ones particularly, the efficacy of human industry seems 
not to be limited, but to be altogether uncertain. 

Thequantityofthepreciousmetalswhich isto be found in any 
country, is not limited by any thing in its local situation, such as 
thefertility or barrenness of itsown mines. T hose metalsfrequently 
abound in countries which possess no mines. Their quantity, in 
every particular country, seemsto depend upon two different cir- 
cumstances; first, upon its power of purchasing, upon thestateof 
its industry, upon the annual produce of its land and labour, in 
consequenceof which itcan afford to employagreaterorasmaller 
quantity of labour and subsistence, in bringing or purchasing such 
superfluities as gold and silver, either from itsown mines, or from 



200 



Adam Smith 



those of other countries; and, secondly, upon the fertility or bar- 
renness of the mines which may happen at any particular time to 
supply the commercial world with those metals. T he quantity of 
those metals in the countries most remote from the mines, must 
be more or I ess affected by this fertility or barrenness, on account 
of theeasyand cheap transportation of those metals, of their small 
bulk and great value. Their quantity in China and Indostan must 
have been more or I ess affected by the abundance of theminesof 
America. 

So far as their quantity in any particular country depends upon 
theformer of those two circumstances (the power of purchasing), 
their real price, like that of all other luxuries and superfluities, is 
likely to rise with the wealth and improvement of the country, 
and to fall with its poverty and depression. Countries which have 
a great quantity of labour and subsistence to spare, can afford to 
purchase any particular quantity of those metals at the expense of 
a greater quantity of labour and subsistence, than countries which 
have I ess to spare. 

So far as their quantity in any particular country depends upon 
the latter of those two circumstances (thefertility or barrennessof 
the mines which happen to supply the commercial world), their 
real price, the real quantity of labour and subsistence which they 
will purchase or exchange for, will, no doubt, sink more or lessin 



proportion to thefertility, and rise in proportion to the barren- 
ness of those mines. 

The fertility or barrenness of the mines, however, which may 
happen at any particular timeto supply the commercial world, is 
a circumstance which, it is evident, may have no sort of connec- 
tion with the state of industry in a particular country. It seems 
even to have no very necessary connection with that of the world 
in general. Asartsand commerce, indeed, gradually spread them- 
selves over a greater and a greater part of the earth, the search for 
new mines, being extended over a wider surface, may have some- 
what a better chancefor being successful than when confined within 
narrower bounds. The discovery of new mines, however, as the 
old ones come to be gradually exhausted, isa matter of the great- 
est uncertainty, and such asno human skill or industry can insure. 
All indications, it is acknowledged, are doubtful; and the actual 
discovery and successful working of a new mine can alone ascer- 
tain the reality of its value, or even of its existence. I n this search 
there seem to beno certain limits, either to the possible success, or 
to the possible disappointment of human industry. In the course 
of a century or two, it is possible that new mines may be discov- 
ered, morefertilethan any that have ever yet been known; and it is 
just equally possible, that the most fertile mine then known may 
bemore barren than any that was wrought before the discovery of 



201 



The Wealth of Nations 



the mines of America. Whether the one or the other of those two 
eventsmay happen to takeplace, isof very little importance to the 
real wealth and prosperity of the world, to the real value of the 
annual produce of the land and labour of mankind. Its nominal 
value, the quantity of gold and silver by which this annual pro- 
ducecould be expressed or represented, would, no doubt, be very 
different; but its real value, the real quantity of labour which it 
could purchaseor command, would be precisely the same. A shil- 
ling might, in theonecase, represent no morelabour than a penny 
does at present; and a penny, in theother, might represent asmuch 
asashillingdoesnow. But in theonecase, hewho had a shilling in 
hispocket would beno richer than hewho hasa penny at present; 
and in theother, hewho had a penny would bejust as rich as he 
who has a shilling now. Thecheapness and abundance of gold and 
silver plate would be the sole advantage which the world could 
derive from the one event; and the dearness and scarcity of those 
trifling superfluities, the only inconveniency it could suffer from 
theother. 

Conclusion of the Digression concerning the Variations in the 
Value of Silver. 

The greater part of the writers who have collected the money 
price of things in ancient times, seem to have considered the low 



money price of corn, and of goods in general, or, in other words, 
the high value of gold and silver, as a proof, not only of the scar- 
city of those metals, but of the poverty and barbarism of thecoun- 
try at the time when it took place. This notion is connected with 
thesystem of political economy, which represents national wealth 
as consisting in the abundance and national poverty in the scar- 
city, of gold and silver; a system which I shall endeavour to ex- 
plain and examine at great length in the fourth book of this In- 
quiry. I shall only observe at present, that the high value of the 
precious metals can be no proof of the poverty or barbarism of 
any particular country at thetime when it took place. It isa proof 
only of the barrenness of the mines which happened at that time 
to supply the commercial world. A poor country, as it cannot af- 
ford to buy more, so it can as little afford to pay dearer for gold 
and silver than a rich one; and thevalueof thosemetals, therefore, 
is not likely to be higher in theformer than in the latter. In China, 
a country much richer than any part of Europe, thevalueof the 
precious metals is much higher than in any part of Europe. As the 
wealth of Europe, indeed, hasincreased greatly si nee the discovery 
oftheminesof America, so thevalueof gold and silver has gradu- 
ally diminished. Thisdiminution of their value, however, hasnot 
been owing to the increase of the real wealth of Europe, of the 
annual produce of its land and labour, but to the accidental dis- 



202 



Adam Smith 



covery of more abundant mines than any that were known before. 
The increase of the quantity of gold and silver in Europe, and the 
increaseof its manufactures and agriculture, are two events which, 
though they have happened nearly about the same time, yet have 
arisen from very different causes, and have scarce any natural con- 
nection with one another. T he one has arisen from a mere acci- 
dent, in which neither prudence nor policy either had or could 
have any share; the other, from the fall of the feudal system, and 
from the establishment of a government which afforded to indus- 
try the only encouragement which it requires, some tolerable se- 
curity that it shall enjoy thefruits of itsown labour. Poland, where 
the feudal system still continues to take place, is at this day as 
beggarly a country as it was before the discovery of America. T he 
money price of corn, however, has risen; the real value of the pre 
cious metals has fallen in Poland, in the same manner as in other 
parts of Europe. Their quantity, therefore, must have increased 
there as in other places, and nearly in the same proportion to the 
annual produce of its land and labour. This increase of the quan- 
tity of those metals, however, has not, it seems, increased that 
annual produce, hasneither improved the manufactures and agri- 
culture of the country, nor mended the circumstances of its in- 
habitants. Spain and Portugal, the countries which possess the 
mines, are, after Poland, perhaps thetwo most beggarly countries 



in Europe. The value of the precious metals, however, must be 
lower in Spain and Portugal than in any other part of Europe, as 
theycomefromthosecountriestoall other parts of Europe, loaded, 
not only with a freight and an insurance, but with the expense of 
smuggling, their exportation being either prohibited or subjected 
to a duty. In proportion to the annual produce of the land and 
labour, therefore, their quantity must begreater in those countries 
than in any other part of Europe; those countries, however, are 
poorer than the greater part of Europe. Though the feudal system 
has been abolished in Spain and Portugal, it has not been suc- 
ceeded by a much better. 

As the low value of gold and silver, therefore, is no proof of the 
wealth and flouri shingstate of the country where it takes place; so 
neither istheir high value, or the low money price either of goods 
in general, or of corn in particular, any proof of its poverty and 
barbarism. 

But though the low money price, either of goods in general, or 
of corn in particular, be no proof of the poverty or barbarism of 
the times, the low money price of some particular sorts of goods, 
such as cattle, poultry, gameof all kinds, etc. in proportion to that 
of corn, is a most decisive one. It clearly demonstrates, first, their 
great abundancein proportion to that of corn, and, consequently, 
the great extent of the land which they occupied in proportion to 



203 



The Wealth of Nations 



what was occupied by corn; and, secondly, the low value of this 
land in proportion to that of corn land, and, consequently, the 
uncultivated and unimproved state of the far greater part of the 
lands of the country. It clearly demonstrates, that the stock and 
population of the country did not bear the same proportion to 
the extent of its territory, which they commonly do in civilized 
countries; and that society was at that time, and in that country, 
but in its infancy. From the high or low money price, either of 
goods in general, or of corn in particular, we can infer only, that 
themines, which at that timehappened to supply thecommercial 
world with gold and silver, were fertile or barren, not that the 
country was rich or poor. But from the high or low money price 
of some sorts of goods in proportion to that of others, we can 
infer, with a degree of probability that approaches almost to cer- 
tainty, that it was rich or poor, that the greater part of its lands 
were improved or unimproved, and that it was either in a more or 
less barbarous state, or in a more or less civilized one. 

Any rise in the money price of goods which proceeded alto- 
gether from the degradation of the value of silver, would affect all 
sorts of goods equally, and raise their price universally, a third, or 
a fourth, or a fifth part higher, according as silver happened to 
loseathird, orafourth, orafifth part of its former value. But the 
rise in the price of provisions, which has been the subject of so 



much reasoning and conversation, does not affect all sortsof pro- 
visions equally. Taking the course of the present century at an 
average, the price of corn, it is acknowledged, even by those who 
account for this rise by the degradation of the value of silver, has 
risen much less than that of some other sortsof provisions. The 
rise in the price of those other sortsof provisions, therefore, can- 
not be owing altogether to the degradation of the value of silver. 
Someother causes must betaken into theaccount; and those which 
have been above assigned, will, perhaps, without having recourse 
tothesupposed degradation of the value of silver, sufficiently ex- 
plain this rise in those particular sorts of provisions, of which the 
price has actually risen in proportion to that of corn. 

As to the price of corn itself, it has, during the sixty- four first 
years of the present century, and beforethe late extraordinary course 
of bad seasons, been somewhat lower than itwasduringthesixty- 
four last years of the preceding century. This fact is attested, not 
only by theaccountsof Windsor market, but by the public fiars of 
all the different counties of Scotland, and by the accounts of sev- 
eral different markets in France, which have been collected with 
great diligence and fidelity by M r M essance, and byM rDuprede 
St M aur. The evidence is more complete than could well have 
been expected in a matter which is naturally so very difficult to be 
ascertained. 



204 



Adam Smith 



Astothehigh priceof corn duringtheselastten or twelve years, 
it can be sufficiently accounted for from the badness of the sea- 
sons, without supposing any degradation in the value of silver. 

The opinion, therefore, that silver is continually sinking in its 
value, seems not to be founded upon any good observations, ei- 
ther upon the prices of corn, or upon those of other provisions. 

The same quantity of silver, it may perhaps be said, will, in the 
present times, even according to theaccount which has been here 
given, purchasea much smaller quantity of several sortsof provi- 
sions than it would have done during some part of the last cen- 
tury; and to ascertain whether this change be owing to a rise in the 
value of those goods, or to a fall in the value of silver, is only to 
establish a vain and uselessdistinction, which can be of no sort of 
service to the man who has only a certain quantity of silver to go 
to market with, or a certain fixed revenuein money. I certainly do 
not pretend that the knowledgeof this distinction will enablehim 
to buy cheaper. It may not, however, upon that account be alto- 
gether useless. 

Itmaybeof some use to the public, by affording an easy proof 
of the prosperous condition of thecountry. If therisein theprice 
of some sorts of provisions be owing altogether to a fall in the 
value of silver, it isowing to a circumstance, from which nothing 
can be inferred but the fertility of the American mines. The real 



wealth of thecountry, the annual produce of its land and labour, 
may, notwithstanding this circumstance, be either gradually de- 
clining, as in Portugal and Poland; or gradually advancing, as in 
most other parts of Europe. But if this rise in the price of some 
sorts of provisions be owing to a rise in the real value of the land 
which produces them, to its increased fertility, or, in consequence 
of more extended improvement and good cultivation, to its hav- 
ing been rendered fit for producing corn; it isowing to a circum- 
stancewhich indicates, in thedearest manner, the prosperous and 
advancing state of the country. The land constitutes by far the 
greatest, the most important, and the most durable part of the 
wealth of every extensive country. Itmay surely be of someuse, or, 
at least, it may give some satisfaction to the public, to have so 
decisive a proof of the increasing value of by far the greatest, the 
most important, and the most durable part of its wealth. 

Itmay, too, beof someuse to thepublic, in regu latin g the pecu- 
niary reward of someof its inferior servants. If thisrisein theprice 
of somesortsof provisions be owing toafall in the value of silver, 
their pecuniary reward, provided it was not too large before, ought 
certainly to be augmented in proportion to the extent of this fall. 
If it is not augmented, their real recompencewill evidently be so 
much diminished. Butifthisriseof priceisowingtotheincreased 
value, in consequence of the improved fertility of the land which 



205 



The Wealth of Nations 



produces such provisions, itbecomesamuch nicer matter to judge, 
either in what proportion any pecuniary reward ought to be aug- 
mented, or whether it ought to be augmented at all. The exten- 
sion of improvement and cultivation, as it necessarily raises more 
or less, in proportion to the price of corn, that of every sort of 
animal food, so it as necessarily lowers that of, I believe, every sort 
of vegetable food. It raises the price of animal food; because a 
great part of the land which produces it, being rendered fit for 
producing corn, must afford to the landlord anti farmer the rent 
and profit of corn land. It lowers the price of vegetable food; be- 
cause, by increasing the fertility of the land, it increases its abun- 
danceTheimprovementsof agriculture, too, introducemanysorts 
of vegetable food, which requiring less land, and not more labour 
than corn, come much cheaper to market. Such are potatoes and 
maize, or what is called Indian corn, thetwo most important im- 
provements which the agriculture of Europe, perhaps, which Eu- 
rope itself, has received from the great extension of its commerce 
and navigation. M any sorts of vegetable food, besides, which in 
the rude state of agriculture are confined to the kitchen-garden, 
and raised only by the spade, come, in its improved state, to be 
introduced into common fields, and to be raised by the plough; 
such as turnips, carrots, cabbages, etc. If, in the progress of im- 
provement, therefore, the real price of one species of food neces- 



sarily rises, that of another as necessarily falls; and it becomes a 
matter of more nicety to judge how far the rise in the one may be 
compensated by the fall in the other. When the real price of 
butcher's meat has once got to its height (which, with regard to 
every sort, except perhapsthat of hogs flesh, it seems to have done 
through a great part of E ngland more than a century ago), any rise 
which can afterwards happen in that of any other sort of animal 
food, cannot much affect the circumstances of the inferior ranks 
of people. T he circumstances of the poor, through a great part of 
England, cannot surely be so much distressed by any rise in the 
price of poultry, fish, wild-fowl, or venison, as they must be re- 
lieved by the fall in that of potatoes. 

I n thepresent season of scarcity, the high priceof corn no doubt 
distresses the poor. But in times of moderate plenty, when corn is 
at itsordinary or average price, thenatural risein thepriceof any 
other sort of rude produce cannot much affect them. They suffer 
more, perhaps, by the artificial rise which has been occasioned by 
taxes in the price of some manufactured commodities, as of salt, 
soap, leather, candles, malt, beer, ale, etc. 



206 



Adam Smith 



Effects of the Progress of Improvement upon the real Price of 
Manufactures. 

It is the natural effect of improvement, however, to diminish 
gradually the real price of almost all manufactures. That of the 
manufacturing workmanship diminishes, perhaps, in all of them 
without exception. In consequence of better machinery, of greater 
dexterity, and of a more proper division and distribution of work, 
all of which arethenatural effects of improvement, a much smaller 
quantity of labour becomes requisite for executing any particular 
piece of work; and though, in consequenceoftheflourishing cir- 
cumstances of the society, thereal price of labour should rise very 
considerably, yet the great diminution of the quantity will gener- 
ally much more than compensate thegreatest rise which can hap- 
pen in the price. 

There are, indeed, a few manufactures, in which the necessary 
risein thereal priceof the rude materialswill more than compen- 
sate all the ad vantages which improvement can introduce into the 
execution of thework In carpenters' and joiners' work, and in the 
coarser sort of cabinet work, the necessary risein thereal priceof 
barren timber, in consequence of the improvement of land, will 
more than compensate all the advantages which can be derived 
from thebest machinery, thegreatest dexterity, and themost proper 
division and distribution of work. 



But in all casesin which thereal priceof the rude material either 
does not rise at all, or does not rise very much, that of the manu- 
factured commodity sinks very considerably. 

This diminution of price has, in the course of the present and 
preceding century, been most remarkable in those manufactures 
of which the materials are the coarser metals. A better movement 
of a watch, than about the middle of the last century could have 
been bought for twenty pounds, may now perhaps be had for 
twenty shillings. In thework of cutlers and locksmiths, in all the 
toys which are made of the coarser metals, and in all those goods 
which are commonly known by the name of Birmingham and 
Sheffield ware, therehasbeen, duringthesame period, a very great 
reduction of price, though not altogether so great as in watch- 
work. It has, however, been sufficient to astonish the workmen of 
every other part of Europe, who in many cases acknowledge that 
they can produce no work of equal goodness for double or even 
for tripletheprice. There are perhapsno manufactures, in which 
the division of labour can be carried further, or in which the ma- 
chinery employed admits of a greater variety of improvements, 
than those of which the materials are the coarser metals. 

In the clothing manufacture there has, duringthesame period, 
been no such sensible reduction of price. The price of superfine 
cloth, I have been assured, on thecontrary, has, within these five- 



207 



The Wealth of Nations 



and-twenty or thirty years, risen somewhat in proportion to its 
quality, owing, it was said, to a considerable rise in the priceof the 
material, which consists altogether of Spanish wool. That of the 
Yorkshire cloth, which ismadealtogether of English wool, issaid, 
indeed, during the course of the present century, to have fallen a 
good deal in proportion to itsquality. Q uality, however, isso very 
disputable a matter, that I look upon all information of this kind 
as somewhat uncertain. In the clothing manufacture, thedivision 
of labour is nearly the same now as it was a century ago, and the 
machinery employed is not very different. There may, however, 
have been some small improvements in both, which may have 
occasioned some reduction of price. 

But the reduction will appear much more sensible and undeni- 
able, if we compare the price of this manufacture in the present 
times with what it wasin a much remoter period, towardstheend 
of the fifteenth century, when the labour was probably much less 
subdivided, and the machinery employed much more imperfect, 
than it is at present. 

I n 1487, being the4th of H enry VI I ., it was enacted, that "who- 
soever shall sell by retail abroad yard of the finest scarlet grained, 
or of other grained cloth of the finest making, above sixteen shil- 
lings, shall forfeit forty shillings for every yard so sold." Sixteen 
shillings, therefore, containing about the same quantity of silver 



as four-and-twenty shillings of our present money, was, at that 
time, reckoned not an unreasonable price for a yard of the finest 
cloth; and as this is a sumptuary law, such cloth, it is probable, 
had usually been sold somewhat dearer. A guinea may be reck- 
oned thehighest pricein the present times. Even though thequal- 
ity of the cloths, therefore, should be supposed equal, and that of 
the present times is most probably much superior, yet, even upon 
this supposition, the money price of the finest cloth appears to 
have been considerably reduced since theend of thefifteenth cen- 
tury. But its real price has been much more reduced. Six shillings 
and eightpence was then, and long afterwards, reckoned theaver- 
age price of a quarter of wheat. Sixteen shillings, therefore, was 
the price of two quarters and more than three bushels of wheat. 
Valuing a quarter of wheat in thepresent times at eight-and-twenty 
shillings, the real priceof a yard of finecloth must, in those times, 
have been equal to at least three pounds six shillings and sixpence 
of our present money. T he man who bought it must have parted 
with the command of a quantity of labour and subsistence equal 
to what that sum would purchase in the present times. 

Thereduction inthereal priceof thecoarsemanufacture, though 
considerable, has not been so great as in that of thefine. 

In 1463, being the 3rd of Edward IV. it was enacted, that "no 
servant in husbandry nor common labourer, nor servant to any 



208 



Adam Smith 



artificer inhabiting out of a city or burgh, shall use or wear in their 
clothing any cloth above two shillings the broad yard." In the 3rd 
of Edward IV., two shillings contained very nearly the same quan- 
tity of silver as four of our present money. But the Yorkshire cloth 
which is now sold at four shillings the yard, is probably much 
superior to any that was then made for the wearing of the very 
poorest order of common servants. Even the money price of their 
clothing, therefore, may, in proportion to the quality, be some- 
what cheaper in the present than it was in those ancient times. 
The real price is certainly a good deal cheaper. Tenpence was then 
reckoned what is called the moderate and reasonable price of a 
bushel of wheat. Two shillings, therefore, was the price of two 
bushels and near two pecks of wheat, which in the present times, 
at three shillings and sixpence the bushel, would be worth eight 
shillings and ninepence. For a yard of this cloth the poor servant 
must have parted with the power of purchasing a quantity of sub- 
sistence equal to what eight shillings and ninepence would pur- 
chase in the present times. This is a sumptuary law, too, restrain- 
ingtheluxuryandextravaganceofthepoor.Theirdothing, there- 
fore, had commonly been much more expensive. 

The same order of peopleare, bythesamelaw, prohibited from 
wearing hose, of which the price should exceed fourteen-pence 
the pair, equal to about eight-and-twenty pence of our present 



money. But fourteen -pence was in those times thepriceofabush el 
and near two pecks of wheat; which in the present times, at three 
and sixpence the bushel, would cost five shillings and threepence. 
We should in the present times consider this as a very high price 
for a pair of stockings to a servant of the poorest and lowest order. 
H emust however, in those times, have paid what wasreally equiva- 
lent to this price for them. 

I nthetimeof Edward I V. the art of knitti ng stocki ngs was prob- 
ably not known in any part of Europe. Their hose were made of 
common cloth, which may have been one of the causes of their 
dearness. The first person that wore stockings in England issaid 
to have been Queen Elizabeth. She received them as a present 
from the Spanish ambassador. 

Both in the coarse and in the fine woollen manufacture, the 
machinery employed was much more imperfect in those ancient, 
than it is in the present times. It has since received three very 
capital improvements, besides, probably, many smaller ones, of 
which it may be difficult to ascertain either the number or the 
importance. Thethreecapital improvements are, first, theexchange 
of the rock and spindle for the spinning-wheel, which, with the 
samequantity of labour, will perform more than doublethequan- 
tityof work. Secondly, the use of several very ingenious machines, 
which facilitate and abridge, in a still greater proportion, thewind- 



209 



The Wealth of Nations 



ing of the worsted and woollen yarn, or the proper arrangement 
of the warp and woof before they are put into the loom; an opera- 
tion which, previous to the invention of those machines, must 
have been extremely tedious and troublesome. Thirdly, the em- 
ployment of the fulling-mill for thickening the cloth, instead of 
treading it in water. Neither wind nor water mills of any kind 
were known in England so early as the beginning of the sixteenth 
century, nor, so far as I know, in any other part of Europe north of 
theAlps. They had been introduced into Italy some time before. 

Theconsideration of these circumstances may, perhaps, in some 
measure, explain to uswhythereal price both of the coarse and of 
thefinemanufacturewasso much higher in those ancient than it 
is in the present times. It cost a greater quantity of labour to bring 
the goods to market. W hen they were brought thither, therefore, 
they must have purchased, or exchanged for the price of, a greater 
quantity. 

The coarse manufacture probably was, in those ancient times, 
carried on in England in thesame manner asitalwayshas been in 
countries where arts and manufactures are in their infancy. Itwas 
probably a household manufacture, in which every different part 
of the work was occasionally performed by all the different mem- 
bersof almost every private family, but so asto be their work only 
when they had nothing else to do, and not to be the principal 



business from which any of them derived the greater part of their 
subsistence. The work which is performed in this manner, it has 
already been observed, comes alwaysmuch cheaper to market than 
that which is the principal or sole fund of the workman's subsis- 
tence. The fine manufacture, on theother hand, was not, in those 
times, carried on in England, but in therich and commercial coun- 
try of Flanders; and it was probably conducted then, in thesame 
manner as now, by people who derived the whole, or theprinci pal 
part of their subsistence from it. It was, besides, a foreign manu- 
facture, and must have paid some duty, the ancient custom of 
tonnage and poundage at least, to the king. This duty, indeed, 
would not probably be very great. It was not then the policy of 
Europe to restrain, by high duties, the importation of foreign 
manufactures, but rather to encourage it, in order that merchants 
might be enabled to supply, at as easy a rate as possible, the great 
men with the conveniences and luxuries which they wanted, and 
which the industry of their own country could not afford them. 
Theconsideration of these circumstances may, perhaps, in some 
measure explain to us why, in those ancient times, thereal price of 
the coarse manufacture was, in proportion to that of the fine, so 
much lower than in the present times. 



210 



Adam Smith 



Conclusion of the Chapter. 

I shall conclude this very long chapter with observing, that every 
improvement in the circumstances of the society tends, either di- 
rectly or indirectly, to raise the real rent of land to increase the real 
wealth of the landlord, his power of purchasing the labour, or the 
produce of the labour of other people. 

Theextension of improvement and cultivation tends to raiseit 
directly. The landlord's share of the produce necessarily increases 
with the increase of the produce. 

T hat rise in the real price of those parts of the rude produce of 
land, which is first the effect of the extended improvement and 
cultivation, and afterwards the cause of their being still further 
extended, the rise in the priceof cattle, for example, tends, too, to 
raise the rent of land directly, and in a still greater proportion. The 
real value of the landlord's share, his real command of the labour 
of other people, not only rises with the real value of the produce, 
but the proportion of his share to the whole produce rises with it. 

That produce, after the rise in its real price, requires no more 
labour to collect it than before. A smaller proportion of it will, 
therefore, be sufficient to replace, with the ordinary profit, the 
stock which employs that labour. A greater proportion of it must 
consequently belong to the landlord. 



All those improvements in the productive powers of labour, 
which tend directly to reduce the rent priceof manufactures, tend 
indirectly to raise the real rent of land. The landlord exchanges 
that part of his rude produce, which is over and above his own 
consumption, or, what comes to the samething, the price of that 
part of it, for manufactured produce. W hatever reduces the real 
price of the latter, raises that of the former. An equal quantity of 
theformer becomes thereby equivalent to a greater quantity of the 
latter; and the landlord is enabled to purchase a greater quantity 
of the conveniences, ornaments, or luxuries which he has occa- 
sion for. 

Every increase in thereal wealth of thesociety, every in crease in 
the quantity of useful labour employed within it, tends indirectly 
to raise the real rent of land. A certain proportion of this labour 
naturally goes to theland. A greater number of men and cattleare 
employed in its cultivation, the produce increases with the in- 
crease of the stock which is thus employed in raising it, and the 
rent increases with the produce. 

T he contrary circumstances, the neglect of cultivation and im- 
provement, the fall in the real price of any part of the rude pro- 
duce of land, the rise in the real price of manufactures from the 
decay of manufacturing art and industry, the declension of the 
real wealth of thesociety, all tend, on theother hand, to lower the 



211 



The Wealth of Nations 



real rent of land, to reduce the real wealth of the landlord, to di- 
minish his power of purchasing either the labour, or the produce 
of the labour, of other people. 

Thewholeannual produce of theland and labour of every coun- 
try, or, what comes to the same thing, the whole price of that 
annual produce, naturally divides itself, it has already been ob- 
served, into three parts; the rent of land, the wages of labour, and 
the profits of stock; and constitutes a revenue to three different 
orders of people; to those who live by rent, to those who live by 
wages, and to those who live by profit. T hese are the three great, 
original, and constituent, orders of every civilized society, from 
whose revenue that of every other order is ultimately derived. 

The interest of the first of those three great orders, it appears 
from what has been just now said, is strictly and inseparably con- 
nected with the general interest of the society. Whatever either 
promotes or obstructs the one, necessarily promotes or obstructs 
theother. W hen thepublic deliberates concerning any regulation 
of commerce or police, the proprietors of land never can mislead 
it, with a view to promote the interest of their own particular 
order; at least, if they have any tolerable knowledge of that inter- 
est. They are, indeed, too often defective in this tolerable knowl- 
edge. They are the only one of the three orders whose revenue 
costs them neither labour nor care, but comes to them, asit were, 



of its own accord, and independent of any plan or project of their 
own. That indolence which is the natural effect of the ease and 
security of their situation, renders them too often, not only igno- 
rant, but incapable of that application of mind, which isnecessary 
in order to foresee and understand the consequence of any public 
regulation. 

T heinterest of thesecond order, that of those who live by wages, 
is as strictly connected with the interest of the society as that of 
the first. The wages of the labourer, it has already been shewn, are 
never so high as when the demand for labour iscontinually rising, 
or when the quantity employed is every year in creasing consider- 
ably. When this real wealth of the society becomes stationary, his 
wages are soon reduced to what isbarely enough to enablehim to 
bring up a family, or to continue the race of labourers. W hen the 
society declines, they fall even below this. Theorder of proprietors 
may perhaps gain more by the prosperity of the society than that 
of labourers; but there is no order that suffers so cruelly from its 
decline. But though the interest of the labourer is strictly con- 
nected with that of the society, he is incapable either of compre- 
hending that interest, or of understanding its connexion with his 
own. H is condition leaves him no time to receive the necessary 
information, and hiseducation and habits are commonly such as 
to render him unfit to judge, even though he was fully informed. 



212 



Adam Smith 



I n the public deliberations, therefore, his voice is little heard, and 
less regarded; except upon particular occasions, when his clamour 
is animated, set on, and supported by his employers, not for his, 
but their own particular purposes. 

H is employers constitute the third order, that of those who live 
by profit. It is the stock that is employed for the sake of profit, 
which puts into motion the greater part of the useful labour of 
every society. The plans and projects of the employers of stock 
regulate and direct all the most important operation of labour, 
and profit istheend proposed by all thoseplansand projects. But 
the rate of profit does not, likerent and wages, rise with the pros- 
perity, and fall with thededension of thesociety n thecontrary, 
it is naturally low in rich, and high in poor countries, and it is 
always highest in the countries which are going fastest to ruin. 
The interest of this third order, therefore, has not the same 
connexion with the general interest of the society, as that of the 
other two. M erch ants and master manufacturers are, in this order, 
the two classes of people who commonly employ the largest capi- 
tals, and who by their wealth draw to themselves the greatest share 
of the public consideration. As during their whole lives they are 
engaged in plans and projects, they have frequently moreacute- 
nessof understanding than thegreater part of country gentlemen. 
As their thoughts, however, are commonly exercised rather about 



the interest of their own particular branch of business, than about 
that of thesociety, their judgment, even when given with thegreat- 
est candour (which it has not been upon every occasion), is much 
more to bedepended upon with regard to theformer of those two 
objects, than with regard to the latter. T heir superiority over the 
country gentleman is, not so much in their knowledge of the pub- 
lic interest, as in their having a better knowledge of their own 
interest than hehasof his. It is by this superior knowledgeof their 
own interest that they have frequently imposed upon hisgeneros- 
ity, and persuaded him to give up both his own interest and that 
of the public, from averysimplebut honest conviction, that their 
interest, and nothis, was theinterest of thepublic. Theinterest of 
the dealers, however, in any particular branch of trade or manu- 
factures, isalwaysin some respects different from, and even oppo- 
site to, that of the public. To widen the market, and to narrow the 
competition, is always the interest of the dealers. To widen the 
market may frequently be agreeable enough to theinterest of the 
public; but to narrow the competition must always be against it, 
and can only serve to enable the dealers, by raising their profits 
above what they naturally would be, to levy, for their own benefit, 
an absurd tax upon the rest of their fellow-citizens. The proposal 
of any new law or regulation of commerce which comes from this 
order, ought always to be listened to with great precaution, and 



213 



The Wealth of Nations 

ought never to beadopted till after having been long and carefully 1247 13 5 2 

examined, not only with the most scrupulous, but with the most 1257 14 3 12 

suspiciousattention. It comes from an order of men, whoseinter- 1258 10 

est is never exactly the same with that of the public, who have 15 17 2 110 

generally an interest to deceive and even to oppress the public, 16 

and who accordingly have, upon many occasions, both deceived 1270 4 16 

and oppressed it. 6 8 5 12 16 16 

1286 2 8 

#PRICESOFWHEAT 16 094 180 

Total 35 9 3 
Year Prices/Q uarter Average of different Average prices of Average 2 19 l l U 

in each year pricesin oneyear each year in money 

of 1776 1287 3 4 10 

£ s d £ s d £ s d 1288 8 

1202 12 1 16 10 

1205 12 14 

13 4 13 5 203 016 

15 18 3 (M 9 VU 

1223 12 1 16 2 

1237 034 10 034 

1243 020 060 094 

1244 2 6 1289 12 
1246 16 280 060 

214 








2 





10 m 


1 10 4 1 , 







10 


8 








1 












1290 





16 







2 8 


1294 





16 







2 8 


1302 





4 







12 


1309 





7 


2 




1 1 6 


1315 


1 










3 


1316 


1 














1 


10 





1 10 6 


4 11 6 




1 


12 











2 












1317 


2 


4 














14 











2 


13 





1 19 6 


5 18 6 




4 

















6 


8 






1336 





2 







6 


1338 





3 


4 


Total 
Average 


10 
23 4 11% 

1 18 8 



1339 9 17 



Adam Smith 












1349 





2 







5 2 


1359 


1 


6 


8 




3 2 2 


1361 





2 







4 8 


1363 





15 







1 15 


1369 


1 














1 


4 





1 2 


2 9 4 


1379 





4 







9 4 


1387 





2 







4 8 


1390 





13 


4 











14 





14 5 


1 13 7 







16 









1401 





16 







1 17 6 


1407 





4 


4 3 /4 











3 


4 


3 10 


8 10 


1416 





16 





Total 
Average 


1 12 
15 9 4 
1 5 9% 


1423 





8 










1425 





4 










1434 


1 


6 


8 




4 


1435 





5 


4 




8 


1439 


1 













215 



The Wealth of Nations 





1 


6 


8 


1 3 


4 


2 


6 8 


1440 


1 


4 









2 


8 


1444 






4 
4 


4 



4 


2 





4 8 


1445 





4 


6 









9 


1447 





8 












16 


1448 





6 


8 









13 4 


1449 





5 












10 


1451 





8 












16 










Total 


12 


15 4 










Average 


1 


1 3 1 / 3 


1453 





5 


4 









10 8 


1455 





1 


2 









2 4 


1457 





7 


8 






1 


15 4 


1459 





5 












10 


1460 





8 












16 


1463 






2 
1 



8 


1 


10 





3 8 


1464 





6 


8 









10 


1486 


1 


4 









1 


17 


1491 





14 


8 






1 


2 


1494 





4 












6 



1495 





3 


4 







5 


1497 


1 








Total 
Average 


1 
8 



11 
9 
14 1 


1499 





4 










6 


1504 





5 


8 







8 6 


1521 


1 










1 


10 


1551 





8 










8 


1553 





8 










8 


1554 





8 










8 


1555 





8 










8 


1556 





8 










8 


1557 





8 
















4 





17 8% 





17 8% 







5 













2 


13 


4 








1558 





8 










8 


1559 





8 










8 


1560 





8 





Total 
Average 



6 



8 
2 x h 
10 0% 



216 



Adam Smith 

1561 8 8 PRICESOFTHE QUARTER OF NINE BUSHELSOFTHE 

1562 8 8 BEST OR H IGH EST PRICED WH EAT AT WINDSOR MAR- 
1574 2 16 KET,ON LADYDAYAND M ICH AELM AS, FROM 1595TO 

140 200 200 1764BOTH IN CLUSIVE;TH E PRICEOF EACH YEAR BE- 

1587 34 3 40 ING TH E M EDIUM BETWEEN TH E H IGH EST PRICES 

1594 2 16 2 16 OF TH ESE TWO M ARKET DAYS. 

1595 2 13 2 13 

1596 4 4 

1597 5 4 
400 4 12 4 12 

1598 2 16 8 2 16 8 

1599 1 19 2 1 19 8 

1600 1 17 8 1 17 8 

1601 1 14 10 1 14 10 

Total 28 9 4 

Average 2 7 5 Vi 





£ 


s d 


1595 


2 





1596 


2 


8 


1597 


3 


9 6 


1598 


2 


16 8 


1599 


1 


19 2 


1600 


1 


17 8 


1601 


1 


14 10 


1602 


1 


9 4 


1603 


1 


15 4 


1604 


1 


10 8 


1605 


1 


15 10 


1606 


1 


13 


1607 


1 


16 8 


1608 


2 


16 8 


1609 


2 


10 



217 



The Wealth of Nations 



1610 


1 


15 


10 


1611 


1 


18 


8 


1612 


2 


2 


4 


1613 


2 


8 


8 


1614 


2 


1 


8% 


1615 


1 


18 


8 


1616 


2 





4 


1617 


2 


8 


8 


1618 


2 


6 


8 


1619 


1 


15 


4 


1620 


1 


10 


4 




26)54 


6% 


Average 2 


1 


6 3 /4 


1621 


1 


10 


4 


1622 


2 


18 


8 


1623 


2 


12 





1624 


2 


8 





1625 


2 


12 





1626 


2 


9 


4 


1627 


1 


16 





1628 


1 


8 





1629 


2 


2 






1630 


2 


15 


8 


1631 


3 


8 





1632 


2 


13 


4 


1633 


2 


18 





1634 


2 


16 





1635 


2 


16 





1636 


2 


16 


8 




16)40 





Average 2 


10 





1637 


2 


13 





1638 


2 


17 


4 


1639 


2 


4 


10 


1640 


2 


4 


8 


1641 


2 


8 





1646 


2 


8 





1647 


3 


13 





1648 


4 


5 





1649 


4 








1650 


3 


16 


8 


1651 


3 


13 


4 


1652 


2 


9 


6 


1653 


1 


15 


6 



218 



Adam Smith 



1654 


1 


6 





1655 


1 


13 


4 


1656 


2 


3 





1657 


2 


6 


8 


1658 


3 


5 





1659 


3 


6 





1660 


2 


16 


6 


1661 


3 


10 





1662 


3 


14 





1663 


2 


17 





1664 


2 





6 


1665 


2 


9 


4 


1666 


1 


16 





1667 


1 


16 





1668 


2 








1669 


2 


4 


4 


1670 


2 


1 


8 


1671 


2 


2 





1672 


2 


1 





1673 


2 


6 


8 


1674 


3 


8 


8 


1675 


3 


4 


8 


1676 


1 


18 






1677 2 2 

1678 2 19 

1679 3 

1680 2 5 

1681 2 6 8 

1682 2 4 

1683 2 

1684 2 4 

1685 2 6 8 

1686 1 14 

1687 1 5 2 

1688 2 6 

1689 1 10 

1690 1 14 8 

1691 1 14 

1692 2 6 8 

1693 3 7 8 

1694 3 4 

1695 2 13 

1696 3 11 

1697 3 

1698 3 8 4 

1699 3 4 



219 



The Wealth of Nations 



1700 


2 










60) 153 1 8 


Average 2 


11 


1 / 3 


1701 


1 


17 


8 


1702 


1 


9 


6 


1703 


1 


16 





1704 


2 


6 


6 


1705 


1 


10 





1706 


1 


6 





1707 


1 


8 


6 


1708 


2 


1 


6 


1709 


3 


18 


6 


1710 


3 


18 





1711 


2 


14 





1712 


2 


6 


4 


1713 


2 


11 





1714 


2 


10 


4 


1715 


2 


3 





1716 


2 


8 





1717 


2 


5 


8 


1718 


1 


18 


10 


1719 


1 


15 






1720 


1 


17 









1721 


1 


17 


6 






1722 


1 


16 









1723 


1 


14 


8 






1724 


1 


17 









1725 


2 


8 


6 






1726 


2 


6 









1727 


2 


2 









1728 


2 


14 


6 






1729 


2 


6 


10 






1730 


1 


16 


6 






1731 


1 


12 


10 


1 12 


10 


1732 


1 


6 


8 


1 6 


8 


1733 


1 


8 


4 


1 8 


4 


1734 


1 


18 


10 


1 18 


10 


1735 


2 


3 





2 3 





1736 


2 





4 


2 


4 


1737 


1 


18 





1 18 





1738 


1 


15 


6 


1 15 


6 


1739 


1 


18 


6 


1 18 


6 


1740 


2 


10 


8 


2 10 
10) IE 
1 17 


8 
1 12 8 
3% 



220 



1741 


2 


6 


8 


2 6 8 


1742 


1 


14 





1 14 


1743 


1 


4 


10 


1 4 10 


1744 


1 


4 


10 


1 4 10 


1745 


1 


7 


6 


1 7 6 


1746 


1 


19 





1 19 


1747 


1 


14 


10 


1 14 10 


1748 


1 


17 





1 17 


1749 


1 


17 





1 17 


1750 


1 


12 


6 


1 12 6 
10) 16 18 
1 13 9 3 / 4 


1751 


1 


18 


6 




1752 


2 


1 


10 




1753 


2 


4 


8 




1754 


1 


13 


8 




1755 


1 


14 


10 




1756 


2 


5 


3 




1757 


3 










1758 


2 


10 







1759 


1 


19 


10 




1760 


1 


16 


6 





Adam Smith 




1761 


1 10 3 


1762 


1 19 


1763 


2 9 


1764 


2 6 9 




64) 129 1 


Average 2 6 3 / 4 



221 



The Wealth of Nations 



BOOK II 

OFTHE NATURE, ACCUMULATION, 
AND EMPLOYMENT OF STOCK 

INTRODUCTION 

n that rude state of society, in which thereisno division 
of labour, in which exchangesareseldom made, and in which 
every man provides every thing for himself, it is not neces- 
sary that any stock should be accumulated, or stored up before- 
hand, in order to carry on the business of the society. Everyman 
endeavours to supply, by his own industry, his own occasional 
wants, as they occur. When he is hungry, he goes to the forest to 
hunt; when hiscoatisworn out, he clothes himself with the skin 
of the first large animal he kills: and when hishutbeginstogoto 
ruin, herepairsit, aswell ashecan, with thetreesand theturf that 
are nearest it. 

But when the division of labour has once been thoroughly in- 
troduced, the produce of a man's own labour can supply but a 
very small part of his occasional wants. The far greater part of 
them aresupplied by the produce of other men's labour, which he 
purchases with the produce, or, what is the same thing, with the 



price of the produce, of his own. But this purchase cannot be 
madetill such timeastheproduceof hisown labour hasnot only 
been completed, but sold. A stock of goods of different kinds, 
therefore, must be stored up somewhere, sufficient to maintain 
him, and to supply him with the materials and toolsof his work, 
till such time at I east as both these events can be brought about. A 
weaver cannot apply himself entirely to his peculiar business, un- 
less there is before-hand stored up somewhere, either in his own 
possession, or in that of some other person, a stock sufficient to 
maintain him, and to supply him with the materials and toolsof 
his work, till he has not only completed, but sold his web. This 
accumulation must evidently be previous to his applying his in- 
dustry for so long a time to such a peculiar business. 

As the accumulation of stock must, in the nature of things, be 
previousto thedivision of labour, so labour can be more and more 
subdivided in proportion only as stock is previously more and 
more accumulated. The quantity of materials which the same 
number of people can workup, increases in a great proportion as 
labour comes to be more and more subdivided; and astheopera- 
tionsof each workman are gradually reduced to a greater degree of 
simplicity, a variety of new machines come to be invented for fa- 
cilitating and abridging those operations. Asthedivision of labour 
advances, therefore, in order to give constant employment to an 



222 



Adam Smith 



equal number of workmen, an equal stock of provisions, and a 
greater stock of materials and tools than what would have been 
necessary in a ruder state of things, must be accumulated before- 
hand. But the number of workmen in every branch of business 
generally increases with the division of labour in that branch; or 
rather it is the increase of their number which enables them to 
class and subdividethemselvesin this manner. 

As the accumulation of stock is previously necessary for carry- 
ing on thisgreat improvement in theproductive powers of labour, 
so that accumulation naturally leads to this improvement. The 
person who employs his stock in maintaining labour, necessarily 
wishes to employ it in such a manner as to produce as great a 
quantity of work as possible. H e endeavours, therefore, both to 
make among his workmen the most proper distribution of em- 
ployment, and to furnish them with the best machines which he 
can either invent or afford to purchase. Hisabilities, in both these 
respects, are generally in proportion to the extent of his stock, or 
to the number of people whom it can employ. The quantity of 
industry, therefore, not only increases in every country with the 
increase of the stock which employs it, but, in consequence of 
thatincrease, thesamequantity of industry producesamuch greater 
quantity of work. 

Such are in general the effects of the increase of stock upon 



industry and its productive powers. 

I n thefollowing book, I have endeavoured to explain thenature 
of stock, the effects of its accumulation into capital of different 
kinds, and theeffectsof the different employments of those capi- 
tals. This book is divided into five chapters. In the first chapter, I 
have endeavoured to shew what arethedifferent parts or branches 
into which the stock, either of an individual, or of a great society, 
naturally divides itself. In the second, I have endeavoured to ex- 
plain thenature and operation of money, considered asa particu- 
lar branch of the general stock of the society. T he stock which is 
accumulated intoacapital, may either be employed bytheperson 
to whom it belongs, or it may belent to someother person. In the 
third and fourth chapters, I have endeavoured to examine the 
manner in which it operates in both these situations. The fifth 
and last chapter treats of the different effects which the different 
employments of capital immediately produce upon the quantity, 
both of national industry, and of the annual produce of land and 
labour. 



223 



The Wealth of Nations 



CHAPTER I 

OFTHE DIVISION OF STOCK 

When the stock which a man possesses is no more than suffi- 
cient to maintain him for a few days or a few weeks, he seldom 
thinks of deriving any revenue from it. H e consumes it as spar- 
ingly as he can, and endeavours, by his labour, to acquire some- 
thing which may supply itsplacebeforeitbeconsumed altogether. 
H is revenue is, in this case, derived from his labour only. This is 
the state of the greater part of the labouring poor in all countries 
But when he possesses stock sufficient to maintain him for 
monthsor years, henaturally endeavours to derivea revenuefrom 
the greater part of it, reserving only so much for his immediate 
consumption asmay maintain him till thisrevenuebeginsto come 
in. H is whole stock, therefore, is distinguished into two parts. 
That part which he expects is to afford him this revenue is called 
his capital. The other is that which supplies his immediate con- 
sumption, and which consists either, first, in that portion of his 
whole stock which was originally reserved for this purpose; or, 
secondly, in hisrevenue, from whatever source derived, as it gradu- 
ally comes in; or, thirdly, in such things as had been purchased by 
either of these in former years, and which are not yet entirely con- 



sumed, such as a stock of clothes, household furniture, and the 
like. In oneor other, or all of these three articles, consists thestock 
which men commonly reserve for their own immediate consump- 
tion. 

There are two different ways in which a capital may be em- 
ployed so as to yield a revenue or profit to its employer. 

First, it maybe employed in raising, manufacturing, or purchas- 
ing goods, and selling them again with a profit. The capital em- 
ployed in this manner yields no revenueor profit to its employer, 
whileit either remains in his possession, orcontinuesin thesame 
shape. T he goods of the merchant yield him no revenue or profit 
till hesellsthem for money, and the money yieldshim aslittletill 
it is again exchanged for goods. H is capital is continually going 
from him in oneshape, and returning to him in another; and it is 
only by means of such circulation, or successive changes, that it 
can yield him any profit. Such capitals, therefore, may very prop- 
erly be called circulating capitals. 

Secondly, it may be employed in the improvement of land, in 
the purchase of useful machines and instruments of trade, or in 
such like things as yield a revenue or profit without changing 
masters, or circulating any further. Such capitals, therefore, may 
very properly be called fixed capitals. 

D iff erentoccupationsrequire very different proportionsbetween 



224 



Adam Smith 



thefixed and circulating capitals employed in them. 

The capital of a merchant, for example, is altogether a circulat- 
ing capital. H e has occasion for no machines or instruments of 
trade, unless his shop or warehouse be considered as such. 

Some part of the capital of every master artificer or manufac- 
turer must be fixed in the instruments of his trade. This part, 
however, is very small in some, and very great in others, A master 
tailor requiresno other instruments of tradebut a parcel of needles. 
T hose of the master shoemaker area little, though but a very little, 
more expensive. Those of the weaver rise a good deal above those 
of the shoemaker. The far greater part of the capital of all such 
master artificers, however, iscirculated either in the wages of their 
workmen, or in the price of their materials, and repaid, with a 
profit, by the price of the work. 

In other works a much greater fixed capital is required. In a 
great iron-work, for example, the furnace for melting the ore, the 
forge, theslit-mill, areinstrumentsoftradewhich cannot be erected 
without a very great expense. In coal works, and mines of every 
kind, the machinery necessary, both for drawing out the water, 
and for other purposes, is frequently still more expensive. 

That part of the capital of the farmer which isemployed in the 
instrumentsof agricultureisafixed, that which isemployed in the 
wages and maintenance of his labouring servants is a circulating 



capital. H e makes a profit of the one by keeping it in his own 
possession, and of the other by parting with it. The price or value 
of hislabouring cattleisafixed capital, in thesamemanner as that 
of the instruments of husbandry; their maintenance is a circulat- 
ing capital, in the same manner as that of the labouring servants. 
Thefarmer makes his profit by keeping the labouring cattle, and 
by parting with their maintenance. Both the price and the main- 
tenance of the cattle which are bought in and fattened, not for 
labour, but for sale, area circulating capital. Thefarmer makeshis 
profit by parting with them. A flock of sheep or a herd of cattle, 
that, in a breeding country, is brought in neither for labour nor 
for sale, but in order to make a prof it by their wool, by their milk, 
and by their increase, is a fixed capital. The profit is made by 
keeping them. T heir maintenanceisa circulating capital. Theprofit 
is made by parting with it; and it comes back with both its own 
profit and the profit upon the whole price of the cattle, in the 
price of the wool, the milk, and the increase. The whole value of 
theseed, too, isproperly a fixed capital . T hough it goes backwards 
and forwards between theground and thegranary, it never changes 
masters, and therefore does not properly circulate. The farmer 
makes his profit, not by its sale, but by its increase. 

The general stock of any country or society is the same with 
that of all its inhabitants or members; and, therefore, naturally 



225 



The Wealth of Nations 



divides itself into the same three portions, each of which has a 
distinct function or office. 

The first is that portion which is reserved for immediate con- 
sumption, and of which the characteristic is, that it affords no 
revenue or profit. It consists in the stock of food, clothes, house- 
hold furniture, etc. which have been purchased by their proper 
consumers, but which are not yet entirely consumed. The whole 
stock of mere dwelling-houses, too, subsisting at anyone time in 
the country, make a part of thisfirst portion. Thestock that islaid 
out in a house, if it isto be the dwelling-house of the proprietor, 
ceases from that moment to serve in the function of a capital, or 
to afford any revenue to its owner. A dwelling-house, as such, 
contributes nothing to the revenue of its inhabitant; and though 
it is, no doubt, extremely useful to him, it is as his clothes and 
household furniture are useful to him, which, however, make a 
part of his expense, and not of his revenue. If it isto be let to a 
tenant for rent, as the house itself can produce nothing, thetenant 
must always pay the rent out of some other revenue, which he 
derives, either from labour, or stock, or land. Though a house, 
therefore, may yield a revenueto its proprietor, and thereby serve 
in the function of a capital to him, it cannot yield any to the 
public, nor serve in thefunction of a capital to it, and the revenue 
of the whole body of the people can never be in the smallest de- 



greeincreased by it. Clothes and household furniture, in thesame 
manner, sometimes yield a revenue, and thereby serve in thefunc- 
tion of a capital to particular persons. In countries where mas- 
querades are common, it is a trade to let out masquerade dresses 
for a night. U pholsterers frequently let furniture by the month or 
by the year. U ndertakers let the furniture of funerals by the day 
and by the week. M any people let furnished houses, and get a 
rent, not only for the use of the house, but for that of the furni- 
ture. The revenue, however, which is derived from such things, 
must always be ultimately drawn from some other source of rev- 
enue. Of all parts of the stock, either of an individual or of a 
society, reserved for immediate consumption, what is laid out in 
houses is most slowly consumed. A stock of clothes may last sev- 
eral years; a stock of furniture half a century or a century; but a 
stock of houses, well built and properly taken care of, may last 
many centuries. Though the period of their total consumption, 
however, ismoredistant, they are still as really a stock reserved for 
immediate consumption as either clothes or household furniture. 
T he second of the three portions into which the general stock 
of the society divides itself, is the fixed capital; of which the char- 
acteristic is, that it affords a revenue or profit without circulating 
or changing masters. It consists chiefly of the four following ar- 
ticles. 



226 



Adam Smith 



First, of all useful machines and instruments of trade, which 
facilitate and abridge labour. 

Secondly, of all those profitable buildings which are the means 
of procuring a revenue, not only to the proprietor who lets them 
for a rent, but to the person who possesses them, and pays that 
rent for them; such as shops, warehouses, work-houses, farm- 
houses, with all their necessary buildings, stables, granaries, etc. 
T hese are very different from mere dwelling-houses. T hey are a 
sort of instruments of trade, and may be considered in the same 
light. 

Thirdly, of the improvements of land, of what has been profit- 
ably laid out in clearing, draining, inclosing, manuring, and re- 
ducing it into the condition most proper for tillage and culture. 
An improved farm may very justly be regarded inthesamelightas 
thoseuseful machines which facilitate and abridge labour, and by 
means of which an equal circulating capital can afford a much 
greater revenue to its employer. An improved farm is equally ad- 
vantageous and more durable than any of those machines, fre- 
quently requiring no other repairs than themost profitable appli- 
cation of the farmer's capital employed in cultivating it. 

Fourthly, of the acquired and useful abilities of all the inhabit- 
ants and members of the society. T he acquisition of such talents, 
bythemaintenanceoftheacquirer during hiseducation, study, or 



apprenticeship, always costs a real expense, which isa capital fixed 
and realized, asit were, in his person. Those talents, as they make 
a part of his fortune, so do they likewise that of the society to 
which he belongs. The improved dexterity of a workman maybe 
considered in thesamelightasamachineor instrument of trade 
which facilitates and abridges labour, and which, though it costsa 
certain expense, repays that expense with a profit. 

The third and last of the three portions into which the general 
stock of thesociety naturally divides itself, is thecirculating capital, 
of which the characteristic is, that it affordsarevenueonly by circu- 
lating or changing masters. Itiscomposed likewise of four parts. 

First, of the money, by means of which all the other three are 
circulated and distributed to their proper consumers. 

Secondly, of the stock of provisions which are in the possession 
of the butcher, the grazier, the farmer, the corn-merchant, the 
brewer, etc. and from the sale of which they expect to derive a 
profit. 

Thirdly, of the materials, whether altogether rude, or more or 
less manufactured, of clothes, furniture, and building which are 
notyetmadeup into any of those three shapes, but which remain 
in the hands of the growers, the manufacturers, the mercers, and 
drapers, the timber-merchants, the carpenters and joiners, the 
brick- makers, etc. 



227 



The Wealth of Nations 



Fourthly, and lastly, of the work which is made up and com- 
pleted, but which isstill in the hands of the merchant and manu- 
facturer, and not yet disposed of or distributed to the proper con- 
sumers; such asthefinished work which we frequently find ready 
madein theshopsof thesmith, thecabinet-maker, thegoldsmith, 
thejeweller, thechina-merchant, etc.Thecirculating capital con- 
sists, in this manner, of the provisions, materials, and finished 
work of all kinds that are in the hands of their respective dealers, 
and of the money that is necessary for circulating and distributing 
them to those who are finally to use or to consume them. 

Of these four parts, three— provisions, materials, and finished 
work, are either annually or in a longer or shorter period, regu- 
larly withdrawn from it, and placed either in the fixed capital, or 
in the stock reserved for immediate consumption. 

Every fixed capital is both originally derived from, and requires 
to be continually supported by, a circulating capital. All useful 
machines and instruments of trade are originally derived from a 
circulating capital, which furnishes the materials of which they 
are made, and the maintenance of the workmen who makethem. 
They require, too, a capital of the same kind to keep them in 
constant repair. 

No fixed capital can yield any revenue but by means of a circu- 
lating capital The most useful machines and instruments of trade 



will produce nothing, without the circulating capital, which af- 
fords the materials they are em ployed upon, and the maintenance 
of theworkmen who employ them. Land, however improved, will 
yield no revenue without a circulating capital, which maintains 
the labourers who cultivate and collect its produce. 

To maintain and augment the stock which maybe reserved for 
immediate consumption, isthesoleend and purpose both of the 
fixed and circulating capitals. It isthisstock which feeds, clothes, 
and lodges the people. Their riches or poverty depend upon the 
abundant or sparing supplies which those two capitals can afford 
to the stock reserved for immediate consumption. 

So great a part of the circulating capital being continually with- 
drawn from it, in order to be placed in the other two branches of 
the general stock of the society, it must in its turn require con- 
tinual supplies without which it would soon cease to exist. These 
supplies are principally drawn from three sources; the produce of 
land, of mines, and of fish eries. These afford continual suppliesof 
provisions and materials, of which part is afterwards wrought up 
into finished work and by which are replaced the provisions, ma- 
terials, and finished work, continually withdrawn from the circu- 
lating capital. From mines, too, is drawn what is necessary for 
maintaining and augmenting that part of it which consists in 
money. For though, in theordinarycourseof business, this part is 



228 



Adam Smith 



not, I ike the other three, necessarily withdrawn from it, in order 
to be placed in the other two branches of the general stock of the 
society, it must, however, likeall other things, be wasted and worn 
out at last, and sometimes, too, be either lost or sent abroad, and 
must, therefore, require continual, though no doubt much smaller 
supplies. 

Lands, mines, and fisheries, require all both afixed and circulat- 
ing capital to cultivate them; and their produce replaces, with a 
profit not only those capitals, but all the others in the society. 
Thusthefarmer annually replaces to the manufacturer the provi- 
sions which he had consumed, and the materials which he had 
wrought up the year before; and the manufacturer replaces to the 
farmer the finished work which he had wasted and worn out in 
the same time. This is the real exchange that is annually made 
between those two orders of people, though it seldom happens 
that the rude produce of the one, and the manufactured produce 
of the other, are directly bartered for one another; because it sel- 
dom happens that the farmer sells hiscorn and hiscattle, hisflax 
and his wool, to the very same person of whom he chuses to pur- 
chase the clothes, furniture, and instruments of trade, which he 
wants. H esells, therefore, hisrudeproducefor money, with which 
he can purchase, wherever it is to be had, the manufactured pro- 
duce he has occasion for. Land even replaces, in part at least, the 



capitals with which fisheries and mines are cultivated. It is the 
produce of land which draws thefish from the waters; and itisthe 
produce of the surface of the earth which extracts the minerals 
from its bowels. 

The produce of land, mines, and fisheries, when their natural 
fertility isequal, is in proportion to theextent and proper appli- 
cation of the capitals employed about them. W hen the capitals 
are equal, and equally well applied, it is in proportion to their 
natural fertility. 

In all countries where there is a tolerable security, every man of 
common understanding will endeavour to employ whatever stock 
hecan command, in procuring either present enjoyment or future 
profit. If it is employed in procuring present enjoyment, it is a 
stock reserved for immediate consumption. If it is employed in 
procuring future profit, it must procure this profit either by stay- 
ingwithhim,orbygoingfromhim. In theonecaseit isafixed, in 
theother it isa circulating capital. A man must be perfectly crazy, 
who, where there is a tolerable security, does not employ all the 
stock which he commands, whether it behisown, or borrowed of 
other people, in some one or other of those three ways. 

I nthoseunfortunatecountries, indeed, wheremen arecontinu- 
ally afraid of the violence of their superiors, they frequently bury 
or conceal a great part of their stock, in order to have it always at 



229 



The Wealth of Nations 



hand to carry with them to some place of safety, in case of their 
being threatened with any of those disasters to which they con- 
sider themselves at all times exposed. T his is said to be a common 
practice in Turkey, in Indostan, and, I believe, in most other gov- 
ernmentsofAsia. Itseemsto have been a common practice among 
our ancestors during the violence of thefeudal government. Trea- 
sure-trove was, in these times, considered as no contemptible part 
of therevenueof the greatest sovereigns in Europe. It consisted in 
such treasure as was found concealed in the earth, and to which 
no particular person could prove any right. This was regarded, in 
those times, as so important an object, that it was always consid- 
ered as belonging to thesovereign, and neither to thefinder nor to 
the proprietor of theland, unlesstherighttoithad been conveyed 
to thelatter by an express clausein hischarter. Itwasputuponthe 
same footing with gold and silver mines, which, without a special 
clausein the charter, were never supposed to be comprehended in 
the general grant of the lands, though mines of lead, copper, tin, 
and coal were, as things of smaller consequence. 



CHAPTER II 

OF MONEY,CONSIDERED ASA PAR- 
TICULAR BRANCH OFTHE GENERAL 
STOCK OFTHE SOCIETY, OR OFTHE 
EXPENSE OF MAINTAINING THE NA- 
TION AL CAPITAL 

It has been shown in the First Book, that the priceof the greater 
part of commodities resolves itself into three parts, of which one 
pays the wages of the labour, another the profits of the stock, and 
a third the rent of theland which had been employed in produc- 
ing and bringing them to market: that there are, indeed, some 
commodities of which the price is made up of two of those parts 
only, the wages of labour, and the profits of stock; and a very few 
in which it consists altogether in one, the wages of labour; but 
that the price of every commodity necessarily resolves itself into 
some one or other, or all, of those three parts; every part of it 
which goesneither to rent nor to wages, being necessarily profit to 
some body. 

Since thisisthe case, it has been observed, with regard to every 
particular commodity, taken separately, it must be so with regard 
to all thecommodities which compose thewholeannual produce 



230 



Adam Smith 



of the land and labour of every country, taken complexly. The 
whole price or exchangeable value of that annual produce must 
resolveitself into thesamethree parts, and be parcelled out among 
the different inhabitants of the country, either as the wages of 
their labour, the profits of their stock, or the rent of their land. 

But though the whole value of the annual produce of the land 
and labour of every country, is thus divided among, and consti- 
tutesa revenueto, its different inhabitants; yet, as in the rent of a 
private estate, we distinguish between the gross rent and the neat 
rent, so may we likewise in the revenue of all the inhabitants of a 
great country. 

T he gross rent of a private estate comprehends whatever is paid 
by the farmer; the neat rent, what remains free to the landlord, 
after deducting the expense of management, of repairs, and all 
other necessary charges; or what, without hurting his estate, he 
can afford to place in his stock reserved for immediate consump- 
tion, or to spend upon his table, equipage, the ornaments of his 
house and furniture, his private enjoyments and amusements. H is 
real wealth is in proportion, not to his gross, but to his neat rent. 

T hegross revenue of all the inhabitants of a great country com- 
prehendsthe whole annual produce of their land and labour; the 
neat revenue, what remains free to them, after deducting the ex- 
pense of maintaining first, their fixed, and, secondly, their circu- 



lating capital, or what, without encroaching upon their capital, 
they can place in their stock reserved for immediate consump- 
tion, or spend upon their subsistence, conveniences, and amuse- 
ments. Their real wealth, too, is in proportion, not to their gross, 
but to their neat revenue. 

T he whole expense of maintaining the fixed capital must evi- 
dently be excluded from the neat revenue of the society. N either 
the materials necessary for supporting their useful machines and 
instruments of trade, their profitable buildings, etc. nor the pro- 
duce of the labour necessary for fashioning those materials into 
the proper form, can ever make any part of it. The price of that 
labour may indeed makea part of it; as the workmen so employed 
may place the whole value of their wages in their stock reserved 
for immediate consumption. But in other sorts of labour, both 
the price and the produce go to this stock; the price to that of the 
workmen, the produce to that of other people, whose subsistence, 
conveniences, and amusements, are augmented by the labour of 
those workmen. 

The intention of the fixed capital is to increase the productive 
powers of labour, or to enable the same number of labourers to 
perform a much greater quantity of work. In a farm where all the 
necessary buildings, fences, drains, communications, etc. are in 
the most perfect good order, the same number of labourers and 



231 



The Wealth of Nations 



labouring cattle will raise a much greater produce, than in one of 
equal extent and equally good ground, but not furnished with 
equal conveniences. In manufactures, the same number of hands, 
assisted with the best machinery, will work up a much greater 
quantity of goodsthan with more imperfect instruments of trade. 
The expense which is properly laid out upon a fixed capital of any 
kind, is always repaid with great profit, and increases the annual 
produce by a much greater value than that of the support which 
such improvements require.Thissupport, however, still requiresa 
certain portion of that produce. A certain quantity of materials, 
and the labour of a certain number of workmen, both of which 
might have been immediately employed to augment the food, 
clothing, and lodging, the subsistence and conveniences of the 
society, arethusdiverted to another employment, highly advanta- 
geous indeed, but still different from this one. It is upon thisac- 
countthatall such improvements in mechanics, asenablethesame 
number of workmen to perform an equal quantity of work with 
cheaper and simpler machinery than had been usual before, are 
always regarded as advantageous to every society. A certain quan- 
tity of materials, and thelabour of a certain number of workmen, 
which had before been employed in supporting a more complex 
and expensive machinery, can afterwards be applied to augment 
the quantity of work which that or any other machinery is useful 



only for performing. T he undertaker of some great manufactory, 
who employs a thousand a-year in the maintenance of his ma- 
chinery, if he can reduce this expense to five hundred, will natu- 
rally employ the other five hundred in purchasing an additional 
quantity of materials, to be wrought up by an additional number 
of workmen. T he quantity of that work, therefore, which his ma- 
chinery was useful only for performing, will naturally be aug- 
mented, and with it all the advantage and conveniency which the 
society can derive from that work. 

Theexpenseof maintaining thefixed capital in a great country, 
may very properly be compared to that of repairs in a private es- 
tate. T he expense of repairs may frequently be necessary for sup- 
portingtheproduceoftheestate, and consequently both thegross 
and the neat rent of the landlord. When by a more proper direc- 
tion, however, it can bediminished without occasioning any dimi- 
nution of produce, the gross rent remains at least the same as be- 
fore, and the neat rent is necessarily augmented. 

But though the whole expense of maintaining the fixed capital 
is thus necessarily excluded from theneat revenue of the society, it 
is not the same case with that of maintaining the circulating capi- 
tal. Of the four parts of which this latter capital is composed, 
money, provisions, materials, and finished work, thethreelast, it 
has already been observed, are regularly withdrawn from it, and 



232 



Adam Smith 



placed either in the fixed capital of the society, or in their stock 
reserved for immediate consumption. Whatever portion of those 
consumable goods is not employed in maintaining the former, 
goes all to the latter, and makes a part of the neat revenue of the 
society. The maintenance of those three parts of the circulating 
capital, therefore, withdraws no portion of the annual produce 
from the neat revenue of the society, besides what is necessary for 
maintaining thefixed capital. 

The circulating capital of a society is in this respect different 
from that of an individual. That of an individual is totally ex- 
cluded from making any part of his neat revenue, which must 
consist altogether in hisprofits. But though thecirculating capital 
of every individual makes a part of that of the society to which he 
belongs, it isnot upon that account totally excluded from making 
a part likewise of their neat revenue. Though the whole goods in a 
merchant's shop must by no means be placed in his own stock 
reserved for immediate consumption, they may in that of other 
people, who, from a revenue derived from other funds, may regu- 
larly replace their value to him, together with its profits, without 
occasioning any diminution either of his capital or of theirs. 

M on ey, therefore, istheonly part of thecirculating capital of a 
society, of which the maintenance can occasion any diminution 
in their neat revenue. 



Thefixed capital, and that part of the circu latin g capital which 
consists in money, so far as they affect the revenue of the society, 
bear a very great resemblance to one another. 

First, as those machines and instruments of trade, etc. require a 
certain expense, first to erect them, and afterwardsto support them, 
both which expenses, though they make a part of the gross, are 
deductions from the neat revenue of the society; so the stock of 
money which circulates in any country must require a certain ex- 
pense, first to collect it, and afterwardsto support it; both which 
expenses, though they make a part of the gross, are, in the same 
manner, deductionsfrom theneat revenue of the society. A certain 
quantity of very valuable materials, gold and silver, and of very cu- 
riouslabour, instead of augmenting the stock reserved for immedi- 
ate consumption, the subsistence, conveniences, and amusements 
of individuals, is employed in supporting that great but expensive 
instrument of commerce, by means of which every individual in 
thesocietyhashissubsistence, conveniences, and amusements, regu- 
larly distributed to him in their proper proportions. 

Secondly, as the machines and instruments of trade, etc. which 
compose the fixed capital either of an individual or of a society, 
makeno part either of thegrossor of theneat revenueof either; so 
money, by means of which the whole revenue of the society is 
regularly distributed among all its different members, makesitself 



233 



The Wealth of Nations 



no part of that revenue. The great wheel of circulation is alto- 
gether different from the goods which are circulated by means of 
it. The revenue of the society consists altogether in those goods, 
and not in the wheel which circulates them. In computing either 
the gross or the neat revenue of any society we must always, from 
thewholeannual circulation of money and goods, deduct the whole 
value of the money, of which not a single farthing can ever make 
any part of either. 

Itistheambiguityof language only which can make this propo- 
sition appear either doubtful or paradoxical. When properly ex- 
plained and understood, it is almost self-evident. 

W hen we talk of any particular sum of money, we sometimes 
mean nothing but the metal pieces of which it is composed, and 
sometimes we include in our meaning some obscure reference to 
the goods which can be had in exchange for it, or to the power of 
purchasing which the possession of it conveys. Thus, when we say 
that thecirculating money of England has been computed at eigh- 
teen millions, we mean only to express the amount of the metal 
pieces, which some writers have computed, or rather have sup- 
posed, to circulate in that country. But when wesaythataman is 
worth fifty or a hundred pounds a-year, we mean commonly to 
express, not only the amount of the metal pieces which are annu- 
ally paid to him, but thevalueofthegoods which hecan annually 



purchase or consume; we mean commonly to ascertain what isor 
ought to be his way of living, or the quantity and quality of the 
necessaries and conveniences of lifein which hecan with propri- 
ety indulge himself. 

W hen, by any particular sum of money, we mean not only to 
express the amount of the metal pieces of which it is composed, 
but to include in its signification some obscure reference to the 
goods which can be had in exchange for them, thewealth or rev- 
enue which it in this case denotes, is equal only to one of the two 
values which are thus intimated somewhat ambiguously by the 
same word, and to the latter more properly than to the former, to 
the money's worth more properly than to the money. 

Thus, if a guinea be the weekly pension of a particular person, 
hecan in the course of the week purchase with it a certain quan- 
tity of subsistence, conveniences, and amusements. In propor- 
tion asthisquantity isgreat or small, so arehisreal riches, hisreal 
weekly revenue. His weekly revenue is certainly not equal both to 
the guinea and to what can be purchased with it, but only to one 
or other of those two equal values, and to the latter more properly 
than to theformer, to the guinea's worth rather than to theguinea. 

If the pension of such a person waspaidtohim, not in gold, but 
in a weekly bill for a guinea, his revenuesurely would not so prop- 
erly consist in the piece of paper, as in what he could get for it. A 



234 



Adam Smith 



guinea may be considered asa bill for a certain quantity of neces- 
saries and conveniencies upon all the tradesmen in the 
neighbourhood The revenue of the person to whom it is paid, 
does not so properly consist in the piece of gold, asin whathecan 
get for it, or in what he can exchange it for. If it could be ex- 
changed for nothing, it would, like a bill upon a bankrupt, be of 
no more value than the most useless piece of paper. 

Though theweekly or yearly revenue of all thedifferent inhab- 
itants of any country, in the same manner, may be, and in reality 
frequently is, paid to them in money, their real riches, however, 
the real weekly or yearly revenue of all of them taken together, 
must always be great or small, in proportion to the quantity of 
consumable goods which they can all of them purchase with this 
money. The whole revenue of all of them taken together is evi- 
dently not equal to both the money and the consumable goods, 
but only to one or other of those two values, and to the latter 
more properly than to the former. 

Though we frequently, therefore, express a person's revenue by 
the metal pieces which are annually paid to him, it is because the 
amount of those pieces regulates the extent of his power of purchas- 
ing, or the value of the goods which hecan annually afford to con- 
sume. We still consider his revenue as consisting in this power of 
purchasing or consuming, and not in the pieces which convey it. 



But if this is sufficiently evident, even with regard to an indi- 
vidual, it is still more so with regard to a society. The amount of 
themetal pieces which are annually paid to an individual, isoften 
precisely equal to his revenue, and is upon that account the short- 
est and best expression of its value. But the amount of themetal 
pieces which circulate in a society, can never be equal totherev- 
enueof all itsmembers. Asthesameguinea which pays theweekly 
pension of one man to-day, may pay that of another to-morrow, 
and that of a third the day thereafter, the amount of the metal 
pieces which annually circulate in any country, must always be of 
much less value than the whole money pensions annually paid 
with them. But the power of purchasing, or the goods which can 
successively be bought with the whole of those money pensions, 
as they are successively paid, must always be precisely of the same 
valuewith those pensions; as must likewise be the revenue of the 
different personsto whom they are paid. That revenue, therefore, 
cannot consist in those metal pieces, of which the amount is so 
much inferior to its value, but in the power of purchasing, in the 
goods which can successively be bought with them as they circu- 
late from hand to hand. 

M oney, therefore, the great wheel of circulation, the great instru- 
ment of commerce, like all other instruments of trade, though it 
makesapart, and a very valuable part, of thecapital, makesno part 



235 



The Wealth of Nations 



of the revenue of the society to which it belongs; and though the 
metal pieces of which it is composed, in thecourseof their annual 
circulation, distribute to every man the revenue which properly be 
longs to him, they make themselves no part of that revenue. 

Thirdly, and lastly, the machines and instruments of trade, etc. 
which compose the fixed capital, bear this further resemblance to 
that part of the circulating capital which consists in money; that 
as every saving in the expense of erecting and supporting those 
machines, which does not diminish the introductive powers of 
labour, is an improvement of the neat revenue of the society; so 
every saving in the expense of collecting and supporting that part 
of the circu latin g capital which consists in money is an improve 
ment of exactly the same kind. 

It is sufficiently obvious, and it has partly, too, been explained 
already, in what manner every saving in theexpenseof supporting 
the fixed capital is an improvement of the neat revenue of the 
society. T he whole capital of the undertaker of every work is nec- 
essarily divided between hisfixed and hiscirculating capital. W hile 
his whole capital remains the same, the smaller the one part, the 
greater must necessarily be the other. It is the circulating capital 
which furnishes the materials and wages of labour, and puts in- 
dustry into motion. Every saving, therefore, in the expense of 
maintaining the fixed capital, which does not diminish the pro- 



ductive powers of labour, must increase the fund which puts in- 
dustry into motion, and consequently theannual produceof land 
and labour, the real revenue of every society. 

T hesubstitution of paper in theroom of gold and silver money, 
replaces a very expensive instrument of commerce with one much 
less costly, and sometimes equally convenient. Circulation comes 
to be carried on by a new wheel, which it costs less both to erect 
and to maintain than theold one. But in what manner thisopera- 
tion is performed, and in what manner it tends to increase either 
the gross or the neat revenue of the society, is not altogether so 
obvious, and may therefore require some further explication. 

T here are several different sorts of paper money; but the circu- 
lating notes of banks and bankers are the species which is best 
known, and which seems best adapted for this purpose. 

When the people of any particular country have such confi- 
denceinthefortune, probity and prudenceof a particular banker, 
as to believe that he is always ready to pay upon demand such of 
his promissory notes as are likely to be at any time presented to 
him, those notes come to have the same currency as gold and 
silver money, from the confidence that such money can at any 
time be had for them. 

A particular banker lendsamonghiscustomershisown promis- 
sory notes, totheextent, weshall suppose, of a hundred thousand 



236 



Adam Smith 



pounds. As those notes serve all the purposes of money, his debt- 
ors pay him the same interest as if he had lent them so much 
money. This interest is the source of his gain. Though some of 
those notes are continually coming back upon him for payment, 
part of them continueto circulate for monthsand years together. 
Though he has generally in circulation, therefore, notes to the 
extent of a hundred thousand pounds, twenty thousand pounds 
in gold and silver may, frequently, be a sufficient provision for 
answering occasional demands. By this operation, therefore, twenty 
thousand pounds in gold and silver perform all thefunctionswhich 
a hundred thousand could otherwise have performed. The same 
exchanges may be made, the same quantity of consumable goods 
may be circulated and distributed to their proper consumers, by 
means of his promissory notes, to the value of a hundred thou- 
sand pounds, asbyan equal valueof gold and silver money. Eighty 
thousand poundsof gold and silver, therefore, can in this manner 
be spared from the circulation of the country; and if different 
operations of the the same kind should, at the same time, be car- 
ried on by many different banks and bankers, the whole circula- 
tion may thus be conducted with a fifth part only of the gold and 
silver which would otherwise have been requisite. 

Let us suppose, for example, that the whole circulating money 
of some particular country amounted, at a particular time, to one 



million sterling, that sum being then sufficient for circulating the 
whole annual produce of their land and labour; let us suppose, 
too, that some time thereafter, different banks and bankersissued 
promissory notes payable to the bearer, to the extent of one mil- 
lion, reserving in their different coffers two hundred thousand 
pounds for answering occasional demands; there would remain, 
therefore, in circulation, eight hundred thousand pounds in gold 
and silver, and a million of bank notes, or eighteen hundred thou- 
sand poundsof paper and money together. But the annual pro- 
duce of the land and labour of the country had before required 
only one million to circulate and distribute it to its proper con- 
sumers, and that annual produce cannot be immediately aug- 
mented by those operations of banking. ne million, therefore, 
will besufficient to circulateit after them. Thegoodsto be bought 
and sold being precisely the same as before, the same quantity of 
money will be sufficient for buying and selling them. Thechannel 
of circulation, if I may be all owed such an expression, will remain 
precisely the same as before. Onemillion we have supposed suffi- 
cient to fill that channel. Whatever, therefore, is poured into it 
beyond this sum, cannot run into it, but must overflow. ne mil- 
lion eight hundred thousand pounds are poured into it. Eight 
hundred thousand pounds, therefore, must overflow, that sum 
being over and above what can be employed in the circulation of 



237 



The Wealth of Nations 



the country. But though thissum cannot be employed at home, it 
is too valuable to be allowed to lie idle. It will, therefore, be sent 
abroad, in order to seek that profitable employment which it can- 
not find at home. But the paper cannot go abroad; because at a 
distance from the banks which issue it, and from the country in 
which payment of it can be exacted by law, it will not be received 
in common payments. Gold and silver, therefore, to the amount 
of eight hundred thousand pounds, will be sent abroad, and the 
channel of home circulation will remain filled with a million of 
paper instead of a million of those metals which filled it before. 

But though so great a quantity of gold and silver is thus sent 
abroad, we must not imagine that it is sent abroad for nothing, or 
that its proprietors make a present of it to foreign nations. T hey 
will exchange it for foreign goods of some kind or another, in 
order to supply theconsumption either of someother foreign coun- 
try, or of their own. 

If they employ it in purchasing goodsin oneforeign country, in 
order to supply the consumption of another, or in what is called 
the carrying trade, whatever profit they make will be in addition 
to the neat revenue of their own country. It is like a new fund, 
created for carrying on a new trade; domestic business being now 
transacted by paper, and the gold and silver being converted into 
a fund for this new trade. 



If they employ itin purchasing foreign goodsforhomeconsump- 
tion, they may either, first, purchase such goods as are likely to be 
consumed by idle people, who produce nothing, such as foreign 
wines, foreign silks, etc.; or, secondly, they may purchase an addi- 
tional stock of materials, tools, and provisions, in order to maintain 
and employ an additional number of industrious people, who re- 
produce, with a profit, thevalueof their annual consumption. 

So far as it is employed in thefirst way, it promotes prodigality, 
increases expense and consumption, without increasing produc- 
tion, or establishing any permanent fund for supporting that ex- 
pense, and is in every respect hurtful to the society. 

So far as it is employed in thesecond way, it promotes industry; 
and though it increases theconsumption of thesociety, it provides 
a permanent fund for supporting that consumption; the people 
who consume reproducing, with a profit, thewholevalueof their 
annual consumption. The gross revenue of thesociety, theannual 
produce of their land and labour, is increased by the whole value 
which the labour of those workmen adds to the materials upon 
which they are employed, and their neat revenue by what remains 
of this value, after deducting what is necessary for supporting the 
tools and instruments of their trade. 

T hat the greater part of the gold and silver which being forced 
abroad by thoseoperationsof banking, isemployed in purchasing 



238 



Adam Smith 



foreign goods for home consumption, is, and must be, employed 
in purchasingthoseofthissecond kind, seems not only probable, 
but almost unavoidable. T hough some particular men may some- 
times increase their expense very considerably, though their rev- 
enue does not increase at all, we maybe assured that no class or 
order of men ever does so; because, though the principles of com- 
mon prudence do not always govern the conduct of every indi- 
vidual, they always influence that of the majority of every class or 
order. But the revenue of idle people, considered as a class or or- 
der, cannot, in the smallest degree, be increased by those opera- 
tions of banking. Their expense in general, therefore, cannot be 
much increased by them, though that of afewindividualsamong 
them may, and in reality sometimesis.Thedemand of idlepeople, 
therefore, for foreign goods, being the same, or very nearly the 
sameas before, a very small part of the money which, beingforced 
abroad by those operations of banking, isemployed in purchasing 
foreign goods for home consumption, is likely to be employed in 
purchasing those for their use. T he greater part of it will naturally 
bedestinedfortheemploymentof industry, and not for themain- 
tenance of idleness. 

When we compute thequantity of industry which the circulating 
capital of any society can employ, we must always have regard to 
those parts of it only which consist in provisions, materials and fin- 



ished work; the other, which consists in money, and which serves 
only to circulatethose three, must always bededucted. In order to put 
industry into motion, three things are requisite; materials to work 
upon, toolsto work with, and the wages or recom pence for the sake 
of which the work isdone. M oney is neither a material to work upon, 
nor a tool to work with; and though the wages of the workman are 
commonly paid to him in money, his real revenue, like that of all 
other men, consists, not in themoney, but in the money's worth; not 
in the metal pieces, but in what can be got for them. 

The quantity of industry which any capital can employ, must 
evidently be equal to the number of workmen whom it can sup- 
ply with materials, tools, and a maintenancesuitableto the nature 
of thework. M oney may be requisite for purchasing the materials 
and toolsof thework, aswell asthe maintenance of theworkmen; 
but thequantity of industry which the whole capital can employ, 
is certainly not equal both to the money which purchases, and to 
the materials, tools, and maintenance, which are purchased with 
it, but only to one or other of those two values, and to the latter 
more properly than to the former. 

W hen paper issubstituted in theroom of gold and silver money, 
thequantity of the materials, tools, and maintenance, which the 
wholecirculating capital can supply, may be in creased bythewhole 
valueof gold and silver which used to be employed in purchasing 



239 



The Wealth of Nations 



them. Thewholevalueofthegreat wheel of circulation and distri- 
bution isadded to thegoods which are circulated and distributed 
by means of it. The operation, in some measure, resembles that of 
the undertaker of some great work, who, in consequence of some 
improvement in mechanics, takes down his old machinery, and 
adds the difference between its price and that of the new to his 
circulating capital, to the fund from which he furnishes materials 
and wages to his workmen. 

W hat is the proportion which thecirculati ng money of any coun- 
try bears to the whole value of the annual produce circulated by 
means of it, it is perhaps impossible to determine. It has been 
computed by different authors at a fifth, at a tenth, at a twentieth, 
and at a thirtieth, part of that value. But how small soever the 
proportion which the circulating money may bear to the whole 
value of the annual produce, as but a part, and frequently but a 
small part, of that produce, is ever destined for the maintenance 
of industry, it must always bear a very considerable proportion to 
that part. W hen, therefore, by the substitution of paper, the gold 
and silver necessary for circulation is reduced to, perhaps, a fifth 
part of the former quantity, if the value of only the greater part of 
the other four-fifths be added to the funds which are destined for 
the maintenance of industry, it must make a very considerable 
addition to the quantity of that industry, and, consequently, to 



the value of the annual produce of land and labour. 

An operation of this kind has, within these five-and-twenty or 
thirty years, been performed in Scotland, by the erection of new 
banking companies in almost every considerable town, and even 
in somecountry villages. Theeffects of it have been preciselythose 
above described. The business of the country is almost entirely 
carried on by meansof the paper of those different banking com- 
panies, with which purchases and paymentsof all kinds are com- 
monly made. Silver very seldom appears, except in thechangeof a 
twenty shilling bank note, and gold still seldomer. But though the 
conduct of all those different companies has not been unexcep- 
tionable, and has accordingly required an act of parliament to regu- 
late it, the country, notwithstanding, has evidently derived great 
benefit from their trade. I have heard it asserted, that the trade of 
the city of G lasgow doubled in about fifteen years after the first 
erection of the banks there; and that the trade of Scotland has 
more than quadrupled since the first erection of the two public 
banks at Edinburgh; of which the one, called the Bank of Scot- 
land, was established by act of parliament in 1695, and the other, 
called the Royal Bank, by royal charter in 1727. Whether thetrade, 
either of Scotland in general, or of thecity of Glasgow in particu- 
lar, has really increased in so great a proportion, during so short a 
period, I do not pretend to know. If either of them has increased 



240 



Adam Smith 



in this proportion, it seems to be an effect too great to be ac- 
counted for by the sole operation of thiscause. That thetradeand 
industry of Scotland, however, have increased very considerably 
during this period, and that the banks have contributed a good 
deal to this increase, cannot be doubted. 

Thevalueof thesilver money which circulated in Scotland be- 
fore the Union in 1707, and which, immediately after it, was 
brought into the Bank of Scotland, in order to be recoined, 
amounted to £411,117: 10: 9 sterling. N o account has been got 
of the gold coin; but it appears from the ancient accounts of the 
mint of Scotland, that thevalueof thegold annually coined some- 
what exceeded that of the silver. There were a good many people, 
too, upon thisoccasion, who, from a diffidence of repayment, did 
not bring their silver into the Bank of Scotland; and there was, 
besides, some English coin, which was not called in. The whole 
value of thegold and silver, therefore, which circulated in Scot- 
land before the Union, cannot be estimated at less than a million 
sterling. Itseemstohaveconstituted almost thewholecirculation 
of that country; for though the circulation of the Bank of Scot- 
land, which had then no rival, was considerable, it seems to have 
made but a very small part of the whole. I n the present times, the 
wholecirculation of Scotland cannot be estimated at less than two 
millions, of which that part which consistsin gold and silver, most 



probably, does not amount to half a million. But though the cir- 
culating gold and silver of Scotland have suffered so great a dimi- 
nution during this period, its real riches and prosperity do not 
appear to have suffered any. Its agriculture, manufactures, and 
trade, on the contrary, the annual produce of its land and labour, 
have evidently been augmented. 

It is chiefly by discounting bills of exchange, that is, by advanc- 
ing money upon them before they are due, that the greater part of 
banks and bankers issue their promissory notes. They deduct al- 
ways, upon whatever sum they advance, the legal interest till the 
bill shall become due. The payment of the bill, when it becomes 
due, replaces to the bank the value of what had been advanced, 
together with a clear profit of the interest. The banker, who ad- 
vances to the merchant whose bill he discounts, not gold and sil- 
ver, buthisown promissory notes, has the advantage of being able 
to discount to a greater amount by the whole value of his promis- 
sory notes, which hefinds, by experience, are commonly in circu- 
lation. He is thereby enabled to make his clear gain of interest on 
so much a larger sum. 

The commerce of Scotland, which at present is not very great, 
was still moreinconsiderablewhen thetwo first banking companies 
were established; and those companies would have had but little 
trade, had they confined their business to the discounting of billsof 



241 



The Wealth of Nations 



exchange. T hey invented, therefore, another method of issuing their 
promissory notes; by granting what they call cash accounts, that is, 
by giving credit, to the extent of a certain sum (two or three thou- 
sand pounds for example), to any individual who could procure 
two personsof undoubted credit and good landed estate to become 
surety for him, that whatever money should be advanced to him, 
within the sum for which the credit had been given, should be re- 
paid upon demand, together with thelegal interest. Creditsof this 
kind are, I believe, commonly granted by banks and bankers in all 
different parts of the world. But the easy terms upon which the 
Scotch banking companies accept of repayment are, so far as I know, 
peculiar to them, and have perhaps been the principal cause, both 
of the great trade of those companies,and of the benefit which the 
country has received from it. 

W hoever has a credit of this kind with one of those companies, 
and borrows a thousand pounds upon it, for example, may repay 
this sum piece-meal, by twenty and thirty pounds at a time, the 
company discounting a proportionable part of the interest of the 
great sum, from theday on which each of those small sumsispaid 
in, till the whole be in this manner repaid. All merchants, there- 
fore, and almost all men of business, find it convenient to keep 
such cash accounts with them, and are thereby interested to pro- 
mote thetradeof those companies, by readily receiving their notes 



in all payments, and by encouraging all those with whom they 
have any influence to do the same. The banks, when their cus- 
tomers apply to them for money, generally advance it to them in 
their own promissory notes. T hese the merchants pay away to the 
manufacturers for goods, the manufacturers to the farmers for 
materials and provisions, the farmers to their landlords for rent; 
the landlords repay them to the merchants for the conveniences 
and luxuries with which they supply them, and the merchants 
again return them to the banks, in order to balance their cash 
accounts, or to replace what they my have borrowed of them; and 
thusalmost the whole money businessofthecountryistransacted 
by means of them. H ence the great trade of those companies. 

By means of those cash accounts, every merchant can, without 
imprudence, carry on a greater trade than he otherwise could do. 
If there are two merchants, one in London and the other in 
Edinburgh, who employ equal stocksin thesamebranch of trade, 
the Edinburgh merchant can, without imprudence, carry on a 
greater trade, and give employment to a greater number of people, 
than the London merchant. The London merchant must always 
keep by him a considerable sum of money, either in his own cof- 
fers, or in those of his banker, who gives him no interest for it, in 
order to answer the demands continually coming upon him for 
payment of the goods which he purchases upon credit. Let the 



242 



Adam Smith 



ordinary amount of this sum be supposed five hundred pounds; 
the value of the goods in his warehouse must always be less, by 
five hundred pounds, than it would have been, had he not been 
obliged to keep such a sum unemployed. Let us suppose that he 
generally disposes of his whole stock upon hand, or of goods to 
thevalueof his wholestock upon hand,onceintheyear. By being 
obliged to keep so great a sum unemployed, he must sell in a year 
five hundred pounds worth less goods than he might otherwise 
have done. H is annual profits must be less by all that he could 
have made by the sale of five hundred pounds worth more goods; 
and the number of people employed in preparing his goods for 
the market must be less by all those that five hundred pounds 
more stock could have employed. The merchant in Edinburgh, 
on the other hand, keeps no money unemployed for answering 
such occasional demands. When they actually come upon him, 
he satisfies them from hiscash account with thebank, and gradu- 
ally replaces the sum borrowed with the money or paper which 
comes in from the occasional sales of his goods. W ith the same 
stock, therefore, he can, without imprudence, have at all times in 
his warehouse a larger quantity of goods than the London mer- 
chant; and can thereby both make a greater profit himself, and 
give constant employment to a greater number of industrious 
people who prepare those goods for the market. H ence the great 



benefit which the country has derived from this trade. 

Thefacility of discounting bills of exchange, it may bethought, 
indeed, gives the English merchants a conveniency equivalent to 
the cash accounts of the Scotch merchants. But the Scotch mer- 
chants, it must be remembered, can discount their bills of ex- 
change as easily as the English merchants; and have, besides, the 
additional conveniency of their cash accounts. 

The whole paper money of every kind which can easily circulate 
in any country, never can exceed thevalueof the gold and silver, 
of which it supplies theplace, or which (the commerce being sup- 
posed thesame) would circulate there, if therewasno paper money. 
If twenty shilling notes, for example, are the lowest paper money 
current in Scotland, the whole of that currency which can easily 
circulate there, cannot exceed the sum of gold and silver which 
would benecessaryfortransactingtheannual exchanges of twenty 
shillings value and upwards usually transacted within that coun- 
try. Should the circulating paper at any time exceed that sum, as 
the excess could neither be sent abroad nor be employed in the 
circulation of the country, it must immediately return upon the 
banks, to be exchanged for gold and silver. M any people would 
immediately perceive that they had more of this paper than was 
necessary for transacting their business at home; and as they could 
not send it abroad, they would immediately demand payment for 



243 



The Wealth of Nations 



it from the banks. When this superfluous paper was converted 
into gold and silver, they could easily find a use for it, by sending 
it abroad; but they could find none while it remained in theshape 
of paper. There would immediately, therefore, be a run upon the 
banks to the whole extent of this superfluous paper, and if they 
showed any difficulty or backwardness in payment, to a much 
greater extent; the alarm which this would occasion necessarily 
increasing the run. 

Over and above theexpenses which are common to every branch 
of trade, such as the expense of house-rent, the wages of servants, 
clerks, accountants, etc. the expenses peculiar to a bank consist 
chiefly in two articles: first, in the expense of keeping at all times 
in itscoffers, for answering theoccasional demandsoftheholders 
of its notes, a large sum of money, of which it loses the interest; 
and, secondly, in the expense of replenishing those coffers as fast 
as they are emptied by answering such occasional demands. 

A banking company which issues more paper than can be em- 
ployed in thecirculation of thecountry, and of which theexcessis 
continually returning upon them for payment, ought to increase 
thequantity of gold and silver which they keep at all times in their 
coffers, not only in proportion to this excessive increase of their 
circulation, but in a much greater proportion; their notes return- 
ing upon them much faster than in proportion to the excess of 



their quantity. Such a company, therefore, ought to increase the 
first article of their expense, not only in proportion to this forced 
increase of their business, but in a much greater proportion. 

The coffers of such a company, too, though they ought to be 
filled much fuller, yet must empty themselves much faster than if 
their business was confined within more reasonable bounds, and 
must require not only a more violent, but a more constant and 
uninterrupted exertion of expense, in order to replenish them, 
Thecoin, too, which isthuscontinually drawn in such largequan- 
titiesfrom their coffers, cannot be employed in thecirculation of 
thecountry. Itcomesin place of a paper which isoverand above 
what can be employed in that circulation, and is, therefore, over 
and above what can be employed in it too. But as that coin will 
not be allowed to lieidle, it must, in one shape or another, be sent 
abroad, in order to find that profitableemployment which it can- 
not find at home; and this continual exportation of gold and sil- 
ver, by enhancing the difficulty, must necessarily enhance still far- 
ther the expense of the bank, in finding new gold and silver in 
order to replenish those coffers, which empty themselves so very 
rapidly. Such a company, therefore, must in proportion to this 
forced increaseof their business, in crease the second article of their 
expense still more than thefirst. 

Let ussuppose that all thepaper of a particular bank, which the 



244 



Adam Smith 



circulation of the country can easily absorb and employ amounts 
exactly to forty thousand pounds, and that, for answering occa- 
sional demands, this bank is obliged to keep at all times in its 
coffers ten thousand pounds in gold and silver. Should this bank 
attempt to circulate forty- four thousand pounds, the four thou- 
sand pounds which are over and above what the circulation can 
easily absorb and employ, will return upon it almost as fast as they 
areissued. For answering occasional demands, therefore, thisbank 
oughtto keep at all timesin its coffers, not eleven thousand pounds 
only, but fourteen thousand pounds. It will thus gain nothing by 
theinterestof thefour thousand poundsexcessivecirculation; and 
it will lose the whole expense of continually collecting four thou- 
sand pounds in gold and silver, which will be continually going 
out of its coffers as fast as they are brought into them. 

H ad every particular banking company always understood and 
attended to its own particular interest, the circulation never could 
have been overstocked with paper money. But every particular 
banking company has not always understood or attended to its 
own particular interest, and the circulation has frequently been 
overstocked with paper money. 

By issuing too great a quantity of paper, of which the excess was 
continually returning, in order to be exchanged for gold and sil- 
ver, the Bank of England was for many years together obliged to 



coin gold to the extent of between eight hundred thousand pounds 
and a million a-year; or, at an average, about eight hundred and 
fifty thousand pounds. For this great coinage, the bank (inconse- 
quence of the worn and degraded state into which the gold coin 
had fallen a few years ago) was frequently obliged to purchase 
gold bullion at the high price of four pounds an ounce, which it 
soon after issued in coin at £3:17:10 1/2 an ounce, losing in this 
manner between two and a half and threeper cent, upon thecoin- 
age of so very large a sum. T hough the bank, therefore, paid no 
seignorage, though thegovernment wasproperly at the expense of 
this coinage, this liberality of government did not prevent alto- 
gether the expense of the bank. 

TheScotch banks, in consequenceof an excess of thesamekind, 
were all obliged to employ constantly agents at London to collect 
money for them, at an expense which was seldom below one and 
a half or two per cent. T his money was sent down by the waggon, 
and insured by the carriers at an additional expense of three quar- 
ters per cent, or fifteen shillings on the hundred pounds. Those 
agents were not always able to replenish the coffers of their em- 
ployers so fast as they were emptied. I n this case, the resource of 
thebankswas, to draw upon their correspondents in London bills 
of exchange, to the extent of the sum which they wanted. W hen 
those correspondents afterwards drew upon them for the payment 



245 



The Wealth of Nations 



of this sum, together with the interest and commission, some of 
those banks, from the distress into which their excessive circula- 
tion had thrown them, had sometimes no other means of satisfy- 
ing thisdraught, but by drawing a second set of bills, either upon 
thesame, or upon some other correspondents in London; and the 
samesum, or rather billsfor the samesum, would in thismanner 
make sometimes more than two or three journeys; thedebtor bank 
paying always the interest and commission upon the whole accu- 
mulated sum. Even those Scotch bankswhich never distinguished 
themselves by thei r extreme i mprudence, were someti mes obliged 
to employ this ruinous resource. 

The gold coin which was paid out, either by the Bank of En- 
gland or by the Scotch banks, in exchange for that part of their 
paper which was over and above what could be employed in the 
circulation of the country, being likewise over and above what 
could be employed in that circulation, was sometimes sent abroad 
in the shape of coin, sometimes melted down and sent abroad in 
the shape of bullion, and sometimes melted down and sold to the 
Bank of England at the high priceof four poundsan ounce. It was 
thenewest, theheaviest, and thebest piecesonly, which were care- 
fully picked out of the wholecoin, and either sent abroad or melted 
down. At home, and while they remained in the shape of coin, 
thoseheavy pieces were of no morevaluethan thelight; but they 



were of more value abroad, or when melted down into bullion at 
home. The Bank of England, notwithstanding their great annual 
coinage, found, to their astonishment, that there was every year 
the same scarcity of coin as there had been the year before; and 
that, notwithstanding the great quantity of good and new coin 
which was every year issued from the bank, the state of the coin, 
instead of growing better and better, became every year worse and 
worse. Every year they found themselves under the necessity of 
coining nearly the same quantity of gold as they had coined the 
year before; and from the continual rise in the price of gold bul- 
lion, in consequence of thecontinual wearing and clipping of the 
coin, the expense of this great annual coinage became, every year, 
greater and greater. The Bank of England, it is to be observed, by 
supplying its own coffers with coin, isindirectly obliged to supply 
the whole kingdom, into which coin is continually flowing from 
those coffers in a great variety of ways. W hatever coin, therefore, 
was wanted to support this excessive circulation both of Scotch 
and English paper money, whatever vacuities thisexcessive circu- 
lation occasioned in the necessary coin of the kingdom, the Bank 
of England was obliged to supply them. The Scotch banks, no 
doubt, paid all of them very dearly for their own imprudence and 
inattention: but the Bank of England paid very dearly, not only 
for its own imprudence, but for the much greater imprudence of 



246 



Adam Smith 



almost all the Scotch banks. 

The over-trading of some bold projectors in both parts of the 
united kingdom, was the original cause of this excessive circula- 
tion of paper money. 

W hat a bank can with propriety advance to a merchant or un- 
dertaker of any kind, isnot either thewholecapital with which he 
trades, or even any considerable part of that capital; but that part 
of it only which he would otherwise be obliged to keep by him 
unemployed and in ready money, for answering occasional de- 
mands. If the paper money which the bank advances never ex- 
ceeds this value, it can never exceed thevalueof thegold and silver 
which would necessarily circulate in the country if there was no 
paper money; it can never exceed the quantity which the circula- 
tion of the country can easily absorb and employ. 

W hen a bank discounts to a merchant a real bill of exchange, 
drawn by a real creditor upon a real debtor, and which, as soon as 
it becomes due, is really paid by that debtor; it only advances to 
him apart of the value which he would otherwise be obliged to 
keep by him unemployed and in ready money, for answering oc- 
casional demands. The payment of the bill, when it becomes due, 
replaces to the bank the value of what it had advanced, together 
with the interest. T he coffers of the bank, so far as its dealings are 
confined to such customers, resemble a water-pond, from which, 



though a stream is continually running out, yet another is con- 
tinually running in, fully equal to that which runs out; so that, 
without any further care or attention, the pond keeps always 
equally, or very near equally full. Littleor no expense can ever be 
necessary for replenishing the coffers of such a bank. 

A merchant, without over-trading, may frequently have occa- 
sion for a sum of ready money, even when he has no bills to dis- 
count. When a bank, besides discounting his bills, advances him 
likewise, upon such occasions, such sums upon hiscash account, 
and accepts of a piece-meal repayment, as the money comes in 
from the occasional sale of his goods, upon the easy terms of the 
banking companies of Scotland; it dispenses him entirely from 
the necessity of keeping any part of his stock by him unemployed 
and in ready money for answering occasional demands. When 
such demands actually come upon him, he can answer them suf- 
ficiently from his cash account. The bank, however, in dealing 
with such customers, ought to observe with great attention, 
whether, in the course of some short period (of four, five, six, or 
eight months, for example), the sum of the repayments which it 
commonly receives from them, is, or isnot, fully equal to that of 
the advances which it commonly makes to them. If, within the 
course of such short periods, the sum of the repayments from 
certain customers is, upon most occasions, fully equal to that of 



247 



The Wealth of Nations 



the advances, it may safely continue to deal with such customers. 
Though the stream which is in this case continually running out 
from its coffers may be very large, that which is continually run- 
ning into them must beat least equally large, so that, without any 
further careor attention, thosecoffers arelikely to be always equally 
or very near equally full, and scarce ever to require any extraordi- 
nary expense to replenish them. If, on thecontrary, thesum of the 
repayments from certain other customers, falls commonly very 
much short of the advances which it makes to them, it cannot 
with any safety continue to deal with such customers, at least if 
they continue to deal with itin thismanner.Thestream which is 
in this case continually running out from itscoffers, isnecessarily 
much larger than that which is continually running in; so that, 
unless they are replenished by some great and continual effort of 
expense, those coffers must soon be exhausted altogether. 

The banking companies of Scotland, accordingly, were for a 
long time very careful to require frequent and regular repayments 
from all their customers, and did not care to deal with any person, 
whatever might be his fortune or credit, who did not make, what 
they called, frequent and regular operations with them. By this 
attention, besides saving almost en ti rely theextraordinary expense 
of replenishing their coffers, they gained two other very consider- 
able advantages. 



First, by this attention they were enabled to make some toler- 
ablejudgment concerning thethriving or declining circumstances 
of their debtors, without being obliged to look out for any other 
evidence besides what their own books afforded them; men being, 
for the most part, either regular or irregular in their repayments, 
according as their circumstances are either thriving or declining. 
Aprivateman wholendsouthismoneytoperhapshalfadozenor 
a dozen of debtors, may, either by himself or his agents, observe 
and inquire both constantly and carefully into the conduct and 
situation of each of them. But a banking company, which lends 
money to perhaps fivehundred different people, and of which the 
attention is continually occupied by objects of a very different 
kind, can have no regular information concerning the conduct 
and circumstances of the greater part of itsdebtors, beyond what 
its own books afford it. In requiring frequent and regular repay- 
ments from all their customers, the banking companies of Scot- 
land had probably this advantage in view. 

Secondly, by this attention they secured themselves from the 
possibility of issuing more paper money than what thecirculation 
of the country could easily absorb and employ. When they ob- 
served, that within moderate periods of time, the repayments of a 
particular customer were, upon most occasions, fully equal to the 
advanceswhich they had madeto him, they might be assured that 



248 



Adam Smith 



thepaper money which they had advanced to him had not, at any 
time, exceeded the quantity of gold and silver which he would 
otherwise have been obliged to keep by him for answering occa- 
sional demands; and that, consequently, thepaper money, which 
they had circulated by his means, had not at any time exceeded 
the quantity of gold and silver which would have circulated in the 
country, had there been no paper money. The frequency, regular- 
ity, and amount of hisrepayments, would sufficiently demonstrate 
that the amount of their advances had at no time exceeded that 
part of his capital which hewouldotherwisehavebeen obliged to 
keep by him unemployed, and in ready money, for answering oc- 
casional demands; that is, for the purpose of keeping the rest of 
his capital in constant employment. It is this part of his capital 
only which, within moderate periods of time, is continually re 
turning to every dealer in the shape of money, whether paper or 
coin, and continually going from him in the same shape. If the 
advances of the bank had commonly exceeded this part of his 
capital, theordinary amount of hisrepayments could not, within 
moderate periods of time, have equalled the ordinary amount of 
its advances. The stream which, by means of his dealings, was 
continually running into the coffers of the bank, could not have 
been equal to the stream which, by means of the same dealings 
was continually running out. T he advances of the bank paper, by 



exceeding the quantity of gold and silver which, had there been 
no such advances, hewould have been obliged to keep by him for 
answering occasional demands, might soon come to exceed the 
whole quantity of gold and silver which ( the commerce being 
supposed the same ) would have circulated in the country, had 
there been no paper money; and, consequently, to exceed thequan- 
tity which the circulation of the country could easily absorb and 
employ; and the excess of this paper money would immediately 
have returned upon the bank, in order to be exchanged for gold 
and silver. This second advantage, though equally real, was not, 
perhaps, so well understood by all the different banking compa- 
nies in Scotland asthefirst. 

When, partly by theconveniency of discounting bills, and partly 
by that of cash accounts, the creditable traders of any country can 
be dispensed from the necessity of keeping any part of their stock 
by them unemployed, and in ready money, for answering occa- 
sional demands, they can reasonably expect no farther assistance 
from hanks and bankers, who, when they have gone thus far, can- 
not, consistently with their own interest and safety, go farther. A 
bank cannot, consistently with its own interest, advance to a trader 
the whole, or even the greater part of the circulating capital with 
which he trades; because, though that capital is continually re- 
turning to him in theshapeof money, and going from him in the 



249 



The Wealth of Nations 



same shape, yet the whole of the returns is too distant from the 
whole of the outgoings, and the sum of his repayments could not 
equal the sum of his advances within such moderate periods of 
time as suit the conveniency of a bank. Still less could a bank 
afford to advance him any considerable part of hisfixed capital; of 
the capital which the undertaker of an iron forge, for example, 
employsin erecting hisforge and smelting-houses, hiswork-houses, 
and warehouses, thedwelling-housesof hisworkmen, etc.; of the 
capital which the undertaker of a mine employs in sinking his 
shafts, in erecting engines for drawing out the water, in making 
roadsand waggon-ways, etc.; of thecapital which the person who 
undertakes to improve land employsin clearing, draining, inclos- 
ing, manuring, and ploughing waste and uncultivated fields; in 
buildingfarmhouses, with all their necessary appendagesof stables, 
granaries, etc. The returns of the fixed capital are, in almost all 
cases, much slower than thoseof the circu latin g capital: and such 
expenses, even when laid out with thegreatest prudence and judg- 
ment, very seldom return to the undertaker till after a period of 
many years, a period by far too distant to suit the conveniency of 
a bank. Traders and other undertakers may, no doubt with great 
propriety, carry on a very considerable part of their projects with 
borrowed money. In justice to their creditors, however, their own 
capital ought in thiscaseto be sufficient to insure, if I may say so, 



thecapital of those creditors; or to render it extremely improbable 
that those creditors should incurany loss, even though thesuccess 
of theproject should fall verymuch short of the expectation of the 
projectors. Even with this precaution, too, themoney which isbor- 
rowed, and which it is meant should not be repaid till after a period 
of several years, ought not to be borrowed of a bank, but ought to 
be borrowed upon bond or mortgage, of such private people as 
propose to liveupon theinterest of theirmoney, without takingthe 
trouble themselves to employ thecapital, and who are, upon that 
account, willing to lend that capital to such peopleof good credit as 
arelikelyto keep itfor several years. A bank, indeed, which lendsits 
money without the expense of stamped paper, or of attorneys' fees 
for drawing bonds and mortgages, and which accepts of repayment 
upon the easy terms of the banki ng companies of Scotland, would, 
no doubt, be a very convenient creditor to such traders and under- 
takers. But such traders and undertakers would surely be most in- 
convenient debtors to such a bank. 

1 1 is now more than five and twenty years sincethe paper money 
issued by the different banking companies of Scotland was fully 
equal, or rather was somewhat more than fully equal, to what the 
circulation of the country could easily absorb and employ. Those 
companies, therefore, had so long ago given all the assistance to 
thetradersand other undertakers of Scotland which it is possible 



250 



Adam Smith 



for banks and bankers, consistently with their own interest, to 
give. They had even done somewhat more. They had over-traded 
a little, and had brought upon themselves that loss, or at least that 
diminution of profit, which, in this particular business, never fails 
to attend the smallest degree of over-trading. Those traders and 
other undertakers, having got so much assistance from banks and 
bankers, wished to get still more. The banks, they seem to have 
thought, could extend their credits to whatever sum might be 
wanted, without incurring any other expense besidesthat of a few 
reamsof paper.They complained of thecontracted views and das- 
tardly spirit of the directors of those banks, which did not, they 
said, extend their credits in proportion to the extension of the 
trade of the country; meaning, no doubt, by the extension of that 
trade, the extension of their own projects beyond what they could 
carry on either with their own capital, or with what they had credit 
to borrow of private people i n the usual way of bond or mortgage. 
The banks, they seem to have thought, werein honour bound to 
supply the deficiency, and to provide them with all the capital 
which they wanted to trade with. T he banks, however, were of a 
different opinion; and upon their refusing to extend their credits, 
some of those traders had recourse to an expedient which, for a 
time, served their purpose, though at a much greater expense, yet 
as effectually as the utmost extension of bank credits could have 



done. This expedient was no other than the well known shift of 
drawing and redrawing; the shift to which unfortunate traders 
have sometimes recourse, when they are upon the brink of bank- 
ruptcy. The practice of raising money in this manner had been 
long known in England; and, during the course of the late war, 
when thehigh profitsof tradeafforded a great temptation to over- 
trading, is said to have been carried on to a very great extent. 
From England it wasbrought into Scotland, where, in proportion 
to the very limited commerce, and to the very moderate capital of 
the country, it was soon carried on to a much greater extent than 
it ever had been in England. 

The practice of drawing and redrawing is so well known to all 
men of business, that it may, perhaps, bethought unnecessary to 
give any account of it. But as this book may come into the hands 
of many people who are not men of business, an das the effects of 
this practice upon the banking trade are not, perhaps, generally 
understood, even by men of business themselves, I shall endeav- 
our to explain it as distinctly as I can. 

The customs of merchants, which were established when the 
barbarouslawsof Europedid not enforce the performance of their 
contracts, and which, during thecourse of thetwo last centuries, 
have been adopted into the laws of all European nations, have 
given such extraordinary privileges to billsof exchange, that money 



251 



The Wealth of Nations 



is more readily advanced upon them than upon any other species 
of obligation; especially when they are made payable within so 
short a period as two or three monthsafter their date. If, when the 
bill becomes due, the acceptor does not pay it as soon as it is 
presented, he becomes from that moment a bankrupt. The bill is 
protested, and returns upon the drawer, who, if he does not im- 
mediately pay it, becomes likewise a bankrupt. If, before it came 
to the person who presents it to the acceptor for payment, it had 
passed through the hands of several other persons, who had suc- 
cessively advanced to one another the contents of it, either in money 
or goods, and who, to express that each of them had in his turn 
received those contents, had all of them in their order indorsed, 
that is, written their names upon the back of the bill; each in- 
dorser becomes in histurn liableto theowner of the bill for those 
contents, and, if he fails to pay, he becomes too, from that mo- 
ment, a bankrupt. Though the drawer, acceptor, and indorsersof 
the bill, should all of them be persons of doubtful credit; yet, still 
the shortness of the date gives some security to the owner of the 
bill. Though all of them may be very likely to become bankrupts, 
itisachanceif they all becomeso in so short a time. The house is 
crazy, says a weary traveller to himself, and will not stand very 
long; but it isachanceif itfallsto-night, and I will venture, there- 
fore, to sleep in it to-night. 



ThetraderA in Edinburgh, weshall suppose, drawsa bill upon 
B in London, payabletwo monthsafter date. In reality B in Lon- 
don owesnothingtoA in Edinburgh; but he agrees to accept of A 
'sbill, upon condition, that before the term of payment he shall 
redraw upon A in Edinburgh for the same sum, together with the 
interest and a commission, another bill, payable likewise two 
months after date. B accordingly, before theexpiration of thefirst 
two months, redraws this bill upon A in Edinburgh; who, again 
before the expiration of the second two months, draws a second 
bill upon B in London, payable likewise two monthsafter date; 
and before the expiration of the third two months, B in London 
redrawsupon A in Edinburgh another bill payable also two months 
after date. This practice has sometimes gone on, not only for sev- 
eral months, but for several years together, the bill always return- 
ing upon A in Edinburgh with the accumulated interest and com- 
mission of all the former bills. The interest was five per cent, in 
the year, and the commission was never less than one half per 
cent, on each draught. Thiscommission being repeated more than 
sixtimesin theyear, whatever money A might raise by this expe- 
dient might necessarily have cost him something more than eight 
per cent, in theyear and sometimesa great deal more, when either 
the price of the commission happened to rise, or when he was 
obliged to pay compound interest upon the interest and commis- 



252 



Adam Smith 



sion of former bills. This practice was called raising money by 
circulation. 

In a country where the ordinary profits of stock, in the greater 
part of mercantile projects, are supposed to run between six and 
ten per cent, it must have been a very fortunate speculation, of 
which the returns could not only repay the enormous expense at 
which the money was thus borrowed for carrying it on, but af- 
ford, besides, a good surplus profit to the projector. M any vast 
and extensive projects, however, were undertaken, and for several 
years carried on, without any other fund to support them besides 
whatwasraised atthisenormousexpenseTheprojectors, no doubt, 
had in their golden dreams the most distinct vision of this great 
profit. U pon their awakening, however, either at the end of their 
projects, or when they were no longer able to carry them on, they 
very seldom, I believe, had thegood fortuneto find it. 

{The method described in the text was by no means either the 
most common or the most expensive one in which those adven- 
turers sometimes raised money by circulation. It frequently hap- 
pened, that A in Edinburgh would enable B in London to pay the 
first bill of exchange, by drawing, a few days before it became due, 
a second bill at three months date upon the same B in London. 
T his bill, being payable to hisown order, A sold in Edinburgh at 
par; and with its contents purchased bills upon London, payable 



at sight to the order of B, to whom he sent them by the post. 
Towardstheend of thelate war, theexchange between Edinburgh 
and London was frequently three per cent, against Edinburgh, 
and those bills at sight must frequently have cost A that premium. 
This transaction, therefore, being repeated at least four times in 
theyear, and being loaded with a commission of at least one half 
percent, upon each repetition, must at that period have cost A, at 
least, fourteen per cent, in theyear. At other timesA would enable 
to discharge the first bill of exchange, by drawing, a few days be- 
fore it becamedue, a second bill at two months date, not upon B, 
but upon some third person, C, for example, in London. This 
other bill wasmadepayabletotheorderof B, who, upon its being 
accepted by C, discounted itwithsomebankerin London; and A 
enabled C to discharge it, by drawing, afew day's before it became 
due, athird bill likewise at two monthsdate, sometimesupon his 
first correspondent B, and sometimesupon some fourth or fifth 
person, D or E, for example. This third bill was made payable to 
the order of C , who, as soon as it was accepted, discounted it in 
the same manner with some banker in London. Such operations 
being repeated at least six times in theyear, and being loaded with 
a commission of at least one half per cent, upon each repetition, 
together with the legal interest of five per cent, this method of 
raising money, in the same manner as that described in the text, 



253 



The Wealth of Nations 



must have cost A something more than eight per cent. By saving, 
however, the exchange between Edinburgh and London, it was 
less expensive than that mentioned in the foregoing part of this 
note; but then it required an established credit with more houses 
than onein London, an ad vantage which many of these adventur- 
ers could not always find it easy to procure.} 

The bills which A in Edinburgh drew upon B in London, he 
regularly discounted two months before they were due, with some 
bank or banker in Edinburgh; and the bills which B in London 
redrew upon A in Edinburgh, he as regularly discounted, either 
with the Bank of England, or with someother banker in London. 
Whatever was advanced upon such circulating bills was in 
Edinburgh advanced in the paper of the Scotch banks; and in 
London, when they were discounted at the Bank of England in 
the paper of that bank. Though the bills upon which this paper 
had been advanced were all of them repaid in their turn as soon as 
they became due, yet the value which had been really advanced 
upon the first bill was never really returned to the banks which 
advanced it; because, before each bill became due, another bill 
was always drawn to somewhat a greater amount than the bill 
which was soon to be paid: and the discounting of this other bill 
was essentially necessary towards the payment of that which was 
soon to bedue. This payment, therefore, was altogether fictitious. 



Thestream which, by meansof those circulating billsof exchange, 
had oncebeen madeto run out from the coffers of the banks, was 
never replaced by any stream which really ran into them. 

The paper which was issued upon those circulating bills of ex- 
change amounted, upon many occasions, to the whole fund des- 
tined for carrying on some vast and extensive project of agricul- 
ture, commerce, or manufactures; and not merely to that part of 
it which, had there been no paper money, the projector would 
have been obliged to keep by him unemployed, and in ready money, 
for answering occasional demands. T he greater part of this paper 
was, consequently, over and above the value of the gold and silver 
which would have circulated in the country, had there been no 
paper money. It was over and above, therefore, what the circula- 
tion of thecountry could easily absorb and employ, and upon that 
account, immediately returned upon the banks, in order to be 
exchanged for gold and silver, which they were to find as they 
could. It was a capital which those projectors had very artfully 
contrived to draw from those banks, not only without their knowl- 
edge or deliberate consent, but for some time, perhaps, without 
their having the most distant suspicion that they had really ad- 
vanced it. 

When two people, who are continually drawing and redrawing 
upon oneanother, discounttheir billsalwayswith thesamebanker, 



254 



Adam Smith 



hemustimmediately discover what they are about, and see clearly 
that they are trading, not with any capital of their own, but with 
the capital which he advances to them. But this discovery is not 
altogether so easy when they discount their bills sometimes with 
onebanker, and sometimes with another, and when thetwosame 
persons do not constantly draw and redraw upon one another, 
but occasionally run theround of a great circle of projectors, who 
find it for their interest to assist one another in this method of 
raising money and to render it, upon that account, as difficult as 
possible to distinguish between a real and a fictitious bill of ex- 
change, between a bill drawn by a real creditor upon a real debtor, 
and a bill for which there was properly no real creditor but the 
bank which discounted it, nor any real debtor but the projector 
who made use of the money. When a banker had even made this 
discovery, he might sometimes make it too late, and might find 
that he had already discounted the bills of those projectors to so 
great an extent, that, by refusing to discount any more, he would 
necessarily make them all bankrupts; and thus by ruining them, 
might perhaps ruin himself. Forhisown interest and safety, there- 
fore, he might find it necessary, in this very perilous situation, to 
go on for sometime, endeavouring, however, to withdraw gradu- 
ally, and, upon that account, making every day greater and greater 
difficulties about discounting, in order to force these projectors 



by degrees to have recourse, either to other bankers, or to other 
methodsof raising money: so as that hehimself might, as soon as 
possible, get out of the circle. The difficulties, accordingly, which 
theBankof England, which theprincipal bankersin London, and 
which even the more prudent Scotch banks began, after a certain 
time, and when all of them had already gone too far, to make 
about discounting, not only alarmed, but enraged, in the highest 
degree, those projectors. T heir own distress, of which thisprudent 
and necessary reserve of the banks was, no doubt, the immediate 
occasion, they called the distress of the country; and this distress 
of the country, they said, was altogether owing to the ignorance, 
pusillanimity, and bad conduct of the banks, which did notgivea 
sufficiently liberal aid to the spirited undertakings of those who 
exerted themselves in order to beautify, improve, and enrich the 
country. It was the duty of the banks, they seemed to think, to 
lend for as long a time, and to as great an extent, as they might 
wish to borrow. The banks, however, by refusing in this manner 
to give more credit to those to whom they had already given a 
great deal too much, took the only method by which it was now 
possible to save either their own credit, or the public credit of the 
country. 

I n the midst of this clamour and distress, a new bank was estab- 
lished in Scotland, for theexpress purpose of relieving thedistress 



255 



The Wealth of Nations 



of the country. The design was generous; but the execution was 
imprudent, and thenatureand causes of the distress which it meant 
to relieve, werenot, perhaps, well understood. Thisbank wasmore 
liberal than any other had ever been, both in granting cash-ac- 
counts, and in discounting bills of exchange. With regard to the 
latter, it seems to have made scarce any distinction between real 
and circulating bills, but to have discounted all equally. It was the 
avowed principle of this bank to advance upon any reasonable 
security, the whole capital which was to be employed in those 
improvements of which the returns are the most slow and distant, 
such astheimprovementsof land. To promotesuch improvements 
was even said to be the chief of the public-spirited purposes for 
which it was instituted. By itsliberality in granting cash-accounts, 
and in discounting bills of exchange, it, no doubt, issued great 
quantitiesofitsbank notes. But those bank notesbeing, thegreater 
part of them, over and above what the circulation of the country 
could easily absorb and employ, returned upon it, in order to be 
exchanged for gold and silver, as fast as they were issued. Its cof- 
fers were never well filled. The capital which had been subscribed 
to thisbank, at two different subscriptions, amounted to onehun- 
dred and sixty thousand pounds, of which eighty per cent, only 
was paid up.Thissum ought to have been paid in at several differ- 
ent instalments. A great part of the proprietors, when they paid in 



their first instalment, opened a cash-account with the bank; and 
the directors, thinking themselves obliged to treat their own pro- 
prietors with the same liberality with which they treated all other 
men, allowed many of them to borrow upon this cash-account 
what they paid in upon all their subsequent instalments. Such 
payments, therefore, only put into one coffer what had the mo- 
ment before been taken out of another. But had the coffers of this 
bank been filled ever so well, its excessive circulation must have 
emptied them faster than they could have been replenished by any 
other expedient but the ruinous one of drawing upon London; 
and when the bill became due, paying it, together with interest 
and commission, by another draught upon the same place. Its 
coffers having been filled so very ill, it is said to have been driven 
to this resource within a very few months after it began to do 
business. The estates of the proprietors of this bank were worth 
several millions, and, by their subscription to theoriginal bond or 
contract of the bank, were really pledged for answering all its en- 
gagements. By means of the great credit which so great a pledge 
necessarily gave it, it was, notwithstanding its too liberal conduct, 
enabled to carry on business for more than two years. When it was 
obliged to stop, it had in the circulation abouttwo hundred thou- 
sand pounds in banknotes. In order to support the circulation of 
those notes, which were continually returning upon it as fast as 



256 



Adam Smith 



they were issued, it had been constantly in thepractice of drawing 
bills of exchange upon London, of which the number and value 
were continually increasing, and, when itstopt, amounted to up- 
wardsof six hundred thousand pounds.Thisbank, therefore, had, 
in little more than the course of two years, advanced to different 
people upwards of eight hundred thousand pounds at five per 
cent. U pon thetwo hundred thousand pounds which it circulated 
in banknotes, thisfive per cent, might perhaps be considered as a 
clear gain, without any other deduction besides the expense of 
management. But upon upwardsof six hundred thousand pounds, 
for which it wascontinually drawing billsof exchangeupon Lon- 
don, it was paying, in the way of interest and commission, up- 
wards of eight per cent, and was consequently losing more than 
three per cent, upon more than three fourths of all its dealings. 

The operations of thisbankseem to haveproduced effectsquite 
opposite to those which were intended by the particular persons 
who planned and directed it. They seem to have intended to sup- 
port the spirited undertakings, for as such they considered them, 
which were at that timecarrying on i n different parts of the coun- 
try; and, at thesametime, by drawingthewholebanking business 
to themselves, to supplant all the other Scotch banks, particularly 
those established at Edinburgh, whose backwardness in discount- 
ing billsof exchangehad given someoffence.Thisbank, no doubt, 



gave some temporary relief to those projectors, and enabled them 
to carry on their projects for about two years longer than they 
could otherwise have done. But it thereby only enabled them to 
get so much deeper into debt; so that, when ruin came, it fell so 
much the heavier both upon them and upon their creditors T he 
operations of this bank, therefore, instead of relieving, in reality 
aggravated in the long-run the distress which those projectors had 
brought both upon themselves and upon their country. It would 
havebeen much better for them selves, their creditors, and theircoun- 
try, had the greater part of them been obliged to stop two years 
sooner than they actuallydid.Thetemporary relief, however, which 
this bank afforded to those projectors, proved a real and permanent 
relief to theother Scotch banks. All thedealersin circulating billsof 
exchange, which those other bankshad becomeso backward in dis- 
counting, had recourse to this new bank, where they were received 
with open arms. T hose other banks, therefore, were enabled to get 
very easily out of that fatal circle, from which they could not other- 
wise have disengaged themselves without incurring a considerable 
loss, and perhaps, too, even some degree of discredit. 

I n thelong-run, therefore, the operations of this bank increased 
the real distress of the country, which it meant to relieve; and 
effectually relieved, from a very great distress, those rivals whom it 
meant to supplant. 



257 



The Wealth of Nations 



At the first setting out of this bank, it was the opinion of some 
people, that how fast soever its coffers might be emptied, it might 
easily replenish them, by raising money upon the securities of those 
to whom it had advanced its paper. Experience, I believe, soon 
convinced them that this method of raising money was by much 
too slow to answer their purpose; and that coffers which originally 
were so ill filled, and which emptied themselves so very fast, could 
be replenished by no other expedient but theruinousoneof draw- 
ing bills upon London, and when they became due, paying them 
by other draughts on the same place, with accumulated interest 
and commission. But though they had been able by this method 
to raise money as fast as they wanted it, yet, instead of making a 
profit, they must have suffered a loss of every such operation; so 
that in the long-run they must have ruined themselves as a mer- 
cantile company, though perhaps not so soon as by the more ex- 
pensive practice of drawing and redrawing. They could still have 
made nothing by the interest of the paper, which, being over and 
above what the circulation of the country could absorb and em- 
ploy, returned upon them in order to be exchanged for gold and 
silver, as fast as they issued it; and for the payment of which they 
were themselves continually obliged to borrow money. On the 
contrary, thewholeexpenseof thisborrowing, of employing agents 
to look out for people who had money to lend, of negotiating 



with those people, and of drawing the proper bond or assign- 
ment, must have fallen upon them, and have been so much clear 
loss upon the balance of their accounts T he project of replenish- 
ing their coffers in this manner may becompared to that of a man 
who had a water-pond from which a stream was continually run- 
ning out, and into which no stream was continually running, but 
who proposed to keep it always equally full, by employing a num- 
ber of people to go continually with buckets to a well at some 
miles distance, in order to bring water to replenish it. 

But though this operation had proved not only practicable, but 
profitable to the bank, as a mercantile company; yet the country 
could have derived no benefit front it, but, on the contrary, must 
have suffered a very considerable loss by it. T his operation could 
not augment, in the smallest degree, the quantity of money to be 
lent. It could only have erected this bank into a sort of general 
loan office for the whole country. Those who wanted to borrow 
must have applied to this bank, instead of applying to the private 
persons who had lent it their money. But a bank which lends 
money, perhaps to five hundred different people, the greater part 
of whom its directors can know very littleabout, isnot likely to be 
more judicious in the choice of its debtors than a private person 
who lends out his money among a few people whom he knows, 
and in whose sober and frugal conduct he thinks he has good 



258 



Adam Smith 



reason to confide. T he debtors of such a bank as that whose con- 
duct I have been giving some account of were likely, the greater 
part of them, to be chimerical projectors, thedrawersand redrawers 
of circulatin g bills of exchange, who would employ the money in 
extravagant undertakings, which, with all the assistance that could 
be given them, they would probably never be able to complete, 
and which, if they should be completed, would never repay the 
expense which they had really cost, would never afford a fund 
capable of maintaining a quantity of labour equal to that which 
had been employed about them. The sober and frugal debtors of 
private persons, on the contrary, would be more likely to employ 
the money borrowed in sober undertakings which were propor- 
tioned to their capitals, and which, though they might havelessof 
the grand and the marvellous, would have more of the solid and 
the profitable; which would repay with a large profit whatever 
had been laid out upon them, and which would thus afford a 
fund capable of maintaining a much greater quantity of labour 
than that which had been employed about them. The success of 
this operation, therefore, without increasing in the smallest de- 
gree thecapital of thecountry, would only have transferred a great 
part of it from prudent and profitable to imprudent and unprof- 
itable undertakings. 
T hat the industry of Scotland languished for want of money to 



employ it, wastheopinion of thefamous M r Law. By establishing 
a bank of a particular kind, which he seems to have imagined 
might issue paper to the amount of the whole value of all the 
lands in thecountry, he proposed to remedy this want of money. 
The parliament of Scotland, when he first proposed his project, 
did not think proper to adopt it. It was afterwards adopted, with 
some variations, by the D uke of rleans, at that time regent of 
France. T he idea of the possibility of multiplying paper money to 
almost any extent was the real foundation of what is called the 
M ississippi scheme, the most extravagant project, both of bank- 
ing and stock-jobbing, that perhaps the world ever saw. The dif- 
ferent operations of this scheme are explained so fully, so clearly, 
and with so much order and distinctness, byM rDuVerney, in his 
Examination of the Political Reflections upon commerce and fi- 
nances of M r DuTot, that I shall not give any account of them. 
The principles upon which it was founded are explained by M r 
Law himself, in a discourse concerning money and trade, which 
hepublished in Scotland when he first proposed his project. The 
splendid but visionary ideas which are set forth in that and some 
other works upon the same principles, still continue to make an 
impression upon many people, and have, perhaps, in part, con- 
tributed to that excess of banking, which has of late been com- 
plained of, both in Scotland and in other places. 



259 



The Wealth of Nations 



The Bank of England is the greatest bank of circulation in Eu- 
rope. It was incorporated, in pursuanceof an act of parliament, by 
a charter under the great seal, dated the 27th of July 1694. It at 
that time advanced to government the sum of £1,200,000 for an 
annuity of £100,000, or for £ 96,000 a-year, interest at the rateof 
eight per cent, and £4,000 year for the expense of management. 
Thecreditof thenew government, established by the Revolution, 
we may believe, must have been very low, when it was obliged to 
borrow at so high an interest. 

In 1697, the bank was all owed to enlarge its capital stock, by an 
ingraftment of £1,001, 171:10s. Itswholecapital stock, therefore, 
amounted at this time to £2,201,171: 10s. This ingraftment is 
said to have been for the support of public credit. I n 1696, tallies 
had been at forty, and fifty, and sixty, per cent, discount, and bank 
notes at twenty per cent. {|ames Postlethwaite's H istory of the 
Public Revenue, p.301.}During thegreat re-coinageof thesilver, 
which was going on atthistime, the bank had thought proper to 
discontinuethepaymentofitsnotes, which necessarily occasioned 
their discredit. 

In pursuanceof the 7th Anne, c. 7, the bank advanced and paid 
into theexchequer thesum of £400,000; making in all thesum of 
£1,600,000, which it had advanced upon its original annuity of 
£96,000 interest, and £4,000 for expenseof management. I n 1708, 



therefore, thecreditof government was as good as that of private 
persons, since it could borrow at six per cent, interest, the com- 
mon legal and market rate of those times. In pursuance of the 
same act, the bank cancelled exchequer bills to the amount of £ 
1,775,027: 17s: WAti. at six per cent, interest, and was at the 
same time allowed to take in subscriptions for doubling its capi- 
tal. In 1703, therefore, the capital of the bank amounted to 
£4,402,343; and it had advanced to government the sum of 
£3,375,027:17:10y2d. 

By a call of fifteen per cent, in 1709, there was paid in, and 
made stock, £ 656,204:l:9d.; and by another of ten per cent, in 
1710, £501, 448:12:lld. In consequenceof those two calls, there- 
fore, the bank capital amounted to £ 5,559,995:14:8d. 

In pursuance of the 3rd George I. c.8, the bank delivered up 
two millionsof exchequer Billsto be cancelled. It had atthistime, 
therefore, advanced to government £5,375,027:17 lOd. I n pursu- 
ance of the 8th George I. c.21, the bank purchased of the South- 
sea company, stock to theamount of £4,000,000: and in 1722, in 
consequence of the subscriptions which it had taken in for en- 
abling it to make this purchase, its capital stock was increased byf 
3,400,000. Atthistime, therefore, the bank had advanced to the 
public £ 9,375,027 17s. lOVzd.; and its capital stock amounted 
only to £ 8,959,995:14:8d. It was upon this occasion that the 



260 



Adam Smith 



sum which the bank had advanced to the public, and for which it 
received interest, began first to exceed its capital stock, orthesum 
for which it paid a dividend to the proprietors of bank stock; or, 
in other words, thatthebank began to have an undivided capital, 
over and above its divided one. Ithascontinuedtohavean undi- 
vided capital of the same kind ever since. In 1746, the bank had, 
upon different occasions, advanced to the public £11,686,800, 
and its divided capital had been raised by different calls and sub- 
scri ptions to £ 10,780,000. T he state of those two sums has con- 
tinued to bethesameever since. In pursuanceof the4th of George 
III. c.25, the bank agreed to pay to government for the renewal of 
its charter £110,000, without interest or re-payment. This sum, 
therefore did not increase either of those two other sums. 

Thedividend of thebank hasvaried accordingto thevariations 
in the rateof the interest which it has, at different times, recaved 
for the money it had advanced to the public, aswdl as according 
to other circumstances. This rate of interest has gradually been 
reduced from aght to three per cent. For some years past, the 
bank dividend has been at five and a half per cent. 

T he stability of the bank of E ngland is equal to that of the Brit- 
ish government. All that it has advanced to thepublic must belost 
before its creditors can sustain any loss. N o other banking com- 
pany in England can be established by act of parliament, or can 



consist of more than six members. It acts, not only as an ordinary 
bank, but as a great engine of state. Itrecavesand paysthegreater 
part of the annuities which are due to the creditors of the public; 
it circulates exchequer bills; and it advances to government the 
annual amount of the land and malt taxes, which are frequently 
not paid up till some years thereafter. In these different opera- 
tions, itsduty to thepublicmay sometimes haveobliged it, with- 
out any fault of its directors, to overstock the circulation with 
paper money. It likewisediscountsmerchants' bills, and has, upon 
several different occasions, supported the credit of the principal 
houses, not only of England, but of H amburgh and H olland. U pon 
oneoccasion, in 1763, it issaid to have advanced for thispurpose, 
in one week, about £1,600,000, a great part of it in bullion. I do 
not, however, pretend to warrant either the greatness of the sum, 
or the shortness of theti me. Upon other occasions, thisgreat com- 
pany has been reduced to the necessity of paying in sixpences. 

It is not by augmenting the capital of the country, but by ren- 
dering a greater part of that capital active and productive than 
would otherwise be so, that themostjudiciousoperationsof bank- 
ing can increase the industry of the country. That part of hiscapi- 
tal which a dealer is obliged to keep by him unemployed and in 
ready money, for answering occasional demands, isso much dead 
stock, which, so long asitremainsin thissituation, producesnoth- 



261 



The Wealth of Nations 



ing, either to him or to his country. The judicious operations of 
banking enable him to convert this dead stock into active and 
productive stock; into materialsto work upon; into tools to work 
with; and into provisions and subsistence to work for; into stock 
which produces something both to himself and to his country. 
The gold and silver money which circulates in any country and 
by meansof which, the produce of its land and labour isannually 
circulated and distributed to the proper consumers, is, in thesame 
manner astheready money of thedealer, all dead stock. It isavery 
valuable part of the capital of the country, which produces noth- 
ing to the country. The judicious operations of banking, by sub- 
stituting paper in the room of a great part of this gold and silver, 
enablethe country to convert a great part of this dead stock into 
active and productive stock; into stock which produces something 
to the country. The gold and silver money which circulatesin any 
country may very properly becompared to a highway, which, while 
it circulates and carries to market all the grass and corn of the 
country, produces itself not a single pile of either. Thejudicious 
operations of banking, by providing, if I may be allowed so vio- 
lent a metaphor, a sort of waggon-way through theair, enablethe 
country to convert, as it were, a great part of its highways into 
good pastures, and corn fields, and thereby to increase, very con- 
siderably, the annual produce of its land and labour. The com- 



merce and industry of the country, however, it must be acknowl- 
edged, though they may be somewhat augmented, cannot be alto- 
gether so secure, when they are thus, as it were, suspended upon the 
D aedalian wings of paper money, as when they travel about upon 
thesolid ground of gold and silver. Over and above the accidents to 
which they are exposed from theunskilfulness of theconductors of 
this paper money, they are liable to several others, from which no 
prudence or skill of those conductors can guard them. 

An unsuccessful war, for example, in which the enemy got pos- 
session of the capital, and consequently of that treasure which 
supported the credit of the paper money, would occasion a much 
greater confusion in a country where the whole circulation was 
carried on by paper, than in one where the greater part of it was 
carried on by gold and silver. The usual instrument of commerce 
having lost its value, no exchanges could be made but either by 
barter or upon credit. All taxes having been usually paid in paper 
money, the prince would not have wherewithal either to pay his 
troops, or to furnish his magazines; and the state of the country 
would be much more irretrievable than if the greater part of its 
circulation had consisted in gold and silver. A prince, anxious to 
maintain his dominions at all times in the state in which he can 
most easily defend them, ought upon this account to guard not 
only against that excessive multiplication of paper money which 



262 



Adam Smith 



ruinstheverybankswhich issueit, but even against that multipli- 
cation of it which enables them to fill thegreater part of thecircu- 
lation of the country with it. 

The circulation of every country may be considered as divided 
into two different branches; the circulation of the dealers with 
oneanother, and thecirculation between thedealersand thecon- 
sumers.T hough thesame pieces of money, whether paper or metal, 
may be employed sometimes in the one circulation and some- 
timesintheother;yetasboth are constantly going on at thesame 
time, each requires a certain stock of money, of one kind or an- 
other, to carry it on. The value of the goods circulated between 
the different dealers never can exceed the valueof those circulated 
between thedealersand theconsumers; whatever isbought by the 
deal ers being ultimately destined to be sold to theconsumers. The 
circulation between the dealers, as it is carried on by wholesale, 
requires generally a pretty large sum for every particular transac- 
tion. That between the dealers and the consumers, on the con- 
trary, as it isgenerally carried on by retail, frequently requires but 
very small ones, a shilling, or even a halfpenny, being often suffi- 
cient. But small sums circulate much faster than large ones. A 
shilling changes masters more frequently than a guinea, and a 
halfpenny more frequently than a shilling. Though the annual 
purchases of all theconsumers, therefore, are at least equal in value 



to those of all the dealers, they can generally be transacted with a 
much smaller quanti ty of money; thesamepieces, byamore rapid 
circulation, serving as the instrument of many more purchases of 
the one kind than of the other. 

Paper money may be so regulated as either to confine itself very 
much to the circulation between the different dealers, or to ex- 
tend itself likewise to a great part of that between the dealers and 
the consumers. Where no bank notes are circulated under £10 
value, as in London, paper money confines itself very much to the 
circulation between the dealers. When a ten pound bank note 
comes into the hands of a consumer, he is generally obliged to 
change it at the first shop where he has occasion to purchase five 
shillings worth of goods; so that it often returns into the hands of 
a dealer before the consumer has spent the fortieth part of the 
money. W here bank notes are issued for so small sumsas20s. asin 
Scotland, paper money extends itself to a considerable part of the 
circulation between dealers and consumers. Before the Act of par- 
liament which put a stop to thecirculation often and five shilling 
notes, it filled a still greater part of that circulation. In thecurren- 
cies of N orth America, paper was commonly issued for so small a 
sum as a shilling, and filled almost the whole of that circulation. 
In some paper currencies of Yorkshire, it was issued even for so 
small a sum as a sixpence. 



263 



The Wealth of Nations 



Where the issuing of bank notes for such very small sums is al- 
lowed, and commonly practised, many mean people are both en- 
abled and encouraged to become bankers. A person whose promis- 
sory note for £5, or even for 20s. would be rejected by every body, 
will get it to be received without scruple when it is issued for so 
small a sum as a sixpence. But thefrequent bankruptcies to which 
such beggarly bankersmust beliable, may occasion a very consider- 
able inconveniency, and sometimes even a very great calamity, to 
many poor people who had received their notesin payment. 

It were better, perhaps, that no bank notes were issued in any 
partofthekingdom for a smaller sum than f 5. Paper money would 
then, probably, confine itself, in every part of the kingdom, to the 
circulation between the different dealers, as much as it does at 
present in London, where no bank notes are issued under £10 
value; £5 being, in most part of thekingdom, a sum which, though 
itwill purchase, perhaps, littlemorethan half the quantity of goods, 
is as much considered, and is as seldom spent all at once, as £10 
are amidst the profuse expense of London. 

W here paper money, it is to be observed, is pretty much con- 
fined to thecirculation between dealers and dealers, as at London, 
there is always plenty of gold and silver. Where it extends itself to 
a considerable part of the circulation between dealers and con- 
sumers, as in Scotland, and still more in North America, it ban- 



ishes gold and silver almost entirely from the country; almost all 
the ordinary transactions of its interior commerce being thus car- 
ried on by paper. The suppression often and five shilling bank 
notes, somewhat relieved the scarcity of gold and silver in Scot- 
land; and the suppression of twenty shilling notes will probably 
relieve it still more. Those metals are said to have become more 
abundant in America, since the suppression of some of their pa- 
per currencies. They are said, likewise, to have been more abun- 
dant before the institution of those currencies. 

Though paper money should be pretty much confined to the 
circulation between dealers and dealers, yet banks and bankers 
might still be able to give nearly the same assistance to theindus- 
try and commerce of the country, as they had done when paper 
money filled almost the wholecirculation. The ready money which 
a dealer is obliged to keep by him, for answering occasional de- 
mands, is destined altogether for thecirculation between himself 
and other dealers of whom he buys goods. H e has no occasion to 
keep any by him for thecirculation between himself and the con- 
sumers, who are his customers, and who bring ready money to 
him, instead of taking any from him. Though no paper money, 
therefore, was allowed to be issued, but for such sums as would 
confineit pretty much to thecirculation between dealers and deal- 
ers; yet partly by discounting real bills of exchange, and partly by 



264 



Adam Smith 



lending upon cash-accounts, banks and bankers might still beable 
to relieve the greater part of those dealers from the necessity of 
keeping any considerablepart of their stock by them unemployed, 
and in ready money, for answering occasional demands. They might 
still beableto give theutmost assistance which banks and bankers 
can with propriety give to traders of every kind. 

To restrain private people, it may be said, from receiving in pay- 
ment the promissory notesof a banker for any sum, whether great 
or small, when they themselves are willing to receive them; or, to 
restrain a banker from issuing such notes, when all hisneighbours 
are willing to accept of them, isa manifest violation of that natu- 
ral liberty, which it is the proper business of law not to infringe, 
but to support. Such regulations may, no doubt, be considered as 
in some respect a violation of natural liberty. But those exertions 
of the natural liberty of afew individuals, which might endanger 
the security of the whole society, are, and ought to be, restrained 
by the laws of all governments; of the most free, as well as or the 
most despotical. The obligation of building party walls, in order 
to prevent the communication of fire, is a violation of natural 
liberty, exactly of the same kind with the regulations of the bank- 
ing trade which are here proposed. 

A paper money, consisting in bank notes, issued by people of 
undoubted credit, payable upon demand, without any condition, 



and, in fact, always readily paid as soon as presented, is, in every 
respect, equal in value to gold and silver money, since gold and 
silver money can at anytime behad for it. W hatever iseither bought 
or sold for such paper, must necessarily be bought or sold as cheap 
as it could have been for gold and silver. 

The increase of paper money, it has been said, by augmenting 
thequantity, andconsequentlydiminishingthevalue, ofthewhole 
currency, necessarily augments the money price of commodities. 
But as the quantity of gold and silver, which is taken from the 
currency, is always equal to the quantity of paper which is added 
to it, paper money does not necessarily increase the quantity of 
the whole currency. From the beginning of the last century to the 
present time, provisions never were cheaper in Scotland than in 
1759, though, from the circulation often and five shilling bank 
notes, there was then more paper money in the country than at 
present. T he proportion between the price of provisions in Scot- 
land and that in England isthesamenow as before the great mul- 
tiplication of banking companies in Scotland. Corn is, upon most 
occasions, fully as cheap in England asin France, though thereis 
a great deal of paper money in England, and scarce any in France. 
I n 1751 and 1752, when M r H ume published his Political D is- 
courses, and soon after thegreat multiplication of paper money in 
Scotland, there was a very sensible rise in the price of provisions, 



265 



The Wealth of Nations 



owing, probably, to the badness of the seasons, and not to the 
multiplication of paper money. 

It would be otherwise, indeed, with a paper money, consisting 
in promissory notes, of which the immediate payment depended, 
in any respect, either upon thegood will of those who issued them, 
or upon a condition which the holder of the notes might not al- 
ways have it in his power to fulfil, or of which the payment was 
not exigibletill after a certain number of years, and which, in the 
mean time, boreno interest. Such a paper money would, no doubt, 
fall more or less below the value of gold and silver, according as 
thedifficulty or uncertainty of obtaining immediatepayment was 
supposed to be greater or less, or according to the greater or less 
distance of time at which payment was exigible. 

Some years ago the different banking companies of Scotland 
were in the practice of inserting into their bank notes, what they 
called an optional clause; by which they promised payment to the 
bearer, either as soon as the note should be presented, or, in the 
option of the directors, six months after such presentment, to- 
gether with the legal interest for thesaid six months. T hedirectors 
of someof those banks sometimes took advantageofthisoptional 
clause, and sometimes threatened those who demanded gold and 
silver in exchange for a considerable number of their notes, that 
they would take advantage of it, unless such demanders would 



content themselves with a part of what they demanded . T he prom- 
issory notes of those banking companies constituted, at that time, 
the far greater part of the currency of Scotland, which this uncer- 
tainty of payment necessarily degraded below value of gold and 
silver money. D uring the continuance of this abuse (which pre- 
vailed chiefly in 1762, 1763, and 1764), while the exchange be- 
tween London and Carlisle was at par, that between London and 
D umfries would sometimes be four per cent, against D umfries, 
though this town is not thirty miles distant from Carlisle. But at 
Carlisle, bills were paid in gold and silver; whereas at Dumfries 
they were paid in Scotch bank notes; and the uncertainty of get- 
tingthese bank notes exchanged for gold and silver coin, had thus 
degraded them four per cent, below the value of that coin. The 
sameactof parliament which suppressed ten and five shilling bank 
notes, suppressed likewise this optional clause, and thereby re- 
stored the exchange between England and Scotland to its natural 
rate, or to whatthecourseof tradeand remittances might happen 
to make it. 

In the paper currencies of Yorkshire, the payment of so small a 
sum as 6d. sometimes depended upon the condition, that the 
holder of the note should bring the change of a guinea to the 
person who issued it; a condition which the holders of such notes 
might frequently find it very difficult to fulfil, and which must 



266 



Adam Smith 



have degraded this currency below the value of gold and silver 
money. An act of parliament, accordingly declared all such clauses 
unlawful, and suppressed, in the same manner as in Scotland, all 
promissory notes, payable to the bearer, under 20s. value. 

The paper currencies of North America consisted, not in bank 
notes payable to the bearer on demand, but in a government pa- 
per, of which the payment was not exigibletill several years after it 
was issued; and though the colony governments paid no interest 
to the holders of this paper, they declared it to be, and in fact 
rendered it, a legal tender of payment for the full valuefor which 
it wasissued. But allowing thecolony security to be perfectly good, 
£100, payable fifteen yearshence, for example, in a country where 
interest is at six per cent., is worth little more than £40 ready 
money. To oblige a creditor, therefore, to accept of this as full 
payment for a debt of £100, actually paid down in ready money, 
was an act of such violent injustice, as has scarce, perhaps, been 
attempted by the government of any other country which pre 
tended to be free. It bears the evident marksof having originally 
been, what the honest and downright D octor D ouglas assures us 
it was, a schemeof fraudulent debtors to cheat their creditors. T he 
government of Pennsylvania, indeed, pretended, upon their first 
emission of paper money, in 1722, to render their paper of equal 
value with gold and silver, by enacting penalties against all those 



who made any difference in the price of their goods when they 
sold them for a colony paper, and when they sold them for gold 
and silver, a regulation equally tyrannical, but much less, effec- 
tual, than that which it was meant to support. A positive law may 
render a shilling a legal tender for a guinea, because it may direct 
the courts of justice to discharge the debtor who has made that 
tender; but no positive law can oblige a person who sells goods, 
and who isat liberty to sell or not to sell as he pleases, to accept of 
a shilling as equivalent to a guinea in the price of them. N otwith- 
standing any regulation of thiskind, it appeared, bythecourseof 
exchange with Great Britain, that £100 sterling was occasionally 
considered as equivalent, in some of the colonies, to £130, and in 
otherstosogreatasum as £1100 currency; this difference in the 
valuearisingfrom thedifferencein thequantity of paper emitted 
in the different colonies, and in the distance and probability of 
theterm of its final discharge and redemption. 

N o law, therefore, could be more equitable than the act of par- 
liament, so unjustly complained of in thecolonies, which declared, 
that no paper currency to be emitted therein timecoming, should 
be a legal tender of payment. 

Pennsylvania was always more moderate in its emissions of pa- 
per money than any other of our colonies. Its paper currency, ac- 
cordingly, is said never to have sunk bdow the value of the gold 



267 



The Wealth of Nations 



and silver which was current in the colony before the first emis- 
sion of its paper money. Before that emission, thecolony had raised 
thedenomination of its coin, and had, by act of assembly, ordered 
5s. sterling to pass in the colonies for 6s:3d., and afterwards for 
6s:8d. A pound, colony currency, therefore, even when that cur- 
rency was gold and silver, was more than thirty per cent, below 
the value of £1 sterling; and when that currency was turned into 
paper, it was seldom much more than thirty per cent, below that 
value. Thepretence for raising thedenomination of thecoin was 
to prevent the exportation of gold and silver, by making equal 
quantities of those metals pass for greater sums in thecolony than 
they did in the mother country. It was found, however, that the 
price of all goods from the mother country rose exactly in propor- 
tion as they raised the denomination of their coin, so that their 
gold and silver were exported as fast as ever. 

The paper of each colony being received in the payment of the 
provincial taxes, for the full value for which it had been issued, it 
necessarily derived from this use some additional value, over and 
above what it would have had, from the real or supposed distance 
oftheterm of its final discharge and redemption. Thisadditional 
value was greater or less, according asthequantity of paper issued 
was more or I ess above what could be employed in the payment of 
the taxes of the particular colony which issued it. It was in all the 



colonies very much above what could be employed in this man- 
ner. 

A prince, who should enact that a certain proportion of histaxes 
should be paid in a paper money of a certain kind, might thereby 
give a certain value to this paper money, even though the term of 
its final discharge and redemption should depend altogether upon 
the will of the prince. If the bank which issued this paper was 
careful to keep the quantity of it always somewhat below what 
could easily be employed in thismanner, thedemand for it might 
be such as to make it even bear a premium, or sell for somewhat 
moreinthemarketthanthequantity of gold or silver currency for 
which itwasissued.Somepeopleaccountin thismanner for what 
iscalled theagio of thebank of Amsterdam, or for the superiority 
of bank money over current money, though this bank money, as 
they pretend, cannot betaken out of the bank at the will of the 
owner. T he greater part of foreign bills of exchange must be paid 
in bank money, that is, by a transfer in the books of the bank; and 
the directors of thebank, they allege, are careful to keep thewhole 
quantity of bank money always below what this use occasions a 
demand for. It is upon this account, they say, thebank money sells 
for a premium, or bears an agio of four or five per cent, above the 
samenominal sum of thegold and silver currency of the country. 
This account of thebank of Amsterdam, however, it will appear 



268 



Adam Smith 



hereafter, is in a great measure chimerical. 

A paper currency which falls below the value of gold and silver 
coin, does not thereby sink the value of those metals, or occasion 
equal quantities of them to exchange for a smaller quantity of 
goods of any other kind. The proportion between the value of 
gold and silver and that of goods of any other kind, depends in all 
cases, not upon the nature and quantity of any particular paper 
money, which may be current in any particular country, but upon 
the richness or poverty of the mines, which happen at any par- 
ticular time to supply the great market of the commercial world 
with those metals. It depends upon the proportion between the 
quantity of labour which is necessary in order to bring a certain 
quantity of gold and silver to market, and that which is necessary 
in order to bring thither a certain quantity of any other sort of 
goods. 

If bankers are restrained from issuing any circulating bank notes, 
or notes payable to the bearer, for less than a certain sum; and if 
they are subjected to the obligation of an immediate and uncon- 
ditional payment of such bank notes as soon as presented, their 
trade may, with safety to the public, be rendered in all other re 
spects perfectly free. The late multiplication of banking compa- 
niesin both parts of theunited kingdom, an event by which many 
people have been much alarmed, instead of diminishing, increases 



the security of the public. It obliges all of them to be more cir- 
cumspect in their conduct, and, by not extending their currency 
beyond itsdue proportion to their cash, to guard them selves against 
those malicious runs, which therivalship of so many competitors 
is always ready to bring upon them. It restrains the circulation of 
each particular company within a narrower circle, and reduces 
their circulating notes to a smaller number. By dividing the whole 
circulation into a greater number of parts, the failure of any one 
company, an accident which, in the course of things, must some- 
times happen, becomes of less consequence to the public. This 
free competition, too, obliges all bankers to be more liberal in 
their dealings with their customers, lest their rivals should carry 
them away. In general, if any branch of trade, or any division of 
labour, be advantageous to the public, thefreerand more general 
the competition, it will always be the more so. 



269 



The Wealth of Nations 



CHAPTER III 

OFTHE ACCUMULATION OF CAPITAL, 
OR OF PRODUCTIVE AND UNPRODUC- 
TIVE LABOUR 

There is one sort of labour which adds to the value of the sub- 
jectupon which it is bestowed; there is an other which hasnosuch 
effect. T he former as it produces a value, may be called produc- 
tive, thelatter, unproductivelabour. ■(BomeFrench authors of great 
learningand ingenuity haveused those wordsinadifferent sense. 
I n the last chapter of the fourth book, I shall endeavour to shew 
that their sense is an improper one.}T hus the labour of a manu- 
facturer addsgenerally to thevalueofthematerials which heworks 
upon, that of hisown maintenance, and of his master's profit. T he 
labour of a menial servant, on the contrary, adds to the value of 
nothing.Thoughthemanufacturerhashiswagesadvancedtohim 
by hismaster, hein reality costshim no expense, thevalueof those 
wages being generally restored, together with a profit, in the im- 
proved value of the subject upon which his labour is bestowed. 
But the maintenance of a menial servant never is restored. A man 
grows rich by employing a multitude of manufacturers; he grows 
poor by maintaining a multitude or menial servants. The labour 



of thelatter, however, has its value, and deserves its reward as well 
asthatoftheformer. But the labour of the manufacturer fixes and 
realizes itself in some particular subject or vendible commodity, 
which lasts for some time at least after that labour ispast. Itis, as 
it were, a certain quantity of labour stocked and stored up, to be 
employed, if necessary, upon some other occasion. That subject, 
or, what is the same thing, the price of that subject, can after- 
wards, if necessary, put into motion a quantity of labour equal to 
that which had originally produced it. The labour of the menial 
servant, on the contrary, does not fix or realize itself in any par- 
ticular subject or vendiblecommodity H is services generally per- 
ish in the very instant of their performance, and seldom leave any 
trace of value behind them, for which an equal quantity of service 
could afterwards be procured. 

The labour of someof the most respectable orders in thesociety 
is, like that of menial servants, unproductive of any value, and 
does not fix or realize itself in any permanent subject, or vendible 
commodity, which endures after that labour ispast, and for which 
an equal quantity of labour could afterwards be procured. The 
sovereign, for example, with all the officers both of justiceand war 
whoserveunderhim,thewholearmyand navy, are unproductive 
labourers. T hey are the servants of the public, and aremaintained 
by a part of the annual produce of the industry of other people. 



270 



Adam Smith 



Their service, how honourable, how useful, or how necessary soever, 
producesnothingfor which an equal quantity of service can after- 
wards be procured. The protection, security, and defence, of the 
commonwealth, the effect of their labour this year, will not pur- 
chase its protection, security, and defence, for the year to come. In 
the same class must be ranked, some both of the gravest and most 
important, and some of the most frivolous professions; church- 
men, lawyers, physicians, men of letters of all kinds; players, buf- 
foons, musicians, opera-singers, opera-dancers, etc. The labour of 
the meanest of these has a certain value, regulated by the very 
same principles which regulate that of every other sort of labour; 
and that of the noblest and most useful, produces nothing which 
could afterwards purchase or procure an equal quantity of labour. 
Like the declamation of the actor, the harangue of the orator, or 
the tune of the musician, the work of all of them perishes in the 
very instant of its production. 

Both productive and unproductive labourers, and those who do 
not labour at all, are all equally maintained by theannual produce 
of the land and labour of the country. This produce, how great 
soever, can never beinfinite, but must have certain limits. Accord- 
ing, therefore, asa smaller or greater proportion of it isin any one 
year employed in maintaining unproductive hands, the more in 
theonecase, and thelessin theother, will remain fortheproduc- 



tive, and the next year's produce will be greater or smaller accord- 
ingly; the whole annual produce, if we except the spontaneous 
productions of the earth, being the effect of productive labour. 

Though the whole annual produce of the land and labour of ev- 
ery country is no doubt ultimately destined for supplying the con- 
sumption of its inhabitants, and for procuring a revenue to them; 
yetwhenitfirstcomeseitherfromtheground,orfromthehandsof 
the productive labourers, it naturally divides itself into two parts. 
One of them, and frequently the largest, is, in the first place, des- 
tined for replacing a capital, or for renewing the provisions, materi- 
als, and finished work, which had been withdrawn from a capital; 
theother for constituting a revenueeither to theowner of thiscapi- 
tal, as the profit of his stock, or to some other person, as the rent of 
hisland.Thus, of the produce of land, one part replaces the capital 
of thefarmer; the other pays his profit and the rent of the landlord; 
and thus constitutes a revenue both to the owner of this capital, as 
the profits of his stock, and to some other person as the rent of his 
land. Of the produce of a great manufactory, in the same manner, 
one part, and that always the largest, replaces the capital of the un- 
dertaker of the work; theother pays his profit, and thus constitutes 
a revenue to theowner of this capital. 

T hat part of the annual produce of the land and labour of any 
country which replaces a capital, never is immediately employed 



271 



The Wealth of Nations 



to maintain any but productive hands. It pays the wages of pro- 
ductive labour only. T hat which is immediately destined for con- 
stituting a revenue, either as profit or as rent, may maintain indif- 
ferently either productive or unproductive hands. 

Whatever part of hisstockaman employs asa capital, healways 
expects it to be replaced to him with a profit. H e employs it, there- 
fore, in maintaining productivehandsonly; and after having served 
in the function of a capital to him, it constitutes a revenue to 
them. W henever heemploysany part of it in maintaining unpro- 
ductive hands of any kind, that part is from that moment with- 
drawn from hiscapital, and placed in hisstock reserved for imme- 
diate consumption. 

Unproductive labourers, and those who do not labour at all, are 
all maintained by revenue; either, first, by that part of the annual 
produce which isoriginally destined for constituting a revenue to 
some particular persons, either as therent of land, or as theprofits 
of stock; or, secondly, by that part which, though originally des- 
tined for replacing a capital, and for maintaining productive 
labourers only, yet when it comes into their hands, whatever part 
of it is over and above their necessary subsistence, may be em- 
ployed in maintaining indifferently either productive or unpro- 
ductive hands Thus, not only the great landlord or the rich mer- 
chant, but even the common workman, if his wages are consider- 



able, may maintain a menial servant; or hemay sometimes go to a 
play or a puppet-show, and so contribute his share towards main- 
taining one set of unproductive labourers; or he may pay some 
taxes, and thus help to maintain another set, more honourable 
and useful, indeed, but equally unproductive. No part of the an- 
nual produce, however, which had been originally destined to re- 
place a capital, isever directed towardsmaintaining unproductive 
hands, till after it has put into motion its full complement of pro- 
ductive labour, or all that it could put into motion in the way in 
which it was employed. Theworkman musthave earned hiswages 
by work done, before he can employ any part of them in this 
manner. That part, too, isgenerally but a small one. Itishisspare 
revenue only, of which productive labourers have seldom a great 
deal. They generally have some, however; and in the payment of 
taxes, the greatness of their number may compensate, in some 
measure, the smal In ess of their contribution. Therent of land and 
the profits of stock are everywhere, therefore, theprincipal sources 
from which unproductive hands derive their subsistence. These 
are the two sorts of revenue of which the owners have generally 
most to spare. They might both maintain indifferently, either pro- 
ductiveor unproductivehands.They seem, however, to have some 
predilection for the latter. T heexpenseof a great lord feedsgen er- 
ally moreidlethan industriouspeopleTherich merchant, though 



272 



Adam Smith 



with his capital he maintains industrious people only, yet by his 
expense, that is, by the employment of his revenue, hefeedscom- 
monly the very same sort as the great lord. 

The proportion, therefore, between the productive and unpro- 
ductivehands, dependsverymuch in every country upon thepro- 
portion between that part of the annual produce, which, as soon 
as it comes either from the ground, or from the hands of the pro- 
ductive labourers, isdestined for replacing a capital, and that which 
is destined for constituting a revenue, either as rent or as profit. 
This proportion is very different in rich from what it is in poor 
countries. 

Thus, at present, in the opulent countries of Europe, a very 
large, frequently the largest, portion of the produce of the land, is 
destined for replacing the capital of the rich and independent 
farmer; the other for paying his profits, and the rent of the land- 
lord. But anciently, during the prevalency of the feudal govern- 
ment, a very small portion of the produce was sufficient to replace 
the capital employed in cultivation. It consisted commonly in a 
few wretched cattle, maintained altogether by the spontaneous 
produce of uncultivated land, and which might, therefore, becon- 
sidered as a part of that spontaneous produce. It generally, too, 
belonged to the landlord, and was by him advanced totheoccupi- 
ers of the land. All the rest of the produce properly belonged to 



him too, either as rent for his land, or as profit upon this paltry 
capital. The occupiers of land were generally bond-men, whose 
per sonsand effects were equally hisproperty Those who were not 
bond-men were tenants at will; and though the rent which they 
paid was often nominally little more than a quit-rent, it really 
amounted to the whole produce of the land. Their lord could at 
all times command their labour in peace and their service in war. 
Though they lived at a distance from his house, they were equally 
dependent upon him ashisretainerswho lived in it. Butthewhole 
produce of the land undoubtedly bdongsto him, who can dis- 
pose of the labour and service of all those whom it maintains. In 
the present state of Europe, the share of the landlord sddom ex- 
ceedsathird, sometimes not a fourth part of thewholeproduceof 
the land. T he rent of land, however, in all the improved parts of 
thecountry, has been tripled and quadrupled si nee those ancient 
times; and this third or fourth part of the annual produce is, it 
seems, threeor four times greater than thewholehad been before. 
I n the progress of improvement, rent, though it increases in pro- 
portion to the extent, diminishesin proportion to the produce of 
the land. 

I n the opulent countries of E urope, great capitals are at present 
employed in tradeand manufactures. In theancient state, thelittle 
trade that was stirring, and the few homdy and coarse manufac- 



273 



The Wealth of Nations 



tu res that were carried on, required but very small capitals. These, 
however, must have yielded very large prof its. The rate of interest 
was nowhere less than ten per cent, and their profits must have 
been sufficient to afford this great interest. At present, the rate of 
interest, in the improved parts of Europe, is nowhere higher than 
six per cent.; and in some of the most improved, it is so low as 
four, three, and two per cent. T hough that part of the revenue of 
the inhabitants which is derived from the profits of stock, is al- 
ways much greater in rich than in poor countries, it is because the 
stock is much greater; in proportion to the stock, the profits are 
generally much less. 

That part of theannual produce, therefore, which, as soon asit 
comes either from the ground, or from the hands of the produc- 
tive labourers, isdestined for replacing a capital, isnot only much 
greater in rich than in poor countries, but bears a much greater 
proportion to that which isimmediately destined for constituting 
a revenue either as rent or as profit. The funds destined for the 
maintenance of productive labour are not only much greater in 
the former than in the latter, but bear a much greater proportion 
to those which, though they may be employed to maintain either 
productive or unproductive hands, have generally a predilection 
for the latter. 

Theproportion between those different funds necessarily deter- 



minesin every country the general character of the in habitants as 
to industry or idleness. We are more industrious than our forefa- 
thers, because, in the present times, the funds destined for the 
maintenanceof industry aremuch greater in proportion to those 
which are likely to be employed in the maintenance of idleness, 
than they were two or three centuries ago. Our ancestors were idle 
for want of a sufficient encouragement to industry. It is better, 
says the proverb, to play for nothing, than to work for nothing. I n 
mercantileand manufacturing towns, where the inferior ranksof 
peopleare chiefly maintained by the employment of capital, they 
are in general industrious, sober, and thriving; as in many En- 
glish, and in most D utch towns. In those townswhich areprinci- 
pally supported bytheconstant or occasional residence of a court, 
and in which the inferior ranks of people are chiefly maintained 
bythespending of revenue, theyarein general idle, dissolute, and 
poor; as at Rome, Versailles, Compeigne, and Fontainbleau. If 
you except Rouen and Bourdeaux, there is littletrade or industry 
in any of the parliament towns of France; and theinferior ranksof 
people, being chiefly maintained by the expense of the members 
of the courts of justice, and of those who come to plead before 
them, are in general idle and poor. The great trade of Rouen and 
Bourdeaux seems to be altogether the effect of their situation. 
Rouen isnecessarilytheentrepot of almost all thegoodswhich are 



274 



Adam Smith 



brought either from foreign countries, orfrom the maritime prov- 
inces of France, for the consumption of the great city of Paris. 
Bourdeauxis, in the same manner, theentrepotof thewines which 
grow upon th e banks of theGarronne, and of theri vers which run 
into it, one of the richest wine countries in the world, and which 
seemsto produce the winefittest for exportation, or best suited to 
the taste of foreign nations. Such advantageous situations neces- 
sarily attract a great capital by the great employment which they 
afford it; and the employment of this capital is the cause of the 
industry of those two cities. In the other parliament towns of 
France, very little more capital seemsto be employed than what is 
necessary for supplyingth eirown consumption; that is, littlemore 
than the smallest capital which can be employed in them. The 
same thing may be said of Paris, Madrid, and Vienna. Of those 
three cities, Paris is by far the most industrious, but Paris itself is 
the principal market of all the manufactures established at Paris, 
and its own consumption is the principal object of all the trade 
which it carries on. London, Lisbon, and Copenhagen, are, per- 
haps, the only three cities in Europe, which are both the constant 
residence of a court, and can at the same time be considered as 
trading cities, or as cities which trade not only for their own con- 
sumption, but for that of other cities and countries. T hesituation 
of all the three is extremely advantageous, and naturally fits them 



to be the entrepots of a great part of the goods destined for the 
consumption of distant places. I n a city where a great revenue is 
spent, to employ with advantage a capital for any other purpose 
than for supplying theconsumption of that city, isprobably more 
difficultthan in onein which theinferior ranks of peoplehaveno 
other maintenance but what they derive from the employment of 
such a capital. T he idleness of the greater part of the people who 
are maintained by theexpenseof revenue, corrupts, it is probable, 
the industry of those who ought to be maintained by the employ- 
ment of capital, and renders it lessadvantageousto employ a capi- 
tal there than in other places. There was little trade or industry in 
Edinburgh before the Union. When the Scotch parliament was 
no longer to be assembled in it, when it ceased to be the necessary 
residence of the principal nobility and gentry of Scotland, it be- 
cameacityof sometradeand industry. It still continues, however, 
to bethe residence of the principal courts of justice in Scotland, of 
the boards of customs and excise, etc. A considerable revenue, 
therefore, still continuestobespentin it. In tradeand industry, it 
is much inferior to Glasgow, of which the inhabitants are chiefly 
maintained by the employment of capital. The inhabitants of a 
large village, it has sometimes been observed, after having made 
considerableprogressin manufactures, havebecomeidleand poor, 
in consequence of a great lord's having taken up his residence in 



275 



The Wealth of Nations 



their neighbourhood. 

The proportion between capital and revenue, therefore, seems 
everywhere to regulate theproportion between industry and idle- 
ness Wherever capital predominates, industry prevails; wherever 
revenue, idleness. Every increase or diminution of capital, there- 
fore, naturally tends to increase or diminish the real quantity of 
industry, the number of productive hands, and consequently the 
exchangeable value of theannual produce of the land and labour 
of the country, the real wealth and revenue of all its inhabitants. 

Capitals are increased by parsimony, and diminished by prodi- 
gality and misconduct. 

W hatever a person saves from his revenue he addsto hiscapital, 
and either employs it himself in maintaining an additional num- 
ber of productive hands, or enables some other person to do so, 
by lending it to him for an interest, that is, for a share of the 
profits. As the capital of an individual can be increased only by 
what he saves from his annual revenue or his annual gains, so the 
capital of a society, which isthesamewith that of all theindividu- 
als who compose it, can be increased only in the same manner. 

Parsimony, and not industry, istheimmediatecauseof theincrease 
of capital. Industry, indeed, provides the subject which parsimony 
accumulates; but whatever industry might acquire, if parsimony did 
not save and store up, the capital would never be the greater. 



Parsimony, by increasing thefund which isdestined for themain- 
tenance of productive hands, tendsto increase thenumber of those 
handswhoselabour addsto thevalueofthesubject upon winch it 
is bestowed. It tends, therefore, to increase theexchangeablevalue 
of the annual produce of the land and labour of the country. It 
puts into motion an additional quantity of industry, which gives 
an additional value to theannual produce. 

What is annually saved, is as regularly consumed aswhatisan- 
nually spent, and nearly in the same time too: but it is consumed 
by a different set of people. T hat portion of his revenue which a 
rich man annually spends, is, in most cases, consumed by idle 
guests and menial servants, who leave nothing behind them in 
return for their consumption. That portion which he annually 
saves, as, for the sake of the profit, it isimmediately employed asa 
capital, is consumed in the same manner, and nearly in the same 
time too, but by a different set of people: by labourers, manufac- 
turers, and artificers, who reproduce, with a profit, the value of 
their annual consumption. His revenue, we shall suppose, is paid 
him in money. Had he spent the whole, the food, clothing, and 
lodging, which thewholecould have purchased, would have been 
distributed among theformer set of people. By saving a part of it, 
as that part is, for the sake of the profit, immediately employed as 
a capital, either by himsdf or by some other person, the food, 



276 



Adam Smith 



clothing, and lodging, which may be purchased with it, areneces- 
sarily reserved for the latter. Theconsumption isthesame, butthe 
consumers are different. 

By what a frugal man annually saves, he not only affords main- 
tenance to an additional number of productive hands, for that of 
the ensuing year, but like the founder of a public work-house he 
establishes, as it were, aperpetual fund for themaintenanceof an 
equal number in all times to come. The perpetual allotment and 
destination of this fund, indeed, is not always guarded by any 
positive law, by any trust-right or deed of mortmain. Itisalways 
guarded, however, by a very powerful principle, theplain and evi- 
dent interest of every individual to whom any shareof it shall ever 
belong. N o part of it can ever afterwards beemployed to maintain 
any but productive hands, without an evident loss to the person 
who thus perverts it from its proper destination. 

The prodigal perverts it in this manner: By not confining his 
expense within his income, he encroaches upon his capital. Like 
him who perverts the revenues of some pious foundation to pro- 
fanepurposes, hepaysthewages of idleness with thosefunds which 
the frugality of his forefathers had, as it were, consecrated to the 
maintenance of industry. By diminishing the funds destined for 
the employment of productive labour, he necessarily diminishes, 
so far as it depends upon him, the quantity of that labour which 



adds a value to the subject upon which it is bestowed, and, conse- 
quently, thevalueoftheannual produceof the land and labour of 
the whole country, the real wealth and revenue of its inhabitants. 
If the prodigality of some were not compensated by the frugality 
of others, the conduct of every prodigal, by feeding the idle with 
the bread of the industrious, would tend not only to beggar him- 
self, but to impoverish his country. 

T hough theexpenseoftheprodigal should be altogether in home 
made, and no part of it in foreign commodities, its effect upon 
the productive funds of the society would still bethesame. Every 
year there would still be a certain quantity of food and clothing, 
which ought to have maintained productive, employed in main- 
taining unproductive hands. Every year, therefore, there would 
still be some diminution in what would otherwise have been the 
valueoftheannual produceof theland and labour of thecountry 

T hisexpense, it may besaid, indeed, not being in foreign goods, 
and not occasioning any exportation of gold and silver, the same 
quantity of money would remain in the country as before. But if 
the quantity of food and clothing which were thus consumed by 
unproductive, had been distributed among productive hands, they 
would have reproduced, together with a profit, the full value of 
their consumption. T he same quantity of money would, in this 
case, equally have remained in thecountry, and there would, be- 



277 



The Wealth of Nations 



sides, have been a reproduction of an equal value of consumable 
goods. There would have been two values instead of one. 

The same quantity of money, besides, can not long remain in 
any country in which thevalueoftheannual producediminishes. 
Thesoleuseof money is to circulate consumablegoods. By means 
of it, provisions, materials, and finished work, are bought and 
sold, and distributed to their proper consumers. The quantity of 
money, therefore, which can be annually employed in any coun- 
try, must be determined by the value of the consumable goods 
annually circulated within it. These must consist, either in the 
immediateproduceoftheland and labour of thecountry itself, or 
in something which had been purchased with some part of that 
produceTheirvalue, therefore, must diminish as thevalueof that 
producediminishes, and along with itthequantity of money which 
can be employed in circulating them. But the money which, by 
this annual diminution of produce, is annually thrown out of 
domestic circulation, will not be allowed to lie idle. The interest 
of whoever possesses it requires that it should be employed; but 
having no employment at home, it will, in spite of all laws and 
prohibitions, be sent abroad, and employed in purchasing con- 
sumable goods, which may be of some use at home. Its annual 
exportation will, in this manner, continue for some time to add 
something to the annual consumption of thecountry beyond the 



value of its own annual produce. What in the days of its prosper- 
ity had been saved from that annual produce, and employed in 
purchasing gold and silver, will contribute, for somelittletime, to 
support its consumption in adversity. The exportation of gold and 
silver is, in thiscase, notthecause, but the effect of its declension, 
and may even, for some little time, alleviate the misery of that 
declension. 

The quantity of money, on the contrary, must in every country 
naturally increase as the value of the annual produce increases. 
Thevalueof theconsumablegoodsannuallycirculated within the 
society being greater, will require a greater quantity of money to 
circulate them. A part of the increased produce, therefore, will 
naturally be employed in purchasing, wherever it isto behad, the 
additional quantity of gold and silver necessary for circulating the 
rest. The increase of those metals will, in thiscase, be the effect, 
not the cause, of the public prosperity. Gold and silver are pur- 
chased everywhere in the same manner. The food, clothing, and 
lodging, the revenue and maintenance, of all those whose labour 
or stock is em ployed in bringing them from the mineto the mar- 
ket, is the price paid for them in Peru as well as in England. The 
country which has this price to pay, will never belong without the 
quantity of those metals which it has occasion for; and no country 
will ever long retain a quantity which it has no occasion for. 



278 



Adam Smith 



W hatever, therefore, we may imagine the real wealth and rev- 
enue of a country to consist in, whether in the valueoftheannual 
produce of its land and labour, as plain reason seems to dictate, or 
in thequantityof thepreciousmetalswhich circulatewithin it, as 
vulgar prejudices suppose; in either view of thematter, every prodi- 
gal appears to be a public enemy, and every frugal man a public 
benefactor. 

T he effects of misconduct are often the same as those of prodi- 
gality. Every injudicious and unsuccessful project in agriculture, 
mines, fisheries, trade, or manufactures, tends in the same man- 
ner to diminish the funds destined for the maintenance of pro- 
ductive labour. In every such project, though the capital is con- 
sumed by productive hands only, yet as, by the injudicious man- 
ner in which they are employed, they do not reproduce the full 
value of their consumption, there must always be some diminu- 
tion in what would otherwise have been the productive funds of 
the society. 

Itcan seldom happen, indeed, that the circumstances of a great 
nation can be much affected either by the prodigality or miscon- 
duct of individuals; the profusion or imprudence of some being 
always more than compensated by the frugality and good conduct 
of others. 

With regard to profusion, the principle which prompts to ex- 



pense is the passion for present enjoyment; which, though some- 
times violent and very difficult to be restrained, isin general only 
momentary and occasional. But the principle which prompts to 
save, isthedesireof bettering our condition; a desire which, though 
generally calm and dispassionate, comes with us from the womb, 
and never I eaves us til I we go intothegrave. In the whole interval 
which separates those two moments, there is scarce, perhaps, a 
single instance, in which any man is so perfectly and completely 
satisfied with hissituation, as to be without any wish of alteration 
or improvement of any kind. An augmentation of fortune is the 
means by which the greater part of men propose and wish to bet- 
ter their condition. It is the means the most vulgar and the most 
obvious; and the most likely way of augmenting their fortune, is 
to save and accumulate some part of what they acquire, either 
regularly and annually, or upon some extraordinary occasion. 
Though the principle of expense, therefore, prevails in almost all 
men upon some occasions, and in some men upon almost all oc- 
casions; yet in the greater part of men, taking the whole course of 
their lifeat an average, theprincipleof frugality seems not only to 
predominate, but to predominate very greatly. 

With regard to misconduct, the number of prudent and suc- 
cessful undertakings is everywhere much greater than that of inju- 
diciousand unsuccessful ones. After all our complaints of the fre- 



279 



The Wealth of Nations 



quency of bankruptcies, the unhappy men who fall into this mis- 
fortune, make but a very small part of the whole number engaged 
in trade, and all other sorts of business; not much more, perhaps, 
than one in a thousand. Bankruptcy is, perhaps, the greatest and 
most humiliating calamity which can befalan innocent man. The 
greater part of men, therefore, are sufficiently careful to avoid it. 
Some, indeed, do not avoid it; as some do not avoid the gal lows. 
Great nations are never impoverished by private, though they 
sometimes are by public prodigality and misconduct. T he whole, 
or almost the wholepublicrevenueis, in most countries, employed 
in maintaining unproductivehands. Such are thepeoplewho com- 
pose a numerous and splendid court, a great ecclesiastical estab- 
lishment, great fleets and armies, who in time of peace produce 
nothing, and in time of war acquire nothing which can compen- 
sate the expense of maintaining them, even while the war lasts. 
Such people, as they themselves produce nothing, are all main- 
tained by the produce of other men's labour. When multiplied, 
therefore, to an unnecessary number, they may in a particular year 
consume so great a share of this produce, as not to leave a suffi- 
ciency for maintaining the productive labourers, who should re 
produce it next year. The next year's produce, therefore, will be 
less than that of the foregoing; and if the same disorder should 
continue, that of the third year will be still less than that of the 



second. T hose unproductive hands who should be maintained by 
a part only of the spare revenue of the people, may consume so 
great a share of their whole revenue, and thereby oblige so great a 
number to encroach upon their capitals, upon thefundsdestined 
for the maintenance of productive labour, that all the frugality 
and good conduct of individuals may not be able to compensate 
the waste and degradation of produce occasioned by this violent 
and forced encroachment. 

This frugality and good conduct, however, is, upon most occa- 
sions, it appearsfrom experience, sufficient to compensate, not only 
theprivate prodigality and misconduct of individuals, butthepub- 
lic extravagance of government. The uniform, constant, and unin- 
terrupted effort of every man to better his condition, the principle 
from which public and national, aswell asprivateopulenceisorigi- 
nally derived, isfrequently powerful enough to maintain thenatural 
progress of things towards improvement, in spite both of the ex- 
travagance of government, and of the greatest errors of administra- 
tion. Like the unknown principle of animal life, it frequently re- 
storeshealth and vigourtotheconstitution, in spitenotonlyof the 
disease, but of the absurd prescriptions of the doctor. 

Theannual produceof theland and labour of any nation can be 
increased in its value by no other means, but by increasing either 
the number of its productive labourers, or the productive powers 



280 



Adam Smith 



of those labourers who had before been employed. Thenumber of 
its productive labourers, itisevident, can never bemuch increased, 
but in consequence of an increase of capital, or of the funds des- 
tined for maintaining them. The productive powers of the same 
number of labourers cannot be increased, but in consequence ei- 
ther of some addition and improvement to those machines and 
instrumen ts which facilitate and abridgelabour, or of moreproper 
division and distribution of employment. In either case, an addi- 
tional capital is almost always required. It is by means of an addi- 
tional capital only, that the undertaker of any work can either 
providehisworkmen with better machinery, or make a moreproper 
distribution of employment among them. W hen the work to be 
done consists of a number of parts, to keep every man constantly 
employed in oneway, requires a much greater capital than where 
every man is occasionally employed in every different part of the 
work. W hen we compare, therefore, the state of a nation at two 
different periods, and find that theannual produceof its land and 
labour is evidently greater at the latter than at the former, that its 
lands are better cultivated, its manufactures more numerous and 
more flourishing, and its trade more extensive; we may be assured 
that its capital must have increased during the interval between 
those two periods, and that more must have been added to it by 
the good conduct of some, than had been taken from it either by 



the private misconduct of others, or by the public extravagance of 
government. But we shall find thisto have been thecaseof almost 
all nations, in all tolerably quiet and peaceable times, even of those 
who have not enjoyed the most prudent and parsimonious gov- 
ernments. To form a right judgment of it, indeed, we must com- 
pare the state of the country at periods somewhat distant from 
one another. T he progress is frequently so gradual, that, at near 
periods, the improvement is not only not sensible, but, from the 
declension either of certain branchesof industry, or of certain dis- 
tricts of the country, things which sometimes happen, though the 
country in general is in great prosperity, there frequently arises a 
suspicion, that the riches and industry of the whole are decaying. 
The annual produce of the land and labour of England, for 
example, iscertainly much greater than it was a little more than a 
century ago, at the restoration of C harles 1 1 . T hough at present 
few people, I believe, doubt of this, yet during this period five 
years have seldom passed away, in which some book or pamphlet 
hasnot been published, written, too, with such abilities as to gain 
some authority with the public, and pretending to demonstrate 
that the wealth of the nation was fast declining; that the country 
was depopulated, agriculture neglected, manufactures decaying, 
and tradeundone. Nor have thesepublicationsbeen all party pam- 
phlets, thewretched offspring of falsehood and venality. M any of 



281 



The Wealth of Nations 



them have been written by very candid and very intelligent people, 
who wrote nothing but what they believed, and for no other rea- 
son but because they believed it. 

Theannual produce of the land and labour of England, again, 
was certainly much greater at the Restoration than we can sup- 
pose it to have been about a hundred years before, at theaccession 
of Elizabeth. At this period, too, we have all reason to believe, the 
country was much more advanced in improvement, than it had 
been about a century before, towards the close of the dissensions 
between the houses of York and Lancaster. Even then it was, prob- 
ably, in a better condition than it had been at the N orman con- 
quest: and at the N orman conquest, than during the confusion of 
the Saxon heptarchy. Even at this early period, it was certainly a 
moreimproved country than attheinvasion ofJuliusCaesar, when 
its inhabitants were nearly in the same state with the savages in 
North America. 

In each of those periods, however, there was not only much 
private and public profusion, many expensive and unnecessary 
wars, great perversion of theannual produce from maintaining 
productive to maintain unproductive hands; but sometimes, in 
the confusion of civil discord, such absolute waste and destruc- 
tion of stock, as might be supposed, not only to retard, as it cer- 
tainly did, the natural accumulation of riches, but to have left the 



country, at the end of the period, poorer than at the beginning. 
Thus, in the happiest and most fortunate period of them all, that 
which has passed si nee the Restoration, how many disorders and 
misfortunes have occurred, which, could they have been foreseen, 
not only the impoverishment, but the total ruin of the country 
would have been expected from them?Thefireand theplagueof 
London, thetwo Dutch wars, the disorders of the revolution, the 
war in Ireland, the four expensive French wars of 1688, 1701, 
1742, and 1756, together with thetwo rebellions of 1715 and 
1745. In the course of the four French wars, the nation has con- 
tracted more than £145,000,000 of debt, over and above all the 
other extraordinary annual expense which they occasioned; so that 
thewholecannot be computed at less than £200,000,000. So great 
a share of the annual produce of the land and labour of the coun- 
try, has, since the Revolution, been employed upon different oc- 
casions, in maintaining an extraordinary number of unproductive 
hands. But had not those wars given this particular direction to so 
large a capital, the greater part of it would naturally have been 
employed in maintaining productive hands, whose labour would 
have replaced, with a profit, the whole value of their consump- 
tion. The value of theannual produce of the land and labour of 
the country would have been considerably increased by it every 
year, and every years increase would have augmented still more 



282 



Adam Smith 



that of the following year. M ore houses would have been built, 
morelandswould have been improved, and those which had been 
improved before would have been better cultivated; more manu- 
factures would have been established, and those which had been 
established before would have been more extended; and to what 
height the real wealth and revenue of the country might by this 
timehavebeen raised, it is not perhaps very easy even to imagine. 
But though the profusion of government must undoubtedly have 
retarded the natural progress of England towards wealth and im- 
provement, ithasnotbeen ableto stop it. Theannual produce of 
its land and labour is undoubtedly much greater at present than it 
was either at the Restoration or at the Revolution. The capital, 
therefore, annually employed in cultivating thisland, and in main- 
tainingthislabour, must likewise bemuch greater. In themidst of 
all the exactions of government, this capital has been silently and 
gradually accumulated by the private frugality and good conduct 
of individuals, by their universal, continual, and uninterrupted 
effort to better their own condition. It isthiseffort, protected by 
law, and allowed by liberty to exert itself in the manner that is 
most advantageous, which hasmaintained theprogress of England 
towards opulence and improvement in almost all former times, 
and which, it is to be hoped, will do so in all future times. En- 
gland, however, as it has never been blessed with a very parsimoni- 



ous government, so parsimony has at no time been thecharacter- 
istic virtue of its inhabitants. It is the highest impertinence and 
presumption, therefore, in kings and ministers to pretend to watch 
over the economy of private people, and to restrain theirexpense, 
either by sumptuary laws, or by prohibiting the importation of 
foreign luxuries They are themselves always, and without any ex- 
ception, the greatest spendthrifts in the society. Let them look 
well after their own expense, and they may safely trust private 
people with theirs. If their own extravagance does not ruin the 
state, th at of th e su bj ect n ever will. 

As frugality increases, and prodigality diminishes, the public 
capital, so the conduct of those whose expense just equals their 
revenue, without either accumulating or encroaching, neither in- 
creases nor diminishes it. Some modes of expense, however, seem 
to contribute more to the growth of public opulence than others. 

The revenue of an individual may be spent, either in things 
which are consumed immediately, and in which one day's expense 
can neither alleviate nor support that of another; or it may be 
spent in things mere durable, which can therefore be accumu- 
lated, and in which every day's expense may, as he chooses, either 
alleviate, or support and heighten, the effect of that of the follow- 
ing day. A man of fortune, for example, may either spend hisrev- 
enuein a profuse and sumptuoustable, and in maintaining a great 



283 



The Wealth of Nations 



number of menial servants, and a multitude of dogs and horses; 
or, contenting himself with a frugal table, and few attendants, he 
may lay out the greater part of it in adorning his house or his 
country villa, in useful or ornamental buildings, in useful or orna- 
mental furniture, in collecting books, statues, pictures; or in things 
more frivolous, jewels, baubles, ingenious trinkets of different 
kinds; or, what ismosttriflingof all, in amassing a great wardrobe 
of fine clothes, like the favourite and minister of a great prince 
who died a few years ago. Were two men of equal fortuneto spend 
their revenue, the one chiefly in the one way, the other in the 
other, the magnificence of the person whose expense had been 
chiefly in durable commodities, would be continually increasing, 
every day's expense contributing something to support and 
heighten the effect of that of the following day; that of the other, 
on the contrary, would be no greater at the end of the period than 
at the beginning. Theformer too would, attheend of theperiod, 
be the richer man of the two. H e would have a stock of goods of 
some kind or other, which, though it might not be worth all that 
it cost, would always be worth something. N o trace or vestige of 
the expense of the latter would remain, and the effects of ten or 
twenty years' profusion would be as completely annihilated as if 
they had never existed. 
As the one mode of expense is more favourable than the other 



to the opulence of an individual, so is it likewise to that of a na- 
tion. The houses, thefurniture, the clothing of the rich, in a little 
time, become useful to the inferior and middling ranks of people. 
They are able to purchase them when their superiors grow weary 
of them; and the general accommodation of the whole people is 
thusgradually improved, when thismodeof expense becomesuni- 
versal among men of fortune. In countries which have long been 
rich, you will frequently find the inferior ranks of people in pos- 
session both of houses and furniture perfectly good and entire, 
but of which neither the one could have been built, northeother 
have been made for their use. W hat was formerly a seat of the 
family of Seymour, is now an inn upon the Bath road. The mar- 
riage-bed of James I. of Great Britain, which his queen brought 
with her from Denmark, asa present fit for a sovereign to maketo 
a sovereign, was, a few years ago, the ornament of an alehouse at 
D unfermline. I n someancient cities, which either have been long 
stationary, or have gone somewhat to decay, you will sometimes 
scarcefind a singlehouse which could have been built for its present 
inhabitants. If you go into those houses, too, you will frequently 
find many excel lent, though antiquated pieces of furniture, which 
are still very fit for use, and which could as little have been made 
for them. Noble palaces, magnificent villas, great collections of 
books, statues, pictures, and other curiosities, are frequently both 



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Adam Smith 



an ornament and an honour, not only to the neighbourhood, but 
to the whole country to which they belong. Versailles is an orna- 
ment and an honour to France, Stowe and Wilton to England. 
Italy still continues to command some sort of veneration, by the 
number of monuments of thiskind which it possesses, though the 
wealth which produced them hasdecayed, and though thegenius 
which planned them seems to be extinguished, perhaps from not 
having the same employment. 

T he expense, too, which is laid out in durable commodities, is 
favourable not only to accumulation, but to frugality. If a person 
should at any time exceed in it, he can easily reform without ex- 
posing himself to the censure of the public. To reduce very much 
the number of his servants, to reform his table from great profu- 
sion to great frugality, to lay down his equipage after he has once 
set it up, are changes which cannot escape the observation of his 
neighbours, and which are supposed to imply some acknowledg- 
ment of preceding bad conduct. Few, therefore, of those who have 
once been so unfortunate as to launch out too far into this sort of 
expense, haveafterwardsthecourageto reform, till ruin and bank- 
ruptcy oblige them. But if a person has, at any time, been at too 
great an expense in building, in furniture, in books, or pictures, 
no imprudence can be inferred from his changing his conduct. 
These are things in which further expense is frequ en tly rendered 



unnecessary by former expense; and when a person stops short, he 
appears to do so, not because he has exceeded his fortune, but 
because he has satisfied his fancy. 

The expense, besides, that is laid out in durable commodities, 
gives maintenance, commonly, to a greater number of peoplethan 
that which isemployed in the most profuse hospitality. Of two or 
three hundred weight of provisions, which may sometimes be 
served up at a great festival, one half, perhaps, is thrown to the 
dunghill, and there is always a great deal wasted and abused. But 
if theexpenseof thisentertainmenthad been employed in setting 
to work masons, carpenters, upholsterers, mechanics, etc. a quan- 
tity of provisionsof equal valuewould have been distributed among 
a still greater number of people, who would have bought them in 
pennyworths and pound weights, and not have lost or thrown 
away a single ounce of them. In the one way, besides, this expense 
maintains productive, in the other unproductive hands. In the 
one way, therefore, it increases, in the other it does not increase 
the exchangeable value of the annual produce of the land and 
labour of the country. 

I would not, however, by all this, be understood to mean, that 
the one species of expense always betokens a more liberal or gen- 
erous spirit than the other. When a man of fortune spends his 
revenue chiefly in hospitality, he shares the greater part of it with 



285 



The Wealth of Nations 



his friends and companions; but when he employs it in purchas- 
ing such durable commodities, he often spends the whole upon 
hisown person, and gives nothing to any body without an equiva- 
lent. T he latter species of expense, therefore, especially when di- 
rected towards frivolous objects, the little ornaments of dress and 
furniture, jewels, trinkets, gew-gaws, frequently indicates, not only 
atrifling, but a base and selfish disposition. All that I mean is, that 
the one sort of expense, as it always occasions some accumulation 
of valuable commodities, as it is more favourable to private fru- 
gality, and, consequently, to the increaseofthepublic capital, and 
as it maintains productive rather than unproductive hands, 
conduces more than the other to the growth of public opulence. 



CHAPTER IV 

OF STOCK LENT AT INTEREST 

The stock which islent at interest isalways considered asa capi- 
tal bythelender. He expects that in duetimeitisto be restored to 
him, and that, in the mean time, the borrower is to pay him a 
certain annual rent for the use of it. The borrower may use it 
either asa capital, or asa stock reserved for immediate consump- 
tion. If he uses it as a capital, heemploysit in the maintenance of 
productive labourers, who reproduce the value, with a profit. H e 
can, in this case, both restore the capital, and pay the interest, 
without alienating or encroaching upon any other source of rev- 
enue. If heuses it asastock reserved forimmediate consumption, 
he acts the part of a prodigal, and dissipates, in the maintenance 
of the idle, what was destined for the support of the industrious. 
H e can, in this case, neither restore the capital nor pay the inter- 
est, without either alienating or encroaching upon some other 
source of revenue, such as the property or the rent of land. 

The stock which is lent at interest is, no doubt, occasionally 
employed in both these ways, but in the former much more fre- 
quently than in the latter. The man who borrows in order to spend 
will soon be ruined, and hewho lendstohim will generally have 



286 



Adam Smith 



occasion to repent of his folly. To borrow or to lend for such a 
purpose, therefore, is, in all cases, where gross usury is out of the 
question, contrary to the interest of both parties; and though it no 
doubt happens sometimes, that people do both the one and the 
other, yet, from the regard that all men have for their own interest, 
we may be assured, that it cannot happen so very frequently as we 
are sometimes apt to imagine. Ask any rich man of common pru- 
dence, to which of the two sorts of people he has lent the greater 
part of hisstock, to those who hethinks will employ it profitably, 
or to those who will spend it idly, and he will laugh at you for 
proposing the question. Even among borrowers, therefore, not 
the people in the world most famousfor frugality, the number of 
thefrugal and industrioussurpasses considerably that of theprodi- 
gal and idle. 

T heonlypeopleto whom stock iscommonly lent, without their 
being expected to make any very profitable use of it, are country 
gentlemen, who borrow upon mortgage. Even they scarce ever 
borrow merely to spend. What they borrow, one may say, is com- 
monly spent before they borrow it. They have generally consumed 
so great a quantity of goods, advanced to them upon credit by 
shop-keepers and tradesmen, that they find it necessary to borrow 
at interest, in order to pay the debt. The capital borrowed replaces 
the capitals of those shop-keepers and tradesmen which thecoun- 



try gentlemen could not have replaced from the rents of their es- 
tates. It isnot properly borrowed in order to bespent, but in order 
to replace a capital which had been spent before. 

Almost all loans at interest are made in money, either of paper, 
or of gold and silver; but what the borrower really wants, and 
what the lender readily supplies him with, is not the money, but 
the money's worth, or thegoods which it can purchase. If he wants 
it as a stock for immediate consumption, it is those goods only 
which he can place in that stock. If he wants it as a capital for 
employing industry, it is from those goods only that the industri- 
ous can be furnished with the tools, materials, and maintenance 
necessary for carrying on their work. By means of the loan, the 
lender, as it were, assigns to the borrower his right to a certain 
portion of theannual produceoftheland and labour of thecoun- 
try, to be employed as the borrower pleases. 

T hequantity of stock, therefore, or, as it iscommonly expressed, 
of money, which can be lent at interest in any country, is not 
regulated by thevalueofthemoney, whether paper or coin, which 
serves as theinstrument of thedifferent loansmadein that coun- 
try, but by the value of that part of theannual produce, which, as 
soon as it comes either from the ground, or from the hands of the 
productive labourers, isdestined, not only for replacing a capital, 
but such a capital astheownerdoesnotcaretobeatthetroubleof 



287 



The Wealth of Nations 



employing himself. As such capitals are commonly lent out and 
paid back in money, they constitute what is called the monied 
interest. It is distinct, not only from the landed, but from the 
trading and manufacturing interests, as in these last the owners 
themselves employ their own capitals. Even in the monied inter- 
est, however, the money is, as it were, but the deed of assignment, 
which conveys from one hand to an other those capitals which the 
owners do not care to employ themselves. T hose capitals may be 
greater, in almost any proportion, than theamount of the money 
which serves as theinstrument of their conveyance; thesamepieces 
of money successively serving for many different loans, as well as 
for many different purchases. A, for example, lends to W £1000, 
with which W immediately purchasesof B £1000 worth of goods. 
B having no occasion for the money himself, lends the identical 
pieces to X, with which X immediately purchasesof C another 
£1000 worth of goods. C , in the same manner, and for the same 
reason, lendsthemtoY, who again purchases goods with them of 
D. In this manner, the same pieces, either of coin or of paper, 
may, in the course of a few days, serve as the Instrument of three 
different loans, and of three different purchases, each of which is, 
in value, equal to the whole amount of those pieces. What the 
three monied men, A, B, and C, assigned to the three borrowers, 
W,X,andY, isthe power of making those purchases. In this power 



consist both thevalueandtheuseoftheloans.Thestock lent by the 
three monied men is equal to the value of the goods which can be 
purchased with it, and is three times greater than that of the money 
with which the purchases are made. T hose loans, however, may be 
all perfectly well secured, thegoodspurchased by thedifferent debt- 
ors being so employed as, in duetime, to bring back, with a profit, 
an equal value either of coin or of paper. And as the same pieces of 
money can thus serve as the instrument of different loans to three, 
or, for the same reason, to thirty times their value, so they may 
likewise successively serve as the instrument of repayment. 

A capital lent at interest may, in this manner, be considered as 
an assignment, from the lender to the borrower, of a certain con- 
siderable portion of theannual produce, upon condition that the 
burrower in return shall, during the continuance of the loan, an- 
nually assign to the lender a small portion, called theinterest; and, 
at the end of it, a portion equally considerable with that which 
had originally been assigned to him, called therepayment. T hough 
money, either coin or paper, serves generally as the deed of assign- 
ment, both to thesmaller and to themoreconsiderableportion, it 
is itself altogether different from what is assigned by it. 

In proportion as that share of the annual produce which, as 
soon as it comes either from the ground, or from the hands of the 
productive labourers, is destined for replacing a capital, increases 



288 



Adam Smith 



in any country, what is called the monied interest naturally in- 
creases with it. The increase of those parti cularcapitalsfrom which 
the owners wish to derive a revenue, without being at the trouble 
of em ploying them them selves, naturally accompanies thegeneral 
increaseof capitals; or, in other words, as stock increases, thequan- 
tity of stock to belent at interest grows gradually greater and greater. 
Asthequantity of stock to be lent at interest increases, theinter- 
est, or the price which must be paid for the use of that stock, 
necessarily diminishes, not only from those general causes which 
makethemarketpriceofthingscommonly diminish as their quan- 
tity increases, but from other causes which are peculiar to this 
particular case. Ascapitalsincreasein any country, theprofits which 
can bemadebyemployingthem necessarily diminish. Itbecomes 
gradually more and more difficult to find within the country a 
profitable method of employing any new capital. There arises, in 
consequence, a competition between different capitals, the owner 
of one endeavouring to get possession of that employment which 
isoccupied by another; but, upon most occasions, hecan hope to 
justlethat other out of thisemployment by no other meansbut by 
dealing upon more reasonable terms. He must not only sell what 
he deals in somewhat cheaper, but, in order to get it to sell, he 
must sometimes, too, buy it dearer. The demand for productive 
labour, by the increase of the funds which are destined for main- 



taining it, growsevery day greater and greater. Labourers easilyfind 
employment; but the owners of capitals find it difficult to get 
labourers to employ. T heir competition raises the wages of labour, 
and sinks the prof its of stock. But when the profits which can be 
made by the use of a capital are in this manner diminished, as it 
were, at both ends, theprice which can be paid for the use of it, that 
is, the rate of interest, must necessarily bediminished with them. 

M r Locke, M r Lawe, and M r M ontesquieu, as well as many 
otherwriters, seemtohaveimaginedthattheincreaseofthequan- 
tityofgoldandsilver, inconsequenceofthediscoveryoftheSpan- 
ish West Indies, was the real cause of the lowering of the rate of 
interest through the greater part of Europe. Those metals, they 
say, having become of less value themselves, the use of any par- 
ticular portion of them necessarily became of less value too, and, 
consequently, the price which could be paid for it. This notion, 
which at first sight seems so plausible, has been so fully exposed 
by M r H ume, that it is, perhaps, unnecessary to say any thing 
more about it.Thefollowing very short and plain argument, how- 
ever, may serve to explain more distinctly thefallacy which seems 
to have misled those gentlemen. 

Before the discovery of the Spanish West Indies, ten percent, 
seemsto have been thecommon rateof interest through thegreater 
part of Europe. It has si nee that time, in different countries, sunk 



289 



The Wealth of Nations 



to six, five, four, and three per cent. Let us suppose, that in every 
particular country thevalueof silver has sunk precisely in thesame 
proportion astherateof interest; and that in those countries, for 
example, where interest has been reduced from ten to five per 
cent, the same quantity of silver can now purchase just half the 
quantity of goods which itcould havepurchased before. This sup- 
position will not, I believe, be found anywhere agreeable to the 
truth; but it is the most favourable to the opinion which we are 
going to examine; and, even upon this supposition, it is utterly 
impossiblethat the lowering of thevalueof silver could have the 
smallest tendency to lower therateof interest. If £100 arein those 
countries now of no more value than £50 were then, £10 must 
now be of no more value than £5 were then. Whatever were the 
causes which lowered thevalueof the capital, the same must nec- 
essarily have lowered that of the interest, and exactly in thesame 
proportion. The proportion between thevalueof the capital and 
that of the interest must have remained the same, though the rate 
had never been altered. By altering the rate, on the contrary, the 
proportion between those two valuesisnecessarily altered. If £100 
now areworth no more than £50 were then, £5 now can beworth 
no more than £2:10s. were then. By reducing the rate of interest, 
therefore, from ten to five per cent, wegivefor the useof a capital, 
which is supposed to be equal to one half of its former value, an 



interest which isequal to onefourth only of thevalueof theformer 
interest. 

An increasein thequantity of silver, whilethat of thecommodi- 
ties circulated by means of it remained the same, could have no 
other effect than to diminish thevalueof that metal. Thenominal 
value of all sorts of goods would be greater, but their real value 
would be precisely the same as before. T hey would be exchanged 
for a greater number of pieces of silver; but the quantity of labour 
which they could command, the number of people whom they 
could maintain and employ, would be precisely the same. The 
capital of the country would be the same, though a greater num- 
ber of pieces might be requisite for conveying any equal portion 
of it from one hand to another. T he deedsof assignment, like the 
conveyances of a verbose attorney, would be more cumbersome; 
but thething assigned would be precisely the same as before, and 
could produce only the same effects. The funds for maintaining 
productive labour being thesame, thedemand for it would be the 
same. Itspriceor wages, therefore, though nominally greater, would 
really be the same. They would be paid in a greater number of 
pieces of silver, but they would purchase only the same quantity 
of goods. The profits of stock would be thesame, both nominally 
and really. T he wages of labour are commonly computed by the 
quantity of silver which is paid to the labourer. W hen that is in- 



290 



Adam Smith 



creased, therefore, his wages appear to be increased, though they 
may sometimes be no greater than before. But the profits of stock 
are not computed by the number of pieces of silver with which 
they are paid, but by the proportion which those pieces bear to 
the whole capital employed. Thus, in a particular country, 5s. a- 
week aresaid to bethecommon wages of labour, and ten per cent, 
thecommon prof its of stock; butthewholecapital of thecountry 
being the same as before, the competition between the different 
capitalsof individualsinto which it wasdivided would likewise be 
the same. They would all trade with the same advantages and dis- 
advantages. Thecommon proportion between capital and profit, 
therefore, would bethesame, and consequently thecommon in- 
terest of money; what can commonly be given for theuseof money 
being necessarily regulated by what can commonly be made by 
theuseof it. 

Any increase in the quantity of commodities annually circu- 
lated within the country, while that of the money which circu- 
lated them remained the same, would, on the contrary, produce 
many other important effects, besides that of raising the value of 
the money. The capital of thecountry, though it might nominally 
bethesame, would really be augmented. Itmightcontinuetobe 
expressed by the same quantity of money, but it would command 
a greater quantity of labour. The quantity of productive labour 



which it could maintain and employ would beincreased, and con- 
sequently the demand for that labour. Its wages would naturally 
rise with the demand, and yet might appear to sink. They might 
be paid with a smaller quantity of money, but that smaller quan- 
tity might purchase a greater quantity of goods than a greater had 
done before. The profits of stock would be diminished, both re- 
ally and in appearance. The whole capital of the country being 
augmented, thecompetition between thedifferent capitalsof which 
it was composed would naturally be augmented along with it. 
T he owners of those particular capitals would be obliged to con- 
tent themselves with a smaller proportion of the produce of that 
labour which their respective capitals employed. The interest of 
money, keeping pace always with the profits of stock, might, in 
thismanner, be greatly diminished, though thevalueof money, or 
the quantity of goods which any particular sum could purchase, 
was greatly augmented. 

In some countries the interest of money has been prohibited by 
law. Butassomethingcan everywhere bemadeby theuseof money, 
something ought everywhere to be paid for the use of it. This 
regulation, instead of preventing, has been found from experience 
to in crease the evil of usury. The debtor being obliged to pay, not 
only for the use of the money, but for the risk which his creditor 
runs by accepting a compensation for that use, he is obliged, if 



291 



The Wealth of Nations 



one may say so, to insure his creditor from the penalties of usury. 

In countries where interest is permitted, the law in order to pre 
vent the extortion of usury, generally fixes the highest rate which 
can betaken without incurring a penalty. This rate ought always 
to be somewhat above the lowest market price, or the price which 
is commonly paid for the useof money by those who can give the 
most undoubted security. If this legal rate should be fixed below 
the lowest market rate, the effects of this fixation must be nearly 
the same as those of a total prohibition of interest. The creditor 
will not lend his money for less than the use of it isworth, and the 
debtor must pay him for the risk which he runs by accepting the 
full value of that use. If it is fixed precisely at the lowest market 
price, it ruins, with honest people who respect the laws of their 
country, thecredit of all those who cannot give the very best secu- 
rity, and obliges them to have recourse to exorbitant usurers. In a 
country such asG reat Britain, where money is lent to government 
at three per cent, and to private people, upon good security, at 
four and four and a-half, the present legal rate, five per cent, is 
perhaps as proper as any. 

Thelegal rate, itisto be observed, though itoughtto be some- 
what above, ought not to be much above the lowest market rate. 
If the legal rate of interest in Great Britain, for example, was fixed 
so high as eight or ten per cent, the greater part of the money 



which was to be lent, would be lent to prodigals and projectors, 
who alonewould bewillingtogivethishigh interest. Sober people, 
who will give for the use of money no more than a part of what 
theyarelikelytomakebytheuseof it, would not ventureinto the 
competition. A great part of thecapital of the country would thus 
be kept out of the hands which were most likely to make a profit- 
able and advantageous use of it, and thrown into those which 
were most likely to waste and destroy it. W here the legal rate of 
interest, on the contrary, isfixed but a very little above the lowest 
market rate, sober people are universally preferred, as borrowers, 
to prodigals and projectors. The person who lends money gets 
nearly as much interest from the former as he dares to take from 
thelatter, and his money is much saferin the hands of the one set 
of peoplethan in those of theother. A great part of the capital of 
the country is thus thrown into the hands in which it is most 
likely to be employed with advantage. 

No law can reduce the common rate of interest below the low- 
est ordinary market rate at the time when that law is made. Not- 
withstanding the edict of 1766, by which the French king at- 
tempted to reduce the rate of interest from five to four per cent, 
money continued to be lent in France at five per cent, the law 
being evaded in several different ways. 

T heordinary market priceof land, it isto beobserved, depends 



292 



Adam Smith 



everywhere upon the ordi nary market rate of i nterest. T he person 
who has a capital from which he wishes to derive a revenue, with- 
out taking the trouble to employ it himself, deliberates whether 
heshould buy land with it, or lend it out at interest. Thesuperior 
security of land, together with some other advantages which al- 
most everywhere attend upon thisspecies of property, will gener- 
ally dispose him to content himself with a smaller revenue from 
land, than what he might have by lending out his money at inter- 
est. T hese advantages are suffi ci ent to compensate a certai n d iffer- 
ence of revenue; but they will compensateacertain differenceonly; 
and iftherentof land should fall short of the interest of money by 
a greater difference, nobody would buy land, which would soon 
reduceits ordinary price. n thecontrary, if theadvantages should 
much more than compensate the difference, everybody would buy 
land, which again would soon raise its ordinary price. When in- 
terest was at ten per cent, land was commonly sold for ten or 
twelve years purchase. As interest sunk to six, five, and four per 
cent, thepriceof land rose to twenty, five-and-twenty, and thirty 
years purchase. The market rate of interest is higher in France 
than in England, and the common price of land is lower. In En- 
gland it commonly sells at thirty, in France at twenty years pur- 
chase. 



CHAPTERV 

OFTHE DIFFERENT EM PLOYM ENTS OF 
CAPITALS 

Though all capitals aredestined for themaintenanceof produc- 
tive labour only, yet the quantity of that labour which equal capi- 
tals are capable of putting into motion, varies extremely according 
to the diversity of their employment; as does likewise the value 
which that employment adds to the annual produce of the land 
and labour of the country. 

A capital may be employed in four different ways; either, first, 
in procuring the rude produce annually required for the use and 
consumption of the society; or, secondly, in manufacturing and 
preparing that rudeproduceforimmediateuse and consumption; 
or, thirdly in transporting either the rude or manufactured pro- 
duce from the places where they abound to those where they are 
wanted; or, lastly, in dividing particular portions of either into 
such small parcels as suit the occasional demands of those who 
want them. In thefirst way are employed the capitals of all those 
who undertake improvement or cultivation of lands, mines, or 
fisheries; in the second, those of all master manufacturers; in the 
third, those of all wholesale merchants; and in thefourth, thoseof 



293 



The Wealth of Nations 



all retailers. It isdifficult to conceive that a capital should be em- 
ployed in any way which may not be classed under some one or 
other of those four. 

Each of those four methodsof employing a capital isessentially 
necessary either to theexistence or extension of theother three, or 
to the general conveniency of the society. 

Unless a capital was employed in furnishing rude produce to a 
certain degree of abundance, neither manufactures nor trade of 
any kind could exist. 

Unlessa capital was employed in manufacturing that part of the 
rude produce which requires a good deal of preparation before it 
can befit for use and consumption, it either would never be pro- 
duced, because there could be no demand for it; or if it was pro- 
duced spontaneously, it would be of no value in exchange, and 
could add nothing to the wealth of the society. 

Unlessa capital was employed in transporting either therudeor 
manufactured produce from the places where it aboundsto those 
where it is wanted, no more of either could be produced than was 
necessary for the con sumption of the neighbourhood. Thecapital 
of the merchant exchanges the surplus produce of one place for 
that of another, and thus encourages the industry, and increases 
the enjoyments of both. 

Unless a capital was employed in breaking and dividing certain 



portions either of the rude or manufactured produce into such 
small parcels as suit the occasional demands of those who want 
them, every man would be obliged to purchase a greater quantity 
of the goods he wanted than hisimmediateoccasionsrequired. If 
there was no such tradeasa butcher, for example, every man would 
beobligedtopurchaseawholeoxorawholesheepatatime.This 
would generally be inconvenient to therich, and much more so to 
thepoor. If a poor workman wasobligedtopurchaseamonth'sor 
six months' provisionsat a time, agreat part of thestock which he 
em ploys as a capital in the instruments of his trade, or in the fur- 
niture of his shop, and which yields him a revenue, he would be 
forced to place in that part of his stock which is reserved for im- 
mediate consumption, and which yields him no revenue. Noth- 
ing can be more convenient for such a person than to be able to 
purchase his subsistence from day to day, or even from hour to 
hour, as he wants it. H e is thereby enabled to employ almost his 
whole stock as a capital. He is thus enabled to furnish work to a 
greater value; and the profit which he makes by it in this way 
much more than compensatestheadditional price which theprofit 
of the retailer imposes upon the goods. T he prejudices of some 
political writers again st shop keepers and tradesmen are altogether 
without foundation. So far is it from being necessary either to tax 
them, or to restrict their numbers, that they can never be multi- 



294 



Adam Smith 



plied so as to hurt the public, though they may so as to hurt one 
another. The quantity of grocery goods, for example, which can 
be sold in a particular town, is limited by the demand of that 
town and itsneighbourhood.Thecapital, therefore, which can be 
employed in the grocery trade, cannot exceed what is sufficient to 
purchase that quantity. If this capital is divided between two dif- 
ferent grocers, their competition will tend to make both of them 
sell cheaper than if it were in the hands of one only; and if it were 
divided among twenty, their competition would bejust so much 
the greater, and the chance of their combining together, in order 
to raise the price, just so much the less. T heir competition might, 
perhaps, ruin some of themselves; but to take care of this, is the 
business of the parties concerned, and it may safely be trusted to 
their discretion. It can never hurt either the consumer or the pro- 
ducer; on the contrary, it must tend to make the retailers both sell 
cheaper and buy dearer, than if the wholetrade was monopolized 
by one or two persons. Some of them, perhaps, may sometimes 
decoy a weak customer to buy what he has no occasion for. T his 
evil, however, is of too little importance to deserve the public at- 
tention, nor would it necessarily be prevented by restricting their 
numbers. It is not the multitude of alehouses, to give the must 
suspiciousexample, that occasionsa general disposition to drunk- 
enness among the common people; but that disposition, arising 



from other causes, necessarily gives employment to a multitudeof 
alehouses. 

T he persons whose capitals are employed in any of those four 
ways, are themselves productive labourers. Their labour, when 
properly directed, fixes and realizes itself in thesubjectorvendible 
commodity upon which it is bestowed, and generally adds to its 
price the value at least of their own maintenance and consump- 
tion. T he profits of the farmer, of the manufacturer, of the mer- 
chant, and retailer, are all drawn fromthepriceofthegoodswhich 
the two first produce, and the two last buy and sell. Equal capi- 
tals, however, employed in each of those four different ways, will 
immediately put into motion very different quantitiesof produc- 
tive labour; and augment, too, in very different proportions, the 
value of the annual produce of the land and labour of the society 
to which they belong. 

The capital of the retailer rep I aces, together with its profits, that 
of the merchant of whom he purchases goods, and thereby en- 
ables him to continue his business. The retailer himself istheonly 
productive labourer whom it immediately employs. In his profit 
consists thewholevaluewhich itsemploymentaddstotheannual 
produce of the land and labour of the society. 

The capital of the wholesale merchant replaces, together with 
their profits, the capital's of the farmers and manufacturers of whom 



295 



The Wealth of Nations 



he purchases the rude and manufactured produce which he deals 
in, and thereby enables them to continuetheir respective trades. It 
is by this service chiefly that he contributes indirectly to support 
the productive labour of the society and to increase the value of 
its annual produce. H iscapital employs, too, thesailorsand carri- 
ers who transport his goods from one place to another; and it 
augments the price of those goods by the value, not only of his 
profits, but of their wages. T his is all the productive labour which 
it immediately putsinto motion, and all thevaluewhich it imme- 
diately adds to the annual produce. Its operation in both these 
respects is a good deal superior to that of thecapital of theretailer. 
Part of the capital of the master manufacturer is employed as a 
fixed capital in the instruments of histrade, and replaces, together 
with its profits, that of some other artificer of whom he purchases 
them. Part of his circulating capital is employed in purchasing 
materials, and replaces, with their profits, the capitals of the farm- 
ers and miners of whom he purchases them. But a great part of it 
isalways, either annually, or in a much shorter period, distributed 
among the different workmen whom he employs. It augments the 
valueof those materials by their wages, and by their masters' prof- 
its upon the whole stock of wages, materials, and instruments of 
tradeemployed in the business. It puts immediately into motion, 
therefore, a much greater quantity of productive labour, and adds 



a much greater valuetotheannual produceoftheland and labour 
of thesociety than an equal capital in thehandsof any wholesale 
merchant. 

Noequal capital putsinto motion agreater quantity of produc- 
tive labour than that of the farmer. N ot only his labouring ser- 
vants, but his labouring cattle, are productive labourers. In agri- 
culture, too, N aturelaboursalong with man; and though her labour 
costs no expense, its produce has its value, as well as that of the 
most expensive workmen. T he most important operationsof agri- 
culture seem intended, not so much to increase, though they do 
that too, as to direct thefertility of Nature towardsthe production 
of the plants most profitableto man. A field overgrown with bri- 
ars and brambles, may frequently produce as great a quantity of 
vegetables as the best cultivated vineyard or corn field. Planting 
and til I age frequently regulate more than they animate the active 
fertility of N ature; and after all their labour, a great part of the 
work always remainstobedoneby her. Thelabourers and labouring 
cattle, therefore, employed in agriculture, not only occasion, like 
the workmen in manufactures, the reproduction of a value equal 
to their own consumption, or to the capital which employs them, 
together with its owner's profits, but of a much greater value. Over 
and above the capital of the farmer, and all its profits, they regu- 
larly occasion the reproduction of the rent of the landlord. This 



296 



Adam Smith 



rent may be considered as theproduceof those powers of N atu re, 
the use of which the landlord lends to the farmer. It is greater or 
smaller, according to the supposed extent of those powers, or, in 
other words, according to the supposed natural or improved fer- 
tility of the land. It is the work of N ature which remains, after 
deducting or compensating every thing which can be regarded as 
the work of man. It is seldom less than a fourth, and frequently 
more than a third, of the whole produce. N o equal quantity of 
productive labour employed in manufactures, can ever occasion 
so great reproduction. In them Nature does nothing; man does 
all; and thereproduction must always bein proportion tothestrength 
of the agents that occasion it. The capital employed in agriculture, 
therefore, not only puts into motion a greater quantity of produc- 
tive labour than any equal capital employed in manufactures; but in 
proportion, too, to the quantity of productive labour which it em- 
ploys, it adds a much greater value to the annual produce of the 
land and labour of thecountry, to the real wealth and revenueof its 
inhabitants. Of all thewaysin which a capital can beemployed, it is 
by far the most advantageous to society. 

The capitals em ployed in the agriculture and in theretail tradeof 
any society, must always reside within that society. Their employ- 
ment is confined almost to a precise spot, to the farm, and to the 
shopof theretailer. They must generally, too, though therearesome 



exceptions to this, belong to resident members of the society. 

T he capital of a wholesale merchant, on the contrary, seems to 
have no fixed or necessary residence anywhere, but may wander 
about from place to place, according as it can either buy cheap or 
sell dear. 

T he capital of the manufacturer must, no doubt, reside where 
the manufacture is carried on; but where this shall be, is not al- 
ways necessarily determined. It may frequently beat a great dis- 
tance, both from the place where the materials grow, and from 
that where the complete manufacture is consumed. Lyons is very 
distant, both from theplaces which afford the materials of itsmanu- 
factures, and from those which consume them. Thepeopleof fash- 
ion in Sicily are clothed in silks madein other countries, from the 
materials which their own produces. Part of the wool of Spain is 
manufactured in Great Britain, and some part of that cloth is af- 
terwards sent back to Spain. 

W hether the merchant whose capital exports the surplus pro- 
duce of any society, be a native or a foreigner, is of very little im- 
portance. If he is a foreigner, the number of their productive 
labourers is necessarily less than if he had been a native, by one 
man only; and thevalueof their annual produce, by the profits of 
that one man. The sailors or carriers whom he employs, may still 
belong indifferently either to his country, or to their country, or to 



297 



The Wealth of Nations 



somethird country, in the same manner as if hehad been a native. 
The capital of a foreigner gives a value to their surplus produce 
equally with that of a native, by exchanging it for something for 
which there is a demand at home. It as effectually replaces the 
capital oftheperson who produces that surplus, and as effectually 
enables him to continue his business, the service by which the 
capital of a wholesale merchant chiefly contributes to support the 
productive labour, and to augment the value of the annual pro- 
duce of the society to which he belongs. 

It is of more consequence that the capital of the manufacturer 
should reside within the country. It necessarily puts into motion a 
greater quantity of productive labour, and addsa greater value to 
the annual produce of the land and labour of the society. It may, 
however, be very useful to the country, though it should not reside 
within it. Thecapitalsof the British manufacturers who workup 
the flax and hemp annually imported from the coasts of the Bal- 
tic, are surely very useful to the countries which produce them. 
T hose materials are a part of the surplus produce of those coun- 
tries, which, unlessitwas annually exchanged for something which 
is in demand here, would beof no value, and would soon cease to 
be produced. The merchants who export it, rep I ace the capitals of 
the people who produce it, and thereby encourage them to con- 
tinue the production; and the British manufacturers replace the 



capitals of those merchants. 

A particular country, in thesamemannerasa particular person, 
may frequently not have capital sufficient both to improve and 
cultivate all itslands, to manufacture and prepare their whole rude 
produce for immediate use and consumption, and to transport 
the surplus part either of the rude or manufactured produce to 
those distant markets, where it can be exchanged for something 
for which there is a demand at home. The inhabitants of many 
different parts of G reat Britain have not capital sufficient to im- 
prove and cultivate all their lands. The wool of thesouthern coun- 
ties of Scotland is, a great part of it, after a long land carriage 
through very bad roads, manufactured in Yorkshire, for want of a 
capital to manufactureit at homeThere are many little manufac- 
turing towns in Great Britain, of which the inhabitants have not 
capital sufficient to transport the produce of their own industry 
to thosedistant markets where thereisdemand and consumption 
for it. I f there are any merchants among them, they are, properly, 
only the agents of wealthier merchants who reside in some of the 
great commercial cities. 

W hen the capital of any country is not sufficient for all those 
three purposes, in proportion as a greater share of it is employed 
in agriculture, thegreater will be thequantity of productivelabour 
which it puts into motion within the country; as will likewise be 



298 



Adam Smith 



thevaluewhich itsemploymentaddstotheannual produce of the 
land and labour of the society. After agriculture, the capital em- 
ployed in manufactures puts into motion the greatest quantity of 
productive labour, and adds the greatest value to the annual pro- 
duce. That which isemployed in the trade of exportation has the 
least effect of any of the three. 

Thecountry, indeed, which hasnot capital sufficient for all those 
threepurposes, hasnot arrived at that degreeof opulence for which 
it seems naturally destined. Toattempt, however, prematurely, and 
with an insufficient capital, to do all the three, is certainly not the 
shortest way for a society, no more than it would be for an indi- 
vidual, to acquirea sufficient one. Thecapital of all theindividu- 
alsof anation hasitslimits, in thesame manner as that of a single 
individual, and iscapableof executing only certain purposes. The 
capital of all the individuals of a nation is increased in the same 
manner as that of a single individual, by their continually accu- 
mulating and adding to it whatever they saveout of their revenue. 
It is likely to in crease the fastest, therefore, when it isemployed in 
the way that affords the greatest revenue to all the inhabitants or 
thecountry, as they will thus be enabled to makethe greatest sav- 
ings. But therevenueof all theinhabitants of thecountry isneces- 
sarily in proportion to the value of the annual produce of their 
land and labour. 



Ithasbeen theprincipal cause of therapid progressof our Ameri- 
can colonies towards wealth and greatness, that almost their whole 
capitalshavehitherto been employed in agriculture. They have no 
manufactures, those household and coarser manufactures excepted, 
which necessarily accompanytheprogressof agriculture, and which 
are the work of the women and children in every private family. 
The greater part, both of the exportation and coasting trade of 
America, is carried on by the capitals of merchants who reside in 
Great Britain. Even the stores and warehouses from which goods 
are retailed in some provinces, particularly in Virginia and Mary- 
land, belong many of them to merchants who reside in the mother 
country, and afford oneof thefew in stances of the retail tradeof a 
society being carried on by the capitals of those who are not resi- 
dent members of it. Were theAmericans, either by combination, 
or by any other sort of violence, to stop the importation of Euro- 
pean manufactures, and, by thus giving a monopoly to such of 
their own countrymen as could manufacture the like goods, di- 
vert any considerable part of their capital into this employment, 
they would retard, instead of accelerating, the further increase in 
thevalueof their annual produce, and would obstruct, instead of 
promoting, the progress of their country towards real wealth and 
greatness. This would be still morethecase, were they to attempt, 
in the same manner, to monopolize to them selves their wholeex- 



299 



The Wealth of Nations 



portation trade. 

The course of human prosperity, indeed, seems scarce ever to 
have been of so long continuance as to unable any great country 
to acquire capital sufficient for all those three purposes; unless, 
perhaps, we give credit to the wonderful accounts of the wealth 
and cultivation of China, of those of ancient Egypt, and of the 
ancient state of In dostan. Even those threecountries, the wealthi- 
est, according to all accounts, that ever were in the world, are 
chiefly renowned for their superiority in agriculture and manu- 
factures. They do not appear to have been eminent for foreign 
trade. The ancient Egyptians had a superstitious antipathy to the 
sea; a superstition nearly of the same kind prevails among the In- 
dians; and the Chinese have never excelled in foreign commerce. 
Thegreater part of thesurplus produce of all those three countries 
seems to have been always exported by foreigners, who gave in 
exchange for it something else, for which they found a demand 
there, frequently gold and silver. 

It isthusthatthesame capital will in any country put into mo- 
tion a greater or smaller quantity of productive labour, and add a 
greater or smaller valueto theannual produceofitsland and labour, 
according to the different proportions in which it is employed in 
agriculture, manufactures, and wholesale trade. The difference, 
too, is very great, according to the different sorts of wholesale 



trade in which any part of it is employed. 

All wholesale trade, all buying in order to sell again by whole- 
sale, maybe reduced to three different sorts: the home trade, the 
foreign trade of consumption, and the carrying trade. The home 
trade is employed in purchasing in one part of the same country, 
and selling in another, the produce of the industry of that coun- 
try. It comprehends both the inland and the coasting trade. The 
foreign trade of consumption isemployed in purchasing foreign 
goods for home consumption. T he carrying trade is employed in 
transacting the commerce of foreign countries, or in carrying the 
surplus produce of one to another. 

The capital which isemployed in purchasing in onepartofthe 
country, in order to sell in another, the produce of the industry of 
that country, generally replaces, by every such operation, two dis- 
tinct capitals, that had both been employed in the agriculture or 
manufactures of that country, and thereby enables them to con- 
tinue that employment. W hen it sends out from the residence of 
the merchant a certain value of commodities, it generally brings 
hack in return at least an equal valueof other commodities. W hen 
both are the produce of domestic industry, it necessarily replaces, 
by every such operation, two distinct capitals, which had both 
been employed in Supporting productive labour, and thereby en- 
ables them to continue that support. The capital which sends 



300 



Adam Smith 



Scotch manufactures to London, and brings back English corn 
and manufactures to Edinburgh, necessarily replaces, by every such 
operation, two British capitals, which had both been employed in 
the agriculture or manufactures of Great Britain. 

The capital employed in purchasing foreign goods for home 
consumption, when this purchase is made with the produce of 
domestic industry, replaces, too, by every such operation, two dis- 
tinct capitals; but one of them only is employed in supporting 
domestic industry. The capital which sends British goods to Por- 
tugal, and brings back Portuguese goods to Great Britain, replaces, 
by every such operation, only one British capital. The other is a 
Portugueseone. Though thereturns, therefore, of theforeign trade 
of consumption, should be as quick as those of the home trade, 
thecapital employed in it will give but one half of the encourage- 
ment to the industry or productive labour of the country. 

But the returns of the foreign trade of consumption are very 
seldom so quick as those of the home trade. T he returns of the 
hometradegenerallycomein before theend of theyear, and some 
times three or four times in the year. T he returns of the foreign 
trade of consumption seldom come in before the end of theyear, 
and sometimes not till after two or three years. A capital, there- 
fore, employed in the home trade, will sometimes make twelve 
operations, or be sent out and returned twelve times, before a 



capital employed in theforeign trade of consumption has made 
one. If the capitals are equal, therefore, theonewill givefour-and- 
twenty times more encouragement and support to the industry of 
the country than the other. 

T he foreign goods for home consumption may sometimes be 
purchased, not with the produce of domestic industry but with 
some other foreign goods. These last, however, must have been 
purchased, either immediately with the produce of domestic in- 
dustry, or with something else that had been purchased with it; 
for, thecaseof war and conquest excepted, foreign goodscan never 
be acquired, but in exchange for something that had been pro- 
duced at home, either immediately, or after two or more different 
exchanges. T he effects, therefore, of a capital employed in such a 
round-about foreign trade of consumption, are, in every respect, 
the same as those of one employed in the most direct trade of the 
same kind, except that the final returns are likely to be still more 
distant, as they must depend upon the returns of two or three 
distinct foreign trades. Ifthehemp and flax of Riga are purchased 
with thetobacco of Virginia, which had been purchased with Brit- 
ish manufactures, the merchant must wait for the returns of two 
distinct foreign trades, before he can employ the same capital in 
repurchasing a like quantity of British manufactures. If the to- 
bacco of Virginia had been purchased, not with British manufac- 



301 



The Wealth of Nations 



tures, but with the sugar and rum of Jamaica, which had been 
purchased with those manufactures, he must wait for the returns 
of three. If those two or three distinct foreign trades should hap- 
pen to be carried on by two or three distinct merchants, of whom 
the second buys the goods imported by the first, and the third 
buysthoseimported bythesecond, in order to export them again, 
each merchant, indeed, will, in thiscase, receive the returns of his 
own capital morequickly; butthefinal returns of the whole capi- 
tal employed in thetradewill bejust as slow as ever. Whether the 
whole capital employed in such a round about trade belong to 
one merchant or to three, can make no difference with regard to 
thecountry, though it may with regard to the particular merchants. 
Three times a greater capital must in both cases be employed, in 
order to exchange a certain value of British manufactures for a 
certain quantity of flax and hemp, than would have been neces- 
sary, had the manufactures and the flax and hemp been directly 
exchanged for one another. The whole capital employed, there 
fore, in such a round-about foreign trade of consumption, will 
generally give less encouragement and support to the productive 
labour of the country, than an equal capital employed in a more 
direct trade of the same kind. 

Whatever be the foreign commodity with which the foreign 
goods for home consumption are purchased, it can occasion no 



essential difference, either in the nature of the trade, or in the 
encouragement and support which it can give to the productive 
labour of the country from which it is carried on. If they are pur- 
chased with the gold of Brazil, for example, or with the silver of 
Peru, thisgold and silver, like the tobacco of Virginia, must have 
been purchased with something that either wastheproduce of the 
industry of the country, or that had been purchased with some- 
thing else that was so. So far, therefore, astheproductivelabour of 
thecountry isconcerned, theforeign tradeof consumption, which 
is carried on by means of gold and silver, has all the advantages 
and all the inconveniences of any other equally round-about for- 
eign tradeof consumption; and will replace, just as fast, or just as 
slow, the capital which is immediately employed in supporting 
that productive labour. It seems even to have one advantage over 
any other equally round-about foreign trade. The transportation 
of those metals from one place to another, on account of their 
small bulk and great value, is less expensive than that of almost 
any other foreign goods of equal value. T heir freight is much less, 
and their insurance not greater; and no goods, besides, are less 
liableto suffer by thecarriage. An equal quantity of foreign goods, 
therefore, may frequently be purchased with a smaller quantity of 
theproduceof domestic industry, by the intervention of gold and 
si Iver, than by that of any other foreign goods. T he demand of the 



302 



Adam Smith 



country may frequently, in this manner, be supplied more com- 
pletely, and at a smaller expense, than in any other. W hether, by the 
continual exportation of those metals, a trade of this kind is likely 
to impoverish the country from which it is carried on in any other 
way, I shall have occasion to examine at great length hereafter. 

That part of the capital of any country which isemployed in the 
carrying trade, is altogether withdrawn from supporting the pro- 
ductive labour of that particular country, to support that of some 
foreign countries. Though it may replace, by every operation, two 
distinct capitals, yet neither of them belongs to that particular 
country. The capital of the Dutch merchant, which carries the 
corn of Poland to Portugal, and brings back the fruits and wines 
of Portugal to Poland, replaces by every such operation two capi- 
tals, neither of which had been employed in supporting the pro- 
ductive labour of Holland; but oneof them in supporting that of 
Poland, and the other that of Portugal. The profits only return 
regularly to Holland, and constitute the whole addition which 
this trade necessarily makes to the annual produce of the land and 
labour of that country. W hen, indeed, the carrying trade of any 
particular country is carried on with the ships and sailors of that 
country, that part of the capital employed in it which pays the 
freight isdistributed among, and putsinto motion, a certain num- 
ber of productive labourers of that country. Almost all nations 



thathavehad anyconsiderableshareof the carrying trade have, in 
fact, carried it on in this manner. The trade itself has probably 
derived its name from it, the people of such countries being the 
carriers to other countries. It does not, however, seem essential to 
the nature of the trade that it should be so. A D utch merchant 
may, for example, employ hiscapital in transacting thecommerce 
of Poland and Portugal, by carrying part of thesurplusproduceof 
the one to the other, not in Dutch, but in British bottoms. It 
maybe presumed, that he actually does so upon some particular 
occasions. Itisuponthisaccount, however, that the carrying trade 
has been supposed peculiarly advantageous to such a country as 
Great Britain, of which thedefenceand security depend upon the 
number of its sailors and shipping. But the same capital may em- 
ploy as many sailors and shipping, either in the foreign trade of 
consumption, or even in thehometrade, when carried on bycoast- 
ingvessels, asit could in thecarryingtrade.Thenumber of sailors 
and shipping which any particular capital can employ, does not 
depend upon the nature of thetrade, but partly upon the bulk of 
the goods, in proportion to their value, and partly upon the dis- 
tance of the ports between which they are to be carried; chiefly 
upon the former of those two circumstances. The coal trade from 
Newcastleto London, for example, employs more shipping than 
all the carrying trade of England, though the ports are at no great 



303 



The Wealth of Nations 



distance. To force, therefore, by extraordinary encouragements, a 
larger share of the capital of any country into the carrying trade, 
than what would naturally go to it, will not always necessarily 
increase theshipping of that country. 

Thecapital, therefore, employed in thehometradeof any coun- 
try, will generally give encouragement and support to a greater 
quantity of productive labour in that country, and increase the 
value of its annual produce, more than an equal capital employed 
in theforeign trade of consumption; and thecapital employed in 
this latter trade has, in both these respects, a still greater advantage 
over an equal capital employed in the carrying trade. The riches, 
and so far as power dependsupon riches, thepower of every country 
must always be in proportion to the value of its annual produce, 
the fund from which all taxes must ultimately be paid. But the 
great object of the political economy of every country, is to in- 
crease the riches and power of that country. Itought, therefore, to 
giveno preferencenor superior encouragement to theforeign trade 
of consumption above the home trade, nor to the carrying trade 
above either of the other two. It ought neither to force nor to 
allureinto either of those two channels a greater share of thecapi- 
tal of thecountry, than what would naturally flow into them of its 
own accord. 

Each of those different branches of trade, however, is not only 



advantageous, but necessary and unavoidable, when thecourseof 
things, without any constraint or violence, naturally introducesit. 

W hen the produce of any particular branch of industry exceeds 
what the demand of the country requires, the surplus must be 
sent abroad, and exchanged for something for which there is a 
demand at home. Without such exportation, a part of the pro- 
ductive labour of the country must cease, and the value of its an- 
nual producediminish.Theland and labour of Great Britain pro- 
duce generally more corn, woollens, and hardware, than the de- 
mand of the home market requires. The surplus part of them, 
therefore, must be sent abroad, and exchanged for something for 
which there is a demand at home. It is only by means of such 
exportation, that thissurpluscan acquired valuesufficientto com- 
pensate the labour and expense of producing it. The 
neighbourhood of the sea-coast, and the banks of all navigable 
rivers, are advantageous situations for industry, only because they 
facilitate the exportation and exchange of such surplus produce 
for something dse which is more in demand there. 

W hen theforeign goods which are thus purchased with thesur- 
plusproduceofdomesticindustryexceedthedemandofthehome 
market, the surplus part of them must be sent abroad again, and 
exchanged for something more in demand at home. About 96,000 
hogsheadsof tobacco are annually purchased in Virginia and M ary- 



304 



Adam Smith 



land with a part of the surplus produce of British industry. But 
thedemand of Great Britain does not require, perhaps, more than 
14,000. If the remaining 82,000, therefore, could not be sent 
abroad, and exchanged for something more in demand at home, 
the importation of them must cease immediately, and with it the 
productive labour of all those inhabitants of Great Britain who 
are at present employed in preparing the goods with which these 
82,000 hogsheads are annually purchased. Those goods, which 
are part of the produce of the land and labour of G reat Britain, 
having no market at home, and being deprived of that which they 
had abroad, must cease to be produced. The most round-about 
foreign trade of consumption, therefore, may, upon some occa- 
sions, be as necessary for supporting the productive labour of the 
country, and the value of its annual produce, as the most direct. 
When the capital stock of any country is increased to such a 
degree that it cannot be all employed in supplying the consump- 
tion, and supportingtheproductivelabourof that particular coun- 
try, the surplus part of it naturally disgorgesitself into thecarrying 
trade, and is employed in performing the same offices to other 
countries. Thecarryingtradeisthenatural effect and symptom of 
great national wealth; but it does not seem to be the natural cause 
of it. Those statesmen who have been disposed to favour it with 
particular encouragement, seem to have mistaken the effect and 



symptom for the cause. H olland, in proportion to the extent of 
theland and thenumber of it's inhabitants, by far theri chest coun- 
try in Europe, has accordingly the greatest share of the carrying 
trade of Europe. England, perhaps the second richest country of 
Europe, is likewise supposed to have a considerable share in it; 
though what commonly passes for the carrying tradeof England 
will frequently, perhaps, be found to be no more than a round- 
about foreign tradeof consumption. Such are, in a great measure, 
the trades which carry the goods of the East and West I ndies and 
of America to the different European markets. Those goods are 
generally purchased, either immediately with theproduceof Brit- 
ish industry, or with something else which had been purchased 
with that produce, and thefinal retu rns of those trades are gener- 
ally used or consumed in Great Britain. Thetrade which iscarried 
on in British bottoms between the different ports of the Mediter- 
ranean, and some trade of the same kind carried on by British 
merchants between the different ports of India, make, perhaps, 
the principal branches of what is properly the carrying trade of 
Great Britain. 

T he extent of the home trade, and of the capital which can be 
employed in it, is necessarily limited by the value of the surplus 
produce of all those distant places within the country which have 
occasion to exchange their respective productions with one an- 



305 



The Wealth of Nations 



other; that of the foreign trade of consumption, by the value of the 
surplus produce of the whole country, and of what can be pur- 
chased with it; that of the carrying trade, bythevalueof thesurplus 
produce of all the different countries in the world. Its possible ex- 
tent, therefore, is in a manner infinite in comparison of that of the 
other two, and is capable of absorbing the greatest capitals 

The consideration of his own private profit is the sole motive 
which determines the owner of any capital to employ it either in 
agriculture, in manufactures, or in some particular branch of the 
wholesale or retail trade. The different quantities of productive 
labour which it may put into motion, and the different values 
which itmayaddtotheannual produce of the land and labour of 
the society, according as it is employed in one or other of those 
different ways, never enter into his thoughts. In countries, there 
fore, where agriculture is the most profitable of all employments, 
and farming and improving the most direct roads to a splendid 
fortune, the capitals of individuals will naturally be employed in 
the manner most advantageous to the whole society. T he profits 
of agriculture, however, seem to have no superiority over those of 
other employments in any part of Europe. Projectors, indeed, in 
every corner of it, have, within thesefew years, amused the public 
with most magnificent accounts of the profits to be made by the 
cultivation and improvement of land. W ithout entering into any 



particular discussion of their calculations, a very simple observa- 
tion may satisfy us that the result of them must be false. We see, 
every day, the most splendid fortunes, that have been acquired in 
the course of a single life, by trade and manufactures, frequently 
from a very small capital, sometimes from no capital. A single 
instance of such a fortune, acquired by agriculture in the same 
time, and from such a capital, has not, perhaps, occurred in Eu- 
rope, during the course of the present century. In all the great 
countries of Europe, however, much good land still remains un- 
cultivated; and the greater part of what is cultivated, is far from 
being improved to the degree of which it is capable. Agriculture, 
therefore, isalmost everywhere capableof absorbing a much greater 
capital than has ever yet been employed in it. What circumstances 
in the policy of Europe have given thetrades which are carried on 
in townsso great an advantage over that which iscarried on in the 
country, that private persons frequently find it more for their ad- 
vantage to employ their capitals in the most distant carrying trades 
of Asia and America than in the improvement and cultivation of 
themostfertilefieldsintheirown neighbourhood, I shall endeav- 
our to explain at full length in the two following books. 



306 



Adam 



BOOK III 



OFTHE DIFFERENT PROGRESSOF 
OPULENCE IN DIFFERENT NATIONS 

CHAPTER I 

OFTHE NATURAL PROGRESSOF OPU- 
LENCE 

The great commerce of every civilized society is that car 
ried on between the inhabitants of the town and those 
of the country. It consists in the exchange of rude for 
manufactured produce, either immediately or by the interven- 
tion of money or of some sort of paper which represents money. 
Thecountry supplies thetown with the means of subsistence and 
the materials of manufacture. The town repays this supply by 
sending back a part of the manufactured produce to the inhabit- 
ants of the country. The town, in which thereneither isnor can be 
any reproduction of substances, may very properly be said to gain 
its whole wealth and subsistence from the country. We must not, 
however, upon this account, imagine that the gain of thetown is 
thelossof the country. The gains of both aremutual and recipro- 



Smith 

cal, and the division of labour is in this, as in all other cases, ad- 
vantageous to all the different persons employed in the various 
occupations into which it is subdivided. T he inhabitants of the 
country purchaseof thetown a greater quantity of manufactured 
goods with the produce of a much smaller quantity of their own 
labour, than they must have employed had they attempted to pre- 
pare them themselves. T he town affords a market for the surplus 
produce of the country, or what is over and above the mainte- 
nance of the cultivators; and it istherethat theinhabitantsof the 
country exchangeitforsomethingelsewhichisin demand among 
them. T he greater the number and revenue of the inhabitants of 
the town, the more extensive is the market which it affords to 
those of the country; and the more extensive that market, it is 
always themore ad vantageousto a great number. Thecorn which 
grows within amileof thetown, sellsthere for thesameprice with 
that which comes from twenty miles distance. Butthepriceofthe 
latter must, generally, not only pay the expense of raising it and 
bringing it to market, but afford, too, the ordinary profits of agri- 
culture to thefarmer. The proprietors and cultivators of thecoun- 
try, therefore, which lies in the neighbourhood of thetown, over 
and above the ordinary profits of agriculture, gain, in thepriceof 
what they sell, the whole value of the carriage of the like produce 
that is brought from more distant parts; and they save, besides, 



307 



The Wealth of Nations 



the whole value of this carriage in the price of what they buy. 
Compare the cultivation of the lands in the neighbourhood of 
any considerable town, with that of those which lie at some dis- 
tance from it, and you will easily satisfy yourself bow much the 
country is benefited by the commerce of the town. Among all the 
absurd speculations that have been propagated concerning the 
balance of trade, it has never been pretended that either the coun- 
try losesbyits commerce with thetown, or thetown bythatwith 
the country which maintains it. 

As subsistence is, in the nature of things, prior to conveniency 
and luxury, so the industry which procures the former, must nec- 
essarily be prior to that which ministers to the latter. T he cultiva- 
tion and improvement of the country, therefore, which affords 
subsistence, must, necessarily, beprior to theincrease of thetown, 
which furnishes only the means of conveniency and luxury. It is 
thesurplusproduceofthecountryonly, or whatisover and above 
themaintenanceofthecultivators, that constitutes the subsistence 
of thetown, which can therefore in crease only with theincreaseof 
the surplus produceThe town, indeed, may not always derive its 
wholesubsistencefromthecountryin itsneighbourhood,oreven 
from theterritory to which it belongs, but from very distant coun- 
tries; and this, though it forms no exception from thegeneral rule, 
has occasioned considerablevariationsin the progress of opulence 



in different ages and nations. 

That order of things which necessity imposes, in general, though 
not in every particular country, is in every particular country pro- 
moted by the natural inclinations of man. If human institutions 
had never thwarted those natural inclinations, the towns could 
nowhere have increased beyond what the improvement and culti- 
vation of theterritory in which they were situated could support; 
till such time, at least, as the whole of that territory was com- 
pletely cultivated and improved. Upon equal, or nearly equal prof- 
its, most men will choose to employ their capitals, rather in the 
improvement and cultivation of land, than either in manufactures 
or in foreign trade. The man who employs his capital in land, has 
it more under his view and command; and his fortune is much 
less liable to accidents than that of the trader, who is obliged fre- 
quently to commit it, notonlytothewindsandthewaves, but to 
themoreuncertainelementsof human folly and injustice, by giv- 
ing great credits, in distant countries, to men with whose charac- 
ter and situation he can seldom be thoroughly acquainted. The 
capital of the landlord, on thecontrary, which isfixed in the im- 
provement of his land, seemsto be as well secured as thenature of 
human affairs can admit of. The beauty of the country, besides, 
the pleasure of a country life, the tranquillity of mind which it 
promises, and, wherever theinjusticeof human laws does not dis- 



308 



Adam Smith 



turb it, the independency which it really affords, have charms that, 
more or less, attract everybody; and as to cultivate theground was 
theoriginal destination of man, so, in every stage of his existence, 
he seems to retain a predilection for this primitive employment. 
W ithout the assistance of some artificers, indeed, the cultiva- 
tion of land cannot be carried on, but with great inconveniency 
and continual interruption. Smiths, carpenters, wheelwrights and 
ploughwrights, masons and bricklayers, tanners, shoemakers, and 
tailors, are people whose service the farmer has frequent occasion 
for. Such artificers, too, stand occasionally in need of the assis- 
tance of one another; and as their residence is not, likethatof the 
farmer, necessarily tied down to aprecise spot, they naturally settle 
in the neighbourhood of oneanother, and thus form a small town 
or village. The butcher, thebrewer, and thebaker, soon join them, 
together with many other artificers and retailers, necessary or use- 
ful for supplying their occasional wants, and who contribute still 
further to augment the town. T he inhabitants of the town, and 
those of the country, are mutually the servants of one another. 
The town is a continual fair or market, to which the inhabitants 
of the country resort, in order to exchange their rude for manu- 
factured produce. It isthis commerce which supplies the inhabit- 
ants of the town, both with the materials of their work, and the 
meansof their subsistence. The quantity of thefinished work which 



theysell totheinhabitantsof thecountry, necessarily regulatesthe 

quantity of the materials and provisions which they buy. Neither 
their employment nor subsistence, therefore, can augment, but in 
proportion to the augmentation of the demand from thecountry 
for finished work; and thisdemand can augment only in propor- 
tion to the extension of improvement and cultivation. H ad hu- 
man institutions, therefore, never disturbed the natural course of 
things, the progressive wealth and increaseof thetownswould, in 
every political society, be consequential, and in proportion to the 
improvement and cultivation of theterritory of country. 

I n our N orth American colonies, where uncultivated land isstill 
to be had upon easy terms, no manufactures for distant sale have 
ever yet been established in any of their towns. W hen an artificer 
has acquired a little more stock than is necessary for carrying on 
his own business in supplying the neighbouring country, he does 
not, in N orth America, attempt to establish with it a manufacture 
for moredistant sale, but employsit in thepurchase and improve- 
ment of uncultivated land. From artificer he becomes planter; and 
neither the large wages nor the easy subsistence which that coun- 
try affords to artificers, can bribe him rather to work for other 
peoplethan for himself. Hefeelsthatan artificer is the servant of 
his customers, from whom he derives his subsistence; but that a 
planter who cultivates his own land, and deriveshisnecessarysub- 



309 



The Wealth of Nations 



sistencefrom the labour of his own family, is really a master, and 
independent of all the world. 

In countries, on the contrary, where there is either no unculti- 
vated land, or none that can be had upon easy terms, every artifi- 
cer who has acquired more stock than hecan employ in th e occa- 
sional jobs of the neighbourhood, endeavours to preparework for 
more distant sale. The smith erects some sort of iron, the weaver 
somesort of linen or woollen manufactory. T hosedifferent manu- 
factures come, in process of time, to be gradually subdivided, and 
thereby improved and refined in a great variety of ways, which 
may easily be conceived, and which it istherefore unnecessary to 
explain any farther. 

In seeking for employment to a capital, manufactures are, upon 
equal or nearly equal profits, naturally preferred to foreign com- 
merce, for the same reason that agriculture is naturally preferred 
to manufactures. As the capital of the landlord or farmer is more 
secure than that of the manufacturer, so the capital of the manu- 
facturer, being at all times more within hisviewand command, is 
more secure than that of the foreign merchant. In every period, 
indeed, of every society, the surplus part both of the rude and 
manufactured produce, or that for which there is no demand at 
home, must be sent abroad, in order to be exchanged for some- 
thing for which there is some demand at home. But whether the 



capital which carries this surplus produce abroad beaforeign ora 
domestic one, is of very little importance. If the society has not 
acquired sufficient capital, both to cultivate all its lands, and to 
manufacture in the completest manner the whole of its rude pro- 
duce, thereiseven a considerableadvantagethat the rude produce 
should be exported by a foreign capital, in order that the whole 
stock of the society may be employed in more useful purposes. 
The: wealth of ancient Egypt, that of China and Indostan, suffi- 
ciently demonstrate that a nation may attain a very high degreeof 
opulence, though the greater part of its exportation trade be car- 
ried on by foreigners. The progress of our North American and 
West Indian colonies, would have been much less rapid, had no 
capital but what belonged to themselves been employed in ex- 
porting their surplus produce. 

According to the natural course of things, therefore, thegreater 
part of the capital of every growing society is, first, directed to 
agriculture, afterwardsto manufactures, and, last of all, to foreign 
commerce. This order of things is so very natural, that in every 
society that had any territory, it has always, I believe, been in some 
degree observed. Some of their lands must have been cultivated 
before any considerabletownscould be established, and somesort 
of coarse industry of themanufacturingkind must have been car- 
ried on in those towns, before they could well think of employing 



310 



Adam Smith 



themselves in foreign commerce. 

But though this natural order of things must have taken place 
in some degree in every such society, it has, in all the modern 
states of Europe, been in manyrespectsentirelyinverted.Thefor- 
eign commerce of someof their citieshasintroduced all their finer 
manufactures, or such as were fit for distant sale; and manufac- 
tures and foreign commerce together have given birth to theprin- 
cipal improvements of agriculture. The manners and customs 
which the nature of their original government introduced, and 
which remained after that government was greatly altered, neces- 
sarily forced them into this unnatural and retrograde order. 



CHAPTER II 

OFTHE DISCOURAGEMENT OF AGRI- 
CULTURE IN THE ANCIENT STATE OF 
EUROPE f AFTERTHE FALLOFTHE RO- 
MAN EMPIRE 

When the Germ an and Scythian nations overran the western prov- 
incesoftheRoman empire, theconfusionswhich followed so great 
a revolution lasted for several centuries. The rapine and violence 
which the barbarians exercised against the ancient inhabitants, 
interrupted the commerce between the towns and the country. 
T he towns were deserted, and the country was left uncultivated; 
and the western provinces of Europe, which had enjoyed a con- 
siderable degree of opulence under the Roman empire, sunk into 
the lowest state of poverty and barbarism. During the continu- 
ance of those confusions, thechiefsand principal leaders of those 
nations acquired, or usurped to themselves, the greater part of the 
lands of those countries. A great part of them was uncultivated; 
but no part of them, whether cultivated or uncultivated, was left 
without a proprietor. All of them were engrossed, and the greater 
part by a few great proprietors. 
This original engrossing of uncultivated lands, though a great, 



311 



The Wealth of Nations 



might have been but a transitory evil. They mightsoon have been 
divided again, and broke into small parcels, either by succession 
or by alienation. The law of primogeniture hindered them from 
being divided by succession; theintroduction of entails prevented 
their being broke into small parcels by alienation. 

When land, like moveables, is considered as the means only of 
subsistence and enjoyment, the natural law of succession divides 
it, likethem, among all thechildren of thefamily; of all of whom 
the subsistence and enjoyment may be supposed equally dear to 
the father. This natural law of succession, accordingly, took place 
amongtheRomanswhomadenomoredistinction between elder 
and younger, between maleand female, in the inheritance of lands, 
than we do in the distribution of moveables. But when land was 
considered as the means, not of subsistence merely, but of power 
and protection, it was thought better that it should descend undi- 
vided to one. In thosedisorderly times, every great landlord was a 
sort of petty prince. H is tenants were his subjects. H e was their 
judge, and in some respects their legislator in peace and their leader 
in war. He made war according to his own discretion, frequently 
against his neighbours, and sometimes against his sovereign. The 
security of a landed estate, therefore, the protection which itsowner 
could afford to those who dwelt on it, depended upon its great- 
ness. To divideit was to ruin it, and to expose every part of it to be 



oppressed and swallowed up by the incursions of its neighbours. 
T he law of primogeniture, therefore, came to take place, not im- 
mediately indeed, but in process of time, in thesuccession of landed 
estates, for thesame reason that it has generally taken place in that 
of monarchies, though not always at their first institution. That 
the power, and consequently the security of the monarchy, may 
not be weakened by division, it must descend entiretooneof the 
children. To which of them so important a preference shall be 
given, must be determined by some general rule, founded not 
upon the doubtful distinctions of personal merit, but upon some 
plain and evident differencewhich can admit of no dispute. Among 
thechildren of the same family there can beno indisputable dif- 
ference but that of sex, and that of age. T hemalesex isuniversally 
preferred to the female; and when all other things are equal, the 
elder everywhere takes place of the younger. Hence the origin of 
theright of primogeniture, and of what is called lineal succession. 
Laws frequently continue in force long after the circumstances 
which first gave occasion to them, and which could alone render 
them reasonable, are no more. I n the present state of Europe, the 
proprietor of a single acre of land is as perfectly secure in his pos- 
session as the proprietor of 100,000. T he right of primogeniture, 
however, still continues to be respected; and asof all institutionsit 
is the fittest to support the pride of family distinctions, it is still 



312 



Adam Smith 



likely to endure for many centuries. In every other respect, noth- 
ingcan be more contrary to the real interest of a numerousfamily, 
than a right which, in order to enrich one, beggars all the rest of 
the children. 

Entails are the natural consequences of the law of primogeni- 
ture. They were introduced to preservea certain lineal succession, 
of which thelaw of primogeniture first gave theidea, and to hinder 
any part of the original estate from being carried out of the pro- 
posed line, either by gift, or device, or alienation; either by the 
folly, or by the misfortune of any of its successive owners. They 
were altogether unknown to the Romans. N either their substitu- 
tions, nor fidei commisses, bear any resemblance to entails, though 
some French lawyers have thought proper to dress the modern 
institution in the language and garb of those ancient ones. 

W hen great landed estates were a sort of principalities, entails 
might not be unreasonable. Like what are called thefundamental 
laws of some monarchies, they might frequently hinder the secu- 
rity of thousands from being endangered by the caprice or ex- 
travagance of one man. But in the present state of Europe, when 
small as well as great estates derive their security from thelaws of 
their country, nothing can be more completely absurd. They are 
founded upon the most absurd of all suppositions, the supposi- 
tion that every successive generation of men have not an equal 



right to theearth, and to all that it possesses; but that the property 
of the present generation should be restrained and regulated ac- 
cording to thefancy of those who died, perhapsfive hundred years 
ago. Entails, however, are still respected, through the greater part 
of Europe; Inthosecountries, particularly, in which noble birth is 
a necessary qualification for the enjoyment either of civil or mili- 
tary honours. Entails are thought necessary for maintaining this 
exclusive privilege of the nobility to the great offices and honours 
of their country; and that order having usurped one unjust advan- 
tage over the rest of their fellow- citizens, lest their poverty should 
render it ridiculous, it isthought reasonablethat they should have 
another. The common law of England, indeed, is said to abhor 
perpetuities, and they are accordingly more restricted there than 
in any other European monarchy; though even England is not 
altogether without them. In Scotland, more than one fifth, per- 
haps more than onethird part of the whole lands in the country, 
are at present supposed to be under strict entail . 

Great tracts of uncultivated land were in this manner not only 
engrossed by particular families, but the possibility of their being 
divided again was as much as possible precluded for ever. It sel- 
dom happens, however, that a great proprietor isa great improver. 
In the disorderly times which gave birth to those barbarous insti- 
tutions, thegreat proprietor was sufficiently employed indefend- 



313 



The Wealth of Nations 



ing his own territories, or in extending his jurisdiction and au- 
thority over those of his neighbours. He had no leisure to attend 
to the cultivation and improvement of land. When the establish- 
ment of law and order afforded him this leisure, he often wanted 
the inclination, and almost always the requisite abilities. If the 
expense of his house and person either equalled or exceeded his 
revenue, as it did very frequently, he had no stock to employ in 
this manner. If he was an economist, he generally found it more 
profitableto employ his annual savingsin new purchases than in 
the improvement of his old estate. To improve land with profit, 
like all other commercial projects, requires an exact attention to 
small savings and small gains, of which a man born to a great 
fortune, even though naturally frugal, isvery seldom capableThe 
situation of such a person naturally disposes him to attend rather 
to ornament, which pleases his fancy, than to profit, for which he 
hassolittleoccasion.Theeleganceof hisdress, of hisequipage, of 
his house and household furniture, are objects which, from his 
infancy, he has been accustomed to have someanxiety about. T he 
turn of mind which this habit naturally forms, follows him when 
he comes to think of the improvement of land. H e embellishes, 
perhaps, four or five hundred acres in the neighbourhood of his 
house, at ten times the expense which the land is worth after all 
his improvements; and finds, that if hewas to improve his whole 



estate i n the same manner, and he has little taste for any other, he 
would be a bankrupt before he had finished the tenth part of it. 
There still remain, in both parts of the united kingdom, some 
great estates which have continued, without interruption, in the 
handsof thesamefamily since thetimes of feudal anarchy. Com- 
pare the present condition of those estates with the possessions of 
the small proprietors in their neighbourhood, and you will re- 
quire no other argument to convince you how unfavourable such 
extensive property is to improvement. 

If little improvement was to be expected from such great pro- 
prietors, still less was to be hoped for from those who occupied 
the land under them. In theancient state of Europe, theoccupiers 
of land were all tenants at will. They were all, or almost all, slaves, 
but their slavery was of a milder kind than that known among the 
ancient Greeks and Romans, or even in our West Indian colonies. 
They were supposed to belong more directly to the land than to 
their master. They could, therefore, be sold with it, but not sepa- 
rately They could marry, provided it was with theconsent of their 
master; and he could not afterwards dissolve the marriage by sell- 
ing the man and wife to different persons. If he maimed or mur- 
dered any of them, he was liable to some penalty, though gener- 
ally but to a small one. T hey werenot, however, capableof acquir- 
ing property. W hatever they acquired was acquired to their mas- 



314 



Adam Smith 



ter, and he could take it from them at pleasure. W hatever cultiva- 
tion and improvement could be carried on by meansof such slaves, 
was properly carried on by their master. ltwasathisexpense.The 
seed, the cattle, and the instruments of husbandry, were all his. It 
was for his benefit. Such slaves could acquire nothing but their 
daily maintenance. It was properly the proprietor himself, there 
fore, that in this case occupied hisown lands, and cultivated them 
by his own bondmen. This species of slavery still subsists in Rus- 
sia, Poland, Hungary, Bohemia, Moravia, and other parts of Ger- 
many. It is only in the western and south-western provinces of 
Europe that it has gradually been abolished altogether. 

But if great improvements are seldom to be expected from great 
proprietors, they are least of all to be expected when they employ 
slaves for their workmen. Theexperience of all ages and nations, I 
believe, demonstrates that the work done by slaves, though it ap- 
pears to cost only their maintenance, is in the end the dearest of 
any. A person who can acquire no property can have no other 
interest but to eat as much and to labour as little as possible. 
W hatever work he does beyond what is sufficient to purchase his 
own maintenance, can be squeezed out of him by violence only, 
and not by any interest of hisown. I n ancient Italy, how much the 
cultivation of corn degenerated, how unprofitable it became to 
the master, when it fell under the management of slaves, is re 



marked both by Pliny and Columella. In thetime of Aristotle, it 
had not been much better in ancient Greece. Speaking of theideal 
republic described in thelawsof Plato, to maintain 5000 idlemen 
(the number of warriors supposed necessary for its defence), to- 
gether with their women and servants, would require, he says, a 
territoryofboundlessextentand fertility, liketheplainsof Babylon. 
The pride of man makes him love to domineer, and nothing 
mortifieshim so much asto be obliged to condescend to persuade 
his inferiors. Wherever the law allows it, and the nature of the 
work can afford it, therefore, he will generally prefer the service of 
slaves to that of freemen. The planting of sugar and tobacco can 
afford theexpenseof slave cultivation. Theraisingof corn, it seems, 
in the present times, cannot. In the English colonies, of which the 
principal produce is corn, the far greater part of the work is done 
by freemen. The late resolution of the Quakers in Pennsylvania, 
to set at liberty all their negro slaves, may satisfy us that their 
number cannot be very great. H ad they made any considerable 
part of their property, such a resolution could never have been 
agreed to. In our sugar colonies, on the contrary, the whole work 
is done by slaves, and in our tobacco colonies a very great part of 
it. The profits of a sugar plantation in any of our West Indian 
colonies, aregenerally much greater than thoseof any other culti- 
vation thatisknown either in Europe or America; and theprofits 



315 



The Wealth of Nations 



of a tobacco plantation, though inferior to those of sugar, are su- 
perior to those of corn, as has already been observed. Both can 
afford the expense of slave cultivation but sugar can afford it still 
better than tobacco. The number of negroes, accordingly, ismuch 
greater, in proportion to that of whites, in our sugar than in our 
tobacco colonies. 

To the slave cultivators of ancient times gradually succeeded a 
species of farmers, known at present in France by the name of 
metayers. They are called in Latin Coloni Partiarii. They have been 
so long in disuse in England, that at present I know no English 
namefor them. Theproprietor furnished them with theseed, cattle, 
and instruments of husbandry, the whole stock, in short, neces- 
sary for cultivating the farm. The produce was divided equally 
between the proprietor and the farmer, after setting aside what 
wasjudged necessary for keeping up thestock, which was restored 
to the proprietor, when the farmer either quitted or was turned 
out of the farm. 

Land occupied by such tenants is properly cultivated at the ex- 
pense of the proprietors, asmuch as that occupied by slaves. There 
is, however, on every essential difference between them. Such ten- 
ants, being freemen, are capable of acquiring property; and hav- 
ing a certain proportion of the produce of the land, they have a 
plain interest that the whole produce should be as great as pos- 



sible, in order that their own proportion may be so. A slave, on 
thecontrary, who can acquire nothing but his maintenance, con- 
sultshisown ease, by making the land produce as little as possible 
over and above that maintenance. It is probable that it was partly 
upon account of this advantage, and partly upon account of the 
encroachments which the sovereigns, always jealous of the great 
lords, gradually encouraged their villains to make upon their au- 
thority, and which seem, at least, to have been such as rendered 
this species of servitude altogether inconvenient, that tenure in 
villanage gradually wore out through the greater part of Europe. 
The time and manner, however, in which so important a revolu- 
tion was brought about, isoneof themostobscurepointsin mod- 
ern history. The church of Rome claims great merit in it; and it is 
certain, that so early as the twelfth century, Alexander III. pub- 
lished a bull forthegeneral emancipation of slaves. It seems, how- 
ever, to have been rather a pious exhortation, than a law to which 
exact obediencewas required from thefaithful. Slavery continued 
to take place almost universally for several centuries afterwards, 
till it was gradually abolished by the joint operation of the two 
interests abovementioned; that of theproprietor on theonehand, 
and that of thesovereign on theother. A villain, enfranchised, and 
at the same time allowed to continue in possession of the land, 
having no stock of his own, could cultivate it only by means of 



316 



Adam Smith 



what the landlord advanced to him, and must therefore have been 
what the French call a metayer. 

It could never, however, be the interest even of this last species 
of cultivators, to layout, in thefurther improvement of the land, 
any part of the little stock which they might save from their own 
share of the produce; because the landlord, who laid out nothing, 
was to get one half of whatever it produced. The tithe, which is 
but a tenth of the produce, is found to be a very great hindrance 
to improvement. A tax, therefore, which amounted to one half, 
must have been an effectual bar to it. It might be the interest of a 
metayer to make the land produce as much as could be brought 
out of it by means of the stock furnished by the proprietor; but it 
could never be his interest to mix any part of his own with it. In 
France, where five parts out of six of the whole kingdom are said 
to be still occupied by this species of cultivators, the proprietors 
complain, that their metayers take every opportunity of employ- 
ing their master's cattle rather in carriage than in cultivation; be- 
cause, in theonecase, they get the whole profits to themselves, in 
the other they share them with their landlord. Thisspecies of ten- 
ants still subsists in some parts of Scotland. They are called steel- 
bow ten ants. Those ancient English ten ants, who are said by Chief- 
Baron Gilbert and Dr Blackstoneto have been rather bailiffs of 
the landlord than farmers, properly so called, were probably of the 



same kind. 

To this species of tenantry succeeded, though by very slow de- 
grees, farmers, properly so called, who cultivated the land with 
their own stock, paying a rent certain to the landlord. W hen such 
farmers have a lease for a term of years, they may sometimes find 
it for their interest to lay out part of their capital in the further 
i mprovement of the farm; because they may sometimes expect to 
recover it, with a large profit, before the expiration of the lease. 
The possession, even of such farmers, however, was long extremely 
precarious, and still is so in many parts of Europe. They could, 
before theexpi ration of theirterm, belegally ousted of their leases 
by a new purchaser; in England, even, by thefictitious action of a 
common recovery. If they were turned out illegally by theviolence 
of their master, the action by which they obtained redress was 
extremely imperfect. It did not always rein state them in the pos- 
session of theland, but gave them damages, which never amounted 
to a real loss. Even in England, the country, perhaps of Europe, 
where the yeomanry has always been most respected, it was not 
till about the 14th of Henry VI I. that the action of ejectment was 
invented, by which the tenant recovers, not damages only, but 
possession, and in which hisclaim isnot necessarily concluded by 
theuncertain decision of asingleassize. Thisaction has been found 
so effectual a remedy, that, in themodern practice, when theland- 



317 



The Wealth of Nations 



lord has occasion to sue for the possession of the land, he seldom 
makes use of the actions which properly belong to him as a land- 
lord, the writ of right or the writ of entry, but sues in the name of 
his tenant, by the writ of ejectment. In England, therefore the 
security of the tenant is equal to that of the proprietor. In En- 
gland, besides, a lease for life of forty shillings a-year value is a 
freehold, and entitles the lessee to a vote for a member of parlia- 
ment; and as a great part of the yeomanry have freeholds of this 
kind, the whole order becomes respectable to their landlords, on 
account of the political consideration which thisgives them. There 
is, I believe, nowhere in Europe, except in England, any instance 
of the tenant building upon the land of which he had no lease, 
and trusting that the honour of his landlord would takeno advan- 
tage of so important an improvement. Those laws and customs, 
sofavourabletotheyeomanry, have perhaps contributed more to 
the present grandeur of England, than all their boasted regula- 
tions of commerce taken together. 

The law which secures the longest leases against successors of 
every kind, is, so far as I know, peculiar to Great Britain. It was 
introduced into Scotland so early as 1449, byalawofjamesll. Its 
beneficial influence, however, has been much obstructed by en- 
tails; theheirsof en tail being generally restrained from letting leases 
for any long term of years, frequently for more than one year. A 



late act of parliament has, in this respect, somewhat slackened 
their fetters, though they are still by much too strait. In Scotland, 
besides, as no leasehold gives a vote for a member of parliament, 
theyeomanry are upon this account less respectableto their land- 
lordsthan in England. 

I n other parts of Europe, after it wasfound convenient to secure 
tenants both against heirs and purchasers, theterm of their secu- 
rity wasstill limited to a very short period; in France, for exam pie, 
to nine years from the commencement of the lease. It has in that 
country, indeed, been lately extended to twentyseven, a period 
still too short to encourage the tenant to make the most impor- 
tant improvements. The proprietors of land were anciently the 
legi si atorsof every part of Europe. Thelaws relating to land, there- 
fore, were all calculated for what they supposed the interest of the 
proprietor. It wasfor hisinterest, they had imagined, that no lease 
granted by any of his predecessors should hinder him from enjoy- 
ing, during a long term of years, thefull value of his land. Avarice 
and injustice are always short-sighted, and they did not foresee 
how much this regulation must obstruct improvement, and thereby 
hurt, in the long-run, the real interest of the landlord. 

Thefarmers, too, besides paying the rent, were anciently, it was 
supposed, bound to perform a great number of services to the 
landlord, which were seldom either specified in the lease, orregu- 



318 



Adam Smith 



lated by any precise rule, but by the use and wont of the manor or 
barony. These services, therefore, being almost entirely arbitrary, 
subjected thetenantto many vexations. In Scotland the abolition 
of all services not precisely stipulated in thelease, has, in thecourse 
of a few years, very much altered for the better the condition of 
the yeomanry of that country. 

T he public services to which the yeomanry were bound, were 
not less arbitrary than the private ones. To make and maintain the 
high roads, a servitude which still subsists, I believe, everywhere, 
though with different degrees of oppression in different countries, 
was not the only one. W hen the king's troops, when his house- 
hold, or his officers of any kind, passed through any part of the 
country, the yeomanry were bound to provide them with horses, 
carriages, and provisions, at a price regulated by the purveyor. 
Great Britain is, I believe, theonly monarchy in Europe where the 
oppression of purveyance has been entirely abolished. It still sub- 
sists in France and Germany. 

The public taxes, to which they were subject, were as irregular 
and oppressive as theservicesTheancient lords, though extremely 
unwilling to grant, themselves, any pecuniary aid to their sover- 
eign, easily allowed him to tallage, as they called it, their tenants, 
and had not knowledge enough to foreseehow much thismust, in 
the end, affect their own revenue. The taille, as it still subsists in 



France, may serve as an example of those ancient tallages. It is a 
tax upon thesupposed profits of the farmer, which they estimate 
bythestock that he has upon thefarm. It ishisinterest, therefore, 
to appear to have aslittleas possible, and consequently to employ 
aslittleaspossiblein itscultivation, and nonein its improvement. 
Should any stock happen to accumulate in the handsof a French 
farmer, thetailleisalmost equal to a prohibition of its ever being 
employed upon the land. This tax, besides, is supposed to 
dishonour whoever is subject to it, and to degrade him below, not 
only the rank of a gentleman, but that of a burgher; and whoever 
rents the lands of another becomes subject to it. N o gentleman, 
nor even any burgher, who has stock, will submit to thisdegrada- 
tion. This tax, therefore, not only hinders the stock which accu- 
mulates upon the land from being employed in its improvement, 
but drives away all other stock from it. The ancient tenths and 
fifteenths, so usual in England in former times, seem, so far as 
they affected the land, to have been taxes of the same nature with 
thetaille. 

U nder all thesediscouragements, littleimprovement could be ex- 
pected from the occupiers of land. T hat order of people, with all the 
liberty and security which law can give, must alwaysimproveunder 
great disadvantage. The farmer, compared with the proprietor, is as 
a merchant who trades with burrowed money, compared with one 



319 



The Wealth of Nations 



who trades with his own. The stock of both may improve; but that 
of the one, with only equal good conduct, must always improve 
more slowly than that of the other, on account of the large share of 
theprofits which isconsumed by the interest of the loan. The lands 
cultivated by thefarmer must, in the same manner, with only equal 
good conduct, be improved more slowly than those cultivated by 
the proprietor, on accountof thelargeshareof theproduce which is 
consumed in the rent, and which, had thefarmer been proprietor, 
he might have employed in the further improvement of the land. 
The station of a farmer, besides, is, from the nature of things, infe- 
rior to that of a proprietor. T hrough the greater part of Europe, the 
yeomanry are regarded as an inferior rank of people, even to the 
better sort of tradesmen and mechanics, and in all parts of Europe 
to the great merchants and master manufacturers It can seldom 
happen, therefore, that a man of any considerablestock should quit 
thesuperior, in order to placehimsdf in an inferior station. Even in 
the present state of Europe, therefore, littlestock islikely to go from 
any other profession to thei mprovement of land in the way of farm- 
ing. M oredoes, perhaps, in Great Britain than in any other country, 
though even there the great stocks which are in some places em- 
ployed in farming, have generally been acquired by fanning, the 
trade, perhaps, in which, of all others, stock is commonly acquired 
most slowly. After small proprietors, however, rich and great farm- 



ers are in every country the principal improvers. There are more 
such, perhaps, in England than in any other European monarchy. 
In therepublican governments of H olland, and of Bernein Switzer- 
land, the farmers are said to be not inferior to those of England. 

The ancient policy of Europe was, over and above all this, 
unfavourableto the improvement and cultivation of land, whether 
carried on by the proprietor or by thefarmer; first, by the general 
prohibition of the exportation of corn, without a special licence, 
which seems to have been a very universal regulation; and, sec- 
ondly, by the restraints which were laid upon the inland com- 
merce, not only of corn, but of almost every other part of the 
produceof thefarm, bytheabsurd laws against engrossers, regraters, 
and forestallers, and by the privileges of fairs and markets. It has 
already been observed in what manner the prohibition of the ex- 
portation of corn, together with some encouragement given to 
the importation of foreign corn, obstructed the cultivation of an- 
cient Italy, naturally the most fertile country in Europe, and at 
that time the seat of the greatest empire in the world. To what 
degree such restraints upon the inland commerce of this com- 
modity, joined to the general prohibition of exportation, must 
have discouraged the cultivation of countries less fertile, and less 
favourably circumstanced, it isnot, perhaps, very easy to imagine. 



320 



Adam Smith 



CHAPTER III 

OF THE RISE AND PROGRESS OF CITIES 

AND TOWNS, AFTER THE FALL OF THE 

ROMAN EMPIRE 

The inhabitants of cities and towns were, after the fall of the 
Roman empire, not morefavoured than thoseofthecountry. They 
consisted, indeed, of a very different order of peoplefrom thefirst 
inhabitants of theancient republics of Greece and Italy. These last 
were composed chiefly of the proprietors of lands, among whom 
the public territory was originally divided, and who found it con- 
venient to build their houses in the neighbourhood of one an- 
other, and to surround them with a wall, for the sake of common 
defence. After thefall of the Roman empire, on thecontrary, the 
proprietors of land seem generally to have lived in fortified castles 
on their own estates, and in the midst of their own tenants and 
dependants. The towns were chiefly inhabited by tradesmen and 
mechanics, who seem, in those days, to have been of servile, or 
very nearly of servile condition. The privileges which we find 
granted by ancient charters to the inhabitants of someof the prin- 
cipal towns in Europe, sufficiently show what they were before 
those grants. T he people to whom it is granted as a privilege, that 



they might give away their own daughters in marriage without the 
consent of their lord, that upon their death their own children, 
and not their lord, should succeed to their goods, and that they 
might dispose of theirown effects by will, must, before those grants, 
have been either altogether, or very nearly, in the same state of 
villanage with the occupiers of land in the country. 

They seem, indeed, to have been a very poor, mean set of people, 
who seemed to travel about with their goods from place to place, 
and from fair to fair, like the hawkers and pedlars of the present 
times. In all the different countries of Europe then, in the same 
manner asin several of theTartar governments of Asia at present, 
taxes used to be levied upon the persons and goods of travellers, 
when they passed through certain manors, when they went over 
certain bridges, when they carried abouttheirgoodsfrom place to 
place in a fair, when they erected in it a booth or stall to sell them 
in. These different taxes were known in England bythenamesof 
passage, pontage, lastage, and stallage. Sometimes the king, some- 
times a great lord, who had, it seems, upon some occasions, au- 
thority to do this, would grant to particular traders, to such par- 
ticularly aslived in theirown demesnes, a general exemption from 
such taxes. Such traders, though in other respects of servile, or 
verynearly of servilecondition, wereupon thisaccount called free 
traders. T hey, in return, usually paid to their protector a sort of 



321 



The Wealth of Nations 



annual poll-tax. In those days protection was seldom granted with- 
out a valuable consideration, and this tax might perhaps be con- 
sidered as compensation for what their patronsmightloseby their 
exemption from other taxes. At first, both those poll-taxes and 
those exemptions seem to have been altogether personal, and to 
have affected only particular individuals, during either their lives, 
or the pleasure of their protectors. In the very imperfect accounts 
which have been published from Doomsday-book, of several of 
the townsof England, mention is frequently made, sometimes of 
thetax which particular burghers paid, each of them, either to the 
king, or to some other great lord, for this sort of protection, and 
sometimes of thegeneral amountonlyof all those taxes. {seeBradys 
Historical Treatise of Cities and Boroughs p. 3. etc.} 

But how servile soever may have been originally the condition 
of the inhabitants of the towns, it appears evidently, that they 
arri ved at liberty and independency much earlier than theoccupi- 
ersof land in the country. That part of the king's revenue which 
arose from such poll-taxes in any particular town, used commonly 
to be let in farm, during a term of years, for a rent certain, some- 
times to thesheriff of the county, and sometimes to other persons. 
The burghers themselves frequently got credit enough to be ad- 
mitted to farm the revenues of this sort winch arose out of their 
own town, they becomingjointly and severally answerablefor the 



whole rent. -(Bee M adox, Firma Burgi, p. 18; also H istory of the 
Exchequer, chap. 10, sect, v, p. 223, first edition. }To let a farm in 
this manner, was quite agreeable to the usual economy of, I be- 
lieve, the sovereigns of all the different countries of Europe, who 
used frequently to let whole manors to all the tenants of those 
manors, they becoming jointly and severally answerable for the 
whole rent; but in return being allowed to collect it in their own 
way, and to pay it into the king's exchequer by the hands of their 
own bailiff, and being thus altogether freed from the insolence of 
the king's officers; a circumstance in those days regarded asof the 
greatest importance. 

At first, the farm of the town was probably let to the burghers, 
in the same manner as it had been to other farmers, for a term of 
years only. In process of time, however, it seems to have become 
the general practice to grant it to them in fee, that is for ever, 
reserving a rent certain, never afterwards to be augmented. The 
payment having thus become perpetual, the exemptions, in re- 
turn, for which it was made, naturally became perpetual too. T hose 
exemptions, therefore, ceased to be personal, and could not after- 
wards be considered as belonging to individuals, as individuals, 
but as burghers of a particular burgh, which, upon this account, 
was called a free burgh, for the same reason that they had been 
called free burghers or freetraders. 



322 



Adam Smith 



Along with thisgrant, theimportant privileges, abovementioned, 
that they might giveaway their own daughters in marriage, that 
their children should succeed to them, and that they might dis- 
pose of their own effects by will, were generally bestowed upon 
the burghers of the town to whom it was given. W hether such 
privileges had before been usually granted, along with the free- 
dom of trade, to particular burghers, as individuals, I know not. I 
reckon itnotimprobablethat they were, though I cannot produce 
any direct evidence of it. But however this may have been, the 
principal attributesof villanageand slavery being thus taken away 
from them, they now at least became really free, in our present 
sense of the word freedom. 

N or was this all. T hey were generally at the same time erected 
into a commonalty or corporation, with the privilege of having 
magistrates and a town-council of their own, of making bye-laws 
for their own government, of building walls for their own de- 
fence, and of reducing all their inhabitants under a sort of military 
discipline, by obliging them to watch and ward; that is, as an- 
ciently understood, to guard and defend those walls against all 
attacks and surprises, by night as well as by day. In England they 
were generally exempted from suit to the hundred and county 
courts: and all such pleas as should arise among them, thepleasof 
the crown excepted, were left to the decision of their own magis- 



trates. In other countries, much greater and moreextensivejuris- 
d i cti on s were frequently gran ted to them. {SeeMadox, Firma Burgi. 
See also Pfeffel in theRemarkableeventsunder Frederick 1 1 . and his 
Successorsof the H ouseof Suabia.} 

It might, probably, be necessary to grant to such towns as were 
admitted to farm their own revenues, some sort of compulsive 
jurisdiction to oblige their own citizensto make payment. I n those 
disorderly times, it might have been extremely inconvenient to 
have left them to seek thissort of justice from any other tribunal. 
But it must seem extraordinary, that the sovereigns of all the dif- 
ferent countries of Europe should have exchanged in thismanner 
for a rent certain, never more to be augmented, that branch of 
their revenue, which was, perhaps, of all others, the most likely to 
be improved by the natural course of things, without either ex- 
pense or attention of their own; and that they should, besides, 
have in this manner voluntarily erected a sort of independent re- 
publics in the heart of their own dominions. 

In order to understand this, it must be remembered, that, in 
those days, the sovereign of perhaps no country in Europe was 
able to protect, through the whole extent of his dominions, the 
weaker part of his subjects from the oppression of the great lords. 
T hose whom the law could not protect, and who were not strong 
enough to defend themselves, were obliged either to have recourse 



323 



The Wealth of Nations 



to the protection of some great lord, and in order to obtain it, to 
become either his slaves or vassals; or to enter into a league of 
mutual defence for the common protection of one another. The 
inhabitants of cities and burghs, considered as single individuals, 
had no power to defend themselves; but by entering into a league 
of mutual defence with their neighbours, they were capable of 
making no contemptible resistance. The lords despised the 
burghers, whom they considered not only asa different order, but 
asaparcel of emancipated slaves, almost of a different speciesfrom 
themselves. The wealth of the burghers never failed to provoke 
their envy and indignation, and they plundered them upon every 
occasion without mercy or remorse. T he burghers naturally hated 
and feared the lords The king hated and feared them too; but 
though, perhaps, he might despise, he had no reason either to 
hate or fear the burghers. M utual interest, therefore, disposed them 
to support the king, and the king to support them against the 
lords. T hey were the enemies of hisenemies, and it was his interest 
to render them as secure and independent of those enemies as he 
could. By granting them magistrates of their own, the privilege of 
making bye-laws for their own government, that of building walls 
for their own defence, and that of reducing all their inhabitants 
under a sort of military discipline, he gave them all the means of 
security and independency of thebaronswhich it wasin hispower 



to bestow. W ithout the establishment of some regular government 
of this kind, without some authority to compel their inhabitants 
to act according to some certain plan or system, no voluntary 
league of mutual defence could either have afforded them any 
permanent security, or have enabled them to give the king any 
considerable support. By granting them the farm of their own 
town in fee, hetook away from those whom he wished to have for 
his friends, and, if one may say so, for his allies, all ground of 
jealousy and suspicion, that hewaseverafterwardsto oppress them, 
either by raising the farm-rent of their town, or by granting it to 
some other farmer. 

The princes who lived upon the worst terms with their barons, 
seem accordingly to have been the most liberal in grants of this 
kind to their burghs. Kingjohn of England, for example, appears 
to have been a most munificent benefactor to his towns. {See 
Madox.} Philip I. of France lost all authority over his barons. To- 
wardstheend of hisreign, hisson Lewis, known afterwards by the 
name of Lewis the Fat, consulted, according to Father Daniel, 
with thebishopsof theroyal demesnes, concerningthemost proper 
means of restraining the violence of the great lords. Their advice 
consisted of two different proposals. ne was to erect a new order 
of jurisdiction, by establishing magistrates and a town-council in 
every considerabletown of hisdemesnes.Theotherwastoform a 



324 



Adam Smith 



new militia, by making the inhabitants of those towns, under the 
command of their own magistrates, march out upon proper occa- 
sionstotheassistanceof theking. It isfrom this period, according 
to the French antiquarians, that we are to date the institution of 
the magistrates and councils of cities in France. It was during the 
unprosp erousreignsof the princes of thehouseofSuabia, that the 
greater part of the free towns of G ermany received the first grants 
of their privileges, and that the famous H anseatic league first be- 
came formidable. {See Pfeffel.} 

Themilitiaof thecities seems, in those times, not to have been 
inferior to that of the country; and as they could be more readily 
assembled upon any sudden occasion, they frequently had the 
advantagein their disputes with theneighbouring lords. In coun- 
tries such as Italy or Switzerland, in which, on account either of 
their distance from theprinci pal seat of government, of the natu- 
ral strength of the country itself, or of some other reason, the 
sovereign cameto lose the wholeof hisauthority; theci ties gener- 
ally became independent republics, and conquered all thenobility 
in their neighbourhood; obliging them to pull down their castles 
in thecountry, and to live, likeother peaceableinhabitants, in the 
city. This is the short history of the republic of Berne, as well as of 
several other citiesin Switzerland. If you exceptVenice, for of that 
city the history is somewhat different, it is the history of all the 



considerable Italian republics, of which so great a number arose 
and perished between theend of thetwelfth and thebeginningof 
the sixteenth century. 

I n countries such asFranceand England, where the authority of 
the sovereign, though frequently very low, never was destroyed 
altogether, thecities had no opportunity of becoming entirely in- 
dependent. They became, however, so considerable, that the sov- 
ereign could impose no tax upon them, besides the stated farm- 
rent of the town, without their own consent. They were, there- 
fore, called upon to send deputies to the general assembly of the 
states of the kingdom, where they might join with the clergy and 
the barons in granting, upon urgent occasions, some extraordi- 
nary aid to theking. Being generally, too, more favourable to his 
power, their deputies seem sometimes to have been employed by 
him as a counterbalance in those assemblies to the authority of 
the great lords. H ence the origin of the representation of burghs 
in the states- general of all great monarchies in Europe. 

rder and good government, and along with them the liberty 
and security of individuals, were in this manner established in 
cities, at a time when the occupiers of land in the country, were 
exposed to every sort of violence. But men in this defenceless state 
naturally content themselves with their necessary subsistence; be- 
cause, to acquire more, might only tempt the injustice of their 



325 



The Wealth of Nations 



oppressors. On the contrary, when they are secure of en joying the 
fruits of their industry they naturally exert it to better their condi- 
tion, and to acquirenot only the necessaries, but theconveniencies 
and elegancies of life. T hat industry, therefore, which aimsat some 
thing more than necessary subsistence, was established in cities 
long beforeitwascommonly practised by theoccupiersof land in 
the country. If, in the hands of a poor cultivator, oppressed with 
the servitude of villanage, some little stock should accumulate, he 
would naturally conceal it with great carefrom hismaster, to whom 
it would otherwise have belonged, and take the first opportunity 
of running away to a town. The law was at that time so indulgent 
to the inhabitants of towns, and so desirous of diminishing the 
authority of the lords over those of the country, that if he could 
conceal himself there from the pursuit of his lord for a year, he 
was free for ever. Whatever stock, therefore, accumulated in the 
hands of the industrious part of the inhabitants of the country, 
naturally took refuge in cities, as the only sanctuaries in which it 
could be secure to the person that acquired it. 

The inhabitants of a city, itistrue, must always ultimately de- 
rive their subsistence, and the whole materials and meansof their 
industry, from thecountry Butthoseofacity situated near either 
the sea-coast or the banks of a navigable river, are not necessarily 
confined to derive them from thecountry in their neighbourhood. 



They have a much wider range, and may draw them from the 
mostremotecornersoftheworld, either in exchangefor themanu- 
factured produce of their own industry, or by performing the of- 
fice of carriers between distant countries, and exchanging the pro- 
duceof onefor that of another. A city might, in this manner, grow 
up to great wealth and splendour, while not only the country in 
its neighbourhood, but all those to which it traded, were in pov- 
erty and wretchedness. Each of those countries, perhaps, taken 
singly, could afford it but a small part, either of its subsistence or 
of its employment; but all of them taken together, could afford it 
both a great subsistence and a great employment. There were, how- 
ever, within the narrow circle of the commerce of those times, 
some countries that were opulent and industrious. Such was the 
Greek empire as long as it subsisted, and that of the Saracens dur- 
ing the reigns of the Abassides. Such, too, was Egypt till it was 
conquered bytheTurks, some part of the coast of Barbary and all 
those provinces of Spain which were under the government of the 
M oors. 

The cities of Italy seem to have been the first in Europe which 
were raised by commerce to any considerable degree of opulence. 
Italy lay in the centre of what was at that time the improved and 
civilized part of the world. Thecrusades, too, though, bythegreat 
waste of stock and destruction of inhabitants which they occa- 



326 



Adam Smith 



sioned, they must necessarily have retarded the progress of the 
greater part of Europe, were extremely favourable to that of some 
Italian cities. The great armies which marched from all parts to 
the conquest of the H oly Land, gave extraordinary encourage- 
ment to the shipping of Venice, Genoa, and Pisa, sometimes in 
transporting them thither, and always in supplying them with pro- 
visions. They were the commissaries, if one may say so, of those 
armies; and the most destructive frenzy that ever befd the Euro- 
pean nations, was a source of opulence to those republics. 

The inhabitants of trading cities, by importing the improved 
manufactures and expensive luxuries of richer countries, afforded 
somefood to the vanity of the great proprietors, who eagerly pur- 
chased them with great quantities of the rude produce of their 
own lands. Thecommerceof a great part of Europein those times, 
accordingly, consisted chiefly in the exchange of their own rude, 
for the manufactured produce of more civilized nations. Thusthe 
wool of England used to be exchanged for the wines of France, 
and thefinedothsof Flanders, in thesame manner as thecorn in 
Poland is at this day, exchanged for the wines and brandies of 
France, and for the silks and velvets of France and Italy. 

A taste for the finer and more improved manufactures was, in 
thismanner, introduced byforeign commerceinto countries where 
no such works were carried on. But when this taste became so 



general as to occasion a considerable demand, the merchants, in 
order to save the expense of carriage, naturally endeavoured to 
establish some manufactures of the same kind in their own coun- 
try. H ence the origin of the first manufactures for distant sale, 
that seem to have been established in the western provinces of 
Europe, after thefall of the Roman empire. 

No large country, it must be observed, ever did or could subsist 
without some sort of manufactures being carried on in it; and 
when it is said of any such country that it has no manufactures, it 
must always be understood of the finer and more improved, or of 
such as are fit for distant sale. In every large country both the 
clothing and household furniture or the far greater part of the 
people, are the produce of their own industry. This is even more 
universally the case in those poor countries which are commonly 
said to haveno manufactures, than in those rich ones that are said 
to abound in them. In the latter you will generally find, both in 
the clothes and household furniture of the lowest rank of people, 
a much greater proportion of foreign productions than in the 
former. 

Those manufactures which are fit for distant sale, seem to have 
been introduced into different countries in two different ways. 

Sometimes they have been introduced in themanner above men- 
tioned, bytheviolent operation, if onemay say so, of thestocksof 



327 



The Wealth of Nations 



particular merchants and undertakers, who established them in 
imitation of some foreign manufactures of the same kind. Such 
manufactures, therefore, are the offspring of foreign commerce; 
and such seem to have been the ancient manufactures of silks, 
velvets, and brocades, which flourished in Lucca during the thir- 
teenth century. T hey were banished from thence by thetyranny of 
one of M achiavd's heroes, Castruccio Castracani. In 1310, nine 
hundred families were driven out of Lucca, of whom thirty-one 
retired to Venice, and offered to introduce there thesilk manufac- 
ture. {SeeSandi Istoria civiledeVinezia, part 2 vol. i, page247 and 
256.}Thdr offer was accepted, many privileges were conferred 
upon them, and they began the manufacture with three hundred 
workmen. Such, too, seem to have been the manufactures of fine 
cloths that anciently flourished in Flanders, and which were in- 
troduced into England in the beginning of therdgn of Elizabeth, 
and such are thepresent silk manufactures of Lyonsand Spitalfidds. 
Manufactures introduced in this manner are generally employed 
upon fordgn materials, bang imitations of foreign manufactures. 
When theVenetian manufacture was first established, themateri- 
alswereall broughtfrom Sicily and the Levant. The more ancient 
manufacture of Lucca was likewise carried on with fordgn mate- 
rials. The cultivation of mulberry trees, and the breeding of silk- 
worms, seem not to have been common in the northern parts of 



Italy before the sixteenth century. Those arts were not introduced 
into France till the rdgn of Charles IX. The manufactures of 
Flanders were carried on chiefly with Spanish and English wool. 
Spanish wool was the material, not of the first woollen manufac- 
ture of England, but of the first that was fit for distant sale. M ore 
than one half the materialsof the Lyons manufacture isat this day 
fordgn silk; when it was first established, the whole, or very nearly 
thewhole, was so. NopartofthematerialsoftheSpitalfiddsmanu- 
facture is ever likdy to be the produce of England. The seat of 
such manufactures, as they are generally introduced bythescheme 
and project of a few individuals, is somdimes established in a 
maritimecity, and somdimesin an inland town, according as thdr 
interest, judgment, or caprice, happen to ddermine. 

At other times, manufactures for distant salegrow up naturally, 
and as it were of thdr own accord, by the gradual refinement of 
those household and coarser manufactures which must at all times 
becarried on even in thepoorestand rudest countries. Such manu- 
factures are generally employed upon thematerialswhich thecoun- 
try produces, and they seem frequently to have been first refined 
and improved In such inland countries as were not, indeed, at a 
very great, but at a considerable distance from the sea-coast, and 
somdimes even from all water carriage. An inland country, natu- 
rally fertile and easily cultivated, produces a great surplus of pro- 



328 



Adam Smith 



visions beyond what is necessary for maintaining the cultivators; 
and on account of theexpenseof land carriage, and inconveniency 
of river navigation, it may frequently be difficult to send this sur- 
plusabroad. Abundance, therefore, renders provisionscheap, and 
encourages a great number of workmen to settle in the 
neighbourhood, who find that their industry can there procure 
them more of the necessaries and conveniences of life than in 
other places. They work up the materials of manufacture which 
the land produces, and exchange their finished work, or, what is 
the same thing, the price of it, for more materials and provisions. 
T hey give a new value to the surplus part of the rude produce, by 
saving the expense of carrying it to the water-side, or to some 
distant market; and they furnish thecultivatorswith something in 
exchange for it that is either useful or agreeable to them, upon 
easier terms than they could have obtained it before. The cultiva- 
tors get a better price for their surplus produce, andean purchase 
cheaper other conveniences which they have occasion for. They 
are thus both encouraged and enabled to increase this surplus pro- 
duce by a further improvement and better cultivation of theland; 
an das the fertility of sheland had given birth to the manufacture, 
so the progress of the manufacture reacts upon the land, and in- 
creases still further it's fertility. The manufacturers first supply the 
neighbourhood, and afterwards, as their work improves and re 



fines, moredistant markets. For though neither the rude produce, 
nor even the coarse manufacture, could, without the greatest dif- 
ficulty, support the expense of a considerable land-carriage, the 
refined and improved manufacture easily may. In a small bulk it 
frequently contains the price of a great quantity of rude produce. 
A pieceof finecloth, for examplewhich weighsonly eighty pounds, 
containsin ittheprice, not only of eighty pounds weight of wool, 
but sometimes of several thousand weight of corn, the mainte- 
nance of the different working people, and of their immediate 
employers. The corn which could with difficulty have been car- 
ried abroad in its own shape, is in this manner virtually exported 
in that of thecomplete manufacture, and may easily besenttothe 
remotest corners of the world. In thismannerhavegrown up natu- 
rally, and, as it were, of their own accord, the manufactures of 
Leeds, H alifax, Sheffield, Birmingham, and Wolverhampton. Such 
manufactures are theoffspring of agriculture. In themodern his- 
tory of Europe, their extension and improvement have generally 
been posterior to those which were the offspring of foreign com- 
merce. England wasnoted for the manufacture of fineclothsmade 
of Spanish wool, more than a century before any of those which 
now flourish in the places above mentioned were fit for foreign 
sale. The extension and improvement of these last could not take 
place but in consequence of the extension and improvement of 



329 



The Wealth of Nations 

agriculture, the last and greatest effect of foreign commerce, and C H APT E R I V 

of the manufactures immediately introduced by it, and which I 

shall now proceed to explain. HOW THE COMMERCE OF TOWNS 

CONTRIBUTED TO THE IMPROVE- 
MENT OFTHECOUNTRY 

The increase and riches of commercial and manufacturing towns 
contributed to the improvement and cultivation of the countries 
to which they belonged, in three different ways: 

First, by affording a great and ready market for the rude pro- 
duce of the country, they gave encouragement to its cultivation 
and further improvement. This benefit was not even confined to 
thecountriesin which they were situated, but extended moreor 
less to all those with which they had any dealings. To all of them 
they afforded a market for somepart either of their rudeor manu- 
factured produce, and, consequently, gave some encouragement 
to the industry and improvement of all. Their own country, how- 
ever, on account of its neighbourhood, necessarily derived the 
greatest benefit from this market. I ts rude produce bei ng charged 
with less carriage, the traders could pay thegrowersa better price 
for it, and yet afford it as cheap to the consumers as that of more 
distant countries. 

Secondly, the wealth acquired by the inhabitants of cities was 

330 



Adam Smith 



frequently employed in purchasing such lands as were to be sold, 
of which a great part would frequently be uncultivated. Merchants 
are commonly ambitious of becoming country gentlemen, and, 
when they do, they are generally the best of all improvers A mer- 
chant is accustomed to employ his money chiefly in profitable 
projects; whereas a mere country gentleman is accustomed to 
employ it chiefly in expense. The one often sees his money go 
from him, and return to him again with a profit; the other, when 
once he parts with it, very seldom expects to see any more of it. 
Those different habits naturally affect their temper and disposi- 
tion in every sort of business.Themerchantiscommonlyabold, 
a country gentleman a timid undertaker. The one is not afraid to 
lay out at once a large capital upon the improvement of his land, 
when he has a probable prospect of raising the value of it in pro- 
portion to the expense; the other, if he has any capital, which is 
not always the case, seldom ventures to employ it in this manner. 
If he improves at all, it is commonly not with a capital, but with 
what he can save out or his annual revenue. Whoever has had the 
fortune to live in a mercantile town, situated in an unimproved 
country, must have frequently observed how much more spirited 
the operations of merchants were in this way, than those of mere 
country gentlemen. The habits, besides, of order, economy, and 
attention, to which mercantile business naturally forms a mer- 



chant, render him much fitter to execute, with profit and success, 
any project of improvement. 

Thirdly, and lastly, commerce and manufactures gradually in- 
troduced order and good government, and with them the liberty 
and security of individuals, among the inhabitants of the country, 
who had beforelived almost in a continual state of war with their 
neighbours, and of servile dependency upon their superiors. This, 
though it has been the least observed, is by far the most i mportant 
of all their effects. M r H ume is the only writer who, so far as I 
know, has hitherto taken notice of it. 

I n a country which has neither foreign commerce nor any of the 
finer manufactures, a great proprietor, having nothing for which 
hecan exchange thegreater part of theproduceof hislands which 
is over and above the maintenance of the cultivators, consumes 
the whole in rustic hospitality at home. If this surplus produce is 
sufficientto maintain a hundred or athousand men, hecan make 
use of it in no other way than by maintaining a hundred or a 
thousand men. H e is at all times, therefore, surrounded with a 
multitude of retainers and dependants, who, having no equiva- 
lent to give in return for their maintenance, but being fed entirely 
by his bounty, must obey him, for the same reason that soldiers 
must obey theprince who pays them. Before theextension of com- 
merce an dm an ufactu res in Europe, the hospitality of therich and 



331 



The Wealth of Nations 



thegreat,fromthesovereign down to thesmallest baron, exceeded 
everything which, in the present times, we can easily form a no- 
tion of Westminster-hall was the dining-room of William Rufus, 
and might frequently, perhaps, not be too large for his company. 
It was reckoned a piece of magnificence in Thomas Becket, that 
he strewed the floor of his hall with clean hay or rushes in the 
season, in order that the knights and squires, who could not get 
seats, might not spoil their fineclothes when they sat down on the 
floor to eat their dinner. T he great Earl of Warwick is said to have 
entertained everyday, at hisdifferent manors, 30,000 people; and 
though thenumberhere may have been exaggerated, itmust, how- 
ever, have been very great to admit of such exaggeration. A hospi- 
tality nearly of the same kind was exercised not many years ago in 
many different parts of the H ighlands of Scotland. It seems to be 
common in all nationsto whom commerce and manufactures are 
little known. I have seen, says Doctor Pocock, an Arabian chief 
dine in the streets of a town where he had come to sell his cattle, 
and invite all passengers, even common beggars, to sit down with 
him and partake of his banquet. 

T he occupiers of land were in every respect as dependent upon 
thegreat proprietor ashis retainers. Even such of them aswerenot 
in a state of vi 1 1 an age, were tenants at will, who paid a rent in no 
respect equivalent to thesubsistence which theland afforded them. 



A crown, half a crown, a sheep, a lamb, was some years ago, in the 
H ighlands of Scotland, a common rent for lands which main- 
tained a family. In some places it is so at this day; nor will money 
at present purchase a greater quantity of commodities there than 
in other places. In a country where thesurplusproduceof a large 
estate must be consumed upon the estate itself, it will frequently 
bemoreconvenientfortheproprietor, that part of it be consumed 
at a distance from his own house, provided they who consume it 
are as dependent upon him as either his retainers or his menial 
servants. H e is thereby saved from the embarrassment of either 
too large a company, or too large a family. A tenant at will, who 
possessesland sufficient to maintain hisfamily for littlemore than 
a quit-rent, is as dependent upon the proprietor as any servant or 
retainer whatever, and must obey him with as little reserve. Such a 
proprietor, as he feeds his servants and retainers at hi sown house, 
so he feeds his tenants at their houses. The subsistence of both is 
derived from his bounty, and its continuance depends upon his 
good pleasure. 

U pon theauthority which thegreat proprietorsnecessarily had, 
in such a state of things, over their tenants and retainers, was 
founded the power of the ancient barons. They necessarily be- 
came thejudgesin peace, and theleadersin war, of all who dwelt 
upon their estates. They could maintain order, and execute the 



332 



Adam Smith 



law, within their respective demesnes, because each of them could 
there turn the whole force of all the inhabitants against theinjus- 
tice of anyone. No other person had sufficient authority to do 
this. The king, in particular, had not. In those ancient times, he 
was little more than the greatest proprietor in his dominions, to 
whom, for the sake of common defence against their common 
enemies, the other great proprietors paid certain respects. To have 
enforced payment of a small debt within the lands of a great pro- 
prietor, where all the inhabitants were armed, and accustomed to 
stand byoneanother, would havecost the king, had heattempted 
it by his own authority, almost the same effort as to extinguish a 
civil war. H e was, therefore, obliged to abandon the administra- 
tion of justice, through the greater part of the country, to those 
who were capableof administering it; and, for thesame reason, to 
leave the command of the country militia to those whom that 
militia would obey. 

It isa mistaketo imaginethat those territorial jurisdictions took 
their origin from the feudal law. N ot only the highest jurisdic- 
tions, both civil and criminal, but the power of levying troops, of 
coining money, and even that of making bye-laws for the govern- 
ment of their own people, were all rights possessed allodially by 
thegreat proprietorsof land, several centuries beforeeven thename 
of the feudal law was known in Europe. The authority and juris- 



diction of theSaxon lordsin England appear to have been as great 
before the C onquest as that of any of the N orman lords after it. 
But the feudal law is not supposed to have become the common 
law of England till after the Conquest. That the most extensive 
authority and jurisdictions were possessed by the great lords in 
France allodially, long before the feudal law was introduced into 
that country, is a matter of fact that admits of no doubt. That 
authority, and those jurisdictions, all necessarily flowed from the 
state of property and manners just now described. Without re- 
mounting to the remote antiquities of either the French or En- 
glish monarchies, we may find, in much later times, many proofs 
that such effects must always flow from such causes. 1 1 isnot thirty 
years ago since M r Cameron of Lochiel, a gentleman of Lochaber 
in Scotland, without any legal warrant whatever, not being what 
was then called a lord of regality, nor even a tenant in chief, but a 
vassal of the Duke of Argyll, and with out being so much as a 
justice of peace, used, notwithstanding, to exercise the highest 
criminal jurisdictions over hisown people. H eissaid to havedone 
so with great equity, though without any of theformalities of jus- 
tice; and it is not improbable that the state of that part of the 
country at that time made it necessary for him to assume this 
authority, in order to maintain the public peace. That gentleman, 
whose rent never exceeded £500 a-year, carried, in 1745, 800 of 



333 



The Wealth of Nations 



hisown people into the rebellion with him. 

The introduction of thefeudal law, so far from extending, may 
be regarded as an attempt to moderate, the authority of the great 
allodial lords. It established a regular subordination, accompanied 
with a long train of services and duties, from theking down to the 
smallest proprietor. During the minority of the proprietor, the 
rent, together with the management of his lands, fell into the hands 
of his immediate superior; and, consequently, those of all great 
proprietors into the hands of the king, who was charged with the 
maintenance and education of the pupil, and who, from his au- 
thority as guardian, was supposed to have a right of disposing of 
him in marriage, provided it was in a manner not unsuitable to 
his rank. But though this institution necessarily tended to 
strengthen the authority of the king, and to weaken that of the 
great proprietors, it could not do either sufficiently for establish- 
ing order and good government amongtheinhabitantsofthecoun- 
try; because it could not alter sufficiently that state of property 
and manners from which the disorders arose. The authority of 
government still continued to be, as before, too weak in the head, 
and too strong in theinferior members; and the excessive strength 
of the inferior members was thecauseof the weaknessof the head. 
After the institution of feudal subordination, theking was asinca- 
pableof restraining the violence of the great lords as before. They 



still continued to make war according to their own discretion, 
almost continually upon one another, and very frequently upon 
the king; and the open country still continued to be a scene of 
violence, rapine, and disorder. 

But what all the violence of thefeudal institutions could never 
have effected, the silent and insensible operation of foreign com- 
merce and manufactures gradually brought about. T hese gradu- 
ally furnished thegreat proprietors with something for which they 
could exchange thewholesurplusproduceof their lands, and which 
they could consume themselves, without sharing it either with 
tenants or retainers. All for ourselves, and nothing for other people, 
seems, in every age of the world, to have been the vile maxim of 
the masters of mankind. As soon, therefore, as they could find a 
method of consuming the whole value of their rents themselves, 
they had no disposition to share them with any other persons. For 
a pair of diamond buckles, perhaps, or for something as frivolous 
and useless, they exchanged the maintenance, or, whatisthesame 
thing, the price of the maintenance of 1000 men for a year, and 
with it the whole weight and authority which it could give them. 
Thebuckles, however, were to be all their own, and no other hu- 
man creaturewasto have any share of them; whereas, in themore 
ancient method of expense, they must have shared with at least 
1000 people. With the judges that were to determine the prefer- 



334 



Adam Smith 



ence, this difference was perfectly decisive; and thus, for the gratifi- 
cation of the most childish, the meanest, and the most sordid of all 
vanities they gradually bartered their whole power and authority. 

I n a country where thereis no foreign commerce, nor any of the 
finer manufactures, a man of £10,000 a-year cannot well employ 
his revenue in any other way than in maintaining, perhaps, 1000 
families, who are all of them necessarily at his command. In the 
present state of Europe, a man of £10,000 a-year can spend his 
whole revenue, and he generally does so, without directly main- 
taining twenty people, or being able to command more than ten 
footmen, not worth thecommanding. Indirectly, perhaps, hemain- 
tains as great, or even a greater number of people, than he could 
havedonebytheancient method of expense. For though thequan- 
tity of precious productions for which he exchanges his whole 
revenue be very small, the number of workmen employed in col- 
lecting and preparing it must necessarily have been very great. Its 
great price generally arises from the wages of their labour, and the 
profits of all their immediate employers. By paying that price, he 
indirectly pays all thosewages and profits, and thusindirectly con- 
tributes to the maintenanceof all the workmen and their employ- 
ers. H e generally contributes, however, but a very small propor- 
tion to that of each; to a very few, perhaps, not a tenth, to many 
not a hundredth, and to some not a thousandth, or even a ten 



thousandth part of their whole annual maintenance. Though he 
contributes, therefore, to the maintenance of them all, they are all 
moreorlessindependentof him, because generallythey can all be 
maintained without him. 

W hen the great proprietors of land spend their rents in main- 
taining their tenants and retainers, each of them maintains en- 
tirdyall hisown tenants and all hisown retainers. But when they 
spend them in maintaining tradesmen and artificers, they may, all 
of them taken together, perhaps maintain as great, or, on account 
of the waste which attends rustic hospitality, a greater number of 
people than before. Each of them, however, taken singly, contrib- 
utes often but a very small share to the maintenance of any indi- 
vidual of this greater number. Each tradesman or artificer derives 
his subsistence from the employment, not of one, but of a hun- 
dred or a thousand different customers. Though in some measure 
obliged to them all, therefore, heisnot absolutdy dependent upon 
any one of them. 

Thepersonalexpenseofthegreatproprietorshavinginthisman- 
ner gradually increased, it wasimpossiblethat the number of their 
retainers should not as gradually diminish, till they were at last 
dismissed altogether. The same cause gradually led them to dis- 
miss the unnecessary part of thar tenants. Farms were enlarged, 
and the occupiers of land, notwithstanding the complaints of de- 



335 



The Wealth of Nations 



population, reduced to the number necessary for cultivating it, 
according to the imperfect state of cultivation and improvement 
in those times. Bythe removal of the unnecessary mouths, and by 
exacting from the farmer the full value of the farm, a greater sur- 
plus, or, whatisthesamething, the price of a greater surplus, was 
obtained for the proprietor, which the merchants and manufac- 
turers soon furnished him with a method of spending upon his 
own person, in the same manner as he had done the rest. The 
causecontinuing to operate, hewasdesirousto raisehisrents above 
what his lands, in the actual state of their improvement, could 
afford. H is tenants could agree to this upon one condition only, 
that they should be secured in their possession for such a term of 
years as might give them time to recover, with profit, whatever 
they should lay not in the further improvement of the land. The 
expensive vanity of the landlord made him willing to accept of 
thiscondition; and hence the origin of long leases. 

Even a tenant at will, who pays the full value of the land, isnot 
altogether dependent upon the landlord. The pecuniary advan- 
tages which they receive from one another are mutual and equal, 
and such atenant will exposeneither hislifenor hisfortunein the 
service of the proprietor. But if he has a lease for along term of 
years, he is altogether independent; and his landlord must not 
expect from him even the most trifling service, beyond what is 



either expressly stipulated in the lease, or imposed upon him by 
the common and known law of the country. 

The tenants having in this manner become independent, and 
the retainers being dismissed, thegreatproprietorswereno longer 
capable of interrupting the regular execution of justice, or of dis- 
turbing the peace of the country. H aving sold their birth-right, 
not like Esau, for a mess of pottage in time of hunger and neces- 
sity, but, in the wantonness of plenty, for trinkets and baubles, 
fitter to be theplaythings of children than the serious pursuits of 
men, they became as insignificant as any substantial burgher or 
tradesmen in a city. A regular government was established in the 
country as well as in the city, nobody having sufficient power to 
disturb itsoperations in the one, any more than in the other. 

It does not, perhaps, relate to the present subject, but I cannot 
help remarking it, that very old families, such as have possessed 
some considerable estate from father to son for many successive 
generations, are very rare in commercial countries. In countries 
which havelittlecommerce, on thecontrary, such asWales, or the 
H ighlands of Scotland, they are very common. T he Arabian his- 
tories seem to be all full of genealogies; and there is a history writ- 
ten by aTartar Khan, which has been translated into several Euro- 
pean languages, and which contains scarce any thing else; a proof 
that ancient families are very common among those nations. In 



336 



Adam Smith 



countries where a rich man can spend his revenue in no other way 
than by maintaining as many peopleas it can maintain, heisapt to 
run out, and his benevolence, it seems, is seldom so violent as to 
attempt to maintain more than he can afford. But where he can 
spend the greatest revenue upon hisown person, he frequently has 
no bounds to his expense, because he frequently has no bounds to 
his vanity, or to his affection for his own person. In commercial 
countries, therefore, riches, in spite of the most violent regulations 
of law to prevent their dissipation, very seldom remain long in the 
samefamily. Among simplenations, on thecontrary, they frequently 
do, without any regulationsof law; for among nationsof shepherds, 
such astheTartarsand Arabs, theconsumablenatureof their prop- 
erty necessarily renders all such regulations impossible. 

A revolution of thegreatestimportancetothepublichappiness, 
wasin thismanner brought about by two different ordersof people, 
who had not the least intention to serve the public. To gratify the 
most childish vanity was the sole motive of thegreat proprietors. 
The merchants and artificers, much less ridiculous, acted merely 
from a view to their own interest, and in pursuit of their own 
pedlar principle of turning a penny wherever a penny was to be 
got. N either of them had either knowledge or foresight of that 
great revolution which the folly of theone, and the industry of the 
other, was gradually bringing about. 



It was thus, that, through the greater part of Europe, the com- 
merce and manufactures of cities, instead of being the effect, have 
been the cause and occasion of the improvement and cultivation 
of the country. 

This order, however, being contrary to the natural course of 
things, is necessarily both slow and uncertain. Compare the slow 
progressof thoseEuropean countriesof which thewealth depends 
very much upon their commerce and manufactures, with therapid 
advances of our North American colonies, of which thewealth is 
founded altogether in agriculture. Through the greater part of 
Europe, the number of inhabitants is not supposed to double in 
less than five hundred years. In several of our North American 
colonies, it isfound to double in twenty or five- and -twenty years. 
In Europe, thelaw of primogeniture, and perpetuities of different 
kinds, prevent thedivision of great estates, and thereby hinder the 
multiplication of small proprietors. A small proprietor, however, 
who knows every part of his little territory, views it with all the 
affection which property, especially small property, naturally in- 
spires, and who upon that account takes pleasure, not only in 
cultivating, but in adorning it, is generally of all improvers the 
most industrious, the most intelligent, and the most successful. 
Thesame regulations, besides, keep so much land out of the mar- 
ket, that there are always mo re capitals to buy than thereisland to 



337 



The Wealth of Nations 



sell, so that what issold always sellsat a monopoly price.Therent 
never pays the interest of the purchase-money and is, besides, 
burdened with repairs and other occasional charges, to which the 
interest of money is not liable. To purchase land, is, everywhere in 
Europe, a most unprofitable employment of a small capital. For 
the sake of the superior security, indeed, a man of moderate cir- 
cumstances, when hereti res from business, will sometimes choose 
to layout his littlecapital in land. A man of profession, too whose 
revenue is derived from another source often loves to secure his 
savingsin the same way. Butayoungman, who, instead of apply- 
ing to trade or to some profession, should employ a capital of two 
or three thousand pounds in the purchase and cultivation of a 
small piece of land, might indeed expect to live very happily and 
very independently, but must bid adieu for ever to all hope of 
either great fortune or great illustration, which, by a different 
employment of his stock, he might have had the same chance of 
acquiring with other people. Such a person, too, though he can- 
not aspire at being a proprietor, will often disdain to be a farmer. 
Thesmall quantity of land, therefore, which isbrought to market, 
and the high price of what is brought thither, prevents a great 
number of capitals from being employed in its cultivation and 
improvement, which would otherwise have taken that direction. 
I n N orth America, on the contrary, fifty or sixty pounds is often 



found a sufficient stock to begin a plantation with. The purchase 
and improvement of uncultivated land is there the most profit- 
able employment of the smallest as well as of the greatest capitals, 
and the most direct road to all thefortuneand illustration which 
can be required in that country. Such land, indeed, is in North 
America to be had almost for nothing, or at a price much below 
thevalueof the natural produce; a thing impossible in Europe, or 
indeed in any country where all landshavelong been private prop- 
erty. If landed estates, however, were divided equally among all 
thechildren, upon the death of any proprietor who left a numer- 
ousfamily, the estate would generally be sold. So much land would 
come to market, that it could no longer sell at a monopoly price. 
Thefreerent of theland would go no nearer to pay the interest of 
the purchase-money and a small capital might be employed in 
purchasing land as profitable as in any other way. 

England, on account of the natural fertility of the soil, of the 
great extent of the sea-coast in proportion to that of the whole 
country, and of the many navigable rivers which run through it, 
and afford the conveniency of water carriage to some of the most 
inland parts of it, is perhaps as well fitted by nature as any large 
country in Europe to be the seat of foreign commerce, of manu- 
factures for distant sale, and of all the improvements which these 
can occasion. From the beginning of the reign of Elizabeth, too, 



338 



Adam Smith 



the English legislature has been peculiarly attentive to theinterest 
of commerce and manufactures, and in reality thereisno country 
in Europe, Holland itself not excepted, of which the law is, upon 
the whole, more favourable to this sort of industry. Commerce 
and manufactures have accordingly been continually advancing 
during all this period. The cultivation and improvement of the 
country has, no doubt, been gradually advancing too; but it seems 
to have followed slowly, and at a distance, the more rapid progress 
of commerce and manufactures. T he greater part of the country 
must probably have been cultivated before the reign of Elizabeth; 
and a very great part of it still remains uncultivated, and theculti- 
vation of the far greater part much inferior to what it might be, 
The law of England, however, favours agriculture, not only indi- 
rectly, by the protection of commerce, but by several direct en- 
couragements. Except in times of scarcity, theexportation of corn 
isnot only free, but encouraged by a bounty. I n times of moderate 
plenty, the importation of foreign corn is loaded with duties that 
amount to a prohibition. The importation of live cattle, except 
from Ireland, isprohibited at all times; and itisbutof late that it 
was permitted from thence. T hose who cultivate the land, there 
fore, haveamonopoly against their countrymen for thetwo greatest 
and most important articles of land produce, bread and butcher's 
meat. These encouragements, although at bottom, perhaps, as I 



shall endeavour to show hereafter, altogether illusory, sufficiently 
demonstrate at least the good intention of the legislature to favour 
agriculture. But what isof much more importance than all of them, 
theyeomanry of England are rendered as secure, as independent, 
and as respectable, as law can make them. N o country, therefore, 
which the right of primogeniture takes place, which pays tithes, 
and where perpetuities, though contrary to the spirit of the law, 
are admitted in some cases, can give more encouragement to agri- 
culture than England. Such, however, notwithstanding, isthestate 
of its cultivation. What would it have been, had the law given no 
direct encouragement to agriculture besides what arises indirectly 
from the progress of commerce, and had left theyeomanry in the 
same condition as in most other countries of Europe? It is now 
more than two hundred years since the beginning of the reign of 
Elizabeth, a period aslong asthecourseof human prosperity usu- 
ally endures. 

France seems to have had a considerable share of foreign com- 
merce, near a century before England was distinguished as a com- 
mercial country. The marine of France was considerable, according 
to thenotionsof thetimes, before theexpedition of C harlesV 1 1 1 . to 
N aples. The cultivation and improvement of France, however, is 
upon the whole, inferior to that of England. Thelaw of thecountry 
has never given the same direct encouragement to agriculture. 



339 



The Wealth of Nations 



The foreign commerce of Spain and Portual to the other parts 
of Europe, though chiefly carried on in foreign ships, is very con- 
siderable. That to their colonies is carried on in their own, and is 
much greater, on account of the great riches and extent of those 
colonies. But it has never introduced any considerable manufac- 
tures for distant sale into either of those countries, and the greater 
part of both still remains uncultivated. The foreign commerce of 
Portugal is of older standing than that of any great country in 
Europe, except Italy. 

Italy is the only great country of Europe which seems to have 
been cultivated and improved in every part, by means of foreign 
commerce and manufactures for distant sale. Before the invasion 
of Charles VI 1 1., Italy, according to Guicciardini, was cultivated 
notlessin the most mountainousand barren parts of the country, 
than in the plainest and most fertile. The advantageous situation 
ofthecountry, and thegreat number of independent status which 
at that time subsisted in it, probably contributed not a littleto this 
general cultivation. It isnot impossible, too, notwithstanding this 
general expression of one of the most judicious and reserved of 
modern historians, that Italy was not at that time better cultivated 
than England is at present. 

The capital, however, that is acquired to any country by com- 
merce and manufactures, is always a very precarious and uncer- 



tain possession, till some part of it has been secured and realized 
in the cultivation and improvement of its lands. A merchant, it 
has been said very properly, is not necessarily the citizen of any 
particular country. Itisin agreatmeasureindifferentto him from 
what place he carries on his trade; and a very trifling disgust will 
make him remove his capital, and, together with it, all the indus- 
try which it supports, from one country to another. N o part of it 
can be said to belong to any particular country, till it has been 
spread, asitwere, over theface of that country, either in buildings, 
or in the lasting improvement of lands. N o vestige now remainsof 
thegreat wealth said to have been possessed by the greater part of 
theH anseTowns, except in theobscurehistoriesof thethirteenth 
and fourteenth centuries. 1 1 i s even uncertain where someof them 
were situated, or to what towns in Europe the Latin names given 
to some of them belong. But though the misfortunes of Italy, in 
theend of the fifteenth and beginning of the sixteenth centuries, 
greatly diminished the commerce and manufactures of the cities 
of Lombardy and Tuscany, those countries still continue to be 
among the most populous and best cultivated in Europe. Thecivil 
wars of Flanders, and the Spanish government which succeeded 
them, chased away thegreat commerce of Antwerp, Ghent, and 
Bruges. But Flanders still continues to be one of the richest, best 
cultivated, and most populous provincesof Europe. Theordinary 



340 



Adam Smith 



revolutions of war and government easily dry up the sources of 
that wealth which arises from commerce only. T hat which arises 
from the more solid improvements of agriculture is much more 
durable, and cannot be destroyed but by those more violent con- 
vulsions occasioned by the depredations of hostile and barbarous 
nations continued for a century or two together; such as those 
that happened for some time before and after the fall of the Ro- 
man empire in the western provinces of Europe. 



BOOK IV 

OF SYSTEMSOF POLITICAL ECONOMY 

Political economy, considered asa branch of thescience 
of a statesman or legislator, proposes two distinct objects; 
first, to provide a plentiful revenue or subsistence for the 
people, or, more properly, to enable them to provide such a rev- 
enue or subsistence for themselves; and, secondly, to supply the 
state or commonwealth with a revenue sufficient for the public 
services. It proposes to enrich both thepeopleand the sovereign. 
Thedifferent progress of opulencein different ages and nations, 
has given occasion to two different systems of political economy, 
with regard to enriching the people. The one may be called the 
system of commerce, the other that of agriculture. I shall endeav- 
our to explain both as fully and distinctly as I can, and shall begin 
with the system of commerce. Itisthemodern system, and isbest 
understood in our own country and in our own times. 



341 



The Wealth of Nations 



CHAPTER I 

OF THE PRINCIPLE OF THE COMMER- 
CIAL OR M ERCANTILE SYSTEM 

That wealth consistsin money, or in gold and silver, isa popular 
notion which naturally arises from thedoublefunction of money, 
as the instrument of commerce, and as the measure of value. I n 
consequence of its being the instrument of commerce, when we 
have money we can more readily obtain whatever else we have 
occasion for, than by means of any other commodity. T he great 
affair, we always find, is to get money. When that is obtained, 
there is no difficulty in making any subsequent purchase. In con- 
sequence of its being the measure of value, we estimate that of all 
other commodities by the quantity of money which they will ex- 
changefor. Wesay of a rich man, that heisworth a great deal, and 
of a poor man, that he is worth very little money. A frugal man, or 
a man eager to be rich, is said to love money; and a careless, a 
generous, or a profuse man, is said to be indifferent about it. To 
grow rich isto get money; and wealth and money, in short, are, in 
common language, considered asin every respect synonymous. 

A rich country, in the same manner as a rich man, is supposed 
to be a country abounding in money; and to heap up gold and 



silver in any country is supposed to be the readiest way to en rich 
it. For some time after thediscovery of America, thefirst inquiry 
of the Spaniards, when they arrived upon any unknown coast, 
used to be, if there was any gold or silver to be found in the 
neighbourhood? By the information which they received, they 
judged whether it was worth while to make a settlement there, or 
if the country was worth the conquering. Piano Carpino, a monk 
sent ambassador from the king of France to one of the sons of the 
famousGengisKhan, says, that theTartars used frequently to ask 
him, if there was plenty of sheep and oxen in the kingdom of 
France?T heir inquiry had the same object with that of the Span- 
iards. T hey wanted to know if the country was rich enough to be 
worth the conquering. Among theTartars, as among all other na- 
tionsof shepherds, who are generally ignorant of theuse of money, 
cattleare the instruments of commerce and the measuresof value. 
Wealth, therefore, according to them, consisted in cattle, as, ac- 
cording to the Spaniards, it consisted in gold and silver. Of the 
two, theTartar notion, perhaps, was the nearest to the truth. 

M r Locke rem arks a distinction between money and other move- 
able goods. All other moveable goods, he says, are of so consum- 
able a nature, that the wealth which consists in them cannot be 
much depended on; and a nation which abounds in them one 
year may, without any exportation, but merely by their own waste 



342 



Adam Smith 



and extravagance, be in great want of them the next. M oney, on 
thecontrary, isa steady friend, which, though it may travel about 
from hand to hand, yet if it can be kept from going out of the 
country, isnot very liable to bewasted and consumed. Gold and 
silver, therefore, are, according to him, the must solid and sub- 
stantial part of the moveable wealth of a nation; and to multiply 
those metals ought, he thinks, upon that account, to be the great 
object of its political economy. 

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



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

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

T hey represented, first, that the exportation of gold and silver, 
in order to purchase foreign goods, did not always diminish the 
quantity of those metals in the kingdom; that, on thecontrary, it 
might frequently increase the quantity; because, if theconsump- 



343 



The Wealth of Nations 



tion of foreign goods was not thereby increased in the country, 
those goods might be re-exported to foreign countries, and being 
there sold for a large profit, might bring back much more treasure 
than wasoriginally sent out to purchase them. M rM un compares 
this operation of foreign trade to the seed-time and harvest of 
agriculture. "If we only behold," says he, "the actions of the hus- 
bandman in theseed time, when hecasteth away much good corn 
into the ground, we shall account him rather a madman than a 
husbandman. But when we consider his labours in the harvest, 
which is the end of his endeavours, we shall find the worth and 
plentiful increase of his actions." 

They represented, secondly, that this prohibition could not 
hinder the exportation of gold and silver, which, on account of 
the smallness of their bulk in proportion to their value, could 
easily be smuggled abroad. That this exportation could only be 
prevented by a proper attention to what they called the balance of 
trade. T hat when the country exported to a greater value than it 
imported, a balance became due to it from foreign nations, which 
was necessarily paid to it in gold and silver, and thereby increased 
the quantity of those metals in the kingdom. But that when it 
imported to a greater value than it exported, a contrary balance 
becamedueto foreign nations, which was necessarily paid to them 
in the same manner, and thereby diminished that quantity: that 



inthiscase, to prohibit the exportation of those metals, could not 
prevent it, but only, by making it more dangerous, render it more 
expensive: that the exchange was thereby turned more against the 
country which owed the balance, than it otherwise might have 
been; the merchant who purchased a bill upon the foreign coun- 
try being obliged to pay the banker who sold it, not only for the 
natural risk, trouble, and expense of sending the money thither, 
but for the extraordinary risk arising from the prohibition; but 
that the more the exchange was against any country, the more the 
balance of trade became necessarily against it; the money of that 
country becoming necessarily of so much less value, in compari- 
son with that of thecountry to which the balance was due. That if 
the exchange between England and Holland, for example, was 
five per cent, against England, it would require 105 ounces of 
silver in England to purchase a bill for 100 ounces of silver in 
Holland: that 105 ounces of silver in England, therefore, would 
be worth only 100 ounces of silver in H olland, and would pur- 
chase only a proportionable quantity of Dutch goods; but that 
100 ounces of silver in Holland, on the contrary, would be worth 
105 ounces in England, and would purchase a proportionable 
quantity of English goods; that the English goods which were sold 
to H olland would be sold so much cheaper, and the D utch goods 
which were sold to England so much dearer, by the difference of 



344 



Adam Smith 



theexchange: thattheonewould draw so much lessD utch money 
to England, and the other so much more English money to Hol- 
land, as this difference amounted to: and that the balance of trade, 
therefore, would necessarily be so much more against England, 
and would require a greater balance of gold and silver to be ex- 
ported to Holland. 

Those arguments were partly solid and partly sophistical. They 
were solid, so far as they asserted that the exportation of gold and 
silver in trade might frequently be advantageous to the country. 
They were solid, too, in asserting that no prohibition could pre- 
vent their exportation, when private people found any advantage 
in exporting them. But they were sophistical, in supposing, that 
either to preserve or to augment the quantity of those metals re 
quired more the attention of government, than to preserve or to 
augment thequantity of any other useful commodities, which the 
freedom of trade, without any such attention, never failsto supply 
in the proper quantity. They were sophistical, too, perhaps, in 
assertingth at thehigh price of exchange necessarily increased what 
they called the unfavourable balance of trade, or occasioned the 
exportation of a greater quantity of gold and silver. That high 
price, indeed, was extremely disadvantageous to the merchants 
who had any money to pay in foreign countries. They paid so 
much dearer for thebillswhich their bankers granted them upon 



those countries. But though the risk arising from the prohibition 
might occasion someextraordinary expense to thebankers, itwould 
not necessarily carry any more money out of the country. This 
expense would generally be all laid out in the country, in smug- 
gling themoney out of it, and could seldom occasion theexporta- 
tion of a single sixpence beyond the precise sum drawn for. The 
high priceof exchange, too, would naturallydisposethemerchants 
to endeavour to make their exports nearly balance their imports, 
in order that they might have this high exchange to pay upon as 
small asum as possible. Thehigh price of exchange, besides, must 
necessarily have operated as a tax, in raising the price of foreign 
goods, and thereby diminishing their consumption. It would tend, 
therefore, not to increase, but to diminish, what they called the 
unfavourable balance of trade, and consequently the exportation 
of gold and silver. 

Such as they were, however, those arguments convinced the 
people to whom they were addressed. They were addressed by 
merchants to parliaments and to thecouncilsof princes, to nobles, 
and to country gentlemen; by those who were supposed to under- 
stand trade, to those who were conscious to them selves that they 
knew nothing about the matter. That foreign trade enriched the 
country, experiencedemonstrated tothenoblesand country gentle- 
men, as well as to the merchants; but how, or in what manner, 



345 



The Wealth of Nations 



none of them well knew. The merchants knew perfectly in what 
manner it enriched themselves, it was their business to know it. 
But to know in what manner it enriched the country, was no part 
of their business. T hesubject never cameinto their consideration, 
but when they had occasion to apply to their country for some 
changein thelawsrelatingto foreign trade. It then becameneces- 
sary to say something about the beneficial effects of foreign trade, 
andthemannerin which those effects were obstructed bythelaws 
as they then stood. To thejudges who were to decidethe business, 
it appeared a most satisfactory account of the matter, when they 
were told that foreign trade brought money into the country, but 
that the laws in question hindered it from bringing so much as it 
otherwise would do. Those arguments, therefore, produced the 
wished-for effect. The prohibition of exporting gold and silver 
was, in France and England, confined to thecoin of those respec- 
tive countries. The exportation of foreign coin and of bullion was 
made free. In Holland, and in some other places, this liberty was 
extended even to thecoin of thecountry.Theattention of govern- 
ment was turned away from guarding against the exportation of 
gold and silver, to watch over the balance of trade, as the only 
cause which could occasion any augmentation or diminution of 
those metals. From one fruitless care, it was turned away to an- 
other care much more intricate, much more embarrassing, and 



just equally fruitless. Thetitleof Mun's book, England'sTreasure 
in Foreign Trade, became a fundamental maxim in the political 
economy, not of England only, but of all other commercial coun- 
tries. The inland or home trade, the most important of all, the 
trade in which an equal capital affords the greatest revenue, and 
creates the greatest employment to the people of the country, was 
considered as subsidiary only to foreign trade. It neither brought 
money into thecountry, it was said, nor carried any out of it. T he 
country, therefore, could never become either richer or poorer by 
means of it, except so far as its prosperity or decay might indi- 
rectly influence the state of foreign trade. 

A countrythathasnominesof its own, must undoubtedly draw 
its gold and silver from foreign countries, in the same manner as 
one that has no vineyards of its own must draw its wines. It does 
not seem necessary, however, that the attention of government 
should be more turned towards the one than towards the other 
object. A country that has wherewithal to buy wine, will always 
get the wine which it has occasion for; and a country that has 
wherewithal to buy gold and silver, will never be in want of those 
metals. They are to be bought for a certain price, like all other 
commodities; and as they are the price of all other commodities, 
so all other commodities are the price of those metals. We trust, 
with perfect security, that the freedom of trade, without any at- 



346 



Adam Smith 



tention of government, will always supply us with thewinewhich 
wehaveoccasion for; and wemay trust, with equal security, that it 
will always supply us with all the gold and silver which we can 
afford to purchase or to employ, either in circulating our com- 
modities or in other uses. 

The quantity of every commodity which human industry can 
ei therpurchaseor produce, naturally regulates itself in every coun- 
try according to the effectual demand, or according to the de- 
mand of those who are willing to pay the whole rent, labour, and 
profits, which must be paid in order to prepare and bring it to 
market. But no commodities regulate themselves more easily or 
more exactly, according to this effectual demand, than gold and 
silver; because, on account of the small bulk and great value of 
thosemetals, no commodities can bemore easily transported from 
one place to another; from the places where they are cheap, to 
those where they are dear; from the places where they exceed, to 
those where they fall short of this effectual demand. If there were 
in England, for example, an effectual demand for an additional 
quantity of gold, a packet-boat could bring from Lisbon, or from 
wherever else it was to be had, fifty tons of gold, which could be 
coined into more than five millions of guineas. But if there were 
an effectual demand for grain tothesamevalue, to import it would 
require, at five guineas a-ton, a million of tons of shipping, or a 



thousand ships of a thousand tons each. The navy of England 
would not be sufficient. 

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



347 



The Wealth of Nations 



thesamepricein gold, and, consequently, just so manytimesmore 
difficult to smuggle. 

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

If, not withstanding all this, gold and silver should at any time 
fall short in a country which has wherewithal to purchase them, 
there are more expedients for supplying their place, than that of 
almost any other commodity. If the materials of manufacture are 



wanted, industry must stop. If provisions are wanted, the people 
must starve. But if money is wanted, barter will supply its place, 
though with a good deal of inconveniency Buying and selling 
upon credit, and the different dealers compensating their credits 
with one another, once a-month, or once a-year, will supply it 
with less inconveniency. A well-regulated paper-money will sup- 
ply it not only without any inconveniency, but, in some cases, 
with some advantages. Upon every account, therefore, the atten- 
tion of government never was so unnecessarily employed, aswhen 
directed to watch over the preservation or increase of the quantity 
of money in any country. 

N o complaint, however, is more common than that of a scarcity 
of money. M oney, like wine, must always be scarce with those 
who have neither wherewithal to buy it, nor credit to borrow it. 
Those who have either, will seldom bein want either of the money, 
or ofthewinewhich they have occasion for. Thiscomplaint, how- 
ever, of the scarcity of money, is not always confined to improvi- 
dent spendthrifts. It is sometimes general through a whole mer- 
cantiletown and the country in its neighbourhood. Over-trading 
is the common cause of it. Sober men, whose projects have been 
disproportioned to their capitals, areaslikely to haveneither where- 
withal to buy money, nor credit to borrow it, as prodigals, whose 
expense has been disproportioned to their revenue. Before their 



348 



Adam Smith 



projects can be brought to bear, their stock isgone, and their credit 
with it. T hey run about everywhere to borrow money, and every- 
body tells them that they have none to lend. Even such general 
complaints of the scarcity of money do not always prove that the 
usual number of gold and silver pieces are not circulating in the 
country, but that many people want those pieces who have noth- 
ingto giveforthem. W hen the profits of trade happen to begreater 
than ordinary over-trading becomes a general error, both among 
great and small dealers. They do not always send more money 
abroad than usual, but they buy upon credit, both at home and 
abroad, an unusual quantity of goods, which they send to some 
distant market, in hopes that the returns will come in before the 
demand for payment. T he demand comes before the returns, and 
they have nothing at hand with which they can either purchase 
money or give solid security for borrowing. It is not any scarcity 
of gold and silver, but the difficulty which such people find in 
borrowing, and which their creditor find in getting payment, that 
occasions the general complaint of the scarcity of money. 

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



always the most unprofitable part of it. 

It is not because wealth consistsmore essentially in money than 
in goods, that the merchant finds it generally more easy to buy 
goods with money, than to buy money with goods; but because 
money isthe known and established instrument of commerce, for 
which every thing is readily given in exchange, but which is not 
always with equal readiness to begot in exchange for everything. 
Thegreater part of goods, besides, are more perishablethan money, 
and hemay frequently sustain amuch greater loss by keeping them. 
W hen his goods are upon hand, too, he is more liable to such 
demands for money as he may not be able to answer, than when 
he has got their price in his coffers. Over and above all this, his 
profit arises more directly from selling than from buying; and he 
is, upon all these accounts, generally much more anxious to ex- 
changehisgoodsfor money than hismoneyfor goods. But though 
a particular merchant, with abundanceof goods in his warehouse, 
may sometimes be ruined by not being ableto sell them in time, a 
nation or country is not liable to the same accident, T he whole 
capital of a merchant frequently consists in perishable goods des- 
tined for purchasing money. But it is but a very small part of the 
annual produce of the land and labour of a country, which can 
ever be destined for purchasing gold and silver from their 
neighbours. Thefar greater part iscirculated and consumed among 



349 



The Wealth of Nations 



themselves; and even of thesurpluswhich is sen tab road, thegreater 
part is generally destined for the purchaseof other foreign goods. 
Though gold and silver, therefore, could not be had in exchange 
for thegoodsdestined to purchase them, the nation would not be 
ruined. It might, indeed, suffer someloss and inconveniency, and 
be forced upon some of those expedients which are necessary for 
supplying the place of money. T heannual produce of its land and 
labour, however, would be the same, or very nearly the same as 
usual; because thesame, or very nearlythesameconsumablecapi- 
tal would be employed in maintaining it. And though goods do 
not always draw money so readily as money draws goods, in the 
long-run they draw it more necessarily than even it draws them. 
G oods can serve many other purposes besides purchasing money, 
but money can serve no other purpose besides purchasing goods. 
M oney, therefore, necessarily runs after goods, but goods do not 
always or necessarily run after money. The man who buys, does 
not always mean to sell again, but frequently to use or to con- 
sume; whereas he who sells always means to buy again. The one 
may frequently havedonethewhole, but the other can never have 
done more than the one half of his business. It is not for its own 
sake that men desire money, but for the sake of what they can 
purchase with it. 
Consumablecommodities, itissaid, aresoon destroyed; whereas 



gold and silver are of a more durable nature, and were it not for 
thiscontinual exportation, might be accumulated for ages together, 
to the incredible augmentation of the real wealth of the country. 
Nothing, therefore, it is pretended, can be more disadvantageous 
to any country, than the trade which consists in the exchange of 
such lasting for such perishable commodities. We do not, how- 
ever, reckon that trade disadvantageous, which consists in the ex- 
change of the hardware of England for the wines of France, and 
yet hardware is a very durable commodity, and were it not for this 
continual exportation, mighttoo beaccumulated foragestogether, 
to the incredible augmentation of the pots and pans of the coun- 
try. But it readily occurs, that the number of such utensils is in 
every country necessarily limited by the use which there is for 
them; that it would be absurd to have more pots and pans than 
were necessary for cooking the victuals usually consumed there; 
and that, if the quantity of victuals were to increase, the number 
of pots and panswould readily increase along with it; a part of the 
increased quantity of victuals being em ployed in purchasing them, 
or in maintaining an additional number of workmen whose busi- 
nessitwastomakethem. It should as readily occur, thatthequan- 
tityof gold and silver is, in every country, limited bytheusewhich 
thereisforthosemetals; that their use consistsin circulating com- 
modities, as coin, and in affording a species of household furni- 



350 



Adam Smith 



ture, as plate; that the quantity of coin in every country is regu- 
lated by the value of the commodities which are to be circulated 
by it; increase that value, and immediately a part of it will be sent 
abroad to purchase, wherever it isto be had, the additional quan- 
tity of coin requisite for circulating them: that the quantity of 
plate is regulated by the number and wealth of those private fami- 
lies who choose to indulge themselves in that sort of magnifi- 
cence; increase thenumber and wealth of such families, and apart 
of this increased wealth will most probably be employed in pur- 
chasing, wherever it isto befound, an additional quantity of plate; 
that to attempt to increase the wealth of any country, either by 
introducing or by detaining in it an unnecessary quantity of gold 
and silver, is as absurd as it would be to attempt to increase the 
good cheer of private families, by obliging them to keep an un- 
necessary number of kitchen utensils. As the expense of purchas- 
ing thoseunnecessaryutensilswould diminish, instead of increas- 
ing, either the quantity or goodness of the family provisions; so 
the expense of purchasing an unnecessary quantity of gold and 
silver must, in every country, as necessarily diminish the wealth 
which feeds, clothes, and lodges, which maintains and employs 
the people. Gold and silver, whether in the shape of coin or of 
plate, are utensils, it must be remembered, as much as the f urn i- 
tureof thekitchen. Increasetheuseof them, increasetheconsum- 



able commodities which are to be circulated, managed, and pre- 
pared by meansof them, and you will infallibly increase thequan- 
tity; but if you attempt by extraordinary means to increase the 
quantity, you will asinfallibly diminish theuse, and even thequan- 
titytoo, which in those metals can never be greater than what the 
use requires. Were they ever to be accumulated beyond thisquan- 
tity, their transportation isso easy, and theloss which attendstheir 
lying idle and unemployed so great, that no law could prevent 
their being immediately sent out of the country. 

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

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

The gold and silver which can properly be considered asaccu- 



351 



The Wealth of Nations 



mulated, or stored up in any country, may be distinguished into 
three parts; first, the circulating money; secondly, the plate of pri- 
vate families; and, last of all, the money which may have been 
collected by many years parsimony, and laid up in the treasury of 
the prince. 

It can seldom happen that much can be spared from the circu- 
lating money of the country; because in that there can seldom be 
much redundancy. T he value of goods annually bought and sold 
in any country requires a certain quantity of money to circulate 
and distribute them to their proper consumers, and can give em- 
ployment to no more. T hechannel of circulation necessarily draws 
to itself a sum sufficient to fill it, and never admits any more. 
Something, however, is generally withdrawn from thischannel in 
the case of foreign war. By the great number of people who are 
maintained abroad, fewer are maintained at home. Fewer goods 
are circulated there, and less money becomes necessary to circu- 
late them. An extraordinary quantity of paper money of somesort 
or other, too, such as exchequer notes, navy bills, and bank bills, 
in England, is generally issued upon such occasions, and, by sup- 
plying the place of circulating gold and silver, gives an opportu- 
nity of sending a greater quantity of it abroad. All this, however, 
could afford but a poor resource for maintaining a foreign war, of 
great expense, and several years duration. 



The melting down of the plate of private families has, upon 
every occasion, been found a still more insignificant one. The 
French, in the beginning of the last war, did not derive so much 
advantage from this expedient as to compensate the loss of the 
fashion. 

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

The funds which maintained the foreign wars of the present 
century, the most expensive perhaps which history records, seem 
to have had little dependency upon the exportation either of the 
circulating money, or of the plate of private families, or of the 
treasure of the prince. T he last French war cost G reat Britain up- 
wards of £90,000,000, including not only the £75,000,000 of 
new debt that was contracted, but theadditional 2s. inthepound 
land-tax, and what was annually borrowed of the sinking fund. 
M ore than two-thirdsof this expense were I aid out in distant coun- 
tries; in Germany, Portugal, America, in theportsof theM editer- 
ranean, in theEastand West Indies. Thekingsof England had no 
accumulated treasure. We never heard of any extraordinary quan- 
tity of plate being melted down. Thecirculating gold and silver of 
thecountry had not been supposed to exceed £18,000,000. Since 



352 



Adam Smith 



the late recoinageof thegold, however, it is believed to have been 
a good deal under-rated. Let us suppose, therefore, according to 
the most exaggerated computation which I remember to have ei- 
ther seen or heard of, that, gold and silver together, it amounted 
to £30,000,000. H ad the war been carried on by means of our 
money, the wholeof it must, even according to thiscomputation, 
have been sent out and returned again, at least twice in a period of 
between six and seven years. Should this be supposed, it would 
afford the most decisive argument, to demonstrate how unneces- 
sary it isfor government to watch over the preservation of money, 
since, upon this supposition, the whole money of the country 
must have gone from it, and returned to it again, two different 
times in so short a period, without any body's knowing any thing 
of thematter.Thechannel of circulation, however, never appeared 
more empty than usual during any part of this period. Few people 
wanted money who had wherewithal to pay for it. T he profits of 
foreign trade, indeed, were greater than usual during the whole 
war, but especially towards the end of it. T his occasioned, what it 
always occasions, a general over-trading in all the ports of Great 
Britain; and thisagain occasioned theusual complaint of thescar- 
city of money, which always follows over-trading. M any people 
wanted it, who had neither wherewithal to buy it, nor credit to 
borrow it; and because the debtors found it difficult to borrow, 



the creditors found it difficult to get payment. Gold and silver, 
however, were generally to be had for their value, by those who 
had that value to give for them. 

The enormous expense of the late war, therefore, must have 
been chiefly defrayed, not by the exportation of gold and silver, 
but by that of British commodities of some kind or other. W hen 
the government, or those who acted under them, contracted with 
a merchant for a remittance to some foreign country, he would 
naturally endeavour to pay hisforelgn correspondent, upon whom 
hegranted a bill, by sending abroad rather commoditiesthan gold 
and silver. If the commodities of Great Britain were not in de- 
mand in that country, he would endeavour to send them to some 
other country in which he could purchase a bill upon that coun- 
try. The transportation of commodities, when properly suited to 
the market, is always attended with a considerable profit; whereas 
that of gold and silver is scarce ever attended with any. When 
those metals are sent abroad in order to purchase foreign com- 
modities, the merchant's prof it arises, not from the purchase, but 
from the sale of the returns. But when they are sent abroad merely 
to pay a debt, he gets no returns, and consequently no profit. H e 
naturally, therefore, exerts his invention to find out a way of pay- 
ing his foreign debts, rather by the exportation of commodities, 
than by that of gold and silver.Thegreatquantity of British goods, 



353 



The Wealth of Nations 



exported duringthecourseof thelate war, without bringing back 
any returns, is accordingly remarked by the author of the Present 
State of the Nation. 

Besides thethree sorts of gold and silver above mentioned, there 
is in all great commercial countries a good deal of bullion alter- 
nately imported and exported, for the purposes of foreign trade. 
This bullion, as it circulates among different commercial coun- 
tries, in the same manner as the national coin circulates in every 
country, may be considered as the money of the great mercantile 
republic. The national coin receives its movement and direction 
from thecommodities circulated within theprecincts of each par- 
ticular country; the money in the mercantile republic, from those 
circulated between different countries. Both are employed in fa- 
cilitating exchanges, the one between different individuals of the 
same, the other between those of different nations. Part of this 
money of thegreatmercantilerepublicmay have been, and prob- 
ably was, employed in carrying on the late war. In time of a gen- 
eral war, it is natural to suppose that a movement and direction 
should be impressed upon it, different from what it usually fol- 
lows in profound peace, that it should circulate more about the 
seat of the war, and be more employed in purchasing there, and in 
the neighbouring countries, the pay and provisions of the differ- 
ent armies. But whatever part of this money of the mercantile 



republic Great Britain may have annually employed in this man- 
ner, it must have been annually purchased, either with British com- 
modities, or with something else that had been purchased with 
them; which still brings us back to commodities, to the annual 
produce of the land and labour of the country, as the ultimate 
resources which enabled us to carry on the war. It is natural, in- 
deed, to suppose, that so great an annual expense must have been 
defrayed from a great annual produce. T he expense of 1761, for 
example, amounted to more than £19,000,000. No accumula- 
tion could have supported so great an annual profusion. There is 
no annual produce, even of gold and silver, which could havesup- 
ported it. The whole gold and silver annually imported into both 
Spain and Portugal, according to the best accounts, doesnot com- 
monly much exceed £6,000,000 sterling, which, in some years, 
would scarce have paid four months expense of the late war. 

T he commodities most proper for being transported to distant 
countries, in order to purchasethereeitherthepayand provisions 
of an army, or some part of the money of the mercantile republic 
to be employed in purchasing them, seem to bethefiner and more 
improved manufactures; such as contain a great value in a small 
bulk, and can therefore be exported to a great distance at little 
expense. A country whose industry produces a great annual sur- 
plus of such manufactures, which are usually exported to foreign 



354 



Adam Smith 



countries, may carry on for many years a very expensive foreign 
war, without either exporting any considerable quantity of gold 
and silver, or even havinganysuch quantity to export. A consider- 
able part of the annual surplus of its manufactures must, indeed, 
in thiscase, be exported without bringing back any returnsto the 
country, though it does to the merchant; the government pur- 
chasing of the merchant his bills upon foreign countries, in order 
topurchasetherethepayand provisions of an army. Some part of 
this surplus, however, may still continue to bring back a return. 
The manufacturers during; the war will have a double demand 
upon them, and be called upon first to work up goods to be sent 
abroad, for paying the bills drawn upon foreign countries for the 
pay and provisions of the army: and, secondly, to work up such as 
arenecessaryforpurchasingthecommon returns that had usually 
been consumed in the country. In the midst of the most destruc- 
tive foreign war, therefore, the greater part of manufactures may 
frequently flourish greatly; and, on thecontrary, they may decline 
on the return of peace. They may flourish amidst the ruin of their 
country, and begin to decay upon the return of its prosperity. The 
different state of many different branches of the British manufac- 
tures during the late war, and for some time after the peace, may 
serve as an illustration of what has been just now said. 
N o foreign war, of great expense or duration, could conveniently 



be carried on by the exportation of the rude produce of the soil. 
The expense of sending such a quantity of it into a foreign coun- 
try as might purchase the pay and provisions of an army would be 
too great. Few countries, too, produce much more rude produce 
than what is sufficient for the subsistence of their own inhabit- 
ants. To send abroad any great quantity of it, therefore, would be 
to send abroad a part of the necessary subsistence of the people. 1 1 
is otherwise with the exportation of manufactures. T he mainte- 
nance of the people employed in them is kept at home, and only 
the surplus part of their work is exported. M r H ume frequently 
takes notice of the inability of the ancient kings of England to 
carry on, without interruption, any foreign war of long duration. 
The English in those days had nothing wherewithal to purchase 
the pay and provisions of their armies in foreign countries, but 
either the rude produce of the soil, of which no considerable part 
could be spared from the home consumption, or a few manufac- 
turesof thecoarsest kind, of which, aswell asof the rude produce, 
the transportation was too expensive. This inability did notarise 
from the want of money, but of the finer and more improved 
manufactures. Buying and selling was transacted by means of 
money in England then aswell as now. The quantity of circulat- 
ing money must have borne the same proportion, to the number 
and value of purchases and sales usually transacted at that time, 



355 



The Wealth of Nations 



which it does to those transacted at present; or, rather, it must 
havebornea greater proportion, because there was then no paper, 
which now occupies a great part of the employment of gold and 
silver. Among nations to whom commerce and manufactures are 
littleknown, thesovereign, upon extraordinary occasions, can sel- 
dom draw any considerableaid from hissubjects, for reasons which 
shall be explained hereafter. It is in such countries, therefore, that 
he generally endeavours to accumulate a treasure, as the only re 
source again st such emergencies. Independent of this necessity, he 
is, in such a situation, naturally disposed to the parsimony requi- 
site for accumulation. In that simple state, the expense even of a 
sovereign is not directed by the vanity which delights in the gaudy 
finery of a court, but is employed in bounty to his tenants, and 
hospitality to his retainers. But bounty and hospitality very sel- 
dom lead to extravagance; though vanity almost always does. Ev- 
ery Tartar chief, accordingly, hasatreasureThetreasuresof M azepa, 
chief of the Cossacks in the U kraine, the famous ally of C harles 
XII., are said to have been very great. The French kings of the 
M erovingian racehad all treasures. W hen they divided their king- 
dom among their different children, they divided their treasures 
too. The Saxon princes, and the first kings after the Conquest, 
seem likewise to have accumulated treasures. The first exploit of 
every new reign wascommonly to seize thetreasure of thepreced- 



ing king, as the most essential measure for securing the succes- 
sion. The sovereigns of improved and commercial countries are 
not under the same necessity of accumulating treasures, because 
they can generally draw from their subjects extraordinary aidsupon 
extraordinary occasions. T hey are likewise less disposed to do so. 
They naturally, perhaps necessarily, follow the mode of the times; 
and their expense comes to be regulated by the same extravagant 
vanity which directs that of all theother great proprietors in their 
dominions. The insignificant pageantry of their court becomes 
everyday more brilliant; and the expense of it not only prevents 
accumulation, but frequently encroaches upon thefundsdestined 
for more necessary expenses. W hat D ercyllidas said of thecourt of 
Persia, may be applied to that of several European princes, that he 
saw there much splendour, but little strength, and many servants, 
but few soldiers. 

The importation of gold and silver is not the principal, much 
I ess the sole benefit, which a nation derives from itsforeign trade. 
Between whatever places foreign trade is carried on, they all of 
them derive two distinct benefits from it. It carries out that sur- 
plus part of theproduce of their land and labour for which there is 
no demand among them, and brings back in return for it some- 
thing else for which there is a demand. It gives a value to their 
superfluities, by exchanging them for something else, which may 



356 



Adam Smith 



satisfya part of their wantsand in crease their enjoyments. Bymeans 
of it, the narrowness of the home market does not hinder the 
division of labour in any particular branch of art or manufacture 
from being carried to the highest perfection. By opening a more 
extensive market for whatever part of the produce of their labour 
may exceed the home consumption, it encourages them to im- 
prove itsproductive power, and to augment its annual produce to 
theutmost, and thereby to in crease the real revenueand wealth of 
the society. These great and important services foreign trade is 
continually occupied in performing to all the different countries 
between which it is carried on. They all derive great benefit from 
it, though that in which themerchant resides generally derives the 
greatest, asheisgenerally more employed in supplying the wants, 
and carrying out the superfluities of his own, than of any other 
particular country. To import the gold and silver which may be 
wanted into the countries which have no mines, is, no doubt a 
part of the business of foreign commerce. It is, however, a most 
insignificant part of it. A country which carried on foreign trade 
merely upon this account, could scarce have occasion to freight a 
ship in a century. 

Itisnotbytheimportation of gold and silver that the discovery 
of America has enriched Europe. By the abundance of the Ameri- 
can mines, those metals have become cheaper. A service of plate 



can now bepurchased for about a third part of thecorn, or a third 
part of the labour, which it would have cost in the fifteenth cen- 
tury. With the same annual expense of labour and commodities, 
Europe can annually purchase about three times the quantity of 
plate which itcould havepurchased at that time. But when acom- 
moditycomestobesoldforathird part of what bad been its usual 
price, not only those who purchased it before can purchase three 
times their former quantity, but it is brought down to the level of 
a much greater number of purchasers, perhaps to more than ten, 
perhaps to more than twenty times the former number. So that 
there may bein Europe at present, not only more than three times, 
but more than twenty or thirty times thequantity of plate which 
would have been in it, even in its present state of improvement, 
had the discovery of the American mines never been made. So far 
Europe has, no doubt, gained a real conveniency, though surely a 
very trifling one. The cheapness of gold and silver renders those 
metals rather less fit for the purposes of money than they were 
before. I n order to make the same purchases, we must load our- 
selves with a greater quantity of them, and carry about a shilling 
in our pocket, where a groat would have done before. 1 1 is difficult 
to say which is most trifling, this inconveniency, or the opposite 
conveniency. Neither the one nor the other could have made any 
very essential change in the state of Europe. The discovery of 



357 



The Wealth of Nations 



America, however, certainly made a most essential one. By open- 
ing a new and inexhaustible market to all the commodities of 
Europe, it gave occasion to new divisionsof labour and improve 
ments of art, which in the narrow circle of the ancient commerce 
could never have taken place, for want of a market to take off the 
greater part of their produce. The productive powers of labour 
wereimproved, and its produce increased in all thedifferent coun- 
tries of Europe, and together with it the real revenue and wealth of 
the inhabitants. The commodities of Europe were almost all new 
to America, and many of those of America were new to Europe. A 
new set of exchanges, therefore, began to take place, which had 
never been thought of before, and which should naturally have 
proved as advantageous to the new, as it certainly did to the old 
continent.ThesavageinjusticeoftheEuropeansrendered an event, 
which ought to have been beneficial to all, ruinous and destruc- 
tive to several of those unfortunate countries. 

T he discovery of a passage to the East I ndies by the C ape of 
Good H ope, which happened much about thesametime, opened 
perhaps a still more extensive range to foreign commerce, than 
even that of America, notwithstanding thegreater distance. There 
were but two nations in America, in any respect, superior to the 
savages, and these were destroyed almost as soon as discovered. 
The rest were mere savages. But the empires of China, Indostan, 



Japan, as well as several others in the East Indies, without having 
richer mines of gold or silver, were, in every other respect, much 
richer, better cultivated, and more advanced in all arts and manu- 
factures, than either M exico or Peru, even though we should credit, 
what plainly deserves no credit, the exaggerated accounts of the 
Spanish writers concerning theancient state of those empires. But 
rich and civilized nations can always exchange to a much greater 
value with one another, than with savages and barbarians. Eu- 
rope, however, has hitherto derived much I ess advantage from its 
commerce with the East I ndies, than from that with America. T he 
Portuguese monopolized the East India trade to themselves for 
about a century; and it was only indirectly, and through them, 
that the other nations of Europe could either send out or receive 
any goods from that country. When the Dutch, in the beginning 
of the last century, began to encroach upon them, they vested 
their whole East India commerce in an exclusive company. The 
English, French, Swedes, and Danes, have all followed their ex- 
ample; so that no great nation of Europe has ever yet had the 
benefit of a free commerce to the East Indies. N o other reason 
need be assigned why it has never been so advantageous as the 
trade to America, which, between almost every nation of Europe 
and its own colonies, isfreetoall its subjects. T he exclusive privi- 
leges of those East India companies, their great riches, the great 



358 



Adam Smith 



favour and protection which these have procured them from their 
respective governments, have excited much envy against them. 
T hisenvy has frequently represented their tradeas altogether per- 
nicious, on account of the great quantities of silver which it every 
year exports from the countries from which it is carried on. The 
parties concerned have replied, that their trade by this continual 
exportation of silver, might indeed tend to impoverish Europe in 
general, but not the particular country from which it was carried 
on; because, by the exportation of a part of the returns to other 
European countries, it annually brought home a much greater 
quantity of that metal than it carried out. Both the objection and 
the reply are founded in the popular notion which I have been 
just now examining. It is therefore unnecessary to say any thing 
further about either. By the annual exportation of silver to the 
East Indies, plate is probably somewhat dearer in Europe than it 
otherwise might have been; and coined silver probably purchases 
a larger quantity both of labour and commodities. T he former of 
these two effects is a very small loss, the latter a very small advan- 
tage; both too insignificant to deserve any part of the public at- 
tention. T he trade to the East I ndies, by opening a market to the 
commoditiesof Europe, or, what comes nearly to the same thing, 
tothegold and silver which is purchased with those commodities, 
must necessarily tend to increase the annual production of Euro- 



pean commodities, and consequently the real wealth and revenue 
of Europe. That it has hitherto increased them so little, is prob- 
ably owing to the restraints which it everywhere labours under. 

I thought it necessary, though at the hazard of being tedious, to 
examine at full length this popular notion, that wealth consists in 
money or in gold and silver. M oney, in common language, as I 
have already observed, frequently signifies wealth; and this ambi- 
guity of expression hasrendered thispopular notion so familiar to 
us, that even they who are convinced of its absurdity, are very apt 
to forget their own principles, and, in the course of their reason- 
ings, to take it for granted asacertain and undeniabletruth. Some 
of the best English writers upon commerce set out with observ- 
ing, that the wealth of a country consists, not in its gold and silver 
only, but in its lands, houses, and consumable goods of all differ- 
ent kinds. In the course of their reasonings, however, the lands, 
houses, and consumable goods, seem to slip out of their memory; 
and thestrain of their argument frequently supposes that all wealth 
consistsin gold and silver, and that to multiply those metals is the 
great object of national industry and commerce. 

T hetwo principles being established, however, that wealth con- 
sisted in gold and silver, and that those metals could be brought 
into a country which had no mines, only by the balance of trade, 
or by exporting to a greater value than it imported; it necessarily 



359 



The Wealth of Nations 



becamethe great object of political economy to diminish asmuch 
as possible the importation of foreign goods for home consump- 
tion, and to increase as much as possible the exportation of the 
produceof domestic industry. Its two great engines for enriching 
the country therefore, were restraints upon importation, and en- 
couragement to exportation. 

The restraints upon importation were of two kinds. 

First, restraints upon the importation of such foreign goodsfor 
home consumption as could be produced at home, from what- 
ever country they were imported. 

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

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

Exportation was encouraged sometimes by drawbacks, some- 
times by bounties, sometimes by advantageous treaties of com- 
merce with foreign states, and sometimes by the establishment of 
colonies in distant countries. 

D rawbacks were given upon two different occasions. W hen the 
home manufactures were subject to any duty or excise, either the 
whole or a part of it was frequently drawn back upon their expor- 
tation; and when foreign goods liableto a duty were imported, in 



order to be exported again, either the whole or a part of this duty 
was sometimes given back upon such exportation. 

Bounties were given for the encouragement, either of some be- 
ginning manufactures, or of such sorts of industry of other kinds 
as were supposed to deserve particular favour. 

By advantageoustreaties of commerce, particular privileges were 
procured in someforeign state for thegoodsand merchants of the 
country, beyond what were granted to those of other countries. 

By the establishment of colonies in distant countries, not only 
particular privileges, but a monopoly was frequently procured for 
thegoodsand merchants of the country which established them. 

Thetwo sorts of restraints upon importation above mentioned, 
together with these four encouragements to exportation, consti- 
tute thesix principal meansby which thecommercial system pro- 
poses to increase thequantity of gold and silver in any country, by 
turning the balance of trade in its favour. I shall consider each of 
them in a particular chapter, and, without taking much farther 
notice of their supposed tendency to bring money into the coun- 
try, I shall examinechiefly what arelikely to betheeffectsof each 
of them upon the annual produce of its industry. According as 
they tend either to increase or diminish the value of this annual 
produce, they must evidently tend either to increase or diminish 
the real wealth and revenue of the country. 



360 



Adam Smith 



CHAPTER II 

OF RESTRAINTS UPON IMPORTATION 

FROM FOREIGN COUNTRIES OF SUCH 

GOODSASCAN BE PRODUCED AT 

HOME 

By restraining, either byhigh duties, or by absolute prohibitions, 
the importation of such goods from foreign countries as can be 
produced at home, the monopoly of the home market is more or 
less secured to thedomestic industry employed in producing them. 
Thus the prohibition of importing either live cattle or salt provi- 
sionsfrom foreign countries, secures to the graziers of Great Brit- 
ain the monopoly of the home market for butcher's meat. The 
high duties upon the importation of corn, which, in times of 
moderate plenty, amount to a prohibition, givealikeadvantage to 
the growers of that commodity. T he prohibition of the importa- 
tion of foreign woollen isequally favourableto the woollen manu- 
facturers Thesilk manufacture, though altogether employed upon 
foreign materials, has lately obtained the same advantage. The linen 
manufacture has not yet obtained it, but is making great strides 
towards it. M any other sorts of manufactures have, in the same 
manner obtained in Great Britain, either altogether, or very nearly, 



a monopoly against their countrymen. The variety of goods, of 
which the importation into Great Britain is prohibited, either ab- 
solutely, or under certain circumstances, greatly exceeds what can 
easily be suspected bythosewhoarenotwell acquainted with the 
laws of the customs. 

T hat this monopoly of the home market frequently gives great 
encouragement to that particular species of industry which enjoys 
it, and frequently turns towards that employment a greater share 
of both the labour and stock of the society than would otherwise 
havegoneto it, cannot be doubted. But whether it tends either to 
increase the general industry of the society, or to give it the most 
advantageous direction, is not, perhaps, altogether so evident. 

The general industry of the society can never exceed what the 
capital of the society can employ. Asthenumber of workmen that 
can be kept in employment by any particular person must bear a 
certain proportion to his capital, so the number of those that can 
be continually employed by all the members of a great society 
must bear a certain proportion to the whole capital of thesociety, 
and never can exceed that proportion. N o regulation of commerce 
can increase the quantity of industry in any society beyond what 
its capital can maintain. It can only divert a part of it into a direc- 
tion into which it might not otherwise have gone; and it is by no 
means certain that this artificial direction is likely to be more ad- 



361 



The Wealth of Nations 



vantageous to the society, than that into which it would havegone 
of its own accord. 

Every individual is continually exerting himself to find out the 
most ad vantageous employment for whatever capital he can com- 
mand. Itishisown advantage, indeed, and not that of thesociety, 
which he has in view. But the study of his own advantage natu- 
rally, or rather necessarily, leads him to prefer that employment 
which is most advantageous to thesociety. 

First, every individual endeavours to employ hiscapital as near 
home as he can, and consequently as much as he can in the sup- 
port of domestic industry, provided always that he can thereby 
obtain the ordinary, or not a great deal lessthan the ordinary prof- 
its of stock. 

Thus, upon equal, or nearly equal profits, every wholesale mer- 
chant naturally prefers the hometradetotheforeigntradeof con- 
sumption, and the foreign trade of consumption to the carrying 
trade. In the home trade, his capital is never so long out of his 
sight as it frequently is in the foreign trade of consumption. He 
can know better the character and situation of the persons whom 
hetrusts; and if heshould happen to bedeceived, heknowsbetter 
the laws of the country from which he must seek redress. I n the 
carrying trade, the capital of the merchant is, as it were, divided 
between two foreign countries, and no part of it isever necessarily 



brought home, or placed under hisown immediate view and com- 
mand. The capital which an Amsterdam merchant employs in 
carrying corn from Koningsberg to Lisbon, and fruit and wine 
from Lisbon to Koningsberg, must generally be the one half of it 
at Koningsberg, and the other half at Lisbon. No part of it need 
ever come to Amsterdam. The natural residence of such a mer- 
chant should either beat Koningsberg or Lisbon; and it can only 
besomevery particular circumstances which can makehim prefer 
the residence of Amsterdam. The uneasiness, however, which he 
feels at being separated so far from his capital, generally deter- 
mines him to bring part both of the Koningsberg goods which he 
destines for the market of Lisbon, and of theLisbon goods which 
he destines for that of Koningsberg, to Amsterdam; and though 
this necessarily subjects him to a double charge of loading and 
unloading as well as to the payment of some duties and customs, 
yet, for the sake of having some part of his capital always under 
hisown view and command, he willingly submits to this extraor- 
dinary charge; and it is in this manner that every country which 
has any considerable share of the carrying trade, becomes always 
theemporium, or general market, for thegoodsof all thedifferent 
countries whose tradeit carries on. Themerchant, in order to save 
a second loading and unloading, endeavours always to sell in the 
home market, as much of the goods of all those different coun- 



362 



Adam Smith 



tries as he can; and thus, so far as he can, to convert his carrying 
trade into a foreign trade of consumption. A merchant, in the 
same manner, who is engaged in the foreign trade of consump- 
tion, when he collects goods for foreign markets, will always be 
glad, upon equal or nearly equal profits, to sell as great a part of 
them at home as he can. He saves himself the risk and trouble of 
exportation, when, so far as he can, he thus converts his foreign 
trade of consumption into a home trade. Home is in this manner 
the centre, if I may say so, round which the capitals of the inhab- 
itants of every country are continually circulating, and towards 
which they are always tending, though, by particular causes, they 
may sometimes be driven off and repelled from it towards more 
distant employments. But a capital employed in thehometrade, 
it has already been shown, necessarily puts into motion a greater 
quantity of domestic industry, and gives revenueand employment 
to a greater number of the inhabitants of the country, than an 
equal capital employed in theforeign trade of consumption; and 
one employed in theforeign trade of consumption has the same 
advantage over an equal capital employed in the carrying trade. 
Upon equal, or only nearly equal profits, therefore, every indi- 
vidual naturally inclines to employ his capital in the manner in 
which it is likely to afford thegreatest support to domestic indus- 
try, and to give revenue and employment to the greatest number 



of people of his own country. 

Secondly, every individual who employs his capital in the sup- 
port of domestic industry, necessarily endeavours so to direct that 
industry, that its produce may be of thegreatest possible value. 

T he produce of industry is what it adds to the subject or mate- 
rialsupon which itisemployed. In proportion asthevalueof this 
produce is great or small, so will likewise be the profits of the 
employer. But it is only for the sake of profit that any man em- 
ploysa capital in thesupport of industry; and hewill always, there- 
fore, endeavour to employ it in the support of that industry of 
which the produce is likely to be of the greatest value, or to ex- 
change for thegreatest quantity either of money or of other goods. 

But theannual revenueof every society isalways precisely equal 
to the exchangeable value of the whole annual produce of its in- 
dustry, or rather is precisely the same thing with that exchange- 
able value. As every individual, therefore, endeavours as much as 
he can, both to employ his capital in the support of domestic 
industry, and so to direct that industry that its produce maybe of 
thegreatest value; every individual necessarily labours to render 
theannual revenue of the society as great as he can. He generally, 
indeed, neither intendsto promote thepublic interest, nor knows 
how much he is promoting it. By preferring the support of do- 
mestic to that of foreign industry, he intends only his own secu- 



363 



The Wealth of Nations 



rity; and by directing that industry in such a manner as its pro- 
duce may be of the greatest value, he intends only his own gain; 
and he is in this, as in many other cases, led by an invisible hand 
to promote an end which was no part of his intention. N or is it 
always theworse for thesociety that itwasno part of it. Bypursu- 
ing his own interest, he frequently promotes that of the society 
more effectually than when he really intendsto promoteit. I have 
never known much good done by those who affected to trade for 
the public good. It is an affectation, indeed, not very common 
among merchants, and very few words need be employed in dis- 
suading them from it. 

What is the species of domestic industry which his capital can 
employ, and of which the produce is likely to be of the greatest 
value, every individual, it isevident, can in hislocal situation judge 
much better than any statesman or lawgiver can do for him. The 
statesman, who should attempt to direct private people in what 
manner they ought to employ their capitals, would not only load 
himself with a most unnecessary attention, butassumean author- 
ity which could safely betrusted, not only to no single person, but 
to no council or senate whatever, and which would nowhere be so 
dangerous as in the hands of a man who had folly and presump- 
tion enough to fancy himself fit to exercise it. 

To give the monopoly of the home market to the produce of 



domestic industry, in any particular art or manufacture, isin some 
measure to direct private people in what manner they ought to 
employ their capitals, and must in almost all cases be either a use- 
less or a hurtful regulation. If the produce of domestic can be 
brought there as cheap as that of foreign industry, the regulation is 
evidently useless. If it cannot, it must generally behurtful. 1 1 isthe 
maxim of every prudent master of a family, never to attempt to 
make at home what it will cost him more to make than to buy. 
Thetailordoesnot attempt to makehisown shoes, but buys them 
of the shoemaker. The shoemaker does not attempt to make his 
own clothes, but employs a tailor. The farmer attempts to make 
neither the one nor the other, but employs those different artifi- 
cers. All of them find it for their interest to employ their whole 
industry in a way in which they have some advantage over their 
neighbours, and to purchase with a part of its produce, or, what is 
the same thing, with the price of a part of it, whatever else they 
have occasion for. 

W hat isprudencein theconduct of every privatefamily, can scarce 
be folly In that of a great kingdom. If a foreign country can supply 
us with a commodity cheaper than we ourselves can make it, better 
buy it of them with some part of the produce of our own industry, 
employed in a way in which we have some advantage. T he general 
industry of the country being always in proportion to the capital 



364 



Adam Smith 



which employs it, will not thereby be diminished, no more than 
that of the abovementioned artificers; but only left to find out the 
way in which it can be employed with the greatest advantage. It is 
certainly not employed to the greatest advantage, when it is thus 
directed towards an object which it can buy cheaper than it can 
make. T he value of its annual produce is certainly more or less di- 
minished, when it is thus turned away from producing commodi- 
ties evidently of more value than the commodity which it is di- 
rected to produce. According to the supposition, that commodity 
could be purchased from foreign countries cheaper than it can be 
made at home; it could therefore have been purchased with a part 
only of the commodities, or, what is the same thing, with a part 
only of thepriceof the commodities, which the industry employed 
by an equal capital would have produced at home, had it been left 
to follow itsnatural course. The industry of the country, therefore, 
is thus turned away from a more to a less advantageous employ- 
ment; and theexchangeablevalueof its annual produce, instead of 
being increased, according to the intention of the lawgiver, must 
necessarily be diminished by every such regulation. 

By means of such regulations, indeed, a particular manufacture 
may sometimes be acquired sooner than it could have been other- 
wise, and after a certain time may be made at home as cheap, or 
cheaper, than in theforeign country. But though theindustry of the 



society may bethuscarried with advantageinto a particular channel 
sooner than it could havebeen otherwise, it will bynomeansfollow 
that the sum-total, either of its industry, or of its revenue, can ever 
be augmented by any such regulation. Theindustry of the society 
can augment only in proportion as its capital augments, and its 
capital can augment only in proportion to what can be gradually 
saved out of its revenue. But the immediate effect of every such 
regulation is to diminish its revenue; and what diminishes its rev- 
enue is certainly not very likely to augment its capital faster than it 
would have augmented of its own accord, had both capital and 
industry been left to find out their natural employments. 

Though, for want of such regulations, the society should never 
acquire the proposed manufacture, it would not upon that ac- 
count necessarily be the poorer in anyone period of its duration. 
In every period of its duration itswholecapital and industry might 
still have been employed, though upon different objects, in the 
manner that was most advantageous at the time. In every period 
its revenue might have been the greatest which its capital could 
afford, and both capital and revenue might havebeen augmented 
with the greatest possible rapidity. 

The natural advantages which one country has over another, in 
producing particular commodities, are sometimes so great, that it 
is acknowledged by all the world to be in vain to struggle with 



365 



The Wealth of Nations 



them. By means of glasses, hot-beds, and hot-walls, very good 
grapes can be raised in Scotland, and very good wine, too, can be 
madeof them, at about thirty times theexpense for which at least 
equally good can be brought from foreign countries. Would it be 
a reasonable law to prohibit the importation of all foreign wines, 
merely to encourage the making of claret and Burgundy in Scot- 
land? But if there would be a manifest absurdity in turning to- 
wards any employment thirty times more of the capital and in- 
dustry of the country than would be necessary to purchase from 
foreign countries an equal quantity of the commodities wanted, 
there must be an absurdity, though not altogether so glaring, yet 
exactly of the same kind, in turning towards any such employ- 
ment a thirtieth, or even a three hundredth part more of either. 
W hether the advantages which one country has over another be 
natural or acquired, is in this respect of no consequence. As long 
as theonecountry has those advantages, and theother wants them, 
it will always be more advantageous for the latter rather to buy of 
theformer than to make. It isan acquired advantage only, which 
one artificer has over his neighbour, who exercises another trade; 
and yet they both find it more advantageous to buy of one an- 
other, than to make what does not belong to their particular trades. 
M erchants and manufacturers are the people who derive the 
greatest advantage from this monopoly of the home market T he 



prohibition of the importation of foreign cattle and of salt provi- 
sions, together with the high duties upon foreign corn, which in 
times of moderate plenty amount to a prohibition, are not near so 
advantageoustothegraziersandfarmersof Great Britain, asother 
regulationsofthesamekind are to its merchants and manufactur- 
ers. M anufactures, those of the finer kind especially, are more eas- 
ily transported from onecountry to another than corn or cattle. It 
is in the fetching and carrying manufactures, accordingly, that 
foreign trade is chiefly employed. In manufactures, a very small 
advantage will enable foreigners to undersell our own workmen, 
even in the home market. It will require a very great one to en able 
them to do so in the rude produce of the soil. If the free importa- 
tion of foreign manufactures were permitted, several of the home 
manufactures would probably suffer,and some of them perhaps 
go to ruin altogether, and a considerable part of the stock and 
industry at present employed in them, would be forced to find 
out some other employment. But the freest importation of the 
rude produce of the soil could have no such effect upon the agri- 
culture of the country. 

If the importation of foreign cattle, for example, were made 
ever so free, so few could be imported, that the grazing trade of 
Great Britain could be little affected by it. Live cattle are, perhaps, 
the only commodity of which the transportation is more expen- 



366 



Adam Smith 



sivebyseathan by land. By land they carry themselves to market. 
By sea, not only the cattle, but their food and their water too, 
must be carried at no small expense and inconveniency. Theshort 
sea between Ireland and Great Britain, indeed, renders the impor- 
tation of Irish cattle more easy. But though the free importation 
of them, which was lately permitted only for a limited time, were 
rendered perpetual, it could have no considerable effect upon the 
interest of the graziers of G reat Britain. T hose parts of G reat Brit- 
ain which border upon the Irish sea areall grazing countries. Irish 
cattle could never be imported for their use, but must be drove 
through those very extensive countries, at no small expense and 
inconveniency, before they could arrive at their proper market. 
Fat cattle could not be drove so far. Lean cattle, therefore, could 
only be imported; and such importation could interfere not with 
the interest of the feeding or fattening countries, to which, by 
reducing the price of lean cattle it would rather be advantageous, 
but with that of thebreedingcountriesonly.Thesmall number of 
Irish cattle imported since their importation was permitted, to- 
gether with the good price at which lean cattle still continue to 
sell, seem to demonstrate, that even the breeding countries of Great 
Britain are never likely to be much affected by the free importa- 
tion of Irish cattle. The common people of Ireland, indeed, are 
said to have sometimes opposed with violence the exportation of 



their cattle. But if the exporters had found any great advantage in 
continuing thetrade, they could easily, when the law was on their 
side, have conquered thismobbish opposition. 

Feeding and fattening countries, besides, must always be highly 
improved, whereas breeding countries are generally uncultivated. 
Thehigh priceof lean cattle, by augmenting the value of unculti- 
vated land, islikeabounty against improvement. Toany country 
which was highly improved throughout, it would be more advan- 
tageousto import its lean cattlethan to breed them. The province 
of H olland, accordingly, is said to follow this maxim at present. 
Themountainsof Scotland, Wales, and Northumberland, indeed, 
are countries not capable of much improvement, and seem des- 
tined by nature to be the breeding countries of Great Britain. The 
freest importation of foreign cattlecould have no other effect than 
to hinder those breeding countries from taking advantage of the 
increasing population and improvement of the rest of the king- 
dom, from raising their price to an exorbitant height, and from 
laying a real tax upon all the more improved and cultivated parts 
of the country. 

The freest importation of salt provisions, in the same manner, 
could have as little effect upon the interest of thegraziers of Great 
Britain as that of live cattle. Salt provisions are not only a very 
bulky commodity, but when compared with fresh meat they area 



367 



The Wealth of Nations 



commodity both of worse quality, and, as they cost more labour 
and expense, of higher price. They could never, therefore, come 
into competition with thefresh meat, though they might with the 
salt provisions of the country. T hey might be used for victualling 
shipsfordistantvoyages, and such likeuses, but could never make 
any considerable part of the food of the people. The small quan- 
tity of salt provisions imported from Ireland since their importa- 
tion was rendered free, is an experimental proof that our graziers 
have nothing to apprehend from it. It does not appear that the 
price of butcher's meat has ever been sensibly affected by it. 

Even thefreeimportation of foreign corn could very little affect 
the interest of the farmers of Great Britain. Corn is a much more 
bulky commodity than butcher's meat. A pound of wheat at a 
penny is as dear as a pound of butcher's meat at fourpence. The 
small quantity of foreign corn imported even in times of the greatest 
scarcity, may satisfy our farmers that they can have nothing to fear 
from the freest importation. The average quantity imported, one 
year with another, amounts only, according to the very well in- 
formed author of theTracts upon theCorn Trade, to 23,728 quar- 
ters of all sorts of grain, and does not exceed the five hundredth 
and seventy-one part of theannual consumption. But as the bounty 
upon corn occasions a greater exportation in years of plenty, so it 
must, of consequence, occasion a greater importation in years of 



scarcity, than in the actual state of tillage would otherwise take 
place. By means of it, the plenty of oneyear does not compensate 
the scarcity of another; and as the average quantity exported is 
necessarily augmented by it, so must likewise, in the actual state 
of tillage, the average quantity imported. If therewereno bounty, 
aslesscorn would be exported, suit is probable that, oneyear with 
another, less would be imported than at present. The corn-mer- 
chants, the fetchers and carriers of corn between Great Britain 
and foreign countries, would have much less employment, and 
might suffer considerably; but the country gentlemen and farm- 
ers could suffer very little. It is in the corn-merchants, accord- 
ingly, rather than the country gentlemen and farmers, that I have 
observed the greatest anxiety for the renewal and continuation of 
the bounty. 

Country gentlemen and farmers are, to their great honour, of 
all people, the least subject to the wretched spirit of monopoly. 
The undertaker of a great manufactory is sometimes alarmed if 
another work of the same kind isestablished within twenty miles 
of him; the Dutch undertaker of the woollen manufacture at 
Abbeville, stipulated that no work of the same kind should be 
established within thirty leaguesof that city. Farmers and country 
gentlemen, on the contrary, are generally disposed rather to pro- 
mote, than to obstruct, the cultivation and improvement of their 



368 



Adam Smith 



neighbours farms and estates. They haveno secrets, such as those 
of the greater part of manufacturers, but are generally rather fond 
of communicating to their neighbours, and of extending as far as 
possible any new practice which they may have found to be ad- 
vantageous. "Pius quaestus", says old Cato, "stabilissimusque, 
minimequeinvidiosus; minimeque male cogitantes sunt, qui in 
eo studio occupati sunt." Country gentlemen and farmers, dis- 
persed in different parts of the country, cannot so easily combine 
as merchants and manufacturers, who being collected into towns, 
and accustomed to that exclusive corporation spirit which pre- 
vailsin them, naturally endeavourto obtain, against all their coun- 
trymen, the same exclusive privilege which they generally possess 
against the inhabitants of their respective towns. They accordingly 
seem to have been the original inventors of those restraints upon 
the importation of foreign goods, which secure to them the mo- 
nopoly of the home market. It was probably in imitation of them, 
and to put themselves upon a level with those who, they found, 
were disposed to oppress them, that the country gentlemen and 
farmers of Great Britain so far forgot the generosity which isnatu- 
ral to their station, as to demand theexdusiveprivilege of supply- 
ing their countrymen with corn and butcher's meat. They did not, 
perhaps, taketimeto consider how much less their interest could 
be affected bythefreedom of trade, than that of thepeoplewhose 



example they followed. 

To prohibit, by a perpetual law, the importation of foreign corn 
and cattle, is in reality to enact, that the population and industry 
of the country shall, at no time, exceed what the rude produce of 
its own soil can maintain. 

There seem, however, to be two cases, in which it will generally 
be advantageous to lay someburden upon foreign, for theencour- 
agement of domestic industry. 

T hefirst is, when some particular sort of industry isnecessary for 
the defence of the country. T he defence of G reat Britain, for ex- 
ample, dependsvery much upon thenumber of its sailors and ship- 
ping. The act of navigation, therefore, very properly endeavours to 
give the sailors and shipping of Great Britain the monopoly of the 
tradeof their own country, in somecases, by absolute prohibitions, 
and in others, by heavy burdens upon theshipping of foreign coun- 
tries. The following are the principal dispositions of this act. 

First, All ships, of which theowners, masters, and three-fourths 
of the mariners, arenot British subjects, are prohibited, upon pain 
of forfeiting ship and cargo, from trading to the British settle- 
ments and plantations, or from being employed in the coasting 
tradeof Great Britain. 

Secondly, A great variety of the most bulky articles of importa- 
tion can bebrought into Great Britain only, either in such shipsas 



369 



The Wealth of Nations 



are above described, or in ships of the country where those goods 
areproduced, and of which theowners, masters, and three-fourths 
of the mariners, areof that particular country; and when imported 
even in ships of this latter kind, they are subject to double aliens 
duty. If imported in ships of any other country, the penalty is 
forfeiture of ship and goods. W hen this act was made, the D utch 
were, what they still are, the great carriers of Europe; and by this 
regulation they were entirely excluded from being the carriers to 
Great Britain, or from importing to us the goods of any other 
European country. 

Thirdly, A great variety of the most bulky articles of importa- 
tion are prohibited from being imported, even in British ships, 
from any country but that in which they are produced, under 
pain of forfeiting ship and cargo. This regulation, too, was prob- 
ably intended against the D utch. H olland was then, as now, the 
great emporium for all European goods; and by this regulation, 
British ships were hindered from loading in H olland thegoodsof 
any other European country. 

Fourthly, Salt fish of all kinds, whale fins, whalebone, oil, and 
blubber, not caught by and cured on board British vessels, when 
imported into Great Britain, are subject to double aliens duty. 
TheDutch, as they are still the principal, were then theonlyfish- 
ersin Europe that attempted to supply foreign nations with fish. 



By this regulation, a very heavy burden was laid upon their sup- 
plying Great Britain. 

When the act of navigation was made, though England and 
Holland werenot actually at war, themost violent animosity sub- 
sisted between the two nations. It had begun during the govern- 
ment of the long parliament, which first framed this act, and it 
brokeoutsoon after in theDutch wars, duringthat of theProtec- 
tor and of C harles 1 1 . It is not impossible, therefore, that some of 
the regulations of this famous act may have proceeded from na- 
tional animosity.Theyareaswise, however, as if they had all been 
dictated by the most deliberate wisdom. National animosity, at 
that particular time, aimed at thevery same object which themost 
deliberate wisdom would have recommended, the diminution of 
the naval power of H olland, the only naval power which could 
endanger the security of England. 

The act of navigation is not favourableto foreign commerce, or 
to the growth of that opulence which can arise from it. The inter- 
est of a nation, in its commercial relations to foreign nations, is, 
like that of a merchant with regard to the different people with 
whom hedeals, to buy as cheap, and to sell asdear as possible. But 
it will be most likely to buy cheap, when, by the most perfect 
freedom of trade, it encourages all nationstobringtoitthegoods 
which it has occasion to purchase; and, for the same reason, it will 



370 



Adam Smith 



bemost likely to sell dear, when its markets are thusfilled with the 
greatest number of buyers. Theact of navigation, itistrue, lays no 
burden upon foreign ships that come to export the produce of 
British industry. Even the ancient aliens duty, which used to be 
paid upon all goods, exported as well as imported, has, by several 
subsequent acts, been taken off from the greater part of the ar- 
ticles of exportation. But if foreigners, either by prohibitions or 
high duties, are hindered from coming to sell, they cannot always 
afford to come to buy; because, coming without a cargo, they 
must lose the freight from their own country to Great Britain. By 
diminishing the number of sellers, therefore, we necessarily di- 
minish that of buyers, and arethuslikely not only to buy foreign 
goods dearer, but to sell our own cheaper, than if there was a more 
perfect freedom of trade. As defence, however, is of much more 
importance than opulence, theact of navigation is, perhaps, the 
wisest of all the commercial regulations of England. 

Thesecond case, in which it will generally be advantageousto lay 
some burden upon foreign for the encouragement of domestic in- 
dustry, is when some tax is imposed athomeupon theproduceof 
the latter. In this case, it seems reasonable that an equal tax should 
be imposed upon the like produce of the former. This would not 
give the monopoly of the borne market to domestic industry, nor 
turn towards a particular employment a greater share of the stock 



and labour of the country, than what would naturally go to it. It 
would only hinder any part of what would naturally go to it from 
being turned away by thetax into a lessnatural direction, and would 
leave thecompetition between foreign and domestic industry, after 
thetax, as nearly as possible upon the same footing as before it. In 
G reat Britain, when any such tax is laid upon the produce of do- 
mestic industry, it is usual, at the same time, in order to stop the 
clamorous complaints of our merchants and manufacturers, that 
they will be undersold at home, to lay a much heavier duty upon 
the importation of all foreign goods of the same kind. 

This second limitation of the freedom of trade, according to 
some people, should, upon most occasions, be extended much 
farther than to the precise foreign commodities which could come 
into competition with those which had been taxed at home. W hen 
the necessaries of life have been taxed in any country, it becomes 
proper, they pretend, to tax not only the like necessaries of life 
imported from other countries, but all sortsof foreign goods which 
can come into competition with any thing that isthe produce of 
domestic industry. Subsistence, they say, becomes necessarily dearer 
in consequence of such taxes; and the price of labour must always 
rise with theprice of thelabourer's subsistence. Every commodity, 
therefore, which isthe produce of domestic industry, though not 
immediately taxed itself, becomes dearer in consequence of such 



371 



The Wealth of Nations 



taxes, because thelabour which producesit becomes so. Such taxes, 
therefore, are really equivalent, they say, to a tax upon every par- 
ticular commodity produced at home. In order to put domestic 
upon the same footing with foreign industry, therefore, it becomes 
necessary, they think, to lay some duty upon every foreign com- 
modity, equal to this enhancement of the price of the home com- 
modities with which it can come into competition. 

Whether taxes upon the necessaries of life, such asthosein Great 
Britain upon soap, salt, leather, candles, etc. necessarily raise the 
price of labour, and consequently that of all other commodities, I 
shall consider hereafter, when I cometo treat of taxes. Supposing, 
however, in the mean time, that they have this effect, and they 
have it undoubtedly, this general enhancement of the price of all 
commodities, in consequence of that labour, is a case which dif- 
fers in the two following respects from that of a particular com- 
modity, of which the price was enhanced by a particular tax im- 
mediately imposed upon it. 

First, It might always be known with great exactness, how far 
the price of such a commodity could be enhanced by such a tax; 
but how far thegeneral enhancement of the priceof labour might 
affect that of every different commodity about which labour was 
employed, could never be known with any tolerable exactness. It 
would be impossible, therefore, to proportion, with any tolerable 



exactness, thetax of every foreign, to theenhancement of theprice 
of every home commodity. 

Secondly, Taxesuponthenecessaries of life havenearlythesame 
effect upon the circumstances of the people as a poor soil and a 
bad climate. Provisions are thereby rendered dearer, in the same 
manner as if it required extraordinary labour and expense to raise 
them. As, in the natural scarcity arising from soil and climate, it 
would be absurd to direct the people in what manner they ought 
to employ their capitalsand industry, so is it likewise in the artifi- 
cial scarcity arising from such taxes. To beleftto accommodate, as 
well as they could, their industry to their situation, and to find 
out those employments in which, notwithstanding their 
unfavourable circumstances, they might have some advantage ei- 
ther in thehomeor in theforeign market, iswhat, in both cases, 
would evidently be most for their advantage. To lay a new-tax 
upon them, because they are already overburdened with taxes, and 
because they already pay too dear for the necessaries of life, to 
make them likewisepay too dear for thegreater part of other com- 
modities, is certainly a most absurd way of making amends. 

Such taxes, when they have grown up to a certain height, are a 
curse equal to the barrenness of the earth, and the inclemency of 
theheavens, and yet it isin therichest and most industriouscoun- 
triesthat they have been most generally imposed. No other coun- 



372 



Adam Smith 



tries could support so great a disorder. As the strongest bodies 
only can live and enjoy health under an unwholesomeregimen, so 
the nations only, that in every sort of industry have the greatest 
natural and acquired advantages, can subsist and prosper under 
such taxes H olland isthe country in Europein which they abound 
most, and which, from peculiar circumstances, continuesto pros- 
per, not by means of them, as has been most absurdly supposed, 
but in spite of them. 

As there are two cases in which it will generally be advantageous 
to lay some burden upon foreign for the encouragement of do- 
mestic industry, so there are two others in which it may some- 
times be a matter of deliberation, in the one, how far it is proper 
to continuethefree importation of certain foreign goods; and, in 
theother, how far, or in what manner, it may beproper to restore 
that free importation, after it has been for sometime interrupted. 

Thecasein which it may sometimes beamatter of deliberation 
how far it is proper to continue the free importation of certain 
foreign goods, is when someforeign nation restrains, by high du- 
tiesor prohibitions, theimportation of someof our manufactures 
into their country. Revenge, in thiscase, naturally dictates retalia- 
tion, and that we should impose the like duties and prohibitions 
upon the importation of some or all of their manufactures into 
ours. N ations, accordingly, seldom fail to retaliate in this manner. 



The French have been particularly forward to favour their own 
manufactures, by restrainingtheimportation of such foreign goods 
as could come into competition with them. In this consisted a 
great part of the policy of M r Colbert, who, notwithstanding his 
great abilities, seems in this case to have been imposed upon by 
the sophistry of merchants and manufacturers, who are always 
demanding a monopoly against their countrymen. It isat present 
theopinion of the most intelligent men in France, that hisopera- 
tions of this kind have not been beneficial to his country. That 
minister, by the tariff of 1667, imposed very high duties upon a 
great number of foreign manufactures. Upon hisrefusingto mod- 
erate them in favour of the Dutch, they, in 1671, prohibited the 
importation of the wines, brandies, and manufactures of France. 
The war of 1672 seems to have been in part occasioned by this 
commercial dispute. T he peace of N imeguen put an end to it in 
1678, by moderating someof thosedutiesin favour of theDutch, 
who in consequence took off their prohibition. It was about the 
sametimethat the French and English began mutually to oppress 
each other's industry, bythelikedutiesand prohibitions, of which 
theFrench, however, seem to have set thefirstexample, Thespirit 
of hostility which has subsisted between thetwo nationsever since, 
has hitherto hindered them from being moderated on either side. 
I n 1697, the Ehglish prohibited the importation of bonelace, the 



373 



The Wealth of Nations 



manufacture of Flanders. T he govern merit of that country, at that 
time under thedominion of Spain, prohibited, in return, the im- 
portation of English woollens. In 1700, the prohibition of im- 
porting bone lace into England was taken oft; upon condition 
that the importation of English woollens into Flanders should be 
put on the same footing as before. 

There may be good policy in retaliations of this kind, when 
there is a probability that they will procure the repeal of the high 
duties or prohibitions complained of. T he recovery of a great for- 
eign market will generally more than compensate the transitory 
inconveniency of paying dearer during a short time for some sorts 
of goods. To judge whether such retaliationsare likely to produce 
such an effect, doesnot, perhaps, belong so much to thescienceof 
a legislator, whose deliberations ought to be governed by general 
principles, which are always the same, astotheskill of that insidi- 
ous and crafty animal vulgarly called a statesman or politician, 
whose councils are directed by the momentary fluctuations of af- 
fairs. When there is no probability that any such repeal can be 
procured, itseemsabad method of com pen sating the injury done 
to certain classes of our people, to do another injury ourselves, 
not only to those classes, but to almost all the other classes of 
them. W hen our neighbours prohibit some manufacture of ours, 
we generally prohibit, not only the same, for that alone would 



seldom affect them considerably, but some other manufacture of 
theirs. This may, no doubt, give encouragement to some particu- 
lar class of workmen among ourselves, and, by excluding some of 
their rivals, may enablethem to raise their pricein the homemar- 
ket. Those workmen however, who suffered by our neighbours 
prohibition, will not be benefited by ours. On the contrary, they, 
and almost all the other classes of our citizens, will thereby be 
obliged to pay dearer than before for certain goods. Every such 
law, therefore, imposes a real tax upon the whole country, not in 
favour of that particular class of workmen who were injured by 
our neighbours prohibitions, but of some other class. 

Thecasein which itmay sometimes beamatter of deliberation, 
how far, or in what manner, it is proper to restore the free impor- 
tation of foreign goods, after it has been forsometimeinterrupted, 
is when particular manufactures, by means of high duties or pro- 
hibitions upon all foreign goods which can come into competi- 
tion with them, have been so far extended as to employ a great 
multitude of hands. Humanity may in this case require that the 
freedom of trade should be restored only by slow gradations, and 
with a good deal of reserve and circumspection. Were those high 
duties and prohibitions taken away all at once, cheaper foreign 
goods of the same kind might be poured so fast into the home 
market, as to deprive all at once many thousands of our people of 



374 



Adam Smith 



their ordinary employment and means of subsistence. The disor- 
der which this would occasion might no doubt be very consider- 
able. It would in all probability, however, be much less than is 
commonly imagined, for the two following reasons. 

First, All those manufactures of which any part is commonly 
exported to other European countries without a bounty, could be 
very little affected by the freest importation of foreign goods. Such 
manufactures must be sold as cheap abroad as any other foreign 
goods of the same quality and kind, and consequently must be 
sold cheaper at home. They would still, therefore, keep possession 
of the home market; and though acapriciousman of fashion might 
sometimes prefer foreign wares, merely because they were foreign, 
to cheaper and better goods of the same kind that were made at 
home, thisfolly could, from the natureof things, extend to so few, 
that it could make no sensible impression upon the general em- 
ployment of thepeople. But a great part of all thedifferent branches 
of our woollen manufacture, of our tanned leather, and of our 
hardware, are annually exported to other European countries with- 
out anybounty, and these are themanufactureswhich employ the 
greatest number of hands. The silk, perhaps, is the manufacture 
which would suffer the most by this freedom of trade, and after it 
the linen, though the latter much less than theformer. 

Secondly, Though a great number of people should, by thus 



restoring the freedom of trade, be thrown all at once out of their 
ordinary employment and common method of subsistence, it 
would by no means follow that they would thereby be deprived 
either of employment or subsistence. By the reduction of the army 
and navy at the end of the late war, more than 100,000 soldiers 
and seamen, a number equal to what is employed in the greatest 
manufactures, were all at once thrown out of their ordinary em- 
ployment: but though they no doubt suffered someinconveniency, 
they werenot thereby deprived of all employment and subsistence. 
The greater part of the seamen, it is probable, gradually betook 
themselves to the merchant service as they could find occasion, 
and in themean time both they and thesoldiers were absorbed in 
the great mass of the people, and employed in a great variety of 
occupations. N ot only no great convulsion, but no sensibledisor- 
der, arose from so great a change in the situation of more than 
100,000 men, all accustomed to the use of arms, and many of 
them to rapine and plunder. The number of vagrants was scarce 
anywhere sensibly increased by it; even the wages of labour were 
not reduced by it in any occupation, so far as I have been ableto 
learn, except in that of seamen in the merchant service. But if we 
compare together the habits of a soldier and of any sort of manu- 
facturer, we shall find that those of the latter do not tend so much 
to disqualify him from being employed in a new trade, asthoseof 



375 



The Wealth of Nations 



the former from being employed in any. The manufacturer has 
always been accustomed to lookforhissubsistencefrom hislabour 
only; thesoldier to expect it from his pay. Application and indus- 
try have been familiar to the one; idleness and dissipation to the 
other. But it is surely much easier to change the direction of in- 
dustry from one sort of labour to another, than to turn idleness 
and dissipation to any. To the greater part of manufactures, be- 
sides, it has already been observed, there are other collateral manu- 
factures of so similar a nature, that a workman can easily transfer 
hisindustry from oneof them to another. Thegreater part of such 
workmen, too, are occasionally employed in country labour. The 
stock which employed them in a particular manufacture before, 
will still remain in the country, to employ an equal number of 
people in some other way. The capital of the country remaining 
the same, the demand for labour will likewise be the same, or very 
nearly the same, though it may be exerted in different places, and 
for different occupations. Soldiers and seamen, indeed, when dis- 
charged from the king's service, are at liberty to exercise any trade 
within any town or pi ace of Great Britain or Ireland. Letthesame 
natural liberty of exercising what species of industry they please, 
be restored to all his M ajesty's subjects, in thesame manner as to 
soldiers and seamen; that is, break down the exclusive privileges of 
corporations, and repeal the statute of apprenticeship, both which 



are really encroachments upon natural Liberty, and add to those the 
repeal of the law of settlements, so that a poor workman, when 
thrown out of employment, either in onetradeorin oneplace, may 
seek for it in another trade or in another place, without the fear 
either of a prosecution or of a removal; and neither the public nor 
theindividuals will suffer much more from the occasional disband- 
ing some particular classes of manufacturers, than from that of the 
soldiers. ur manufacturers have no doubt great merit with their 
country, but they cannot have more than those who defend it with 
their blood, nor deserve to be treated with moredelicacy 

To expect, indeed, that thefreedom of trade should ever be en- 
tirely restored in Great Britain, is as absurd as to expect that an 
Oceana or Utopia should ever be established in it. Not only the 
prejudicesof thepublic, but, what is much more unconquerable, 
the private interests of many individuals, irresistibly oppose it. 
Were the officers of the army to oppose, with the same zeal and 
unanimity, any reduction in the number of forces, with which 
master manufacturers set themselves against every law that is likely 
to increase the number of their rivals in the home market; were 
the former to animate their soldiers. In the same manner as the 
latter inflametheir workmen, to attack with violence and outrage 
the proposers of any such regulation; to attempt to reduce the 
army would be as dangerous as it has now become to attempt to 



376 



Adam Smith 



diminish, in any respect, the monopoly which our manufacturers 
have obtained against us. This monopoly has so much increased 
the number of some particular tribes of them, that, like an over- 
grown standing army, they have become formidable to the gov- 
ernment, and, upon many occasions, intimidate the legislature. 
The member of parliament who supports every proposal for 
strengthening this monopoly, issureto acquire not only the repu- 
tation of understanding trade, but great popularity and influence 
with an order of men whose numbers and wealth render them of 
great importance. If he opposes them, on the contrary, and still 
more, if he has authority enough to be able to thwart them, nei- 
ther the most acknowledged probity, nor the highest rank, northe 
greatest public services, can protect him from the most infamous 
abuse and detraction, from personal insults, nor sometimes from 
real danger, arising from the insolent outrage of furious and dis- 
appointed monopolists. 

T he undertaker of a great manufacture, who, by the home mar- 
kets being suddenly laid open to the competition of foreigners, 
should be obliged to abandon his trade, would no doubt suffer 
very considerably. That part of his capital which had usually been 
employed in purchasing materials, and in paying his workmen, 
might, without much difficulty, perhaps, find another employ- 
ment; but that part of it which was fixed in workhouses, and in 



the instruments of trade, could scarce be disposed of without con- 
siderable loss. The equitable regard, therefore, to his interest, re- 
quires that changes of this kind should never be introduced sud- 
denly, but slowly, gradually, and after a very long warning. The 
legislature, were it possible that its deliberations could be always 
directed, not by the clamorous importunity of partial interests, 
but by an extensive view of the general good, ought, upon this 
very account, perhaps, to be particularly careful, neither to estab- 
lish any new monopolies of this kind, nor to extend further those 
which are already established. Every such regulation introduces 
some degree of real disorder into the constitution of the state, 
which it will be difficult afterwards to cure without occasioning 
another disorder. 

How far it may beproperto impose taxes upon the importation 
of foreign goods, in order not to prevent their importation, but to 
raise a revenue for government, I shall consider hereafter when I 
come to treat of taxes. Taxes imposed with a view to prevent, or 
even to diminish importation, are evidently as destructive of the 
revenue of the customs as of the freedom of trade. 



377 



The Wealth of Nations 



CHAPTER III 

OFTHE EXTRAORDINARY RESTRAINTS 
UPON THE IMPORTATION OFGOODS 
OF ALMOST ALL KINDS, FROM THOSE 
COUNTRIESWITH WHICH THE BAL- 
ANCE IS SUPPOSED TO BE DISADVAN- 
TAGEOUS 

Part I — Of the Unreasonableness of those Restraints, even 
upon the- Principles of the Commercial System. 

To lay extraordinary restraints upon the importation of goods 
of almost all kinds, from those particular countries with which 
the balance of trade is supposed to be disadvantageous, is the sec- 
ond expedient by which the commercial system proposes to in- 
crease thequantity of gold and silver. Thus, in Great Britain, Silesia 
lawnsmaybeimportedforhomeconsumption, upon paying cer- 
tain duties; but French cambrics and lawns are prohibited to be 
imported, except into the port of London, thereto be warehoused 
for exportation. H igher duties are imposed upon the wines of 
France than upon thoseof Portugal, or indeed of any other coun- 
try. By what is called the impost 1692, a duty of five and -twenty 



per cent, of the rate or value, was laid upon all French goods; 
while the goods of other nations were, the greater part of them, 
subjected to much lighter duties, seldom exceeding five per cent. 
The wine, brandy, salt, and vinegar of France, were indeed ex- 
cepted; these commodities being subjected to other heavy duties, 
either by other laws, or by particular clauses of the same law. I n 
1696, a second duty of twenty-five per cent, the first not having 
been thought a sufficient discouragement, was imposed upon all 
French goods, except brandy; together with a new duty of five- 
and-twenty pounds upon the ton of French wine, and another of 
fifteen pounds upon theton of French vinegar. French goods have 
never been omitted in any of those general subsidies or duties of 
five per cent, which have been imposed upon all, or the greater 
part, of the goods enumerated in the book of rates. If we count 
the one-third and two-third subsidies as making a complete sub- 
sidy between them, therehavebeen fiveof these general subsidies; 
so that, before the commencement of the present war, seventy- 
five per cent, may be considered as the lowest duty to which the 
greater part of the goods of the growth, produce, or manufacture 
of France, were liable. But upon the greater part of goods, those 
duties are equivalent to a prohibition. The French, in their turn, 
have, I believe, treated our goods and manufacturesjust as hardly; 
though I am not so well acquainted with the particular hardships 



378 



Adam Smith 



which they have imposed upon them. Those mutual restraints 
have put an end to almost all fair commerce between the two 
nations; and smugglers are now the principal importers, either of 
British goods into France, or of French goods into Great Britain. 
The principles which I have been examining, in the foregoing 
chapter, took their origin from private interest and the spirit of 
monopoly; those which I am going te examine in this, from na- 
tional prejudice and animosity. They are, accordingly, as might 
well be expected, still more unreasonable. They are so, even upon 
the principles of the commercial system. 

First, Though it were certain that in the case of a free trade 
between France and England, for example, the balance would be 
in favour of France, it would by no meansfollow that such a trade 
would bedisadvantageousto England, or that the general balance 
of its wholetrade would thereby be turned more against it. If the 
wines of France are better and cheaper than those of Portugal, or 
its linensthan those of Germany, it would be more advantageous 
for Great Britain to purchase both the wine and theforegn linen 
which it had occasion for of France, than of Portugal and Ger- 
many. Though thevalue of theannual importations from France 
would thereby be greatly augmented, the value of the whole an- 
nual importations would be diminished, in proportion as the 
French goods of the same quality were cheaper than those of the 



other two countries. This would be the case, even upon the sup- 
position that the whole French goods imported were to be con- 
sumed in Great Britain. 

But, Secondly, A great part of them might be re-exported to 
other countries, where, being sold with profit, they might bring 
back a return, equal in value, perhaps, to the prime cost of the 
whole French goods imported. What has frequently been said of 
the East India trade, might possibly be true of the French; that 
though thegreater part of East India goods were bought with gold 
and silver, the re-exportation of a part of them to other countries 
brought back more gold and silver to that which carried on the 
trade, than the prime cost of the whole amounted to. ne of the 
most important branches of the D utch trade at present, consists 
in thecarriageof French goodsto other European countries. Some 
part even of the French wine drank in Great Britain, is clandes- 
tinely imported from Holland and Zealand. If there was either a 
free trade between France and England, or if French goodscould 
be imported upon paying only the same duties as those of other 
European nations, to be drawn back upon exportation, England 
might have some share of a trade which isfound so advantageous 
to Holland. 

Thirdly, and lastly, There is no certain criterion by which we 
can determine on which side what is called the balance between 



379 



The Wealth of Nations 



any two countries lies, or which of them exports to the greatest 
value. National prejudice and animosity, prompted always by the 
private interest of particular traders, are theprinci pies which gener- 
ally direct our judgment upon all questionsconcerning it. There are 
two criterions, however, which have frequently been appealed to 
upon such occasions, the custom-house books and the course of 
exchange. The custom-house books, I think, it is now generally ac- 
knowledged, are a very uncertain criterion, on account of the inac- 
curacy of the valuation at which the greater part of goods are rated 
in them. T he course of exchange is, perhaps, almost equally so. 

W hen the exchange between two places, such as London and 
Paris, is at par, it is said to be a sign that the debts due from Lon- 
don to Paris are compensated by those duefrom Paristo London. 
n the contrary, when a premium is paid at London for a bill 
upon Paris, it is said to be a sign that the debts due from London 
to Paris are not compensated by those due from Paris to London, 
but that a balance in money must be sent out from thelatter place; 
for the risk, trouble, and expense, of exporting which, the pre- 
mium isboth demanded and given. But theordinary state of debt 
and credit between those two cities must necessarily be regulated, 
it is said, by the ordinary course of their dealings with one an- 
other. W hen neither of them imports from from other to a greater 
amountthan it exports to that other, thedebtsand creditsof each 



maycompensateoneanother. But when oneof them importsfrom 
theother to a greater valuethan it exportsto that other, theformer 
necessarily becomes indebted to the latter in a greater sum than 
thelatter becomes indebted to it: thedebtsand creditsof each do 
not compensate one another, and money must be sent out from 
that place of which the debts overbalance the credits. The ordi- 
nary course of exchange, therefore, being an indication of the or- 
dinary state of debt and credit between two places, must likewise 
be an indication of the ordinary course of their exports and im- 
ports, as these necessarily regulate that state. 

But though the ordinary course of exchange shall be allowed to 
be a sufficient indication of the ordinary state of debt and credit 
between any two places, it would not from thence follow, that the 
balance of trade was in favour of that place which had the ordi- 
nary state of debt and credit in its favour. T he ordinary state of 
debt and credit between any two places isnot always entirely regu- 
lated by the ordinary course of their dealings with one another, 
but isoften influenced bythatof thedealings of either with many 
other places. If it is usual, for example, for the merchants of En- 
gland to pay for the goods which they buy of H amburg, Dantzic, 
Riga, etc. by bills upon H olland, the ordinary state of debt and 
credit between England and Holland will not be regulated en- 
tirely by theordinary course of thedealingsof those two countries 



380 



Adam Smith 



with one another, but will be influenced bythatofthedealingsin 
England with thoseother places. England maybeobligedtosend 
out every year money to H olland, though its annual exports to 
that country may exceed very much the annual value of its im- 
ports from thence, and though what is called the balance of trade 
may be very much in favour of England. 

In the way, besides, in which the par of exchange has hitherto 
been computed, the ordinary course of exchange can afford no 
sufficient indication that theordinary state of debt and credit isin 
favour of that country which seems to have, or which is supposed 
to have, theordinary course of exchangein its favour; or, in other 
words, the real exchange may be, and in fact often is, so very dif- 
ferent from the computed one, that, from the course of the latter, 
no certain conclusion can, upon many occasions, bedrawn con- 
cerning that of the former. 

W hen for a sum or money paid in England, containing, accord- 
ing to the standard of theEnglish mint, acertain number of ounces 
of pure silver, you receive a bill for a sum of money to be paid in 
France, containing, according to the standard of the French mint, 
an equal number of ounces of pure silver, exchange is said to beat 
par between England and France. When you pay more, you are 
supposed to give a premium, and exchange is said to be against 
England, and in favour of France. When you pay less, you are 



supposed to get a premium, and exchange is said to be against 
France, and in favour of England. 

But, first, We cannot always judge of the value of the current 
money of different countries by the standard of their respective 
mints. In some it is more, in others it is less worn, dipt, and oth- 
erwise degenerated from that standard. But the value of the cur- 
rent coin of every country, compared with that of any other coun- 
try, is in proportion, not to the quantity of pure silver which it 
ought to contain, but to that which it actually does contain. Be- 
fore the reformation of the silver coin in King William's time, 
exchange between England and Holland, computed in the usual 
manner, according to the standard of their respective mints, was 
five-and twenty per cent, against England. But the value of the 
current coin of England, as we learn from M r Lowndes, was at 
that time rather more than five-and-twenty per cent, below its 
standard value.Thereal exchange, therefore, may even at that time 
have been in favour of England, notwithstanding the computed 
exchange was so much against it; a smaller number or ounces of 
pure silver, actually paid in England, may have purchased a bill 
for a greater number of ounces of pure silver to be paid in H ol- 
land, and the man who was supposed to give, may in reality have 
got the premium. The French coin was, before the late reforma- 
tion of theEnglish gold coin, much less wore than theEnglish, 



381 



The Wealth of Nations 



and was perhaps two or three per cent, nearer its standard. If the 
computed exchange with France, therefore, wasnot more than two 
or three per cent, against England, the real exchange might have 
been in its favour. Since the reformation of the gold coin, the ex- 
change has been constantly in favour of England, and against France. 
Secondly, In some countries the expense of coinage is defrayed 
by the government; in others, itisdefrayed by the private people, 
who carry their bullion to the mint, and the government even 
derives some revenue from thecoinage. In England it isdefrayed 
by the government; and if you carry a pound weight of standard 
silver to the mint, you get back sixty-two shillings, containing a 
pound weight of the likestandard silver. I n Francea duty of eight 
percent, is deducted for the coinage, which not only defrays the 
expense of it, but affords a small revenue to the government. I n 
England, as the coin age costs nothing, the current coin can never 
be much morevaluablethan thequantity of bullion which it ac- 
tually contains. In France, the workmanship, as you pay for it, 
addstothevalue, in thesamemannerasto that of wrought plate. 
A sum of French money, therefore, containing an equal weight of 
pure silver, is more valuable than a sum of English money con- 
taining an equal weight of pure silver, and must require more bul- 
lion, or other commodities, to purchase it. Though the current 
coin of thetwo countries, therefore, wereequally near the standards 



of their respective mints, a sum of English money could not well 
purchase a sum of French money containing an equal number of 
ounces of pure silver, nor, consequently, a bill upon France for such 
a sum. If, for such a bill, no more additional money was paid than 
what was sufficient to compensate the expense of the French coin- 
age, the real exchange might be at par between the two countries; 
their debts and credits might mutually compensate one another, 
whilethecomputed exchangewas considerably in favour of France. 
If less than this was paid, the real exchange might be in favour of 
England, whilethecomputed was in favour of France. 

Thirdly, and lastly, In someplaces, as at Amsterdam, H amburg, 
Venice, etc. foreign bills of exchange are paid in what they call 
bank money; while in others, as at London, Lisbon, Antwerp, 
Leghorn, etc. they are paid in thecommon currency of the coun- 
try. What is called bank money, is always of more value than the 
same nominal sum of common currency. A thousand guilders in 
the bank of Amsterdam, for example, are of more value than a 
thousand guildersof Amsterdam currency. The difference between 
them is called the agio of the bank, which at Amsterdam is gener- 
ally about five per cent. Supposing the current money of thetwo 
countries equally near to the standard of their respective mints, 
and that the one pays foreign billsin thiscommon currency, while 
the other pays them in bank money, it is evident that the com- 



382 



Adam Smith 



puted exchange may bein favour of that which paysin bank money, 
though the real exchange should bein favour of that which pays 
in current money; for the same reason thatthecomputed exchange 
may bein favour of that which paysin better money, or in money 
nearer to itsown standard, though the real exchange should bein 
favour of that which paysin worse. The computed exchange, be- 
fore the late reformation of the gold coin, was generally against 
London with Amsterdam, H amburg, Venice, and, I believe, with 
all other places which pay in what iscalled bank money. It will by 
no means follow, however, that the real exchange was against it. 
Since the reformation of the gold coin, it has been in favour of 
London, even with those places. The computed exchangehas gen- 
erally been in favour of London with Lisbon, Antwerp, Leghorn, 
and, if you except France, I believe with most other parts of Eu- 
rope that pay in common currency; and it is not improbable that 
the real exchange was so too. 

Digression concerning Banks of Deposit, particularly concern- 
ing that of Amsterdam. 

T hecurrency of a great state, such as France or E ngland, generally 
consistsalmost entirely of itsown coin. Should thiscurrency, there 
fore, be at any time worn, dipt, or otherwise degraded below its 



standard value, thestate, by a reformation of its coin, can effectu- 
ally re-establish its currency. But the currency of a small state, 
such as Genoa or H amburg, can seldom consist altogether in its 
own coin, but must be made up, in a great measure, of the coins 
of all the neighbouring states with which its inhabitants have a 
continual intercourse. Such a state, therefore, by reforming itscoin, 
will not always be able to reform its currency. If foreign bills of 
exchange arepaid in thiscurrency, theuncertain valueofanysum, 
of what is in its own nature so uncertain, must render the ex- 
change always very much against such a state, its currency being 
in all foreign states necessarily valued even below what it is worth. 
I n order to remedy theinconvenience to which thisdisadvanta- 
geous exchange must have subjected their merchants, such small 
states, when they began to attend to the interest of trade, have 
frequently enacted that foreign bills of exchange of a certain value 
should be paid, not in common currency, but by an order upon, 
or by a transfer in the books of a certain bank, established upon 
the credit, and under the protection of thestate, this bank being 
always obliged to pay, in good and true money, exactly according 
to the standard of the state. The banks of Venice, Genoa, 
Amsterdam, H amburg, and N uremberg, seem to have been all 
originally established with this view, though some of them may 
have afterwards been made subservient to other purposes. The 



383 



The Wealth of Nations 



money of such banks, being better than the common currency of 
the country, necessarily bore an agio, which was greater or smaller, 
according as the currency was supposed to be more or less de- 
graded below the standard of the state. The agio of the bank of 
H amburg, for example, which issaid to becommonly about four- 
teen per cent, is the supposed difference between the good stan- 
dard money of the state, and the dipt, worn, and diminished cur- 
rency, poured into it from all the neighbouring states. 

Before 1609, the great quantity of dipt and worn fordgn coin 
which the extensive trade of Amsterdam broughtfrom all parts of 
Europe, reduced the value of its currency about nine per cent, 
below that of good money fresh from the mint. Such money no 
sooner appeared, than it was mdted down or carried away, as it 
always is in such circumstances. The merchants, with plenty of 
currency, could not always find a sufficient quantity of good money 
to pay thdr bills of exchange; and the value of those bills, in spite 
of several regulations which were made to prevent it, becamein a 
great m easu re u n certai n . 

In order to remedy these inconveniences, a bank was estab- 
lished in 1609, under theguaranteeofthecity.Thisbankrecdved 
both fordgn coin, and the light and worn coin of the country, at 
its real intrinsic value in thegood standard money of the country, 
deducting only so much as was necessary for defraying the ex- 



pen seof coinage and theother necessary expenseof management. 
For the value which remained after this small deduction was made, 
it gave a credit in its books. This credit was called bank money, 
which, as it represented money exactly according to thestandard of 
themint, was always of the same real value, and intrinsically worth 
more than current money. It was at the same time enacted, that all 
billsdrawn upon or negotiated at Amsterdam, of the value of 600 
guilders and upwards, should bepaid in bank money, which at once 
took away all uncertainty in the value of those bills. Every mer- 
chant, in consequence of this regulation, was obliged to keep an 
account with thebank, in order to payhisfordgn bills of exchange, 
which necessarily occasioned a certain demand for bank money. 

Bank money, over and above both its intrinsic superiority to 
currency, and theadditional valuewhich thisdemand necessarily 
givesit, haslikewise some other advantages, It is secure from fire, 
robbery, and other accidents; the city of Amsterdam is bound for 
it; it can bepaid away by a simple transfer, without the trouble of 
counting, or the risk of transporting it from one place to another. 
I n consequence of those different advantages, it seems from the 
beginning to have borne an agio; and it is generally believed that 
all the money originally deposited in the bank, was allowed to 
remain there, nobody caring to demand payment of a debt which 
he could sdl for a premium in the market. By demanding pay- 



384 



Adam Smith 



merit of the bank, the owner of a bank credit would lose this pre- 
mium. As a shilling fresh from the mint will buy no more goods 
in the market than one of our common worn shillings, so the 
good and true money which might be brought from the coffers of 
the bank into those of a private person, being mixed and con- 
founded with the common currency of the country, would be of 
no more value than that currency, from which it could no longer 
be readily distinguished. W hile it remained in the coffers of the 
bank, its superiority was known and ascertained. When it had 
come into those of a private person, its superiority could not well 
be ascertained without more trouble than perhaps the difference 
was worth. By being brought from the coffers of the bank, be- 
sides, it lost all the other advantages of bank money; its security, 
its easy and safe transferability, its use in paying foreign bills of 
exchange. Over and above all this, it could not be brought from 
those coffers, as will appear by and by, without previously paying 
for the keeping. 

Those deposits of coin, or those deposits which the bank was 
bound to restore in coin, constituted the original capital of the 
bank, or the whole valueof what was represented by what iscalled 
bank money. At present they are supposed to constitute but a very 
small part of it. In order to facilitate thetrade in bullion, thebank 
has been for these manyyearsin the practice of giving credit in its 



books, upon deposi tsof gold and silver bullion. Thiscredit isgen- 
erally about five per cent, below the mint price of such bullion. 
Thebank grants at the same time what iscalled arecipiceor re- 
ceipt, entitlingtheperson who makes thedeposit, or thebearer, to 
take out the bullion again at any time within six months, upon 
transferring to the bank a quantity of bank money equal to that 
for which credit had been given in its books when the deposit was 
made, and upon paying one-fourth per cent, for the keeping, if 
thedeposit was in silver; and one-half per cent, if it was in gold; but 
at the same time declaring, that in default of such payment, and 
upon the expiration of thisterm, thedeposit should belong to the 
bank, at the price at which it had been received, or for which credit 
had been given in the transfer books. What is thus paid for the 
keeping of the deposit may be considered as a sort of warehouse 
rent; and why this warehouse rent should be so much dearer for 
gold than for silver, several different reasons have been assigned. 
The fineness of gold, it has been said, is more difficult to be ascer- 
tained than that of silver. Fraudsare more easily practised, and occa- 
sion a greater loss in the most precious metal. Silver, besides, being 
the standard metal, the state, it has been said, wishes to encourage 
more the making of deposits of silver than those of gold. 

Deposi tsof bullion aremost commonly madewhen the priceis 
somewhat lower than ordinary, and they are taken out again when 



385 



The Wealth of Nations 



it happensto rise. In Holland themarketpriceof bullion isgener- 
ally above the mint price, for the same reason that it was so in 
England before the late reformation of thegold coin. The differ- 
ence i s sai d to be commonly from about sixto sixteen stiversupon 
the mark, or eight ounces of silver, of eleven parts of fine and one 
part alloy. The bank price, or the credit which the bank gives for 
the deposits of such silver (when made in foreign coin, of which 
the fineness is well known and ascertained, such as M exico dol- 
lars), is twenty-two guilders the mark: the mint price is about 
twenty-three guilders, and the market price is from twenty-three 
guilders six, to twenty-three guilders sixteen stivers, or from two 
to three per cent, above the mint price. 

Thefollowing are the prices at which the bank of Amsterdam at 
present {September 1775} receives bullion and coin of different 
kinds: 

SILVER 

Mexico dollars 22 Guilders/ mark 

French crowns 22 

English silver coin 22 

Mexico dollars, new coin 21 10 

Ducatoons 3 

Rix-dollars 2 8 



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

GOLD 

Portugal coin 310 Guilders/ mark 

Guineas 310 

Louisd'ors, new 310 

Ditto old 300 

New ducats 4 19 8 per ducat 

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

The proportions between the bank price, the mint price, and 
the market price of gold bullion, are nearly the same. A person 
can generally sell his receipt for the difference between the mint 
price of bullion and the market price. A receipt for bullion is al- 
most always worth something, and it very seldom happens, there- 
fore, that anybody suffers his receipts to expire, or allows his bul- 



386 



Adam Smith 



lion to fall to the bank at the price at which it had been received, 
either by not taking it out before the end of the six months, or by 
neglecting to pay one fourth or one half per cent, in order to 
obtain a new receipt for another six months. T his, however, though 
it happens seldom, is said to happen sometimes, and more fre- 
quently with regard to gold than with regard to silver, on account 
of the higher warehouse rent which is paid for the keeping of the 
more precious metal. 

Theperson who, by making a deposit of bullion, obtainsboth a 
bank credit and a receipt, pays his bills of exchange as they be- 
come due, with his bank credit; and either sells or keeps his re- 
ceipt, according as he judges that the price of bullion is likely to 
rise or to fall. The receipt and the bank credit seldom keep long 
together, and there is no occasion that they should. The person 
who has a receipt, and who wantsto takeout bullion, findsalways 
plenty of bank credits, or bank money, to buy at the ordinary 
price, and theperson who has bank money, and wantsto takeout 
bullion, finds receipts always in equal abundance. 

The owners of bank credits, and the holders of receipts, consti- 
tute two different sorts of creditors against the bank. T he holder 
of a receipt cannot draw out the bullion for which it is granted, 
without re-assigning to the bank a sum of bank money equal to 
theprice at which thebullion had been received. If hehasno bank 



money of his own, he must purchase it of those who have it. T he 
owner of bank money cannot draw out bullion, without produc- 
ingto the bank receipts for thequantity which hewants. If hehas 
noneof hisown, hemust buy them of those who have them. The 
holder of a receipt, when he purchases bank money, purchasesthe 
power of taking out a quantity of bullion, of which the mint price 
is five per cent, above the bank price. T he agio of five per cent, 
therefore, which hecommonlypaysforit, is paid, not for an imagi- 
nary, but for a real value. The owner of bank money, when he 
purchases a receipt, purchasesthe power of taking out a quantity 
of bullion, of which the market price is commonly from two to 
three per cent, above the mint price. T he price which he pays for 
it, therefore, is paid likewiseforareal value. The price of the re- 
ceipt, and the price of the bank money, compound or make up 
between them thefull value or price of thebullion. 

U pon depositsof thecoin current in thecountry, thebank grant 
receipts likewise, as well as bank credits; but those receipts are 
frequently of novalueand will bring no priceinthemarket. Upon 
ducatoons, for example, which in the currency pass for three guil- 
ders three stivers each, the bank gives a credit of three guilders 
only, or five per cent, below their current value. It grants a receipt 
likewise, enti tling the bearer to takeout thenumber of ducatoons 
deposited at any time within six months, upon paying one fourth 



387 



The Wealth of Nations 



per cent, for the keeping. This receipt will frequently bring no 
price in the market. Three guilders, bank money, generally sell in 
the market for three guilders three stivers, the full value of the 
ducatoons, if they were taken out of thebank; and beforetheycan 
be taken out, one-fourth per cent, must be paid for the keeping, 
which would be mere loss to the holder of the receipt. If theagio 
of the bank, however, should at any time fall to three per cent, 
such receipts might bring some price in the market, and might sell 
for one and three-fourths per cent. But the agio of the bank being 
now generally about five per cent, such receipts are frequently al- 
lowed to expire, or, as they express it, to fall to the bank. The re- 
ceipts which are given for deposits of gold ducats fall toityetmore 
frequently, because a higher warehouse rent, or one half per cent, 
must be paid for the keeping of them, beforetheycan betaken out 
again. Thefive per cent, which thebank gains, when deposits either 
of coin or bullion are allowed to fall to it, maybe considered as the 
warehouse rent for the perpetual keepi ng of such deposits. 

The sum of bank money, for which the receipts are expired, 
must be very considerable. It must comprehend the whole origi- 
nal capital of thebank, which, it is generally supposed, has been 
allowed to remain therefrom the time it was first deposited, no- 
body caring either to renew his receipt, or to takeout hisdeposit, 
as, for the reasons already assigned, neither the one nor the other 



could be done without loss. But whatever may be the amount of 
thissum,theproportion which itbearstothewholemassof bank 
money is supposed to be very small. The bank of Amsterdam has, 
for these many years past, been the great warehouse of E urope for 
bullion, for which the receipts are very seldom allowed to expire, 
or, as they express it, to fall to thebank. T hefar greater part of the 
bank money, or of the credits upon the books of thebank, issup- 
posed to have been created, for these many years past, by such 
deposits, which the dealers in bullion are continually both mak- 
ing and withdrawing. 

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



388 



Adam Smith 



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

Even in ordinary and quiet times, it istheinterest of theholders 



of receipts to depress the agio, in order either to buy bank money 
(and consequently the bullion which their receipts would then 
enable them to take out of thebank) so much cheaper, or to sell 
their receipts to those who have bank money, and who want to 
takeout bullion, so much dearer; the price of a receipt being gen- 
erally equal to the difference between the market price of bank 
money and that of the coin or bullion for which the receipt had 
been granted. It istheinterest of the owners of bank money, on 
the contrary, to raise the agio, in order either to sell their bank 
money so much dearer, or to buy a receipt so much cheaper. To 
prevent the stock-jobbing tricks which those opposite interests 
might sometimes occasion, thebank has of late years cometo the 
resolution, to sell at all times bank money for currency at five per 
cent, agio, and to buy it in again at four per cent. agio. I n conse- 
quenceof thisresolution, theagio can never either rise above five, 
or sink below four per cent.; and theproportion between themar- 
ket price of bank and that of current money is kept at all times 
very near the proportion between their intrinsic values. Before 
this resolution was taken, the market price of bank money used 
sometimesto rise so high asnineper cent, agio, and sometimes to 
sink so low as par, according as opposite interests happened to 
influence the market. 
T he bank of Amsterdam professes to lend out no part of what is 



389 



The Wealth of Nations 



deposited with it, but for every guilder for which it gives credit in 
its books, to keep in its repositories the valueof a guilder either in 
money or bullion. That itkeepsin its repositories all themoney or 
bullion for which there are receipts in force for which it is at all 
times liable to be called upon, and which in reality is continually 
going from it, and returning to it again, cannot well be doubted. 
But whether it does so likewise with regard to that part of its capi- 
tal for which the receipts are long ago expired, for which, in ordi- 
nary and quiet times, it cannot be called upon, and which, in 
reality, is very likely to remain with it for ever, or as long as the 
states of the U nited Provinces subsist, may perhaps appear more 
uncertain. At Amsterdam, however, no point of faith is better es- 
tablished than that, for every guilder circulated as bank money, 
there is a correspondent guilder in gold or silver to be found in the 
treasures of the bank. T he city is guarantee that it should be so. 
Thebankisunderthedirection of thefour reigning burgomasters 
who are changed every year. Each new set of burgomasters visits 
the treasure, compares it with the books, receives it upon oath, 
and deli vers it over, with thesameawful solemnity to theset which 
succeeds; and in that sober and religious country, oaths are not yet 
disregarded. A rotation of this kind seemsalonea sufficient secu- 
rity against any practices which cannot be avowed. Amidst all the 
revolutions which faction has ever occasioned in the government 



of Amsterdam, the prevailing party has at no time accused their 
predecessors of infidelity in the administration of the bank. N o 
accusation could have affected more deeply the reputation and 
fortune of the disgraced party; and if such an accusation could 
have been supported, we may be assured that it would have been 
brought. In 1672, when the French king was at Utrecht, the bank 
of Amsterdam paid so readily, as left no doubt of thefidelity with 
which it had observed its engagements. Some of the pieces which 
were then brought from its repositories, appeared to have been 
scorched with the fire which happened in the town-house soon 
after the bank was established. Those pieces, therefore, must have 
lain therefrom that time. 

What may be the amount of thetreasure in thebank, isa ques- 
tion which has long employed the speculations of the curious. 
Nothing but conjecture can be offered concerning it. It is gener- 
ally reckoned, that there are about 2000 peoplewho keep accounts 
with thebank; and allowing them to have, one with another, the 
value of £1500 sterling lying upon their respective accounts (a 
very large allowance), the wholequantity of bank money, and con- 
sequently of treasurein thebank, will amountto about £3,000,000 
sterling, or, at eleven guilders the pound sterling, 33,000,000 of 
guilders; a great sum, and sufficient to carry on a very extensive 
circulation, but vastly below the extravagant ideas which some 



390 



Adam Smith 



people have formed of this treasure. 

Thecity of Amsterdam derivesaconsiderablerevenuefrom the 
bank. Besides what may be called the warehouse rent above men- 
tioned, each person, upon first opening an account with thebank, 
paysafeeof ten guilders; and for every new account, three guilder's 
three stivers; for every transfer, two stivers; and if the transfer isfor 
less than 300 guilders, six stivers, in order to discourage the mul- 
tiplicity of small transactions. The per son who neglects to balance 
his account twice in the year, forfeits twenty-five guilders. The 
person who orders a transfer for more than isupon hisaccount, is 
obliged to pay three per cent, for the sum overdrawn, and his 
order is set aside into the bargain. Thebank is supposed, too, to 
make a considerable profit by the sale of the foreign coin or bul- 
lion which sometimes falls to it by the expiring of receipts, and 
which isalways kept till it can be sold with advantage. Itmakesa 
profit, likewise, by selling bank money at five per cent, agio, and 
buying it in at four. These different emoluments amount to a good 
deal more than what is necessary for paying thesalariesof officers, 
and defraying the expense of management. W hat is paid for the 
keeping of bullion upon receipts, is alone supposed to amount to 
a neat annual revenue of between 150,000 and 200,000 guilders. 
Public utility, however, and not revenue, was the original object of 
this institution. Its object was to relieve the merchants from the 



inconvenienceofadisadvantageousexchange.Therevenuewhich 
has arisen from it was unforeseen, and may be considered as acci- 
dental. But it is now timeto return from this long digression, into 
which I have been insensibly led, in endeavouring to explain the 
reasons why the exchange between the countries which pay in 
what is called bank money, and those which pay in common cur- 
rency, should generally appear to be in favour of the former, and 
against the latter. The former pay in a species of money, of which 
the intrinsic value is always the same, and exactly agreeable to the 
standard of their respective mints; the latter is a species of money, 
of which the intrinsic value is continually varying, and is almost 
always more or less below that standard. 



PART II.— Of theUnreasonablenessofthoseextraordinary 
Restraints, upon other Principles. 

In theforegoing part of thischapter, I haveendeavouredtoshow, 
even upon theprinciplesof thecommercial system, how unneces- 
sary it is to lay extraordinary restraints upon the importation of 
goods from those countries with which the balance of trade is 
supposed to be disadvantageous. 
N othing, however, can bemore absurd than thiswholedoctrine 



391 



The Wealth of Nations 



of the balance of trade, upon which, not only these restraints, but 
almost all theother regulationsof commerce, are founded. W hen 
two places trade with oneanother, this doctrine supposes that, if 
the balance be even, neither of them either loses or gains; but if it 
leans in any degree to one side, that one of them loses, and the 
other gains, in proportion to its declension from the exact equi- 
librium. Both suppositions are false. A trade, which is forced by 
means of bounties and monopolies, may be, and commonly is, 
disadvantageous to the country in whose favour it is meant to be 
established, as I shall endeavour to show hereafter. But that trade 
which, without force or constraint, is naturally and regularly car- 
ried on between any two places, is always advantageous, though 
not always equally so, to both. 

By advantage or gain, I understand, not theincreaseofthequan- 
tity of gold and silver, but that of the exchangeable value of the 
annual produce of the land and labour of the country, or the in- 
crease of the annual revenue of its inhabitants. 

If the balance be even, and if the trade between the two places 
consist altogether in the exchange of their native commodities, 
they will, upon most occasions, not only both gain, but they will 
gain equally, or very nearly equally; each will, in thiscase, afford a 
market for a part of the surplus produce of the other; each will 
replace a capital which had been employed in raising and prepar- 



ing for the market this part of the surplus produce of the other, 
and which had been distributed among, and given revenue and 
maintenanceto, a certain number of its inhabitants. Somepartof 
the inhabitants of each, therefore, will directly derive their rev- 
enue and maintenance from the other. As the commodities ex- 
changed, too, are supposed to be of equal value, so the two capi- 
talsemployed in thetradewill, upon most occasions, be equal, or 
very nearly equal; and both being employed in raising the native 
commodities of the two countries, the revenue and maintenance 
which their distribution will afford to theinhabitantsof each will 
be equal, or very nearly equal. This revenue and maintenance, 
thus mutually afforded, will be greater or smaller, in proportion 
to the extent of their dealings. If these should annually amountto 
£100,000, for example, or to £1,000,000, on each side, each of 
them will afford an annual revenue, in theonecase, of £100,000, 
and, in theother, of £1,000,000, to the inhabitants of theother. 
If their trade should be of such a nature, that one of them ex- 
ported to the other nothing but native commodities, while the 
returns of that other consisted altogether in foreign goods; the 
balance, in thiscase, would still be supposed even, commodities 
being paid for with commodities. T hey would, in this case too, 
both gain, butthey would not gain equally; and theinhabitantsof 
the country which exported nothing but native commodities, 



392 



Adam Smith 



would derive the greatest revenuefrom thetrade. If England, for 
example, should import from Francenothing but thenative com- 
modities of that country, and not having such commodities of its 
own as were in demand there, should annually repay them by 
sending thither a large quantity of foreign goods, tobacco, we shall 
suppose, and East India goods; this trade, though it would give 
some revenue to the inhabitants of both countries, would give 
more to those of France than to those of England. The whole 
French capital annually employed in it would annually bedistrib- 
uted among the people of France; but that part of the English 
capital only, which was employed in producing the English com- 
modities with which those foreign goods were purchased, would 
be annually distributed among thepeopleof England. Thegreater 
part of it would replace the capitals which had been employed in 
Virginia, Indostan, and China, and which had given revenueand 
maintenance to the inhabitants of those distant countries. If the 
capitalswereequal, or nearly equal, therefore, this employment of 
the French capital would augment much more the revenue of the 
people of France, than that of the English capital would the rev- 
enue of thepeopleof England. France would, in this case, carry 
on a direct foreign trade of consumption with England; whereas 
England would carry on a round-about trade of the same kind 
with France. The different effects of a capital employed in the 



direct, and of one employed in the round-about foreign trade of 
consumption, have already been fully explained. 

Thereisnot, probably, between anytwo countries, atradewhich 
consists altogether in the exchange, either of native commodities 
on both sides, or of native commodities on one side, and of for- 
eign goods on the other. Almost all countries exchange with one 
another, partly native and partly foreign goodsT hat country, how- 
ever, in whose cargoes there is the greatest proportion of native, 
and the least of foreign goods, will always be the principal gainer. 

If it was not with tobacco and East India goods, but with gold 
and silver, that England paid for the commodities annually im- 
ported from France, thebalance, in thiscase, would be supposed 
uneven, commodities not being paid for with commodities, but 
with gold and silver. The trade, however, would in thiscase, as in 
theforegoing, give somerevenuetotheinhabitants of both coun- 
tries, but more to those of France than to those of England. It 
would give some revenue to those of England. T he capital which 
had been employed in producingtheEnglish goods that purchased 
thisgold and silver, thecapital which had been distributed among, 
and given revenueto, certain inhabitantsof England, would thereby 
be replaced, and enabled to continuethat employment. The whole 
capital of England would nomorebediminished by this exporta- 
tion of gold and silver, than by the exportation of an equal value 



393 



The Wealth of Nations 



of any other goods. n the contrary, it would, in most cases, be 
augmented. N o goods are sent abroad but those for which the 
demand is supposed to be greater abroad than at home, and of 
which the returns, consequently, it is expected, will be of more 
valueathometh an thecommodities exported. If thetobacco which 
in England is worth only £100,000, when sent to France, will 
purchase winewhich isin England worth £110,000, theexchange 
will augment the capital of England by £10,000. If £100,000 of 
English gold, in the same manner, purchase French wine, which 
in England is worth £110,000, this exchange will equally aug- 
ment the capital of England by £10,000. As a merchant, who has 
£110,000 worth of wine in hiscellar, isa richer man than hewho 
has only £100,000 worth of tobacco in his warehouse, so is he 
likewise a richer man than he who has only £100,000 worth of 
gold in his coffers. He can put into motion a greater quantity of 
industry, and give revenue, maintenance, and employment, to a 
greater number of people, than either of the other two. But the 
capital of the country is equal to the capital of all its different 
inhabitants; and the quantity of industry which can be annually 
maintained in it is equal to what all those different capitals can 
maintain. Both thecapital of thecountry, therefore, and thequan- 
tityof industry which can be annually maintained in it, must gen- 
erally be augmented by this exchange. It would, indeed, be more 



advantageousfor England that it could purchasethewinesof France 
with its own hardware and broad cloth, than with either theto- 
bacco of Virginia, or the gold and silver of Brazil and Peru. A 
direct foreign trade of consumption is always more advantageous 
than a round-about one. But a round-about foreign tradeof con- 
sumption, which is carried on with gold and silver, does not seem 
to be less advantageous than any other equally round-about one. 
N either is a country which has no mines, more likely to be ex- 
hausted of gold and silver by thisannual exportation of those met- 
als, than one which does not grow tobacco by the like annual 
exportation of that plant. Asa country which has wherewithal to 
buy tobacco will never belongin want of it, so neither will onebe 
long in want of gold and silver which has wherewithal to purchase 
those metals. 

It is a losing trade, it is said, which a workman carries on with 
thealehouse; and the trade which a manufacturing nation would 
naturally carry on with a wine country, may be considered as a 
trade of the same nature. I answer, that thetrade with thealehouse 
is not necessarily a losing trade. In its own nature it is just as ad- 
vantageous as any other, though, perhaps, somewhat more liable 
to be abused. The employment of a brewer, and even that of a 
retailer of fermented liquors, are as necessary division's of labour 
as any other. It will generally be more advantageousfor a work- 



394 



Adam Smith 



man to buy of the brewer the quantity he has occasion for, than to 
brew it himself; and if he is a poor workman, it will generally be 
more advantageous for him to buy it by little and little of the 
retailer, than a large quantity of the brewer. He may no doubt buy 
too much of either, as he may of any other dealers in his 
neighbourhood; of the butcher, if he is a glutton; or of the draper, 
if he affects to be a beau among his companions. It is advanta- 
geous to the great body of workmen, notwithstanding, that all 
these trades should befree, though thisfreedom may be abused in 
all of them, and is more likely to be so, perhaps, in some than in 
others. Though individuals, besides, may sometimes ruin their 
fortunesby an excessive consumption of fermented liquors, there 
seems to be no risk that a nation should do so. Though in every 
country there aremanypeoplewho spend upon such liquorsmore 
than they can afford, there are always many more who spend less. 
It deserves to be remarked, too, that if we consult experience, the 
cheapness of wineseemsto bea cause, not of drunkenness, but of 
sobriety. The inhabitants of the wine countries are in general the 
soberest peopleof Europe; witness theSpaniards, the Italians, and 
the inhabitants of the southern provinces of France. People are 
seldom guilty of excess in what is their daily fare. N obody affects 
the character of liberality and good fellowship, by being profuse 
of a liquor which is as cheap as small beer. On the contrary, in the 



countries which, either from excessive heat or cold, produce no 
grapes, and where wine consequently is dear and a rarity, drunk- 
enness is a common vice, as among the northern nations, and all 
those who live between the tropics, the negroes, for example on 
the coast of Guinea. When a French regiment comes from some 
of thenorthern provinces of France, where wineissomewhat dear, 
to be quartered in the southern, where it is very cheap, the sol- 
diers, I havefrequently heard it observed, are at first debauched by 
the cheapness and novelty of good wine; but after a few months 
residence, the greater part of them become as sober as the rest of 
the inhabitants. Were the duties upon foreign wines, and the ex- 
cises upon malt, beer, and ale, to be taken away all at once, it 
might, in the same manner, occasion in Great Britain a pretty 
general and temporary drunkenness among the middling and in- 
ferior ranks of people, which would probably be soon followed by 
a permanent and almost universal sobriety. At present, drunken- 
ness is by no means the vice of people of fashion, or of those who 
can easily afford the most expensive liquors. A gentleman drunk 
with ale has scarce ever been seen among us. The restraints upon 
the wine trade in Great Britain, besides, do not so much seem 
calculated to hinder the people from going, if I may say so, to the 
alehouse, as from going where they can buythebestand cheapest 
liquor. They favour the wine trade of Portugal, and discourage 



395 



The Wealth of Nations 



that of France. The Portuguese, it is said, indeed, are better custom- 
ers for our manufactures than the French, and should therefore be 
encouraged in preference to them. Astheygiveustheircustom, itis 
pretended we should give them ours. The sneaking arts of under- 
ling tradesmen are thus erected into political maxims for the con- 
duct of a great empire; for it is the most underling tradesmen only 
who make it a rule to employ chiefly their own customers. A great 
trader purchaseshisgoodsalways where they are cheapest and best, 
without regard to any little interest of this kind. 

By such maxims as these, however, nations have been taught 
that their interest consisted in beggaring all their neighbours. Each 
nation has been made to look with an invidious eye upon the 
prosperity of all the nations with which it trades, and to consider 
their gain asitsown loss. Commerce, which ought naturally to be, 
among nationsas among individuals, a bond of union and friend- 
ship, has becomethemostfertilesourceof discord and animosity. 
The capricious ambition of kings and ministers has not, during 
the present and the preceding century, been more fatal to the re- 
pose of Europe, than the impertinent jealousy of merchants and 
manufacturers. The violence and injustice of the rulers of man- 
kind is an ancient evil, for which, I am afraid, the nature of hu- 
man affairs can scarce admit of a remedy: but the mean rapacity, 
the monopolizing spirit, of merchants and manufacturers, who 



neither are, nor ought to be, the rulers of mankind, though it 
cannot, perhaps, be corrected, may very easily be prevented from 
disturbing the tranquillity of anybody but themselves. 

That it was the spirit of monopoly which originally both in- 
vented and propagated thisdoctrine, cannot bedoubted and they 
who first taught it, were by no means such fools as they who be- 
lieved it. In every country it always is, and must be, the interest of 
the great body of the people, to buy whatever they want of those 
who sell it cheapest. The proposition is so very manifest, that it 
seems ridiculous to take any pains to prove it; nor could it ever 
have been called in question, had not the interested sophistry of 
merchants and manufacturers confounded the common sense of 
mankind. Their interest is, in this respect, directly opposite to 
that of the great body of the people. As it is the interest of the 
freemen of acorporation to hinder therest of the inhabitants from 
employingany workmen butthem selves; so itistheinterest of the 
merchants and manufacturers of every country to secure to them- 
selves themonopoly of the home market. Hence, in Great Britain, 
and in most other European countries, the extraordinary duties 
upon almost all goods imported by alien merchants. H ence the 
high duties and prohibitionsupon all those foreign manufactures 
which can come into competition with our own. H ence, too, the 
extraordinary restraints upon the importation of almost all sorts 



396 



Adam Smith 



of goods from those countries with which the balance of trade is 
supposed to bedisadvantageous; that is, from those against whom 
national animosity happens ta be most violently inflamed. 

The wealth of neighbouring nations, however, though danger- 
ous in war and politics, is certainly advantageous in trade. In a 
state of hostility, it may enableour enemiesto maintain fleets and 
armies superior to our own; butin a state of peace and commerce 
it must likewise en ablethem to exchange with usto a greater value, 
and to afford a better market, either for the immediate produceof 
our own industry, or for whatever ispurchased with that produce. 
As a rich man is likely to be a better customer to the industrious 
people in his neighbourhood, than a poor, so is likewise a rich 
nation. A rich man, indeed, who is himself a manufacturer, is a 
very dangerous neighbour to all those who deal in the same way. 
All the rest of the neighbourhood, however, by far the greatest 
number, profit by the good market which hisexpenseaffordsthem. 
They even profit by his underselling the poorer workmen who 
deal in the same way with him. T he manufacturers of a rich na- 
tion, in the same manner, may no doubt be very dangerous rivals 
to those of their neighbours. This very competition, however, is 
advantageous to the great body of the people, who profit greatly, 
besides, by the good market which the great expense of such a 
nation affordsthem in every other way. Private people, who want 



to make a fortune, never think of retiring to the remote and poor 
provinces of the country, but resort either to the capital, or to 
some of the great commercial towns T hey know, that where little 
wealth circulates, there is little to be got; but that where a great 
deal is in motion, some share of it may fall to them. The same 
maxim which would in this manner direct the common sense of 
one, or ten, or twenty individuals, should regulate the judgment 
of one, or ten, or twenty millions, and should make a whole na- 
tion regard the riches of its neighbours, as a probable cause and 
occasion for itself to acquire riches. A nation that would enrich 
itself by foreign trade, is certainly most likely to do so, when its 
neighbours are all rich, industrious and commercial nations. A 
great nation, surrounded on all sides by wandering savages and 
poor barbarians, might, no doubt, acquire riches by the cultiva- 
tion of its own lands, and by its own interior commerce, but not 
by foreign trade. It seems to have been in this manner that the 
ancient Egyptians and the modern Chinese acquired their great 
wealth. The ancient Egyptians, it is said, neglected foreign com- 
merce, and the modern Chinese, it is known, hold it in the ut- 
most contempt, and scarce deign to afford it the decent protec- 
tion of the laws. The modern maxims of foreign commerce, by 
aiming at theimpoverishment of all our neighbours, so far as they 
are capableof producing their intended effect, tend to render that 



397 



The Wealth of Nations 



very commerce insignificant and contemptible. 

It is in consequence of these maxims, that the commerce be- 
tween France and England has, in both countries, been subjected 
to so many discouragements and restraints. If those two coun- 
tries, however, were to consider their real interest, without either 
mercantilejealousy or national animosity, thecommerceof France 
might be more advantageous to Great Britain than that of any 
other country, and, for the same reason, that of Great Britain to 
France. France is the nearest neighbour to Great Britain. In the 
trade between the southern coast of England and the northern 
and north-western coast of France, the returns might be expected, 
in the same manner as in the inland trade, four, five, or six times 
in theyear.T he capital, therefore, employed in thistradecould, in 
each of the two countries, keep in motion four, five, or six times 
the quantity of industry, and afford employment and subsistence 
to four, five, or six times the number of people, which all equal 
capital could do in the greater part of the other branches of for- 
eign trade. Between the parts of France and Great Britain most 
remote from one another, the returns might be expected, at least, 
oncein theyear; and even thistradewould so far beat least equally 
advantageous, as the greater part of the other branches of our for- 
eign European trade. It would be, at least, three times more ad- 
vantageous than theboasted tradewith our N orth American colo- 



nies, in which the returns were seldom made in less than three 
years, frequently not in less than four or five years. France, be- 
sides, issupposed to contain 24,000,000 of inhabitants O ur N orth 
American colonies were never supposed to contain more than 
3,000,000; and France is a much richer country than North 
America; though, on account of the more unequal distribution of 
riches, there is much more poverty and beggary in the one coun- 
try than in the other. France, therefore, could afford a market at 
least eight times more extensive, and, on account of the superior 
frequency of the returns, four-and-twenty times more advanta- 
geousthan that which our N orth American colonies ever afforded. 
Thetradeof Great Britain would bejust as advantageous to France, 
and, in proportion to the wealth, population, and proximity of 
therespective countries, would havethesamesuperiority over that 
which France carries on with her own colonies. Such is the very 
great difference between that trade which the wisdom of both 
nations has thought proper to discourage, and that which it has 
favoured the most. 

But theverysamecircumstances which would have rendered an 
open and free commerce between the two countries so advanta- 
geous to both, have occasioned the principal obstructions to that 
commerce. Being neighbours, they are necessarily enemies, and 
the wealth and power of each becomes, upon that account, more 



398 



Adam Smith 



formidable to the other; and what would increase the advantage 
of national friendship, serves only to inflame the violence of na- 
tional animosity. They are both rich and industrious nations; and 
the merchants and manufacturers of each dread the competition 
of theskill and activity of those of the other. M ercantilejealousyis 
excited, and both inflames, and is itself inflamed, by the violence 
of national animosity, and the traders of both countries have an- 
nounced, with all the passionate confidence of interested false- 
hood, thecertain ruin of each, in consequenceof that unfavourable 
balance of trade, which, they pretend, would be the infal I ible ef- 
fect of an unrestrained commerce with the other. 

There is no commercial country in Europe, of which the ap- 
proaching ruin has not frequently been foretold by the pretended 
doctors of this system, from all unfavourably balance of trade. 
After all theanxiety, however, which they have excited about this, 
after all thevain attempts of almost all trading nationsto turn that 
balance in their own favour, and against their neighbours, it does 
not appear that any one nation in Europehasbeen, in anyrespect, 
impoverished by this cause. Every town and country, on the con- 
trary, in proportion as they have opened their ports to all nations, 
instead of being ruined by this free trade, as the principles of the 
commercial system would lead us to expect, have been enriched 
by it. Though there are in Europe indeed, a few towns which, in 



same respects, deserve the name of free ports, there is no country 
which does so. Holland, perhaps, approaches the nearest to this 
character of any, though still very remote from it; and H olland, it 
is acknowledged, not only derives its whole wealth, but a great 
part of its necessary subsistence, from foreign trade. 

There is another balance, indeed, which has already been ex- 
plained, very different from the balance of trade, and which, ac- 
cording as it happensto be either favourableor unfavourable, nec- 
essarily occasions the prosperity or decay of every nation. This is 
the balance of the annual produce and consumption. If the ex- 
changeable value of the annual produce, it has already been ob- 
served, exceedsthat of the annual consumption, thecapital of the 
society must annually increase in proportion to this excess. The 
society in this case lives within its revenue; and what is annually 
saved out of its revenue, is naturally added to its capital, and em- 
ployed so as to increase still further the annual produce. If the 
exchangeable value of the annual produce, on the contrary, fall 
short of the annual consumption, the capital of the society must 
annually decay in proportion to this deficiency. The expense of 
the society, in this case, exceeds its revenue, and necessarily en- 
croaches upon its capital. Its capital, therefore, must necessarily 
decay, and, together with it, theexchangeablevalue of the annual 
produce of its industry. 



399 



The Wealth of Nations 



This balance of produce and consumption is entirely different 
from what is called the balance of trade. It might take place in a 
nation which had no foreign trade, but which was entirely sepa- 
rated from all the world. It may take place in the whole globe of 
the earth, of which the wealth, population, and improvement, 
may be either gradually increasing or gradually decaying. 

T hebalanceof produce and consumption may be constantly in 
favour of a nation, though what is called the balance of trade be 
generally against it. A nation may import to a greater valuethan it 
exports for half a century, perhaps, together; the gold and silver 
which comes into it during all this time, may be all immediately 
sent out of it; its circulating coin may gradually decay, different 
sorts of paper money being substituted in its place, and even the 
debts, too, which it contracts in the principal nations with whom 
it deals, may be gradually increasing; and yet its real wealth, the 
exchangeable value of the annual produce of its lands and labour, 
may, duringthesame period, have been increasing in amuch greater 
proportion. The state of our North American colonies, and of the 
trade which they carried on with Great Britain, before the com- 
mencement of thepresent disturbances, {This paragraph was writ- 
ten in theyear 1775. }may serve asa proof that this is by no means 
an impossible supposition. 



CHAPTER IV 

OF DRAWBACKS 

M erchantsand manufacturers are not contented with the mo- 
nopoly of the home market, but desire likewise the most extensive 
foreign sale for their goods. Their country has no jurisdiction in 
foreign nations, and therefore can seldom procure them any mo- 
nopoly there. T hey aregenerally obliged, therefore, to content them- 
selves with petitioning for certain encouragements to exportation. 
Of these encouragements, what are called drawbacks seem to be 
the most reasonable. To allow the merchant to draw back upon 
exportation, either the whole, or a part of whatever excise or in- 
land duty is imposed upon domestic industry, can never occasion 
the exportation of a greater quantity of goods than what would 
have been exported had no duty been imposed. Such encourage- 
ments do not tend to turn towards any particular employment a 
greater share of the capital of the country, than what would goto 
that employment of its own accord, but only to hinder the duty 
from driving away any part of that share to other employments. 
They tend not to overturn that balance which naturally estab- 
lishes itself among all thevariousemployments of thesociety, but 
to hinder it from being overturned by the duty. They tend not to 



400 



Adam Smith 



destroy, but to preserve, what it is in most cases advantageous to 
preserve, the natural division and distribution of labour in the 
society. 

The same thing may be said of the drawbacks upon there-ex- 
portation of foreign goods imported, which, in Great Britain, gen- 
erally amount to by much the largest part of the duty upon im- 
portation. By the second of the rules, annexed to the act of parlia- 
ment, which imposed what is now called the old subsidy, every 
merchant, whether English or alien, was allowed to draw back 
half that duty upon exportation; the English merchant, provided 
the exportation took place within twelvemonths; the alien, pro- 
vided it took place within nine months. Wines, currants, and 
wrought silks, were the only goods which did not fall within this 
rule, having other and moreadvantageousallowances.Theduties 
imposed by this act of parliament were, at that time, the only 
duties upon the importation of foreign goods. The term within 
which this, and all other drawbacks could be claimed, was after- 
wards (by 7 Geo. I. chap. 21. sect. 10.) extended to three years. 

Theduties which have been imposed since theold subsidy, are, 
the greater part of them, wholly drawn back upon exportation. 
This general rule, however, is liable to a great number of excep- 
tions; and thedoctrineofdrawbackshasbecomea much less simple 
matter than it was at their first institution. 



Upon the exportation of some foreign goods, of which it was 
expected thattheimportation would greatly exceed what wasnec- 
essary for the home consumption, the whole duties are drawn 
back, without retaining even half theold subsidy. Before the re- 
volt of our N orth American colonies, wehad the monopoly of the 
tobacco of M aryland and Virginia. Weimported about ninety-six 
thousand hogsheads, and the home consumption was not sup- 
posed to exceed fourteen thousand. To facilitate the great exporta- 
tion which was necessary, in order to rid us of the rest, the whole 
duties were drawn back, provided theexportation took placewithin 
three years. 

We still have, though not altogether, yet very nearly, the mo- 
nopoly of the sugars of our West I ndian islands. I f sugars are ex- 
ported within a year, therefore, all the duties upon importation 
aredrawn back; and if exported within three years, all theduties, 
except half the old subsidy, which still continues to be retained 
upon the exportation of the greater part of goods. Though the 
importation of sugar exceeds a good deal what is necessary for the 
home consumption, the excess is inconsiderable, in comparison 
of what it used to be in tobacco. 

Some goods, the particular objects of the jealousy of our own 
manufacturers, areprohibited to beimported for homeconsump- 
tion. They may, however, upon paying certain duties,be imported 



401 



The Wealth of Nations 



and warehoused for exportation. But upon such exportation no 
part of these duties is drawn back. Our manufacturers areunwill- 
ing, it seems, that even this restricted importation should be en- 
couraged, and are afraid lest some part of these goods should be 
stolen out of thewarehouse, and thuscomeinto competition with 
their own. It is under these regulations only that we can import 
wrought silks, French cambrics and lawns, calicoes, painted, 
printed, stained, or dyed, etc. 

We are unwilling even to be the carriers of French goods, and 
choose rather to forego a profit to ourselves than to suffer those 
whom weconsiderasourenemiestomakeany profit by our means. 
N ot only half theold subsidy, but thesecond twenty-five per cent, 
is retained upon the exportation of all French goods. 

By thefourth of the rules annexed to theold subsidy, the draw- 
back allowed upon the exportation of all wines amounted to a 
great deal more than half the duties which were at that time paid 
upon their importation; and it seemsat that timeto have been the 
object of the legislature to give somewhat more than ordinary en- 
couragement to the carrying trade in wine. Several of the other 
duties, too which wereimposed either at the same time or subse- 
quent to the old subsidy, what is called the additional duty, the 
new subsidy, the one-third and two-thirds subsidies, the impost 
1692, thetonnageon wine, were allowed to be wholly drawn back 



upon exportation. All thoseduties, however, except theadditional 
duty and impost 1692, being paid down in ready money upon 
importation, the interest of so large a sum occasioned an expense, 
which madeitunreasonableto expect any profitable carrying trade 
in thisartide. nly apart, therefore of the duty called the impost 
on wine, and no part of the twenty-five pounds the ton upon 
French wines, or of the duties imposed in 1745, in 1763, and in 
1778, were allowed to be drawn back upon exportation. The two 
imposts of five per cent, imposed in 1779 and 1781, upon all the 
former duties of customs, being allowed to be wholly drawn back 
upon the exportation of all other goods, were likewise allowed to 
be drawn back upon that of wine. The last duty that has been 
particularly imposed upon wine, that of 1780, is allowed to be 
wholly drawn back; an indulgence which, when so many heavy 
duties are retained, most probably could never occasion the ex- 
portation of a singleton of wine. These rules took place with re- 
gard to all pi aces of lawful exportation, except the British colonies 
in America. 

T he 15th C harles 1 1 , chap. 7, called an act for the encourage- 
ment of trade, had given Great Britain the monopoly of supplying 
the colonies with all the commodities of the growth or manufac- 
ture of Europe, and consequently with wines. In a country of so 
extensive a coast as our N orth American and West Indian colo- 



402 



Adam Smith 



nies, where our authority was always so very slender, and where 
the inhabitants were allowed to carry out in their own shipstheir 
non-enumerated commodities, at first to all partsof Europe, and 
afterwards to all partsof Europe south of CapeFinisterre, itisnot 
very probable that this monopoly could ever be much respected; 
and they probably at all times found meansof bringing back some 
cargo from the countries to which they were allowed to carry out 
one. They seem, however, to have found some difficulty in im- 
porting European wines from the places of their growth; and they 
could not well import them from Great Britain, where they were 
loaded with many heavy duties, of which a considerable part was 
not drawn back upon exportation. M adeira wine, not being an 
European commodity, could be imported directly into America 
and theWest I ndies, countries which, in all their non-enumerated 
commodities, enjoyed a free trade to the island of M adeira. These 
circumstances had probably introduced that general taste for M a- 
deira wine, which our officers found established in all our colo- 
nies at the commencement of the war which began in 1755, and 
which they brought back with them to the mother country, where 
that winehad not been much in fashion before. U pon thecondu- 
sion of that war, in 1763 (by the 4th Geo. Ill, chap. 15, sect. 12), 
all the duties except £3, 10s. were allowed to bedrawn back upon 
the exportation to the colonies of all wines, except French wines, 



to the commerce and consumption of which national prejudice 
would allow no sort of encouragement. The period between the 
granting of this indulgence and the revolt of our North American 
colonies, was probably too short to admit of any considerable 
change in the customs of those countries. 

The same act which, in the drawbacks upon all wines, except 
French wines, thusfavoured thecoloniesso much more than other 
countries, in those upon the greater part of other commodities, 
favoured them much less. Upon the exportation of the greater 
part of commodities to other countries, half the old subsidy was 
drawn back. Butthislaw enacted, that no part of that duty should 
bedrawn back upon the exportation to the colonies of any com- 
modities of the growth or manufacture either of Europe or the 
East Indies, except wines, white calicoes, and muslins. 

Drawbacks were, perhaps, originally granted for theencourage- 
ment of the carrying trade, which, as the freight of the ship is 
frequently paid by foreigners in money, was supposed to be pecu- 
liarly fitted for bringing gold and silver into thecountry But though 
the carrying trade certainly deserves no peculiar encouragement, 
though the motive of the institution was, perhaps, abundantly 
foolish, the institution itself seemsreasonableenough. Such draw- 
backs cannot force into this trade a greater share of the capital of 
the country than what would have gone to it of its own accord, 



403 



The Wealth of Nations 



had there been no duties upon importation; they only prevent its 
being excluded altogether by those duties. The carrying trade, 
though it deserves no preference, ought not to be precluded, but 
to be left free, like all other trades. It is a necessary resource to 
those capitals which cannot find employment, either in the agri- 
culture or in the manufactures of the country, either in its home 
trade, or in its foreign trade of consumption. 

The revenue of the customs, instead of suffering, profits from 
such drawbacks, by that part of the duty which is retained. I f the 
whole duties had been retained, the foreign goods upon which 
they are paid could seldom have been exported, nor consequently 
imported, for want of a market. The duties, therefore, of which a 
part is retained, would never have been paid. 

These reasonsseem sufficiently to justify drawbacks, and would 
justify them, though thewholeduties, whether upon theproduce 
of domestic industry or upon foreign goods, were always drawn 
back upon exportation. The revenue of excise would, in this case 
indeed, suffer a little, and that of the customs a good deal more; 
but the natural balance of industry, the natural division and dis- 
tribution of labour, which isalwaysmoreor lessdisturbed by such 
duties, would be more nearly re-established by such a regulation. 

These reasons, however, will justify drawbacks only upon ex- 
porting goodsto those countries which are altogether foreign and 



independent, nottothosein which our merchants and manufac- 
turers enjoy a monopoly. A drawback, for example, upon the ex- 
portation of European goodsto our American colonies, will not 
always occasion a greater exportation than what would have taken 
placewithoutit. By meansofthemonopoly which our merchants 
and manufacturers enjoy there, thesamequantity might frequently, 
perhaps, be sent thither, though the whole duties were retained. 
T he drawback, therefore, may frequently be pure loss to the rev- 
enueof excise and customs, without altering the state of the trade, 
or rendering it in any respect more extensive. H ow far such draw- 
backs can be justified as a proper encouragement to the industry 
of our colonies, or how far it is advantageous to the mother coun- 
try that they should be exempted from taxes which are paid by all 
therestof their fellow-subjects, will appear hereafter, when I come 
to treat of colonies. 

D rawbacks, however, it must always be understood, are useful 
only in those cases in which the goods, for the exportation of 
which they are given, are really exported to someforeign country, 
and not clandestinely re-imported into our own. That somedraw- 
backs, particularly thoseupon tobacco, havefrequently been abused 
in this manner, and have given occasion to many frauds, equally 
hurtful both to the revenue and to the fair trader, is well known. 



404 



Adam Smith 



CHAPTERV 

OF BOUNTIES 

Bounties upon exportation are, in Great Britain, frequently pe- 
titioned for, and sometimes granted, to the produce of particular 
branches of domestic industry. By means of them, our merchants 
and manufacturers, it is pretended, will be enabled to sell their 
goods as cheap or cheaper than their rivals in theforeign market. 
A greater quantity, it issaid, will thusbe exported, and thebalance 
of trade consequently turned morein favour of our own country. 
We cannot give our workmen a monopoly in the foreign, as we 
havedonein the home market. Wecannot force foreigners to buy 
their goods, as we have done our own countrymen. The next best 
expedient, it has been thought, therefore, is to pay them for buy- 
ing. It is in this manner that the mercantile system proposes to 
enrich the whole country, and to put money into all our pockets, 
by means of the balance of trade. 

Bounties, it is allowed, ought to be given to those branches of 
trade only which cannot be carried on without them. But every 
branch of trade in which the merchant can sell his goods for a 
price which replaces to him, with theordinary profitsof stock, the 
whole capital employed in preparing and sending them to mar- 



ket, can be carried on without a bounty. Every such branch is 
evidently upon a level with all theotherbranchesoftradewhich are 
carried on without bounties, and cannot, therefore, requireonemore 
than they. Those trades only require bounties, in which the mer- 
chant is obliged to sell his goods for a price which does not replace 
to him hiscapital, together with theordinary profit, or in which he 
isobliged to sell them for lessthan it really cost him to send them to 
market. The bounty is given in order to makeup this loss, and to 
encourage him to continue, or, perhaps, to begin a trade, of which 
the expense is supposed to be greater than the returns, of which 
every operation eats up a part of the capital employed in it, and 
which isof such a nature, that if all other trades resembled it, there 
would soon be no capital left in the country. 

The trades, it is to be observed, which are carried on by means 
of bounties, are the only ones which can be carried on between 
two nationsfor any considerabletime together, in such a manner 
asthatoneof them shall alway'sand regularly lose, or sell its goods 
for lessthan it really cost to send them to market. Butif thebounty 
did not repay to themerchant what hewouldotherwiseloseupon 
the price of his goods, hisown interest would soon obligehim to 
employ his stock in another way, or to find out a trade in which 
the price of the goods would replace to him, with the ordinary 
profit, thecapital employed in sending them to market. The effect 



405 



The Wealth of Nations 



of bounties, like that of all the other expedients of the mercantile 
system, can only be to force the trade of a country into a channel 
much lessadvantageousthan that in which it would naturally run 
of its own accord. 

Theingeniousand well-informed author of theTractsupon the 
Corn Trade has shown very clearly, that since thebounty upon the 
exportation of corn was first established, the price of the corn 
exported, valued moderately enough, has exceeded that of thecorn 
imported, valued very high, by a much greater sum than the 
amount of the whole bounties which have been paid during that 
peri od. This, heimagines, upon thetrueprinciplesofthemercan- 
tilesystem, isa clear proof that thisforced corn trade is beneficial 
to the nation, the value of the exportation exceeding that of the 
importation by a much greater sum than the whole extraordinary 
expense which the public has been at in order to get it exported. 
H edoesnot consider that this extraordinary expense, or thebounty, 
is the smallest part of the expense which the exportation of corn 
really costs the society. The capital which the farmer employed in 
raising it must likewise betaken intotheaccount. Unlesstheprice 
of thecorn, when sold in the foreign markets, replaces not only 
the bounty, but this capital, together with the ordinary profits of 
stock, the society isa loser by the difference, or the national stock 
issomuch diminished. But the very reason for which it has been 



thought necessary to grant a bounty, isthesupposed insufficiency 
of the price to do this. 

The average price of corn, it has been said, has fallen consider- 
ably since the establishment of the bounty. T hat the average price 
of corn began to fall somewhat towards the end of the last cen- 
tury, and has continued to do so during the course of the sixty- 
four first years of the present, I have already endeavoured to show. 
But this event, supposing it to be real, as I believe it to be, must 
have happened in spite of the bounty, and cannot possibly have 
happened in consequence of it. It has happened in France, as well 
as in England, though in France there was not only no bounty, 
but, till 1764, the exportation of corn was subjected to a general 
prohibition. This gradual fall in the average price of grain, it is 
probable, therefore, is ultimately owing neither to the one regula- 
tion nor to the other, but to that gradual and insensiblerisein the 
real value of silver, which, in thefirst book of this discourse, I have 
endeavoured to show, has taken place in the general market of 
Europe during the course of the present century. It seems to be 
altogether impossible that the bounty could ever contribute to 
lower the price of grain. 

I n years of plenty, it has already been observed, the bounty, by 
occasioning an extraordinary exportation, necessarily keeps up the 
price of corn in the home market above what it would naturally 



406 



Adam Smith 



fall to. To do so was the avowed purpose of the institution. In 
years of scarcity, though the bounty is frequently suspended, yet 
the great exportation which it occasions in years of plenty, must 
frequently hinder, moreorless, theplenty of oneyear from reliev- 
ing thescarcity of another. Both in years of plenty and in years of 
scarcity, therefore, thebounty necessarily tendsto raise themoney 
price of corn somewhat higher than it otherwise would be in the 
home market. 

That in the actual state of tillage the bounty must necessarily 
havethistendency, will not, I apprehend, bedisputed by any rea- 
sonable person. But it has been thought by many people, that it 
tendsto en courage til I age, and that in two different ways; first, by 
opening a more extensive foreign market to the corn ofthefarmer, 
it tends, they imagine, to increase the demand for, and conse- 
quently the production of, that commodity; and, secondly by se- 
curing to him a better price than hecould otherwise expect in the 
actual state of tillage, it tends, they suppose, to en courage til I age. 
This double encouragement must they imagine, in a long period 
of years, occasion such an increase in the production of corn, as 
may lower its price in the home market, much more than the 
bounty can raise it in theactual statewhich tillagemay, attheend 
of that period, happen to be in. 

I answer, that whatever extension of the foreign market can be 



occasioned by thebounty must, in every particular year, be alto- 
gether at the expense of the home market; as every bushel of corn, 
which is exported by means of thebounty, and which would not 
have been exported without the bounty, would have remained in 
the home market to increase the consumption, and to lower the 
price of that commodity. The corn bounty, itisto be observed, as 
well as every other bounty upon exportation, imposes two differ- 
ent taxesupon thepeople; first, thetax which they are obliged to 
contribute, in order to pay thebounty; and, secondly, thetax which 
arises from the advanced price of the commodity in the home 
market, and which, as the whole body of the people are purchas- 
ers of corn, must, in this particular commodity, be paid by the 
whole body of the people. In this particular commodity, there- 
fore, this second tax is by much the heaviest of the two. Let us 
suppose that, taking oneyear with another, the bounty of 5s. upon 
the exportation of the quarter of wheat raises the price of that 
commodity in the home market only 6d. the bushel, or 4s. the 
quarter higher than it otherwise would have been in the actual 
state of the crop. Even upon this very moderate supposition, the 
great body of thepeople, over and abovecontributing thetax which 
pays the bounty of 5s. upon every quarter of wheat exported, must 
pay another of 4s. upon every quarter which they themselves con- 
sume. But according to thevery well informed author of theTracts 



407 



The Wealth of Nations 



upon the Corn Trade, the average proportion of thecorn exported 
to that consumed at home, is not morethan that of oneto thirty- 
one. For every 5s. therefore, which they contribute to the pay- 
ment of the first tax, they must contribute f 6:4s. to the payment 
of the second. So very heavy a tax upon the first necessary of life- 
must either reduce the subsistence of the labouring poor, or it 
must occasion some augmentation in their pecuniary wages, pro- 
portionableto that in the pecuniary priceof their subsistence. So 
far as it operates in the one way, it must reduce the ability of the 
labouring poor to educate and bring up their children, and must, 
so far, tend to restrain the population of the country. So far as it 
operate's in the other, it must reduce the ability of the employers 
of the poor, to employ so great a number as they otherwise might 
do, and must so far tend to restrain the industry of the country. 
The extraordinary exportation of corn, therefore occasioned by 
thebounty, not only in every particular year diminish esthehome, 
just as much as it extends the foreign market and consumption, 
but, by restraining the population and industry of the country, its 
final tendency isto stint and restrain the gradual extension of the 
home market; and thereby, in the long-run, rather to diminish 
than to augment the whole market and consumption of corn. 

This enhancement of the money priceof corn, however, it has 
been thought, by rendering that commodity more profitable to 



thefarmer, must necessarily encourage its production. 

I answer, that this might be the case, if the effect of the bounty 
was to raise the real priceof corn, or to enable the farmer, with an 
equal quantity of it, to maintain a greater number of labourers in 
the same manner, whether liberal, moderate, or scanty, than other 
labourers are commonly maintained in his neighbourhood. But 
nei ther thebounty, it isevident, nor any other human institution, 
can have any such effect. It is not the real, but the nominal price 
of corn, which can in any considerable degree be affected by the 
bounty. And though thetax, which that institution imposesupon 
the whole body of the people, may be very burdensome to those 
who pay it, it is of very little advantage to those who receive it. 

The real effect of the bounty is not so much to raise the real 
valueof corn, as to degrade the real value of silver; ortomakean 
equal quantity of it exchange for a smaller quantity, not only of 
corn, but of all other home made commodities; for the money 
priceof corn regulates that of all other home made commodities. 

It regulates the money price of labour, which must always be 
such as to enable the labourer to purchase a quantity of corn suf- 
ficient to maintain him and hisfamily, either in the liberal, mod- 
erate, or scanty manner, in which the advancing, stationary, or 
declining, circumstances of the society, oblige his employers to 
maintain him. 



408 



Adam Smith 



It regulates the money price of all the other parts of the rude 
produce of land, which, in every period of improvement, must 
bear a certain proportion to that of corn, though this proportion 
isdifferent in different periods. It regulates, for example, themoney 
price of grass and hay, of butcher's meat, of horses, and themain- 
tenance of horses, of land carriage consequently, or of the greater 
part of the inland commerce of the country. 

By regulating the money price of all the other parts of the rude 
produce of land, it regulates that of the materials of almost all 
manufactures; by regulating the money price of labour, it regu- 
lates that of manufacturing art and industry; and by regulating 
both, it regulates that of the complete manufacture. The money 
price of labour, and of every thing that is the produce, either of 
land or labour, must necessarily either rise or fall in proportion to 
the money price of corn. 

Though in consequence of the bounty, therefore, the farmer 
should be enabled to sell his corn for 4s. the bushel, instead of 
3s:6d. and to pay hislandlord a money rent proportionableto this 
rise in the money price of his produce; yet if, in consequence of 
this rise in the price of corn, 4s. will purchase no more home 
made goods of any other kind than 3s. 6d. would have done be- 
fore, neither the circumstances of the farmer, nor those of the 
landlord, will be much mended by this change. The farmer will 



not be ableto cultivate much better; the landlord will not be able 
to live much better. In the purchase of foreign commodities, this 
enhancement in the price of corn may give them some little ad- 
vantage. In that of home made commodities, it can give them 
none at all. And almost the whole expense of the farmer, and the 
far greater part even of that of the landlord, is in home made 
commodities. 

That degradation inthevalueof silver, which is the effect of the 
fertility of the mines, and which operates equally, or very nearly 
equally, through the greater part of the commercial world, is a 
matter of very little consequence to any particular country. T he 
consequent riseof all money prices, though it doesnot makethose 
who receive them really richer, doesnot make them really poorer. 
A service of plate becomes really cheaper, and every thing else 
remains precisely of the same real value as before. 

But that degradation in thevalueof silver, which, being the effect 
either of the peculiar situation or of the political institutions of a 
particular country, takes place only in that country, is a matter of 
very great consequence, which, far from tending to make anybody 
really richer, tendsto makeevery body really poorer. The rise in the 
money price of all commodities, which is in this case peculiar to 
that country, tendsto discourage more or less every sort of industry 
which iscarried on within it, and to en able foreign nations, byfur- 



409 



The Wealth of Nations 



nishing almost all sorts of goods for a smaller quantity of silver than 
its own workmen can afford to do, to undersell them, not only in 
theforeign, but even in the home market. 

It isthepeculiar situation of Spain and Portugal, as proprietors 
of the mines, to be the distributers of gold and silver to all the 
other countries of Europe. Those metals ought naturally, there- 
fore, to be somewhat cheaper in Spain and Portugal than in any 
other part of Europe. The difference, however, should beno more 
than theamount of the freight and insurance; and, on account of 
the great value and small bulk of those metals, their freight is no 
great matter, and their insurance is the same as that of any other 
goods of equal value. Spain and Portugal, therefore, could suffer 
very little from their peculiar situation, if they did not aggravate 
its disadvantages by their political institutions. 

Spain by taxing, and Portugal by prohibiting, the exportation 
of gold and silver, load that exportation with the expense of smug- 
gling, and raise the value of those metals in other countries so 
much more above what it is in their own, by the whole amount of 
this expense. When you dam up a stream of water, as soon as the 
dam isfull, as much water must run over the dam-head as if there 
wasno dam at all. Theprohibition of exportation cannot detain a 
greater quantity of gold and silver in Spain and Portugal, than 
what they can afford to employ, than what the annual produce of 



their land and labour will allow them to employ, in coin, plate, 
gilding, and other ornaments of gold and silver. W hen they have 
got this quantity, the dam is full, and the whole stream which 
flowsin afterwards must run over. The annual exportation of gold 
and silver from Spain and Portugal, accordingly, is, by all accounts, 
notwithstanding these restraints, very near equal tothewholean- 
nual importation. As the water, however, must always be deeper 
behind the dam-head than before it, so the quantity of gold and 
silver which these restraints detain in Spain and Portugal, must, in 
proportion to the annual produce of their land and labour, be 
greater than what is to be found in other countries. The higher 
and stronger the dam-head, the greater must be the difference in 
the depth of water behind and before it. T he higher the tax, the 
higher the penalties with which the prohibition is guarded, the 
more vigilant and severe the police which looks after the execu- 
tion of the law, the greater must be the difference in the propor- 
tion of gold and silver to the annual produce of the land and 
labour of Spain and Portugal, and to that of other countries. It is 
said, accordingly, to be very considerable, and that you frequently 
find there a profusion of plate in houses, where there is nothing 
else which would in other countries be thought suitable or corre- 
spondent to this sort of magnificence. T he cheapness of gold and 
silver, or, whatisthesamething, thedearnessof all commodities, 



410 



Adam Smith 



which is the necessary effect of this redundancy of the precious 
metals, discourages both theagricultureand manufactures of Spain 
and Portugal, and enables foreign nations to supply them with 
many sorts of rude, and with almost all sorts of manufactured 
produce, for a smaller quantity of gold and silver than what they 
themselves can either raiseor make them for at home. T hetax and 
prohibition operate in two different ways. They not only lower 
very much thevalueof the precious metals in Spain and Portugal, 
but by detaining there a certain quantity of those metals which 
would otherwise flow over other countries, they keep up their value 
in those other countries somewhat above what it otherwisewould 
be, and thereby give those countries a double advantage in their 
commerce with Spain and Portugal. Open the flood-gates, and 
there will presently be less water above, and more below the dam- 
head, and it will soon come to a level in both places. Remove the 
tax and theprohibition, and as the quantity of gold and silver will 
diminish considerably in Spain and Portugal, so it will increase 
somewhat in other countries; and thevalueof those metals, their 
proportion to the annual produce of land and labour, will soon 
cometo a level, or very near to a level, in all. T he loss which Spain 
and Portugal could sustain by this exportation of their gold and 
silver, would be altogether nominal and imaginary. The nominal 
value of their goods, and of the annual produce of their land and 



labour, would fall, and would be expressed or represented by a 
smaller quantity of silver than before; but their real value would 
be the same as before, and would be sufficient to maintain, com- 
mand, and employ the same quantity of labour. As the nominal 
valueof their goods would fall, thereal valueof what remained of 
their gold and silver would rise, and a smaller quantity of those 
metals would answer all the same purposes of commerce and cir- 
culation which had employed a greater quantity before. The gold 
and silver which would go abroad would not go abroad for noth- 
ing, but would bring back an equal valueof goodsof somekind or 
other. Those goods, too, would not be all matters of mere luxury 
and expense, to be consumed by idle people, who produce nothing 
in return for their con sumption. As the real wealth and revenueof 
idle people would not be augmented by this extraordinary exporta- 
tion of gold and silver, so neither would their consumption bemuch 
augmented by it. Those goods would probably, the greater part of 
them, and certainly some part of them, consist in materials, tools, 
and provisions, for the employment and maintenance of industri- 
ous people, who would reproduce, with a profit, the full valueof 
their consumption. A part of the dead stock of the society would 
thusbeturned into active stock, and would put into motion a greater 
quantity of industry than had been employed before. The annual 
produceof their land and labour would immediately beaugmented 



411 



The Wealth of Nations 



a little, and in a few years would probably be augmented a great 
deal; their industry being thus relieved from one of the most op- 
pressive burdens which it at present labours under. 

The bounty upon the exportation of corn necessarily operates 
exactly in the same way as this absurd policy of Spain and Portu- 
gal. Whatever be the actual state of tillage, it renders our corn 
somewhat dearer in the home market than it otherwise would be 
in that state, and somewhat cheaper in the foreign; and as the 
average money price of corn regulates, more or less, that of all 
other commodities, it lowers the value of silver considerably in 
theone, and tendsto raiseitalittlein theother. It enables foreign- 
ers, the D utch in particular, not only to eat our corn cheaper than 
they otherwise could do, but sometimes to eat it cheaper than 
even our own people can do upon the same occasions; as we are 
assured by an excellent authority, that of Sir M atthew D ecker. It 
hinders our own workmen from furnishing their goodsfor so small 
a quantity of silver as they otherwise might do, and enables the 
Dutch to furnish theirsfor a smaller. It tendsto render our manu- 
factures somewhat dearer in every market, and theirs somewhat 
cheaper, than they otherwise would be, and consequently to give 
their industry a double advantage over our own. 

The bounty, as it raises in the home market, not so much the 
real, as the nominal price of our corn; as it augments, not the 



quantity of labour which a certain quantity of corn can maintain 
and employ, but only the quantity of silver which itwill exchange 
for; it discourages our manufactures, without rendering any con- 
siderable service, either to our farmers or country gentlemen. It 
puts, indeed, a little more money into thepockets of both, and it 
will perhaps be somewhat difficult to persuade the greater part of 
them that this is not rendering them a very considerable service. 
But if this money sinks in its value, in the quantity of labour, 
provisions, and home-made commodities of all different kinds 
which it is capable of purchasing, as much as it rises in its quan- 
tity, the service will be little more than nominal and imaginary. 

T here is, perhaps, but one set of men in the whole common- 
wealth to whom the bounty either was or could be essentially ser- 
viceable. These were the corn merchants, the exporters and im- 
porters of corn. In years of plenty, the bounty necessarily occa- 
sioned a greater exportation than would otherwise have taken place; 
and by hindering the plenty of the one year from relieving the 
scarcity of another, it occasioned in years of scarcity a greater im- 
portation than would otherwise have been necessary. It increased 
the business of the corn merchant in both; and in the years of 
scarcity, it not only enabled him to import a greater quantity, but 
to sell it for a better price, and consequently with a greater profit, 
than he could otherwise have made, if the plenty of one year had 



412 



Adam Smith 



not been more or less hindered from relieving the scarcity of an- 
other. It isin thisset of men, accordingly, that I have observed the 
greatest zeal for the continuance or renewal of the bounty. 

Our country gentlemen, when they imposed the high duties 
upon the exportation of foreign corn, which in times of moderate 
plenty amount to a prohibition, and when they established the 
bounty, seem to haveimitated theconduct of our manufacturers. 
By the one institution, they secured to themselves the monopoly 
of the home market, and by the other they endeavoured to pre- 
vent that market from ever being overstocked with their com- 
modity. By both they endeavoured to raise its real value, in the 
same manner as our manufacturers had, by the like institutions, 
raised thereal valueof many different sorts of manufactured goods. 
They did not, perhaps, attend to the great and essential difference 
which nature has established between corn and almost every other 
sort of goods. W hen, either by the monopoly of the home market, 
or by a bounty upon exportation, you enableour woollen or linen 
manufacturers to sell their goodsfor somewhat a better pricethan 
they otherwise could get for them, you raise, not only the nomi- 
nal, but the real price of those goods; you render them equivalent 
to a greater quantity of labour and subsistence; you increase not 
only the nominal, but the real profit, thereal wealth and revenue 
of those manufacturers; and you enable them, either to live better 



themselves, or to employ a greater quantity of labour in those 
particular manufactures. You really encourage thosemanufactures, 
and direct towards them a greater quantity of the industry of the 
country than what would properly go to them of its own accord. 
But when, by the like institutions, you raise thenominal or money 
price of corn, you do not raise its real value; you do not increase 
the real wealth, the real revenue, either of our farmers or country 
gentlemen; you do not en courage the growth of corn, because you 
do not enable them to maintain and employ more labourers in 
raising it.Thenatureof thingshas stamped upon corn areal value, 
which cannot be altered by merely altering its money price. N o 
bounty upon exportation, no monopoly of the home market, can 
raise that value. T hefreest competition cannot lower it, T hrough 
the world in general, that value is equal to the quantity of labour 
which it can maintain, and in every particular place it is equal to 
the quantity of labour which it can maintain in the way, whether 
liberal, moderate, or scanty, in which labour is commonly main- 
tained in that place. Woollen or linen cloth are not the regulating 
commodities by which the real value of all other commodities 
must be finally measured and determined; corn is. The real value 
of every other commodity is finally measured and determined by 
theproportion which its average money price bears to the average 
money price of corn. The real value of corn does not vary with 



413 



The Wealth of Nations 



those variations in its average money price, which sometimes oc- 
curfrom onecenturyto another; it isthereal valueof silver which 
varies with them. 

Bounties upon the exportation of any homemade commodity 
areliable, first, to that general objection which may be made to all 
the different expedients of the mercantile system; theobjection of 
forcing some part of the industry of the country into a channel 
less advantageous than that in which it would run of its own ac- 
cord; and, secondly, to the particular objection of forcing it not 
only into a channel that is less advantageous, but into onethat is 
actually disadvantageous; the trade which cannot be carried on 
but by means of a bounty being necessarily a losing trade. The 
bounty upon the exportation of corn is liable to this further ob- 
jection, that it can in no respect promote the raising of that par- 
ticular commodity of which it was meant to encourage the pro- 
duction. W hen our country gentlemen, therefore, demanded the 
establishment of the bounty, though they acted in imitation of 
our merchants and manufacturers, they did not act with that com- 
plete comprehension of their own interest, which commonly di- 
rects the con duct of those two other orders of people. T hey loaded 
thepublicrevenuewith a very considerable expense: theyimposed 
a very heavy tax upon the whole body of the people; but they did 
not, in any sensible degree, increase the real value of their own 



commodity; and by lowering somewhat the real value of silver, 
they discouraged, in somedegree,thegeneral industry of thecoun- 
try, and, instead of advancing, retarded more or less the improve- 
ment of their own lands, which necessarily depend upon thegen- 
eral industry of the country. 

To encourage the production of any commodity, a bounty upon 
production, oneshould imagine, would haveamoredirect opera- 
tion than one upon exportation. It would, besides, impose only 
one tax upon the people, that which they must contribute in or- 
der to pay the bounty. I nstead of raising, it would tend to lower 
the price of the commodity in the home market; and thereby, 
instead of imposing a second tax upon the people, it might, at 
least in part, repay them for what they had contributed to the 
first. Bounties upon production, however, have been very rarely 
granted. Theprejudices established bythecommercial system have 
taught usto believe, that national wealth arises moreimmediately 
from exportation than from production. It hasbeen morefavoured, 
accordingly, as the more immediate meansof bringing money into 
thecountry Bountiesupon production, it hasbeen said too, have 
been found by experience more liable to frauds than those upon 
exportation. How far this istrue, I know not. That bountiesupon 
exportation have been abused, to many fraudulent purposes, is 
very well known. But it isnottheinterest of merchants and manu- 



414 



Adam Smith 



facturers, the great inventors of all these expedients, thatthehome 
market should be overstocked with their goods; an event which a 
bounty upon production might sometimes occasion. A bounty 
upon exportation, by enabling them to send abroad their surplus 
part, and to keep up the price of what remains in the home mar- 
ket, effectually prevents this. Of all the expedients of themercan- 
tilesystem, accordingly, it istheoneof which they are thefondest. 
I have known the different undertakers of some particular works 
agree privately among themselves to give a bounty out of their 
own pockets upon the exportation of a certain proportion of the 
goods which they dealt in. This expedient succeeded so well, that 
it more than doubled the priceof their goods in the homemarket, 
notwithstanding a very considerable increase in the produce. T he 
operation of the bounty upon corn must have been wonderfully 
different, if it has lowered the money price of that commodity. 

Something like a bounty upon production, however, has been 
granted upon some particular occasions. The tonnage bounties 
given to the white herring and whale fisheries may, perhaps, be 
considered as somewhat of this nature. They tend directly, it may 
be supposed, to render the goods cheaper in the home market 
than they otherwise would be. In other respects, their effects, it 
must be acknowledged, are the same as those of bounties upon 
exportation. By means of them, a part of the capital of the coun- 



try is employed in bringing goods to market, of which the price 
does not repay thecost, together with theordinaryprofitsof stock. 

But though thetonnage bounties to those fisheries do not con- 
tribute to the opulence of the nation, it may, perhaps, bethought 
that they contribute to itsdefence, by augmenting the number of 
its sailorsand shipping. This, it may be alleged, may sometimes be 
done by means of such bounties, at a much smaller expense than 
by keeping up a great standing navy, if I may use such an expres- 
sion, in the same way as a standing army. 

N otwithstanding these favourableallegations, however, the fol- 
lowing considerations dispose me to believe, that in granting at 
least one of these bounties, the legislature has been very grossly 
imposed upon: 

First, 

T he herring-buss bounty seems too large. 

From the commencement of the winter fishing 1771, to the 
end of thewinter fishing 1781, thetonnage bounty upon theher- 
ring-buss fishery has been at thirty shillingstheton. During these 
eleven years, the whole number of barrels caught by the herring- 
buss fishery of Scotland amounted to 378,347. Theherrings caught 
and cured at sea are called sea-sticks. I n order to render them what 
are called merchantable herrings, it is necessary to repack them 
with an additional quantity of salt; and in thiscase, it is reckoned, 



415 



The Wealth of Nations 



that three barrels of sea-sticks are usually repacked into two bar- 
rels of merchantable herrings. T he number of barrelsof merchant- 
able herrings, therefore, caught during these eleven years, will 
amount only, according to this account, to 252,231V4. During 
these eleven years, the tonnage bounties paid amounted to 
£155, 463:11s. or 8s:2V4d. upon every barrel of sea-sticks, and to 
12s:3 3 /4d. upon every barrel of merchantable herrings. 

Thesalt with which theseherrings are cured issometimesScotch, 
and sometimes foreign salt; both which are delivered, free of all 
exciseduty, tothefish-curers.Theexciseduty upon Scotch salt is 
at present ls:6d., that upon foreign salt 10s. the bushel. A barrel 
of herrings issupposed to require about onebush el and one-fourth 
of a bushel foreign salt. Two bushels are the supposed average of 
Scotch salt. If the herrings are entered for exportation, no part of 
this duty is paid up; if entered for home consumption, whether 
the herrings were cured with foreign or with Scotch salt, only one 
shilling the barrel is paid up. It was the old Scotch duty upon a 
bushel of salt, the quantity which, at a low estimation, had been 
supposed necessary for curing a barrel of herrings. In Scotland, 
foreign salt is very little used for any other purpose but the curing 
of fish. But from the 5th April 1771 to the 5th April 1782, the 
quantity of foreign salt imported amounted to 936,974 bushels, 
at eighty-four pounds the bushel; the quantity of Scotch salt de- 



livered from the worksto thefish-curers, to no more than 168,226, 
at fifty-six pounds the bushel only. It would appear, therefore, 
that it is principally foreign salt that is used in the fisheries. Upon 
every barrel of herrings exported, there is, besides, a bounty of 
2s:8d. and more than two-thirds of the buss-caught herrings are 
exported. Put all these things together, and you will find that, 
during these eleven years, every barrel of buss-caught herrings, 
cured with Scotch salt, when exported, has cost government 
17s:ll 3 /4d.; and, when entered for homeconsumption, 14s:3 3 /4d.; 
and that every barrel cured with foreign salt, when exported, has 
cost government £l:7:5 3 /4d.; and, when entered for home con- 
sumption, £l:3:9 3 /4d. The price of a barrel of good merchantable 
herrings runs from seventeen and eighteen to four and five-and- 
twenty shillings; about a guinea at an average. {Seetheaccountsat 
theend of this Book.} 

Secondly, 

T he bounty to the white-herring fishery is a tonnage bounty, 
and is proportioned to theburden of theship, notto her diligence 
or success in thefishery; and it has, I am afraid, been too common 
for the vessels to fit out for the sole purpose of catching, not the 
fish but the bounty. In the year 1759, when the bounty was at 
fifty shillings the ton, the wholebuss fishery of Scotland brought 
in only four barrels of sea-sticks. In that year, each barrel of sea- 



416 



Adam Smith 



sticks cost government, in bounties alone, f 113:15s.; each barrel 
of merchantable herrings £159:7:6. 

Thirdly, 
T he mode of fishing, for which this tonnage bounty in the white 
herring fishery has been given (by busses or decked vessels from 
twenty to eighty tons burden ), seems not so well adapted to the 
situation of Scotland, as to that of H olland, from the practice of 
which country it appears to have been borrowed. Holland lies at a 
great distance from theseasto which herrings are known princi- 
pally to resort, and can, therefore, carry on that fishery only in 
decked vessels, which can carry water and provisionssufficientfor 
a voyage to a distant sea; but the Hebrides, or Western Islands, the 
islands of Shetland, and thenorthern and north-western coastsof 
Scotland, thecountriesin whoseneighbourhoodtheherringfish- 
ery is principally carried on, areeverywhereintersected byarmsof 
the sea, which run up aconsiderablewayintotheland, and which, 
in the language of the country, are called sea-lochs. It is to these 
sea-lochsthat the herrings principally resort during the seasons in 
which they visit these seas; for the visits of this, and, I am assured, 
of many other sorts of fish, are not quite regular and constant. A 
boat-fishery, therefore, seemsto be themodeof fishing best adapted 
to the peculiar situation of Scotland, the fishers carrying the her- 
rings on shore as fast as they are taken, to be either cured or con- 



sumed fresh. But thegreat encouragement which a bounty of 30s. 
theton gives to thebuss- fishery, isnecessarily a discouragement to 
the boat-fishery, which, having no such bounty, cannot bring its 
cured fish to market upon the same terms as the buss-fishery The 
boat-fishery; accordingly, which, before the establishment of the 
buss-bounty, was very considerable, and issaid to have employed a 
number of seamen, not i nferior to what the buss-fishery employs at 
present, isnowgonealmost entirely to decay. Of theformer extent, 
however, of thisnow ruined and abandoned fishery, I must acknowl- 
edge that I cannot pretend to speak with much precision. As no 
bounty was-paid upon the outfit of the boat-fishery, no account 
was taken of it by the officers of the customs or salt duties 

Fourthly, 

I n many parts of Scotland, during certain seasons of the year, 
herrings make no inconsiderable part of thefood of thecommon 
people. A bounty which tended to lower their price in the home 
market, might contribute a good deal to the relief of a great num- 
ber of our fellow-subjects, whose circumstances are by no means 
affluent. But the herring-bus bounty contributes to no such good 
purpose. It has ruined the boat fishery, which is by far the best 
adapted for the supply of the home market; and the additional 
bounty of 2s:8d. the barrel upon exportation, carries the greater 
part, more than two-thirds, of the produce of the buss-fishery 



417 



The Wealth of Nations 



abroad. Between thirty and forty years ago, before the establish- 
ment of the buss-bounty 16s. the barrel, I have been assured, was 
thecommon priceof white herrings. Between ten and fifteen years 
ago, before the boat-fishery was entirely ruined, thepricewas said 
to have run from seventeen to twenty shillingsthebarrel. For these 
last five years, it has, at an average, been at twenty-five shillings 
the barrel. This high price, however, may have been owing to the 
real scarcity of the herrings upon the coast of Scotland. I must 
observe, too, that the cask or barrel, which is usually sold with the 
herrings, and of which the price is included in all the foregoing 
prices, has, since the commencement of the American war, risen 
to about double its former price, or from about 3s. to about 6s. I 
must likewise observe, that the accounts I have received of the 
prices of former times, have been bynomeansquite uniform and 
consistent, and an old man of great accuracy and experience has 
assured me, that, more than fifty years ago, a guinea was the usual 
priceof a barrel of good merchantable herrings; and this, I imag- 
ine, may still be looked upon as the average price. All accounts, 
however, I think, agree that the price has not been lowered in the 
home market in consequence of the buss-bounty 

When the undertakers of fisheries, after such liberal bounties 
have been bestowed upon them, continueto sell their commodity 
at the same, or even at a higher price than they were accustomed 



to do before, it might be expected that their profits should be very 
great; and it is not improbablethat those of some individuals may 
have been so. I n general, however, I have every reason to believe 
they have been quite otherwise. The usual effect of such bounties 
is, to en courage rash undertakers to adventurein a business which 
they do not understand; and what they lose by their own negli- 
gence and ignorance, more than compensates all that they can 
gain by theutmost liberality of government. In 1750, by the same 
act which first gave the bounty of 30s. theton for the encourage- 
ment of the white herring fishery (the 23d Geo. 1 1 . chap. 24), a 
joint stock company was erected, with a capital of £500,000, to 
which the subscribers (over and above all other encouragements, 
the tonnage bounty just now mentioned, the exportation bounty 
of 2s:8d. the barrel, the delivery of both British and foreign salt 
dutyfree) were, during the space of fourteen years, for every hun- 
dred pounds which they subscribed and paid into the stock of the 
society, entitled to three pounds a-year, to be paid by the receiver- 
general of the customs in equal half-yearly payments. Besides this 
great company, the residence of whose governor and directors was 
to be in London, it was declared lawful to erect different fishing 
chambersin all thedifferent out-portsof thekingdom, provided a 
sum not less than £10,000 was subscribed into the capital of each, 
to be managed at itsown risk, and for its own profit and loss. The 



418 



Adam Smith 



sameannuity, and thesameencouragementsof all kinds, weregiven 
to the trade of those i nferior chambers as to that of the great com- 
pany. The subscription of the great company was soon filled up, 
and several different fishing chambers were erected in the different 
out-ports of the kingdom. In spite of all these encouragements, al- 
most all those different companies, both great and small, lost either 
the whole or the greater part of their capitals; scarce a vestige now 
remains of any of them, and the white-herring fishery is now en- 
tirely, or almost entirely, carried on by private adventurers. 

If any particular manufacture was necessary, indeed, for the de- 
fence of the society, it might not always be prudent to depend 
upon ourneighboursforthesupply; and if such manufacture could 
not otherwise be supported at home, it might not be unreason- 
able that all the other branches of industry should be taxed in 
order to support it. T he bounties upon the exportation of British 
made sail-cloth, and British madegunpowder, may, perhaps, both 
be vindicated upon this principle. 

But though it can very seldom be reasonable to tax the industry 
of the great body of the people, in order to support that of some 
particular class of manufacturers; yet, in the wantonness of great 
prosperity, when the public enjoys a greater revenuethan it knows 
well what to do with, to give such bounties to favourite manufac- 
tures, may, perhaps, beasnatural as to incuranyotheridleexpense. 



In public, as well asin private expenses, great wealth, may, perhaps, 
frequently be admitted as an apology for great folly. Buttheremust 
surely be something more than ordinary absurdity in continuing 
such profusion in times of general difficulty and distress. 

W hat is called a bounty, is sometimes no more than a draw- 
back, and, consequently, is not liable to the same objections as 
what is properly a bounty. The bounty, for example, upon refined 
sugar exported, may be considered as a drawback of the duties 
upon the brown and M uscovado sugars, from which it is made; 
thebounty upon wrought silk exported, a drawback of theduties 
upon raw and thrown silk imported; thebounty upon gunpow- 
der exported, a drawback of the duties upon brimstone and salt- 
petre imported. In the language of the customs, those allowances 
onlyare called drawbackswhich are given upon goodsexported in 
the same form in which they are imported. When that form has 
been so altered by manufacture of any kind as to come under a 
new denomination, they are called bounties. 

Premiumsgiven by thepublicto artistsand manufacturers, who 
excel in their particular occupations, are not liable to the same 
objectionsas bounties. By encouraging extraordinary dexterity and 
ingenuity, they serve to keep up the emulation of the workmen 
actually employed in those respective occupations, and are not 
considerable enough to turn towards any one of them a greater 



419 



The Wealth of Nations 



share of the capital of the country than what would go to it of its 
own accord. T heir tendency is not to overturn the natural balance 
of employments, but to render the work which is done in each as 
perfect and complete as possible. T he expense of premiums, be- 
sides, is very trifling, that of bounties very great. T he bounty upon 
corn alone has sometimes cost the public, in oneyear, more than 
£300,000. 

Bounties are sometimes called premiums, asdrawbacks are some 
times called bounties. But we must, in all cases, attend to the na- 
ture of the thing, without paying any regard to the word. 

Digression concerning the Corn Trade and Corn Laws. 

I cannot conclude this chapter concerning bounties, without ob- 
serving, that the praises which have been bestowed upon the law 
which establishes the bounty upon the exportation of corn, and 
upon that system of regulations which isconnected with it, are alto- 
gether unmerited. A particular examination of the nature of the 
corn trade, and of the principal British laws which relate to it, will 
sufficiently demonstrate the truth of this assertion. The great im- 
portance of this subject must justify the length of the digression. 

T he trade of the corn merchant is composed of four different 
branches, which, though they may sometimes be all carried on by 



the same person, are, in their own nature, four separate and dis- 
tinct trades. These are, first, the trade of the inland dealer; sec- 
ondly, that of the merchant-importer for home consumption; 
thirdly, that of the merchant-exporter of home produce for for- 
eign consumption; and, fourthly, that of the merchant- carrier, or 
of the importer of corn, in order to export it again. 

I . T he interest of the inland dealer, and that of thegreat body of 
thepeople, how opposite soever they may at first appear, are, even 
in years of the greatest scarcity, exactly the same. It is his interest 
to raise the price of his corn as high as the real scarcity of the 
season requires, and it can never be his interest to raise it higher. 
By raising the price, he discourages the consumption, and puts 
every body more or less, but particularly the inferior ranks of 
people, upon thrift and good management If, by raising it too 
high, hediscouragestheconsumption so much that the supply of 
the season is likely to go beyond the consumption of the season, 
and to last for sometime after the next crop beginsto come in, he 
runs the hazard, not only of losing a considerable part of his corn 
by natural causes, but of being obliged to sell what remains of it 
for much less than what he might have had for it several months 
before. If, by not raising the price high enough, hediscourages the 
consumption so little, that the supply of the season is likely to fall 
short of theconsumption of theseason, henot only losesa part of 



420 



Adam Smith 



the profit which he might otherwise have made, but he exposes 
the people to suffer before the end of the season, instead of the 
hardships of a dearth, the dreadful horrors of a famine. It is the 
interest of the people that their daily, weekly, and monthly con- 
sumption should be proportioned as exactly as possible to the sup- 
ply of the season. The interest of the inland corn dealer is the 
same. By supplying them, as nearly as he can judge, in this pro- 
portion, he is likely to sell all his corn for the highest price, and 
with thegreatest profit; and hisknowledge of thestate of thecrop, 
and of his daily, weekly, and monthly sales, enables him to judge, 
with more or I ess accuracy, how far they really are supplied in this 
manner. Without intending theinterest of the people, he is neces- 
sarily led, by a regard to his own interest, to treat them, even in 
years of scarcity, pretty much in the same manner as the prudent 
master of a vessel is sometimes obliged to treat hiscrew. When he 
foreseesthat provisionsarelikdy to run short, heputsthem upon 
short allowance. Though from excess of caution he should some- 
times do this without any real necessity, yet all theinconvenien- 
cies which hiscrew can thereby suffer are inconsiderable, in com- 
parison of thedanger, misery, and ruin, to which they might some- 
times be exposed by a less provident conduct. T hough, from ex- 
cess of avarice, in the same manner, the inland corn merchant 
should sometimes raise theprice of hiscorn somewhat higher than 



thescarci ty of theseason requires, yet all theinconveniencies which 
thepeoplecan suffer from thisconduct, which effectually secures 
them from a famine in the end of theseason, are inconsiderable, 
i n comparison of what they might have been exposed to by a more 
liberal way of dealing in the beginning of it the corn merchant 
himself is likely to suffer the most by this excess of avarice; not 
only from the indignation which it generally excites against him, 
but, though heshould escapetheeffects of this indignation, from 
the quantity of corn which it necessarily leaves upon his hands in 
the end of the season, and which, if the next season happens to 
prove favourable, he must always sell for a much lower price than 
he might otherwise have had. 

Wereit possible, indeed, for onegreat company of merchants to 
possess themselves of the whole crop of an extensive country, it 
might perhaps be their interest to deal with it, as the D utch are 
said to do with the spiceries of the M oluccas, to destroy or throw 
away a considerable part of it, in order to keep up the price of the 
rest. But it isscarce possible, even by the violence of law, to estab- 
lish such an extensive monopoly with regard to corn; and wher- 
ever the I aw I eaves the trade free, itisof all commodities the least 
liable to be engrossed or monopolized by the forced a few large 
capitals, which buy up thegreater part of it. N ot only itsvaluefar 
exceeds what the capitals of a few private men are capable of pur- 



421 



The Wealth of Nations 



chasing; but, supposing they were capable of purchasing it, the 
manner in which it is produced renders this purchase altogether 
impracticable. As, in every civilized country, it isthe commodity 
of which theannual consumption is the greatest; so a greater quan- 
tity of industry is annually employed in producing corn than in 
producing any other commodity. When it first comes from the 
ground, too, it is necessarily divided among a greater number of 
owners than any other commodity; and these owners can never be 
collected into one place, like a number of independent manufac- 
turers, but are necessarily scattered through all the different cor- 
ners of the country. These first owners either immediately supply 
the consumers in their own neighbourhood, or they supply other 
inland dealers, who supply those consumers. The inland dealers 
in corn, therefore, including both the farmer and the baker, are 
necessarily more numerous than the dealers in any other com- 
modity; and their dispersed situation renders it altogether impos- 
sible for them to enter into any general combination. If, in ayear 
of scarcity, therefore, any of them should find that he had a good 
deal more corn upon hand than, at the current price, he could 
hope to dispose of before the end of the season, he would never 
think of keeping up this price to his own loss, and to the sole 
benefit of hisrivalsand competitors, but would immediately lower 
it, in order to get rid of his corn before the new crop began to 



come in. The same motives, the same interests, which would thus 
regulate the conduct of any one dealer, would regulate that of 
every other, and oblige them all in general to sell their corn at the 
price which, according to the best of their judgment, was most 
suitable to the scarcity or plenty of the season . 

W hoever examines, with attention, the history of the dearths 
andfamineswhich have afflicted any part of Europeduring either 
thecourseof thepresent or that of thetwo preceding centuries, of 
several of which we have pretty exact accounts, will find, I believe, 
that a dearth never has arisen from any combination among the 
inland dealersin corn, nor from any other cause but a real scarcity, 
occasioned sometimes, perhaps, and in some particular places, by 
the waste of war, butin by far the greatest number of cases by the 
fault of the seasons; and that a famine has never arisen from any 
other cause but the violence of government attempting, by im- 
proper means, to remedy the inconvenienciesof a dearth. 

In an extensive corn country, between all the different parts of 
which there is a free commerce and communication, the scarcity 
occasioned by themost unfavourableseasonscan never be so great 
as to produce a famine; and the scantiest crop, if managed with 
frugality and economy, will maintain, through theyear, thesame 
number of peoplethat are commonly fed in a more affluent man- 
ner by one of moderate plenty. T he seasons most unfavourable to 



422 



Adam Smith 



the crop are those of excessive drought or excessive rain. But as 
corn grows equally upon high and low lands, upon grounds that 
aredisposed to be too wet, and upon those that aredisposed to be 
too dry, either the drought or the rain, which is hurtful to one 
part of the country, is favourable to another; and though, both in 
the wet and in the dry season, the crop is a good deal less than in 
one more properly tempered; yet, in both, what is lost in onepart 
of thecountryisin some measure compensated by what is gained 
in theother. In rice countries, where the crop not only requiresa 
very moist soil, but where, in a certain period of its growing, it 
must be laid underwater, the effects of a drought are much more 
dismal. Even in such countries, however, thedrought is, perhaps, 
scarce ever so universal as necessarily to occasion a famine, if the 
government would allow a free trade. Thedrought in Bengal, a 
few years ago, might probably have occasioned a very great dearth. 
Some improper regulations, some injudicious restraints, imposed 
by the servants of the East India Company upon the rice trade, 
contributed, perhaps, to turn that dearth into a famine. 

When the government, in order to remedy the inconveniencies 
of a dearth, orders all the dealers to sell their corn at what it sup- 
poses a reason able price, it either hinders them from bringing it to 
market, which may sometimes produce a famine even in the be- 
ginning of the season; or, if they bring it thither, it enables the 



people, and thereby encourages them to consumeit so fast asmust 
necessarily produce a famine before the end of the season. The 
unlimited, unrestrained freedom of thecorn trade, asit istheonly 
effectual preventive of the miseries of a famine, so it is the best 
palliative of the inconveniencies of a dearth; for the inconvenien- 
cies of a real scarcity cannot be remedied; they can only be palli- 
ated. No trade deserves more thefull protection of thelaw, and no 
trade requires it so much; because no trade is so much exposed to 
popular odium. 

In years of scarcity, the inferior ranks of people impute their 
distress to the avarice of the corn merchant, who becomes the 
object of their hatred and indignation. Instead of making profit 
upon such occasions, therefore, he is often in danger of being 
utterly ruined, and of having his magazines plundered and de- 
stroyed by their violence. It is in years of scarcity, however, when 
pricesarehigh, that thecorn merchant expects to makehisprinci- 
pal profit. H e is generally in contract with some farmers to fur- 
nish him, for a certain number of years, with a certain quantity of 
corn, atacertain price. This contract price is settled according to 
what is supposed to be the moderate and reasonable, that is, the 
ordinary or average price, which, before the late years of scarcity, 
was commonly about 28s. for thequarter of wheat, and for that of 
other grain in proportion. In years of scarcity, therefore, thecorn 



423 



The Wealth of Nations 



merchant buys a great part of his corn for the ordinary price, and 
sells it for a much higher. That this extraordinary profit, however, 
is no more than sufficient to put his trade upon a fair level with 
other trades, and to compensate the many losses which hesu stains 
upon other occasions, both from theperishablenatu re of thecom- 
modity itself, and from the frequent and unforeseen fluctuations 
of its price, seemsevident enough, from this single circumstance, 
that great fortunes are as seldom made in this as in any other 
trade. The popular odium, however, which attends it in years of 
scarcity, the only years in which it can be very profitable, renders 
people of character and fortune averse to enter into it. It is aban- 
doned to an inferior set of dealers; and millers, bakers, meal-men, 
and meal-factors, together with a number of wretched hucksters, 
arealmosttheonlymiddlepeoplethat, in the home market, come 
between the grower and the consumer. 

T heancient policy of Europe, instead of discountenancing this 
popular odium against a trade so beneficial to the public, seems, 
on the contrary, to have authorised and encouraged it. 

By the 5th and 6th of Edward VI cap. 14, it was enacted, that 
whoever should buy any corn or grain, with intent to sell it again, 
should be reputed an unlawful engrosser, and should, for thefirst 
fault, suffer two months imprisonment, and forfeit the value of 
the corn; for the second, suffer six months imprisonment, and 



forfeit double the value; and, for the third, be set in the pillory, 
suffer imprisonment during the king's pleasure, and forfeit all his 
goods and chattels. T he ancient policy of most other parts of Eu- 
rope was no better than that of England. 

ur ancestors seem to have imagined, that the people would 
buy their corn cheaper of the farmer than of the corn merchant, 
who, they were afraid, would require, over and above the price 
which he paid to thefarmer, an exorbitant profit to himself. They 
endeavoured, therefore, to annihilate his trade altogether. They 
even endeavoured to hinder, asmuch as possible, any middleman 
of any kind from coming in between the grower and the con- 
sumer; and this was the meaning of the many restraints which 
they imposed upon the trade of those whom they called kidders, 
or carriers of corn; a trade which nobody was allowed to exercise 
without a licence, ascertaining his qualifications as a man of pro- 
bity and fair dealing. T he authority of three justices of the peace 
was, by the statute of Edward VI. necessary in order to grant this 
licence. But even this restraint was afterwards thought insufficient, 
and, byastatuteof Elizabeth, the privilegeof granting it was con- 
fined to the quarter-sessions. 

T he ancient policy of Europe endeavoured, in this manner, to 
regulate agriculture, the great trade of the country, by maxims 
quitedifferentfrom those which it established with regard to manu- 



424 



Adam Smith 



factures, the great trade of the towns. By leaving a farmer no other 
customers but either the consumers or their immediate factors, 
the kidders and carriers of corn, it endeavoured to force him to 
exercise the trade, not only of a farmer, but of acorn merchant, or 
corn retailer. On the contrary, it, in many cases, prohibited the 
manufacturer from exercising the trade of a shopkeeper, or from 
selling his own goods by retail. It meant, by the one law, to pro- 
mote the general interest of the country, or to render corn cheap, 
without, perhaps, its being well understood how this was to be 
done. By the other, it meant to promote that of a particular order 
of men, the shopkeepers, who would be so much undersold by 
the manufacturer, it was supposed, that their trade would be ru- 
ined, if he was allowed to retail at all. 

Themanufacturer, however, though hehad been allowed to keep 
a shop, and to sell hisown goods by retail, could nothaveunder- 
sold thecommon shopkeeper. W hatever part of hiscapital hemight 
haveplaced in hisshop, he must have withdrawn itfrom hismanu- 
facture. I n order to carry on his business on a level with that of 
other people, as he must have had the profit of a manufacturer on 
the one part, so he must have had that of a shopkeeper upon the 
other. Let us suppose, for example, that in the particular town 
wherehelived, ten percent, was theordinary profit both of manu- 
facturing and shopkeeping stock; hemust in thiscasehave charged 



upon every piece of hisown goods, which he sold in hisshop, a 
profit of twenty per cent. W hen he carried them from his work- 
house to hisshop, hemust have valued them at theprice for which 
he could have sold them to a dealer or shopkeeper, who would 
have bought them by wholesale. If he valued them lower, he lost a 
part of the profit of his manufacturing capital. When, again, he 
sold them from his shop, unless he got the same price at which a 
shopkeeper would have sold them, he lost a part of the profit of 
his shop-keeping capital. Though hemight appear, therefore, to 
make a double profit upon the same piece of goods, yet, as these 
goods made successively a part of two distinct capitals, he made 
but a single profit upon the whole capital employed about them; 
and if he made less than his profit, he was a loser, and did not 
employ his whole capital with the same advantage as the greater 
part of his neighbours. 

W hat the manufacturer was prohibited to do, thefarmer was in 
some measure enjoined to do; to divide his capital between two 
different employments; to keep one part of it in his granaries and 
stack-yard, for supplying the occasional demands of the market, 
and to employ the other in the cultivation of his land. But as he 
could not afford to employ the latter for less than the ordinary 
profits of farming stock, so he could as little afford to employ the 
former for less than the ordinary profits of mercantile stock. 



425 



The Wealth of Nations 



W hether the stock which really carried on the business of a corn 
merchant belonged to the person who was called a farmer, or to the 
person who was called acorn merchant, an equal profit wasin both 
cases requisite, in order to indemnify its owner for employing it in 
thismanner, in order to put hisbusinesson a level with other trades, 
and in order to hinder him from having an interest to change it as 
soon as possible for some other. The farmer, therefore, who was 
thus forced to exercise the trade of acorn merchant, could not af- 
ford to sell his corn cheaper than any other corn merchant would 
have been obliged to do in the case of a free competition. 

T hedealer who can employ his whole stock in one single branch 
of business, has an advantageof thesamekind with theworkman 
who can employ his whole labour in one single operation. Asthe 
latter acquires a dexterity which enables him, with the same two 
hands, to perform a much greater quantity of work, so the former 
acquires so easy and ready a method of transacting hisbusiness, of 
buying and disposing of his goods, that with the same capital he 
can transact a much greater quantity of business. As the one can 
commonly afford his work a good deal cheaper, so the other can 
commonly afford his goods somewhat cheaper, than if his stock 
and attention were both employed about a greater variety of ob- 
jects. T he greater part of manufacturers could not afford to retail 
their own goodsso cheap asa vigilant and active shopkeeper, whose 



sole business it was to buy them by wholesale and to retail them 
again. The greater part of farmers could still less afford to retail 
their own corn, to supply the inhabitants of a town, at perhaps 
four or five miles distance from the greater part of them, so cheap 
asa vigilant and activecorn merchant, whose sole business it was 
to purchase corn by wholesale, to collect it into a great magazine, 
and to retail it again. 

Thelaw which prohibited the manufacturer from exercisingthe 
trade of a shopkeeper, endeavoured to force this division in the 
employment of stock to go on faster than it might otherwise have 
done. T he law which obi iged the farmer to exercise the trade of a 
corn merchant, endeavoured to hinder it from going on so fast. 
Both laws were evident violations of natural liberty, and therefore 
unjust; and they were both, too, as impolitic as they were unjust. 
It is the interest of every society, that things of this kind should 
never either heforced or obstructed. Theman who employs either 
his labour or his stock in a greater variety of ways than his situa- 
tion renders necessary, can never hurt his neighbour by undersell- 
ing him. He may hurt himself, and hegenerally doesso. Jack-of- 
al I -trades will never be rich, says the proverb. But the law ought 
always to trust people with the care of their own interest, as in 
their local situations they must generally be able to judge better of 
itthan the legislature can do.Thelaw, however, which obliged the 



426 



Adam Smith 



farmer to exercise the trade of a corn merchant was by far the 
most pernicious of the two. 

It obstructed not only that division in the employment of stock 
which is so advantageous to every society but it obstructed like- 
wise the improvement and cultivation of theland. Byobligingthe 
farmer to carry on two trades instead of one, it forced him to 
divide his capital into two parts, of which one only could be em- 
ployed in cultivation. But if hehad been at liberty to sell his whole 
crop to a corn merchant asfast ashecould thresh it out, his whole 
capital might have returned immediately to the land, and have 
been employed in buying more cattle, and hiring more servants, 
in order to improve and cultivate it better. But by being obliged to 
sell his corn by retail, he was obliged to keep a great part of his 
capital in hisgranariesand stack-yard through theyear, and could 
not therefore cultivate so well as with the same capital he might 
otherwise have done. This law, therefore, necessarily obstructed 
the improvement of the land, and, instead of tending to render 
corn cheaper, must have tended to render it scarcer, and therefore 
dearer, than it would otherwise have been. 

After the business of thefarmer, that of the corn merchant is in 
reality the trade which, if properly protected and encouraged, 
would contribute the most to the raising of corn. It would sup- 
port the trade of the farmer, in the same manner as the trade of 



the wholesale dealer supports that of the manufacturer. 

T he wholesale dealer, by affording a ready market to the manu- 
facturer, by taking his goods off his hand as fast as he can make 
them, and by sometimes even advancing their price to him before 
he has made them, enables him to keep his whole capital, and 
sometimes even more than his wholecapital, constantly employed 
in manufacturing, and consequently to manufactureamuch greater 
quantity of goods than if he was obliged to dispose of them him- 
self to the immediate consumers, or even to the retailers. As the 
capital of the wholesale merchant, too, is generally sufficient to 
replacethat of many manufacturers, thisintercourse between him 
and them intereststheowner of a largecapital to support theowners 
of a great number of small ones, and to assist them in those losses 
and misfortunes which might otherwise prove ruinous to them. 

An intercourseof thesamekind universally established between 
the farmers and the corn merchants, would be attended with ef- 
fects equally beneficial to the farmers. They would be enabled to 
keep their wholecapitals, and even morethan their wholecapitals 
constantly employed in cultivation. In case of any of those acci - 
den tsto which no trade ismoreliablethan theirs, they would find 
in their ordinary customer, the wealthy corn merchant, a person 
who had both an interesttosupportthem, and theability todo it; 
and they would not, as at present, be entirely dependent upon the 



427 



The Wealth of Nations 



forbearance of their landlord, or the mercy of his steward. Were it 
possible, as perhaps it is not, to establish this intercourse univer- 
sally, and all at once; wereit possibleto turn all at once the whole 
farming stock of the kingdom to its proper business, the cultiva- 
tion of land, withdrawing it from every other employment into 
which any part of it may be at present diverted; and were it pos- 
sible, in order to support and assist, upon occasion, theoperations 
of this great stock, to provide all at once another stock almost 
equally great; it is not, perhaps, very easy to imagine how great, 
how extensive, and how sudden, would betheimprovement which 
thischangeof circumstanceswould aloneproduceupon thewhole 
face of the country. 

The statute of Edward VI . therefore, by prohibiting as much as 
possibleany middleman from coming in between the grower and 
theconsumer, endeavoured to annihilateatrade, of which thefree 
exercise is not only the best palliative of the inconvenienciesof a 
dearth, but the best preventive of that calamity; after the trade of 
thefarmer, notradecontributingsomuchtothegrowingof corn 
as that of the corn merchant. 

The rigour of this law was after wards softened by several subse- 
quent statutes, which successively permitted the engrossi ng of corn 
when the price of wheat should not exceed 20s. and 24s. 32s. and 
40s. the quarter. At last, by the 15th of C harles 1 1 . c.7, the en- 



grossing or buying of corn, in order to sell it again, as long as the 
price of wheat did not exceed 48s. the quarter, and that of other 
grain in proportion, was declared lawful to all persons not being 
forestallers, that is, not selling again in the same market within 
three months. All thefreedom which thetradeof the inland corn 
dealer has ever yet enjoyed was bestowed upon it by this statute. 
The statute of the twelfth of the present king, which repeals al- 
most all theother ancient laws against engrossers and forestallers, 
does not repeal the restrictions of this particular statute, which 
therefore still continue in force. 

Thisstatute, however, authorises in some measure two very ab- 
surd popular prejudices. 

First, 

It supposes, that when the price of wheat has risen so high as 
48s. the quarter, and that of other grain in proportion, corn is 
likely to be so engrossed as to hurt the people. But, from what has 
been already said, it seems evident enough, that corn can at no 
price be so engrossed by the inland dealers as to hurt the people; 
and 48s. the quarter, besides, though it may be considered as a 
very high price, yet, in years of scarcity, it is a price which fre- 
quently takes place immediately after harvest, when scarce any 
part of the new crop can be sold off, and when it is impossible 
even for ignorance to suppose that any part of it can be so en- 



428 



Adam Smith 



grossed as to hurt the people. 

Secondly, 

It supposes that there is a certain price at which corn is likely to 
be forestalled, that is, bought up in order to be sold again soon 
after in the same market, so as to hurt the people. But if a mer- 
chant ever buysup corn, either going to a particular market, or in 
a particular market, in order to sell it again soon after in thesame 
market, it must be because hejudges that the market cannot be so 
liberally supplied through the whole season as upon that particu- 
lar occasion, and that the price, therefore, must soon rise. If he 
judges wrong in this, and if the price does not rise, he not only 
loses the whole profit of the stock which heemploysin this man- 
ner, but a part of the stock itself, by the expense and loss which 
necessarily attend the storing and keeping of corn. He hurts him- 
self, therefore, much more essentially than he can hurt even the 
particular peoplewhom hemayhinder from supplyingthem selves 
upon that particular market day, because they may afterwards sup- 
ply themselves just as cheap upon any other market day. If he 
judges right, instead of hurting the great body of the people, he 
renders them a most important service. By making them feel the 
inconveniences of a dearth somewhat earlier than they otherwise 
might do, he prevents their feeling them afterwardsso severely as 
they certainly would do, if the cheapness of price encouraged them 



toconsumefasterthan suited thereal scarcity of the season. When 
the scarcity is real, the best thing that can bedoneforthepeople 
is, to dividetheinconvenienceof it as equally as possible, through 
all the different months and weeks and days of the year. The 
interest of the corn merchant makes him study to do this as 
exactly as he can; and as no other person can have either the 
same interest, or the same knowledge, or the same abilities, to 
do it so exactly as he, this most important operation of com- 
merce ought to be trusted entirely to him; or, in other words, 
the corn trade, so far at least as concerns the supply of the home 
market, ought to be left perfectly free. 

The popular fear of engrossing and forestalling may be com- 
pared to the popular terrors and suspicionsof witchcraft. The un- 
fortunate wretches accused of this latter crime were not more in- 
nocent of the misfortunes imputed to them, than those who have 
been accused of theformer. The law which put an end to all pros- 
ecutions against witchcraft, which put it out of any man's power 
to gratify hi sown malice by accusing his neighbour of that imagi- 
nary crime, seems effectually to have put an end to those fears and 
suspicions, by taking away the great cause which encouraged and 
supported them. The law which would restore entire freedom to 
theinland tradeof corn, would probably prove as effectual to put 
an end to the popular fears of engrossing and forestalling. 



429 



The Wealth of Nations 



The 15th of Charles 1 1 . c. 7, however, with all its imperfections, 
has, perhaps, contributed more, both to the plentiful supply of 
the home market, and to theincreaseof tillage, than any other law 
in the statute book. It is from this law that the inland corn trade 
has derived all the liberty and protection which it has ever yet 
enjoyed; and both the supply of the home market and the interest 
of tillage aremuch more effectually promoted by the inland, than 
either by the importation or exportation trade. 

The proportion of the average quantity of all sorts of grain im- 
ported into Great Britain to that of all sorts of grain consumed, it 
has been computed by the author of the Tracts upon the Corn 
Trade, does not exceed that of one to five hundred and seventy. 
For supplying the home market, therefore, the importance of the 
inland trade must be to that of the importation trade as five hun- 
dred and seventy to one. 

T he average quantity of all sorts of grain exported from G reat 
Britain does not, according to the same author, exceed the one- 
and-thirtieth part of the annual produce. For the encouragement 
of tillage, therefore, by providing a market for the home produce, 
theimportanceoftheinlandtrademustbetothatoftheexporta- 
tion trade as thirty to one. 

I have no great faith in political arithmetic, and I mean not to 
warrant the exactness of either of these computations. I mention 



them only in order to show of how much less consequence, in the 
opinion of the most judicious and experienced persons, the for- 
eign trade of corn is than the home trade. The great cheapness of 
corn in theyears immediately preceding the establishment of the 
bounty may, perhaps with reason, heascribed in some measure to 
theoperation of thisstatuteof Charlesll. which had been enacted 
about five-and-twenty years before, and which had, therefore, full 
time to produce its effect. 

A very few words will sufficiently explain all that I have to say 
concerning the other three branches of the corn trade. 

1 1 .Thetradeofthemerchant-importer of foreign corn for home 
consumption, evidently contributes to the immediate supply of 
the home market, and must so far be immediately beneficial to 
the great body of the people. It tends, indeed, to lower somewhat 
theaverage money priceof corn, but not to diminish its real value, 
or the quantity of labour which it is capable of maintaining. If 
importation was at all times free, our farmers and country gentle- 
men would probably, one year with another, get less money for 
their corn than they do at present, when importation is at most 
times in effect prohibited; but the money which they got would 
be of more value, would buy more goods of all other kinds, and 
would employ more labour. Their real wealth, their real revenue, 
therefore, would be the same as at present, though it might be 



430 



Adam Smith 



expressed by a smaller quantity of silver, and they would neither 
bedisabled nor discouraged from cultivating corn as much as they 
do at present. On the contrary astherisein thereal value of silver, 
in consequence of loweringthemoneypriceof corn, lowers some- 
what themoney price of all other commodities, it gives theindus- 
try of the country where it takes place some advantage in all for- 
eign markets and thereby tends to encourage and increase that 
industry. But the extent of the home market for corn must be in 
proportion to the general industry of the country where it grows, 
ortothenumber of those who producesomething else, and there 
fore, have something else, or, what comes to the same thing, the 
priceof something else, to givein exchange for corn. But in every 
country, the home market, as it is the nearest and most conve- 
nient, so isit likewise the greatest and most important market for 
corn. That rise in the real value of silver, therefore, which is the 
effect of lowering the average money price of corn, tends to en- 
large the greatest and most important market for corn, and thereby 
to encourage, instead of discouraging its growth. 

Bythe22d of Charles I I.e. 13, the importation of wheat, when- 
ever thepriceinthehomemarketdid not exceed 53s:4d.thequar- 
ter, was subjected to a duty of 16s. thequarter; and to a duty of 8s. 
whenever the price did not exceed £4. The former of these two 
prices has, for more than a century past, taken placeonly in times 



of very great scarcity; and the latter has, so far as I know, not taken 
place at all. Yet, till wheat has risen above this latter price, it was, 
by this statute, subjected to a very high duty; and, till it had risen 
above the former, to a duty which amounted to a prohibition. 
T h e i m portati on of oth er sorts of grai n was restrai n ed at rates an d 
by duties, in proportion to the value of the grain, almost equally 
high. Before the 13th of the present king, the following were the 
duties payableupon the importation of the different sorts of grain: 

Grain. Duties. Duties Duties. 

Beansto 28s. per qr. 19s:10d. after till 40s. 16s:8d. then 12d. 
Barley to 28s. - 19s:10d. - 32s. 16s. - 12d. 
Malt is prohibited by the annual malt-tax bill. 
Oats to 16s. - 5sl0d. after - 9%d. 

Pease to 40s. - 16s: Od. after - 9 3 /4d. 

Rye to 36s. - 19s: lOd. till 40s. 16s:8d - 12d. 
Wheat to 44s. - 21s: 9d. till 53s:4d. 17s. - 8s. 

till £4, and after that about ls4d. 
Buck-wheat to 32s. per qr. to pay 16s. 

These different duties wereimposed, partly by the 22d of Charles 
1 1 . in place of the old subsidy, partly by the new subsidy, by the 
one-third and two-thirds subsidy, and by the subsidy 1747. Sub- 



431 



The Wealth of Nations 



sequent laws still further increased those duties. 

The distress which, in years of scarcity, the strict execution of 
those laws might have brought upon the people, would probably 
have been very great; but, upon such occasions, its execution was 
generally suspended by temporary statutes, which permitted, for 
a limited time, the importation of foreign corn. The necessity of 
these temporary statutes sufficiently demonstrates the impropri- 
ety of this general one. 

These restraints upon importation, though prior to the estab- 
lishment of the bounty, were dictated by the same spirit, by the 
same principles, which afterwards enacted that regulation. How 
hurtful soever in themselves, these, or some other restraints upon 
importation, became necessary in consequence of that regulation. 
If, when wheat was either below 48s. the quarter, or not much 
above it, foreign corn could have been imported, either duty free, 
or upon paying only a small duty, it might have been exported 
again, with the benefit of the bounty, to the great loss of the pub- 
licrevenue, and to the entire perversion of theinstitution, of which 
theobject was to extend the market for the homegrowth, not that 
for the growth of foreign countries. 

1 1 1 . T hetrade of the merchant-exporter of corn for foreign con- 
sumption, certainly does not contribute directly to the plentiful 
supply of the home market. It does so, however, indirectly. From 



whatever source this supply maybe usually drawn, whether from 
homegrowth, or from foreign importation, unless more corn is 
either usually grown, or usually imported into the country, than 
what is usually consumed in it, the supply of the home market 
can never be very plentiful. But unless thesurpluscan, in all ordi- 
nary cases, be exported, the growers will be careful never to grow 
more, and the importers never to import more, than what the 
bare consumption of the home market requires. That market will 
very seldom be overstocked; but it will generally be understocked; 
thepeople, whose businessitisto supply it, being generally afraid 
lest their goods should be left upon their hands. T he prohibition 
of exportation limitstheimprovementand cultivation of thecoun- 
trytowhatthesupplyof its own inhabitants require. Thefreedom 
of exportation enables it to extend cultivation for the supply of 
foreign nations. 

By the 12th of C harles 1 1 . c.4, the exportation of corn was per- 
mitted whenever the price of wheat did not exceed 40s. the quar- 
ter, and that of other grain in proportion. By the 15th of the same 
prince, this liberty was extended till the price of wheat exceeded 
48s. the quarter; and bythe22d, to all higher prices. A poundage, 
indeed, was to be paid to the king upon such exportation; but all 
grain was rated so low in the book of rates, that this poundage 
amounted only, upon wheat to Is., upon oatsto4d., and upon all 



432 



Adam Smith 



other grain to 6d. the quarter. By the 1st of William and M ary, the 
act which established this bounty this small duty was virtually 
taken off whenever the price of wheat did not exceed 48s. the 
quarter; and by the 11th and 12th of Willi am III. c. 20, it was 
expressly taken off at all higher prices. 

The trade of the merchant-exporter was, in this manner, not 
only encouraged by a bounty, but rendered much more free than 
that of the inland dealer. By the last of these statutes, corn could 
be engrossed at any price for exportation; but it could not be en- 
grossed for inland sale, except when thepricedid not exceed 48s. 
the quarter. The interest of the inland dealer, however, it has al- 
ready been shown, can never be opposite to that of the great body 
of the people. That of the merchant-exporter may, and in fact 
sometimes is. If, while his own country labours under a dearth, a 
neighbouring country should be afflicted with a famine, it might 
be his interest to carry corn to the latter country, in such quanti- 
ties as might very much aggravate the calamities of the dearth. 
The plentiful supply of the home market was not thedirect object 
of those statutes; but, under the pretence of encouraging agricul- 
ture, to raise the money price of corn as high as possible, and 
thereby to occasion, as much as possible, a constant dearth in the 
home market. By the discouragement of importation, the supply 
of that market; even in times of great scarcity, was confined to the 



home growth; and by the encouragement of exportation, when 
the price was so high as 48s. the quarter, that market was not, 
even in times of considerable scarcity, allowed to enjoy the whole 
of that growth. The temporary laws, prohibiting, for a limited 
time, the exportation of corn, and taking off, for a limited time, 
the duties upon its importation, expedients to which Great Brit- 
ain has been obliged so frequently to have recourse, sufficiently 
demonstrate the impropriety of her general system. H ad that sys- 
tem been good, she would not so frequently have been reduced to 
the necessity of departing from it. 

Were all nationsto follow the liberal system of free exportation 
and freeimportation, thedifferent st atesinto which a great conti- 
nent wasdivided, would so far resemble the different provincesof 
a great empire. As among the different provinces of a great em- 
pire, the freedom of the inland trade appears, both from reason 
and experience, not only the best palliative of a dearth, but the 
most effectual preventiveofafamine;sowouldthefreedomofthe 
exportation and importation trade be among the different states 
into which a great continent was divided. The larger the conti- 
nent, theeasierthecommunication through all the different parts 
of it, both by land and by water, the less would any one particular 
part of it ever be exposed to either of these calami ties, the scarcity 
of any one country being more likely to be relieved by the plenty 



433 



The Wealth of Nations 



of some other. But very few countries have entirely adopted this 
liberal system. Thefreedom of thecorn tradeisalmost everywhere 
moreorlessrestrained,andin many countriesisconfined by such 
absurd regulations, as frequently aggravate the unavoidable mis- 
fortune of a dearth into the dreadful calamity of a famine. The 
demand of such countriesforcorn may frequently become so great 
and so urgent, that a small state in their neighbourhood, which 
happened at the same time to be labouring under some degree of 
dearth, could not venture to supply them without exposing itself 
to the like dreadful calamity. The very bad policy of one country 
may thus render it, in some measure, dangerous and imprudent 
to establish what would otherwise be the best policy in another. 
The unlimited freedom of exportation, however, would be much 
less dangerous in great states, in which the growth being much 
greater, the supply could seldom be much affected by any quan- 
tity or corn that was likely to beexported. In aSwisscanton,orin 
some of the little states in Italy, it may, perhaps, sometimes be 
necessary to restrain the exportation of corn. In such great coun- 
tries as France or England, it scarce ever can. To hinder, besides, 
thefarmer from sending hisgoodsat all times to the best market, 
is evidently to sacrifice the ordinary laws of justice to an idea of 
public utility, to a sort of reasons of state; an act or legislative 
authority which ought to be exercised only, which can be par- 



doned only, in cases of the most urgent necessity. The price at 
which exportation of corn is prohibited, if it is ever to be prohib- 
ited, ought always to be a very high price. 

T he laws concerning corn may everywhere be compared to the 
laws concerning religion. Thepeoplefeel them selves so much in- 
terested in what relates either to their subsistence in thislife, or to 
their happiness in a life to come, that government must yield to 
their prejudices, and, in order to preserve the public tranquillity, 
establish that system which they approve of. It is upon this ac- 
count, perhaps, that we so seldom find a reasonable system estab- 
lished with regard to either of those two capital objects. 

I V. T he trade of the merchant- carrier, or of the i mporter of for- 
eign corn, in order to export it again, contributes to the plentiful 
supply of the home market. It isnot, indeed, thedirect purposeof 
his trade to sdl his corn there; but he will generally be willing to 
do so, and even for a good deal less money than he might expect 
in a foreign market; because he saves in this manner the expense 
of loading and unloading, of freight and insurance. The inhabit- 
ants of the country which, by means of the carrying trade, be- 
comes the magazine and storehouse for the supply of other coun- 
tries, can very seldom bein want themselves. Though thecarrying 
trade must thus contribute to reduce the average money price of 
corn in the home market, it would not thereby lower its real value; 



434 



Adam Smith 



it would only raise somewhat the real value of silver. 

The carrying trade was in effect prohibited in Great Britain, 
upon all ordinary occasions, by thehigh dutiesupon theimporta- 
tion of foreign corn, of the greater part of which there was no 
drawback; and upon extraordinary occasions, when a scarcity made 
it necessary to suspend those duties by temporary statutes, expor- 
tation wasalwaysprohibited. Bythissystem of laws, therefore, the 
carrying trade was in effect prohibited. 

That system of laws, therefore, which is connected with the es- 
tablishment of the bounty, seems to deserve no part of the praise 
which has been bestowed upon it. The improvement and prosper- 
ity of Great Britain, which has been so often ascribed to those 
laws, may very easily be accounted for by other causes. T hat secu- 
rity which the laws in Great Britain give to every man, that he 
shall enjoy thefruitsof hisown labour, is alone sufficient to make 
any country flourish, notwithstanding these and twenty other 
absurd regulations of commerce; and this security was perfected 
by the Revolution, much about the same time that the bounty 
was established. T henatural effort of every individual to better his 
own condition, when suffered to exert itself with freedom and 
security, is so powerful a principle, that it is alone, and without 
any assistance, not only capableof carrying on the society to wealth 
and prosperity, but of surmounting a hundred impertinent ob- 



structions, with which thefolly of human laws too often encum- 
bers its operations: though the effect of those obstructions is al- 
ways, more or less, either to encroach upon its freedom, or to 
diminish its security. In Great Britain industry is perfectly secure; 
and though it isfarfrom being perfectly free, it is as free or freer 
than in any other part of Europe. 

T hough the period of the greatest prosperity and improvement of 
Great Britain has been posterior to that system of laws which iscon- 
nected with thebounty, wemust not upon that account, imputeitto 
thoselaws. Ithasbeen posterior likewise to thenational debt; but the 
national debt has most assuredly not been the cause of it. 

Though thesystem of laws which isconnected with thebounty, 
has exactly the same tendency with the practice of Spain and Por- 
tugal, to lower somewhat the value of the precious metals in the 
country where it takes place; yet Great Britain is certainly one of 
therichest countriesin Europe, whileSpain and Portugal areper- 
hapsamongstthemost beggarly. Thisdifferenceof situation, how- 
ever, may easily be accounted for from two different causes. First, 
thetaxin Spain, theprohibition in Portugal of exporting gold and 
silver, and thevigilant police which watches over the execution of 
thoselaws, must, in two very poor countries, which between them 
import annually upwards of six millions sterling, operate not only 
more directly, but much more forcibly, in reducing the value of 



435 



The Wealth of Nations 



those metals there, than the corn laws can do in Great Britain. 
And, secondly, this bad policy is not in those countries counter- 
balanced by the general liberty and security of the people. Indus- 
try is there neither free nor secure; and the civil and ecclesiastical 
governments of both Spain and Portugal are such as would alone 
be sufficient to perpetuate their present state of poverty, even 
though their regulations of commerce were as wise as the greatest 
part of them are absurd and foolish. 

The 13th of the present king, c. 43, seems to have established a 
new system with regard to the corn laws, in many respects better 
than the ancient one, but in oneor two respects perhaps not quite 
so good. 

By this statute, the high duties upon importation for homecon- 
sumption are taken off, so soon as the price of middling wheat 
rises to 48s. the quarter; that of middling rye, pease, or beans, to 
32s.; that of barley to 24s.; and that of oats to 16s.; and instead of 
them, a small duty is imposed of only 6d upon the quarter of 
wheat, and upon that or other grain in proportion. W ith regard to 
all those different sorts of grain, but particularly with regard to 
wheat, the home market is thus opened to foreign supplies, at 
prices considerably lower than before. 

By the same statute, the old bounty of 5s. upon the exportation 
of wheat, ceases so soon as the price rises to 44s. the quarter, in- 



stead of 48s. the price at which it ceased before; that of 2s:6d. 
upon the exportation of barley, ceases so soon as the price rises to 
22s. instead of 24s. the price at which it ceased before; that of 
2s:6d. upon theexportation of oatmeal, ceases so soon astheprice 
rises to 14s. instead of 15s. thepriceat which it ceased before. The 
bounty upon rye is reduced from 3s:6d. to 3s. and it ceases so 
soon as the price rises to 28s. instead of 32s. the price at which it 
ceased before. If bounties are as improper as I have endeavoured 
to prove them to be, thesooner they cease, and the lower they are, 
so much the better. 

T he same statute permits, at the lowest prices, the importation 
of corn in order to be exported again, dutyfree, provided it is in 
the mean time lodged in a warehouse under thejoint locks of the 
king and the importer. This liberty, indeed, extends to no more 
than twenty-five of the different ports of Great Britain. They are, 
however, theprincipal ones; and theremay not, perhaps, beware- 
houses proper for this purpose in the greater part of the others. 

So far this law seems evidently an improvement upon the an- 
cient system. 

But by the same law, a bounty of 2s. the quarter is given for the 
exportation of oats, whenever the price does not exceed fourteen 
shillings. No bounty had ever been given before for the exporta- 
tion of this grain, no more than for that of pease or beans. 



436 



Adam Smith 



By the same law, too, the exportation of wheat is prohibited so 
soon as the price rises to forty-four shillings the quarter; that of 
rye so soon as it rises to twenty-eight shillings; that of barley so 
soon asit rises to twenty-two shillings; and that of oats so soon as 
they rise to fourteen shillings Those several pricesseemallofthem 
a good deal too low; and there seems to be an impropriety, be- 
sides, in prohibiting exportation altogether at those precise prices 
at which that bounty, which was given in order to forceit, iswith- 
drawn.Thebounty ought certainly either to have been withdrawn 
at a much lower price, or exportation ought to have been allowed 
at a much higher. 

So far, therefore, this law seems to be inferior to the ancient 
system. With all its imperfections, however, we may perhaps say 
of it what was said of the laws of Solon, that though not the best 
in itself, it isthe best which the interest, prejudices, and temper of 
thetimes, would admit of. It may perhaps in duetime prepare the 
way for a better. 



CHAPTERVI 

OFTREATIESOFCOMMERCE 

When a nation binds itself by treaty, either to permit the entry 
of certain goodsfrom oneforeign country which it prohibits from 
all others, or to exempt the goods of one country from duties to 
which it subjects those of all others, the country, or at least the 
merchants and manufacturers of the country, whose commerce is 
so favoured, must necessarily derive great advantagefrom thetreaty. 
T hose merchants and manufacturers enjoy a sort of monopoly in 
thecountry which is so indulgent to them. T hat country becomes 
a market, both more extensive and more advantageous for their 
goods: more extensive, because the goods of other nations being 
either excluded or subjected to heavier duties, it takes off a greater 
quantity of theirs; more advantageous, because the merchants of 
thefavoured country, enjoying a sort of monopoly there, will of- 
ten sell their goods for a better price than if exposed to the free 
competition of all other nations. 

Such treaties, however, though theymaybeadvantageoustothe 
merchants and manufacturers of thefavoured, are necessarily dis- 
advantageous to those of the favouring country. A monopoly is 
thus granted against them to a foreign nation; and they must fre- 



437 



The Wealth of Nations 



quently buy thefordgn goodsthey have occasion for, dearer than 
if thefree competition of other nations was admitted. That part of 
its own produce with which such a nation purchases foreign goods, 
must consequently be sold cheaper; because, when two things are 
exchanged for oneanother, thecheapnessoftheoneisa necessary 
consequence, or rather isthesame thing, with thedearness of the 
other. The exchangeable value of its annual produce, therefore, is 
likely to be diminished by every such treaty. This diminution, 
however, can scarce amount to any positive loss, but only to a 
lessening of the gain which it might otherwise make. T hough it 
sellsitsgoodscheaperthanitotherwisemightdo, itwill not prob- 
ably sell them for less than they cost; nor, as in the case of boun- 
ties, for a price which will not replace the capital employed in 
bringing them to market, together with the ordinary profits of 
stock. T hetradecould not go on long if it did. Even thefavouring 
country, therefore, may still gain by thetrade, though less than if 
there was a free competition . 

Some treaties of commerce, however, have been supposed ad- 
vantageous, upon principles very different from these; and a com- 
mercial country has sometimes granted a monopoly of this kind, 
against itself, to certain goods of a foreign nation, because it ex- 
pected, that in the whole commerce between them, it would an- 
nually sell more than it would buy, andthatabalancein gold and 



silver would be annually returned to it. It is upon this principle 
that the treaty of commerce between England and Portugal, con- 
cluded in 1703 by M r M ethuen, has been so much commended. 
Thefollowing is a literal translation of that treaty, which consists 
of three articles only. 

ART. I. 

H is sacred royal majesty of Portugal promises, both in his own 
name and that of his successors, to admit for ever hereafter, into 
Portugal, thewoollen cloths, and therest of thewoollen manufac- 
tures of the British, as was accustomed, till they were prohibited 
by the law; nevertheless upon this condition: 

ART. II. 

That isto say, that her sacred royal majesty of Great Britain shall, 
in her own name, and that of her successors, be obliged, for ever 
hereafter, to admit the wines of the growth of Portugal into Brit- 
ain; so that at no time, whether there shall be peace or war be- 
tween the kingdoms of Britain and France, anything more shall 
be demanded for these wines by the name of custom or duty, or 
by whatsoever other title, directly or indirectly, whether they shall 



438 



Adam Smith 



be imported into Great Britain in pipes or hogsheads, or other 
casks, than what shall be demanded for the like quantity or mea- 
sureof French wine, deducting or abating a third part of thecus- 
tom or duty. But if, at any time, this deduction or abatement of 
customs, which isto be madeasaforesaid, shall in any manner be 
attempted and prejudiced, it shall bejustand lawful for hissacred 
royal majesty of Portugal, again to prohibit the woollen cloths, 
and the rest of the British woollen manufactures. 

ART. III. 

T he most excellent lords the plenipotentiaries promise and take 
upon themselves, that their above named masters shall ratify this 
treaty; and within the space of two months the ratification shall 
be exchanged. 

By this treaty, the crown of Portugal becomes bound to admit 
theEnglish woollensuponthesamefootingas before theprohibi- 
tion; that is, not to raise the duties which had been paid before 
that time. But it does not become bound to admit them upon any 
better termsthan those of any other nation, of France or H olland, 
for example. The crown of Great Britain, on the contrary, be- 
comes bound to admit the wines of Portugal, upon paying only 
two-thirdsoftheduty which is paid for those of France, the wines 



most likely to come into competition with them. So far thistreaty, 
therefore, is evidently advantageous to Portugal, and disadvanta- 
geous to Great Britain. 

It has been celebrated, however, as a masterpiece of the com- 
mercial policy of England. Portugal receives annually from the 
Brazils a greater quantity of gold than can be employed in its do- 
mestic commerce, whether in the shape of coin or of plate. T he 
surplus is too valuable to be allowed to lie idle and locked up in 
coffers; and as it can find no advantageous market at home, it 
must, notwithstanding; any prohibition, be sent abroad, and ex- 
changed for something for which there is a more advantageous 
market at home. A large shareof it comes annually to England, in 
return either for English goods, or for those of other European 
nations that receive their returns through England. M r Barretti 
was informed, that the weekly packet-boat from Lisbon brings, 
one week with another, more than £50,000 in gold to England. 
Thesum had probably been exaggerated. It would amountto more 
than £2,600,000 a year, which is more than the Brazils are sup- 
posed to afford. 

O ur merchants were, some years ago, out of humour with the 
crown of Portugal. Some privileges which had been granted them, 
not by treaty, but by the free grace of that crown, at the solicita- 
tion, indeed, it isprobable, and in return for much greater favours, 



439 



The Wealth of Nations 



defence and protection from the crown of Great Britain, had been 
either infringed or revoked. The people, therefore, usually most 
interested in celebrating the Portugal trade, were then rather dis- 
posed to represent it as less advantageous than it had commonly 
been imagined. The far greater part, almost the whole, they pre- 
tended, of this annual importation of gold, was not on account of 
Great Britain, but of other European nations; thefruits and wines 
of Portugal annually imported into Great Britain nearly compen- 
sating the value of the British goods sent thither. 

Letussuppose, however, that the whole was on account of Great 
Britain, and that it amounted to a still greater sum than M r Barretti 
seemsto imagine; this trade would not, upon that account, bemore 
advantageous than any other, in which, for the same value sent out, 
we received an equal valueof consumable goods in return. 

It is but a very small part of this importation which, it can be 
supposed, isemployed as an annual addition, either to the plate or 
tothecoin of the kingdom. The rest must all be sent abroad, and 
exchanged for consumable goods of some kind or other. But if 
those consumable goods were purchased directly with the pro- 
duce of English industry, it would be more for the advantage of 
England, than first to purchase with that produce thegold of Por- 
tugal, and afterwards to purchase with that gold those consum- 
able goods. A direct foreign trade of consumption is always more 



advantageousthan a round-about one; and to bring thesamevalue 
of foreign goodsto the home market requiresamuch smaller capital 
in the one way than in theether. If a smaller shareof its industry, 
therefore, had been employed in producing goods fit for the Por- 
tugal market, and a greater in producing those lit for the other 
markets, where those consumable goods for which there is a de- 
mand in Great Britain are to be had, it would have been more for 
the advantage of England. To procure both thegold which it wants 
for its own use, and the consumable goods, would, in this way, 
employ a much smaller capital than at present. T here would be a 
spare capital, therefore, to be employed for other purposes, in ex- 
citing an additional quantity of industry, and in raising a greater 
annual produce. 

Though Britain were entirely excluded from the Portugal trade, 
it could find very little difficulty in procuring all the annual sup- 
pliesof gold which it wants, either for the purposes of plate, or of 
coin, or of foreign trade. Gold, like every other commodity, is 
always somewhere or another to be got for its value by those who 
have that valueto give for it.Theannual surplusof gold in Portu- 
gal, besides, would still be sent abroad, and though not carried 
away by Great Britain, would be carried away by some other na- 
tion, which would beglad to sell it again for its price, in thesame 
manner as Great Britain does at present. In buying gold of Portu- 



440 



Adam Smith 



gal, indeed, we buy it at the first hand; whereas, in buying it of 
any other nation, except Spain, we should buy it at the second, 
and might pay somewhat dearer. This difference, however, would 
surely be too insignificant to deserve the public attention. 

Almost all our gold, it is said, comes from Portugal. With other 
nations, the balance of trade is either against as, or not much in our 
favour. But we should remember, that the more gold we import 
from onecountry, the less we must necessarily import from all oth- 
ers. T he effectual demand for gold, like that for every other com- 
modity, is in every country limited to a certain quantity. If nine 
tenths of this quantity are imported from one country, there re- 
mains a tenth only to be imported from all others. The more gold, 
besides, that is annually imported from some particular countries, 
over and above what is requisite for plate and for coin, the more 
must necessarily be exported to some others: and the more that 
most insignificant object of modern policy, the balance of trade, 
appearsto bein ourfavour with some particular countries, themore 
it must necessarily appear to be against us with many others. 

It was upon this silly notion, however, that England could not 
subsist without the Portugal trade, that, towards the end of the 
late war, France and Spain, without pretending either offence or 
provocation, required the king of Portugal to exclude all British 
ships from his ports, and, for the security of this exclusion, to 



receive into them French or Spanish garrisons. H ad the king of 
Portugal submitted to thoseignominioustermswhich hisbrother- 
in-law the king of Spain proposed to him, Britain would have 
been freed from a much greater inconveniency than thelossof the 
Portugal trade, the burden of supporting a very weak ally, so un- 
provided of every thing for his own defence, that the whole power 
of England, had it been directed to that single purpose, could 
scarce, perhaps, have defended him for another campaign. The 
loss of the Portugal trade would, no doubt, have occasioned a 
considerableembarrassment to themerchants at that timeen gaged 
in it, who might not, perhaps, have found out, for a year or two, 
any other equally advantageous method of employing their capi- 
tals; and in this would probably have consisted all the inconve- 
niency which England could have suffered from this notable piece 
of commercial policy. 

The great annual importation of gold and silver is neither for 
the purpose of plate nor of coin, but of foreign trade. A round- 
about foreign trade of consumption can be carried on more ad- 
vantageously by means of these metals than of almost any other 
goods. As they are the universal instruments of commerce, they 
are more readily received in return for all commodities than any 
other goods; and, on account of their small bulk and great value, 
it costs less to transport them backward and forward from one 



441 



The Wealth of Nations 



place to another than almost any other sort of merchandize, and 
they lose less of their value by being so transported. Of all the 
commodities, therefore, which are bought in oneforeign country, 
for no other purpose but to be sold or exchanged again for some 
other goods in another, there are none so convenient as gold and 
silver. In facilitating all thedifferent round-about foreign tradesof 
consumption which are carried on in Great Britain, consists the 
principal advantage of the Portugal trade; and though it is not a 
capital advantage, it is, no doubt, a considerable one. 

That any annual addition which, it can reasonably be supposed, 
is made either to the plate or to the coin of the kingdom, could 
require but a very small annual importation of gold and silver, 
seems evident enough; and though we had no direct trade with 
Portugal, thissmall quantity could always, somewhere or another, 
be very easily got. 

Though thegoldsmithstradebe very considerable in Great Brit- 
ain, thefar greater part of the new plate which they annually sell, 
is made from other old plate melted down; so that the addition 
annually made to the whole plate of the kingdom cannot be very 
great, and could require but a very small annual importation. 

It is the same case with the coin. Nobody imagines, I believe, 
that even the greater part of the annual coinage, amounting, for 
ten years together, before the late reformation of thegold coin, to 



upwards of £800,000 a-year in gold, was an annual addition to 
themoneybeforecurrentin thekingdom. In a country where the 
expense of the coinage is defrayed by the government, thevalueof 
the coin, even when it contains its full standard weight of gold 
and silver, can never be much greater than that of an equal quan- 
tity of those metals uncoined, because it requires only the trouble 
of going to the mint, and the delay, perhaps, of a few weeks, to 
procure for any quantity of uncoined gold and silver an equal 
quantity of those metals in coin; but in every country the greater 
part of the current coin is almost always more or less worn, or 
otherwise degenerated from its standard. In Great Britain it was, 
before the late reformation, a good deal so, the gold being more 
than two per cent., and thesilver more than eight per cent, below 
its standard weight. But if forty-four guineas and a- half, contain- 
ing their full standard weight, a pound weight of gold, could pur- 
chase very little more than a pound weight of uncoined gold; forty- 
four guineas and a-half, wanting a part of their weight, could not 
purchase a pound weight, and something was to be added, in or- 
der to makeupthedeficiency.Thecurrentpriceof gold bullion at 
market, therefore, instead of being the same with the mint price, 
or £46:14:6, was then about f 47:14s., and sometimes about £48. 
W hen thegreater part of thecoin, however, was in this degenerate 
condition, fortyfour guineasand a-half, fresh from themint, would 



442 



Adam Smith 



purchase no more goods in the market than any other ordinary 
guineas; because, when they came into the coffers of the mer- 
chant, being confounded with other money, they could not after- 
wards be distinguished without more trouble than thedifference 
was worth. Like other guineas, they were worth no more than 
£46:14:6. If thrown into themelting pot, however, they produced, 
without any sensible loss, a pound weight of standard gold, which 
could be sold at any timefor between £47:14s. and £48, either in 
gold or silver, as fit for all the purposes of coin as that which had 
been melted down. There was an evident profit, therefore, in melt- 
ing down new-coined money; and it wasdoneso instantaneously, 
that no precaution of government could prevent it. The opera- 
tions of the mint were, upon thisaccount, somewhat likethe web 
of Pen elope; thework that wasdoneinthedaywasundonein the 
night. The mint was employed, not so much in making daily ad- 
ditions to the coin, as in replacing the very best part of it, which 
was daily melted down. 

Were the private people who carry their gold and silver to the 
mint to pay themselves for thecoinage, it would add to the value 
of those metals, in thesame manner as thefashion doestothatof 
plate. Coined gold and silver would be more valuable than 
uncoined. T he seignorage, if it was not exorbitant, would add to 
the bullion the whole value of the duty; because, thegovernment 



having everywhere the exclusive privilegeof coining, no coin can 
cometo market cheaper than they think proper to afford it. I f the 
duty was exorbitant, indeed, that is, if it was very much above the 
real value of the labour and expense requisite for coinage, false 
coiners, both at home and abroad, might be encouraged, by the 
great difference between the value of bullion and that of coin, to 
pour in so great a quantity of counterfeit money as might reduce 
the value of thegovernment money. In France, however, though 
theseignorage is eight per cent., no sensible inconveniency of this 
kind isfound to arise from it. The dangers to which a false coiner 
is everywhere exposed, if helivesinthecountry of which hecoun- 
terfeits the coin, and to which his agents or correspondents are 
exposed, if he lives in a foreign country, are by far too great to be 
incurred for the sake of a profit of six or seven per cent. 

The seignorage in France raises the value of thecoin higher than 
in proportion to thequantity of puregold which it contains. T hus, 
bytheedictof January 1726, themint priceof finegold of twenty- 
four carats was fixed at seven hundred and forty livres nine sous 
and one denier one-eleventh the mark of eight Paris ounces. {See 
DictionnairedesMonnoies, torn. ii. article Seigneu rage, p. 439, 
par 81. Abbot deBazinghen, Conseiller-Commissaireen laCour 
des M onnoiesa Pari s.}T he gold coin of France, making an allow- 
ance for the remedy of the mint, contains twenty-one carats and 



443 



The Wealth of Nations 



three-fourthsof finegold, and two carats one-fourth of alloy. The 
mark of standard gold, therefore, is worth no more than about six 
hundred and seventy-one I ivres ten deniers. But in France this 
mark of standard gold is coined into thirty louisd'ors of twenty- 
four livres each, or into seven hundred and twenty livres. The 
coinage, therefore, increases the value of a mark of standard gold 
bullion, by the difference between six hundred and seventy-one 
livres ten deniers and seven hundred and twenty livres, or by forty- 
eight livres nineteen sous and two deniers. 

A seignoragewill, in many cases, takeaway altogether, and will 
in all cases diminish, the profit of melting down the new coin. 
Thisprofit always arises from the difference between thequantity 
of bullion which thecommon currency ought to contain and that 
which it actually does contain. If this difference is less than the 
seignorage, there will belossinstead of profit. If itisequal to the 
seignorage, there will beneither profit nor loss. If it isgreater than 
the seignorage, there will, indeed, be some profit, but less than if 
therewasno seignorage. If, before the late reformation of thegold 
coin, for example, there had been a seignorage of five per cent, 
upon the coinage, there would have been a loss of three per cent, 
upon the melting down of the gold coin. If the seignorage had 
been two per cent., there would have been neither profit nor loss. 
If the seignorage had been one per cent., there would have been a 



profit but of one per cent, only, instead of two per cent. Wherever 
money is received by tale, therefore, and not by weight, a seignor- 
age is the most effectual preventive of the melting down of the 
coin, and, for thesame reason, of its exportation. It is the best and 
heaviest piecesthatarecommonly either melted down or exported, 
because it is upon such that the largest profits are made. 

T he law for the encouragement of the coinage, by rendering it 
duty-free, was first enacted during the reign of Charles II. for a 
limited time, and afterwards continued, by different prolonga- 
tions, till 1769, when it was rendered perpetual. The bank of En- 
gland, in order to replenish their coffers with money, are frequently 
obliged to carry bullion to the mint; and it was more for their 
interest, they probably imagined, that the coinage should be at 
theexpenseof the government than attheirown. Itwas probably 
out of complaisance to this great company, that the government 
agreed to render this law perpetual. Should the custom of weigh- 
ing gold, however, come to be disused, asit is very likely to beon 
account of its inconveniency; should the gold coin of England 
cometo be received by tale, as it was before the late recoinage this 
great company may, perhaps, find that they have, upon this, as 
upon someother occasions, mistaken their own interest not a little. 

Before the late recoinage, when the gold currency of England 
was two per cent, below its standard weight, as there was no sei- 



444 



Adam Smith 



gnorage, it was two per cent, below the value of that quantity of 
standard gold bullion which it ought to have contained. When 
this great company, therefore, bought gold bullion in order to 
have it coined, they were obliged to pay for it two per cent, more 
than it was worth after thecoinage. But if therehad been aseignor- 
ageof two per cent, upon thecoinage, the common gold currency, 
though two per cent, below its standard weight, would, notwith- 
standing, have been equal in valuetothequantity of standard gold 
which it oughtto have contained; thevalueofthefashion compen- 
sating in this case the diminution of the weight. They would, in- 
deed, have had the seignorage to pay, which being two per cent., 
their lossupon thewholetransaction would have been two percent, 
exactly the same, but no greater than it actually was. 

If the seignorage had been five per cent, and the gold currency 
only two per cent, below its standard weight, the bank would, in 
thiscase, have gained three per cent, upon theprice of thebullion; 
but as they would have had a seignorage of five per cent, to pay 
upon thecoinage, their lossupon thewholetransaction would, in 
the same manner, have been exactly two per cent. 

I f the seignorage had been only one per cent., and the gold cur- 
rency two per cent, below its standard weight, the bank would, in 
thiscase, have lost only one per cent, upon the price of the bullion; 
but as they would likewise have had a seignorageof one per cent, to 



pay, their lossupon thewholetransaction would have been exactly 
two percent., in the same manner as in all other cases. 

If there was a reason able seignorage, whileat the same time the 
coin contained its full standard weight, as it has done very nearly 
since the late recoinage, whatever the bank might lose by the sei- 
gnorage, they would gain upon theprice of thebullion; and what- 
ever they might gain upon the price of the bullion, they would 
lose by the seignorage. T hey would neither lose nor gain, there- 
fore, upon thewholetransaction, and they would in this, asin all 
theforegoing cases, be exactly in thesamesituation asif therewas 
no seignorage. 

W hen the tax upon a commodity is so moderate as not to en- 
courage smuggling, the merchant who deals in it, though he ad- 
vances, does not properly pay the tax, as he gets it back in the 
price of the commodity. The tax is finally paid by the last pur- 
chaser or consumer. But money is a commodity, with regard to 
which every man is a merchant. N obody buys it but in order to 
sell it again; and with regard to itthereis, in ordinary cases, no last 
purchaser or consumer. W hen the tax upon coinage, therefore, is 
so moderate asnot to encourage false coining, though every body 
advances the tax, nobody finally pays it; because every body gets it 
back in the advanced value of the coin. 

A moderate seignorage, therefore, would not, in any case, aug- 



445 



The Wealth of Nations 



merit theexpenseof the bank, or of any other private persons who 
carry their bullion to themint in order to be coined; and thewant 
of amoderateseignoragedoesnotin any casediminish it. Whether 
there is or is not a seignorage, if the currency contains its full 
standard weight, the coinagecosts nothing to anybody; and if it is 
short of that weight, the coinage must always cost the difference 
between the quantity of bullion which ought to be contained in 
it, and that which actually is contained in it. 

The government, therefore, when it defrays theexpenseof coin- 
age, not only incurs some small expense, but loses some small 
revenuewhich it might get by a proper duty; and neither thebank, 
nor any other private persons, are in the smallest degree benefited 
by this useless piece of public generosity. 

The directors of thebank, however, would probably be unwill- 
ing to agree to the imposition of a seignorage upon the authority 
of a speculation which promises them no gain, but only pretends 
to insure them from any loss. In thepresent state of thegold coin, 
and as long as it continues to be received by weight, they certainly 
would gain nothing by such a change. But if thecustom of weigh- 
ing thegold coin should ever go into disuse, as it is very likely to 
do, and if the gold coin should ever fall into the same state of 
degradation in which i t was before the I ate recoin age, thegain, or 
more properly the savings, of thebank, inconsequence of theim- 



position of a seignorage, would probably be very considerable. 
Thebank of England istheonly company which sends any con- 
siderable quantity of bullion to the mint, and the burden of the 
annual coinage falls entirely, or almost entirely, upon it. If this 
annual coinage had nothing to do but to repair the unavoidable 
losses and necessary wear and tear of the coin, it could seldom 
exceed fifty thousand, or at most a hundred thousand pounds. 
But when the coin is degraded below its standard weight, the an- 
nual coinage must, besides this, fill up the large vacuities which 
exportation and the melting pot are continually making in the 
current coin. It was upon this account, that during the ten or 
twelve years immediately preceding the late reformation of the 
gold coin, the annual coinage amounted, at an average, to more 
than £850,000. But if there had been a seignorage of four or five 
percent, upon thegold coin, it would probably, even in the state 
in which things then were, have put an effectual stop to the busi- 
ness both of exportation and of the melting pot. The bank, in- 
stead of losing every year about two and a half per cent, upon the 
bullion which was to be coined into more than eight hundred and 
fifty thousand pounds, or incurring an annual loss of more than 
£21,250 pounds, would not probably have incurred thetenth part 
of that loss. 
T he revenue allotted by parliament for defraying theexpenseof 



446 



Adam Smith 



the coinage is but fourteen thousand pounds a-year; and the real 
expense which it costs the government, or the fees of the officers 
of the mint, do not, upon ordinary occasions, I am assured, ex- 
ceed the half of that sum. The saving of so very small a sum, or 
even thegaining of another, which could not well bemuch larger, 
are objects too inconsiderable, it may bethought, to deserve the 
serious attention of government. But the saving of eighteen or 
twenty thousand pounds a-year, in case of an event which is not 
improbable, which has frequently happened before, and which is 
very likely to happen again, issurely an object which well deserves 
the serious attention, even of so great a company as the bank of 
England. 

Some of the foregoing reasonings and observations might, per- 
haps, have been more properly placed in those chapters of the first 
book which treat of the origin and use of money, and of thediffer- 
encebetween thereal and thenominal priceof commodities. Butas 
the law for the encouragement of coinage derives its origin from 
those vulgar prejudices which have been introduced bythemercan- 
tilesystem, I judged it moreproperto reserve them for thischapter. 
N othing could bemoreagreeableto thespirit of that system than a 
sort of bounty upon theproduction of money, thevery thing which, 
it supposes, constitutes the wealth of every nation. It is one of its 
many admirableexpedientsfor enriching the country. 



CHAPTER VII 
OFCOLONIES 

PART I 

Of the Motives for Establishing New Colonies 

The interest which occasioned the first settlement of the differ- 
ent European colonies in America and the West Indies, was not 
altogether so plain and distinct as that which directed the estab- 
lishment of those of ancient G reece and Rome. 

A 1 1 th e d i f f eren t states of an ci en t G reece possessed , each of th em , 
but a very small territory; and when the people in anyone of them 
multiplied beyond what that territory could easily maintain, apart 
of them were sent in quest of a new habitation, in some remote 
and distant part of the world; the warlike neighbours who sur- 
rounded them on all sides, rendering it difficult for any of them to 
enlarge very much itsterritory at home. T hecoloniesof the D orians 
resorted chiefly to Italy and Sicily, which, in the times preceding 
thefoundation of Rome, wereinhabited by barbarous and uncivi- 
lized nations; those of the lonians and Aeolians, the two other 
great tribes of the Greeks, to Asia M inor and the islands of the 



447 



The Wealth of Nations 



Aegean sea, of which the inhabitants sewn at that time to have 
been pretty much in thesamestate as those of Sicily and Italy. The 
mother city though she considered the colony as a child, at all 
times entitled to great favour and assistance, and owing in return 
much gratitude and respect, yet considered it as an emancipated 
child, over whom she pretended to claim no direct authority or 
jurisdiction. The colony settled its own form of government, en- 
acted its own laws, elected its own magistrates, and madepeaceor 
war with its neighbours, as an independent state, which had no 
occasion to wait for the approbation or consent of the mother 
city. Nothing can be more plain and distinct than the interest 
which directed every such establishment. 

Rome, like most of the other ancient republics, was originally 
founded upon an agrarian law, which divided the public territory, 
in a certain proportion, among the different citizens who com- 
posed the state. The course of human affairs, by marriage, by suc- 
cession, and by alienation, necessarily deranged thisoriginal divi- 
sion, and frequently threw the lands which had been allotted for 
the maintenance of many different families, into thepossession of 
a single person. To remedy this disorder, for such it was supposed 
to be, a law was made, restricting the quantity of land which any 
citizen could possess to five hundred jugera; about 350 English 
acres. This law, however, though we read of its having been ex- 



ecuted upon oneor two occasions, was either neglected or evaded, 
and theinequality of fortuneswent on continually increasing. The 
greater part of the citizens had no land; and without it the man- 
ners and customsof those times rendered it difficult for a freeman 
to maintain his independency. In the present times, though a poor 
man has no land of his own, if he has a little stock, he may either 
farm the lands of another, or he may carry on some little retail 
trade; and if he has no stock, he may find employment either as a 
country labourer, or as an artificer. But among the ancient Ro- 
mans, the lands of the rich were all cultivated by slaves, who 
wrought under an overseer, who was likewise a slave; so that a 
poor freeman had littlechanceof being employed either asa farmer 
or as a labourer. All trades and manufactures, too, even the retail 
trade, were carried on by the slaves of the rich for the benefit of 
their masters, whose wealth, authority, and protection, made it 
difficult for a poor freeman to maintain the competition against 
them. The citizens, therefore, who had no land, had scarce any 
other means of subsistence but the bounties of the candidates at 
theannual elections. The tribunes, when they had a mind to ani- 
mate the people against the rich and thegreat, put them in mind 
of the ancient divisions of lands, and represented that law which 
restricted this sort of private property as the fundamental law of 
the republic. T he people became clamorous to get land, and the 



448 



Adam Smith 



rich and thegreat, we may believe, were perfectly determined not 
to give them any part of theirs. To satisfy them in some measure, 
therefore, they frequently proposed to send out a new colony. But 
conquering Rome was, even upon such occasions, under no ne- 
cessity of turning out her citizens to seek their fortune, if one may 
so, through the wide world, without knowing where they were to 
settle. She assigned them lands generally in the conquered prov- 
inces of Italy, where, being within the dominions of the republic, 
they could never form any independent state, but were at best but 
a sort of corporation, which, though it had the power of enacting 
bye-laws for its own government, was at all times subject to the 
correction, jurisdiction, and legislative authority of the mother 
city. The sending out a colony of this kind not only gave some 
satisfaction to the people, but often established a sort of garrison, 
too, in a newly conquered province, of which theobediencemight 
otherwise have been doubtful. A Roman colony, therefore, whether 
we consider the nature of the establishment itself, or the motives 
for making it, was altogether different from a Greek one. The 
words, accordingly, which in the original languages denote those 
different establishments, have very different meanings. The Latin 
word (colonia) signifies simply a plantation. The Greek word 
(apoixia), on thecontrary, signifies a separation of dwelling, a de- 
parture from home, a going out of the house. But though the 



Roman colonies were, in many respects, different from the Greek 
ones, the interest which prompted to establish them was equally 
plain and distinct. Both institutions derived their origin, either 
from irresistible necessity, or from clear and evident utility. 

The establishment of the European colonies in America and the 
West Indies arose from no necessity; and though the utility which 
has resulted from them has been very great, it is not altogether so 
clear and evident. It was not understood at their first establishment, 
and was not the motive, either of that establishment, or of the dis- 
coveries which gaveoccasion to it; and thenature, extent, and limits 
of that utility, are not, perhaps, well understood at this day. 

The Venetians, during the fourteenth and fifteenth centuries, 
carried on a very advantageous commerce in spiceries and other 
East India goods, which they distributed among theother nations 
of Europe. They purchased them chiefly in Egypt, at that time 
under thedominion of the Mamelukes, the enemies of theTurks, 
of whom the Venetians were the enemies; and this union of inter- 
est, assisted by the money of Venice, formed such a connexion as 
gave the Venetians almost a monopoly of the trade. 

Thegreat profits of the Venetians tempted theavidity of the Por- 
tuguese. They had been endeavouring, during the courseof thefif- 
teenth century, to find out by sea a way to thecountriesfrom which 
theM oors brought them ivory and gold dust across the desert. They 



449 



The Wealth of Nations 



discovered theM adeiras, theCanaries, theAzores, theCapedeVerd 
islands, the coast of Guinea, that of Loango, Congo, Angola, and 
Benguela, and, finally, the Cape of Good Hope. They had long 
wished to share in the profitable traffic of the Venetians, and this 
last discovery opened to them a probable prospect of doing so. In 
1497, Vascode Gamo sailed from the port of Lisbon with a fleet of 
four ships, and, after a navigation of eleven months, arrived upon 
the coast of Indostan; and thus completed a course of discoveries 
which had been pursued with great steadiness, and with very little 
interruption, for near a century together. 

Some years before this, while the expectations of Europe were 
in suspense about the projects of the Portuguese, of which the 
success appeared yet to be doubtful, a Genoese pilot formed the 
yet more daring project of sailing to the East Indies by the west. 
The situation of those countries was at that time very imperfectly 
known in EuropeThefew European travellers who had been there, 
had magnified thedistance, perhaps through simplicity and igno- 
rance; what was reallyvery great, appearing almost infinite to those 
who could not measure it; or, perhaps, in order to increase some- 
what more the marvellous of their own adventures in visiting re 
gionsso immensely remote from Europe. The longer the way was 
bytheeast, Columbus veryjustly concluded, theshorter it would 
be by the west. H e proposed, therefore, to take that way, as both 



the shortest and the surest, and he had the good fortune to con- 
vince Isabella of Castile of the probability of hisproject. Hesailed 
from the port of Palos in August 1492, near five years before the 
expedition of Vasco de Gamo set out from Portugal; and, after a 
voyage of between two and three months, discovered first some of 
the small Bahama or Lucyan islands, and afterwards the great is- 
land of St. Domingo. 

But thecountries which Columbus discovered, either in thisor 
in any of his subsequent voyages, had no resemblance to those 
which he had gone in quest of. Instead of the wealth, cultivation, 
and populousness of China and Indostan, he found, in St. 
D omingo, and in all the other parts of the new world which he 
ever visited, nothing but a country quite covered with wood, un- 
cultivated, and inhabited only by sometribesof naked and miser- 
able savages. H e was not very willing, however, to believe that 
they were not the same with some of the countries described by 
M arco Polo, thefirst European who had visited, or at least had left 
behind him any description of China or the East Indies; and a 
very slight resemblance, such as that which hefound between the 
nameof C ibao, a mountain in St. D omingo, and that of C ipange, 
mentioned by M arco Polo, was frequently sufficient to make him 
return to this favourite prepossession, though contrary to the 
clearest evidence. In hislettersto Ferdinand and Isabella, hecalled 



450 



Adam Smith 



the countries which he had discovered the Indies. He entertained 
no doubt but that they were the extremity of those which had 
been described by M arco Polo, and that they were not very distant 
from theGanges, or from thecountries which had been conquered 
by Alexander. Even when at last convinced that they were differ- 
ent, he still flattered himself that those rich countries were at no 
great distance; and in a subsequent voyage, accordingly, went in 
quest of them along the coast of Terra Firma, and towards the 
Isthmus of Dari en. 

In consequence of this mistake of Columbus, the name of the 
Indies has stuck to those unfortunate countries ever since; and 
when it was at last clearly discovered that the new were altogether 
different from the old Indies, the former were called the West, in 
contradistinction to the latter, which were called the East Indies. 

It was of importance to Columbus, however, that the countries 
which he had discovered, whatever they were, should be repre- 
sented to the court of Spain as of very great consequence; and, in 
what constitutes the real riches of every country, the animal and 
vegetable productions of the soil, there was at that time nothing 
which could well justify such a representation of them. 

Thecori, something between a rat and a rabbit, and supposed 
by M r Buffon to be the same with theaperea of Brazil, was the 
largest viviparous quadruped in St. Domingo. This species seems 



never to have been very numerous; and the dogs and cats of the 
Spaniardsare said to have long ago almost entirely extirpated it, as 
well as some other tribes of a still smaller size. These, however, 
together with a pretty large lizard, called the ivana or iguana, con- 
stituted the principal part of the animal food which the land af- 
forded. 

The vegetable food of the inhabitants, though, from their want 
of industry, not very abundant, was not altogether so scanty. It 
consisted in Indian corn, yams, potatoes, bananas, etc., plants 
which were then altogether unknown in Europe, and which have 
never since been very much esteemed in it, or supposed to yield a 
sustenance equal to what isdrawn from thecommon sortsof grain 
and pulse, which have been cultivated in this part of the world 
timeout of mind. 

The cotton plant, indeed, afforded the material of a very im- 
portant manufacture, and was at that time, to Europeans, un- 
doubtedly the most valuable of all the vegetable productions of 
thoseislands. But though, in theend of the fifteenth century, the 
muslins and other cotton goods of the East Indies were much 
esteemed in every part of Europe, the cotton manufacture itself 
was not cultivated in any part of it. Even this production, there- 
fore, could not at that time appear in the eyes of Europeans to be 
of very great consequence. 



451 



The Wealth of Nations 



Finding nothing, either in theanimalsor vegetables of thenewly 
discovered countries which could justify a very advantageous rep- 
resentation of them, C olumbusturned hisview towards their min- 
erals; and in the richness of their productions of this third king- 
dom, he flattered himself he had found a full compensation for 
the insignificancy of those of the other two. T he little bits of gold 
with which theinhabitantsornamented their dress, and which, he 
was informed, they frequently found in the rivulets and torrents 
which fell from the mountains, were sufficient to satisfy him that 
those mountains abounded with the richest gold mines. St. 
D omingo, therefore, was represented as a country aboundi ng with 
gold, and upon that account (according to theprejudicesnot only 
of the present times, but of those times), an inexhaustible source 
of real wealth to the crown and kingdom of Spain. W hen C ol urn- 
bus, upon hisreturn from his first voyage, wasintroduced with a 
sort of triumphal honours to the sovereigns of Castileand Arragon, 
the principal productions of the countries which he had discov- 
ered were carried in solemn procession beforehim.Theonly valu- 
able part of them consisted in some little fillets, bracelets, and 
other ornaments of gold, and in some bales of cotton. The rest 
were mere objects of vulgar wonder and curiosity; some reeds of 
an extraordinary size, somebirdsof a very beautiful plumage, and 
some stuffed skins of the huge alligator and manati; all of which 



were preceded by six or seven of the wretched natives, whose sin- 
gular colour and appearance added greatly to the novelty of the 
show. 

In consequence of the representations of Columbus, the coun- 
cil of Castile determined to take possession of the countries of 
which the inhabitants were plainly incapable of defending them- 
selves. T he pious purposeof converting them to C hristianity sanc- 
tified theinjusticeof theproject. Butthehopeof finding treasures 
of gold therewasthesolemotivewhich prompted to undertakeit; 
and to give this motive the greater weight, it was proposed by 
Columbus, that the half of all the gold and silver that should be 
found there, should belong to the crown. This proposal was ap- 
proved of by the council. 

As long as the whole, or the greater part of the gold which the 
first adventurers imported into Europe was got by so very easy a 
method as the plundering of the defenceless natives, it was not 
perhaps very difficult to pay even this heavy tax; but when the 
natives were once fairly stript of all that they had, which, in St. 
Domingo, and in all theothercountriesdiscovered by Columbus, 
was done completely in six or eight years, and when, in order to 
find more, it had become necessary to dig for it in the mines, 
there was no longer any possibility of paying this tax. The rigor- 
ousexaction of it, accordingly, first occasioned, itissaid, thetotal 



452 



Adam Smith 



abandoning of the minesof St. Domingo, which have never been 
wrought since. Itwassoon reduced, therefore, to athird; then to a 
fifth; afterwards to a tenth; and at last to a twentieth part of the 
gross produce of the gold mines. The tax upon silver continued 
foralongtimetobeafifthofthegrossproduce. It was reduced to 
a tenth only in the course of the present century. But the first 
adventurers do not appear to have been much interested about 
silver. Nothing less precious than gold seemed worthy of their 
attention. 

All the other enterprizes of the Spaniards in the N ew World, 
subsequent to those of C olumbus, seem to have been prompted 
by the same motive. It was the sacred thirst of gold that carried 
vieda, N icuessa, and Vasco N ugnesde Balboa, to the I sthmus of 
Darien; that carried Cortes to M exico, Almagro and Pizarro to 
Chili and Peru. When those adventurers arrived upon any un- 
known coast, their first inquiry was always if there was any gold to 
be found there; and according to the information which they re- 
ceived concerning this particular, they determined either to quit 
the country or to settle in it. 

Of all those expensive and uncertain projects, however, which 
bring bankruptcy upon the greater part of the people who engage 
in them, there is none, perhaps, more perfectly ruinous than the 
search after new silver and gold mines. It is, perhaps, the most 



disadvantageous lottery in theworld, ortheonein which thegain 
of those who draw the prizes bears the least proportion to the loss 
of those who draw the blanks; for though the prizes are few, and 
the blanks many, the common price of a ticket is the whole for- 
tune of a very rich man. Projects of mining, instead of replacing 
the capital employed in them, together with the ordinary profits 
of stock, commonly absorb both capital and profit. They are the 
projects, therefore, to which, of all others, a prudent lawgiver, who 
desired to in crease the capital of his nation, would least choose to 
give any extraordinary encouragement, or to turn towardsthem a 
greater share of that capital than what would go to them of its 
own accord. Such, in reality, is the absurd confidence which al- 
most all men have in their own good fortune, that wherever there 
istheleast probability of success, too great a share of it isapt to go 
to them of its own accord. 

But though the judgment of sober reason and experience con- 
cerningsuch projectshasalwaysbeen extremely unfavourable, that 
of human avidity has commonly been quite otherwise. The same 
passion which has suggested to so many people the absurd idea of 
the philosopher's stone, has suggested to others theequally absurd 
one of immense rich minesof gold and silver. They did not con- 
sider that the value of those metals has, in all ages and nations, 
arisen chiefly from their scarcity, and that their scarcity has arisen 



453 



The Wealth of Nations 



from thevery small quantities of them which naturehas anywhere 
deposited in one place, from the hard and intractable substances 
with which she has almost everywhere surrounded those small 
quantities, and consequently from the labour and expense which 
are everywhere necessary in order to penetrate, and get at them. 
T hey flattered them selves that vei ns of those metals might i n many 
places be found, as large and as abundant as those which are com- 
monly found of lead, or copper, or tin, or iron. The dream of Sir 
Waiter Raleigh, concerning the golden city and country of El 
Dorado, may satisfy us, that even wise men are not always exempt 
from such strange delusions. M ore than a hundred years after the 
death of that great man, thejesuit Gumila was still convinced of 
the reality of that wonderful country, and expressed, with great 
warmth, and, I daresay, with great sincerity, how happy heshould 
be to carry the light of the gospel to a people who could so well 
reward the pious labours of their missionary. 

In the countries first discovered by the Spaniards, no gold and 
silver mines are at present known which are supposed to be worth 
the working. Thequanti ties of those metals which thefirst adven- 
turers are said to have found there, had probably been very much 
magnified, aswell as the fertility of themines which were wrought 
immediately after thefirst discovery. W hat those adventurers were 
reported to have found, however, was sufficient to inflame the 



avidity of all their countrymen. Every Spaniard who sailed to 
America expected to find an El Dorado. Fortune, too, did upon 
this what she has done upon very few other occasions. She real- 
ized in somemeasuretheextravaganthopesof her votaries; and in 
thediscovery and conquest of Mexico and Peru (of which theone 
happened about thirty, and the other about forty, years after the 
first expedition of Columbus), she presented them with some- 
thing not very unlike that profusion of the precious metals which 
they sought for. 

A project of commerce to the East Indies, therefore, gave occa- 
sion to thefirst discovery of theWest. A project of conquest gave 
occasion to all the establishments of the Spaniardsin thosenewly 
discovered countries. The motive which excited them to this con- 
quest wasa project of gold and silver mines; and a course of acci- 
dents which no human wisdom could foresee, rendered thisproject 
much more successful than the undertakers had any reasonable 
grounds for expecting. 

The first adventurers of all the other nations of Europe who 
attempted to make settlements in America, were animated by the 
like chimerical views; but they were not equally successful. It was 
more than ahundred years after thefirst settlement of the Brazils, 
before any silver, gold, or diamond mines, were discovered there. 
In the English, French, Dutch, and Danish colonies, none have 



454 



Adam Smith 



ever yet been discovered, at least nonethat are at present supposed 
to be worth the working. The first English settlers in North 
America, however, offered a fifth of all the gold and silver which 
should be found there to the king, as a motive for granting them 
their patents. In the patents of Sir Waiter Raleigh, to the London 
and Plymouth companies, to the council of Plymouth, etc. this 
fifth was accordingly reserved to thecrown. To the expectation of 
finding gold and silver mines, those first settlers, too, joined that 
of discovering a north-west passage to the East Indies. They have 
hitherto been disappointed in both. 



PART II 

C auses of the Prosperity of N ew C olonies 

Thecolony of a civilized nation which takes possession either of a 
wastecountry, or of oneso thinly inhabited that thenatives easily 
give pi ace to the new settlers, advances more rapidly to wealth and 
greatness than any other human society. 

The colonies carry out with them a knowledge of agriculture 
and of other useful arts, superior to what can grow up of its own 
accord, in thecourseof many centuries, among savage and barba- 
rous nations. T hey carry out with them, too, the habit of subordi- 
nation, some notion of the regular government which takes place 
in their own country, of the system of laws which support it, and 
of a regular administration of justice; and they naturally establish 
something of the same kind in the new settlement. But among 
savage and barbarous nations, thenatural progressof law and gov- 
ernment is still slower than the natural progress of arts, after law 
and government have been so far established as is necessary for 
their protection. Every colonist gets more land than hecan possi- 
bly cultivate. H e has no rent, and scarce any taxes, to pay. N o 
landlord shares with him in its produce, and, the share of the 
sovereign iscommonly but a trifle. Hehas every motive to render 



455 



The Wealth of Nations 



as great as possible a produce which is thus to be almost entirely 
his own. But his land is commonly so extensive, that, with all his 
own industry, and with all the industry of other people whom he 
can get to employ, he can seldom make it produce the tenth part 
of what it iscapableof producing. H eiseager, therefore, to collect 
labourers from all quarters, and to reward them with the most 
liberal wages. But those liberal wages, joined to the plenty and 
cheapness of land, soon make those labourers leave him, in order 
to become landlordsthemselves, and to reward with equal liberal- 
ity other labourers, who soon leave them for the same reason that 
they left their first master. The liberal reward of labour encourages 
marriage. The children, during the tender years of infancy, are 
well fed and properly taken care of; and when they are grown up, 
thevalueof their labour greatly overpays their maintenance. W hen 
arrived at maturity, the high price of labour, and the low price of 
land, enable them to establish themselves in the same manner as 
their fathers did before them. 

In other countries, rent and profit eat up wages, and the two 
superior orders of people oppress the inferior one; but in new 
colonies, the interest of the two superior orders obliges them to 
treat theinferioronewith more generosity and humanity, at least 
where that inferior one is not in a state of slavery. Wastelands, of 
thegreatest natural fertility, are to be had for a trifle. The increase 



of revenue which the proprietor, who is always the undertaker, 
expects from their improvement, constitutes his profit, which, in 
these circumstances, iscommonly very great; butthisgreat profit 
cannot bemade, without employingthelabour of other peoplein 
clearing and cultivating the land; and the disproportion between 
the great extent of the land and the small number of the people, 
which commonly takes place in new colonies, makes it difficult 
for him to get this labour. He does not, therefore, dispute about 
wages, but is willing to employ labour at any price. T hehigh wages 
of labour encourage population. Thecheapness and plenty of good 
land encourage improvement, and enable the proprietor to pay 
those high wages. I n those wages consists almost the whole price 
of the land; and though they are high, considered as the wages of 
labour, they are low, considered as the price of what is so very 
valuable. What encourages the progress of population and im- 
provement, encourages that of real wealth and greatness. 

The progress of many of the ancient Greek colonies towards 
wealth and greatness seems accordingly to have been very rapid. 
I n the course of a century or two, several of them appear to have 
rivalled, and even to have surpassed, their mother cities. Syracuse 
and Agrigentum in Sicily, Tarentum and Locri in Italy, Ephesus 
and M iletusin Lesser Asia, appear, by all accounts, to have been at 
least equal to any of thecitiesof ancient G reece. T hough posterior 



456 



Adam Smith 



in their establishment, yet all the arts of refinement, philosophy, 
poetry, and eloquence, seem to have been cultivated as early, and 
to have been improved as highly in them as in any part of the 
mother countryT heschoolsof thetwo oldest G reek philosophers, 
thoseofThalesand Pythagoras, were established, itisremarkable, 
not in ancient Greece, but the one in an Asiatic, the other in an 
Italian colony. All those colonies had established themselves in 
countries inhabited by savage and barbarous nations, who easily 
gave place to the new settlers. T hey had plenty of good land; and 
as they were altogether i ndependent of the mother city, they were 
at liberty to manage their own affairsin the way that theyjudged 
was most suitableto their own interest. 

T he history of the Roman colonies is by no means so brilliant. 
Some of them, indeed, such as Florence, have, in the course of 
many ages, and after the fall of the mother city, grown up to be 
considerable states. But the progress of nooneofthemseemsever 
to have been very rapid. They were all established in conquered 
provinces, which in most cases had been fully inhabited before. 
The quantity of land assigned to each colonist was seldom very 
considerable, and, as the colony was not independent, they were 
not always at liberty to manage their own affairs in the way that 
theyjudged was most suitable to their own interest. 

In the plenty of good land, theEuropean colonies established in 



America and the West Indies resemble, and even greatly surpass, 
those of ancient Greece. In their dependency upon the mother 
state, they resemble those of ancient Rome; but their great dis- 
tance from Europe has in all of them alleviated more or less the 
effects of this dependency. Their situation has placed them less in 
the view, and less in the power of their mother country. In pursu- 
ing their interest their own way, their conduct has upon many 
occasions been overlooked, either because not known or not un- 
derstood in Europe; and upon some occasions it has been fairly 
suffered and submitted to, because their distance rendered it diffi- 
cult to restrain it. Even the violent and arbitrary government of 
Spain has, upon many occasions, been obliged to recall or soften 
the orders which had been given for the government of her colo- 
nies, for fear of a general insurrection. The progress of all the Eu- 
ropean colonies in wealth, population, and improvement, has ac- 
cordingly been very great. 

The crown of Spain, by its share of the gold and silver, derived 
some revenue from its colonies from the moment of their first 
establishment. It was a revenue, too, of a nature to excite in hu- 
man avidity themost extravagant expectation of still greater riches. 
The Spanish colonies, therefore, from the moment of their first 
establishment, attracted very much the attention of their mother 
country; while those of the other European nations were for a 



457 



The Wealth of Nations 



long time in a great measure neglected. The former did not, per- 
haps, thrive the better in consequence of this attention, nor the 
latter the worse in consequence of this neglect. In proportion to 
theextent of thecountry which they in some measure possess, the 
Spanish colonies are considered aslesspopulousand thrivingthan 
those of almost any other European nation. The progress even of 
the Spanish colonies, however, in population and improvement, 
has certainly been very rapid and very great. The city of Lima, 
founded since the conquest, isrepresented by Ulloa as containing 
fifty thousand in habitants near thirty years ago. Quito, which had 
been but a miserable hamlet of Indians, isrepresented bythesame 
author as in his time equally populous. Gemel i Carreri, a pre- 
tended traveller, it is said, indeed, but who seems everywhere to 
have written upon extreme good information, represents the city 
of M exico as containing a hundred thousand inhabitants; a num- 
ber which, in spite of all the exaggerations of the Spanish writers, 
is probably more than five times greater than what it contained in 
the time of Montezuma. These numbers exceed greatly those of 
Boston, New York, and Philadelphia, the three greatest cities of 
the English colonies. Before the conquest of the Spaniards, there 
were no cattlefitfor draught, either in M exico or Peru. The lama 
wastheir only beast of burden, and its strength seemsto have been 
a good deal inferior to that of a common ass. The plough was 



unknown among them. They were ignorant of the use of iron. 
They had no coined money, nor any established instrument of 
commerceof any kind. Their commerce was carried on by barter. 
A sort of wooden spade wastheir principal instrument of agricul- 
ture. Sharp stones served them for knives and hatchets to cut with; 
fish bones, and the hard sinews of certain animals, served them 
with needles to sew with; and these seem to have been their prin- 
cipal instruments of trade. In this state of things, it seems impos- 
sible that either of those empires could have been so much im- 
proved or so well cultivated as at present, when they are plentifully 
furnished with all sorts of European cattle, and when the use of 
iron, of the plough, and of many of the arts of Europe, have been 
introduced among them. But the populousness of every country 
must bein proportion to thedegreeof its improvement and cultiva- 
tion. In spite of the cruel destruction of the natives which followed 
the conquest, these two great empires are probably more populous 
now than they ever were before; and the people are surely very dif- 
ferent; for we must acknowledge, I apprehend, that the Spanish 
Creoles are in many respects superior to the ancient I ndians 

After the settlements of theSpaniards, that of the Portuguese in 
Brazil istheoldest of any European nation in America. But as for 
a long time after the first discovery neither gold nor silver mines 
were found in it, and as it afforded upon that account little or no 



458 



Adam Smith 



revenue to the crown, it was for a long time in a great measure 
neglected; and during thisstateof neglect, it grew up to bea great 
and powerful colony. While Portugal was under the dominion of 
Spain, Brazil was attacked by the Dutch, who got possession of 
seven of thefourteen provinces into which it isdivided. They ex- 
pected soon to conquer the other seven, when Portugal recovered 
its independency by theelevation of thefamily of Braganza to the 
throne. The D utch, then, as enemies to the Spaniards, became 
friends to the Portuguese, who were likewise the enemies of the 
Spaniards. T hey agreed, therefore, to leave that part of Brazil which 
they had not conquered to the king of Portugal, who agreed to 
leave that part which they had conquered to them, as a matter not 
worth disputing about, with such good allies. But the D utch gov- 
ernment soon began to oppress the Portuguese colonists, who, 
instead of amusingthem selves with complaints, took armsagainst 
their new masters, and by their own valour and resolution, with 
the connivance, indeed, but without any avowed assistance from 
the mother country, drove them out of Brazil. T he D utch, there 
fore, finding it impossibleto keep any part of thecountry to them- 
selves, were contented that it should be entirely restored to the 
crown of Portugal. I n this colony there are said to be more than 
six hundred thousand people, either Portugueseor descended from 
Portuguese, Creoles, mulattoes, and a mixed race between Portu- 



guese and Brazilians. N o one colony in America is supposed to 
contain so great a number of people of European extraction. 

Towardstheend of the fifteenth, and during thegreater part of 
thesixteenth century, Spain and Portugal werethetwo great naval 
powers upon the ocean; for though the commerce of Venice ex- 
tended to every part of Europe, its fleet had scarce ever sailed be- 
yond the Mediterranean. The Spaniards, in virtue of thefirst dis- 
covery, claimed all America as their own; and though they could 
not hinder so great a naval power as that of Portugal from settling 
in Brazil, such wasat that time the terror of their name, that the 
greater part of the other nations of Europe were afraid to establish 
themselves in any other part of that great continent. T he French, 
who attempted to settlein Florida, were all murdered by theSpan- 
iards. But the declension of the naval power of this latter nation, 
in consequence of the defeat or miscarriage of what they called 
their invincible armada, which happened towardstheend of the 
sixteenth century, put it out of their power to obstruct any longer 
the settlements of the other European nations. I n the course of 
the seventeenth century, therefore, the English, French, Dutch, 
Danes, and Swedes, all the great nations who had any ports upon 
theocean, attempted to make some settlements in thenew world. 

The Swedes established themselves in Newjersey;andthenum- 
berof Swedish families still to be found there sufficiently demon- 



459 



The Wealth of Nations 



strates, that this colony was very likely to prosper, had it been 
protected by the mother country. But being neglected by Sweden, 
it was soon swallowed up by the D utch colony of N ew York, which 
again, in 1674, fell under the dominion of the English. 

The small islands of St. Thomas and Santa Cruz, are the only 
countries in the new world that have ever been possessed by the 
D anes. T hese little settlements, too, were under the government 
of an exclusive company, which had the sole right, both of pur- 
chasingthesurplusproduceofthecolonies, and of supplying them 
with such goods of other countries as they wanted, and which, 
therefore, both in its purchases and sales, had not only the power 
of oppressing them, but the greatest temptation to do so. The 
government of an exclusive company of merchants is, perhaps, 
theworstof all governmentsfor any country whatever. Itwasnot, 
however, able to stop altogether the progress of these colonies, 
though it rendered it more slow and languid. The late king of 
Denmark dissolved this company, and since that time the pros- 
perity of these colonies has been very great. 

TheDutch settlements in theWest, as well asthosein theEast 
I ndies, were originally put under the government of an exclusive 
company. T he progress of some of them, therefore, though it has 
been considerable in comparison with that of almost any country 
that has been long peopled and established, has been languid and 



slow in comparison with that of the greater part of new colonies. 
The colony of Surinam, though very considerable, is still inferior 
to the greater part of the sugar colonies of the other European 
nations. The colony of Nova Belgia, now divided into the two 
provincesof N ew York and N ewj ersey, would probably have soon 
become considerable too, even though it had remained under the 
government of theDutch.Theplenty and cheapness of good land 
are such powerful causes of prosperity, that the very worst govern- 
ment is scarce capable of checking altogether the efficacy of their 
operation. T hegreat distance, too, from themother country, would 
enablethecoloniststoevademoreorless, by smuggling, the mo- 
nopoly which the company enjoyed against them. At present, the 
company allowsall Dutch ships to trade to Surinam, upon paying 
two and a-half per cent, upon thevalueof their cargo for a license; 
and only reserves to itself exclusively, the direct trade from Africa 
to America, which consists almost entirely in the slave trade. This 
relaxation in the exclusive privileges of the company, is probably 
theprincipal cause of that degree of prosperity which that colony 
at present enjoys. Curacoaand Eustatia, thetwo principal islands 
belonging to the D utch, are free ports, open to the ships of all 
nations; and this freedom, in the midst of better colonies, whose 
ports are open to those of one nation only, has been the great 
cause of the prosperity of those two barren islands. 



460 



Adam Smith 



The French colony of Canada was, during the greater part of 
the last century, and some part of the present, under the govern- 
ment of an exclusive company. Under so unfavourable an admin- 
istration, its progresswasnecessarily very slow, in comparison with 
that of other new colonies; but it became much more rapid when 
this company was dissolved, after the fall of what is called the 
M ississippi scheme. When the English got possession of thiscoun- 
try, they found in it near doublethenumber of inhabitants which 
father Charlevoix had assigned to it between twenty and thirty 
years before. T hat Jesuit had travelled over the wholecountry, and 
had no inclination to represent it as less inconsiderable than it 
really was. 

The French colony of St. Domingo was established by pirates 
and freebooters, who, for a long time, neither required the protec- 
tion, nor acknowledged the authority of France; and when that 
race of banditti became so far citizens as to acknowledge this au- 
thority, it was for a long time necessary to exercise it with very 
great gentleness. D uringthisperiod, thepopulation and improve- 
ment of this colony increased very fast. Eventheoppressionofthe 
exclusive company, to which it was for some time subjected with 
all the other colonies of France, though it no doubt retarded, had 
not been able to stop its progress altogether. The course of its 
prosperity returned as soon as it was relieved from that oppres- 



sion. It is now the most important of the sugar colonies of the 
West Indies, and its produce is said to be greater than that of all 
the English sugar colonies put together. T he other sugar colonies 
of France are in general all very thriving. 

But there are no colonies of which the progress has been more 
rapid than that of the English in N orth America. 

Plenty of good land, and liberty to manage their own affairs 
their own way, seem to be thetwo great causes of the prosperity of 
all new colonies. 

In the plenty of good land, the English colonies of North 
America, though no doubt very abundantly provided, are, how- 
ever, inferior to those of the Spaniards and Portuguese, and not 
superior to some of those possessed by the French before the late 
war. But the political institutionsof theEnglish colonies have been 
more favourable to the improvement and cultivation of this land, 
than those of the other three nations. 

First, 

T heengrossing of uncultivated land, though it hasby no means 
been prevented altogether, has been more restrained in the En- 
glish colonies than in any other. The colony law, which imposes 
upon every proprietor the obligation of improving and cultivat- 
ing, within a limited time, a certain proportion of his lands, and 
which, in case of failure, declares those neglected lands grantable 



461 



The Wealth of Nations 



to any other person; though it has not perhaps been very strictly 
executed, has, however, had some effect. 

Secondly, 

In Pennsylvania there is no right of primogeniture, and lands, 
like moveables, are divided equally among all the children of the 
family. In three of the provinces of New England, the oldest has 
onlyadoubleshare, asin theM osaical law.Though in thoseprov- 
inces, therefore, too great a quantity of land should sometimes be 
engrossed by a particular individual, it is likely, in the course of a 
generation or two, to be sufficiently divided again. In the other 
English colonies, indeed, the right of primogeniture takes place, 
asin the law of England: But in all the English colonies, theten- 
ureof thelands, which are all held byfreesoccage, facilitates alien- 
ation; and the grantee of an extensive tract of land generally finds 
it for his interest to alienate, as fast ashecan, thegreater part of it, 
reserving only a small quit-rent. In the Spanish and Portuguese 
colonies, what is called the right of majorazzo takes place in the 
succession of all those great estates to which anytitleof honour is 
annexed. Such estates go all to one person, and are in effect en- 
tailed and unalienable. The French colonies, indeed, aresubjectto 
the custom of Paris, which, in the inheritance of land, is much 
morefavourabletotheyounger children than thelaw of England. 
But, in the French colonies, if any part of an estate, held by the 



nobletenureof chivalry and homage, isalienated, it is, for a lim- 
ited time, subject to the right of redemption, either by the heir of 
thesuperior, or by the heir of thefamily; and all the largest estates 
of the country are held by such noble tenures, which necessarily 
embarrass alienation. But, in a new colony, a great uncultivated 
estate is likely to be much more speedily divided by alienation 
than by succession. T he plenty and cheapnessof good land, it has 
already been observed, are the principal causes of the rapid pros- 
perity of new colonies. The engrossing of land, in effect, destroys 
this plenty and cheapness. Theengrossing of uncultivated land, be- 
sides, is the greatest obstruction to its improvement; butthelabour 
that is employed in the improvement and cultivation of land af- 
fords the greatest and most valuable produce to the society. The 
produce of labour, in thiscase, paysnot only its own wages and the 
profit of the stock which employs it, but the rent of the land too 
upon which it is employed. The labour of the English colonies, 
therefore, being more employed in the improvement and cultiva- 
tion of land, i s I i kely to afford a greater and more valuable produce 
than that of any of theother three nations, which, by theengrossing 
of land, is more or less diverted towards other employments. 

Thirdly, 

The labour of the English colonists isnot only likely to afford a 
greater and more valuable produce, but, in consequence of the 



462 



Adam Smith 



moderation of their taxes, a greater proportion of this produce 
belongs to themselves, which they may store up and employ in 
putting into motion a still greater quantity of labour. T he English 
colonists have never yet contributed any thing towards the de- 
fence of the mother country, or towards the support of its civil 
government. They themselves, on thecontrary, have hitherto been 
defended almost entirely at the expense of the mother country; 
but the expense of fleets and armiesisout of all proportion greater 
than the necessary expense of civil government. T he expense of 
their own civil government has always been very moderate. It has 
generally been confined to what was necessary for paying compe- 
tent salaries to the governor, to the judges, and to some other 
officers of police, and for maintaining a few of the most useful 
public works.Theexpense of thecivil establishment of M assachu- 
setts Bay, before the commencement of the present disturbances, 
used to bebut about £18;000 a-year; that of N ew H ampshireand 
Rhode Island, £3500 each; that of Connecticut, £4000; that of 
New York and Pennsylvania, £4500 each; that of New Jersey, 
£1200; that of Virginia and South Carolina, £8000 each. The 
civil establishments of Nova Scotia and Georgia are partly sup- 
ported by an annual grant of parliament; but N ova Scotia pays, 
besides, about £7000 a-year towards the public expenses of the 
colony, and Georgia about £2500 a-year. All the different civil 



establishments in North America, in short, exclusive of those of 
Maryland and North Carolina, of which no exact account has 
been got, did not, before the commencement of the present dis- 
turbances, cost the inhabitants about £64,700 a-year; an ever 
memorable example, at how small an expense three millions of 
people may not only be governed but well governed. The most 
important part of the expense of government, indeed, that of de- 
fence and protection, hasconstantly fallen upon themother coun- 
try. The ceremonial, too, of thecivil government in the colonies, 
upon the reception of a new governor, upon theopening of anew 
assembly, etc. though sufficiently decent, is not accompanied with 
any expensive pomp or parade. Their ecclesiastical government is 
conducted upon apian equallyfrugal. Tithes areunknown among 
them; and their clergy, who are far from being numerous, are 
maintained either by moderate stipends, or by thevoluntary con- 
tributions of the people. The power of Spain and Portugal, on the 
contrary, derives some support from the taxes levied upon their 
colonies. France, indeed, has never drawn any considerable rev- 
enuefrom its colonies, the taxes which it levies upon them being 
generally spent among them. But the colony government of all 
these threenationsisconducted upon amuch moreextensiveplan, 
and isaccompanied with amuch more expensiveceremonial. The 
sums spent upon the reception of a new viceroy of Peru, for ex- 



463 



The Wealth of Nations 



ample, have frequently been enormous. Such ceremonials are not 
only real taxes paid by the rich colonists upon those particular 
occasions, but they serve to introduce among them the habit of 
vanity and expense upon all other occasions. They are not only 
very grievous occasional taxes, but they contribute to establish 
perpetual taxes, of the same kind, still more grievous; theruinous 
taxes of private luxury and extravagance. In the colonies of all 
those three nations, too, the ecclesiastical government isextremely 
oppressive.Tithestakeplacein all of them, and arelevied with the 
utmost rigour in those of Spain and Portugal. All of them, be- 
sides, are oppressed with a numerous race of mendicant friars, 
whose beggary being not only licensed but consecrated by reli- 
gion, is a most grievous tax upon the poor people, who are most 
carefully taught that it is a duty to give, and a very great sin to 
refuse them their charity. Over and above all this, thedergyare, in 
all of them, the greatest engrossers of land. 

Fourthly, 

I n the disposal of their surplus produce, or of what is over and 
above theirown consumption, theEnglish colonieshave been more 
favoured, and have been allowed a more extensive market, than 
those of any other European nation. Every European nation has 
endeavoured, more or less, to monopolize to itself the commerce 
of its colonies, and, upon that account, hasprohibited theshipsof 



foreign nations from trading to them, and has prohibited them 
from importing European goodsfrom any foreign nation. But the 
manner in which this monopoly has been exercised in different 
nations, has been very different. 

Some nations have given up the whole commerce of their colo- 
nies to an exclusive company, of whomthecolonistswereobliged 
to buy all such European goods as they wanted, and to whom 
they wereobliged to sell the wholeof their surplusproduce. It was 
the interest of the company, therefore, not only to sell theformer 
as dear, and to buy the latter as cheap as possible, but to buy no 
more of the latter, even at this low price, than what they could 
dispose of for a very high pricein Europe. It was their interest not 
onlytodegradein all cases thevalueofthesurplusproduce of the 
colony, but in many cases to discourage and keep down the natu- 
ral increase of its quantity. Of all the expedients that can well be 
contrived to stunt the natural growth of a new colony, that of an 
exclusive company is undoubtedly the most effectual. This, how- 
ever, has been the policy of H olland, though their company, in 
the course of the present century, has given up in many respects 
the exertion of their exclusive privilege. This, too, was the policy 
of Denmark, till thereign of thelate king. It has occasionally been 
the policy of France; and of late, since 1755, after it had been 
abandoned by all other nations on account of its absurdity, it has 



464 



Adam Smith 



become the policy of Portugal, with regard at least to two of the 
principal provinces of Brazil, Pernambucco, and M arannon. 

ther nations, without establishing an exclusivecompany, have 
confined the whole commerce of their colonies to a particular 
port of the mother country, from whence no ship was allowed to 
sail, but either in a fleet and at a particular season, or, if single, in 
consequence of a particular license, which in most cases was very 
well paid for. This policy opened, indeed, thetradeofthecolonies 
to all the natives of the mother country, provided they traded from 
the proper port, at the proper season, and in the proper vessels. 
But as all thedifferent merchants, who joined their stocks in order 
to fit out those licensed vessels, would find it for their interest to 
act in concert, thetradewhich was carried on in thismanner would 
necessarily be conducted very nearly upon the same principles as 
that of an exclusive company. Theprofit of those merchants would 
be almost equally exorbitant and oppressive. T he colonies would 
be ill supplied, and would be obliged both to buy very dear, and 
to sell very cheap. This, however, till within these few years, had 
always been the policy of Spain; and the price of all European 
goods, accordingly, is said to have been enormous in the Spanish 
West Indies. At Quito, we are told byUlloa, a pound of iron sold 
for about 4s:6d., and a pound of steel for about 6s:9d. sterling. 
But it is chiefly in order to purchase European goods that the 



colonies part with their own produce. The more, therefore, they 
payfortheone, theless they really get for theother, andthedear- 
ness of the one is the same thing with the cheapness of the other. 
The policy of Portugal is, in thisrespect, the same as the ancient 
policy of Spain, with regard to all its colonies, except Pernambucco 
and M arannon; and with regard to these it has lately adopted a 
still worse. 

Other nations leave the trade of their colonies free to all their 
subjects, who may carry it on from all the different ports of the 
mother country, and who have occasion for no other license than 
the common despatches of the custom-house. In this case the 
number and dispersed situation of the different traders renders it 
impossible for them to enter into any general combination, and 
their competition is sufficient to hinder them from making very 
exorbitant profits. Under so liberal a policy, the colonies are en- 
abled both to sell their own produce, and to buy the goods of 
Europe at a reasonable price; but since the dissolution of the Ply- 
mouth company, when our colonies were but in their infancy, this 
has always been the policy of England. It has generally, too, been 
that of France, and has been uniformly so since the dissolution of 
what in England is commonly called their M ississippi company. 
The profits of the trade, therefore, which France and England 
carry on with their colonies, though no doubt somewhat higher 



465 



The Wealth of Nations 



than if the competition were free to all other nations, are, how- 
ever, by no means exorbitant; and the price of European goods, 
accordingly, is not extravagantly high in the greater past of the 
colonies of either of those nations. 

I n the exportation of their own surplus produce, too, it is only 
with regard to certain commodities that thecolonies of Great Brit- 
ain areconfined to themarket of themother country. T hese com- 
modities having been enumerated in the act of navigation, and in 
some other subsequent acts, have upon that account been called 
enumerated commodities. The rest are called non-enumerated, 
and may be exported directly to other countries, provided it is in 
British or plantation ships, of which theownersand three fourths 
of the mariners are British subjects. 

Among thenon-enumeratedcommoditiesaresomeof the most 
important productions of America and the West Indies, grain of 
all sorts, lumber, salt provisions, fish, sugar, and rum. 

Grain is naturally thefirst and principal object of the culture of al I 
new colonies. By allowingthem avery extensive market for it, thelaw 
encourages them to extend this culture much beyond the consump- 
tion of athinly inhabited country, and thusto provide beforehand an 
ample subsistence for a continually increasing population. 

In a country quite covered with wood, where timber conse- 
quently isof little or no value, theexpenseof clearing theground 



istheprincipal obstacleto improvement. Byallowingthecolonies 
a very extensive market for their lumber, the law endeavours to 
facilitate improvement by raising the priceof a commodity which 
would otherwise be of little value, and thereby enabling them to 
make some profit of what would otherwise be mere expense. 

I n a country neither half peopled nor half cultivated, cattle natu- 
rally multiply beyond the consumption of the inhabitants, and are 
often, upon that account, of little or no value. But it is necessary, it 
has already been shown, that thepriceof cattleshould bearacertain 
proportion to that of corn, before the greater part of the lands of 
any country can beimproved. By allowing to American cattle, in all 
shapes, dead and alive, avery extensive market, thelaw endeavours 
to raise the value of a commodity, of which the high priceissovery 
essential to improvement. The good effects of this liberty, however, 
must be somewhat diminished by the 4th of Geo. III. c. 15, which 
puts hides and skins among the enumerated commodities, and 
thereby tends to reduce the value of American cattle. 

To increase the shipping and naval power of Great Britain by 
the extension of the fisheries of our colonies, is an object which 
thelegislatureseemsto have had almost constantly in view.Those 
fisheries, upon thisaccount, havehad all theencouragement which 
freedom can give them, and they have flourished accordingly. The 
New England fishery, in particular, was, before the late distur- 



466 



Adam Smith 



bances, one of the most important, perhaps, in the world. The 
whalefishery which, notwithstanding an extravagant bounty, isin 
Great Britain carried on to so little purpose, that in theopinion of 
many people ( which I do not, however, pretend to warrant), the 
whole produce does not much exceed the value of the bounties 
which are annually paid for it, is in N ew England carried on, with- 
out any bounty, to a very great extent. Fish is one of the principal 
articles with which the North Americans trade to Spain, Portugal, 
and the Mediterranean. 

Sugar was originally an enumerated commodity, which could 
only be exported to Great Britain; but in 1751, upon a represen- 
tation of the sugar- planters, its exportation was permitted to all 
parts of the world. The restrictions, however, with which this lib- 
erty \was granted, joined to the high price of sugar in Great Brit- 
ain, have rendered it in a great measure in effectual. Great Britain 
and her colonies still continue to be almost thesolemarket for all 
sugar produced in the British plantations. T heir consumption in- 
creases so fast, that, though in consequence of the increasing im- 
provement ofjamaica, aswell asoftheceded islands, theimporta- 
tion of sugar has increased very greatly within these twenty years, 
the exportation to foreign countries is said to be not much greater 
than before. 

Rum is a very important article in the trade which the Ameri- 



cans carry on to the coast of Africa, from which they bring back 
negro slaves in return. 

If thewholesurplusproduceof America, in grain of all sorts, in 
salt provisions, and in fish, had been put into the enumeration, 
and thereby forced into the market of Great Britain, it would have 
interfered too much with the produce of the industry of our own 
people. 1 1 was probably not so much from any regard to the inter- 
est of America, as from a jealousy of this interference, that those 
important commodities have not only been kept out of the enu- 
meration, but that the importation into Great Britain of all grain, 
except rice, and of all salt provisions, has, in the ordinary state of 
the law, been prohibited. 

The non-enumerated commodities could originally be exported 
to all parts of the world. Lumber and rice having been once put 
into the enumeration, when they were afterwards taken out of it, 
wereconfined, as to the European market, to thecountries that lie 
south of Cape Finisterre. By the 6th of G eorge III. c. 52, all non- 
enumerated commodities were subjected to the like restriction. 
The parts of Europe which lie south of Cape Finisterre are not 
manufacturing countries, and we are less jealous of the colony 
ships carrying home from them any manufactures which could 
interfere with our own. 

The enumerated commodities are of two sorts; first, such as are 



467 



The Wealth of Nations 



either the peculiar produceof America, or as cannot beproduced, 
or at least are not produced in the mother country. Of this kind 
are molasses, coffee, cocoa-nuts, tobacco, pimento, ginger, 
whalefins, raw silk, cotton, wool, beaver, and other peltry of 
America, indigo, fustick, and other dyeing woods; secondly, such 
as are not the peculiar produce of America, but which are, and 
may beproduced in the mother country, though not in such quan- 
tities as to supply the greater part of her demand, which is princi- 
pally supplied from foreign countries. Of this kind are all naval 
stores, masts, yards, and bowsprits, tar, pitch, and turpentine, pig 
and bariron, copper ore, hides and skins, pot and pearl ashes. The 
largest importation of commodities of the first kind could not 
discourage thegrowth, or interfere with thesale, of any part of the 
produce of the mother country. By confining them to the home 
market, our merchants, it was expected, would not only be en- 
abled to buy them cheaper in the plantations, and consequently 
to sell them with a better profit at home, but to establish between 
the plantations and foreign countries an advantageous carrying 
trade, of which Great Britain was necessarily to be the centre or 
emporium, as the European country into which those commodi- 
tieswerefirsttobeimported.Theimportationofcommoditiesof 
the second kind might be so managed too, it was supposed, as to 
interfere, not with the sale of those of the same kind which were 



produced at home, but with that of those which were imported 
from foreign countries; because, by means of proper duties, they 
might be rendered always somewhat dearer than the former, and 
yet a good deal cheaper than the latter. By confining such com- 
modities to the home market, therefore, it was proposed to dis- 
courage the produce, not of Great Britain, but of some foreign 
countries with which the balance of trade was believed to be 
unfavourable to Great Britain. 

The prohibition of exporting from the colonies to any other 
country but Great Britain, masts, yards, and bowsprits, tar, pitch, 
and turpentine, naturally tended to lower the price of timber in 
thecolonies, and consequently to in crease the expense of clearing 
their lands, theprincipal obstacleto their improvement. But about 
the beginning of the present century, in 1703, the pitch and tar 
company of Sweden endeavoured to raise the price of their com- 
modities to Great Britain, by prohibiting their exportation, ex- 
cept in their own ships, at their own price, and in such quantities 
as they thought proper. In order to counteract this notable piece 
of mercantile policy, and to render herself as much as possible 
independent, not only of Sweden, but of all the other northern 
powers, Great Britain gavea bounty upon the importation of na- 
val stores from America; and the effect of this bounty was to raise 
thepriceof timber in America much more than the confinement 



468 



Adam Smith 



to the home market could lower it; and as both regulations were 
enacted at thesametime, their joint effect was rather to encourage 
than to discourage the clearing of land in America. 

Though pig and bar iron, too, have been put among the enu- 
merated commodities, yet as, when imported from America, they 
are exempted from considerable duties to which they are subject 
when imported front any other country, the one part of the regu- 
lation contributes more to encourage the erection of furnaces in 
America than the other to discourage it. T here is no manufacture 
which occasions so great a consumption of wood as a furnace, or 
which can contribute so much to the clearing of a country over- 
grown with it. 

T he tendency of some of these regulations to raise the value of 
timber in America, and thereby to facilitate the clearing of the 
land, was neither, perhaps, intended nor understood by the legis- 
lature. Though their beneficial effects, however, have been in this 
respect accidental, they have not upon that account been less real. 

The most perfect freedom of trade is permitted between the 
British colonies of America and the West Indies, both in the enu- 
merated and in the non-enumerated commoditiesT hose colonies 
are now become so populous and thriving, that each of them finds 
in someoftheothersa great and exten si vemarket for every part of 
i ts p rod u ce. A 1 1 of th em taken togeth er, th ey m ake a great i n tern al 



market for the produce of one another. 

The liberality of England, however, towards the trade of her 
colonies, has been confined chiefly to what concerns the market 
for their produce, either in its rude state, or in what may be called 
the very first stage of manufacture. T he more advanced or more 
refined manufactures, even of the colony produce, the merchants 
and manufacturers of Great Britain chuseto reserve to themselves, 
and have prevailed upon thelegislatureto prevent their establish- 
ment in the colonies, sometimes by high duties, and sometimes 
by absolute prohibitions. 

W hile, for example, M uscovado sugars from the British planta- 
tions pay, upon importation, only 6s:4d. thehundred weight, white 
sugars pay £1:1:1; and refined, either double or single, in loaves, 
£4:2:5 8/20ths. W hen thosehigh duties were imposed, Great Brit- 
ain was the sole, and she still continues to be, the principal mar- 
ket, to which the sugars of the British colonies could be exported. 
They amounted, therefore, to a prohibition, at first of claying or 
refining sugar for any foreign market, and at present of claying or 
refining it for the market which takes off, perhaps, more than 
nine-tenths of the whole produce. The manufacture of claying or 
refining sugar, accordingly, though it hasflourished in all thesugar 
colonies of France, has been little cultivated in any of those of 
England, except for the market of the colonies themselves. W hile 



469 



The Wealth of Nations 



Grenada was in the hands of the French, there was a refinery of 
sugar, by claying, at least upon almost every plantation. Since it 
fell into those of the English, almost all works of this kind have 
been given up; and there are at present (October 1773), I am 
assured, not above two or three remaining in theisl and. At present, 
however, by an indulgenceofthecustom-house, clayed or refined 
sugar, if reduced from loaves into powder, is commonly imported 
as M uscovado. 

While Great Britain encourages in America the manufacturing 
of pig and bar iron, by exempting them from duties to which the 
I ike commodities are subject when imported from any other coun- 
try, sheimposesan absoluteprohibition upon theerection of steel 
furnaces and slit-mills in any of her American plantations. She 
will not suffer her colonies to work in those more refined manu- 
factures, even for their own consumption; but insists upon their 
purchasing of her merchants and manufacturers all goods of this 
kind which they have occasion for. 

She prohibits the exportation from oneprovinceto another by 
water, and even the carriage by land upon horseback, or in a cart, 
of hats, of wools, and woollen goods, of the produce of America; 
a regulation which effectually prevents the establishment of any 
manufacture of such commodities for distant sale, and confines 
the industry of her colonists in this way to such coarse and house- 



hold manufactures as a private family commonly makes for its 
own use, or for that of some of its neighbours in the same prov- 
ince. 

To prohibit a great people, however, from making all that they 
can of every part of their own produce, or from employing their 
stock and industry in the way that theyjudge most advantageous 
to themselves, is a manifest violation of the most sacred rights of 
mankind. Unjust, however, as such prohibitionsmay be, they have 
not hitherto been very hurtful to thecolonies. Land isstill so cheap, 
and, consequently, labour so dear among them, that they can im- 
port from themother country almost all themore refined or more 
advanced manufactures cheaper than they could make them for 
themselves. Though they had not, therefore, been prohibited from 
establishing such manufactures, yet, in their present state of im- 
provement, a regard to their own interest would probably have 
prevented them from doing so. In their present state of improve- 
ment, those prohibitions, perhaps, without crampingtheir indus- 
try, or restraining it from any employment to which it would have 
gone of its own accord, are only impertinent badges of slavery 
imposed upon them, without any sufficient reason, bytheground- 
less jealousy of the merchants and manufacturers of the mother 
country. In a more advanced state, they might be really oppressive 
and insupportable. 



470 



Adam Smith 



Great Britain, too, as she confines to her own market some of 
themost important productionsofthecolonies, so, in compensa- 
tion, shegivesto someof them an advantage in that market, some- 
times by imposing higher duties upon the like productions when 
imported from other countries, and sometimes by giving boun- 
tiesupon their importation from thecolonies. In the first way, she 
gives an advantage in the home market to the sugar, tobacco, and 
iron of her own colonies; and, in the second, to their raw silk, to 
their hemp and flax, to their indigo, to their naval stores, and to 
their buildingtimber. Thissecond way of encouraging thecolony 
produce, by bounties upon importation, is, so far as I have been 
able to learn, peculiar to Great Britain: the first is not. Portugal 
does not content herself with imposing higher duties upon the 
importation of tobacco from any other country, but prohibits it 
under the severest penalties. 

With regard to the importation of goodsfrom Europe, England has 
likewise dealt moreliberally with her colonies than any other nation. 

Great Britain allows a part, almost always the half, generally a 
larger portion, and sometimes the whole, of the duty which is 
paid upon the importation of foreign goods, to be drawn back 
upon their exportation to any foreign country. No independent 
foreign country, it was easy to foresee, would receive them, if they 
cameto it loaded with the heavy dutiesto which almost all foreign 



goods are subjected on their importation into Great Britain. Un- 
less, therefore, some part of those duties was drawn back upon 
exportation, there was an end of the carrying trade; a trade so 
much favoured by the mercantile system. 

ur colonies, however, are by no means independent foreign 
countries; and Great Britain having assumed to herself the exclu- 
sive right of supplying them with all goods from Europe, might 
have forced them (in the same manner as other countries have 
donetheir colonies) to receive such goods loaded with all thesame 
duties which they paid in the mother country. But, on the con- 
trary, till 1763, the same drawbacks were paid upon the exporta- 
tion of the greater part of foreign goods to our colonies, as to any 
independent foreign country. In 1763, indeed, by the4th of Geo. 
1 1 1 . c. 15, this indulgence was a good deal abated, and it was en- 
acted, "That no part of the duty called the old subsidy should be 
drawn back for any goods of the growth, production, ormanufac- 
tureof Europe or the East Indies, which should be exported from 
thiskingdom to any British colony or plantation in America; wines, 
white calicoes, and muslins, excepted." Before this law, many dif- 
ferent sorts of foreign goods might have been bought cheaper in 
the plantations than in the mother country, and some may still. 

Of the greater part of the regulations concerning the colony 
trade, the merchants who carry it on, it must be observed, have 



471 



The Wealth of Nations 



been the principal advisers. We must not wonder, therefore, if, in 
a great part of them, their interest has been more considered than 
either that of the colonies or that of the mother country. I n their 
exclusive privilege of supplying the colonies with all the goods 
which they wanted from Europe, and of purchasing all such parts 
of their surplus produce as could not interfere with any of the 
trades which they themselves carried on at home, the interest of 
the colonies was sacrificed to the interest of those merchants. I n 
allowing thesamedrawbacksupon there-exportation of thegreater 
part of European and East India goods to the colonies, as upon 
their re-exportation to any independent country, the interest of 
the mother country was sacrificed to it, even according to the 
mercantile ideas of that interest. It was for the interest of the mer- 
chants to pay as little as possiblefor theforeign goods which they 
sent to the colonies, and, consequently, to get back as much as 
possible of the duties which they advanced upon their importa- 
tion into Great Britain. They might thereby be enabled to sell in 
thecolonies, either the same quantity of goods with agreater profit, 
or a greater quantity with the same profit, and, consequently, to 
gain something either in theone way or the other. It waslikewise 
for the interest of the colonies to get all such goods as cheap, and 
in asgreat abundance as possible. But this might not always befor 
the interest of the mother country. She might frequently suffer, 



both in her revenue, by giving backagreat part of theduties which 
had been paid upon the importation of such goods; and in her 
manufactures, by being undersold in the colony market, in conse- 
quence of the easy terms upon which foreign manufactures could 
be carried thither by means of those drawbacks. T he progress of 
the linen manufacture of Great Britain, it is commonly said, has 
been a good deal retarded by the drawbacks upon there-exporta- 
tion of German linen to the American colonies. 

But though the policy of Great Britain, with regard to the trade 
of her colonies, has been dictated bythesamemercantilespiritas 
that of other nations, it has, however, upon the whole, been less 
illiberal and oppressive than that of any of them. 

I n every thing except their foreign trade, the liberty of the En- 
glish colonists to manage their own affairs their own way, iscom- 
plete. It is in every respect equal to that of their fellow-citizens at 
home, and is secured in the same manner, by an assembly of the 
representatives of the people, who claim the sole right of impos- 
ing taxes for thesupport of thecolony government. Theauthority 
of this assembly overawes the executive power; and neither the 
meanest nor the most obnoxious colonist, as long as he obeys the 
law, has anythingto fear from the resentment, either of thegover- 
nor, or of any other civil or military officer in the province. The 
colony assemblies, though, likethehouseofcommonsin England, 



472 



Adam Smith 



they are not always a very equal representation of the people, yet 
they approach more nearly to that character; and as the executive 
power either has not themeans to corrupt them, or, on account of 
the support which it receives from the mother country, isnot un- 
der the necessity of doing so, they are, perhaps, in general more 
influenced by the inclinationsof their constituents. The councils, 
which, in thecolony legislatures, correspond to thehouseof lords 
in Great Britain, are not composed of a hereditary nobility. In 
some of the colonies, as in three of the governments of New En- 
gland, those councils are not appointed by the king, but chosen 
by the representatives of the people. In noneof theEnglish colo- 
nies isthereany hereditary nobility. In all of them, indeed, asin all 
other free countries, the descendant of an old colony family is 
more respected than an upstart of equal merit and fortune; but he 
is only more respected, and he has no privileges by which he can 
be troublesome to his neighbours. Before the commencement of 
the present disturbances, the colony assemblies had not only the 
legislative, but a part of the executive power. In Connecticut and 
Rhode Island, they elected the governor. In the other colonies, 
they appointed the revenue officers, who collected the taxes im- 
posed by those respective assemblies, to whom those officers were 
immediately responsibleThereismoreequality, therefore, among 
the English colonists than among the inhabitants of the mother 



country. Their manners are more re publican; and their govern- 
ments, thoseof three of the provinces of N ew England in particu- 
lar, have hitherto been more republican too. 

The absolute governments of Spain, Portugal, and France, on 
the contrary, take place in their colonies; and the discretionary 
powers which such governments commonly delegate to all their 
inferior officers are, on account of the great distance, naturally 
exercised therewith more than ordinary violence. Under all abso- 
lute governments, there is more liberty in the capital than in any 
other part of the country. The sovereign himself can never have 
either interest or inclination to pervert the order of justice, or to 
oppress the great body of the people. I n the capital, his presence 
overawes, moreorless, all hisinferior officers, who, in theremoter 
provinces, from whence thecomplaints of the people are I ess likely 
to reach him, can exercise their tyranny with much more safety. 
But the European colonies in America are more remote than the 
mostdistantprovincesofthegreatestempireswhich had ever been 
known before. The government of the English colonies is, per- 
haps, the only one which, since the world began, could give per- 
fect security to the inhabitants of so very distant a province. The 
administration of the French colonies, however, has always been 
conducted with much more gentleness and moderation than that 
of the Spanish and Portuguese. T his superiority of conduct issuit- 



473 



The Wealth of Nations 



able both to thecharacter of the French nation, and to what forms 
the character of every nation, the nature of their government, 
which, though arbitrary and violent in comparison with that of 
Great Britain, is legal and free in comparison with those of Spain 
and Portugal. 

It is in the progress of the N orth American colonies, however, 
that thesuperiority of theEnglish policy chiefly appears."!" heprogress 
of thesugar colonies of Francehas been at least equal, perhapssupe- 
ri or, to th at of th e greater part of th ose of E n gl an d ; an d yet th e su gar 
colonies of England enjoy a free government, nearly of the same 
kind with that which takes place in her colonies of North America. 
But the sugar colonies of France are not discouraged, like those of 
England, from refining their own sugar; and what is still of greater 
importance, the geniusof their government naturally introducesa 
better management of their negro slaves. 

In all European colonies, thecultureofthesugar-caneiscarried 
on by negro slaves. The constitution of those who have been born 
in thetemperatedimateof Europe could not, it issupposed, sup- 
port the labour of digging the ground under the burning sun of 
the West I ndies; and the culture of the sugar-cane, as it is man- 
aged at present, isall hand labour; though, in theopinion of many, 
thedrill plough might beintroduced into it with great advantage. 
But, as the profit and successof thecultivation which iscarried on 



by means of cattle, depend very much upon the good manage- 
ment of those cattle; so the profit and success of that which is 
carried on by slaves must depend equally upon the good manage- 
ment of those slaves; and in the good management of their slaves 
the French planters, I think it is generally allowed, are superior to 
the English. T he law, so far as it gives some weak protection to the 
slave against the violence of his master, is likely to be better ex- 
ecuted in a colony where the government is in a great measure 
arbitrary, than in one where it is altogether free. I n ever country 
where theunfortunatelaw of slavery isestablished, the magistrate, 
when he protects the slave, intermeddles in some measure in the 
management of the private property of the master; and, in a free 
country, where the master is, perhaps, either a member of thecolony 
assembly, or an elector of such a member, hedaresnotdothisbut 
with the greatest caution and circumspection. The respect which 
heisobligedtopaytothemaster, renders it moredifficult for him 
to protect the slave. But in a country where thegovernmentisin a 
great measure arbitrary, whereit isusual for the magistrate to in- 
termeddle even in the management of the private property of in- 
dividuals, and to send them, perhaps, a lettrede cachet, if they do 
not manage it according to his liking, it is much easier for him to 
give some protection to the slave; and common humanity natu- 
rally disposes him to do so. T he protection of the magistrate ren- 



474 



Adam Smith 



ders the slave less contemptible in the eyes of his master, who is 
thereby induced to consider him with more regard, and to treat 
him with more gentleness. Gentleusage renders theslavenot only 
more faithful, but more intelligent, and, therefore, upon a double 
account, more useful. He approaches more to the condition of a 
free servant, and may possess some degree of integrity and attach- 
ment to his master's interest; virtues which frequently belong to 
free servants, but which never can belong to a slave, who istreated 
as slaves commonly are in countries where the master is perfectly 
free and secure. 

That the condition of a slave is better under an arbitrary than 
under a free government, is, I believe, supported by the history of 
all ages and nations. In theRoman history, the first time we read 
of the magistrate interposing to protect the slave from the vio- 
lence of his master, is under theemperors. When Vidius Pollio, in 
the presence of Augustus, ordered one of his slaves, who had com- 
mitted a slight fault, to be cut into pieces and thrown into hisfish- 
pond, in order to feed his fishes, the emperor commanded him, 
with indignation, to emancipateimmediately, not only that slave, 
but all the others that belonged to him. U nder the republic no 
magistrate could have had authority enough to protect the slave, 
much less to punish the master. 

The stock, it is to be observed, which has improved the sugar 



colonies of France, particularly the great colony of St Domingo, 
has been raised almost entirely from the gradual improvement 
and cultivation of those colonies. Ithasbeen almost altogether the 
produce of the soil and of the industry of the colonists, or, what 
comes to the same thing, the price of that produce, gradually ac- 
cumulated by good management, and employed in raising a still 
greater produce. But thestock which hasimproved and cultivated 
thesugar colonies of England, has, a great part of it, been sent out 
from England, and has by no means been altogether the produce 
of the soil and industry of the colonists. The prosperity of the 
English sugar colonies has been in a great measure owing to the 
great riches of England, of which a part has overflowed, if one 
may say so, upon these colonies. But the prosperity of the sugar 
coloniesof Francehas been entirely owing to the good conduct of 
thecolonists, which must therefore have had somesuperiority over 
that of the English; and this superiority has been remarked in 
nothing so much as in the good management of their slaves. 

Such have been the general outlines of the policy of the differ- 
ent European nations with regard to their colonies. 

The policy of Europe, therefore, has very little to boast of, ei- 
ther in the original establishment, or, so far as concerns their in- 
ternal government, in the subsequent prosperity of thecoloniesof 
America. 



475 



The Wealth of Nations 



Folly and injustice seem to have been the principles which pre- 
sided over and directed thefirst project of establishing those colo- 
nies; the folly of hunting after gold and silver mines, and the in- 
justice of coveting the possession of a country whose harmless 
natives, far from having ever injured the people of Europe, had 
received the first adventurers with every mark of kindness and 
hospitality. 

The adventurers, indeed, who formed some of the latter estab- 
lishments, joined to the chimerical project of finding gold and sil- 
ver mines, other motives more reasonable and more laudable; but 
even these motives do very little honour to the policy of Europe. 

The English puritans, restrained at home, fled for freedom to 
America, and established there the four governments of New En- 
gland. The English catholics, treated with much greater injustice, 
established that of M aryland; the quakers, that of Pennsylvania. 
T he Portuguesejews, persecuted by theinquisition, stript of their 
fortunes, and banished to Brazil, introduced, by their example, 
somesort of order and industry amongthetran sported felonsand 
strumpets by whom that colony wasoriginally peopled, and taught 
them the culture of the sugar-cane. Upon all these different occa- 
sions, it was not the wisdom and policy, but the disorder and in- 
justice of the European governments, which peopled and culti- 
vated America. 



I n effectuation some of the most important of these establish- 
ments, the different governments of Europe had as little merit as 
in projecting them. The conquest of M exico was the project, not 
of the council of Spain, but of a governor of Cuba; and it was 
effectuated by the spirit of the bold adventurer to whom it was 
entrusted, in spite of everything which that governor, who soon 
repented of having trusted such a person, could do to thwart it. 
The conquerors of Chili and Peru, and of almost all the other 
Spanish settlements upon the continent of America, carried out 
with them no other public encouragement, but a general permis- 
sion to make settlements and conquestsin thenameof thekingof 
Spain. Those adventures were all at the private risk and expense of 
theadventurers.Thegovernment of Spain contributed scarce any 
thing to any of them. That of England contributed as little to- 
wards effectuating the establishment of some of its most impor- 
tant colonies in N orth America. 

When those establishments were effectuated, and had become 
so considerable as to attract the attention of the mother country, 
the first regulations which she made with regard to them, had 
always in view to secure to herself the monopoly of their com- 
merce; to confine their market, and to enlarge her own at their 
expense, and, consequently, rather to damp and discourage, than 
to quicken and forward the course of their prosperity. In thedif- 



476 



Adam Smith 



ferent ways in which this monopoly has been exercised, consists 
one of the most essential differences in the policy of the different 
European nations with regard to their colonies The best of them 
all, that of England, is only somewhat less illiberal and oppressive 
than that of any of the rest. 

In what way, therefore, has the policy of Europe contributed 
either to thefirst establishment, or to the present grandeur of the 
colonies of America? In oneway, and in oneway only, it has con- 
tributed a good deal. M agnavirum mater! It bred and formed the 
men who were capable of achieving such great actions, and of 
laying thefoundation of so great an empire; and there is no other 
quarter of the world; of which the policy is capable of forming, or 
has ever actually, and in fact, formed such men. The colonies owe 
to the policy of Europe the education and great views of their 
active and enterprizing founders; and some of the greatest and 
most important of them, so far as concerns their internal govern- 
ment, owe to it scarce anything else. 



PART III 

Of the Advantages which Europe has derived From the 

D iscovery of America, and from that of a Passage to the 

East Indies by the Cape of Good Hope 

Such are the advantages which the colonies of America have 
derived from the policy of Europe. 

What are those which Europe has derived from the discovery 
and colonization of America? 

Those advantages may be divided, first, into the general advan- 
tages which Europe, considered as one great country, has derived 
from those great events; and, secondly, into the particular advan- 
tages which each colonizing country has derived from the colo- 
nies which particularly belong to it, in consequenceof theauthor- 
ity or dominion which it exercises over them. 

The general advantages which Europe, considered as one great 
country, has derived from the discovery and colonization of 
America, consist, first, in the increase of its enjoyments; and, sec- 
ondly, in the augmentation of its industry. 

The surplus produce of America imported into Europe, fur- 
nishes the inhabitants of this great continent with a variety of 
commodities which they could not otherwisehave possessed; some 



477 



The Wealth of Nations 



for conveniency and use, some for pleasure, and some for orna- 
ment; and thereby contributes to increase their enjoyments. 

The discovery and colonization of America, it will readily be 
allowed, have contributed to augment the industry, first, of all the 
countries which tradeto it directly, such as Spain, Portugal, France, 
and England; and, secondly, of all those which, without trading 
to it directly, send, through themedium of other countries, goods 
to it of their own produce, such as Austrian Flanders, and some 
provinces of Germany, which, through themedium of the coun- 
tries before mentioned, send to it a considerable quantity of linen 
and other goods. All such countries have evidently gained a more 
exten si vemarket for their surplusproduce, and must consequently 
have been encouraged to increase its quantity. 

But that those great events should likewise have contributed to 
encourage the industry of countries such asH ungaryand Poland, 
which may never, perhaps, have sent a single commodity of their 
own produce to America, is not, perhaps, altogether so evident. 
That those events have done so, however, cannot bedoubted. Some 
part of the produce of America is consumed in Hungary and Po- 
land, and thereissomedemand therefor thesugar, chocolate, and 
tobacco, of that new quarter of theworld. Butthosecommodities 
must be purchased with something which iseither theproduceof 
the industry of H ungary and Poland, or with something which 



had been purchased with some part of that produce. T hose com- 
modities of America are new values, new equivalents, introduced 
into Hungary and Poland, to be exchanged therefor the surplus 
produce of these countries. By being carried thither, they create a 
new and more extensive market for that surplus produce. They 
raise its value, and thereby contribute to encourage its increase. 
Though no part of it may ever be carried to America, it may be 
carried to other countries, which purchase it with a part of their 
shareofthesurplusproduceof America, and it may find a market 
bymeansof the circulation of that trade which was originally put 
into motion by the surplus produce of America. 

T hose great events may even have contributed to increase the 
enjoyments, and to augment the industry, of countries which not 
only never sent any commodities to America, but never received 
anyfrom it. Even such countriesmay have received a greater abun- 
dance of other commodities from countries, of which the surplus 
produce had been augmented by means of the American trade. 
T h i s greater ab u n d an ce, as i t m u st n ecessari I y h ave i n creased th ei r 
enjoyments, so it must likewise have augmented their industry. A 
greater number of new equivalents, of some kind or other, must 
have been presented to them to be exchanged for the surplus pro- 
duce of that industry. A more extensive market must have been 
created for that surplusproduce, so asto raiseits value, and thereby 



478 



Adam Smith 



encourage itsincrease. The mass of commodities annually thrown 
into the great circle of European commerce, and by its various 
revolutions annually distributed among all the different nations 
comprehended within it, must have been augmented bythewhole 
surplus produce of America. A greater share of this greater mass, 
therefore, is likely to have fallen to each of those nations, to have 
increased their enjoyments, and augmented their industry. 

The exclusive trade of the mother countries tendsto diminish, 
or at least to keep down below what they would otherwise rise to, 
both the enjoyments and industry of all those nations in general, 
and of the American colonies in particular. It is a dead weight 
upon the action of one of the great springs which puts into mo- 
tion a great part of the business of mankind. By rendering the 
colony produce dearer in all other countries, it lessens its con- 
sumption, and thereby cramps the industry of the colonies, and 
both theenjoyments and theindustry of all other countries, which 
both enjoy less when they pay more for what they enjoy, and pro- 
duce less when they get less for what they produce. By rendering 
theproduceofall other countriesdearer in thecolonies, it cramps 
in the same manner the industry of all other colonies, and both 
the enjoyments and theindustry of thecolonies. It isaclog which, 
for the supposed benefit of some particular countries, embarrasses 
the pleasures and encumbers the industry of all other countries, 



but of thecoloniesmorethan of any other. It not only excludes as 
much as possible all other countries from one particular market, 
but it confines as much as possible the colonies to one particular 
market; and the difference is very great between being excluded 
from one particular market when all others are open, and being 
confined to one particular market when all others are shut up. 
Thesurplusproduceof thecolonies, however, istheoriginal source 
of all that increase of enjoyments and industry which Europe de- 
rives from the discovery and colonization of America, and the 
exclusive tradeofthemother countri es tendsto render thissource 
much less abundant than it otherwise would be. 

Theparticular advantages which each colonizing country derives 
from the colonies which particularly belong to it, are of two differ- 
ent kinds; first, those common advantages which every empire de- 
rivesfromtheprovinces subject to itsdominion; and, secondly, those 
peculiar ad vantages which are supposed to result from provinces of 
so very peculiar a nature as the European colonies of America. 

The common advantages which every empire derives from the 
provinces subject to its dominion consist, first, in the military 
force which they furnish for its defence; and, secondly, in the rev- 
enue which they furnish for the support of its civil government. 
TheRoman colonies furnished occasionally both theoneand the 
other. The Greek colonies sometimes furnished a military force, 



479 



The Wealth of Nations 



but seldom any revenue. They seldom acknowledged themselves 
subject to the dominion of the mother city. They were generally 
her allies in war, but very seldom her subjects in peace. 

TheEuropeancoloniesofAmericahavenever yet furnished any 
military force for the defence of the mother country. The military 
force has never yet been sufficient for their own defence; and in 
the different wars in which the mother countries have been en- 
gaged, the defence of their colonies has generally occasioned a 
very considerable distraction of the military force of those coun- 
tries. In this respect, therefore, all the European colonies have, 
without exception, been a cause rather of weakness than of strength 
to their respective mother countries. 

The colonies of Spain and Portugal only have contributed any 
revenue towards the defence of the mother country, or the sup- 
port of her civil government. The taxes which have been levied 
upon those of other European nations, upon those of England in 
particular, have seldom been equal to the expense laid out upon 
them in time of peace, and never sufficient to defray that which 
they occasioned in timeof war. Such colonies, therefore, have been 
a source of expense, and not of revenue, to thei r respective mother 
countries. 

T headvantagesof such colonies to their respective mother coun- 
tries, consist altogether in those peculiar advantages which aresup- 



posed to result from provinces of so very peculiar a nature as the 
European colonies of America; and the exclusive trade, it is ac- 
knowledged, is the sole source of all those peculiar advantages. 

In consequence of this exclusive trade, all that part of the sur- 
plus produceof the English colonies, for example, which consists 
in what are called enumerated commodities, can be sent to no 
other country but England. ther countries must afterwards buy 
it of her. It must be cheaper, therefore, in England than it can be 
in any other country, and must contribute more to increase the 
enjoyments of England than those of any other country. It must 
likewise contribute more to encourage her industry. For all those 
parts of her own surplus produce which England exchanges for 
those enumerated commodities, she must get a better price than 
any other countries can get for the I ike parts of theirs, when they 
exchange them for the same commodities. The manufactures of 
England, for example, will purchase a greater quantity of the sugar 
and tobacco of her own colonies than the like manufactures of 
other countries can purchase of that sugar and tobacco. So far, 
therefore, as themanufacturesof England and those of other coun- 
tries are both to be exchanged for the sugar and tobacco of the 
English colonies, this superiority of pricegives an encouragement 
to the former beyond what the latter can, in these circumstances, 
enjoy. The exclusive trade of the colonies, therefore, as it dimin- 



480 



Adam Smith 



ishes, or at least keepsdown below what they would otherwise rise 
to, both the enjoyments and the industry of the countries which 
do not possess it, so it gives an evident advantage to the countries 
which do possess it over those other countries. 

This advantage, however, will, perhaps, be found to be rather 
what may be called a relative than an absolute advantage, and to 
give a superiority to the country which enjoys it, rather by de- 
pressing the industry and produce of other countries, than by rais- 
ing those of that particular country above what they would natu- 
rally rise to in the case of a free trade. 

Thetobacco of M aryland and Virginia, for example, by means 
of the monopoly which England enjoys of it, certainly comes 
cheaper to England than it can do to France to whom England 
commonly sells a considerable part of it. But had France and all 
other European countries been at all times allowed a free trade to 
M aryland and Virginia, thetobacco of those colonies might by 
thistimehavecomecheaperthan it actually does, not only to all 
those other countries, but likewise to England. The produce of 
tobacco, in consequenceof a market so much more extensive than 
any which it has hitherto enjoyed, might, and probably would, by 
thistimehavebeen so much increased as to reduce the profits of a 
tobacco plantation to their natural level with those of acorn plan- 
tation, which it is supposed they are still somewhat above. The 



price of tobacco might, and probably would, by this time have 
fallen somewhat lower than it is at present. An equal quantity of 
the commodities, either of England or of those other countries, 
might have purchased in M aryland and Virginia a greater quan- 
tity of tobacco than it can do at present, and consequently have 
been sold therefor so much a better price. So far as that weed, 
therefore, can, by its cheapness and abundance, increase the en- 
joyments, or augment the industry, either of England or of any 
other country, it would probably, in the case of a free trade, have 
produced both these effects in somewhat a greater degree than it 
can do at present. England, indeed, would not, in thiscase, have 
had any advantage over other countries. She might have bought 
thetobacco of her colonies somewhat cheaper, and consequently 
have sold some of her own commodities somewhat dearer, than 
she actually does; but she could neither have bought the one 
cheaper, nor sold the other dearer, than any other country might 
have done. She might, perhaps, have gained an absolute, but she 
would certainly have lost a relative advantage. 

I n order, however, to obtain this relative advantage in thecolony 
trade, in order to execute the invidious and malignant project of 
excluding, asmuch as possible, other nationsfrom anysharein it, 
England, there are very probable reasons for believing, has not 
only sacrificed a part of the absolute advantage which she, as well 



481 



The Wealth of Nations 



as every other nation, might havederived from that trade, but has 
subjected herself both to an absolute and to a relative disadvan- 
tage in almost every other branch of trade. 

When, by the act of navigation, England assumed to herself the 
monopoly of the colony trade, the foreign capitals which had be- 
fore been employed in it, were necessarily withdrawn from it. The 
English capital, which had before carried on but a part of it, was 
now to carry on the whole. T he capital which had before supplied 
the colonies with but a part of the goods which they wanted from 
Europe, was now all that was employed to supply them with the 
whole. But it could not supply them with the whole; and thegoods 
with which it did supply them were necessarily sold very dear. T he 
capital which had before bought but a part of the surplus produce 
of the colonies, was now all that was employed to buy the whole. 
But it could not buy thewholeat any thing near theold price; and 
therefore, whatever it did buy, it necessarily bought very cheap. But 
in an employment of capital, in which the merchant sold very dear, 
and bought very cheap, the profit must have been very great, and 
much above the ordinary level of profit in other branches of trade. 
This superiority of profit in the colony trade could not fail to draw 
from other branches of trade a part of the capital which had before 
been employed in them. But this revulsion of capital, as it must 
have gradually increased the competition of capitals in the colony 



trade, so it must have gradually diminished that competition in all 
those other branches of trade; as it must have gradually lowered the 
profitsoftheone, so it must have gradually raised thoseoftheother, 
till the profits of all cameto a new level, different from, and some- 
what higher, than that at which they had been before. 

This double effect of drawing capital from all other trades, and 
of raising the rate of profit somewhat higher than it otherwise 
would have been in all trades, was not only produced by this mo- 
nopoly upon its first establishment, but has continued to be pro- 
duced by it ever since. 

First, 

This monopoly has been continually drawing capital from all 
other trades, to be employed in that of the colonies. 

Though the wealth of Great Britain has increased very much 
since the establishment of the act of navigation, it certainly has 
not increased in the same proportion as that or the colonies. But 
the foreign trade of every country naturally increases in propor- 
tion to its wealth, its surplus produce in proportion to its whole 
produce; and Great Britain having engrossed to herself almost the 
whole of what may be called theforeign trade of the colonies, and 
her capital not having increased in the same proportion as the 
extent of that trade, she could not carry it on without continually 
withdrawing from other branchesoftradesome part of thecapital 



482 



Adam Smith 



which had before been employed in them, as well as withholding 
from them a great deal more which would otherwise have goneto 
them. Since the establishment of the act of navigation, accord- 
ingly, the colony trade has been continually increasing, whilemany 
other branches of foreign trade, particularly of that to other parts 
of Europe, have been continually decaying. ur manufacturesfor 
foreign sale, instead of being suited, as before the act of naviga- 
tion, to the neighbouring market of Europe, or to the more dis- 
tant one of the countries which lie round the M editerranean sea, 
have the greater part of them, been accommodated to the still 
moredistantoneofthecolonies; to the market in which they have 
the monopoly, rather than to that in which they have many com- 
petitors. The causes of decay in other branches of foreign trade, 
which, by Sir M atthew Decker and other writers, have been sought 
for in theexcessand improper modeof taxation, in thehigh price 
of labour, in the increase of luxury, etc. may all be found in the 
overgrowth of the colony trade. T he mercantile capital of G reat 
Britain, though very great, yet not being infinite, and though greatly 
increased since the act of navigation, yet not being increased in 
the same proportion as thecolony trade, that trade could not pos- 
sibly be carried on without withdrawing some part of that capital 
from other branches of trade, nor consequently without some de- 
cay of those other branches. 



England, it must be observed, was a great trading country, her 
mercantile capital was very great, and likely to becomestill greater 
and greater every day, not only before the act of navigation had 
established the monopoly of the corn trade, but before that trade 
was very considerable. In the Dutch war, during the government 
of Cromwell, her navy was superior to that of H olland; and in 
that which broke out in the beginning of the reign of Charles 1 1., 
itwas at least equal, perhaps superior to theunited naviesof France 
and H olland. Its superiority, perhaps, would scarce appear greater 
in the present times, at least if the D utch navy were to bear the 
same proportion to the Dutch commerce now which it did then. 
But this great naval power could not, in either of those wars, be 
owing to the act of navigation. D uring thefirst of them, the plan 
of thatacthad been but just formed; and though, before the break- 
ing out of the second, it had been fully enacted bylegal authority, 
yet no part of it could have had time to produce any considerable 
effect, and least of all that part which established the exclusive 
trade to the colonies. Both the colonies and their trade were in- 
considerable then, in comparison of what they are how. The is- 
land of Jamaica was an unwholesome desert, little inhabited, and 
less cultivated. New York and New Jersey were in the possession of 
the D utch, the half of St. C hristopher's in that of the French. T he 
island of Antigua, the two Carol in as, Pennsylvania, Georgia, and 



483 



The Wealth of Nations 



Nova Scotia, were not planted. Virginia, Maryland, and New 
England were planted; and though they were very thriving colo- 
nies, yet there was not perhaps at that time, either in Europe or 
America, a singleperson who foresaw, or even suspected, therapid 
progress which they have since made in wealth, population, and 
improvement. The island of Barbadoes, in short, was the only 
British colony of any consequence, of which thecondition at that 
time bore any resemblance to what it is at present. T he trade of 
thecolonies, of which England, even for some time after the act of 
navigation, enjoyed but a part (for the act of navigation was not 
very strictly executed till several years after it was enacted), could 
not at that ti me be the cause of the great trade of E ngland, nor of 
the great naval power which was supported by that trade. The 
trade which atthattimesupported that great naval power was the 
trade of Europe, and of the countries which lie round the Medi- 
terranean sea. But the share which Great Britain at present enjoys 
of that trade could not support any such great naval power. H ad 
the growing trade of thecolonies been left free to all nations, what- 
ever share of it might have fallen to Great Britain, and a very con- 
siderable share would probably have fallen to her, must have been 
all an addition to this great trade of which she was before in pos- 
session. In consequenceof themonopoly, theincreaseofthecolony 
trade has not so much occasioned an addition to the trade which 



Great Britain had before, as a total change in its direction. 

Secondly, 

T his monopoly has necessarily contributed to keep up the rate 
of profit, in all thedifferent branches of British trade, higher than 
it naturally would have been, had all nations been allowed a free 
trade to the British colonies. 

The monopoly of the colony trade, as it necessarily drew to- 
wards that trade a greater proportion of the capital of G reat Brit- 
ain than what would have gone to it of its own accord, so, by the 
expulsion of all foreign capitals, it necessarily reduced the whole 
quantity of capital employed in that trade below what it naturally 
would have been in the case of a free trade. But, by lessening the 
competition of capitalsin that branch of trade, it necessarily raised 
the rate of profit in that branch. By lessening, too, the competi- 
tion of British capitalsin all other branches of trade, it necessarily 
raised the rate of British profit in all those other branches. What- 
ever may have been, at any particular period since the establish- 
ment of the act of navigation, thestateor extent of the mercantile 
capital of Great Britain, the monopoly of the colony trade must, 
during thecontinuanceof that state, haveraisedtheordinaryrate 
of British profit higher than it otherwise would have been, both in 
that and in all the other branches of British trade. If, since the 
establishment of the act of navigation, the ordinary rate of British 



484 



Adam Smith 



profit hasfallen considerably, as it certainly has, it must havefallen 
still lower, had not the monopoly established by that act contrib- 
uted to keep it up. 

But whatever raises, in any country, the ordinary rate of profit 
higher than it otherwise would be, necessarily subjects that coun- 
try both to an absolute, and to a relative disadvantage in every 
branch of trade of which she has not the monopoly. 

It subjects her to an absolute disadvantage; because, in such 
branches of trade, her merchants cannot get this greater profit 
without selling dearer than they otherwise would do, both the 
goods of foreign countries which they import into their own, and 
thegoodsof their own country which they export to foreign coun- 
tries. Their own country must both buy dearer and sell dearer; 
must both buy less, and sell less; must both enjoy less and produce 
less, than she otherwise would do. 

It subjects her to a relative disadvantage; because, in such 
branches of trade, it sets other countries, which are not subject to 
the same absolute disadvantage, either more above her or less be- 
low her, than they otherwise would be. It enables them both to 
enjoy more and to produce more, in proportion to what she en- 
joys and produces. It renderstheir superiority greater, or their in- 
feriority less, than it otherwise would be. By raising the price of 
herproduceabovewhatitotherwisewould be, it enables the mer- 



chants of other countries to undersell her in foreign markets, and 
thereby to justle her out of almost all those branches of trade, of 
which she has not the monopoly. 

Our merchants frequently complain of the high wages of Brit- 
ish labour, as the cause of their manufactures being undersold in 
foreign markets; butthey aresilentaboutthehigh profits of stock. 
They complain of the extravagant gain of other people; butthey 
say nothing of their own. The high profits of British stock, how- 
ever, may contribute towards raisingthepriceof British manufac- 
tures, in many cases, as much, and in some perhaps more, than 
the high wages of British labour. 

It is in this manner that the capital of Great Britain, one may 
justly say, has partly been drawn and partly been driven from the 
greater part of thedifferent branchesof tradeof which she has not 
themonopoly; from thetradeof Europe, in particular, and from 
that of the countries which lie round the Mediterranean sea. 

It has partly been drawn from those branches of trade, by the 
attraction of superior profit in the colony trade, in consequenceof 
the continual increase of that trade, and of the continual insuffi- 
ciency of thecapital which had carried it on oneyear to carry it on 
thenext. 

It has partly been driven from them, by the advantage which 
the high rate of profit established in Great Britain gives to other 



485 



The Wealth of Nations 



countries, in all the different branches of trade of which Great 
Britain has not the monopoly. 

Asthe monopoly of thecolonytradehasdrawn from those other 
branches a part of the British capital, which would otherwise have 
been employed in them, so it has forced into them many foreign 
capitals which would never have gone to them, had they not been 
expelled from the colony trade. In those other branches of trade, 
it has diminished the competition of British capitals, and thereby 
raised the rate of British profit higher than it otherwise would 
have been. n the contrary, it has increased the competition of 
foreign capitals, and thereby sunk the rate of foreign profit lower 
than it otherwise would have been. Both in the one way and in 
the other, it must evidently have subjected Great Britain to a rela- 
tive disadvantage in all those other branches of trade. 

T he colony trade, however, it may perhaps be said, is more ad- 
vantageous to Great Britain than any other; and themonopoly, by 
forcing into that tradea greater proportion of thecapital of Great 
Britain than what would otherwise have gone to it, has turned 
that capital into an employment, more advantageous to the coun- 
try than any other which it could have found. 

T hemost advantageousemployment of any capital to thecoun- 
try to which it belongs, isthat which main tains there the greatest 
quantity of productive labour, and in creases the most the annual 



produce of the land and labour of that country. But the quantity 
of productive labour which any capital employed in the foreign 
trade of consumption can maintain, is exactly in proportion, it 
has been shown in the second book, to the frequency of its re- 
turns. A capital of a thousand pounds, for example, employed in a 
foreign tradeof consumption, of which the returns are made regu- 
larly once in the year, can keep in constant employment, in the 
country to which it belongs, a quantity of productive labour, equal 
to what a thousand pounds can maintain therefor a year. If the 
returnsaremadetwiceorthricein theyear, itcan keep in constant 
employment a quantity of productive labour, equal to what two 
or three thou sand pounds can maintain therefor a year. A foreign 
tradeof consumption carried on with a neighbouring, is upon 
that account, in general, more advantageous than onecarried on 
with a distant country; and, for the same reason, a direct foreign 
tradeof consumption, asithaslikewise been shown inthesecond 
book, isin general more advantageous than a round-about one. 
But the monopoly of the colony trade, so far as it has operated 
upon the employment of thecapital of Great Britain, has, in all 
cases, forced some part of it from a foreign trade of consumption 
carried on with a neighbouring, to one carried on with a more 
distant country, and in many cases from a direct foreign trade of 
consumption to a round-about one. 



486 



Adam Smith 



First, 

The monopoly of the colony trade has, in all cases, forced some 
part of the capital of Great Britain from a foreign trade of con- 
sumption carried on with a neighbouring, to onecarried on with 
a more distant country. 

It has, in all cases, forced some part of that capital from the 
trade with Europe, and with the countries which lie round the 
M editerranean sea, to that with themoredistantregionsof America 
and the West Indies; from which the returns are necessarily less 
frequent, not only on account of the greater distance, but on ac- 
count of the peculiar circumstances of those countries. New colo- 
nies, it has already been observed, are always understocked. Their 
capital is always much less than what they could employ with 
great profit and advantage in the improvement and cultivation of 
their land. T hey havea constant demand, therefore, for more capital 
than they have of their own; and, in order to supply thedeficiency 
oftheirown, they endeavourto borrow asmuch as they can of the 
mother country, to whom they are, therefore, always in debt. T he 
most common way in which thecolonies contract thisdebt, isnot 
by borrowing upon bond of the rich people of the mother coun- 
try, though they sometimes do thistoo, but by running as much 
in arrear to their correspondents, who supply them with goods 
from Europe, as those correspondents will allow them. Their an- 



nual returns frequently do not amount to more than a third, and 
sometimes not to so great a proportion of what they owe. The 
whole capital, therefore, which their correspondents advance to 
them, is seldom returned to Britain in less than three, and some- 
times not in less than four or five years. But a British capital of a 
thousand pounds, for example, which is returned to G reat Britain 
only once in five years, can keep in constant employment only 
one-fifth part of the British industry which it could maintain, if 
the whole was returned oncein theyear; and, instead of thequan- 
tity of industry which a thousand pounds could maintain for a 
year, can keep in constant employment the quantity only which 
two hundred pounds can maintain for a year. The planter, no 
doubt, by the high price which he pays for the goods from Eu- 
rope, bytheinterestupon thebillswhich hegrantsat distant dates, 
and by thecommission upon therenewal of those which hegrants 
at near dates, makesup, and probably more than makesup, all the 
loss which hiscorrespondentcan sustain bythisdday. But, though 
he make up the loss of his correspondent, he cannot makeup that 
of Great Britain. In a trade of which the returns are very distant, 
the profit of the merchant may be as great or greater than in one 
in which they are very frequent and near; but the advantage of the 
country in which he resides, the quantity of productive labour 
constantly maintained there, the annual produce of the land and 



487 



The Wealth of Nations 



labour, must always be much less. That the returns of thetradeto 
America, and still more those of that to the West Indies, are, in 
general, not only more distant, but more irregular and more un- 
certain, too, than those of thetradeto any part of Europe, or even 
of thecountries which lieround theM editerranean sea, will readily 
be allowed, I imagine, by everybody who has any experience of 
those different branches of trade. 

Secondly, 

The monopoly of the colony trade, has, in many cases, forced 
some part of the capital of Great Britain from a direct foreign 
trade of consumption, into a round-about one. 

Among the enumerated commodities which can be sent to no 
other market but Great Britain, there are several of which thequan- 
tity exceeds very much the consumption of Great Britain, and of 
which, a part, therefore, must be exported to other countries. But 
this cannot be done without forcing some part of the capital of 
Great Britain into a round-about foreign trade of consumption. 
M aryland, and Virginia, for example, send annually to Great Brit- 
ain upwardsof ninety-sixthousand hogsheadsof tobacco, and the 
consumption of Great Britain issaid not to exceed fourteen thou- 
sand. Upwardsof eighty-two thousand hogsheads, therefore, must 
be exported to other countries, to France, to H olland, and, to the 
countries which lieround the Baltic and Mediterranean seas. But 



that part of the capital of Great Britain which brings those eighty- 
two thousand hogsheads to Great Britain, which re-exports them 
from thenceto thoseother countries, and which brings back from 
those other countries to Great Britain either goods or money in 
return, is employed in a round-about foreign trade of consump- 
tion; and is necessarily forced into this employment, in order to 
dispose of this great surplus. If we would compute in how many 
years the whole of this capital is likely to come back to Great 
Britain, we must add to the distance of the American returns that 
of the returns from those other countries. If, in the direct foreign 
tradeof consumption which wecarry on with America, the whole 
capital employed frequently does not come back in I ess than three 
or four years, the wholecapital employed in this round-about one 
isnot likely to comeback in less than four or five. If theonecan 
keep in constant employment but a third or a fourth part of the 
domestic industry which could bemaintained by acapital returned 
once in the year, the other can keep in constant employment but 
a fourth or a fifth part of that industry. At some of the outports a 
credit iscommonly given to thoseforeign correspondents to whom 
they export them tobacco. At the port of London, indeed, it is 
commonly sold for ready money: the rule is Weigh and pay. At 
theport of London, therefore, thefinal returns of the wholeround- 
about trade are more distant than the returns from America, by 



488 



Adam Smith 



the time only which the goods may lie unsold in the warehouse; 
where, however, they may sometimes lie long enough. But, had 
not the colonies been confined to the market of Great Britain for 
the sale of their tobacco, very little more of it would probably 
have come to us than what was necessary for the home consump- 
tion. The goods which Great Britain purchases at present for her 
own consumption with the great surplus of tobacco which she 
exports to other countries, she would, in this case, probably have 
purchased with the immediate produce of her own industry, or 
with some part of her own manufactures. That produce, those 
manufactures, instead of being almost entirely suited toonegreat 
market, as at present, would probably have been fitted to a great 
number of smaller markets. I nstead of one great round-about for- 
eign trade of consumption, Great Britain would probably have 
carried on a great number of small direct foreign trades of the 
same kind. n account of the frequency of the returns, a part, 
and probably but a small part, perhaps not above a third or a 
fourth of the capital which at present carries on this great round- 
about trade, might have been sufficient to carry on all those small 
direct ones; might have kept inconstant employment an equal 
quantity of British industry; and have equally supported the an- 
nual produce of the land and labour of Great Britain. All the pur- 
poses of this trade being, in this manner, answered by a much 



smaller capital, there would have been a large spare capital to ap- 
ply to other purposes; to improve thelands, to increase themanu- 
factures, and to extend the commerce of Great Britain; to come 
into competition at least with theother British capitals em ployed 
in all those different ways, to reduce the rate of profit in them all, 
and thereby to give to Great Britain, in all of them, a superiority 
over other countries, still greater than what she at present enjoys. 

The monopoly of thecolonytrade, too, has forced some part of 
thecapital of Great Britain from all foreign trade of consumption 
to a carrying trade; and, consequently from supporting more or 
less the industry of Great Britain, to be employed altogether in 
supporting partly that of the colonies, and partly that of some 
other countries. 

Thegoods, for example, which are annually purchased with the 
great surplus of eighty-two thousand hogsheads of tobacco annu- 
ally re-exported from Great Britain, are not all consumed in Great 
Britain. Part of them, linen from Germany and Holland, for ex- 
ample, is returned to the colonies for their particular consump- 
tion. But that part of thecapital of Great Britain which buys the 
tobacco with which this linen is afterwards bought, is necessarily 
withdrawn from supporting the industry of Great Britain, to be 
employed altogether in supporting, partly that of the colonies, 
and partly that of the particular countries who pay for this to- 



489 



The Wealth of Nations 



bacco with the produce of their own industry. 

The monopoly of the colony trade, besides, by forcing towards it 
a much greater proportion of the capital of Great Britain than 
what would naturally have gone to it, seems to have broken alto- 
gether that natural balance which would otherwisehave taken place 
among all thedifferent branches of British industry. The industry 
of G reat Britain, instead of being accommodated to a great num- 
ber of small markets, has been principally suited to onegreat mar- 
ket. Her commerce, instead of running in a great number of small 
channels, has been taught to run principally in onegreat channel. 
But the whole system of her industry and commerce has thereby 
been rendered lesssecure; thewholestateof her body politic less 
healthful than it otherwisewould have been. In her present condi- 
tion, Great Britain resembles oneofthoseunwholesomebodiesin 
which some of the vital parts are overgrown, and which, upon 
that account, are liableto many dangerous disorders, scarce inci- 
dent to those in which all the parts are more properly propor- 
tioned. A small stop in that great blood-vessel, which has been 
artificially swelled beyond its natural dimensions, and through 
which an unnatural proportion of the industry and commerce of 
the country has been forced to circulate, is very likely to bring on 
the most dangerous disorders upon the whole body politic. T he 



expectation of a rupture with thecolonies, accordingly, has struck 
thepeopleof Great Britain with more terrorthan they everfelt for 
a Spanish armada, or a French invasion. It was this terror, whether 
well or ill grounded, which rendered the repeal of the stamp act, 
among the merchants at least, a popular measure. I n the total ex- 
clusion from thecolony market, wasitto last only for a few years, 
the greater part of our merchants used to fancy that they foresaw 
an entire stop to their trade; the greater part of our master manu- 
facturers, the entire ruin of their business; and the greater part of 
our workmen, an end of their employment. A rupture with any of 
our neighbours upon the continent, though likely, too, to occa- 
sion somestop or interruption in the employments of someof all 
these different orders of people, isforeseen, however, without any 
such general emotion. Theblood, of which the circulation isstopt 
in someof thesmaller vessels, easily disgorges itself into thegreater, 
without occasioning any dangerousdisorder; but, when it isstopt 
in any of the greater vessels, convulsions, apoplexy, or death, are 
theimmediateandunavoidableconsequences. If but one of those 
overgrown manufactures, which, by means either of bounties or 
of the monopoly of thehomeand colony markets, have been arti- 
ficially raised up to any unnatural height, findssome small stop or 
interruption in its employment, it frequently occasions a mutiny 
and disorder alarming to government, and embarrassing even to 



490 



Adam Smith 



the deliberations of the legislature. H ow great, therefore, would 
bethedisorder and confusion, it was thought, which must neces- 
sarily be occasioned by a sudden and entire stop in the employ- 
ment of so great a proportion of our principal manufacturers? 

Some moderate and gradual relaxation of the laws which give to 
Great Britain the exclusive tradetothecolonies, till it isrendered 
in a great measure free, seemsto be theonly expedient which can, 
in all future times, deliver her from this danger; which can enable 
her, or even force her, to withdraw some part of her capital from 
thisovergrown employment, and to turn it, though with lessprofit, 
towards other employments; and which, by gradually diminish- 
ing one branch of her industry, and gradually increasing all the 
rest, can, by degrees, restore all the different branches of it to that 
natural, healthful, and proper proportion, which perfect liberty 
necessarily establishes, and which perfect liberty can alone pre- 
serve. To open the colony trade all at once to all nations, might 
not only occasion sometransitoryinconveniency, but a great per- 
manent loss, to the greater part of those whose industry or capital 
is at present engaged in it. The sudden loss of the employment, 
even of the ships which import the eighty-two thousand hogs- 
heads of tobacco, which are over and above the consumption of 
Great Britain, might alone be felt very sensibly. Such are the un- 
fortunate effects of all the regulations of the mercantile system. 



They not only introduce very dangerous disorders into the state 
of the body politic, but disorders which it is often difficult to 
remedy, without occasioning, for a timeat least, still greater disor- 
ders. In what manner, therefore, the colony trade ought gradually 
to be opened; what are therestraints which ought first, and what 
are those which ought last, to betaken away; or in what manner 
thenatural system of perfect liberty and justiceoughtgradually to 
be restored, we must leave to the wisdom of future statesmen and 
legislators to determine. 

Five different events, unforeseen and unthought of, have very 
fortunately concurred to hinder G reat Britain from feeling, so sen- 
sibly as it was generally expected she would, the total exclusion 
which has now taken place for more than a year (from the first of 
D ecember 1774) from a very important branch of thecolony trade, 
that of the twelve associated provinces of N orth America. First, 
those colonies, in preparing themselves for their non-importation 
agreement, drained Great Britain completely of all the commodi- 
ties which were fit for their market; secondly, the extra ordinary 
demand of theSpanish flotahas, thisyear, drained Germany and 
the north of many commodities, linen in particular, which used 
to come into competition, even in the British market, with the 
manufactures of Great Britain; thirdly, the peace between Russia 
and Turkey has occasioned an extraordinary demand from the 



491 



The Wealth of Nations 



Turkey market, which, during thedistress of thecountry, and while 
a Russian fleet was cruizing in the Archipelago, had been very 
poorly supplied; fourthly, the demand of the north of Europe for 
the manufactures of Great Britain has been increasing from year 
to year, for some time past; and, fifthly, the late partition, and 
consequential pacification of Poland, by opening the market of 
that great country, have, thisyear, added an extraordinary demand 
from thence to the increasing demand of the north. T hese events 
are all, except the fourth, in their nature transitory and accidental; 
and theexdusion from so important a branch of the colony trade, 
if unfortunately it should continue much longer, may still occa- 
sion somedegree of distress. Thisdistress, however, asit will come 
on gradually, will be felt much less severely than if ithadcomeon 
all at once; and, in the mean time, the industry and capital of the 
country may find a new employment and direction, so as to pre- 
vent this distress from ever rising to any considerable height. 

The monopoly of the colony trade, therefore, so far as it has 
turned towards that trade a greater proportion of the capital of 
Great Britain than what would otherwise have gone to it, has in 
all cases turned it, from a foreign trade of consumption with a 
neighbouring, into one with a moredistant country; in many cases 
from a direct foreign trade of consumption into a round-about 
one; and, in some cases, from all foreign trade of consumption 



into a carrying trade. It has, in all cases, therefore, turned it from 
a direction in which it would have maintained a greater quantity 
of productive labour, into one in which it can maintain a much 
smaller quantity. By suiting, besides, to oneparticular market only, 
so great a part of the industry and commerce of Great Britain, it 
has rendered thewholestate of that industry and commerce more 
precarious and less secure, than if their produce had been accom- 
modated to a greater variety of markets. 

We must carefully distinguish between the effects of the colony 
trade and those of the monopoly of that trade. The former are 
always and necessarily beneficial; the latter always and necessarily 
hurtful. But the former are so beneficial, that the colony trade, 
though subject to a monopoly, and, notwithstanding the hurtful 
effects of that monopoly, is still, upon the whole, beneficial, and 
greatly beneficial, though a good deal less so than it otherwise 
would be. 

The effect of the colony trade, in its natural and free state, isto 
open a great though distant market, for such parts of the produce 
of British industry asmay exceed thedemand of the markets nearer 
home, of those of Europe, and of the countries which lie round 
the M editerranean sea. In its natural and free state, the colony 
trade, without drawing from those markets any part of the pro- 
duce which had ever been sent to them, encourages Great Britain 



492 



Adam Smith 



to increase the surplus continually, by continually presenting new 
equivalents to be exchanged for it. In its natural and free state, the 
colony trade tends to increase the quantity of productive labour 
in Great Britain, but without altering in any respect thedirection 
of that which had been employed there before. In the natural and 
free state of the colony trade, the competition of all other nations 
would hinder the rate of profit from rising above the common 
level, either in the new market, or in the new employment. The 
new market, without drawing any thing from the old one, would 
create, if one may say so, a new produce for its own supply; and 
that new produce would constitute a new capital for carrying on 
the new employment, which, in the same manner, would draw 
nothing from the old one. 

The monopoly of the colony trade, on the contrary, by exclud- 
ing the competition of other nations, and thereby raising the rate 
of profit, both in the new market and in the new employment, 
draws produce from theold market, and capital from theold em- 
ployment. To augment our share of the colony trade beyond what 
it otherwise would be, is the avowed purpose of the monopoly. If 
our share of that trade were to be no greater with, than it would 
have been without the monopoly, there could have been no rea- 
son for establishing the monopoly. But whatever forces into a 
branch of trade, of which the returns are slower and more distant 



than those of the greater part of other trades, a greater proportion 
of the capital of any country, than what of its own accord would 
go to that branch, necessarily renders the whole quantity of pro- 
ductive labour annually maintained there, the whole annual pro- 
duce of the land and labour of that country, less than they other- 
wise would be. It keeps down the revenue of the inhabitants of 
that country below what it would naturally rise to, and thereby 
diminishes theirpower of accumulation. It not only hinders, at all 
times, their capital from maintaining so great a quantity of pro- 
ductive labour as it would otherwise maintain, but it hinders it 
from in creasing so fast as it would otherwise increase, and, conse- 
quently, from maintaining a still greater quantity of productive 
labour. 

The natural good effects of the colony trade, however, more 
than counterbalance to Great Britain the bad effects of the mo- 
nopoly; so that, monopoly and altogether, that trade, even as it is 
carried on at present, is not only advantageous, but greatly advan- 
tageous. The new market and the new employment which are 
opened by the colony trade, are of much greater extent than that 
portion of the old market and of the old employment which is 
lost by the monopoly. The new produce and the new capital which 
has been created, if one may say so, by the colony trade, maintain 
in Great Britain agreater quantity of productive labour than what 



493 



The Wealth of Nations 



can havebeen thrown out of employment by therevulsion of capital 
from other trades of which the returns are more frequent. If the 
colony trade, however, even as it is carried on at present, is advan- 
tageous to G reat Britain, it is not by means of the monopoly, but 
in spite of the monopoly. 

It is rather for the manufactured than for the rude produce of 
Europe, that the colony trade opens a new market. Agriculture is 
theproper business of all new colonies; a business which thecheap- 
ness of land renders more advantageous than any other. They 
abound, therefore, in the rude produce of land; and instead of 
importing it from other countries, they have generally a large sur- 
plus to export. In new colonies, agriculture either draws hands 
from all other employments, or keeps them from going to any 
other employment. T here are few handsto spare for the necessary, 
and none for the ornamental manufactures. The greater part of 
the manufactures of both kindstheyfind it cheaper to purchaseof 
other countries than to make for themselves. It is chiefly by en- 
couraging the manufactures of Europe, that thecolony trade indi- 
rectly encourages its agriculture. The manufacturers of Europe, to 
whom that trade gives employment, constitute a new market for 
the produce of the land, and the most advantageous of all mar- 
kets; the home market for the corn and cattle, for the bread and 
butcher'smeat of Europe, isthusgreatly extended by meansof the 



trade to America. 

But that the monopoly of the trade of populous and thriving 
colonies is not alone sufficient to establish, or even to maintain, 
manufactures in any country, the examples of Spain and Portugal 
sufficiently demonstrate. Spain and Portugal weremanufacturing 
countries before they had any considerable colonies. Since they 
had the richest and most fertile in the world, they have both ceased 
to be so. 

In Spain and Portugal, the bad effects of the monopoly, aggra- 
vated by other causes, have, perhaps, nearly overbalanced the natu- 
ral good effects of the colony trade. These causes seem to be other 
monopoliesof differentkinds: thedegradation of thevalueof gold 
and silver below what it is in most other countries; the exclusion 
from foreign markets by improper taxes upon exportation, and 
the narrowing of the home market, by still more improper taxes 
upon thetransportation of goodsfrom onepart of the country to 
another; but above all, that irregular and partial administration of 
justice which often protects the rich and powerful debtor from 
the pursuit of his injured creditor, and which makes the industri- 
ous part of the nation afraid to prepare goods for the consump- 
tion of those haughty and great men, to whom they dare not refuse 
to sell upon credit, and from whom they are altogether uncertain 
of repayment. 



494 



Adam Smith 



In England, on thecontrary, thenatural good effects of thecolony 
trade, assisted by other causes, have in a great measure conquered 
the bad effects of the monopoly. These causes seem to be, the 
general liberty of trade, which, notwithstanding some restraints, 
is at least equal, perhaps superior, to what it is in any other coun- 
try; the liberty of exporting, duty free, almost all sorts of goods 
which are theproduceof domestic industry, to almost anyforeign 
country; and what, perhaps, isof still greater importance, theun- 
bounded liberty of transporting them from one part of our own 
country to any other, without being obliged to give any account 
to any public office, without being liableto question or examina- 
tion of any kind; but, above all, that equal and impartial adminis- 
tration of justice, which renders the rights of the meanest British 
subject respectableto thegreatest, and which, by securing to every 
man the fruits of his own industry, gives the greatest and most 
effectual encouragement to every sort of industry. 

If the manufactures of Great Britain, however, have been ad- 
vanced, as they certainly have, bythecolonytrade, ithasnotbeen 
by means of the monopoly of that trade, but in spite of the mo- 
nopoly. T he effect of the monopoly has been, not to augment the 
quantity, but to alter the quality and shape of a part of the manu- 
factures of Great Britain, and to accommodate to a market, from 
which the returns are slow and distant, what would otherwise have 



been accommodated to one from which the returns are frequent 
and near. Its effect has consequently been, to turn a part of the 
capital of Great Britain from an employment in which it would 
have maintained a greater quantity of manufacturing industry, to 
one in which it maintains a much smaller, and thereby to dimin- 
ish, instead of increasing, the whole quantity of manufacturing 
industry maintained in Great Britain. 

The monopoly of the colony trade, therefore, like all the other 
mean and malignant expedients of themercantilesystem, depresses 
the industry of all other countries, but chiefly that of thecolonies, 
without in the least increasing, but on the contrary diminishing, 
that of the country in whose favour it is established. 

The monopoly hinders the capital of that country, whatever 
may, at any particular time, be the extent of that capital, from 
maintaining so great a quantity of productive labour as it would 
otherwise maintain, and from affording so great a revenueto the 
industrious inhabitants as it would otherwise afford. But as capi- 
tal can be increased only by savings from revenue, the monopoly, 
by hindering it from affording so great a revenue as it would oth- 
erwise afford, necessarily hinders it from increasing so fast as it 
would otherwise increase, and consequently from maintaining a 
still greater quantity of productive labour, and affording a still 
greater revenueto the industriousinhabitantsof that country. One 



495 



The Wealth of Nations 



great original source of revenue, therefore, the wages of labour, 
the monopoly must necessarily have rendered, at all times, less 
abundant than it otherwise would have been. 

By raising the rate of mercantile profit, the monopoly discour- 
ages the improvement of land. The profit of improvement de- 
pends upon the difference between what the land actually pro- 
duces, and what, by the application of a certain capital, it can be 
made to produce. If this difference affords a greater profit than 
what can be drawn from an equal capital in any mercantile em- 
ployment, the improvement of land will draw capital from all 
mercantile employments. If the profit is less, mercantile em p I oy- 
mentswill draw capital from the improvement of land. Whatever, 
therefore, raises the rate of mercantile profit, either lessens the 
superiority, or increases the inferiority of the profit of improve- 
ment: and, in theonecase, hinders capital from going to improve 
merit, and in the other draws capital from it; but by discouraging 
improvement, the monopoly necessarily retards the natural in- 
crease of another great original sourceof revenue, therent of land. 
By raising the rate of profit, too, the monopoly necessarily keeps 
up the market rate of interest higher than it otherwise would be. 
But the price of land, in proportion to the rent which it affords, 
thenumber of years purchase which iscommonlypaidforit, nec- 
essarily falls as the rate of interest rises, and rises as the rate of 



interest falls. The monopoly, therefore, hurts the interest of the 
landlord two different ways, by retarding the natural increase, first, 
of his rent, and, secondly, of the price which he would get for his 
land, in proportion to the rent which it affords. 

The monopoly, indeed, raises the rate of mercantile profit and 
thereby augments somewhat the gain of our merchants. But as it 
obstructs the natural increase of capital, it tends rather to dimin- 
ish than to increase thesum total of the revenue which theinhab- 
itants of thecountry derive from theprofitsof stock; asmall profit 
upon a great capital generally affording a greater revenue than a 
great profit upon a small one. The monopoly raises the rate of 
profit, but it hinders the sum of profit from rising so high as it 
otherwise would do. 

All theoriginal sources of revenue, the wages of labour, therent 
of land, and the profits of stock, the monopoly renders much less 
abundant than they otherwise would be. To promote the little 
interest of one little order of men in one country, it hurts the 
interest of all other orders of men in that country, and of all the 
men in all other countries. 

It is solely by raising the ordinary rate of profit, that the mo- 
nopoly either has proved, or could prove, advantageous to any 
one particular order of men. But besides all the bad effects to the 
country in general, which have already been mentioned asneces- 



496 



Adam Smith 



sarily resulting from a higher rateof profit, there isone more fatal, 
perhaps, than all these put together, but which, if we may judge 
from experience, is inseparably connected with it. The high rate 
of profit seems everywhere to destroy that parsimony which, in 
other circumstances, is natural to the character of the merchant. 
When profits are high, that sober virtue seems to be superfluous, 
and expensive luxury to suit better the affluence of his situation. 
But the owners of the great mercantile capitals are necessarily the 
leaders and conductors of the wholeindustry of every nation; and 
their example has a much greater influence upon the manners of 
the whole industrious part of it than that of any other order of 
men. If hisemployer isattentiveand parsimonious, the workman 
is very likely to be so too; but if the master is dissolute and disor- 
derly, the servant, who shapes his work according to the pattern 
which hismaster prescribesto him, will shapehislife, too, accord- 
ing to the example which he sets him. Accumulation is thus pre- 
vented in the hands of all those who are naturally the most dis- 
posed to accumulate; and thefundsdestined for the maintenance 
of productive labour, receive no augmentation from the revenue 
of those who ought naturally to augment them the most. The 
capital of the country, instead of increasing, gradually dwindles 
away, and the quantity of productivelabour maintained in itgrows 
every day less and less. H ave the exorbitant profits of the mer- 



chants of Cadiz and Lisbon augmented the capital of Spain and 
Portugal? H ave they alleviated the poverty, have they promoted 
the industry, of those two beggarly countries? Such has been the 
tone of mercantile expense in those two trading cities, that those 
exorbitant profits, far from augmenting the general capital of the 
country, seem scarce to have been sufficient to keep up the capi- 
tals upon which they were made. Foreign capitals are every day 
intruding themselves, if I may say so, more and more into the 
trade of Cadiz and Lisbon. It is to expel those foreign capitals 
from a trade which their own grows every day more and more 
insufficient for carrying on, that the Spaniards and Portuguese 
endeavour every day to straiten more and more the galling bands 
of their absurd monopoly. Compare the mercantile manners of 
Cadiz and Lisbon with those of Amsterdam, and you will be sen- 
sible how differently the conduct and character of merchants are 
affected by the high and by the low profits of stock. The mer- 
chants of London, indeed, have not yet generally become such 
magnificent lords as those of Cadiz and Lisbon; but neither are 
they in general such attetitiveand parsimonious burghersas those 
of Amsterdam. They are supposed, however, many of them, to be 
a good deal richer than the greater part of the former, and not 
quire so rich as many of the latter: but the rate of their profit is 
commonly much lower than that of the former, and a good deal 



497 



The Wealth of Nations 



higher than that of the latter. Light come, light go, says the prov- 
erb; and theordinarytoneof expense seems everywhere to be regu- 
lated, not so much according to the real ability of spending, as to 
the supposed facility of getting money to spend. 

It is thus that the single advantage which the monopoly pro- 
cures to a singleorder of men, isin many different ways hurtful to 
the general interest of the country. 

To found a great empire for the sole purpose of raising up a 
people of customers, may at first sight, appear a project fit only 
for a nation of shopkeepers. It is, however, a project altogether 
unfit for a nation of shopkeepers, but extremely fit for a nation 
whose government isinfluenced by shopkeepers. Such statesmen, 
and such statesmen only, are capable of fancying that they will 
find some advantage in em ploying the blood and treasure of their 
fellow-citizens, to found and maintain such an empire. Say to a 
shopkeeper, Buy meagood estate, and I shall alwaysbuymyclothes 
at your shop, even though I should pay somewhat dearer than 
what I can have them for at other shops; and you will not find 
him very forward to em brace your proposal. But should any other 
person buy you such an estate, the shopkeeper will bemuch obliged 
to your benefactor if he would enjoin you to buy all your clothes 
at hisshop. England purchased for someof her subjects, who found 
themselves uneasy at home, a great estate in a distant country. T he 



price, indeed, was very small, and instead of thirty years purchase, 
the ordinary price of land in the present times, it amounted to 
little more than the expense of the different equipments which 
made the first discovery, reconnoitered thecoast, and took aficti- 
tious possession of the country. T he land was good, and of great 
extent; and the cultivators having plenty of good ground to work 
upon, and being for some time at liberty to sell their produce 
where they pleased, became, in thecourseof littlemore than thirty 
or forty years (between 1620 and 1660), so numerous and thriv- 
ing a people, that the shopkeepers and other traders of England 
wished to secure to themselves the monopoly of their custom. 
W ithout pretending, therefore, that they had paid any part, either 
of the original purchase money, or of the subsequent expense of 
improvement, they petitioned the parliament, that the cultivators 
of America might for the future be confined to their shop; first, 
for buying all the goods which they wanted from Europe; and, 
secondly, for selling all such parts of their own produce as those 
traders might find it convenient to buy. For they did not find it 
convenient to buy every part of it. Some parts of it imported into 
England, might have interfered with some of the trades which 
they themselves carried on at home. T hose particular parts of it, 
therefore, they were willing that the colonists should sell where 
they could; thefarther off the better; and upon that account pro- 



498 



Adam Smith 



posed that their market should be confined to the countries south 
of CapeFinisterre. A clausein thefamousact of navigation estab- 
lished this truly shopkeeper proposal into a law. 

T he maintenance of this monopoly has hitherto been the prin- 
cipal, or more properly perhaps, the sole end and purpose of the 
dominion which Great Britain assumes over her colonies. In the 
exclusive trade, itissupposed, consiststhegreatadvantageof prov- 
inces, which have never yet afforded either revenue or military 
forceforthesupportof thecivil government, or the defence of the 
mother country. The monopoly is the principal badge of their 
dependency, and it is the sole fruit which has hitherto been gath- 
ered from that dependency. W hatever expense Great Britain has 
hitherto laid out in maintaining this dependency, has really been 
laid out in order to support this monopoly. The expense of the 
ordinary peace establishment of the colonies amounted, before 
thecommencement of the present disturbances to the pay of twenty 
regiments of foot; to the expense of the artillery, stores, and ex- 
traordinary provisions, with which it wasnecessary to supply them; 
and to the expense of a very considerable naval force, which was 
constantly kept up, in order to guard from the smuggling vessels 
of other nations, the immense coast of N orth America, and that 
of ourWest Indian islands. T he wholeexpenseof thispeace estab- 
lishment was a charge upon therevenueof Great Britain, and was, 



at the same time, the smallest part of what the dominion of the 
colonieshascostthemother country. If we would know theamount 
of the whole, we must add to the annual expense of this peace 
establishment, the interest of the sums which, in consequence of 
their considering her colonies as provinces subject to her domin- 
ion, Great Britain has, upon different occasions, laid out upon 
their defence. Wemust add to it, in particular, the whole expense 
of the late war, and a great part of that of the war which preceded 
it. The late war was altogether a colony quarrel; and the whole 
expense of it, in whatever part of the world it might have been laid 
out, whether in G ermany or the East I ndies, ought justly to be 
stated to the account of the colonies. It amounted to more than 
ninety millions sterling, including not only the new debt which 
wascontracted, butthetwoshillingsin thepound additional land 
tax, and thesums which were every year borrowed from thesink- 
ingfund.TheSpanish war which began in 1739 was principally a 
colony quarrd. Its principal object was to prevent the search of 
the colony ships, which carried on a contraband trade with the 
Spanish Main. This whole expense is, in reality, a bounty which 
has been given in order to support a monopoly. The pretended 
purpose of it was to encourage the manufactures, and to increase 
the commerce of Great Britain. But its real effect has been to raise 
the rate of mercantile profit, and to enable our merchants to turn 



499 



The Wealth of Nations 



into a branch of trade, of which the returns are more slow and 
distant than those of the greater part of other trades, a greater 
proportion of their capital than they otherwise would have done; 
two events which, if a bounty could have prevented, it might per- 
haps have been very well worth while to give such a bounty. 

U nder the present system of management, therefore, G reat Brit- 
ain derives nothing but loss from the dominion which she as- 
sumes over her colonies. 

To propose that Great Britain should voluntarily give up all au- 
thority over her colonies, and leave them to elect their own magis- 
trates, to enact their own laws, and to make peace and war, as they 
might think proper, would be to propose such a measure as never 
was, and never will be, adopted by any nation in the world. No 
nation ever voluntarily gave up the dominion of any province, 
how troublesome soever it might be to govern it, and how small 
soever the revenue which it afforded might be in proportion to 
theexpense which it occasioned. Such sacrifices, though they might 
frequently be agreeable to the interest, are always mortifying to 
the pride of every nation; and, what is perhaps of still greater con- 
sequence, they are always contrary to the private interest of the 
governing part of it, who would thereby be deprived of the dis- 
posal of many places of trust and profit, of many opportunities of 
acquiring wealth and distinction, which thepossession of themost 



turbulent, and, to the great body of the people, themost unprof- 
itable province, seldom failsto afford. Themost visionary enthu- 
siasts would scarce be capable of proposing such a measure, with 
any serioushopes at least of its ever being adopted. I f it was adopted, 
however, Great Britain would not only be immediately freed from 
the whole annual expense of the peace establishment of the colo- 
nies, but might settle with them such a treaty of commerce as 
would effectually secure to her a free trade, more advantageous to 
the great body of the people, though less so to the merchants, 
than the monopoly which she at present enjoys. By thus parting 
good friends, the natural affection of the colonies to the mother 
country, which, perhaps, our late dissensions have well nigh ex- 
tinguished, would quickly revive. It might dispose them not only 
to respect, for whole centuries together, that treaty of commerce 
which they had concluded with us at parting, but to favour us in 
war as well as in trade, and instead of turbulent and factious sub- 
jects, to become our most faithful, affectionate, and generous al- 
lies; and the same sort of parental affection on the one side, and 
filial respect on theother, might revive between Great Britain and 
her colonies, which used to subsist between thoseof ancient G reece 
and the mother city from which they descended. 

In order to render any province advantageous to the empire to 
which it belongs, it ought to afford, in ti me of peace, a revenue to 



500 



Adam Smith 



the public, sufficient not only for defraying the whole expense of 
its own peace establishment, but for contributing its proportion 
to the support of the general government of the empire. Every 
province necessarily contributes, more or less, to in crease the ex- 
pense of that general government. If any particular province, there 
fore, does not contribute its share towards defraying this expense, 
an unequal burden must be thrown upon some other part of the 
empire. The extraordinary revenue, too, which every province af- 
fords to the public in time of war, ought, from parity of reason, to 
bear thesameproportion to theextraordinaryrevenueof the whole 
empire, which its ordinary revenue does in time of peace. That 
neither theordinary nor extraordinary revenue which Great Brit- 
ain derives from her colonies, bears this proportion to the whole 
revenue of the British empire, will readily be allowed. The mo- 
nopoly, it has been supposed, indeed, by increasing the private 
revenueofthepeopleof Great Britain, and thereby en ablingthem 
to pay greater taxes, compensates thedeficiency of thepublic rev- 
enue of the colonies. But this monopoly, I have endeavoured to 
show, though a very grievous tax upon thecolonies, and though it 
may increase the revenue of a particular order of men in Great 
Britain, diminishes, instead of increasing, that of the great body 
of thepeople, and consequently diminishes, instead of increasing, 
the ability of the great body of the people to pay taxes. T he men, 



too, whose revenue the monopoly increases, constitute a particu- 
lar order, which it is both absolutely impossibleto tax beyond the 
proportion of other orders, and extremely impolitic even to at- 
tempt to tax beyond that proportion, as I shall endeavour to show 
in the following book. No particular resource, therefore, can be 
drawn from this particular order. 

The colonies may be taxed either bytheirown assemblies, or by 
the parliament of G reat Britain. 

That the colony assemblies can never be so managed as to levy 
upon their constituents a public revenue, sufficient, not only to 
maintain at all times their own civil and military establishment, 
but to pay their proper proportion of the expense of the general 
government of the British empire, seems not very probable. 1 1 was 
alongtimebeforeeventheparliamentof England, though placed 
immediately under theeyeofthesovereign, could bebrought under 
such a system of management, or could be rendered sufficiently 
liberal in their grants for supporting the civil and military estab- 
lishments even of their own country. It was only by distributing 
among the particular membersof parliament a great part either of 
the offices, or of the disposal of the offices arising from this civil 
and military establishment, that such a system of management 
could be established, even with regard to the parliament of En- 
gland. But the distance of the colony assemblies from the eye of 



501 



The Wealth of Nations 



the sovereign, their number, their dispersed situation, and their 
various constitutions, would render it very difficult to manage 
them in thesame manner, even though thesovereign had thesame 
meansofdoingit;andthosemeansarewanting. It would be abso- 
lutely impossible to distribute among all the leading members of 
all the colony assemblies such a share, either of the offices, or of 
thedisposal of theoffices, arisingfrom thegeneral government of 
the British empire, as to dispose them to giveup their popularity 
at home, and to tax their constituents for thesupport of that gen- 
eral government, of which almost the whole emoluments were to 
be divided among people who were strangers to them. T he un- 
avoidable ignorance of administration, besides, concerning the 
relative importance of the different members of those different 
assemblies, theoffences which must frequently begiven, theblun- 
ders which must constantly be committed, in attempting to man- 
age them in this manner, seems to render such a system of man- 
agement altogether impracticable with regard to them. 

T he colony assemblies, besides, cannot be supposed the proper 
judges of what is necessary for the defence and support of the 
whole empire. The care of that defence and support is not en- 
trusted to them. It is not their business, and they have no regular 
means of information concerning it. The assembly of a province, 
I ike the vestry of a pari sh,mayjudge very properly concerning the 



affairs of its own particular district, but can have no proper means 
of judging concerning those of the whole empire. It cannot even 
judgeproperly concerningtheproportion which its own province 
bears to the whole empire, or concerning the relative degree of its 
wealth and importance, compared with the other provinces; be- 
cause those other provinces are not under the inspection and su- 
perintendency of the assembly of a particular province. W hat is 
necessary for the defence and support of thewholeempire, and in 
what proportion each part ought to contribute, can bejudged of 
only by that assembly which inspects and super- in tends the affairs 
of thewholeempire. 

It has been proposed, accordingly, that the colonies should be 
taxed by requisition, the parliament of Great Britain determining 
the sum which each colony ought to pay, and the provincial as- 
sembly assessing and levying it in the way that suited best the 
circumstances of the province. What concerned thewholeempire 
would in this way be determined by the assembly which inspects 
and superintends the affairs of thewholeempire; and theprovin- 
cial affairs of each colony might still be regulated by its own as- 
sembly. Though the colonies should, in this case, have no repre- 
sentatives in the British parliament, yet, if we may judge by expe- 
rience, there is no probability that the parliamentary requisition 
would be unreasonable. The parliament of England hasnot, upon 



502 



Adam Smith 



any occasion, shewn the smallest disposition to overburden those 
parts of the empire which are not represented in parliament. The 
islandsof G uernsey and Jersey, without any meansof resisting the 
authority of parliament, are more lightly taxed than any part of 
Great Britain. Parliament, in attempting to exercise its supposed 
right, whether well or ill grounded, of taxing the colonies, has 
never hitherto demanded of them anything which even approached 
to a just proportion to what was paid by their fellow subjects at 
home. If the contribution of the colonies, besides, was to rise or 
fall in proportion to the rise or fall of the land-tax, parliament 
could not tax them without taxing, atthesametime, its own con- 
stituents, and the colonies might, in this case, be considered as 
virtually represented in parliament. 

Examples are not wanting of empires in which all the different 
provinces are not taxed, if I may be allowed the expression, in one 
mass; but in which the sovereign regulates the sum which each 
province ought to pay, and in some provinces assesses and leviesit 
as hethinks proper; while in others he leaves it to be assessed and 
levied as the respective states of each province shall determine. In 
some provinces of France, the king not only imposes what taxes 
he thinks proper, but assesses and levies them in the way hethinks 
proper. From others hedemandsa certain sum, but leaves it to the 
states of each province to assess and levy that sum as they think 



proper. According to the schemeof taxing by requisition, the par- 
liament of Great Britain would stand nearly in the same situation 
towards the colony assemblies, as the king of France does towards 
thestates of those provinces which still enjoy the privilegeof hav- 
ing states of their own, the provinces of France which are sup- 
posed to be the best governed. 

But though, according to this scheme, the colonies could have 
no just reason to fear that their share of the public burdensshould 
ever exceed the proper proportion to that of their fellow- citizens 
at home, Great Britain might havejust reason to fear that it never 
would amount to that proper proportion. T heparliament of G reat 
Britain has not, for some time past, had the same established au- 
thority in the colonies, which the French king has in those prov- 
inces of France which still enjoy the privilege of having states of 
their own. Thecolony assemblies, if they were not very favourably 
disposed (and unless more skilfully managed than they ever have 
been hitherto, they are not very likely to be so), might still find 
many pretences for evading or rejecting the most reasonable req- 
uisitions of parliament. A French war breaks out, we shall sup- 
pose; ten millions must immediately be raised, in order to defend 
theseatoftheempireThissum must be borrowed upon thecredit 
of some parliamentary fund mortgaged for paying the interest. 
Part of this fund parliament proposes to raise by a tax to be levied 



503 



The Wealth of Nations 



in Great Britain; and part of it by a requisition to all the different 
colony assemblies of America and theWest Indies. Would people 
readily advance theirmoneyuponthecredit of afund which partly 
depended upon the good humour of all those assemblies, far dis- 
tant from the seat of the war, and sometimes, perhaps, thinking 
themselves not much concerned in the event of it? U pon such a 
fund, no more money would probably be advanced than what the 
taxtobelevied in Great Britain might be supposed to answer for. 
T he whole burden of the debt contracted on account of the war 
would in this manner fall, as it always has done hitherto, upon 
Great Britain; upon a part of the empire, and not upon the whole 
empire. Great Britain is, perhaps, since theworld began, theonly 
state which, as it has extended its empire, has only increased its 
expense, without onceaugmenting its resources. Other stateshave 
generally disburdened themselves, upon their subject and subor- 
dinate provinces, of the most considerable part of the expense of 
defending theempire. Great Britain has hitherto suffered her sub- 
ject and subordinate provinces to disburden themselves upon her 
of almost this wholeexpense. In order to put Great Britain upon a 
footing of equality with her own colonies, which the law has hith- 
erto supposed to be subject and subordinate, it seems necessary, 
upon the scheme of taxing them by parliamentary requisition, 
that parliament should have some means of rendering its requisi- 



tions immediately effectual, in case the colony assemblies should 
attempt to evade or reject them; and what those means are, it is 
not very easy to conceive, and it has not yet been explained. 

Should the parliament of Great Britain, at the same time, be 
ever fully established in the right of taxing the colonies, even inde- 
pendent of theconsent of theirown assemblies, theimportance of 
those assemblies would, from that moment, be at an end, and 
with it, that of all the leading men of British America. Men desire 
to have somesharein themanagement of public affairs, chiefly on 
account of the importance which it gives them. U pon the power 
which the greater part of the leading men, the natural aristocracy 
of every country, have of preserving or defending their respective 
importance, dependsthestability and duration of every system of 
free government. In theattacks which thoseleading men are con- 
tinually making upon the importance of one another, and in the 
defence of their own, consists the whole play of domestic faction 
and ambition. The leading men of America, likethoseof all other 
countries, desire to preserve their own importance. They feel, or 
imagine, that if their assemblies, which they are fond of calling 
parliaments, and of considering as equal in authority to the par- 
liament of Great Britain, should be so far degraded as to become 
the humble ministers and executive officers of that parliament, 
thegreater part of their own importance would be at an end. They 



504 



Adam Smith 



have rejected, therefore, theproposal of beingtaxed by parliamen- 
tary requisition, and, likeother ambitiousand high-spirited men, 
have rather chosen to draw the sword in defence of their own 
importance. 

Towards the declension of the Roman republic, the allies of 
Rome, who had bornetheprincipal burden of defending thestate 
and extending the empire, demanded to be admitted to all the 
privileges of Roman citizens. Upon being refused, the social war 
broke out. During the course of that war, Rome granted those 
privileges to the greater part of them, onebyone, and in propor- 
tion as they detached themselves from the general confederacy. 
T he parliament of G reat Britain insists upon taxing the colonies; 
and they refuse to be taxed by a parliament in which they are not 
represented. If to each colony which should detach itself from the 
general confederacy, Great Britain should allow such a number of 
representatives as suited the proportion of what it contributed to 
the public revenueoftheempire, in consequenceof its being sub- 
jected to the same taxes, and in compensation admitted to the 
samefreedom of tradewith its fellow-subjects at home; thenum- 
ber of its representatives to be augmented as the proportion of its 
contribution might afterwards augment; a new method of acquir- 
ing importance, a new and moredazzling object of ambition, would 
be presented to the leading men of each colony. Instead of pid- 



dling for the little prizes which are to be found in what may be 
called the paltry raffle of colony faction, they might then hope, 
from the presumption which men naturally have in their own 
ability and good fortune, to draw some of the great prizes which 
sometimes come from the wheel of the great state lottery of Brit- 
ish politics. Unless this or some other method is fallen upon, and 
there seems to be none more obvious than this, of preserving the 
importance and of gratifying the ambition of the leading men of 
America, it is not very probable that they will ever voluntarily 
submit to us; and we ought to consider, that the blood which 
must be shed in forcing them to do so, is, every drop of it, the 
blood either of those who are, or of those whom we wish to have 
for our fellow citizens. T hey are very weak who flatter themselves 
that, in thestate to which things have come, our colonies will be 
easily conquered by force alone. T he persons who now govern the 
resolutions of what they call their continental congress, feel in 
themselves at this moment a degree of importance which, per- 
haps, the greatest subjects in Europe scarce feel. From shopkeep- 
ers, trades men, and attorneys, they are become statesmen and 
legislators, and areemployed in contriving a new form of govern- 
ment for an extensive empire, which, they flatter themselves, will 
become, and which, indeed, seems very likely to become, one of 
the greatest and most formidable that ever was in the world. Five 



505 



The Wealth of Nations 



hundred different people, perhaps, who, in different ways, act 
immediately under the continental congress, and five hundred 
thousand, perhaps, who act under those five hundred, all feel, in 
the same manner, a proportionable rise in their own importance. 
Almost every individual of thegoverning party in America fills, at 
present, in his own fancy, a station superior, not only to what he 
had ever filled before, but to what he had ever expected to fill; and 
unless some new object of ambition is presented either to him or 
to his leaders, if he has the ordinary spirit of a man, he will die in 
defence of that station. 

It is a remark of the President Heynaut, that we now read with 
pleasure theaccount of many littletransactionsoftheLigue, which, 
when they happened, were not, perhaps, considered as very im- 
portant pieces of news. Buteveryman then, says he, fancied him- 
self of some importance; and the innumerable memoirs which 
have come down to us from those times, were the greater part of 
them written by people who took pleasure in recording and mag- 
nifying events, in which they flattered themselves they had been 
considerable actors. H ow obstinately the city of Paris, upon that 
occasion, defended itself, what a dreadful famine it supported, 
rather than submit to the best, and after wards the most beloved of 
all the French kings, is well known. The greater part of the citi- 
zens, or those who governed the greater part of them, fought in 



defence of their own importance, which, they foresaw, was to be 
at an end whenever the ancient government should be re-estab- 
lished. Our colonies, unless they can be induced to consent to a 
union, are very likely to defend themselves, against the best of all 
mother countries, as obstinatelyasthecity of Parisdid against one 
of the best of kings. 

Theidea of representation wasunknown in ancient times. When 
thepeopleof onestate were admitted to theright of citizen ship in 
another, they had no other means of exercising that right, but by 
coming in a body to vote and deliberate with the people of that 
other state. Theadmission of thegreater part of the inhabitants of 
Italy to the privileges of Roman citizens, completely ruined the 
Roman republic. It was no longer possibleto distinguish between 
who was, and who wasnot, a Roman citizen. N o tribe could know 
its own members. A rabble of any kind could be introduced into 
the assemblies of the people, could drive out the real citizens, and 
decide upon the affairs of the republic, as if they themselves had 
been such. But though America were to send fifty or sixty new 
representatives to parliament, the door-keeper of thehouseof com- 
monscould not find any great difficulty in distinguishing between 
who was and who was not a member. Though the Roman consti- 
tution, therefore, was necessarily ruined by the union of Rome 
with theallied statesof Italy, there is not the least probability that 



506 



Adam Smith 



the British constitution would be hurt by the union of Great Brit- 
ain with her colonies. That constitution, on the contrary, would 
be completed by it, and seems to be imperfect without it. The 
assembly which deliberates and decides concerning the affairs of 
every part of the empire, in order to be properly informed, ought 
certainly to have representatives from every part of it. That this 
union, however, could be easily effectuated, or that difficulties, 
and great difficulties, might not occur in the execution, I do not 
pretend. I have yet heard of none, however, which appear insur- 
mountable. The principal, perhaps, arise, not from the nature of 
things, but from the prejudices and opinions of the people, both 
on this and on the other side of the Atlantic. 

We on this side the water are afraid lest themultitudeof Ameri- 
can representatives should overturn the balance of the constitu- 
tion, and in crease too much either the influence of the crown on 
the one hand, or the force of the democracy on the other. But if 
the number of American representatives were to be in proportion 
to the produce of American taxation, the number of peopleto be 
managed would increase exactly in proportion to the means of 
managing them, and the means of managing to the number of 
peopleto be managed. The monarchical and democratical parts 
of the constitution would, after the union, stand exactly in the 
same degree of relative force with regard to one another as they 



had done before. 

The people on the other side of the water are afraid lest their 
distance from theseat of government might expose them to many 
oppressions; but their representatives in parliament, of which the 
number ought from the first to be considerable, would easily be 
ableto protect them from all oppression. The distance could not 
much weaken the dependency of therepresentativeupon thecon- 
stituent, and the former would still feel that he owed his seat in 
parliament, and all the consequence which he derived from it, to 
thegood-will of thelatter. It would be the interest of the former, 
therefore, to cultivate that good-will, by complaining, with all the 
authority of a member of the legislature, of every outrage which 
any civil or military officer might be guilty of in those remote 
parts of the empire. The distance of America from the seat of 
government, besides, thenatives of that country mightfl after them- 
selves, with some appearance of reason too, would not be of very 
long continuance. Such has hitherto been the rapid progress of 
that country in wealth, population, and improvement, that in the 
course of little more than a century, perhaps, the produce of the 
American might exceed that of the British taxation. The seat of 
the empire would then naturally remove itself to that part of the 
empire which contributed most to the general defence and sup- 
port of the whole. 



507 



The Wealth of Nations 



The discovery of America, and that of a passage to the East 
Indies by the Cape of Good Hope, are the two greatest and most 
important events recorded in the history of mankind. Their con- 
sequences have already been great; but, in the short period of be- 
tween two and three centuries which has elapsed since these dis- 
coveries were made, it is impossiblethat the whole extent of their 
consequences can have been seen. What benefits or what misfor- 
tunes to mankind may hereafter result from those great events, no 
human wisdom can foresee. By uniting in some measure the most 
distant parts of the world, by en ablingthem to relieve one an other's 
wants, to increase one another's enjoyments, and to encourage 
one another's industry, their general tendency would seem to be 
beneficial. To the natives, however, both of the East and West 
Indies, all the commercial benefits which can have resulted from 
those events have been sunk and lost in the dreadful misfortunes 
which they have occasioned. Thesemisfortunes, however, seem to 
have arisen rather from accident than from any thing in the na- 
tureof those events them selves. Atthe particular time when these 
discoveries were made, the superiority of force happened to be so 
great on thesideof the Europeans, that they were enabled to com- 
mit with impunity every sort of injustice in those remote coun- 
tries. H ereafter, perhaps, the natives of those countries may grow 
stronger, or those of Europe may grow weaker; and the inhabit- 



ants of all the different quarters of the world may arrive at that 
equality of courage and force which, by inspiring mutual fear, can 
alone overawe the injustice of independent nations into some sort 
of respect for the rights of one another. But nothing seems more 
likely to establish this equality of force, than that mutual commu- 
nication of knowledge, and of all sorts of improvements, which 
an extensive commerce from all countries to all countries natu- 
rally, or rather necessarily, carries along with it. 

In themean time, oneof the principal effects of those discover- 
ieshas been, to raise themercantilesystem to adegreeof splendour 
and glory which it could never otherwisehave attained to. Itisthe 
object of that system to enrich a great nation, rather by trade and 
manufactures than by the improvement and cultivation of land, 
rather by the industry of the towns than by that of the country. 
But in consequenceof those discoveries, thecommercial townsof 
Europe, instead of being the man ufacturers and carriersfor but a 
very small part of the world (that part of Europe which iswashed 
by the Atlantic ocean, and the countries which lieround the Bal- 
tic and M editerranean seas), havenow becomethe manufacturers 
for the numerous and thriving cultivators of America, and the 
carriers, and in some respects the manufacturers too, for almost 
all the different nations of Asia, Africa, and America. Two new 
worlds have been opened to their industry, each of them much 



508 



Adam Smith 



greater and more extensive than the old one, and the market of 
one of them growing still greater and greater every day. 

Thecountries which possess thecolonies of America, and which 
tradedirectly to the East Indies, enjoy indeed the whole show and 
splendour of this great commerce. Other countries, however, not- 
withstanding all the invidious restraints by which it is meant to 
exclude them, frequently enjoy a greater share of the real benefit 
of it. The colonies of Spain and. Portugal, for example, give more 
real encouragement to theindustry of other countries than to that 
of Spain and Portugal. In thesingleartideof linen alone, thecon- 
sumption of those colonies amounts, it is said (but I do not pre- 
tend to warrant the quantity ), to more than three millions ster- 
linga-year. But this great consumption is almost entirely supplied 
by France, Flanders, H olland, and Germany. Spain and Portugal 
furnish but a small part of it. The capital which supplies thecolo- 
nies with thisgreat quantity of linen, isannually distributed among, 
and furnishes a revenue to, the inhabitants of those other coun- 
tries. The profits of it only are spent in Spain and Portugal, where 
they help to support the sumptuous profusion of the merchants 
of Cadiz and Lisbon. 

Even the regulations by which each nation endeavours to secure 
to itself the exclusive trade of its own colonies, arefrequently more 
hurtful to the countries in favour of which they are established, 



than to those against which they are established. The unjust op- 
pression of the industry of other countries falls back, if I may say 
so, upon the heads of the oppressors, and crushes their industry 
more than it does that of those other countries. By those regula- 
tions, for example, the merchant of H amburg must send thelinen 
which he destines for the American market to London, and he 
must bring back from thence the tobacco which he destines for 
the German market; because he can neither send the one directly 
to America, nor bring the other directly from thence. By this re- 
straint he is probably obliged to sell the one somewhat cheaper, 
and to buy the other somewhat dearer, than he otherwise might 
have done; and his profits are probably somewhat abridged by 
means of it. In this trade, however, between H amburg and Lon- 
don, he certainly receives the returns of his capital much more 
quickly than he could possibly have done in the direct trade to 
America, even though we should suppose, what is by no means 
the case, that the payments of America were as punctual as those 
of London. In thetrade, therefore, to which those regulations con- 
fine the merchant of H amburg, his capital can keep in constant 
employment a much greater quantity of German industry than he 
possibly could havedonein thetradefrom which heisexduded. 
Though the one employment, therefore, may to him perhaps be 
less profitable than theother, it cannot be less advantageous to his 



509 



The Wealth of Nations 



country. It isquite otherwise with theemployment into which the 
monopoly naturally attracts, if I may say so, the capital of the 
London merchant. That employment may, perhaps, bemoreprof- 
itableto him than the greater part of other employments; but on 
account of the slowness of the returns, it cannot be more advanta- 
geous to his country. 

After all the unjust attempts, therefore, of every country in Eu- 
rope to engross to itself the whole advantage of the trade of its 
own colonies, no country has yet been able to en gross to itself any 
thing but the expense of supporting in time of peace, and of de- 
fending in time of war, theoppressive authority which it assumes 
over them. The inconveniencies resulting from the possession of 
its colonies, every country has engrossed to itself completely. The 
advantages resulting from their trade, it has been obliged to share 
with many other countries. 

Atfirst sight, no doubt, themonopoly of the great commerce of 
America naturally seemsto bean acquisition of the highest value. 
To the undiscerning eye of giddy ambition it naturally presents 
itself, amidst the confused scramble of politics and war, as a very 
dazzling object to fight for. T he dazzling splendour of the object, 
however, the immense greatness of thecommerce, isthevery quality 
which renders the monopoly of it hurtful, or which makes one 
employment, in its own nature necessarily less advantageous to 



the country than the greater part of other employments, absorb a 
much greater proportion of the capital of the country than what 
would otherwise have gone to it. 

The mercantile stock of every country, it has been shown in the 
second book, naturally seeks, if one may say so, the employment 
most advantageous to that country. If it is employed in thecarry- 
ing trade, thecountry to which it belongs becomes theemporium 
of the goods of all the countries whose trade that stock carries on. 
But the owner of that stock necessarily wishes to dispose of as 
great a part of those goods as he can at home. H e thereby saves 
himself the trouble, risk, and expense of exportation; and he will 
upon that account be glad to sell them at home, not only for a 
much smaller price, but with somewhat a smaller profit, than he 
might expect to makeby sending them abroad. H enaturally, there- 
fore, endeavours as much ashecan to turn hiscarrying trade into 
a foreign trade of consumption, If hisstock, again, isemployed in 
a foreign trade of consumption, he will, for the same reason, be 
glad to dispose of, at home, as great a part as he can of the home 
goods which he collects in order to export to some foreign mar- 
ket, and he will thus endeavour, as much as he can, to turn his 
foreign trade of consumption into a home trade. The mercantile 
stock of every country naturally courts in this manner the near, 
and shuns the distant employment: naturally courts the employ- 



510 



Adam Smith 



merit in which the returns are frequent, and shuns that in which 
they are distant and slow; naturally courtstheemployment in which 
it can maintain the greatest quantity of productive labour in the 
country to which it belongs, or in which its owner resides, and 
shunsthatin which it can maintain there thesmallest quantity. It 
naturally courtstheemployment which in ordinary cases is most 
advantageous, and shuns that which in ordinary cases is least ad- 
vantageous to that country. 

But if, in any one of those distant employments, which in ordi- 
nary cases are less advantageous to the country, the profit should 
happen to rise somewhat higher than what is sufficient to balance 
the natural preference which is given to nearer employments, this 
superiority of profit will draw stock from those nearer employ- 
ments, till the profits of all return to their proper level. This supe- 
riority of profit, however, is a proof that, in the actual circum- 
stances of the society, those distant employments are somewhat 
understocked in proportion to other employments, and that the 
stock of the society is not distributed in the properest manner 
among all thedifferent employments carried on in it. It isa proof 
that something is either bought cheaper or sold dearer than it 
ought to be, and that some particular class of citizens is more or 
less oppressed, either by paying more, or by getting less than what 
is suitable to that equality which ought to take place, and which 



naturally does take place, amongall thedifferent classes of them. 
Though the same capital never will maintain the same quantity of 
productive labour in a distant as in a near employment, yet a dis- 
tant employment maybe asnecessary for the welfare of the society 
as a near one; the goods which the distant employment deals in 
being necessary, perhaps, for carrying on many of the nearer em- 
ployments. But if the profits of those who deal in such goods are 
above their proper level, those goods will be sold dearer than they 
ought to be, or somewhat above their natural price, and all those 
engaged in thenearer employments will be more or less oppressed 
by this high price. Their interest, therefore, in this case, requires, 
that some stock should be withdrawn from those nearer employ- 
ments, and turned towardsthat distant one, in order to reduce its 
profits to their proper level, and the price of the goods which it 
deals in to their natural price. In this extraordinary case, the pub- 
lic interest requires that some stock should be withdrawn from 
those employments which, in ordinary cases, are more advanta- 
geous, and turned towards one which, in ordinary cases, is less 
advantageous to the public; and, in this extraordinary case, the 
natural interests and inclinations of men coincide as exactly with 
thepublic interestsasin all other ordinary cases, and lead them to 
withdraw stock from the near, and to turn it towards the distant 
employments. 



511 



The Wealth of Nations 



It is thus that the private interests and passions of individuals 
naturally dispose them to turn their stock towards the employ- 
ments which in ordinary cases, are most advantageoustothesoci- 
ety. Butiffromthisnatural preference they should turn too much 
of it towards those employments, the fall of profit in them, and 
the rise of it in all others, immediately dispose them to alter this 
faulty distribution. Without any intervention of law, therefore, 
the private interests and passions of men naturally lead them to 
divideand distribute the stock of every society among all the dif- 
ferent employments carried on in it; as nearly as possible in the 
proportion which is most agreeable to the interest of the whole 
society. 

A 1 1 the different regu lati ons of the mercanti le system necessari ly 
derangemoreorlessthisnatural and mostadvantageousdistribu- 
tion of stock. But those which concern the trade to America and 
the East I ndies derange it, perhaps, more than any other; because 
the trade to those two great continents absorbs a greater quantity 
of stock than any two other branches of trade. The regulations, 
however, by which this derangement is effected in those two dif- 
ferent branches of trade, are not altogether the same. M onopoly is 
the great engine of both; but it is a different sort of monopoly. 
M onopoly of one kind or another, indeed, seems to be the sole 
engine of the mercantile system. 



In the trade to America, every nation endeavours to engross as 
much as possible the whole market of its own colonies, by fairly 
excluding all other nationsfrom any direct tradeto them. During 
the greater part of the sixteenth century, the Portuguese endeav- 
oured to manage thetradeto the East I ndies in thesame manner, 
by claiming thesole right of sailing in the Indian seas, on account 
of the merit of having first found out theroad to them. T he D utch 
still continue to exclude all other European nationsfrom any di- 
rect tradeto their spice islands. M onopolies of this kind are evi- 
dently established against all other European nations, who are 
thereby not only excluded from a tradeto which it might be con- 
venient for them to turn some part of their stock, but are obliged 
to buy thegoodswhich that tradedealsin, somewhat dearer than 
if they could import them themselves directly from the countries 
which produced them. 

But since thefall of the power of Portugal, no European nation 
has claimed the exclusive right of sailing in the Indian seas, of 
which the principal ports are now open to the ships of all Euro- 
pean nations. Except in Portugal, however, and within these few 
yearsin France, thetradeto theEast I ndieshas, in every European 
country, been subjected to an exclusive company. M onopolies of 
this kind are properly established against the very nation which 
erects them. T he greater part of that nation are thereby not only 



512 



Adam Smith 



excluded from a trade to which it might be convenient for them 
to turn some part of their stock, but are obliged to buy the goods 
which that trade deals i n somewhat dearer than if it was open and 
free to all their countrymen. Since the establishment of the En- 
glish East India company, for example, the other inhabitants of 
England, over and above being excluded from the trade, must 
have paid, in the price of the East India goods which they have 
consumed, not only for all the extraordinary profits which the 
company may have made upon those goods in consequence of 
their monopoly, but for all theextraordinary waste which thefraud 
and abuse inseparable from the management of the affairs of so 
great a company must necessarily have occasioned. The absurdity 
of this second kind of monopoly, therefore, is much more mani- 
fest than that of the first. 

Both these kindsof monopolies derange more or less the natu- 
ral distribution of the stock of the society; but they do not always 
derange it in the same way. 

M onopolies of the first kind always attract to theparticular trade 
in which they are established a greater proportion of the stock of 
the society than what would go to that trade of its own accord. 

M onopolies of the second kind may sometimes attract stock 
towards the particular trade in which they are established, and 
sometimes repel it from that trade, according to different circum- 



stances. I n poor countries, they naturally attract to wards that trade 
more stock than would otherwise go to it. In rich countries, they 
naturally repel from it a good deal of stock which would other- 
wise go to it. 

Such poor countries as Sweden and Denmark, for example, 
would probably have never sent a single ship to the East Indies, 
had not the trade been subjected to an exclusive company. The 
establishment of such a company necessarily encourages adven- 
turers. Their monopoly secures them against all competitors in 
the home market, and they have thesamechancefor foreign mar- 
kets with thetradersof other nations. Their monopoly shows them 
thecertainty of agreat profit upon aconsiderablequantity of goods, 
and the chance of a considerable profit upon a great quantity. 
Without such extraordinary encouragement, the poor traders of 
such poor countries would probably never have thought of 
hazarding their small capitals in so very distant and uncertain an 
adventure as the trade to the East Indies must naturally have ap- 
peared to them. 

Such a rich country as H olland, on the contrary, would prob- 
ably, in the case of a free trade, send many more ships to the East 
Indies than it actually does. The limited stock of the D utch East 
I ndia company probably repels from that trade many great mer- 
cantile capitals which would otherwise go to it. The mercantile 



513 



The Wealth of Nations 



capital of H olland is so great, that it is, as it were, continually 
overflowing, sometimes into the public funds of foreign coun- 
tries, sometimes into loans to private traders and adventurers of 
foreign countries, sometimes into the most round-about foreign 
tradesof consumption, and sometimes in to the carrying trade. All 
near employments beingcompletelyfilled up, all thecapital which 
can beplaced in them with anytolerableprofit being already placed 
in them, thecapital of H olland necessarilyflowstowardsthemost 
distant employments. T he tradeto the East I ndies, if it were alto- 
gether free, would probably absorb the greater part of this redun- 
dant capital. T he East I ndies offer a market both for the manufac- 
tures of Europe, and for the gold and silver, as well as for the 
several other productions of America, greater and more extensive 
than both Europe and America put together. 

Every derangement of the natural distribution of stock is neces- 
sarily hurtful to the society in which it takes place; whether it be 
by repelling from a particular tradethestock which would other- 
wise go to it, or by attracting towardsa parti culartradethat which 
would not otherwise come to it. If, without any exclusive com- 
pany, the trade of H olland to the East Indies would be greater 
than it actually is, that country must suffer a considerable loss, by 
part of its capital being excluded from the employment most con- 
venient for that port. And, in the same manner, if, without an 



exclusivecompany, thetradeof Sweden and Denmark to the East 
I ndies would be less than it actually is, or, what perhaps is more 
probable, would not exist at all, those two countries must likewise 
suffer a considerable loss, by part of their capital beingdrawn into 
an employment which must be more or less unsuitable to their 
present circumstances. Better for them, perhaps, in the present 
circumstances, to buy East India goods of other nations, even 
though they should pay somewhat dearer, than to turn so great a 
part of their small capital to so very distant a trade, in which the 
returns are so very slow, in which that capital can maintain so 
small a quantity of productive labour at home, where productive 
labour is so much wanted, where so little is done, and where so 
much istodo. 

Though without an exclusivecompany, therefore, a particular 
country should not be ableto carry on any direct tradeto the East 
Indies, it will not from thence follow, that such a company ought 
to be established there, but only that such a country ought not, in 
thesecircumstances, to tradedirectly to the East I ndies. T hat such 
companies are not in general necessary for carrying on the East 
India trade, is sufficiently demonstrated by the experience of the 
Portuguese, who enjoyed almost the whole of it for more than a 
century together, without any exclusive company. 

N o private merchant, it has been said, could well have capital 



514 



Adam Smith 



sufficient to maintain factors and agents in the different ports of 
the East Indies, in order to provide goods for the ships which he 
might occasionally send thither; and yet, unless he was able to do 
this, the difficulty of finding a cargo might frequently make his 
ships lose the season for returning; and the expense of so long a 
delaywouldnotonlyeatupthewholeprofitoftheadventure, but 
frequently occasion a very considerable loss. Thisargument, how- 
ever, if it proved anything at all, would prove that no one great 
branch of trade could be carried on without an exclusive com- 
pany, which is contrary to the experience of all nations. T here is 
no great branch of trade, in which the capital of any one private 
merchant issufficientfor carrying on all the subordinate branches 
which must be carried on, in order to carry on the principal one. 
But when a nation is ripe for any great branch of trade, some 
merchants naturally turn their capitalstowardstheprincipal, and 
some towards the subordinate branches of it; and though all the 
different branches of it are in this manner carried on, yet it very 
seldom happens that they are all carried on by the capital of one 
private merchant. If a nation, therefore, is ripe for the East India 
trade, a certain portion of its capital will naturally divide itself 
among all the different branches of that trade. Some of its mer- 
chants will find it for their interest to reside in the East Indies, and 
to employ their capitals there in providing goods for the ships 



which are to be sent out by other merchants who reside in Eu- 
rope. The settlements which different European nations have ob- 
tained in the East Indies, if they were taken from the exclusive 
companies to which they at present belong, and put under the 
immediate protection of the sovereign, would render this residence 
both safe and easy, at least to the merchants of the particular na- 
tionsto whom those settlements belong. If, at any particular time, 
that part of the capital of any country which of its own accord 
tended and inclined, if I may say so, towards the East India trade, 
wasnotsufficientforcarryingon all those different branches of it, 
it would bea proof that, at that particular time, that country was 
not ripefor that trade, and that it would do better to buy for some 
time, even at a higher price, from other European nations, the 
East India goods it had occasion for, than to import them itself 
directly from the East I ndies. W hat it might lose by the high price 
of those goods, could seldom be equal to the loss which it would 
sustain by the distraction of a large portion of its capital from 
other employments more necessary, or more useful, or more suit- 
able to its circumstances and situation, than a direct trade to the 
East Indies. 

T hough the Europeans possess many considerable settlements 
both upon thecoast of Africa and in the East Indies, they havenot 
yet established, in either of those countries, such numerous and 



515 



The Wealth of Nations 



thriving colonies as thosein theislandsand continent of America. 
Africa, however, as well as several of the countries comprehended 
under the general name of the East Indies, is inhabited by barba- 
rous nations. But those nations were by no means so weak and 
defenceless as the miserable and helpless Americans; and in pro- 
portion tothenatural fertility of thecountries which they inhab- 
ited, they were, besides, much more populous. The most barba- 
rous nationsather of Africa or of the East I ndies, were shepherds; 
even the H ottentots were so. But the natives of every part of 
America, except M exicoand Peru, were only hunters and the dif- 
ference is very great between the number of shepherds and that of 
hunters whom the same extent of equally fertile territory can main- 
tain. In Africa and the East Indies, therefore, it was more difficult 
to displace the natives, and to extend the European plantations 
over the greater part of the lands of the original inhabitants. T he 
genius of exclusive companies, besides, is unfavourable, it has al- 
ready been observed, tothegrowth of new colonies, and has prob- 
ably been theprinci pal causeof thelittleprogress which they have 
made in the East I ndies. T he Portuguese carried on thetrade both 
to Africa and the East Indies, without any exclusive companies; 
and their settlements at Congo, Angola, and Benguela, on the 
coast of Africa, and at Goa in the East I ndies though much de- 
pressed by superstition and every sort of bad government, yet bear 



some resemblance to the colonies of America, and are partly in- 
habited by Portuguese who have been established therefor several 
generations. T he D utch settlements at the C ape of G ood H ope 
and at Batavia, are at presentthemostconsiderablecolonies which 
the Europeans have established, either in Africa or in the East 
Indies; and both those settlements an peculiarly fortunate in thar 
situation. The Cape of Good H ope was inhabited by a race of 
people almost as barbarous, and quite as incapable of defending 
thansdves, as the natives of America. It is, besides, the half-way 
house, if one may say so, between Europe and the East Indies, at 
which almost every European ship makes some stay, both in going 
and returning. The supplying of those ships with every sort of 
fresh provisions, with fruit, and sometimes with wine, affordsalone 
a very extensive market for the surplus produce of the colonies. 
What the Cape of Good Hope is between Europe and every part 
of the East Indies, Batavia is between the principal countries of 
theEast Indies. It liesupon themost frequented road from I ndostan 
to C hina and Japan, and is nearly about mid-way upon that road. 
Almost all the ships too, that sail between Europe and China, 
touch at Batavia; and it is, over and above all this, the centre and 
principal mart of what iscalled thecountry tradeof the East I ndies; 
not only of that part of it which iscarried on by Europeans, but of 
that which is carried on by the native Indians; and vessds navi- 



516 



Adam Smith 



gated by the inhabitants of China and Japan, of Tonquin, Mal- 
acca, Cochin-China, and the island of Celebes, are frequently to 
be seen in its port. Such advantageous situations have enabled 
those two colonies to surmount all the obstacles which the op- 
pressive genius of an exclusive company may have occasionally 
opposed to their growth. They have enabled Bataviato surmount 
the additional disadvantage of perhaps the most unwholesome 
climate in the world. 

The English and Dutch companies, though they have estab- 
lished no considerable colonies, except thetwo above mentioned, 
have both made considerable conquests in the East Indies. But in 
the manner in which they both govern their new subjects, the 
natural geniusof an exclusive company has shewn itself most dis- 
tinctly. In the spice islands, the Dutch are said to burn all the 
spiceries which a fertile season produces, beyond what they expect 
to disposeof in Europe with such a profit as they think sufficient. 
In the islands where they have no settlements, they give a pre- 
mium to those who collect the young blossoms and green leaves 
of the clove and nutmeg trees, which naturally grow there, but 
which this savage policy has now, it is said, almost completely 
extirpated. Even in the islands where they have settlements, they 
have very much reduced, it is said, the number of those trees. If 
the produce even of theirown islandswasmuch greater than what 



suited their market, the natives, they suspect, might find meansto 
convey some part of it to other nations; and the best way, they 
imagine, to secure their own monopoly, is to take care that no 
more shall grow than what they themselves carry to market. By 
different arts of oppression, they have reduced the population of 
several of the M oluccas nearly to the number which is sufficient 
to supply with fresh provisions, and other necessaries of life, their 
own insignificant garrisons, and such of their shipsas occasionally 
come there for a cargo of spices. U nder the government even of 
the Portuguese, however, those islands are said to have been toler- 
ably well inhabited. The English company have not yet had time 
to establish in Bengal so perfectly destructive a system. The plan 
of their government, however, has had exactly the same tendency. 
It has not been uncommon, I am well assured, for the chief, that 
is, thefirst clerk or a factory, to order a peasant to plough up a rich 
field of poppies, and sow it with rice, or some other grain. The 
pretence was, to prevent a scarcity of provisions; but the real rea- 
son, to give the chief an opportunity of selling at a better price a 
large quantity of opium which he happened then to have upon 
hand. U pon other occasions, the order has been reversed; and a 
rich field of rice or other grain has been ploughed up, in order to 
make room for a plantation of poppies, when the chief foresaw 
that extraordinary profit was likely to be made by opium. The 



517 



The Wealth of Nations 



servants of the company have, upon several occasions, attempted 
to establish in theirown favour the monopoly of someof the most 
important branches, not only of the foreign, but of the inland 
tradeof thecountry H ad they been allowed to go on, it isimpos- 
si blethat they should not, at sometimeor another, have attempted 
to restrain the production of the particular articles of which they 
had thus usurped the monopoly, not only to the quantity which 
they themselves could purchase, but to that which they could ex- 
pect to sell with such a profit as they might think sufficient. I n the 
course of a century or two, the policy of the English company 
would, in this manner, have probably proved as completely de- 
structive as that of the D utch. 

Nothing, however, can be more directly contrary to the real in- 
terest of those companies, considered as the sovereigns of thecoun- 
tries which they have conquered, than this destructive plan. In 
almost all countries, the revenue of the sovereign is drawn from 
that of the people. The greater the revenue of the people, there- 
fore, the greater the annual produce of their land and labour, the 
more they can afford to the sovereign. It is his interest, therefore, 
to increase as much as possible that annual produce. But if this is 
the interest of every sovereign, it is peculiarly so of one whose 
revenue, likethatof thesovereign of Bengal, arises chiefly from a 
land-rent. T hat rent must necessarily be in proportion to thequan- 



tity and value of the produce; and both the one and the other 
must depend upon the extent of the market. The quantity will 
always be suited, with more or less exactness, to the consumption 
of those who can afford to pay for it; and thepricewhich they will 
pay will always bein proportion to the eagerness of their compe- 
tition. It is the interest of such a sovereign, therefore, to open the 
most extensive market for the produceof hiscountry to allow the 
most perfect freedom of commerce, in order to increase as much 
as possiblethe number and competition of buyers; and upon this 
account to abolish, not only all monopolies, but all restraints upon 
thetransportation of the home produce from onepartof thecoun- 
try to mother, upon its exportation to foreign countries, or upon 
the importation of goods of any kind for which it can be ex- 
changed. H e is in this manner most likely to increase both the 
quantity and value of that produce, and consequently of his own 
share of it, or of his own revenue. 

But a company of merchants, are, it seems, incapable of consid- 
ering themselves as sovereigns, even after they have become such. 
Trade, or buying in order to sell again, they still consider as their 
principal business, and by a strange absurdity, regard thecharacter 
of the sovereign as but an appendix to that of the merchant; as 
something which ought to be made subservient to it, or by means 
of which they may be enabled to buy cheaper in I ndia, and thereby 



518 



Adam Smith 



to sell with a better profit in Europe. They endeavour, for this 
purpose, to keep out as much as possible all competitors from the 
market of the countries which are subject to their government, 
and consequently to reduce, at least, some part of thesurplus pro- 
duce of those countries to what is barely sufficient for supplying 
their own demand, or to what they can expect to sell in Europe, 
with such a profit as they may think reasonable. Their mercantile 
habits draw them in this manner, almost necessarily, though per- 
haps insensibly, to prefer, upon all ordinary occasions, the little 
and transitory profit of the monopolist to the great and perma- 
nent revenue of the sovereign; and would gradually lead them to 
treat thecountries subject to their government nearly as the D utch 
treat the M oluccas. It is the interest of the East India company, 
considered as sovereigns, that the European goods which are car- 
ried to their Indian dominions should be sold there as cheap as 
possible; and thatthelndiangoodswhicharebroughtfrom thence 
should bring there as good a price, or should be sold there as dear 
as possible. But the reverse of this istheir interest as merchants. As 
sovereigns, their interest is exactly the same with that of thecoun- 
try which they govern. As merchants, their interest isdirectly op- 
posite to that interest. 

But if the genius of such a government, even as to what con- 
cerns its direction in Europe, is in this manner essentially, and 



perhaps incurably faulty, that of its administration in Indiaisstill 
more so. That administration is necessarily composed of acouncil 
of merchants, a profession no doubt extremely respectable, but 
which in no country in the world carries along with it that sort of 
authority which naturally overawes the people, and without force 
commandstheir willing obedience. Such a council can command 
obedience only by the military force with which they are accom- 
panied; and their government is, therefore, necessarily military 
and despotical. Their proper business, however, is that of mer- 
chants. It is to sell, upon their master's account, the European 
goods consigned to them, and to buy, in return, Indian goods for 
the European market. It is to sell the one as dear, and to buy the 
other as cheap as possible, and consequently to exclude, as much 
as possible, all rivals from the particular market where they keep 
their shop. The genius of the administration, therefore, so far as 
concerns thetradeofthecompany, is thesameas that of thedirec- 
tion. It tends to make government subservient to the interest of 
monopoly, and consequently to stunt the natural growth of some 
parts, at least, of the surplus produce of the country, to what is 
barely sufficient for answering the demand of the company, 

All the members of the administration besides, trade more or 
less upon their own account; and it is in vain to prohibit them 
from doing so. N othing can be more completely foolish than to 



519 



The Wealth of Nations 



expect that the clerk of a great counting-house, at ten thousand 
miles distance, and consequently almost quiteout of sight, should, 
upon a simple order from their master, give up at once doing any 
sort of business upon their own account abandon for ever all hopes 
of making a fortune, of which they have the means in their hands; 
and content themselves with the moderate salaries which those 
masters allow them, and which, moderate as they are, can seldom 
be augmented, being commonly as large as the real profits of the 
company trade can afford. In such circumstances, to prohibit the 
servants of the company from trading upon their own account, 
can have scarce any other effect than to enable its superior ser- 
vants, under pretenceof executing their master's order, to oppress 
such of the inferior ones as have had the misfortune to fall under 
their displeasure. The servants naturally endeavour to establish 
the same monopoly in favour of their own private trade as of the 
public trade of the company. If they are suffered to act as they 
could wish, they will establish this monopoly openly and directly, 
by fairly prohibiting all other people from trading in the articles 
in which they choose to deal; and this, perhaps, is the best and 
least oppressive way of establishing it. But if, by an order from 
Europe, they are prohibited from doing this, they will, notwith- 
standing, endeavour to establish a monopoly of the same kind 
secretly and indirectly, in a way that is much more destructive to 



thecountry They will employ the wholeauthority of government, 
and pervert the administration of Justice, in order to harass and 
ruin those who interfere with them in any branch of commerce, 
which by means of agents, either concealed, or at least not pub- 
licly avowed, they may choose to carry on. Buttheprivatetradeof 
the servants will naturally extend to a much greater variety of ar- 
ticles than the public trade of the company. T he public trade of 
the company extends no further than the trade with Europe, and 
comprehends a part only of the foreign trade of the country. But 
the private trade of the servants may extend to all the different 
branches both of its inland and foreign trade. The monopoly of 
the company can tend only to stunt the natural growth of that 
part of the surplus produce which, in the case of a free trade, 
would be exported to Europe. That of the servants tends to stunt 
the natural growth of every part of the produce in which they 
choose to deal; of what is destined for home consumption, as well 
as of what is destined for exportation; and consequently to de- 
gradethecultivationofthewholecountry, and to reduce thenum- 
ber of its inhabitants. It tends to reduce the quantity of every sort 
of produce, even that of the necessaries of life, whenever the ser- 
vants of the country choose to deal in them, to what those ser- 
vants can both afford to buy and expect to sell with such a profit 
as pleases them. 



520 



Adam Smith 



From the nature of their situation, too, the servants must be 
more disposed to support with rigourous severity their own inter- 
est, against that of thecountry which they govern, than their mas- 
ters can be to support theirs. Thecountry belongs to their mas- 
ters, who cannot avoid having some regard for the interest of what 
belongs to them; but it does not belong to the servants. T he real 
interest of their masters, if they were capable of understanding it, 
isthesame with that of thecountry; {T heinterest of every propri- 
etor of India stock, however, is by no means the same with that of 
the country in the government of which his vote gives him some 
influence. — See book v, chap. 1, part ii.}and itisfrom ignorance 
chiefly, and the meanness of mercantile prejudice, that they ever 
oppress it. Butthereal interest of the servants is by no meansthe 
same with that of the country, and the most perfect information 
would not necessarily put an end to their oppressions. T deregula- 
tions, accordingly, which have been sentoutfrom Europe, though 
they have been frequently weak, have upon most occasions been 
well meaning. M ore intelligence, and perhaps less good meaning, 
has sometimes appeared in those established by the servants in 
India. It isa very singular government in which every member of 
the administration wishes to get out of the country, and conse- 
quently to have done with the government, as soon as he can, and 
to whose interest, theday after hehasleft it, and carried his whole 



fortunewith him, itisperfectly indifferentthough thewholecoun- 

try was swallowed up by an earthquake. 

I mean not, however, by any thing which I have here said, to 
throw any odious imputation upon the general character of the 
servants of the East I ndia company, and touch less upon that of 
any particular persons. It isthe system of government, the situa- 
tion in which they are placed, that I mean to censure, not the 
character of those who have acted in it. They acted as their situa- 
tion naturally directed, and they who have clamoured the loudest 
against them would probably not have acted better themsdves. In 
war and negotiation, the councils of M adras and Calcutta, have 
upon several occasions, conducted themsdves with a resolution 
and decisive wisdom, which would have done honour to the sen- 
ate of Rome in the best days of that republic. The members of 
those councils, however, had been bred to professions very differ- 
ent from war and politics. But thdr situation alone, without edu- 
cation, experience, or even example, seemsto haveformed in them 
all at once the great qualities which it required, and to have in- 
spired them both with abilities and virtues which they themsdves 
could not well know that they possessed. If upon some occasions, 
therefore, it has animated them to actions of magnanimity which 
could not wdl have been expected from them, we should not 
wonder if, upon others, it has prompted them to exploits of some- 



521 



The Wealth of Nations 



what a different nature. 

Such exclusive companies, therefore, are nuisances in every re- 
spect; always more or less inconvenient to the countries in which 
they are established, and destructive to those which havethemis- 
fortuneto fall under their government. 



CHAPTER VIM 

CONCLUSION OFTHE MERCANTILE 
SYSTEM 

Though the encouragement of exportation, and the discour- 
agement of importation, are the two great engines by which the 
mercantile system proposes to enrich every country, yet, with re- 
gard to some particular commodities, it seems to follow an oppo- 
site plan: to discourage exportation, and to encourage importa- 
tion. Its ultimate object, however, it pretends, is always the same, 
to enrich the country by an advantageous balance of trade. It dis- 
courages the exportation of the materials of manufacture, and of 
the instruments of trade, in order to give our own workmen an 
advantage, and to enablethem to undersell thoseof other nations 
in all foreign markets; and by restraining, in this manner, the ex- 
portation of a few commodities, of no great price, it proposes to 
occasion a much greater and more valuable exportation of others. 
It encourages the importation of the materials of manufacture, in 
order that our own people may be enabled to work them up more 
cheaply, and thereby prevent a greater and more valuable impor- 
tation of the manufactured commodities. I do not observe, at least 
in our statute book, any encouragement given to the importation 



522 



Adam Smith 



of the instruments of trade. W hen manufactures have advanced 
to a certain pitch of greatness, the fabrication of the instruments 
of trade becomes itself theobject of a great number of very impor- 
tant manufactures. To give any particular encouragement to the 
importation of such instruments, would interfere too much with 
the interest of those manufactures. Such importation, therefore, 
instead of being encouraged, has frequently been prohibited. Thus 
the importation of wool cards, except from Ireland, or when 
brought in as wreck or prize goods, was prohibited by the 3rd of 
Edward IV.; which prohibition was renewed by the 39th of Eliza- 
beth, and has been continued and rendered perpetual by subse- 
quent laws. 

The importation of thematerialsof manufacturehas sometimes 
been encouraged by an exemption from the duties to which other 
goods are subject, and sometimes by bounties. 

The importation of sheep's wool from several different coun- 
tries, of cotton wool from all countries, of undressed flax, of the 
greater part of dyeing drugs, ofthegreater part of undressed hides 
from Ireland, or the British colonies, of seal skinsfrom the British 
Greenland fishery, of pig and bar iron from the British colonies, as 
well as of several other materials of manufacture, has been encour- 
aged by an exemption from all duties, if properly entered at the 
custom-house. T he private interest of our merchants and manu- 



facturers may, perhaps, have extorted from the legislature these 
exemptions, as well as the greater part of our other commercial 
regulations. They are, however, perfectly just and reasonable; and 
if, consistently with the necessities of the state, they could be ex- 
tended to all the other materials of manufacture, thepublic would 
certainly be a gainer. 

The avidity of our great manufacturers, however, has in some 
cases extended these exemptions a good deal beyond what can 
justly be considered as the rude materials of their work. By the 
24th Geo. II. chap. 46, a small duty of only Id. the pound was 
imposed upon the importation of foreign brown linen yarn, in- 
stead of much higher duties, to which it had been subjected be- 
fore, viz. of 6d. the pound upon sail yarn, of Is. the pound upon 
all French and Dutch yarn, and of £2:13:4 upon the hundred 
weight of all spruce orM uscoviayarn. But our manufacturers were 
not long satisfied with this reduction: by the 29th of the same 
king, chap. 15, thesamelaw which gavea bounty upon theexpor- 
tation of British and I rish linen, of which the pricedid not exceed 
18d. theyard, even thissmall dutyupon theimportation of brown 
linen yarn was taken away. In the different operations, however, 
which are necessary for the preparation of linen yarn, a good deal 
more industry is employed, than in the subsequent operation of 
preparing linen cloth from linen yarn. To say nothing of the in- 



523 



The Wealth of Nations 



dustry of the flax-growers and flaxdressers, three or four spinners 
at least are necessary in order to keep one weaver in constant em- 
ployment; and more than four-fifthsof thewholequantity of labour 
necessary for the preparation of linen cloth, isemployed in that of 
linen yarn; but our spinners are poor people; women commonly 
scattered about in all different parts of the country without sup- 
port or protection. It is not by the sale of their work, but by that 
of the complete work of the weavers, that our great master manu- 
facturers make their profits. As it is their interest to sell the com- 
plete manufacture as dear, so it is to buy the materials as cheap as 
possible. By extorting from the legislature bounties upon the ex- 
portation of their own linen, high dutiesupon theimportation of 
all foreign linen, and a total prohibition of the home consump- 
tion of some sorts of French linen, they endeavour to sell their 
own goods as dear as possible. By encouraging the importation of 
foreign linen yarn, and thereby bringing it into competition with 
that which is made by our own people, they endeavour to buy the 
work of the poor spinners as cheap as possible. T hey are as intent 
to keep down the wages of their own weavers, as the earnings of 
the poor spinners; and it is by no means for the benefit of the 
workmen that they endeavour either to raise the priceof thecom- 
pletework, ortolowerthatoftherudematerials. Itistheindustry 
which is carried on for the benefit of the rich and the powerful, 



that isprincipally encouraged by our mercantile system. That which 
is carried on for the benefit of the poor and the indigent is too 
often either neglected or oppressed. 

Both thebounty upon the exportation of linen, and theexemp- 
tion from the duty upon theimportation of foreign yarn, which 
weregranted onlyfor fifteen years, but continued by two different 
prolongations, expire with the end of the session of parliament 
which shall immediately follow the 24th of June 1786. 

The encouragement given to the importation of the materials 
of manufactureby bounties, has been principally confined to such 
as were imported from our American plantations. 

The first bounties of this kind were those granted about the 
beginning of the present century, upon the importation of naval 
storesfrom America. U nderthisdenomination werecompreh ended 
timber fit for masts, yards, and bowsprits; hemp, tar, pitch, and 
turpentine. The bounty, however, of £1 the ton upon masting- 
timber, and that of £6 the ton upon hemp, were extended to such 
as should be imported into England from Scotland. Both these 
bounties continued, without any variation, at the same rate, till 
they were severally allowed to expire; that upon hemp on the 1st 
of January 1741, and thatupon masting-timberattheend of the 
session of parliament immediately following the 24th June 1781. 

The bounties upon theimportation of tar, pitch, and turpentine, 



524 



Adam Smith 



underwent, during their continuance, several alterations. riginally, 
that upon tar was £4 the ton; that upon pitch the same; and that 
upon turpentinef 3 theton. T hebounty of £4 theton upon tar was 
afterwards confined to such as had been prepared in a particular 
manner; that upon other good, clean, and merchantable tar was 
reduced to f2:4& the ton. The bounty upon pitch was likewise re- 
duced to £1, and that upon turpentineto f 1:10s. theton. 

Thesecond bounty upon the importation of anyofthemateri- 
alsof manufacture, according to the order of time, wasthat granted 
bythe21stGeo. 1 1, chap. 30, upon the importation of indigo from 
the British plantations. When the plantation indigo was worth 
three-fourthsof the price of the best French indigo, it was, by this 
act, entitled to a bounty of 6d. the pound. This bounty, which, 
I ike most others, was granted only for a limited time, was contin- 
ued by several prolongations, but was reduced to 4d. the pound. 
It was allowed to expire with the end of the session of parliament 
which followed the 25th M arch 1781. 

Thethird bounty of thiskind wasthat granted (much aboutthe 
time that we were beginning sometimes to court, and sometimes 
to quarrel with our American colonies), by the4th. Geo. III. chap. 
26, upon the importation of hemp, or undressed flax, from the 
British plantations.Thisbounty was granted fortwenty-oneyears, 
from the 24th June 1764 to the 24th June 1785. For the first 



seven years, it was to be at the rate of £8 theton; for thesecond at 
£6; and for the third at £4. It was not extended to Scotland, of 
which the climate (although hemp is sometimes raised there in 
small quantities, and of an inferior quality) is not very fit for that 
produce. Such a bounty upon the importation of Scotch flax in 
England would have been too great a discouragement to the na- 
tive produce of the southern part of the united kingdom. 

The fourth bounty of this kind was that granted by the 5th 
G eo. III. chap. 45, upon the importation of wood from America. 
It was granted for nineyearsfrom the 1st January 1766 to the 1st 
January 1775. During the first three years, it was to be for every 
hundred-and-twenty good deals, at the rate of £1, and for every 
load containing fifty cubic feet of other square timber, at the rate 
of 12s. For thesecond three years, it was for deals, to be at the rate 
of 15s., and for other squared timber at the rate of 8s.; and for the 
third three years, it was for deals, to be at the rate of 10s.; and for 
every other squared timber at the rate of 5s. 

The fifth bounty of thiskind was that granted by the 9th Geo. 
III. chap. 38, upon the importation of raw silk from the British 
plantations. It was granted fortwenty-oneyears, from thelstjanu- 
ary 1770, to the 1st January 1791. For the first seven years, it was 
to be at the rate of £25 for every hundred pounds value; for the 
second, at £20; and for thethird, at £15. T he management of the 



525 



The Wealth of Nations 



silk-worm, and the preparation of silk, requires so much hand- 
labour, and labour is so very dear in America, that even this great 
bounty, I have been informed, wasnot likely to produce any con- 
siderable effect. 

The sixth Bounty of this kind was that granted by 11th Geo. 
III. chap. 50, for the importation of pipe, hogshead, and 
barrel staves and leadingfrom theBritish plantations. It was granted 
for nineyears, from 1st J anuary 1772 to the 1st J anuary 1781. For 
thefirst three years, it was, for a certain quantity of each, to beat 
the rate of £6; for the second three years at £4; and for the third 
three years at £2. 

The seventh and last bounty of this kind was that granted by 
the 19th Geo. Ill chap. 37, upon the importation of hemp from 
Ireland. It was granted in thesame manner as that for theimpor- 
tation of hemp and undressed flax from America, for twenty-one 
years, from the 24th J une 1779 to the 24th June 1800. T he term 
is divided likewise into three periods, of seven years each; and in 
each of those periods, the rate of the Irish bounty isthesamewith 
that of the American. It does not, however, like the American 
bounty, extend to the importation of undressed flax. It would have 
been too great a discouragement to thecultivation of that plantin 
Great Britain. When this last bounty was granted, theBritish and 
Irish legislatures were not in much better humour with one an- 



other, than the British and American had been before. But this 
boon to I reland, it is to be hoped, has been granted under more 
fortunate auspices than all those to America. Thesamecommodi- 
ties, upon which we thus gave bounties, when imported from 
America, were subjected to considerable duties when imported 
from any other country. The interest of our American colonies 
was regarded as the same with that of the mother country. Their 
wealth was considered as our wealth. W hatever money was sent 
out to them, it was said, came all back to us by the balance of 
trade, and we could never become a farthing the poorer by any 
expense which we could lay out upon them. T hey were our own 
in every respect, and it was an expense laid out upon the improve- 
ment of our own property, and for the profitable employment of 
our own people. It is unnecessary, I apprehend, at present to say 
anything further, in order to expose the folly of a system which 
fatal experience has now sufficiently exposed. H ad our American 
colonies really been a part of Great Britain, those bounties might 
have been considered as bounties upon production, and would 
still have been liable to all the objections to which such bounties 
are liable, but to no other. 

T he exportation of the materials of manufacture is sometimes 
discouraged byabsoluteprohibitions, and sometimes by high du- 
ties. 



526 



Adam Smith 



Our woollen manufacturershavebeen more successful than any 
other classof workmen, in persuadingthelegislaturethatthepros- 
perity of the nation depended upon the success and extension of 
their particular business. T hey havenot only obtained a monopoly 
against the consumers, by an absolute prohibition of importing 
woollen cloths from any foreign country; but they have likewise 
obtained another monopoly against the sheep farmers and grow- 
ers of wool, by a similar prohibition of the exportation of live 
sheep and wool. Theseverity of many of thelawswhich have been 
enacted for the security of the revenue is very justly complained 
of, asimposing heavy penaltiesupon actionswhich, antecedentto 
the statutes that declared them to be crimes, had always been un- 
derstood to be innocent. But the cruellest of our revenue laws, I 
will venture to affirm, aremild and gentle, in comparison to some 
of those which the clamour of our merchants and manufacturers 
has extorted from the legislature, for the support of their own 
absurd and oppressive monopolies. Like the laws of Draco, these 
laws may be said to be all written in blood. 

By the 8th of Elizabeth, chap. 3, the exporter of sheep, lambs, 
or rams, wasfor thefirst offence, to forfeit all his goodsfor ever, to 
suffer a year's imprisonment, and then to havehisleft hand cutoff 
in a market town, upon a market day, to be there nailed up; and 
forthesecond offence, to be adjudged a felon, and to suffer death 



accordingly. To prevent the breed of our sheep from being propa- 
gated in foreign countries, seems to have been the object of this 
law. By the 13th and 14th of C harles 1 1 . chap. 18, the exportation 
of wool was made felony, and the exporter subjected to the same 
penalties and forfeitures as a felon. 

For the honour of the national humanity, it is to be hoped that 
neither of these statutes was ever executed. T hefirst of them, how- 
ever, so far as I know, has never been directly repealed, and Ser- 
jeant Hawkins seems to consider it as still in force. It may, how- 
ever, perhaps be considered as virtually repealed by the 12th of 
C harlesl I . chap. 32, sect. 3, which, without expressly taking away 
the penalties imposed by former statutes, imposes a new penalty, 
viz. that of 20s. for every sheep exported, or attempted to be ex- 
ported, together with theforfeitureof thesheep, and of theowner's 
share of the sheep. T he second of them was expressly repealed by 
the 7th and 8th of William III. chap. 28, sect. 4, by which it is 
declared that "W hereas the statute of the 13th and 14th of king 
C harles 1 1 . made against the exportation of wool, among other 
things in thesaid act mentioned, doth enact the same to bedeemed 
felony, by the severity of which penalty the prosecution of offend- 
ers hath not been so effectually put in execution; be it therefore 
enacted, by the authority aforesaid, that so much of the said act, 
which relates to the making the said offence felony, be repealed 



527 



The Wealth of Nations 



and made void." 

Thepenalties, however, which areeither imposed by thismilder 
statute, or which, though imposed by former statutes, are not re- 
pealed by this one, are still sufficiently severe. Besides the forfei- 
ture of the goods, the exporter incurs the penalty of 3s. for every 
pound weight of wool, either exported or attempted to be ex- 
ported, that is, about four or five times the value. Any merchant, 
or other person convicted of this offence, isdisabled from requir- 
ing any debt or account belonging to him from any factor or other 
person. Let hisfortune be what it will, whether he isor is not able 
to pay those heavy penalties, the law means to ruin him com- 
pletely But, as the morals of the great body of the people are not 
yet so corrupt as those of the contrivers of this statute, I havenot 
heard that any advantage has ever been taken of this clause. If the 
person convicted of this offence is not able to pay the penalties 
within three months after judgment, he is to be transported for 
seven years; and if hereturnsbeforetheexpiration of that term, he 
is liableto the painsof felony, without benefit of clergy. T heowner 
of the ship, knowing this offence, forfeits all his interest in the 
ship and furniture. The master and mariners, knowing this of- 
fence, forfeit all their goods and chattels, and suffer three months 
imprisonment. By a subsequent statute, the master suffers six 
months imprisonment. 



I n order to prevent exportation, the whole inland commerce of 
wool islaid under very burdensomeand oppressive restrictions. It 
cannot be packed in anybox, barrel, cask, case, chest, or any other 
package, but only in packsof leather or pack-cloth, on which must 
be marked on the outside the words WOOL or YARN, in large 
letters, not less than three inches long, on pain of forfeiting the 
same and the package, and 8s. for every pound weight, to be paid 
by the owner or packer. It cannot be loaden on any horse or cart, 
or carried by land within five miles of the coast, but between sun- 
rising, and sun-setting, on pain of forfei ting the same, the horses 
and carriages. Thehundred next adjoining to thesea coast, out of, 
or through which the wool is carried or exported, forfeits £20, if 
the wool is under the value of £10; and if of greater value, then 
treblethat value, together with treblecosts, to be sued for within 
the year. The execution to be against any two of the inhabitants, 
whom the sessions must reimburse, by an assessment on theother 
inhabitants, as in the cases of robbery. And if any person com- 
pounds with the hundred for less than this penalty, he is to be 
imprisoned for five years; and any other person may prosecute. 
These regulations take place through the whole kingdom. 

But in the particular counties of Kent and Sussex, the restric- 
tions are still more troublesome. Every owner of wool within ten 
miles of the sea coast must give an account in writing, three days 



528 



Adam Smith 



after shearing, to thenext officer of thecustoms, of thenumber of 
hisfleeces, and of the places where they are lodged. And before he 
removes any part of them, he must give the like notice of the 
number and weight of the fleeces, and of the name and abode of 
the person to whom they are sold, and of the place to which it is 
intended they should becarried. No person within fifteen milesof 
the sea, in the said counties, can buy any wool, before he enters 
into bond to the king, that no part of the wool which he shall so 
buy shall be sold by him to any other person within fifteen miles 
ofthesea. If any wool isfound carrying towards the sea side in the 
said counties, unless it has been entered and security given as afore- 
said, it isforfeited, and theoffender also forfeits 3s for every pound 
weight, if any person lay any wool, not entered asaforesaid, within 
fifteen milesof the sea, it must be seized and forfeited; and if, after 
such seizure, any person shall claim the same, he must give secu- 
rity to the exchequer, that if heiscast upon trial heshall pay treble 
costs, besides all other penalties. 

When such restrictions are imposed upon the inland trade, the 
coasting trade, we may believe, cannot be left very free. Every owner 
of wool, who carrieth, or causeth to be carried, any wool to any 
port or place on the sea coast, in order to be from thence trans- 
ported by sea to any other place or port on the coast, must first 
cause an entry thereof to be made at the port from whence it is 



intended to be conveyed, containingtheweight, marks, and num- 
ber, of the packages, beforehebringsthesamewithin fivemilesof 
that port, on pain of forfeiting the same, and also the horses, carts, 
and other carriages; and also of suffering and forfeiting, as by the 
other lawsin force against the exportation of wool. Thislaw, how- 
ever (1st of William III. chap. 32), is so very indulgent as to de- 
clare, that thisshall not hinder any person from carrying hiswool 
homefrom the place of shearing, though it be within fivemilesof 
the sea, provided that in ten days after shearing, and before he 
remove the wool, he do under his hand certify to the next officer 
of the customs the true number of fleeces, and where it is housed; 
and do not remove the same, without certifying to such officer, 
under his hand, his intention so to do, three days before. Bond 
must be given thatthewool to becarried coast-ways isto belanded 
at the particular port for which it is entered outwards; and if my 
part of it islanded without the presence of an officer, not only the 
forfeiture of the wool isincurred, asin other goods, buttheusual 
additional penalty of 3s. for every pound weight is likewise in- 
curred. 

Our woollen manufacturers, in order to justify their demand of 
such extraordinary restrictions and regulations, confidently as- 
serted, that English wool was of a peculiar quality, superior to that 
of any other country; that the wool of other countries could not, 



529 



The Wealth of Nations 



without somemixtureof it, bewrought up into any tolerable manu- 
facture; that fine cloth could not be made without it; that En- 
gland, therefore, if the exportation of itcould be totally prevented, 
could monopolize to herself almost the whole woollen trade of 
the world; and thus, having no rivals, could sell at what price she 
pleased, and in ashorttimeacquirethemostincredibledegreeof 
wealth by the most advantageous balance of trade. T his doctrine, 
like most other doctrines which are confidently asserted by any 
considerable number of people, was, and still continues to be, 
most implicitly believed by a much greater number: by almost all 
those who are either unacquainted with the woollen trade, or who 
havenotmadeparticular inquiries. It is, however, so perfectly false, 
that English wool is in any respect necessary for the making of 
finecloth, that it is altogether unfit for it. Finedoth ismadealto- 
gether of Spanish wool. English wool, cannot be even so mixed 
with Spanish wool, asto enter into the composition without spoil- 
ing and degrading, in some degree, the fabric of the cloth. 

It has been shown in the foregoing part of this work, that the 
effect of these regulations has been to depress the price of English 
wool, not only below what it naturally would be in the present 
times, but very much below what it actually was in the time of 
Edward 1 1 1 . T he price of Scotch wool, when, in consequenceof the 
Union, it became subject to the same regulations, is said to have 



fallen about onehalf. It isobserved by the very accurate and intelli- 
gent author of the M emoirsofWool, theReverend M r.John Smith, 
that the price of the best English wool in England, is generally be- 
low what wool of a very inferior quality commonly sellsfor in the 
market of Amsterdam. To depress the price of this commodity be- 
low what may becalled itsnatural and proper price, wastheavowed 
purpose of those regulations; and there seems to be no doubt of 
thar having produced the effect that was expected from them. 

Thisreduction of price, it may perhaps be thought, by discour- 
aging the growing of wool, must have reduced very much the an- 
nual produce of that commodity, though not below what it for- 
merly was, yet below what, in the present state of things, it would 
probably have been, had it, in consequence of an open and free 
market, been allowed to rise to the natural and proper price. I am, 
however, disposed to bdieve, that the quantity of the annual pro- 
duce cannot have been much, though it may, perhaps, have been 
a little affected by these regulations. The growing of wool is not 
thechief purpose for which thesheep farmer employs hisindustry 
and stock. H e expects his profit, not so much from the price of 
the fleece, as from that of the carcase; and the average or ordinary 
price of the latter must even, in many cases, makeup to him what- 
ever deficiency there may be in the average or ordinary price of 
the former. It has been observed, in the foregoing part of this 



530 



Adam Smith 



work, that 'whatever regulations tend to sink the price, either of 
wool or of raw hides, below what it naturally would be, must, in 
an improved and cultivated country, have some tendency to raise 
the price of butcher's meat. The price, both of thegreatand small 
cattle which are fed on improved and cultivated land, must be 
sufficient to pay the rent which the landlord, and the profit which 
the farmer, has reason to expect from improved and cultivated 
land. If it is not, they will soon cease to feed them. Whatever part 
of this price, therefore, isnotpaid bythewool andthehide, must 
be paid by the carcase. T he less there is paid for the one, the more 
must be paid for the other. I n what manner this price is to be di- 
vided uponthedifferentpartsofthebeast, is indifferent to the land- 
lords and farmers, provided it is all paid to them. In an improved 
and cultivated country, therefore, their interest aslandlordsand farm- 
ers cannot bemuch affected by such regulations, though their inter- 
est asconsumersmay, by therisein thepriceof provisions.' Accord- 
ingtothisreasoning, therefore, this degradation in thepriceof wool 
isnot likely, in an improved and cultivated country, to occasion any 
diminution intheannual produce of that commodity; except so far 
as, by raising the price of mutton, it may somewhat diminish the 
demand for, and consequently the production of, that particular 
species of butcher's meat, Its effect, however, even in this way, it is 
probable, is not very considerable. 



But though its effect upon the quantity of the annual produce 
may not have been very considerable, its effect upon the quality, it 
may perhaps bethought, must necessarily have been very great. The 
degradation in thequality of English wool, if not below what it was 
in former times, yet below what it naturally would have been in the 
present state of improvement and cultivation, must have been, it 
may perhaps be supposed, very nearlyin proportion to thedegrada- 
tion of price. As the quality depends upon the breed, upon the 
pasture, and upon the management and cleanliness of the sheep, 
duringthewholeprogressof thegrowth of thefleece, theattention 
to these circumstances, it may naturally enough be imagined, can 
never be greater than in proportion to the recompence which the 
priceof thefleeceislikelyto makeforthelabour and expense which 
that attention requires. It happens, however, that the goodness of 
thefleecedepends, in a great measure, upon thehealth, growth, and 
bulk of the animal: the same attention which is necessary for the 
improvement of thecarcaseis, in somerespect, sufficient for that of 
thefleece. Notwithstanding the degradation of price, English wool 
is said to have been improved considerably during the course even 
of thepresentcentury.Theimprovement, might, perhaps, have been 
greater if the price had been better; butthelownessof price, though 
it may haveobstructed, yet certainly it hasnot altogether prevented 
that improvement. 



531 



The Wealth of Nations 



The violence of these regulations, therefore, seems to have af- 
fected neither thequantity nor the quality of the annual produceof 
wool, so much asit might havebeen expected to do (though I think 
it probable that it may have affected the latter a good deal more 
than theformer); and the interest of the growers of wool, though it 
must havebeen hurt in somedegree, seems upon the whole, to have 
been much less hurt than could well havebeen imagined. 

Theseconsiderations, however, will notjustify theabsolutepro- 
hibition of the exportation of wool; but they will fully justify the 
imposition of a considerable tax upon that exportation. 

To hurt, in any degree, the interest of any one order of citizens, 
for no other purpose but to promote that of some other, is evi- 
dently contrary to that justice and equality of treatment which the 
sovereign owes to all the different orders of his subjects. But the 
prohibition certainly hurts, in some degree, the interest of the 
growers of wool, for no other purpose but to promote that of the 
manufacturers. 

Every different order of citizens is bound to contribute to the 
support of the sovereign or commonwealth. A tax of five, or even 
often shillings, upon the exportation of every tod of wool, would 
produce a very considerable revenue to the sovereign. It would 
hurt the interest of the growers somewhat less than the prohibi- 
tion, because it would not probably lower the price of wool quite 



so much. It would afford a sufficient advantage to the manufac- 
turer, because, though he might not buy his wool altogether so 
cheap asunder theprohibition,hewould still buy it at I east five or 
ten shillings cheaper than any foreign manufacturer could buy it, 
besides saving the freight and insurancewhich theother would be 
obliged to pay. It is scarce possible to devise a tax which could 
produce any considerablerevenuetothesovereign, and atthesame 
time occasion so little i neon veniency to anybody. 

The prohibition, notwithstanding all the penalties which guard 
it, does not prevent the exportation of wool. It is exported, it is 
well known, in great quantities. The great difference between the 
price in the home and that in the foreign market, presents such a 
temptation to smuggling, that all the rigour of the law cannot 
prevent it. This illegal exportation is advantageous to nobody but 
the smuggler. A legal exportation, subject to a tax, by affording a 
revenue to the sovereign, and thereby saving the imposition of 
some other, perhaps more burdensome and inconvenient taxes, 
might prove advantageous to all thedifferent subjects of the state. 
The exportation of fuller's earth, or fuller's clay, supposed to be 
necessary for preparing and cleansing the woollen manufactures, 
has been subjected to nearly thesame penalties as the exportation 
of wool. Even tobacco-pipeclay, though acknowledged to bedif- 



532 



Adam Smith 



ferentfrom fuller's clay, yet, on account of their resemblance, and 
becausefuller's clay might sometimes be exported as tobacco-pipe 
clay, has been laid under thesameprohibitionsand penalties 

By the 13th and 14th of C harles 1 1 . chap, 7, the exportation, 
not only of rawhides, but of tanned leather, except in theshapeof 
boots, shoes, or slippers, was prohibited; and the law gave a mo- 
nopoly to our boot-makersand shoe-makers, not only against our 
graziers, but against our tanners. By subsequent statutes, our tan- 
ners have got themselves exempted from this monopoly, upon 
paying a small tax of only one shilling on the hundred weight of 
tanned leather, weighing one hundred and twelve pounds. They 
have obtained likewise the drawback of two-thirds of the excise 
duties imposed upon their commodity, even when exported with- 
out further manufacture. All manufactures of leather may be ex- 
ported duty free; and the exporter is besides entitled to the draw- 
back of the wholedutiesof excise. Our graziers still continuesub- 
jectto the old monopoly. Graziers, separated from one another, 
and dispersed through all thedifferent corners of the country, can- 
not, without great difficulty, combine together for the purpose 
either of imposing monopolies upon their fellow-citizens, or of 
exempting themselves from such asmay have been imposed upon 
them by other people. M anufacturers of all kinds, collected to- 
gether in numerous bodies in all great cities, easily can. Even the 



horns of cattle are prohibited to be exported; and the two insig- 
nificant trades of the horner and comb-maker enjoy, in this re- 
spect, a monopoly against the graziers. 

Restraints, either by prohibitions, or by taxes, upon the expor- 
tation of goods which are partially, but not completely manufac- 
tured, are not peculiar to the manufacture of leather. As long as 
anything remains to be done, in order to fit any commodity for 
immediate use and consumption, our manufacturers think that 
they themselves ought to have the doing of it. Woollen yarn and 
worsted areprohibited to be exported, under thesamepenalties as 
wool even white cloths we subject to a duty upon exportation; 
and our dyers have so far obtained a monopoly against our cloth- 
iers. ur clothiers would probably have been ableto defend them- 
selves against it; but it happens that the greater part of our princi- 
pal clothiers are themselves likewisedyers. Watch-cases, clock-cases, 
and dial-platesfor clocks and watches, have been prohibited to be 
exported. Our clock-makers and watch-makers are, it seems, un- 
willingthatthepriceofthissort of workmanship should be raised 
upon them by the competition of foreigners. 

By some old statutes of Edward 1 1 1 , H enry VI 1 1 . and Edward 
VI. the exportation of all metals was prohibited. Lead and tin 
were alone excepted, probably on account of thegreat abundance 
of those metals; in the exportation of which a considerable part of 



533 



The Wealth of Nations 



thetrade of the kingdom in those days consisted. Fortheencour- 
agement of the mining trade, the 5th of William and M ary, 
chap.17, exempted from this prohibition iron, copper, and mundic 
metal madefrom British ore. The exportation of all sorts of cop- 
per bars, foreign as well as British, was afterwards permitted by 
the 9th and 10th of William III. chap 26. The exportation of 
unmanufactured brass, of what is called gun-metal, bell-metal, 
and shroff metal, still continuestobeprohibited. Brass manufac- 
tures of all sorts may be exported duty free. 

The exportation of the materials of manufacture, whereitisnot 
altogether prohibited, is, in many cases, subjected to considerable 
duties. 

By the 8th Geo. I. chap.15, the exportation of all goods, the 
produce of manufacture of Great Britain, upon which any duties 
had been imposed by former statutes, was rendered duty free. The 
following goods, however, wereexcepted: alum, lead, lead-ore, tin, 
tanned leather, copperas, coals, wool, cards, whitewoollen cloths, 
lapis calaminaris, skins of all sorts, glue, coney hair or wool, hares 
wool, hair of all sorts, horses, and litharge of lead. If you except 
horses, all these are either materials of manufacture, or incom- 
plete manufactures (which may be considered as materialsfor still 
further manufacture), or instruments of trade. This statute leaves 
them subject to all the old duties which had ever been imposed 



upon them, the old subsidy, and one per cent, outwards. 

By the same statute, a great number of foreign drugs for dyers 
use are exempted from all dutiesupon importation. Each of them, 
however, is afterwards subjected to a certain duty, not indeed a 
very heavy one, upon exportation. Our dyers, it seems, whilethey 
thought it for their interest to encourage the importation of those 
drugs, by an exemption from all duties, thought it likewise for 
their own interest to throw somesmall discouragement upon their 
exportation. The avidity, however, which suggested this notable 
piece of mercantile ingenuity, most probably disappointed itself 
of itsobject. It necessarily taught the importers to be more careful 
than they might otherwisehave been, that theirimportati on should 
not exceed what was necessary for the supply of the home market. 
The home market was at all times likely to be more scantily sup- 
plied; the commodities were at all times likely to be somewhat 
dearer there than they would have been, had the exportation been 
rendered as free as the importation. 

By the above-mentioned statute, gum senega, or gum arabic, 
being among the enumerated dyeing drugs, might be imported 
duty free. They were subjected, indeed, to asmall poundageduty, 
amounting only to threepence in the hundred weight, upon their 
re-exportation. France enjoyed, at that time, an exclusive tradeto 
thecountry most productive of those drugs, that which lies in the 



534 



Adam Smith 



neighbourhood of the Senegal; and the British market could not 
beeasilysuppliedbytheimmediateimportationofthem from the 
place of growth. By the 25th G eo. II. therefore, gum senega was 
allowed to be imported (contrary to the general dispositions of 
the act of navigation) from any part of Europe. As the law, how- 
ever, did not mean to encourage this species of trade, so contrary 
to the general principles of the mercantile policy of England, it 
imposed a duty of ten shillings the hundred weight upon such 
importation, and no part of this duty was to be afterwards drawn 
back upon itsexportation.Thesuccessful war which began in 1755 
gaveGreat Britain thesameexdusivetradeto those countries which 
Francehad enjoyed before. ur manufactures, as soon asthepeace 
was made, endeavoured to avail themselves of this advantage, and 
to establish a monopoly in their own favour both against the grow- 
ers and against the importers of this commodity. By the 5th of 
Geo. 1 1 1 . therefore, chap. 37, the exportation of gum senega, from 
his majesty's dominions in Africa, was confined to Great Britain, 
and was subjected to all the same restrictions, regulations, forfei- 
tures, and penalties, as that of the enumerated commodities of the 
British colonies in America and the West Indies Its importation, 
indeed, was subjected to a small duty of sixpence the hundred 
weight; but its re-exportation was subjected to theenormousduty 
of one pound ten shillings the hundred weight. It was the inten- 



tion of our manufacturers, that thewholeproduceof those coun- 
tries should beimported into Great Britain; and in order that they 
themselves might be enabled to buy it at their own price, that no 
part of it should be exported again, but at such an expense as 
would sufficiently discourage that exportation. Their avidity, how- 
ever, upon this, aswdl asupon many other occasions, disappointed 
itsdf of its object. T his enormous duty presented such a tempta- 
tion to smuggling, that great quantities of this commodity were 
clandestinely exported, probably to all the manufacturing coun- 
tries of Europe, but particularly to Holland, not only from Great 
Britain, but from Africa. Upon this account, by the 14th Geo. III. 
chap. 10, this duty upon exportation was reduced to five shillings 
the hundred weight. 

In the book of rates, according to which the old subsidy was 
levied, beaver skinswere estimated at sixshillings and aght pence 
apiece; and the different subsidies and imposts which, before the 
year 1722, had been laid upon thar importation, amounted to 
one-fifth part of the rate, or to sixteen pence upon each skin; all of 
which, except half the old subsidy, amounting only to twopence, 
was drawn back upon exportation. This duty, upon the importa- 
tion of so important a material of manufacture, had been thought 
too high; and, in theyear 1722, the rate was reduced to two shil- 
lings and sixpence, which reduced the duty upon importation to 



535 



The Wealth of Nations 



sixpence, and of this only one-half was to be drawn back upon 
exportation. The same successful war put the country most pro- 
ductive of beaver under the dominion of Great Britain; and bea- 
ver skins being among theenumerated commodities, theexporta- 
tion from America was consequently confined to the market of 
Great Britain. Our manufacturers soon bethought themselves of 
the advantage which they might make of this circumstance; and 
in the year 1764, the duty upon the importation of beaver skin 
was reduced to one penny, but the duty upon exportation was 
raised to seven pence each skin, without any drawback of theduty 
upon importation. Bythesamelaw, a duty of eighteen pence the 
pound was imposed upon the exportation of beaver wool or 
woumbs, without making any alteration in the duty upon the 
importation of that commodity, which, when imported by Brit- 
ish, and in British shipping, amounted at that time to between 
fourpenceand fivepence the piece. 

Coals may be considered both as a material of manufacture, 
and as an instrument of trade. Heavy duties, accordingly, have 
been imposed upon their exportation, amounting at present (1783) 
to more than five shillings the ton, or more than fifteen shillings 
the chaldron, N ewcastle measure; which is, in most cases, more 
than the original value of the commodity at the coal-pit, or even 
at the shipping port for exportation. 



The exportation, however, of the instruments of trade, properly 
so called, is commonly restrained, not by high duties, but by ab- 
solute prohibitions. Thus, by the 7th and 8th of William III 
chap. 20, sect.8, the exportation of frames or engines for knitting 
gloves or stockings, is prohibited, under the penalty, not only of 
the forfeiture of such frames or engines, so exported, or attempted 
to be exported, but of forty pounds, one half to the king, the 
other to the person who shall inform or sue for the same. I n the 
same manner, by the 14th G eo. III. chap. 71, the exportation to 
foreign parts, of any utensils made use of in the cotton, linen, 
woollen, and silk manufactures, is prohibited under the penalty, 
not only of the forfeiture of such utensils, but of two hundred 
pounds, to be paid by theperson who shall offend in thismanner; 
and likewise of two hundred pounds, to be paid by the master of 
theship, who shall knowingly suffer such utensilsto be loaded on 
board his ship. 

When such heavy penalties wereimposed upon the exportation 
of the dead instruments of trade, it could not well be expected 
that the living instrument, the artificer, should be allowed to go 
free. Accordingly, by the 5th Geo. I. chap. 27, the person who 
shall be convicted of enticing any artificer, of or in any of the 
manufactures of Great Britain, to go into any foreign parts, in 
order to practise or teach histrade, is liable, for thefirst offence, to 



536 



Adam Smith 



be fined in any sum not exceeding one hundred pounds, and to 
three months imprisonment, and until thefineshall be paid; and 
forthesecond offence, to be fined in any sum, at the discretion of 
the court, and to imprisonment for twelve months, and until the 
fine shall be paid. By the 23d Geo. II. chap. 13, this penalty is 
increased, for the first offence, to five hundred pounds for every 
artificer so enticed, and to twelve monthsimprisonment, and until 
thefineshall be paid; and forthesecond offence, to onethousand 
pounds, and to two years imprisonment, and until thefineshall 
be paid. 

Bytheformer of these two statutes, upon proof that any person 
has been enticing any artificer, or that any artificer has promised 
or contracted to go into foreign parts, for the purposes aforesaid, 
such artificer may be obliged to give security, at the discretion of 
the court, that he shall not go beyond the seas, and may be com- 
mitted to prison until he give such security. 

If any artificer has gone beyond the seas, and is exercising or 
teaching his trade in any foreign country, upon warning being 
given to him by any of his majesty's ministers or consuls abroad, 
or by one of his majesty's secretaries of state, for the time being, if 
he does not, within six months after such warning, return into 
this realm, and from henceforth abide and inhabit continually 
within thesame, heisfrom thenceforth declared incapable of tak- 



ing any legacy devised to him within this kingdom, or of being 
executor or administrator to any person, or of taking any lands 
within thiskingdom, by descent, devise, or purchase. H e likewise 
forfeits to the king all hislands, goods, and chattels; isdeclared an 
alien in every respect; and is put out of the king's protection. 

It is unnecessary, I imagine, to observe how contrary such regu- 
lation s are to the boasted liberty of thesubject, of which we affect 
to beso veryjealous; but which, in thiscase, isso plainly sacrificed 
to the futile interests of our merchants and manufacturers. 

The laudable motive of all these regulations, is to extend our 
own manufactures, not by their own improvement, but by the 
depression of those of all our neighbours, and by putting an end, 
asmuch as possible, to thetroublesomecompetition of such odi- 
ous and disagreeable rivals Our master manufacturers think it 
reasonable that they themselves should have the monopoly of the 
ingenuity of all their countrymen. Though by restraining, in some 
trades, the number of apprentices which can be employed at one 
time, and by imposing thenecessity of a long apprenticeship in all 
trades, they endeavour, all of them, to confine the knowledge of 
their respective employments to as small a number as possible; 
they are unwilling, however, that any part of this small number 
should go abroad to instruct foreigners. 

Consumption is the sole end and purpose of all production; 



537 



The Wealth of Nations 



and the interest of the producer ought to be attended to, only so 
far as it may be necessary for promoting that of the consumer. 

The maxim is so perfectly self-evident, that it would be absurd 
to attempt to prove it. But in the mercantile system, the interest of 
the consumer is almost constantly sacrificed to that of the pro- 
ducer; and it seems to consider production, and not consump- 
tion, astheultimateend and object of all industry and commerce. 

In the restraints upon the importation of all foreign commodi- 
ties which can comeinto competition with thoseof our own growth 
or manufacture, the interest of the home consumer is evidently 
sacrificed to that of the producer. 1 1 is altogether for the benefit of 
the latter, that the former is obliged to pay that enhancement of 
price which this monopoly almost always occasions. 

It is altogether for the benefit of the producer, that bounties are 
granted upon the exportation of some of his productions. The 
home consumer isobliged to pay, first thetax which is necessary 
for paying the bounty; and, secondly, the still greater tax which 
necessarily arises from the enhancement of the price of the com- 
modity in the home market. 

By the famous treaty of commerce with Portugal, theconsumer 
is prevented by duties from purchasing of a neighbouring coun- 
try, a commodity which our own dimatedoes not produce; but is 
obliged to purchase it of a distant country, though it is acknowl- 



edged, that the commodity of the distant country is of a worse 
quality than that of the near one. T he home consumer is obliged 
to submit to this inconvenience, in order that the producer may 
import into the distant country some of his productions, upon 
more advantageous terms than he otherwise would have been al- 
lowed to do. The consumer, too, is obliged to pay whatever en- 
hancement in the price of those very productions this forced ex- 
portation may occasion in the home market. 

But in the system of laws which has been established for the 
management of our American and West Indian colonies, the in- 
terest of the home consumer has been sacrificed to that of the 
producer, with a more extravagant profusion than in all our other 
commercial regulations. A great empire has been established for 
the sole purpose of raising up a nation of customers, who should 
be obliged to buy, from the shops of our different producers, all 
the goods with which these could supply them. For the sake of 
that little enhancement of price which this monopoly might af- 
ford our producers, the homeconsumers have been burdened with 
the whole expense of maintaining and defending that empire. For 
this purpose, and for this purpose only, in thetwo last wars, more 
than two hundred millions have been spent, and a new debt of 
more than a hundred and seventy millions has been contracted, 
over and above all that had been expended for the same purpose 



538 



Adam Smith 



in former wars. T he interest of this debt alone is not only greater 
than the whole extraordinary profit which, it never could be pre- 
tended, was made by the monopoly of the colony trade, but than 
thewholevalueof that trade, or than thewholevalueof thegoods 
which, at an average, have been annually exported tothecolonies. 
It cannot be very difficult to determine who have been thecon- 
trivers of this whole mercantile system; not the consumers, we 
may believe, whose interest has been entirely neglected; but the 
producers, whose interest has been so carefully attended to; and 
among this latter class, our merchants and manufacturers have 
been by far the principal architects In the mercantile regulations 
which have been taken noticeof in this chapter, the interest of our 
manufacturers has been most peculiarly attended to; and the in- 
terest, notso much of the consumers, as that of some other sets of 
producers, has been sacrificed to it. 



CHAPTER IX 

OFTHE AGRICULTURAL SYSTEMS,OR 

OFTHOSE SYSTEMSOF POLITICAL 

ECONOMYWHICH REPRESENTTHE 

PRODUCE OF LAND, AS EITHER THE 

SOLE ORTHE PRINCIPAL SOURCE OF 

THE REVENUE AND WEALTH OF EVERY 

COUNTRY 

The agricultural systems of political economy will not require 
so long an explanation as that which I have thought it necessary to 
bestow upon the mercantile or commercial system. 

That system which represents the produce of land as the sole 
source of the revenue and wealth of every country, has so far as I 
know, never been adopted by any nation, and it at present exists 
only in the speculations of a few men of great learning and inge- 
nuity in France. It would not, surely, beworth whileto examineat 
great length the errors of a system which never has done, and 
probably never will do, any harm in any part of the world. I shall 
endeavour to explain, however, as distinctly as I can, the great 
outlines of this very ingenious system. 

M r. Colbert, the famous minister of LewisXIV. wasa man of 



539 



The Wealth of Nations 



probity, of great industry, and knowledge of detail; of great expe- 
rience and acutenessin the examination of public accounts; and 
of abilities, in short, every way fitted for introducing method and 
good order into the collection and expenditure of the public rev- 
enue. That minister had unfortunately embraced all the preju- 
dices of the mercantile system, in its nature and essence a system 
of restraint and regulation, and such as could scarce fail to be 
agreeable to a laborious and plodding man of business, who had 
been accustomed to regulate the different departments of public 
offices, and to establish the necessary checks and controlsfor con- 
fining each to its proper sphere. The industry and commerce of a 
great country, heendeavoured to regulateupon thesamemodel as 
the departments of a public office; and instead of allowing every 
man to pursue his own interest his own way, upon the liberal plan 
of equality, liberty, and justice, hebestowed upon certain branches 
of industry extraordinary privileges, while he laid others under as 
extraordinary restraints. Hewasnot only disposed, likeother Eu- 
ropean ministers, to encourage more the industry of the towns 
than that of the country; but, in order to support the industry of 
the towns, he was willing even to depress and keep down that of 
thecountry. In order to render provisionscheap to theinhabitants 
of thetowns, and thereby to encourage manufactures and foreign 
commerce, he prohibited altogether the exportation of corn, and 



thus excluded the inhabitants of the country from every foreign 
market, for by far the most important part of the produce of their 
industry. Thisprohibition, joined to the restraints imposed by the 
ancient provincial lawsof Franceupon thetransportation of corn 
from one province to another, and to the arbitrary and degrading 
taxes which are levied upon the cultivators in almost all the prov- 
inces, discouraged and kept down the agriculture of that country 
very much below the state to which it would naturally have risen 
in so very fertile a soil, and so very happy a dim ate. This state of 
discouragement and depression wasfeltmoreorlessin every dif- 
ferent part of the country, and many different inquiries were set 
on foot concerni ng the causes of it. ne of those causes appeared 
to be the preference given, by the institutions of M r. Colbert, to 
the industry of the towns above that of the country. 

If the rod be bent too much oneway, says the proverb, in order 
to make it straight, you must bend it as much theother. The French 
philosophers, who have proposed the system which represents 
agriculture as the sole source of the revenue and wealth of every 
country, seem to have adopted this proverbial maxim; and, as in 
the plan of M r. Colbert, the industry of the towns was certainly 
overvalued in comparison with that of the country, so in their 
system it seems to be as certainly under-valued. 

T hedifferent ordersof people, who have ever been supposed to 



540 



Adam Smith 



contributein any respect to wards the annual produce of the land 
and labour of the country, they divide into three classes. The first 
istheclassof theproprietorsof land.Thesecondisthedassofthe 
cultivators, of farmers and country labourers, whom they honour 
with the peculiar appellation of the productive class. The third is 
the class of artificers, manufacturers, and merchants, whom they 
endeavour to degrade by the humiliating appellation of the barren 
or unproductive class. 

The class of proprietors contributes to the annual produce, by 
the expense which they may occasionally lay out upon the im- 
provement of theland, upon thebuildings, drains, indosures, and 
other ameliorations, which they may either makeor maintain upon 
it, and by means of which the cultivators are enabled, with the 
samecapital, to raiseagreater produce, and consequently to pay a 
greater rent. This advanced rent may be considered as the interest 
or profit dueto the proprietor, upon the expense or capital which 
he thus employs in the improvement of his land. Such expenses 
are in this system called ground expenses (depensesfoncieres). 

Thecultivatorsorfarmerscontributetotheannual produce, by 
what are in this system called the original and annual expenses 
(depenses primitives, et depenses annuelles), which they lay out 
upon the cultivation of the land. The original expenses consist in 
the instruments of husbandry, in the stock of cattle, in the seed, 



and in the maintenance of the farmer's family, servants, and cattle, 
during at least a great part of the first year of his occupancy, or till 
he can receive some return from the land. T he annual expenses 
consist in the seed, in the wear and tear of instruments of hus- 
bandry, and in the annual maintenance of the farmer's servants 
and cattle, and of his family too, so far as any part of them can be 
considered as servants employed in cultivation. T hat part of the 
produce of theland which remains to him after paying the rent, 
oughtto be sufficient, first, to replaceto him, within a reasonable 
time, at least during the term of his occupancy, the whole of his 
original expenses, together with theordinary profits of stock; and, 
secondly, to replaceto him annually the whole of his annual ex- 
penses, together likewise with the ordinary profits of stock. Those 
two sorts of expenses are two capitals which thefarmer employs in 
cultivation; and unless they are regularly restored to him, together 
with a reasonable profit, hecannot carry on hisemploymentupon 
a levd with other employments; but, from a regard to his own 
interest, must desert it as soon as possible, and seek some other. 
T hat part of the produce of the land which is thus necessary for 
enabling thefarmer to continuehis business, ought to beconsid- 
ered asafund sacred to cultivation, which, if the landlord violates, 
he necessarily reduces the produce of his own land, and, in a few 
years, not only disables the farmer from paying this racked rent, 



541 



The Wealth of Nations 



but from paying the reasonable rent which he might otherwise 
have got for hisland. The rent which properly belongsto the land- 
lord, is no more than the neat produce which remains after pay- 
ing, in the completest manner, all the necessary expenses which 
must bepreviously laid out, in order to raise thegrossor the whole 
produce. Itisbecausethelabourof thecultivators, over and above 
paying completely all those necessary expenses, affordsaneat pro- 
duce of this kind, that this class of peoplearein thissystem pecu- 
liarly distinguished by the honourable appellation of the produc- 
tive class. Their original and annual expenses are for the same 
reason called, In thissystem, productive expenses, because, over 
and above replacing their own value, they occasion the annual 
reproduction of this neat produce. 

The ground expenses, as they are called, or what the landlord 
lays out upon the improvement of his land, are, in this system, 
too, honoured with the appellation of productive expenses. Till 
the whole of those expenses, together with the ordi nary profits of 
stock, have been completely repaid to him by the advanced rent 
which he gets from his land, that advanced rent ought to be re 
garded as sacred and inviolable, both by the church and by the 
king; ought to be subject neither to tithe nor to taxation. If it is 
otherwise, by discouraging the improvement of land, the church 
discourages thefutureincreaseof her own tithes, and thekingthe 



future increase of hi sown taxes. Asin a well ordered state of things, 
therefore, those ground expenses, over and above reproducing in 
the completest manner their own value, occasion likewise, after a 
certain time, a reproduction of a neat produce, they are in this 
system considered as productive expenses. 

The ground expenses of the landlord, however, together with 
the original and the annual expenses of the farmer, are the only 
three sorts of expenses which in thissystem are considered as pro- 
ductive. All other expenses, and all other orders of people, even 
those who, in thecommon apprehensionsof men, areregarded as 
the most productive, are, in this account of things, represented as 
altogether barren and unproductive. 

Artificers and manufacturers, in particular, whose industry, in 
thecommon apprehensionsof men, increases so much the value 
of the rude produce of land, are in this system represented as a 
classof people altogether barren and unproductive. Their labour, 
it is said, replaces only the stock which employs them, together 
with itsordinary profits. T hat stock consists in thematerials, tools, 
and wages, advanced to them by their employer; and isthefund 
destined for their employment and maintenance. Its profits are 
the fund destined for the maintenance of their employer. Their 
employer, as he advances to them thestock of materials, tools, and 
wages, necessary for their employment, so he advances to himself 



542 



Adam Smith 



what is necessary for his own maintenance; and this maintenance 
he generally proportions to the profit which he expects to make 
by thepriceof their work. U nlessitsprice repays to him themain- 
tenance which he advances to himself, as well as the materials, 
tools, and wages, which he advances to his workmen, it evidently 
does not repay to him the whole expense which he lays out upon 
it. T he profitsof manufacturing stock, therefore, arenot, likethe 
rent of land, a neat produce which remains after completely re- 
paying the whole expense which must be laid out in order to ob- 
tain them. The stock of the farmer yields him a profit, as well as 
that of the master manufacturer; and it yields a rent likewise to 
another person, which that of the master manufacturer does not. 
The expense, therefore, laid out in employing and maintaining 
artificers and manufacturers, does no more than continue, if one 
may say so, the existence of its own value, and does not produce 
any new value. It is, therefore, altogether a barren and unproduc- 
tive expense. The expense, on thecontrary, laid out in employing 
farmers and country labourers, over and abovecontinuingtheex- 
istence of its own value, produces a new value the rent of the 
landlord. It is, therefore, a productive expense. 

M ercan tile stock is equally barren and unproductive with manu- 
facturing stock. It only continues the existence of its own value, 
without producing any new value. Its profits are only the repay- 



ment of the maintenance which its employer advances to himself 
duringthetimethat heemploysit, or till hereceivesthereturnsof 
it. They are only the repayment of a part of the expense which 
must be laid out in employing it. 

T helabour of artificers and man ufacturersneveraddsany thing 
to the value of the whole annual amount of the rude produce of 
the land. It adds, indeed, greatly to the value of some particular 
parts of it. Buttheconsumption which, in themean time, it occa- 
sions of other parts, isprecisely equal tothevaluewhich itaddsto 
those parts; so that the value of the whole amount is not, at any 
one moment of time, in the least augmented by it. The person 
who works the I ace of a pair of fine ruffles for example, will some- 
times raise the value of, perhaps, a pennyworth of flax to £30 
sterling. But though, at first sight, heappears thereby to multiply 
the value of a part of the rude produce about seven thousand and 
two hundred times, he in reality adds nothing to the value of the 
whole annual amount of the rude produce. T he working of that 
lace costs him, perhaps, two years labour. The £30 which he gets 
for it when it is finished, is no more than the repayment of the 
subsistence which he advances to himself during the two years 
that he is employed about it. The value which, by every day's, 
month's, or year's labour, he adds to the flax, does no more than 
replace thevalueofhisown consumption during that day, month, 



543 



The Wealth of Nations 



or year. At no moment of time, therefore, does he add any thing 
to the value of the whole annual amount of the rude produce of 
theland: theportion of that producewhich heiscontinually con- 
suming, being always equal to the value which heiscontinually 
produci ng. T he extreme poverty of the greater part of the persons 
employed in this expensive, though trifling manufacture, may sat- 
isfy us that the price of their work does not, in ordinary cases, 
exceed thevalueof their subsistence. It isotherwise with thework 
of farmers and country labourers. The rent of the landlord is a 
value which, in ordinary cases, it is continually producing over 
and above replacing, in the most complete manner, the whole 
consumption, the whole expense laid out upon the employment 
and maintenance both of the workmen and of their employer. 

Artificers, manufacturers, and merchants, can augment the rev- 
enue and wealth of their society by parsimony only; or, as it is 
expressed in thissystem, by privation, that is, by depriving them- 
selves of a part of the funds destined for their own subsistence. 
They annually reproduce nothing but those funds. Unless, there 
fore, they annually save some part of them, unless they annually 
deprive themselves of the enjoyment of some part of them, the 
revenue and wealth of their society can never be, in the smallest 
degree, augmented by means of their industry. Farmers and coun- 
try labourers, on the contrary, may enjoy completely the whole 



funds destined for their own subsistence, and yet augment, at the 
sametime, therevenueand wealth of their society. Over and above 
what isdestined for their own subsistence, their industry annually 
affordsa neat produce, of which theaugmentation necessarily aug- 
ments the revenue and wealth of their society. N ations, therefore, 
which, like France or England, consist in a great measure, of pro- 
prietors and cultivators, can be enriched by industry and enjoy- 
ment. Nations, on the contrary, which, like Holland and 
H amburgh, are composed chiefly of merchants, artificers, and 
manufacturers, can grow rich only through parsimony and priva- 
tion. Astheinterest of nationsso differently circumstanced is very 
different, so is likewise the common character of the people. In 
those of the former kind, liberality, frankness, and good fellow- 
ship, naturally makea part of their common character; in the lat- 
ter, narrowness, meanness, and a selfish disposition, averse to all 
social pleasure and enjoyment. 

Theunproductiveclass, that of merchants, artificers, and manu- 
facturers, ismaintained and employed altogether at theexpenseof 
thetwo other classes, of that of proprietors, and of that of cultiva- 
tors They furnish it both with the materialsof its work, and with 
thefund of its subsistence, with the corn and cattle which it con- 
sumes while it is employed about that work. T he proprietors and 
cultivators finally pay both the wages of all the workmen of the 



544 



Adam Smith 



unproductive class, and the profits of all their employers. Those 
workmen and their employers areproperly theservantsof thepro- 
prietors and cultivators. They are only servants who work without 
doors, as menial servants work within. Boththeoneandtheother, 
however, are equally maintained at the expense of the same mas- 
ters. The labour of both is equally unproductive. It adds nothing 
to the value of the sum total of the rude produce of the land. 
Instead of in creasing the value of that sum total, it is a charge and 
expense which must be paid out of it. 

The unproductive class, however, is not only useful, but greatly 
useful, to the other two classes. By means of the industry of mer- 
chants, artificers, and manufacturers, the proprietors and cultiva- 
tors can purchase both the foreign goods and the manufactured 
produce of their own country, which they have occasion for, with 
the produce of a much smaller quantity of their own labour, than 
what they would be obliged to employ, if they were to attempt, in 
an awkward and unskilful manner, either to import the one, or to 
make the other, for their own use. By means of the unproductive 
class, the cultivators are delivered from many cares, which would 
otherwise distract their attention from the cultivation of land. The 
superiority of produce, which in consequenceof thisundivided at- 
tention, they are enabled to raise, isfully sufficient to paythewhole 
expen se which the maintenance and employment of theunproduc- 



tive class costs either the proprietors or themselves. T he i ndustry of 
merchants, artificers, and manufacturers, though in its own nature 
altogether unproductive, yet contributes in this manner indirectly 
to increasetheproduceoftheland.lt increases theproductive pow- 
ers of productive labour, by leaving it at liberty to confineitself to its 
proper employment, the cultivation of land; and the plough goes 
frequently the easier and the better, by means of the labour of the 
man whose business is most remote from the plough. 

It can never be the interest of the proprietors and cultivators, to 
restrain or to discourage, in any respect, theindustry of merchants, 
artificers, and manufacturers. The greater the liberty which this 
unproductive class enjoys, the greater will be the competition in 
all the different trades which compose it, and the cheaper will the 
other two classes be supplied, both with foreign goods and with 
the manufactured produce of their own country. 

Itcan never be theinterest of the unproductive class to oppress 
the other two classes. It isthesurplusproduceof theland, or what 
remains after deducting the maintenance, first of the cultivators, 
and afterwards of the proprietors, that maintainsand employs the 
unproductiveclass. Thegreaterthissurplus, thegreater must like- 
wise be the maintenance and employment of that class. Theestab- 
lishment of perfect justice, of perfect liberty, and of perfect equal- 
ity, is the very simple secret which most effectually secures the 



545 



The Wealth of Nations 



highest degree of prosperity to all the three classes. 

The merchants, artificers, and manufacturers of those mercan- 
tile states, which, like Holland and Hamburgh, consist chiefly of 
this unproductive class, are in the same manner maintained and 
employed altogether at theexpenseof theproprietors and cultiva- 
tors of land. The only difference is, that those proprietors and 
cultivators are, thegreater part of them, placed at a most inconve- 
nient distance from the merchants, artificers, and manufacturers, 
whom they supply with the materials of their work and the fund 
of their subsistence; are theinhabitantsof other countries, and the 
subjects of other governments. 

Such mercantile states, however, arenot only useful, but greatly 
useful, to theinhabitantsof those other countries. They fill up, in 
some measure, a very important void; and supply the place of the 
merchants, artificers, and manufacturers, whom the inhabitants 
of those countries ought to find at home, but whom, from some 
defect in their policy, they do not find at home. 

Itcan never be the interest of thoselanded nations, if I may call 
them so, to discourage or distress the industry of such mercantile 
states, by imposing high dutiesupon their trade, or upon thecom- 
modities which they furnish. Such duties, by rendering thosecom- 
modi ties dearer, could serve only to sink the real valueof the sur- 
plusproduceoftheirown land, with which, or, what comes to the 



same thing, with the price of which those commodities are pur- 
chased. Such duties could only serve to discourage theincreaseof 
that surplus produce, and consequently the improvement and 
cultivation of their own land. The most effectual expedient, on 
the contrary, for raising the value of that surplus produce, for en- 
couraging its increase, and consequently the improvement and 
cultivation of their own land, would be to allow the most perfect 
freedom to the trade of all such mercantile nations. 

This perfect freedom of trade would even be the most effectual 
expedient for supplying them, in due time, with all the artificers, 
manufacturers, and merchants, whom they wanted at home; and 
for filling up, in the properest and most advantageous manner, 
that very important void which they felt there. 

Thecontinualincreaseofthesurplusproduce of their land would, 
in due time, create a greater capital than what would be employed 
with theordinary rateof profit in the improvement and cultivation 
of land; and the surplus part of it would naturally turn itself to the 
employment of artificers and manufacturers, at home. But these 
artificers and manufacturers, finding at homeboth the materials of 
their work and the fund of their subsistence, might immediately, 
even with much less art and skill be able to work as cheap as the 
little artificers and manufacturers of such mercantile states, who 
had both to bring from a greater distance. Even though, from want 



546 



Adam Smith 



of art and skill, they might not for some time be able to work as 
cheap, yet, finding a market at home, they might beableto sell their 
work there as cheap as that of the artificers and manufacturers of 
such mercantile states, which could not be brought to that market 
but from so great a distance; and as their art and skill improved, 
they would soon beableto sell itcheaper.Theartificersandmanu- 
facturersof such mercantile states, therefore, would immediately be 
rivalled in the market of those landed nations, and soon after un- 
dersold and justled out of it altogether. The cheapness of the manu- 
factures of those landed nations, in consequence of the gradual im- 
provements of art and skill, would, in due time, extend their sale 
beyond the home market, and carry them to many foreign markets, 
from which they would, in the same manner, gradually justle out 
many of the manufacturers of such mercantile nations. 

This continual increase, both of the rude and manufactured 
produce of those landed nations, would, in due time, create a 
greater capital than could, with the ordinary rate of profit, be 
employed either in agriculture or in manufactures. Thesurplusof 
this capital would naturally turn itself to foreign trade and be 
employed in exporting, to foreign countries, such parts of the rude 
and manufactured produce of its own country, as exceeded the 
demand of the home market. I n the exportation of the produce of 
their own country, the merchants of a landed nation would have 



an advantage of the same kind over those of mercantile nations, 
which its artificers and manufacturers had over the artificers and 
manufacturers of such nations; the advantage of finding at home 
that cargo, and those stores and provisions, which theotherswere 
obliged to seek for at a distance. With inferior art and skill in 
navigation, therefore, they would beableto sell that cargo as cheap 
in foreign markets as the merchants of such mercantile nations; 
and with equal art and skill they would beableto sell it cheaper. 
They would soon, therefore, rival those mercantile nations in this 
branch of foreign trade, and, in due time, would justle them out 
of it altogether. 

According to this liberal and generous system, therefore, the 
most advantageous method in which a landed nation can raise up 
artificers, manufacturers, and merchants of itsown, isto grant the 
most perfect freedom of tradeto theartificers, manufacturers, and 
merchants of all other nations. It thereby raises the value of the 
surplus produce of itsown land, of which the continual increase 
gradually establishes a fund, which, in duetime, necessarily raises 
up all theartificers, manufacturers, and merchants, whom it has 
occasion for. 

When a landed nation on thecontrary, oppresses, either by high 
duties or by prohibitions, thetradeof foreign nations, it necessar- 
ily hurts itsown interest in two different ways. First, by raising the 



547 



The Wealth of Nations 



price of all foreign goods, and of all sorts of manufactures, it nec- 
essarily sinks the real valueofthesurplusproduceof itsown land, 
with which, or, what comes to the same thing, with the price of 
which, it purchases those foreign goods and manufactures. Sec- 
ondly, by giving a sort of monopoly of the home market to its 
own merchants, artificers, and manufacturers, it raises the rate of 
mercantileand manufacturing profit, in proportion to that of ag- 
ricultural profit; and, consequently, either drawsfrom agriculture 
a part of the capital which had before been employed in it, or 
hindersfrom goingto itapart of what would otherwisehave gone 
to it. This policy, therefore, discourages agriculture in two differ- 
ent ways; first, by sinking thereal valueof its produce, and thereby 
lowering the rate of its profits; and, secondly, by raising the rate of 
profit in all other employments. Agriculture is rendered less ad- 
vantageous, and tradeand manufactures more advantageous, than 
they otherwise would be; and every man is tempted by his own 
interest to turn, as much as he can, both hiscapital and hisindus- 
try from the former to the latter employments. 

Though, by this oppressive policy, a landed nation should be able 
to raiseup artificers, manufacturers, and merchantsof itsown, some- 
what sooner than it could do by the freedom of trade; a matter, 
however, which is not a littledoubtful; yet it would raise them up, if 
one may say so, prematurely, and before it was perfectly ripe for 



them. By raising up too hastily one species of industry, it would 
depress another more valuablespeciesof industry. By raising up too 
hastily a species of industry which duly replaces the stock which 
employs it, together with the ordinary profit, it would depress a 
species of industry which, over and above replacing that stock, with 
its profi t, affords likewisea neat produce, afreerenttothelandlord. 
It would depress productive labour, by encouraging too hastily that 
labour which is altogether barren and unproductive. 

In what manner, according to this system, the sum total of the 
annual produce of the land is distributed among the three classes 
above mentioned, and in what manner the labour of the unpro- 
ductive class does no more than replace the value of itsown con- 
sumption, without increasing in any respect the value of that sum 
total, is represented by M rQuesnai, the very ingenious and pro- 
found author of this system, in some arithmetical formularies. 
The first of these formularies, which, by way of eminence, hepe- 
culiarly distinguishes by the nameof the Economical Table, repre- 
sents themanner in which hesupposesthisdistribution takes place, 
in a state of the most perfect liberty, and, therefore, of the highest 
prosperity; in a state where theannual produceissuch as to afford 
the greatest possible neat produce, and where each class enjoys its 
proper share of the whole annual produce. Some subsequent for- 
mularies represent the manner in which hesupposesthisdistribu- 



548 



Adam Smith 



tion ismadein different statesof restraint and regulation; in which, 
either the class of proprietors, or the barren and unproductive 
class, is more favoured than the class of cultivators; and in which 
either the one or the other encroaches, more or less, upon the 
share which ought properly to belong to this productive class. 
Every such encroachment, every violation of that natural distri- 
bution, which the most perfect liberty would establish, must, ac- 
cording to thissystem, necessarily degrade, more or less, from one 
year to another, the value and sum total of the annual produce, 
and must necessarily occasion a gradual declension in the real 
wealth and revenue of the society; a declension, of which the 
progress must bequicker or slower, according to thedegreeof this 
encroachment, according as that natural distribution, which the 
most perfect liberty would establish, ismoreorless violated. Those 
subsequent formularies represent the different degrees of declen- 
sion which, according to thissystem, correspond to the different 
degrees in which this natural distribution of things is violated. 

Some speculative physicians seem to have imagined that the 
health of the human body could be preserved only by a certain 
precise regimen of diet and exercise, of which every, the smallest 
violation, necessarily occasioned some degree of disease or disor- 
der proportionate to thedegreeof theviolation. Experience, how- 
ever, would seem to shew, that the human body frequently pre- 



serves, to all appearance at least, the most perfect state of health 
under a vast variety of different regimens; even under some which 
are generally believed to be very far from being perfectly whole- 
some. But the healthful state of the human body, it would seem, 
containsin itself someunknown principleof preservation, capable 
either of preventing or of correcting, in many respects, the bad 
effects even of a very faulty regimen. M r Q uesnai, who was him- 
self a physician, and a very speculative physician, seems to have 
entertained a notion of the same kind concerning the political 
body, and to haveimagined that it would thrive and prosper only 
under a certain precise regimen, the exact regimen of perfect lib- 
erty and perfect justice. He seems not to have considered, that in 
the political body, the natural effort which every man is continu- 
ally making to better hisown condition, isa principleof preserva- 
tion capable of preventing and correcting, in many respects, the 
bad effects of apolitical economy, in some degree both partial and 
oppressive. Such a political economy, though it no doubt retards 
moreor less, isnot always capableof stopping altogether, thenatural 
progress of a nation towards wealth and prosperity, and still lessof 
making it go backwards. I f a nation could not prosper without the 
enjoyment of perfect liberty and perfect justice, thereisnot in the 
world a nation which could ever have prospered. In the political 
body, however, the wisdom of nature has fortunately made ample 



549 



The Wealth of Nations 



provision for remedying many of the bad effects of the folly and 
injustice of man; it the same manner as it has done in the natural 
body for remedying those of his sloth and intemperance. 

The capital error of this system, however, seems to lie in its 
representing the class of artificers, manufacturers, and merchants, 
as altogether barren and unproductive. The following observa- 
tions may serve to shew the impropriety of this representation:— 

First, thisdass, it is acknowledged, reproduces annually thevalue 
of itsown annual consumption, and continues, at least, th e exist- 
ence of the stock or capital which maintainsand employsit. But, 
upon this account alone, the denomination of barren or unpro- 
ductive should seem to be very improperly applied to it. Weshould 
not call a marriage barren or unproductive, though it produced 
only a son and a daughter, to replace the father and mother, and 
though it did not increase the number of the human species, but 
only continued it asitwas before. Farmers and country labourers, 
indeed, over and above the stock which maintainsand employs 
them, reproduce annually a neat produce, a free rent to the land- 
lord. Asa marriage which affordsthree children is certainly more 
productive than onewhich affordsonly two, so thelabour of farm- 
ers and country labourers is certainly more productive than that 
of merchants, artificers, and manufacturers. Thesuperior produce 
of the one class, however, does not, render the other barren or 



unproductive. 

Secondly, it seems, on thisaccount, altogether improper to con- 
sider artificers, manufacturers, and merchants, in the same light 
as menial servants. T he labour of menial servants does not con- 
tinue the existence of thefund which maintainsand employs them. 
T heir maintenance and employment is altogether at the expense 
of their masters, and the work which they perform is not of a 
nature to repay that expense. That work consists in services which 
perish generally in the very instant of their performance, and does 
not fix or realize itself in any vendible commodity, which can re- 
place the value of their wages and maintenance. Thelabour, on 
the contrary, of artificers, manufacturers, and merchants, natu- 
rally does fix and realize itself in some such vendible commodity. 
It is upon this account that, in the chapter in which I treat of 
productive and unproductive labour, I have classed artificers, manu- 
facturers, and merchants among the productive labourers, and 
menial servants among the barren or unproductive. 

Thirdly, it seems, upon every supposition, improper to say, that 
the labour of artificers, manufacturers, and merchants, does not 
increase the real revenue of the society. Though we should sup- 
pose, for example, as it seems to be supposed in this system, that 
the value of the daily, monthly, and yearly consumption of this 
class was exactly equal to that of its daily, monthly, and yearly 



550 



Adam Smith 



production; yet it would not from thence follow, that its labour 
added nothing to the real revenue, to the real value of the annual 
produce of the land and labour of the society. An artificer, for 
example, who, in the first six months after harvest, executes ten 
pounds worth of work, though he should, in the same time, con- 
sume ten pounds worth of corn and other necessaries, yet really 
adds the value of ten pounds to the annual produce of the land 
and labour of the society. W hile he has been consuming a half- 
yearly revenue of ten pounds worth of corn and other necessaries, 
he has produced an equal value of work, capable of purchasing, 
either to himself, or to some other person, an equal half-yearly 
revenue. The value, therefore, of what has been consumed and 
produced during these six months, is equal, not to ten, but to 
twenty pounds. It is possible, indeed, that no more than ten pounds 
worth of this value may ever have existed at any one moment of 
time. But if the ten pounds worth of corn and other necessaries 
which were consumed by the artificer, had been consumed by a 
soldier, or by a menial servant, thevalueof that part of theannual 
produce which existed at the end of the six months, would have 
been ten pounds lessthan it actually isin consequenceofthelabour 
of the artificer. T hough the value of what the artificer produces, 
therefore, should not, at any one moment of time, be supposed 
greater than thevalueheconsumes, yet, at every moment of time, 



the actually existing value of goods in the market is, in conse- 
quence of what he produces, greater than it otherwise would be. 

W hen the patrons of this system assert, that the consumption 
of artificers, manufacturer's, and merchants, is equal to the value 
of what they produce, they probably mean no more than that 
their revenue, or thefund destined for their consumption, is equal 
to it. But if they had expressed themselves more accurately, and 
only asserted, that the revenue of this class was equal to the value 
of what they produced, it might readily have occurred to thereader, 
that what would naturally be saved out of this revenue, must nec- 
essarily increase more or less the real wealth of the society. I n or- 
der, therefore, to make out something like an argument, it was 
necessary that they should express themselves as they have done; 
and thisargument, even supposing things actually were as it seems 
to presume them to be, turns out to be a very inconclusive one. 

Fourthly, farmers and country labourers can no more augment, 
without parsimony, the real revenue, the annual produce of the 
land and labour of their society, than artificers, manufacturers, 
and merchants. Theannual produce of theland and labour of any 
society can be augmented only in two ways; either, first, by some 
improvement in the productive powers of the useful labour actu- 
ally maintained within it; or, secondly, by some increase in the 
quantity of that labour. 



551 



The Wealth of Nations 



The improvement in the productive powers of useful labour 
depends, first, upon the improvement in the ability of the work- 
man; and, secondly, upon that of the machinery with which he 
works. But the labour of artificers and manufacturers, as it is ca- 
pable of being more subdivided, and the labour of each workman 
reduced to a greater simplicity of operation, than that of farmers 
and country labourers; so it is likewise capable of both these sorts 
of improvement in a much higher degree {See book i chap. 1.} In 
this respect, therefore, the class of cultivators can have no sort of 
advantage over that of artificers and manufacturers. 

Theincreasein the quantity of useful labour actually employed 
within any society must depend altogether upon the increase of 
thecapital which employsit; and theincreaseof that capital, again, 
must be exactly equal to the amount of the savings from the rev- 
enue, either of the particular persons who manage and direct the 
employment of that capital, or of some other persons, who lend it 
to them. If merchants, artificers, and manufacturers are, as this 
system seems to suppose, naturally more inclined to parsimony 
and saving than proprietors and cultivators, they are, so far, more 
likely to augment the quantity of useful labour employed within 
their society, and consequently to increase its real revenue, the 
annual produce of its land and labour. 

Fifthly and lastly, though therevenueoftheinhabitants of every 



country was supposed to consist altogether, as this system seems 
to suppose, in the quantity of subsistence which their industry 
could procure to them; yet, even upon this supposition, the rev- 
enue of a trading and manufacturing country must, other things 
being equal, always be much greater than that of one without 
trade or manufactures. By means of trade and manufactures, a 
greater quantity of subsistence can be annually imported into a 
particular country, than what its own lands, in the actual state of 
their cultivation, could afford. Theinhabitantsofatown, though 
they frequently possess no lands of their own, yet draw to them- 
selves, by their industry, such a quantity of the rude produce of 
the lands of other people, as supplies them, not only with the 
materials of their work, but with the fund of their subsistence. 
What a town always is with regard to the country in its 
neighbourhood, one independent state or country may frequently 
be with regard to other independent states or countries. It is thus 
that H olland draws a great part of its subsistence from other coun- 
tries; live cattle from Holstein and Jutland, and corn from almost 
all the different countries of Europe. A small quantity of manu- 
factured produce, purchases a great quantity of rude produce. A 
trading and manufacturing country, therefore, naturally purchases, 
with a small part of its manufactured produce, a great part of the 
rudeproduceof other countries; while, on the contrary, a country 



552 



Adam Smith 



without trade and manufactures is generally obliged to purchase, 
at the expense of a great part of its rude produce, a very smal I part 
of the manufactured produce of other countries. T he one exports 
what can subsist and accommodate but a very few, and imports 
the subsistence and accommodation of a great number. The other 
exports the accommodation and subsistence of a great number, 
and imports that of a very few only. The inhabitants of the one 
must always enjoy a much greater quantity of subsistence than 
what their own lands, in theactual stateof their cultivation, could 
afford. The inhabitants of the other must always enjoy a much 
smaller quantity. 

Thissystem, however, with all its imperfections, isperhapsthe 
nearest approximation to the truth that has yet been published 
upon the subject of political economy; and is upon that account, 
well worth theconsideration of every man who wishesto examine 
with attention the principles of that very important science. 
Though in representing the labour which is employed upon land 
astheonly productive labour, the notions which it inculcates are, 
perhaps, too narrow and confined; yet in representing the wealth 
of nationsas consisting, not in theunconsumablerichesof money, 
but in the consumable goods annually reproduced by the labour 
ofthesociety, and in representing perfect liberty astheonly effec- 
tual expedientfor renderingthisannual reproduction thegreatest 



possible, its doctrine seems to be in every respect as just as it is 
generousand liberal. Its followers are very numerous; and as men 
are fond of paradoxes, and of appearing to understand what sur- 
passesthecomprehensionsof ordinary people, theparadox which 
it maintains, concerning the unproductive nature of manufactur- 
ing labour, has not, perhaps, contributed a little to increase the 
number of its admirers. They have for some years past made a 
pretty considerable sect, distinguished in the French republic of 
letters by the name of the Economists. Their works have certainly 
been of some service to their country; not only by bringing into 
general discussion, many subjects which had never been well ex- 
amined before, but by influencing, in some measure, the public 
administration in favour of agriculture. It has been in consequence 
of their representations, accordingly, that the agriculture of France 
has been delivered from several of the oppressions which it before 
laboured under. The term, during which such a lease can be 
granted, as will be valid against every future purchaser or propri- 
etor of the land, has been prolonged from nine to twenty-seven 
years.Theancientprovincial restraints upon thetransportation of 
corn from one province of the kingdom to another, have been 
entirely taken away; and the liberty of exporting it to all foreign 
countries, has been established as the common law of the king- 
dom in all ordinary cases. This sect, in their works, which are very 



553 



The Wealth of Nations 



numerous, and which treat not only of what is properly called 
Political Economy or of the nature and causes or the wealth of 
nations, but of every other branch of the system of civil govern- 
ment, all follow implicitly, and without any sensiblevariation, the 
doctrineof M r. Qttesnai. There is, upon thisaccount, little vari- 
ety in the greater part of their works. The most distinct and best 
connected account of this doctrine is to be found in a little book 
written by M r. M ercier de la Riviere, some time intendant of 
M artinico, entitled, The natural and essential Order of Political 
Societies. The admiration of thiswholesect for their master, who 
was himself a man of the greatest modesty and simplicity, is not 
inferior to that of any of theancientphilosophersforthefounders 
of their respective systems. There have been since the world be- 
gan,' says a very diligent and respectable author, the M arquisde 
M irabeau, 'threegreatinventionswhich have principally given sta- 
bility to political societies, independent of many other inventions 
which have enriched and adorned them.Thefirst istheinvention 
of writing, which alone gives human nature the power of trans- 
mitting, without alteration, its laws, its contracts, its annals, and 
itsdiscoveries.Thesecond istheinvention of money, which binds 
together all the relations between civilized societies. The third is 
theeconomical table, theresult of theother two, which completes 
them both by perfecting their object; the great discovery of our 



age, but of which our posterity will reap the benefit.' 

As the political economy of the nations of modern Europe has 
been more favourable to manufactures and foreign trade, the in- 
dustry of the towns, than to agriculture, the industry of the coun- 
try; so that of other nations has followed a different plan, and has 
been more favourable to agriculture than to manufactures and 
foreign trade. 

The policy of China favours agriculture more than all other em- 
ployments. In China, the condition of a labourer is said to be as 
much superior to that of an artificer, asin most partsof Europe that 
of an artificer isto that of a labourer. In China, thegreat ambition 
of every man isto get possession of a little bit of land, either in 
property or in lease; and leases are there said to be granted upon 
very moderate terms, and to be sufficiently secured to the lessees 
T heC hinesehavelittlerespect for foreign trade. Your beggarly com- 
merce! was the language in which the mandarins of Pekin used to 
talk to M r. De Lange, the Russian envoy, concerning it {See the 
Journal of M r. DeLange, in BeN'sTravels, vol. ii. p. 258, 276, 293.}. 
Except with Japan, the Chinese carry on, themselves, and in their 
own bottoms, little or no foreign trade; and it is only into one or 
two ports of their kingdom that they even admit the ships of for- 
eign nations. Foreign trade, therefore, is, in China, every way con- 
fined within a much narrower circle than that to which it would 



554 



Adam Smith 



naturally extend itself, if more freedom was allowed to it, either in 
their own ships, or in those of foreign nations. 

M anufactures, asin asmall bulk they frequently contain a great 
value, and can upon that account be transported at less expense 
from one country to another than most parts of rude produce, 
are, in almost all countries, the principal support of foreign trade. 
In countries, besides, less extensive, and less favourably circum- 
stanced for inferior commerce than China, they generally require 
the support of foreign trade. Without an extensive foreign mar- 
ket, they could not well flourish, either in countries so moderately 
extensive as to afford but a narrow home market, or in countries 
where thecommunication between oneprovinceand anotherwas 
so difficult, as to render it impossibleforthegoods of any particu- 
lar place to enjoy thewholeof that home market which thecoun- 
try could afford. Theperfection of manufacturing industry, it must 
be remembered, depends altogether upon the division of labour; 
and the degree to which the division of labour can be introduced 
into any manufacture, is necessarily regulated, it has already been 
shewn, by the extent of the market. But the great extent of the 
empire of China, the vast multitude of its inhabitants, the variety 
of climate, and consequently of productions in its different prov- 
inces, and the easy communication by means of water-carriage 
between the greater part of them, render the home market of that 



country of so great extent, as to bealonesufficient to support very 
great manufactures, and to admit of very considerable subdivi- 
sions of labour. The home market of Chinais, perhaps, in extent, 
not much inferior to the market of all the different countries of 
Europe put together. A more extensive foreign trade, however, 
which to this great home market added the foreign market of all 
the rest of the world, especially if any considerable part of this 
trade was carried on in Chinese ships, could scarce fail to increase 
very much the manufactures of China, and to improve very much 
the productive powers of its manufacturing industry. By a more 
extensive navigation, theChinese would naturally learn theartof 
using and constructing, themselves, all thedifferent machinesmade 
useof in other countries, as well astheother improvements of art 
and industry which are practised in all thedifferent parts of the 
world. Upon their present plan, they have little opportunity of 
improving themselves by the example of any other nation, except 
that of the Japanese. 

The policy of ancient Egypt, too, and that of the Gen too gov- 
ernment of I ndostan, seem to havefavoured agriculture more than 
all other employments. 

Both in ancient Egypt and I ndostan, the whole body of the 
people was divided into different casts or tribes each of which was 
confined, from father to son, to a particular employment, or class 



555 



The Wealth of Nations 



of employments. T he son of a priest was necessarily a priest; the 
son of a soldier, a soldier; the son of a labourer, a labourer; the son 
of a weaver, a weaver; the son of a tailor, a tailor, etc. In both 
countries, the cast of the priests holds the highest rank, and that 
of thesoldiersthenext; and in both countries thecast of thefarm- 
ersand labourers was superior to thecasts of merchants and manu- 
facturers. 

The government of both countries was particularly attentive to 
the interest of agriculture. T he works constructed by the ancient 
sovereigns of Egypt, for the proper distribution of the waters of 
the N ile, were famous in antiquity, and the ruined remains of 
some of them are still the admiration of travellers. Those of the 
same kind which were constructed by the ancient sovereigns of 
I ndostan, for the proper distribution of the waters of the Ganges, 
as well as of many other rivers, though they have been less cel- 
ebrated, seem to have been equally great. Both countries, accord- 
ingly, though subject occasionally to dearths, have been famous 
for their great fertility. Though both were extremely populous, 
yet, in years of moderate plenty, they were both able to export 
great quantities of grain to their neighbours. 

T he ancient Egyptians had a superstitious aversion to the sea; 
and astheGentoo religion does not permit its followers to light a 
fire, nor consequently to dress any victuals, upon thewater, it, in 



effect, prohibitsthem from all distant sea voyages. Both theEgyp- 
tiansand Indians must havedepended almost altogether upon the 
navigation of other nations for the exportation of their surplus 
produce; and this dependency, as it must have confined the mar- 
ket, so it must have discouraged the increase of this surplus pro- 
duce. It must have discouraged, too, the increase of the manufac- 
tured produce, more than that of the rude produce. M anufactures 
require a much more extensive market than the most important 
parts of the rude produce of the land. A single shoemaker will 
makemorethan 300 pai rsof shoes in theyear; and hisown family 
will not, perhaps, wear out six pairs. Unless, therefore, he has the 
custom of, at least, 50 such families ashisown, he can not dispose 
of the whole product of hisown labour. T he most numerous class 
of artificers will seldom, in a large country, makemorethan one 
in 50, oronein alOO, of thewholenumber of families contained 
in it. But in such largecountries, asFranceand England, thenum- 
ber of people employed in agriculture has, by some authors been 
computed at a half, by others at a third and by no author that I 
know of, at less that a fifth of the whole inhabitants of the coun- 
try. But as the produce of the agriculture of both France and En- 
gland is, thefar greater part of it, consumed at home, each person 
employed in it must, according to these computations, require 
little more than the custom of one, two, or, at most, of four such 



556 



Adam Smith 



families ashisown, in order to dispose of the whole produce of his 
own labour. Agriculture, therefore, can support itself under the 
discouragement of a confined market much better than manufac- 
tures. In both ancient Egypt and Indostan, indeed, the confine- 
ment of the foreign market wasin some measure compensated by 
the conveniency of many inland navigations, which opened, in 
the most advantageous manner, the whole extent of the home 
market to every part of the produce of every different district of 
those countries. The great extent of I ndostan, too, rendered the 
home market of that country very great, and sufficient to support 
a great variety of manufactures. But the small extent of ancient 
Egypt, which wasnever equal to England, must at all times, have 
rendered the home market of that country too narrow for sup- 
portingany great variety of manufactures. Bengal accordingly, the 
province of Indostan which commonly exports thegreatest quan- 
tity of rice, has always been more remarkable for the exportation 
of a great variety of manufactures, than for that of its grain. An- 
cient Egypt, on the contrary, though it exported some manufac- 
tures, fine linen in particular, as well as some other goods, was 
always most distinguished for its great exportation of grain. It was 
long the granary of the Roman empire. 

The sovereigns of China, of ancient Egypt, and of the different 
kingdoms into which Indostan has, at different times, been di- 



vided, havealwaysderivedthewhole, orbyfarthemostconsider- 
ablepart, of their revenue, from somesortof land tax or land rent. 
This land tax, or land rent, likethetithein Europe, consisted in a 
certain proportion, a fifth, it is said, of the produce of the land, 
which was either delivered in kind, or paid in money, according to 
a certain valuation, and which, therefore, varied from year to year, 
accordingto all thevariationsof theproduce. It wasnatural, there- 
fore, that the sovereigns of those countries should be particularly 
attentive to the interests of agriculture, upon the prosperity or 
declension of which immediately depended theyearly increase or 
diminution of their own revenue. 

The policy of theancient republics of Greece, and that of Rome, 
though it honoured agriculture more than manufactures or for- 
eign trad e, yet seem s rath er to h ave d i sco u raged th e I atter em pi oy- 
ments, than to have given any direct or intentional encourage- 
ment to the former. In several of the ancient states of Greece, for- 
eign trade was prohibited altogether; and in several others, the 
employments of artificers and manufacturers were considered as 
hurtful to the strength and agility of the human body, as render- 
ing it incapable of those habits which their military and gymnas- 
tic exercises endeavoured to form in it, and as thereby disqualify- 
ing it, more or less, for undergoing the fatigues and encountering 
the dangers of war. Such occupations were considered as fit only 



557 



The Wealth of Nations 



for slaves, and the free citizens of the states were prohibited from 
exercising them. Even in those states where no such prohibition 
took place, as in Rome and Athens, the great body of the people 
were in effect excluded from all the trades which are now com- 
monly exercised by the lower sort of the inhabitants of towns. 
Such tradeswere, at Athensand Rome, all occupied by theslaves 
of the rich, who exercised them for the benefit of their masters, 
whose wealth, power, and protection, made it almost impossible 
for a poor freeman to find a market for his work, when it came 
into competition with that of the slaves of the rich. Slaves, how- 
ever, are very seldom inventive; and all the most important im- 
provements, either in machinery, or in the arrangement and dis- 
tribution of work, which facilitate and abridge labour have been 
the discoveries of freemen. Should a slave propose any improve- 
ment of this kind, his master would be very apt to consider the 
proposal as the suggestion of laziness, and of a desire to save his 
own labour at the master's expense. The poor slave, instead of 
reward would probably meet with much abuse, perhaps with some 
punishment. In the manufactures carried on by slaves, therefore, 
more labour must generally have been employed to execute the 
same quantity of work, than in those carried on by freemen. The 
work of thefarmer must, upon that account, generally have been 
dearer than that of the I atter.T he H ungarian mines, it isremarked 



by M r. M ontesquieu, though not richer, have always been wrought 
with less expense, and therefore with more profit, than theTurk- 
ish minesin their neighbourhood. TheTurkish mines are wrought 
by slaves; and thearmsof those slaves are theonly machines which 
theTurks have ever thought of employing.TheH ungarian mines 
are wrought by freemen, who employ a great deal of machinery, 
by which they facilitate and abridge their own labour. From the 
very little that is known about the price of manufactures in the 
times of the Greeks and Romans, itwould appear that those of the 
finer sort were excessively dear. Silk sold for its weight in gold. It 
was not, indeed, in those times an European manufacture; and as 
it was all brought from the East I ndies, thedistance of thecarriage 
may in some measure account for the greatness of the price. T he 
price, however, which alady, itissaid, would sometimes pay for a 
piece of very fine linen, seems to have been equally extravagant; 
and aslinen wasalwayseitheran European, or at farthest, an Egyp- 
tian manufacture, this high price can beaccountedforonlybythe 
great expenseofthelabour which must have been employed about 
It, and the expense of this labour again could arise from nothing 
but the awkwardness of the machinery which is made use of. The 
priceof finewoollens, too, though not quiteso extravagant, seems, 
however, to have been much above that of the present times. Some 
cloths, we are told by Pliny {P I i n . 1. ix.c.39.}, dyed in a particular 



558 



Adam Smith 



manner, cost a hundred denarii, or £3:6s:8d. the pound weight. 
Others, dyed in another manner, cost a thousand denarii thepound 
weight, or£33:6s:8d.TheRoman pound, it must be remembered, 
contained onlytwelve of our avoirdupoisounces. Thishigh price, 
indeed, seems to have been principally owing to thedye. But had 
not the cloths themselves been much dearer than any which are 
made in the present times, so very expensive a dye would not 
probably have been bestowed upon them.Thedisproportion would 
have been too great between the value of the accessory and that of 
the principal. The price mentioned by the same author {Plin. 1. 
viii.c.48.}, of some triclinaria, a sort of woollen pillows or cush- 
ions made use of to lean upon as they reclined upon their couches 
at table, passes all credibility; someofthem being said to have cost 
more than £30,000, others more than £300,000. This high price, 
too, is not said to have arisen from the dye. In the dress of the 
people of fashion of both sexes, there seems to have been much 
less variety, it is observed by Dr. Arbuthnot, in ancient than in 
modern times; and thevery little variety which we find in that of 
theancient statues, confirmshisobservation. He infers from this, 
that their dress must, upon the whole, have been cheaper than 
ours; but the conclusion does not seem to follow. W hen the ex- 
pense of fashionable dress is very great, the variety must be very 
small. But when, by the improvements in the productive powers 



of manufacturing art and industry, the expense of any one dress 
comes to be very moderate, the variety will naturally be very great. 
Therich, not being ableto distinguish themselves by theexpense 
of any one dress, will naturally endeavour to do so by the multi- 
tude and variety of their dresses. 

The greatest and most important branch of the commerce of 
every nation, it has already been observed, is that which is carried 
on between the inhabitants of thetown and those of the country. 
T he inhabitants of thetown draw from the country the rude pro- 
duce, which constitutes both the materials of their work and the 
fund of their subsistence; and they pay for this rude produce, by 
sending back to the country a certain portion of it manufactured 
and prepared for immediate use. The trade which is carried on 
between these two different sets of people, consists ultimately in a 
certain quantity of rude produce exchanged for a certain quantity 
of manufactured produce. The dearer the latter, therefore, the 
cheaper the former; and whatever tends in any country to raise 
the price of manufactured produce, tends to lower that of the 
rude produce of the land, and thereby to discourage agriculture. 
The smaller the quantity of manufactured produce, which any 
given quantity of rudeproduce, or, what comes to thesamething, 
which the price of any given quantity of rude produce, is capable 
of purchasing, the smaller the exchangeable value of that given 



559 



The Wealth of Nations 



quantity of rude produce; the smaller the encouragement which 
either the landlord has to increase its quantity by improving, or 
the farmer by cultivating the land. Whatever, besides, tends to 
diminish in any country thenumber of artificers and manufactur- 
ers, tends to diminish the home market, the most important of all 
markets, fortherudeproduceof theland, and thereby still further 
to discourage agriculture. 

T hose systems, therefore, which preferring agriculture to all other 
employments, in order to promote it, impose restraints upon 
manufactures and foreign trade, act contrary to the very end which 
they propose, and indirectly discourage that very speciesof indus- 
try which they mean to promote. They are so far, perhaps, more 
inconsistent than even the mercantile system. That system, by 
encouraging manufactures and foreign trade more than agricul- 
ture, turns a certain portion of the capital of the society, from 
supporting a more advantageous, to support a less advantageous 
speciesof industry. But still it really, and in the end, encourages 
that speciesof industry which it means to promote. Those agri- 
cultural systems, on the contrary, really, and in the end, discour- 
age their own favourite species of industry. 

It is thus that every system which endeavours, either, by ex- 
traordinary encouragements to draw towards a particular species 
of industry a greater share of the capital of the society than what 



would naturally go to it, or, by extraordinary restraints, to force 
from a particular speciesof industry some share of the capital which 
would otherwise be employed in it, is, in reality, subversive of the 
great purpose which it means to promote. It retards, instead of 
accelerating the progress of the society towards real wealth and 
greatness; and diminishes, instead of increasing, the real value of 
the annual produce of its land and labour. 

All systems, either of preference or of restraint, therefore, being 
thus completely taken away, the obvious and simple system of 
natural liberty establishes itself of its own accord. Every man, as 
long as he does not violate the laws of j ustice, is left perfectly free 
to pursue his own interest his own way, and to bring both his 
industry and capital into competition with thoseof any other man, 
or order of men. The sovereign is completely discharged from a 
duty, in the attempting to perform which he must always be ex- 
posed to innumerable delusions, and for the proper performance 
of which, no human wisdom or knowledge could ever be suffi- 
cient; the duty of superintending the industry of private people, 
and of directing it towards the employments most suitable to the 
interests of the society. According to thesystem of natural liberty, 
the sovereign has only three duties to attend to; three duties of 
great importance, indeed, but plain and intelligible to common 
understandings: first, the duty of protecting the society from the 



560 



Adam Smith 



violence and invasion of other independent societies; secondly, 
the duty of protecting, as far as possible, every member of the 
society from theinjusticeor oppression of every other member of 
it, or the duty of establishing an exact administration of justice; 
and, thirdly, the duty of erecting and maintaining certain public 
works, and certain public institutions, which it can never be for 
the interest of any individual, or small number of individuals to 
erect and maintain; because the profit could never repay the ex- 
penseto any individual, or small number of individuals, though it 
may frequently do much more than repay it to a great society. 

Theproper performanceof those several duties of thesovereign 
necessarily supposesa certain expense; and thisexpense again nec- 
essarily requ ires a certain revenue to support it. In the following 
book, therefore, I shall endeavour to explain, first, what are the 
necessary expenses of thesovereign or commonwealth; and which 
of those expenses ought to be defrayed by the general contribu- 
tion of the whole society; and which of them, by that of some 
particular part only, or of some particular members of thesociety: 
secondly, what are the different methods in which thewholesoci- 
ety may be made to contribute towards defraying the expenses 
incumbent on the whole society; and what are the principal ad- 
vantages and inconvenienciesof each of those methods: and thirdly, 
what are the reasons and causes which have induced almost all 



modern governments to mortgage some part of this revenue, or to 
contract debts; and what have been the effects of those debts upon 
the real wealth, the annual produce of the land and labour of the 
society. The following book, therefore, will naturally be divided 
into three chapters. 



561 



The Wealth of Nations 



APPENDIX TO BOOK IV 

The two following accounts are subjoined, in order to illustrate 
and confirm what is said in the fifth chapter of the fourth book, 
concerning theTonnage Bounty to theW hit-herring Fishery. The 
reader, I believe, maydepend upon the accuracy of both accounts. 



1779 206 

1780 181 

1781 135 



55,194 29,367 
48,315 19,885 
33,992 16,593 



15,287 
13,445 12 6 
9,613 15 6 



Totals 2,186 550,943 378,347 £165,463 14 



Sea-sticks 



An account of Busses fitted out in Scotland for eleven Years, with 
the N umber of empty Barrels carried out, and the N umber of 
Barrels of H errings caught; also the Bounty, at a M edium, on each 
Barrel of Sea-sricks, and on each Barrel when fully packed. 



378,347 Bounty, at a medium, for each 
barrel of sea- sticks, £0 8 2 x k 
But a barrel of sea-sticks 
being only reckoned two thirds 
of a barrel fully packed, one 
third to be deducted, which 
Years Numberof EmptyBarrels Barrelsof Her- Bountypaidon V 3 deducted 126,115 brings the bounty to £0 12 3 3 /4 

Barrels fully packed 252,231 

And if the herrings are exported, there is besides a 

premium of £ 2 8 

So the bounty paid by government in money for each 

barrel is £ 14 ll 3 / 4 

But if to this, the duty of the salt usually taken credit for as ex- 
pended in curing each barrel, which at a medium, is, of foreign, 
one bushel and one-fourth of a bushel, at 10s. a-bushel, be added, 



B 


usses carried out 


rings caught 


the Busses 








£. s. 


d. 


1771 


29 


5,948 


2,832 


2,885 


1772 


168 


41,316 


22,237 


11,055 7 6 


1773 


190 


42,333 


42,055 


12,510 8 6 


1774 


240 


59,303 


56,365 


26,932 2 6 


1775 


275 


69,144 


52,879 


19,315 15 


1776 


294 


76,329 


51,863 


21,290 7 6 


1777 


240 


62,679 


43,313 


17,592 2 6 


1778 


220 


56,390 


40,958 


16,316 2 6 



562 



Adam Smith 



viz 12 6 

the bounty on each barrel would amount to 



£1 7 5 3 / 4 



If the herrings are cured with British salt, it will stand thus, viz. 
Bounty as before £ 14 ll 3 / 4 

But if to this bounty, the duty on two bushels of Scotch salt, at 
ls.6d. per bushel, supposed to be the quantity, at a medium, used 
in curing each barrel is added, viz. 3 

The bounty on each barrel will amount to £ 17 11% 

And when buss herrings are entered for home consumption in 
Scotland, and pay the shilling a barrel of duty, the bounty stands 
thus, to wit, as before £ 12 3 3 /4 

From which theshilling a barrel isto bededucted 10 

£0 11 3 3 /4 

But to that there isto be added again, theduty of the foreign salt 
used curing a barrel of herring viz 12 6 

So that the premium allowed for each barrel of her- 
rings entered for home consumption is £13 9 3 /4 



£0 12 3 3 / 4 
From which deduct Is. a-barrel, paid at the time they are entered 
for home consumption 10 

£0 11 3 3 / 4 

But if to the bounty, the the duty on two bushel of Scotch salt, at 
ls.6d. per bushel supposed to be the quantity, at a medium, used 
in curing each barrel, is added, viz 3 

the premium for each barrel entered for home consumption will 
be £ 1 14 3 3 /4 

Though the loss of duties upon herrings exported cannot, per- 
haps, properly be considered as bounty, that upon herrings en- 
tered for home consumption certainly may. 

An account of the Q uantity of Foreign Salt imported into Scot- 
land, and of Scotch Salt delivered D uty-freefrom theWorks there, 
for the Fishery, from the 5th. of April 1771 to the 5th. of April 
1782 with the M edium of both for one Year. 



If the herrings are cured in British salt, it will stand as follows viz. 
Bounty on each barrel brought in by the busses, as above 



563 



The Wealth of Nations 



Foreign Salt Scotch Salt delivered 



PERIOD imported 


from the Works 


Bushels 


Bushels 


From 5th. April 1771 to 




5th. April 1782 936,974 


168,226 


Medium for one year 85,159V2 


15,293y4 



It isto be observed, that the bushel of foreign salt weighs 48lbs., 
that of British weighs 56lbs. only. 



BOOKV 

OF THE REVENUE OF THE SOVEREIGN 
ORCOMMONWEALTH 

CHAPTER I 

OFTHE EXPENSESOFTHE SOVEREIGN 
ORCOMMONWEALTH 

PART I 



f the Expense of D efence 

The first duty of the sovereign, that of protecting the 
society from the violence and invasion of other inde- 
pendent societies, can be performed only by means of a 
military force. But the expense both of preparing this military 
forcein time of peace, and of employing itin time of war, isvery 
different in the different states of society, in the different periods 
of improvement. 

Among nations of hunters, the lowest and rudest state of soci- 
ety, such as we find it among the native tribes of North America, 



564 



Adam Smith 



every man is a warrior, as well as a hunter. When he goes to war, 
either to defend hissociety, or to revenge the injuries which have 
been done to it by other societies, hemaintainshimself byhisown 
labour, in the same manner as when he lives at home. Hissociety 
(for in this state of things there is properly neither sovereign nor 
commonwealth) is at no sort of expense, either to prepare him for 
the field, or to maintain him whileheisin it. 

Among nations of shepherds, a more advanced state of society, 
such as we find it among theTartars and Arabs, every man is, in 
thesame manner, a warrior. Such nationshavecommonly no fixed 
habitation, but liveeither in tents, or in a sort of covered waggons, 
which are easily transported from place to placeThewholetribe, 
or nation, changes its situation according to the different seasons 
of theyear, as well as according to other accidents. W hen its herds 
and flocks haveconsumedtheforageof one part of thecountry, it 
removes to another, and from that to a third. In the dry season, it 
comes down to the banks of the rivers; in the wet season, it retires 
to the upper country. W hen such a nation goes to war, the war- 
riors will not trust their herds and flocks to the feeble defence of 
their old men, their women and children; and their old men, their 
women and children, will not beleft behind without defence, and 
without subsistence. The whole nation, besides, being accustomed 
to a wandering life, even in timeof peace, easily takes the field in 



time of war. Whether it marches as an army, or moves about as a 
company of herdsmen, the way of life is nearly the same, though 
the object proposed by it be very different. They all go to war 
together, therefore, and everyone does as well as he can. Among 
theTartars, even the women have been frequently known to en- 
gage in battle. If they conquer, whatever belongs to the hostile 
tribe is the recompence of the victory; but if they are vanquished, 
all is lost; and not only their herds and flocks, but their women 
and children becomethe booty of theconqueror. Even thegreater 
part of those who survive the action are obliged to submit to him 
for thesakeof immediate subsistence. The rest are commonly dis- 
sipated and dispersed in the desert. 

Theordinary life, theordinary exercise of a Tartar or Arab, pre- 
pares him sufficiently for war. Running, wrestling, cudgel-play- 
ing, throwing the javelin, drawing the bow, etc. are the common 
pastimes of those who livein theopen air, and are all of them the 
images of war. When a Tartar or Arab actually goes to war, he is 
maintained by his own herds and flocks, which he carries with 
him, in the same manner as in peace. H is chief or sovereign (for 
thosenationshaveall chiefs or sovereigns) isat no sort of expense 
in preparing him for thefield; and when he is in it, the chance of 
plunder is the only pay which he either expects or requires. 

An army of hunters can seldom exceed two or three hundred 



565 



The Wealth of Nations 



men. The precarious subsistence which the chace affords, could 
seldom allow a greater number to keep together for any consider- 
abletime. An army of shepherds, on thecontrary, may sometimes 
amount to two or three hundred thousand. As long as nothing 
stops their progress, as long as they can go on from onedistrict, of 
which they have consumed the forage, to another, which is yet 
entire; there seems to be scarce any limit to the number who can 
march on together. A nation of hunters can never be formidable 
to the civilized nations in their neighbourhood; a nation of shep- 
herds may. Nothing can be more contemptible than an Indian 
war in North America; nothing, on the contrary, can be more 
dreadful than a Tartar invasion has frequently been in Asia. The 
judgment of Thucydides, that both Europe and Asia could not 
resist the Scythians united, has been verified by the experience of 
all ages. The in habitants of the extensive, but defenceless plains of 
ScythiaorTartary, have been frequently united under thedomin- 
ionofthechiefofsomeconqueringhordeorclan;andthehavock 
and devastation of Asia have always signalized their union. The 
inhabitants of the inhospitable deserts of Arabia, the other great 
nation of shepherds, have never been united but once, under 
Mahomet and his immediate successors. Their union, which was 
more the effect of religious enthusiasm than of conquest, was sig- 
nalized in the same manner. If the hunting nations of America 



should ever become shepherds, their neighbourhood would be 
much moredangerousto theEuropean coloniesthan it isat present. 

In a yet more advanced state of society, among those nations of 
husbandmen who have little foreign commerce, and no other 
manufactures but thosecoarse and household ones, which almost 
every private family prepares for its own use, every man, in the 
same manner, either is a warrior, or easily becomes such. Those 
who live by agriculture generally pass the whole day in the open 
air, exposed to all the inclemencies of the seasons. The hardiness 
of their ordinary life prepares them for thefatiguesof war, to some 
of which their necessary occupations bear a great analogy. The 
necessary occupation of a ditcher prepares him to work in the 
trenches, and to fortify a camp, as well as to inclose a field. The 
ordinary pastimes of such husbandmen are the same as those of 
shepherds, and are in the same manner the images of war. But as 
husbandmen have less lei sure than shepherds, they are not so fre- 
quently employed in those pastimes.Theyaresoldiersbut soldiers 
not quite so much mastersof their exercise. Such as they are, how- 
ever, it seldom costs the sovereign or commonwealth any expense 
to prepare them for the field. 

Agriculture, even in its rudest and lowest state, sup poses a settle- 
ment, some sort of fixed habitation, which cannot be abandoned 
without great loss. When a nation of mere husbandmen, there- 



566 



Adam Smith 



fore, goestowar, thewholepeoplecannottakethefield together. 
The old men, the women and children, at least, must remain at 
home, to take care of the habitation. All the men of the military 
age, however, may take thefield, and in small nationsof thiskind, 
have frequently done so. In every nation, themen of themilitary 
age are supposed to amount to about a fourth or a fifth part of the 
whole body of the people. If thecampaign, too, should begin after 
seedtime, and end before harvest, both the husbandman and his 
principal labourers can be spared from the farm without much 
loss. H e trusts that the work which must be done in the mean 
time, can be well enough executed by the old men, the women, 
and thechildren. H e is not unwilling, therefore, to serve without 
pay during a short campaign; and it frequently costs thesovereign 
or commonwealth as little to maintain him in thefield as to pre 
pare him for it. The citizens of all the different states of ancient 
Greece seem to have served in this manner till after the second 
Persian war; and the people of Peloponnesus till after the 
Peloponnesian war. The Peloponnesians, Thucydides observes, 
generally left thefield in the summer, and returned home to reap 
the harvest. T he Roman people, under their kings, and during the 
first ages of the republic, served in the same manner. It wasnot till 
theseigeof Veii, that they who staid at home began to contribute 
something towards maintaining those who went to war. In the 



European monarchies, which werefounded upon the ruins of the 
Roman empire, both before, and for some time after, the estab- 
lishment of what is properly called thefeudal law, thegreat lords, 
with all their immediate dependents, used to serve the crown at 
their own expense. In thefield, in the same manner as at home, 
they maintained themselves by their own revenue, and not by any 
stipend or pay which they received from the king upon that par- 
ticular occasion. 

I n a more advanced state of society, two different causes con- 
tribute to render it altogether impossible that they who take the 
field should maintain themselves at their own expense. Those two 
causes are, the progress of manufactures, and the improvement in 
the art of war. 

Though a husbandman should be employed in an expedition, 
provided it begins after seedtime, and ends before harvest, the 
interruption of hisbusiness will not always occasion any consider- 
able diminution of his revenue. W ithout the intervention of his 
labour, Nature does herself the greater part of the work which 
remains to be done. But the moment that an artificer, a smith, a 
carpenter, or a weaver, for example, quits his workhouse, the sole 
sourceof hisrevenueiscompletely dried up. Naturedoesnothing 
for him; hedoesall for himself. W hen hetakes thefield, therefore, 
in defence of thepublic, ashehasno revenueto maintain himself, 



567 



The Wealth of Nations 



hemust necessarily bemaintained by thepublic. But in a country, 
of which agreat part of theinhabitants are artificers and manufac- 
turers, a great part of the people who go to war must be drawn 
from those classes, and must, therefore, bemaintained by thepublic 
as long as they are employed in its service, 

W hen the art of war, too, has gradually grown up to be a very 
intricate and complicated science; when theevent of war ceases to 
be determined, as in the first ages of society, by a single irregular 
skirmish or battle; but when the contest is generally spun out 
through several different campaigns, each of which lasts during 
the greater part of the year; it becomes universally necessary that 
the public should maintain those who serve the public in war, at 
least whilethey are employed in that service. W hatever, in timeof 
peace, might be the ordinary occupation of those who go to war, 
so very tedious and expensive a service would otherwise be by far 
too heavy a burden upon them. After the second Persian war, ac- 
cordingly, the armies of Athens seem to have been generally com- 
posed of mercenary troops, consisting, indeed, partly of citizens, 
but partly, too, of foreigners; and all of them equally hired and 
paid at the expense of the state. FromthetimeofthesiegeofVeii, 
the armies of Rome received pay for their service during the time 
which they remained in thefield. U nder thefeudal governments, 
the military service, both of the great lords, and of their immedi- 



ate dependents, was, after a certain period, universally exchanged 
for a payment in money, which was employed to maintain those 
who served in their stead. 

T he number of those who can go to war, in proportion to the 
whole number of the people, isnecessarilymuch smaller in a civi- 
lized than in a rude state of society. In a civilized society, as the 
soldiers are maintained altogether by the labour of those who are 
not soldiers, the number of theformer can never exceed what the 
latter can maintain, over and above maintaining, in a manner suit- 
able to their respective stations, both themselves and the other 
officers of government and law, whom they are obliged to main- 
tain. In the little agrarian states of ancient Greece, a fourth or a 
fifth part of the whole body of the people considered the them- 
selves as soldiers, and would sometimes, it is said, take the field. 
Among the civilized nations of modern Europe, it is commonly 
computed, that not more than the one hundredth part of thein- 
habitants of any country can be employed as soldiers, without 
ruin to the country which pays the expense of their service. 

T he expense of preparing the army for the field seems not to 
have become considerable in any nation, till long after that of 
maintaining it in thefield had devolved entirely upon the sover- 
eign or commonwealth. In all the different republics of ancient 
Greece, to learn his military exercises, was a necessary part of edu- 



568 



Adam Smith 



cation imposed by the state upon every free citizen. In every city 
there seems to have been a public field, in which, under the pro- 
tection of the public magistrate, the young people were taught 
their different exercises by different masters. In this very simple 
institution consisted the whole expense which any Grecian state 
seems ever to have been at, in preparing its citizens for war. In 
ancient Rome, the exercises of the Campus M arti us answered the 
same purpose with those of the Gymnasium in ancient Greece. 
Under the feudal governments, the many public ordinances, that 
the citizens of every district should practise archery, aswell as sev- 
eral other military exercises, wereintended for promoting thesame 
purpose, but do not seem to havepromoted it so well . Either from 
want of interest in the officers entrusted with the execution of 
those ordinances, or from some other cause, they appear to have 
been universally neglected; and in the progress of all those govern- 
ments, military exercises seem to have gone gradually into disuse 
among the great body of the people. 

In the republics of ancient Greece and Rome, during the whole 
period of their existence, and under thefeudal governments, for a 
considerable timeafter their first establishment, thetrade of a sol- 
dier was not a separate, distinct trade, which constituted the sole 
or principal occupation of a particular class of citizens; every sub- 
ject of the state, whatever might be the ordinary trade or occupa- 



tion by which he gained his livelihood, considered himself, upon 
all ordinary occasions, as fit likewise to exercise the trade of a sol- 
dier, and, upon many extraordinary occasions, as bound to exer- 
cise it. 

T he art of war, however, as it is certainly the noblest of all arts, 
so, in the progress of improvement, it necessarily becomes one of 
the most complicated among them. T he state of the mechanical, 
aswell as some other arts, with which it is necessarily connected, 
determines thedegreeof perfection to which it is capable of being 
carried at any particular time. But in order to carry it to this de- 
gree of perfection, it is necessary that it should become the sole or 
principal occupation of a particular class of citizens; and thedivi- 
sion of labour is as necessary for the improvement of this, as of 
every other art. Into other arts, the division of labour is naturally 
introduced by the prudence of individuals, who find that they 
promote their private interest better by confining themsdves to a 
particular trade, than by exercising a great number. But it is the 
wisdom of the state only, which can render thetradeof a soldier a 
particular trade, separate and distinct from all others. A private 
citizen, who, in timeof profound peace, and without any particu- 
lar encouragement from the public, should spend the greater part 
of his time in military exercises, might, no doubt, both improve 
himsdf very much in them, and amuse himsdf very well; but he 



569 



The Wealth of Nations 



certainly would not promote his own interest. It isthewisdom of 
the state only, which can render it for his interest to give up the 
greater part of histimetothispeculiar occupation; and states have 
not always had this wisdom, even when their circumstances had 
becomesuch, that the preservation of their existence required that 
they should have it. 

A shepherd has a great deal of leisure; a husbandman, in the 
rude state of husbandry, has some; an artificer or manufacturer 
has none at all. The first may, without any loss, employ a great 
deal of histimein martial exercises; the second may employ some 
part of it; but the last cannot employ a single hour in them with- 
out someloss, and hisattention to hisown interest naturally leads 
him to neglect them altogether.Thoseimprovem en tsin husbandry, 
too, which the progress of arts and manufactures necessarily in- 
troduces, leave the husbandman as little leisure as the artificer. 
M ilitary exercises come to be as much neglected by the inhabit- 
ants of the country as by those of the town, and the great body of 
the people becomes altogether unwarlike.That wealth, at thesame 
time, which always follows the improvements of agriculture and 
manufactures, and which, in reality, isno more than theaccumu- 
lated produce of those improvements, provokes theinvasion of all 
their neighbours. An industrious, and, upon that account, a wealthy 
nation, isof all nations the most likely to be attacked; and unless 



thestate takes somenew measure for thepublicdef ence, thenatu- 
ral habits of the people render them altogether incapable of de- 
fending themselves. 

I n these circumstances, there seem to be but two methods by 
which the state can make any tolerable provision for the public 
defence. 

It may either, first, by means of a very rigorous police, and in 
spite of the whole bent of the interest, genius, and inclinationsof 
the people, enforce the practice of military exercises, and oblige 
either all the citizens of the military age, or a certain number of 
them, to join in some measure the trade of a soldier to whatever 
other trade or profession they may happen to carry on. 

r, secondly, by maintaining and employing a certain number 
of citizens in the constant practice of military exercises, it may 
render the trade of a soldier a particular trade, separate and dis- 
tinct from all others. 

1 f the state has recourse to the first of those two expedients, its 
military force is said to consist in a militia; if to the second, it is 
said to consist in a standing army. The practice of military exer- 
cises is the sole or principal occupation of the soldiers of a stand- 
ing army, and themaintenanceor pay which thestate affordsthem 
is the principal and ordinary fund of their subsistence. The prac- 
tice of military exercises is only the occasional occupation of the 



570 



Adam Smith 



soldiers of a militia, and they derive the principal and ordinary 
fund of their subsistence from some other occupation. In a mili- 
tia, thecharacter of the labourer, artificer, or tradesman, predomi- 
nates over that of the soldier; in a standing army, that of the sol- 
dier predominates over every other character; and in this distinc- 
tion seems to consist the essential difference between those two 
different species of military force. 

M ilitias have been of several different kinds. In some countries, 
the citizens destined for defending the state seem to have been 
exercised only, without being, if I may say so, regimented; that is, 
without being divided into separate and distinct bodies of troops, 
each of which performed its exercises under its own proper and 
permanent officers. In the republics of ancient Greece and Rome, 
each citizen, as long as he remained at home, seems to have prac- 
tised his exercises, either separately and independently, or with 
such of his equals as he liked best; and not to have been attached 
to any particular body of troops, till he was actually called upon to 
take the field. In other countries, the militia has not only been 
exercised, but regimented. In England, in Switzerland, and, I be- 
lieve, in every other country of modern Europe, where any imper- 
fect military forceof this kind has been established, every militia- 
man is, even in time of peace, attached to a particular body of 
troops, which performsitsexercisesunderitsown proper and per- 



manent officers. 

Beforetheinvention of fire-arms, that army was superior in which 
thesoldiershad, each individually, thegreatest skill and dexterity in 
the use of their arms. Strength and agility of body were of thehigh- 
est consequence, and commonly determined thefateof battles. But 
this skill and dexterity in the use of their arms could be acquired 
only, in thesamemanner as fencing isat present, by practising, not 
in great bodies, but each man separately, in a particular school, un- 
der a particular master, or with his own particular equals and com- 
panions. Since the invention of firearms, strength and agility of 
body, or even extraordinary dexterity and skill in the use of arms, 
though they are far from being of no consequence, are, however, of 
lessconsequenceThenatureoftheweapon, though it by no means 
putstheawkward upon a level with theskilful, putshim morenearly 
so than heever was before. All thedexterity and skill, it issupposed, 
which are necessary for using it, can be well enough acquired by 
practising in great bodies. 

Regularity, order, and prompt obedienceto command, arequali- 
ties which, in modern armies, are of more importance towards 
determining thefateof battles, than the dexterity and skill of the 
soldiers in the use of their arms. But the noise of fire-arms, the 
smoke, and the invisible death to which every man feels himself 
every moment exposed, as soon as he comes within cannon-shot, 



571 



The Wealth of Nations 



and frequently a long time before the battle can be well said to be 
engaged, must render it very difficult to maintain any consider- 
able degree of this regularity order, and prompt obedience, even 
in the beginning of a modern battle. In an ancient battle, there 
was no noise but what arose from the human voice; there was no 
smoke, there was no invisible cause of wounds or death. Every 
man, till some mortal weapon actually did approach him, saw 
clearly that no such weapon was near him. I n these circumstances, 
and among troops who had some confidence in their own skill 
and dexterity in the use of their arms, it must have been a good 
deal less difficult to preserve some degree of regularity and order, 
not only in the beginning, but through the whole progress of an 
ancient battle, and till one of the two armies was fairly defeated. 
But the habits of regularity, order, and prompt obedience to com- 
mand, can be acquired only by troops which are exercised in great 
bodies. 

A militia, however, in whatever manner it may be either disci- 
plined or exercised, must always be much inferior to a well disci- 
plined and well exercised standing army. 

The soldiers who are exercised only once a week, or once a- 
month, can never be so expert in the use of their arms, as those 
who are exercised every day, or every other day; and though this 
circumstance may not be of so much consequence in modern, as 



it was in ancient times, yet the acknowledged superiority of the 
Prussian troops, owing, it is said, very much to their superior ex- 
pertness in their exercise, may satisfy usthat it is, even at this day, 
of very considerable consequence. 

T he soldiers, who are bound to obey their officer only once a- 
week, or oncea-month, and who are at all other times atliberty to 
manage their own affairs their own way, without being, in any 
respect, accountabletohim, can never be under the same awe in 
his presence, can never have the same disposition to ready obedi- 
ence, with those whose whole life and conduct are every day di- 
rected by him, and who every day even rise and go to bed, or at 
least retire to their quarters, according to his orders. In what is 
called discipline, or in thehabit of ready obedience, a militia must 
always be still moreinferiortoastandingarmy than itmay some- 
times be in what is called the manual exercise, or in the manage- 
ment and use of its arms. But, in modern war, the habit of ready 
and instant obedienceisof much greater consequence than a con- 
siderable superiority in the management of arms. 

Those militias which, liketheTartar or Arab militia, goto war 
under the same chieftains whom they are accustomed to obey in 
peace, are by far the best. I n respect for their officers, in the habit 
of ready obedience, they approach nearest to standing armiesT he 
Highland militia, when it served under its own chieftains, had 



572 



Adam Smith 



some advantage of the same kind. As the Highlanders, however, 
were not wandering, but stationary shepherds, as they had all a 
fixed habitation, and were not, in peaceable times, accustomed to 
follow their chieftain from place to place; so, in time of war, they 
were less willing to follow him to any considerable distance, or to 
continuefor any long time in thefield. When they had acquired 
any booty, they were eager to return home, and his authority was 
seldom sufficient to detain them. In point of obedience, they were 
alwaysmuch inferior to what isreported of theTartarsand Arabs. 
As the H ighlanders, too, from their stationary life, spend less of 
their time in the open air, they were always less accustomed to 
military exercises, and were less expert in the use of their arms 
than theTartarsand Arabs are said to be. 

A militia of any kind, it must be observed, however, which has 
served for several successive campaigns in the field, becomes in 
every respect a standing army. T he soldiers are every day exercised 
in the use of their arms, and, being constantly under the com- 
mand of their officers, are habituated to the same prompt obedi- 
ence which takes placein standing armies. What they were before 
they took thefield, is of little importance. They necessarily be- 
come in every respect a standing army, after they have passed a 
few campaigns in it. Should the war in America drag out through 
another campaign, the American militia may become, in every 



respect, a match for that standing army, of which the valour ap- 
peared, in the last war at least, not inferior to that of the hardiest 
veterans of France and Spain. 

Thisdistinction being well understood, thehistory of all ages, it 
will befound, hears testimonytotheirresistiblesuperiority which 
a well regulated standing army has over a militia. 

neof thefirst standing armies, of which we have any distinct 
account in any well authenticated history, is that of Philip of 
Macedon. His frequent wars with theThracians, lllyrians, 
Thessalians, and some of the Greek cities in the neighbourhood 
of M acedon, gradually formed histroops, which in the beginning 
were probably militia, to the exact discipline of a standing army. 
When he was at peace, which he was very seldom, and never for 
any long time together, he was careful not to disband that army. It 
vanquished and subdued, after a long and violent struggle, in- 
deed, the gallant and well exercised militias of the principal re- 
publicsof ancient Greece; and afterwards, with very littlestruggle, 
the effeminate and ill exercised militiaofthegreat Persian empire. 
Thefall of theGreek republics, and of the Persian empirewasthe 
effect of the irresistible superiority which astandingarm has over 
every other sort of militia. It is the first great revolution in the 
affairsof mankind of which history has preserved any distinct and 
circumstantial account. 



573 



The Wealth of Nations 



Thefall of Carthage, and the con sequent elevation of Rome, is 
the second. All the varieties in the fortune of those two famous 
republics may very well be accounted for from the same cause. 

From the end of the first to the beginning of the second 
Carthaginian war, thearmies of Carthage werecontinually in the 
field, and employed under three great generals, who succeeded 
one another in the command; Amilcar, his son-in-law Asdrubal, 
and hisson Annibal: first in chastising their own rebellious slaves, 
afterwards in subduing the revolted nations of Africa; and lastly, 
in conquering the great kingdom of Spain. The army which 
Annibal led from Spain into Italy must necessarily, in thosediffer- 
ent wars, have been gradually formed to the exact discipline of a 
standing army. The Romans, in the meantime, though they had 
not been altogether at peace, yet they had not, during this period, 
been engaged in any war of very great consequence; and their mili- 
tary discipline, it is generally said, was a good deal relaxed. The 
Roman armies which Annibal encountered atTrebi,Thrasymenus, 
and Cannae, were militia opposed to a standing army. This cir- 
cumstance, it is probable, contributed more than any other to 
determine the fate of those battles. 

The standing army which Annibal left behind him in Spain had 
the like superiority over the militia which the Romans sent to 
opposeit; and, in a few years, under the command of hisbrother, 



the younger Asdrubal, expelled them almost entirely from that 
country. 

Annibal wasill supplied from home. The Roman militia, being 
continually in thefield, became, in the progress of the war, a well 
disciplined and well exercised standing army; and the superiority 
of Annibal grew every day I ess and less. Asdrubal judged it neces- 
sary to lead the whole, or almost the whole, of the standing army 
which hecommanded in Spain, to the assistance of hisbrother in 
Italy. In this march, he is said to have been misled by his guides; 
and in a country which he did not know, was surprised and at- 
tacked, by another standing army, in every respect equal or supe- 
rior to his own, and was entirely defeated. 

W hen Asdrubal had left Spain, the great Sci pi o found nothing 
to opposehim but a militia inferiorto hisown. H econquered and 
subdued that militia, and, in thecourseof thewar, hisown militia 
necessarily became a well disciplined and well exercised standing 
army. T hat standing army was afterwards carried to Africa, where 
it found nothing but a militia to oppose it. In order to defend 
Carthage, it became necessary to recal the standing army of 
Annibal. The disheartened and frequently defeated African mili- 
tia joined it, and, atthebattleof Zama, composed the greater part 
of the troops of Annibal. The event of that day determined the 
fate of the two rival republics. 



574 



Adam Smith 



From the end of the second Carthaginian war till thefall of the 
Roman republic, the armies of Rome were in every respect stand- 
ing armies. Thestanding army of M acedon made some resistance 
to their arms. In the height of their grandeur, it cost them two 
great wars, and three great battles, to subdue that little kingdom, 
of which the conquest would probably have been still more diffi- 
cult, had it not been for thecowardice of its last king. The militias 
of all thecivilized nationsof theancient world, of Greece, of Syria, 
and of Egypt, made but a feeble resistance to the standing armies 
of RomeThemilitias of some barbarousnationsdef ended them- 
selves much better. The Scythian or Tartar militia, which 
M ithridates drew from the countries north of the Euxine and 
C aspian seas, were the most formidable enemies whom the Ro- 
mans had to encounter after the second Carthaginian war. The 
Parthian and German militias, too, were always respectable, and 
upon several occasions, gained very considerable advantages over 
the Roman armies. In general, however, and when the Roman 
armies were well commanded, they appear to have been very much 
superior; and if the Romans did not pursue the final conquest 
either of Parthia or G ermany, it was probably because they judged 
that it was not worth while to add those two barbarous countries 
to an empire which was already too large. T he ancient Parthians 
appear to have been a nation of Scythian or Tartar extraction, and 



to have always retained a good deal of the manners of their ances- 
tors. Theancient Germans were, I ike the Scythians or Tartars, a 
nation of wandering shepherds, who went to war under the same 
chiefs whom they were accustomed to follow in peace. Their mi- 
litia was exactly of the same kind with that of the Scythians or 
Tartars, from whom, too, they were probably descended. 

M any different causes contributed to relax the discipline of the 
Roman armies. Its extreme severity was, perhaps, one of those 
causes. In the days of their grandeur, when no enemy appeared 
capable of opposing them, their heavy armour was laid aside as 
unnecessarily burdensome, their laboriousexerciseswereneglected, 
as unnecessarily toilsome. Under the Roman emperors, besides, 
the standing armies of Rome, those particularly which guarded 
theGerman and Pannonian frontiers, became dangerous to their 
masters, against whom they used frequently to set up their own 
generals. In order to render them less formidable, according to 
some authors, Diodesian, according to others, Constantine, first 
withdrew them from the frontier, where they had always before 
been encamped in great bodies, generally of two or three legions 
each, and dispersed them in small bodies through the different 
provincial towns, from whence they were scarce ever removed, 
but when it became necessary to repel an invasion. Small bodies 
of soldiers, quartered in trading and manufacturing towns, and 



575 



The Wealth of Nations 



seldom removed from those quarters, became themselves trades 
men, artificers, and manufacturers. The civil came to predomi- 
nate over themilitary character; and thestanding armies of Rome 
gradually degenerated into acorrupt, neglected, and undisciplined 
militia, incapableof resisting theattack of theGerman and Scythian 
militias, which soon afterwards invaded the western empire. It 
was only by hiring the militia of some of those nations to oppose 
to that of others, that the emperors were for some time able to 
defend themselves. The fall ofthewestern empireisthethird great 
revolution in theaffairs of mankind, of which ancient history has 
preserved any distinct or circumstantial account. It was brought 
about by the irresistible superiority which the militia of a barba- 
rous has over that of a civilized nation; which the militia of a 
nation of shepherds has over that of a nation of husbandmen, 
artificers, and manufacturers. Thevictories which have been gained 
by militiashave generally been, not over standing armies, but over 
other militias, in exercise and discipline inferior to themselves. 
Such were the victories which the Greek militia gained over that 
of the Persian empire; and such, too, were those which, in later 
times, the Swiss militia gained over that of the Austrians and 
Burgundians. 

Themilitary force of theGerman and Scythian nations, who 
established themselves upon ruins of the western empire, contin- 



ued for sometimeto beofthesamekind in their new settlements, 
as it had been in their original country. It was a militia of shep- 
herds and husbandmen, which, in time of war, took the field un- 
der thecommand of thesamechieftainswhom it was accustomed 
to obey in peace. It was, therefore, tolerably well exercised, and 
tolerably well disciplined. As arts and industry advanced, how- 
ever, the authority of the chieftains gradually decayed, and the 
great body of the people had less time to spare for military exer- 
cises. Both the discipline and the exercise of the feudal militia, 
therefore, went gradually to ruin, and standing armies were gradu- 
ally introduced to supply the place of it. W hen the expedient of a 
standing army, besides, had once been adopted by one civilized 
nation, it became necessary that all its neighbours should follow 
the example. They soon found that their safety depended upon 
their doing so, and that their own militia was altogether incapable 
of resisting the attack of such an army. 

The soldiers of a standing army, though they may never have 
seen an enemy, yet have frequently appeared to possess all thecour- 
age of veteran troops, and, the very moment that they took the 
field, to have been fit to face the hardiest and most experienced 
veterans In 1756, when the Russian army marched into Poland, 
thevalour of the Russian soldiersdid not appear inferior to that of 
the Prussians, at that time supposed to be the hardiest and most 



576 



Adam Smith 



experienced veterans in Europe. The Russian empire, however, 
had enjoyed a profound peace for near twenty years before, and 
could at that time have very few soldiers who had ever seen an 
enemy. When the Spanish war broke out in 1739, England had 
enjoyed a profound peace for about eight-and-twenty years. The 
valour of her soldiers, however, far from being corrupted by that 
long peace, wasnever moredistinguished than in theattempt upon 
Carthagena, thefirst unfortunate exploit of that unfortunate war. 
In along peace, thegenerals, perhaps, may sometimes forget their 
skill; but where a well regulated standing army has been kept up, 
the soldiers seem never to forget their valour. 

When a civilized nation depends for its defence upon a militia, 
it is at all times exposed to be conquered by any barbarous nation 
which happens to be in its neighbourhood. The frequent con- 
quests of all the civilized countries in Asia by the Tartars, suffi- 
ciently demonstrates thenatural superiority which themilitiaof a 
barbarous has over that of a civilized nation. A well regulated stand- 
ing army is superior to every militia. Such an army, as it can best 
be maintained by an opulent and civilized nation, so it can alone 
defend such a nation against the invasion of a poor and barbarous 
neighbour. It is only by means of a standing army, therefore, that 
the civilization of any country can be perpetuated, or even pre 
served, for any considerable time. 



As it is only by means of a well regulated standing army, that a 
civilized country can bedefended, so it isonly by meansof it that a 
barbarouscountrycan besuddenly and tolerably civilized. A stand- 
ing army establishes, with an irresistible force, the law of the sover- 
eign through the remotest provinces of the empire, and maintains 
some degree of regular government in countries which could not 
otherwise admit of any. W hoever examines with attention, the im- 
provements which Peter the Great introduced into the Russian 
empire, will find that they almost all resolve themselves into the 
establishment of a well regulated standingarmy. It istheinstrument 
which executes and maintainsall hisother regulations. That degree 
of order and internal peace, which that empire has ever since en- 
joyed, is altogether owing to the influence of that army. 

M en of republican principles have been jealous of a standing 
army, asdangerousto liberty. It certainly isso, wherever the inter- 
est of the general, and that of the principal officers, are not neces- 
sarily connected with the support of the constitution of the state. 
T he standing army of C aesar destroyed the Roman republic. T he 
standing army of Cromwell turned the long parliament out of 
doors. But where the sovereign is himself the general, and the 
principal nobility and gentry of the country the chief officers of 
the army; where the military force is placed under the command 
of those who have the greatest interest in the support of the civil 



577 



The Wealth of Nations 



authority, because they have themselves the greatest share of that 
authority, a standing army can never be dangerous to liberty. n 
the contrary, it may, in some cases, be favourable to liberty. The 
security which it gives to the sovereign renders unnecessary that 
troublesomejealousy, which, in somemodern republics, seems to 
watch over the minutest actions, and to be at all times ready to 
disturb the peace of every citizen . W here the security of the mag- 
istrate, though supported by the principal people of the country, 
is endangered by every popular discontent; where a small tumult 
iscapableof bringing about in afew hoursa great revolution, the 
wholeauthority of government must be employed to suppress and 
punish every murmur and complaint against it. To a sovereign, on 
the contrary, who feels himself supported, not only by the natural 
aristocracy of the country, but by a well regulated standing army, 
the rudest, the most groundless, and the most licentious remon- 
strances, can give little disturbance. H ecan safely pardon or neglect 
them, and his consciousness of his own superiority naturally dis- 
poses him to do so. That degree of liberty which approaches to 
licentiousness, can be tolerated only in countries where the sover- 
eign is secured by a well regulated standing army. It isin such coun- 
tries only, that the public safety does not require that the sovereign 
should be trusted with any discretionary power, for suppressing even 
the impertinent wantonness of this licentious liberty. 



The first duty of the sovereign, therefore, that of defending the 
society from theviolence and injustice of other independent societ- 
ies, grows gradually more and more expensive, as the society ad- 
vancesin civilization. Themilitary force of thesociety, which origi- 
nally cost the sovereign no expense, either in time of peace, or in 
time of war, must, in the progress of improvement, first be main- 
tained byhim in time of war, and afterwards even in timeof peace. 

T he great change introduced into the art of war by the inven- 
tion of fire-arms, has enhanced still further both the expense of 
exercising and disciplining any particular number of soldiers in 
time of peace, and that of employing them in time of war. Both 
their arms and their ammunition are become more expensive. A 
musket is a more expensive machine than a javelin or a bow and 
arrows; a cannon or a mortar, than a balista or a catapulta. The 
powder which is spent in a modern review is lost irrecoverably, 
and occasions a very considerable expense. The javelins and ar- 
rows which were thrown or shot in an ancient one, could easily be 
picked up again, and were, besides, of very little value. The can- 
non and the mortar are not only much dearer, but much heavier 
machines than the balista or catapulta; and require a greater ex- 
pense, not only to prepare them for thefield, but to carry them to 
it. Asthe superiority of the modern artillery, too, over that of the 
ancients, is very great; it has become much more difficult, and 



578 



Adam Smith 



consequently much more expensive, to fortify a town, so as to 
resist, even for a few weeks, the attack of that superior artillery. I n 
modern times, many different causes contribute to render the de- 
fence of the society more expensive. The unavoidable effects of 
the natural progress of improvement have, in this respect, been a 
good deal enhanced by a great revolution in the art of war, to 
which a mere accident, theinvention of gunpowder, seemsto have 
given occasion. 

I n modern war, the great expense of firearms gives an evident 
advantage to the nation which can best afford that expense; and, 
consequently, to an opulent and civilized, over a poor and barba- 
rous nation. In ancient times, the opulent and civilized found it 
difficult to defend themselves against the poor and barbarous na- 
tions. In modern times, thepoor and barbarousfind itdifficultto 
defend themselves against the opulent and civilized. The inven- 
tion of fire-arms, an invention which at first sight appears to be so 
pernicious, is certainly favourable, both to thepermanency and to 
the extension of civilization. 



PART II 

Of the Expense of Justice 

The second duty of the sovereign, that of protecting, as far as 
possible, every member of the society from the injustice or op- 
pression of every other member of it, or the duty of establishing 
an exact administration of justice, requires two very different de- 
grees of expense in the different periods of society. 

Among nations of hunters, as there is scarce any property, or at 
least none that exceeds the value of two or three days labour; so 
there is seldom any established magistrate, or any regular admin- 
istration of justice. M en who have no property, can injure one 
another only in their persons or reputations. But when one man 
kills, wounds, beats, or defames another, though he to whom the 
injury is done suffers, he who does it receives no benefit. It is 
otherwise with theinjuries to property. The ben efit of theperson 
who does the injury isoften equal to thelossof him who suffers it. 
Envy, malice, or resentment, are the only passions which can 
prompt one man to injure another in his person or reputation. 
But the greater part of men are not very frequently under the 
influence of those passions; and the very worst men are so only 
occasionally. As their gratification, too, how agreeable soever it 



579 



The Wealth of Nations 



may be to certain characters, is not attended with any real or per- 
manent advantage, it is, in the greater part of men, commonly 
restrained by prudential considerations. M en may live together in 
society with some tolerable degree of security, though there is no 
civil magistrate to protect them from the injustice of those pas- 
sions. But avarice and ambition in the rich, in the poor the hatred 
of labour and the love of present ease and enjoyment, arethepas- 
sionswhich promptto invade property; passionsmuch moresteady 
in their operation, and much more universal in their influence. 
Wherever there is a great property, there is great inequality. For 
one very rich man, there must be at least five hundred poor, and 
the affluence of the few supposes the indigence of the many. T he 
affluence of the rich excites the indignation of the poor, who are 
often both driven by want, and prompted by envy to invade his 
possessions. Itisonly under theshelter of thecivil magistrate, that 
theownerof that valuable property, which isacquired bythelabour 
of many years, or perhaps of many successive generations, can 
sleep a single night in security. H e is at all times surrounded by 
unknown enemies, whom, though he never provoked, hecan never 
appease, and from whoseinjusticehecan beprotected only by the 
powerful arm of thecivil magistrate, continually held up to chas- 
tise it. The acquisition of valuable and extensive property, there- 
fore, necessarily requires the establishment of civil government. 



W here there is no property, or at least none that exceeds the value 
of two or three days labour, civil government is not so necessary. 

Civil government supposes a certain subordination. But as the 
necessity of civil government gradually growsup with theacquisi- 
tion of valuable property; so the principal causes, which naturally 
introduce subordination, gradually grow up with the growth of 
that valuable property. 

T he causes or circumstances which naturally introduce subor- 
dination, or which naturally and antecedent to any civil institu- 
tion, give somemen somesuperiority over thegreater part of their 
brethren, seem to be four in number. 

T he first of those causes or circumstances, is the superiority of 
personal qualifications, of strength, beauty, and agility of body; of 
wisdom and virtue; of prudence, justice, fortitude, and modera- 
tion of mind. T hequalificationsof thebody, unless supported by 
those of the mind, can give little authority in any period of soci- 
ety. H e is a very strong man, who, by mere strength of body, can 
force two weak ones to obey him. The qualifications of the mind 
can alone give very great authority They are however, invisible 
qualities; always disputable, and generally disputed. No society, 
whether barbarous or civilized, has ever found it convenient to 
settle the rules of precedency of rank and subordination, accord- 
ing to thoseinvisiblequalities; but according to something that is 



580 



Adam Smith 



more plain and palpable. 

Thesecond of those causes or circumstances, is the superiority 
of age. An old man, provided his age is not so far advanced as to 
give suspicion of dotage, iseverywhere more respected than ayoung 
man of equal rank, fortune, and abilities. Among nationsof hunt- 
ers, such as the native tribes of N orth America, age is the sole 
foundation of rank and precedency. Among them, father is the 
appellation of a superior; brother, of an equal; and son, of an infe- 
rior. In the most opulent and civilized nations, age regulates rank 
among those who are in every other respect equal; and among 
whom, therefore, thereisnothingelseto regulateit. Among broth- 
ers and among sisters, the eldest always takes place; and in the 
succession of the paternal estate, everything which cannot be di- 
vided, but must go entire to one person, such asatitleof honour, 
is in most cases given to the eldest. Age is a plain and palpable 
quality, which admits of no dispute. 

Thethird of those causes or circumstances, is the superiority of 
fortune. The authority of riches, however, though great in every 
age of society, is, perhaps, greatest in the rudest ages of society, 
which admits of any considerable inequality of fortune. A Tartar 
chief, theincreaseof whose flocks and herds is sufficient to main- 
tain a thousand men, cannot well employ that increase in any 
otherwaythan in maintaining a thousand men. The rude state of 



his society does not afford him any manufactured produce any 
trinkets or baubles of any kind, for which he can exchange that 
part of his rude produce which is over and above his own con- 
sumption. Thethousand men whom hethus maintains, depend- 
ing entirely upon him for their subsistence, must both obey his 
ordersin war, and submit to hisjurisdiction in peace. Heisneces- 
sarilyboth their general and their judge, and his chieftainship is 
thenecessary effect of thesuperiority of hisfortune. In an opulent 
and civilized society, a man may possess a much greater fortune, 
and yet not be able to command a dozen of people. Though the 
produce of hisestate may be sufficient to maintain, and may, per- 
haps, actually maintain, more than a thousand people, yet, as those 
people pay for every thing which they get from him, as he gives 
scarce any thing to any body but in exchange for an equivalent, 
there is scarce anybody who considers himself as entirely depen- 
dent upon him, and his authority extends only over a few menial 
servants. The authority of fortune, however, is very great, even in 
an opulent and civilized society. T hat it is much greater than that 
either of age or of personal qualities, has been the constant com- 
plaint of every period of society which admitted of any consider- 
ableinequality of fortune. Thefirst period of society, that of hunt- 
ers, admits of no such inequality. Universal poverty establishes 
their universal equality; and the superiority, either of age or of 



581 



The Wealth of Nations 



personal qualities, are the feeble, but the sole foundations of au- 
thority and subordination. There is, therefore, littleor no author- 
ity or subordination in this period of society. The second period 
of society, that of shepherds, admits of very great inequalities of 
fortune, and thereisno period in which the superiority of fortune 
gi ves so great authority to those who possess it. T here is no period, 
accordingly, in which authority and subordination are more per- 
fectly established. Theauthority of an Arabian scherif isvery great; 
that of a Tartar khan altogether despotical. 

The fourth of those causes or circumstances, is the superiority 
of birth. Superiority of birth supposes an ancient superiority of 
fortunein thefamily of the person who claimsit. All families are 
equally ancient; and the ancestors of the prince, though they may 
be better known, cannot well bemorenumerousthan those of the 
beggar. Antiquity of family means everywhere theantiquity either 
of wealth, or of that greatness which iscommonly either founded 
upon wealth, or accompanied with it. U pstart greatness is every- 
where less respected than ancient greatness. T he hatred of usurp- 
ers, the love of the family of an ancient monarch, are in a great 
measure founded upon the contempt which men naturally have 
fortheformer, and upon their veneration for the latter. As a mili- 
tary officer submits, without reluctance, to the authority of a su- 
perior by whom he has always been commanded, but cannot bear 



that his inferior should be set over his head; somen easily submit 
to a family to whom they and their ancestors have always submit- 
ted; but are fired with indignation when an other family, in whom 
they had never acknowledged any such superiority, assumes a do- 
minion over them. 

The distinction of birth, being subsequent to the inequality of 
fortune, can haveno placein nationsof hunters, among whom all 
men, being equal in fortune, must likewise be very nearly equal in 
birth. Theson of a wise and brave man may, indeed, even among 
them, be somewhat more respected than a man of equal merit, 
who has the misfortune to be the son of a fool or a coward. The 
difference, however will not be very great; and there never was, I 
believe, a great family in the world, whoseillustration was entirely 
derived from the inheritance of wisdom and virtue. 

The distinction of birth not only may, but always does, take 
place among nationsof shepherds. Such nations are always strangers 
to every sort of luxury, and great wealth can scarce ever be dissi- 
pated among them by improvident profusion. There are no na- 
tions, accordingly, who abound more in families revered and 
honoured on account of their descent from a long race of great 
and illustriousancestors; becausetherearenonationsamongwhom 
wealth is likely to continue longer in thesamefamilies. 

Birth and fortune are evidently the two circumstances which 



582 



Adam Smith 



principally set one man above another. They are the two great 
sources of personal distinction, and are, therefore, the principal 
causes which naturally establish authority and subordination 
among men. Among nations of shepherds, both those causes op- 
erate with their full force. The great shepherd or herdsman, re 
spected on account of hisgreat wealth, and of thegreat number of 
those who depend upon him for subsistence, and revered on ac- 
count of the nobleness of his birth, and of the immemorial antiq- 
uity or his illustrious family, has a natural authority over all the 
inferior shepherds or herdsmen of hishordeordan. Hecan com- 
mand the united force of a greater number of people than any of 
them. H is military power is greater than that of any of them. In 
time of war, they are all of them naturally disposed to muster 
themselves under his banner, rather than under that of any other 
person; and his birth and fortune thus naturally procure to him 
some sort of executive power. By commanding, too, the united 
force of a greater number of people than any of them, he is best 
able to compel any one of them, who may have injured another, 
to compensate the wrong. H e is the person, therefore, to whom 
all those who are too weak to defend themselves naturally look up 
for protection. It is to him that they naturally complain of the 
injuries which they imagine have been donetothem; and his in- 
terposition, in such cases, is more easily submitted to, even by the 



person complained of, than that of any other person would be. 
H is birth and fortune thus naturally procure him some sort of 
judicial authority. 

It isin the age of shepherds, in thesecond period of society, that 
theinequality of fortunefirst beginsto takeplace, and introduces 
among men a degree of authority and subordination, which could 
not possibly exist before. It thereby introduces some degree of 
that civil government which isindisp en sably necessary for its own 
preservation; and it seemsto do this naturally, and even indepen- 
dent of the consideration of that necessity. T he consideration of 
that necessity comes, no doubt, afterwards, to contribute very much 
to maintain and secure that authority and subordination. Therich, 
in particular, are necessarily interested to support that order of 
things, which can alone secure them in the possession of their 
own advantages. M en of inferior wealth combineto defend those 
of superior wealth in thepossession of their property, in order that 
men of superior wealth may combineto defend them in the pos- 
session of theirs. All the inferior shepherds and herdsmen feel, 
that the security of their own herds and flocks depends upon the 
security of those of thegreat shepherd or herdsman; that themain- 
tenance of their lesser authority depends upon that of his greater 
authority; and that upon their subordination to him depends his 
power of keeping their inferiors in subordination to them. They 



583 



The Wealth of Nations 



constituteasortof littlenobility, whofeel themselves interested to 
defend the property, and to support the authority, of their own 
little sovereign, in order that he may be ableto defend their prop- 
erty, and to support their authority. C ivil government, so far as it 
isinstituted for thesecurity of property, is, in reality, instituted for 
the defence of the rich against the poor, or of those who have 
some property against those who have none at all. 

The judicial authority of such a sovereign, however, far from 
being a causeof expense, was, for a long time, a source of revenue 
to him. The persons who applied to him for justice were always 
willing to pay for it, and a present never failed to accompany a 
petition. After theauthority of thesovereign, too, was thoroughly 
established, the person found guilty, over and above the satisfac- 
tion which he was obliged to make to the party, was like-wise 
forced to pay an amercement to the sovereign. He had given 
trouble, he had disturbed, he had broke the peace of his lord the 
king, and for those offences an amercement was thought due. I n 
the Tartar governments of Asia, in the governments of Europe 
which were founded by the German and Scythian nations who 
overturned the Roman empire, the ad ministration of justice wasa 
considerable source of revenue, both to thesovereign, and to all 
the lesser chiefs or lords who exercised under him any particular 
jurisdiction, either over some particular tribe or clan, or over some 



particular territory or district. Originally, both thesovereign and 
the inferior chiefs used to exercise this jurisdiction in their own 
persons. Afterwards, they universally found it convenient to del- 
egate it to so me substitute, bailiff, or judge. T his substitute, how- 
ever, was still obliged to account to his principal or constituent for 
theprofitsofthejurisdiction. W hoever readstheinstructions(They 
areto befound in Tyrol's H istory of England) which were given to 
the judges of the circuit in the time of Henry II will see clearly 
that those judges were a sort of itinerant factors, sent round the 
country for the purpose of levying certain branches of the king's 
revenue. In those days, the administration of justice not only af- 
forded a certain revenueto thesovereign, but, to procure this rev- 
enue, seems to have been one of the principal advantages which 
heproposed to obtain by the administration of justice. 

T his scheme of making the administration of justice subservi- 
ent to the purposes of revenue, could scarce fail to be productive 
of several very gross abuses. The person who applied for justice 
with a large present in his hand, waslikdyto get something more 
than justice; while he who applied for it with a small one was 
likdy to get something less. Justice, too, might frequently be de- 
layed, in order that this present might be repeated. The amerce- 
ment, besides, of the person complained of, might frequently sug- 
gest a very strong reason for finding him in the wrong, even when 



584 



Adam Smith 



he had not really been so. That such abuses were far from being 
uncommon, theancient history of every country in Europe bears 
witness. 

When the sovereign or chief exercises his judicial authority in 
his own person, how much soever he might abuse it, it must have 
been scarce possibleto get any redress; because therecould seldom 
beany body powerful enough to call him to account. When he 
exercised it byabailiff, indeed, redressmightsometimesbehad. If 
it was for his own benefit only, that the bailiff had been guilty of 
an act of injustice, the sovereign himself might not always be un- 
willing to punish him, ortoobligehim to repair the wrong. But if 
it was for the benefit of his sovereign; if it was in order to make 
court to the person who appointed him, and who might prefer 
him, thathehad committed any act of oppression; redress would, 
upon most occasions, beasimpossibleasif thesovereign had com- 
mitted it himself. In all barbarousgovernments, accordingly, in all 
those ancient governments of Europe in particular, which were 
founded upon theruinsoftheRoman empire, the ad ministration 
of justice appears for a long time to have been extremely corrupt; 
far from being quite equal and impartial, even under the best 
monarchs, and altogether profligate under the worst. 

Among nations of shepherds, where the sovereign or chief is 
only the greatest shepherd or herdsman of the horde or clan, he is 



maintained in the same manner as any of his vassals or subjects, 
by the increase of hisown herdsor flocks. Amongthosenationsof 
husbandmen, who are but just come out of the shepherd state, 
and who are not much advanced beyond that state, such as the 
Greek tribes appear to have been about thetimeoftheTrojan war, 
and our German and Scythian ancestors, when they first settled 
upon the ruins of the western empire; thesovereign or chief is, in 
thesamemanner, only thegreatest landlord of thecountry, and is 
maintained in the same manner as any other landlord, by a rev- 
enuederived from hisown private estate, or from what, in mod- 
ern Europe, was called the demesne of the crown. H is subjects, 
upon ordinary occasions, contribute nothing to his support, ex- 
cept when, in order to protect them from the oppression of some 
of their fellow- subjects, they stand in need of his authority. The 
presentswhich they makehim upon such occasionsconstitutethe 
wholeordinary revenue, the whole of the emoluments which, ex- 
cept, perhaps, upon some very extraordinary emergencies, hede- 
rivesfrom hisdominion over them. W hen Agamemnon, in H omer, 
off ers to Achilles, for hisfriendship, the sovereignty of seven Greek 
cities, thesoleadvantage which hementionsaslikely to bederived 
from it was, that the people would honour him with presents. As 
long as such presents, as long as the emoluments of justice, or 
what may be called the fees of court, constituted, in this manner, 



585 



The Wealth of Nations 



the whole ordinary revenue which the sovereign derived from his 
sovereignty, it could not well be expected, it could not even de- 
cently be proposed, that he should give them up altogether. It 
might, and it frequently was proposed, that he should regulate 
and ascertain them. But after they had been so regulated and as- 
certained, how to hinder a person who was all -powerful from ex- 
tending them beyond those regulations, was still very difficult, 
not to say impossible. Duringthecontinuanceofthisstateof things, 
therefore, the corruption of justice, naturally resulting from the 
arbitrary and uncertain nature of those presents, scarce admitted 
of any effectual remedy. 

But when, from different causes, chiefly from the continually 
increasing expense of defending the nation against theinvasion of 
other nations, the private estate of the sovereign had become alto- 
gether insufficient for defraying the expense of the sovereignty; 
and when it had become necessary that the people should, for 
their own security, contribute towards this expense by taxes of 
different kinds; it seems to have been very commonly stipulated, 
that no present for the administration of justice should, under 
anypretence, be accepted either by thesovereign, orbyhisbailiffs 
and substitutes, thejudges. Those presents, itseemsto have been 
supposed, could moreeasily be abolished altogether, than effectu- 
ally regulated and ascertained. Fixed salaries were appointed to 



thejudges, which were supposed to compensate to them the loss 
of whatever might have been their share of the ancient emolu- 
ments of justice; as the taxes more than compensated to thesover- 
eign thelossof his. J ustice was then said to be administered gratis. 

Justice, however, never was in reality administered gratis in any 
country. Lawyers and attorneys, at least, must always be paid by the 
parties; and if they were not, they would perform their duty still 
worse than they actually perform it. Thefees annually paid to law- 
yers and attorneys, amount, in every court, to a much greater sum 
than the salaries of the judges. T he circumstance of those salaries 
being paid bythecrown, can nowheremuch diminish thenecessary 
expense of a law-suit. But it was not so much to diminish the ex- 
pense, as to prevent the corruption of justice, that thejudges were 
prohibited from receiving my present or fee from the parties. 

The office of judge is in itself so very honourable, that men are 
willing to accept of it, though accompanied with very small emolu- 
ments. The inferior office of justice of peace, though attended 
with a good deal of trouble, and in most cases with no emolu- 
ments at all, is an object of ambition to the greater part of our 
country gentlemen. The salaries of all the different judges, high 
and low, together with the whole expense of the administration 
and execution of justice, even where it is not managed with very 
good economy, makes, in any civilized country, butaveryincon- 



586 



Adam Smith 



siderable part of the whole expense of government. 

The whole expense of justice, too, might easily be defrayed by 
thefeesof court; and, without exposing the ad ministration of jus- 
tice to any real hazard of corruption, the public revenue might 
thus be entirely discharged from a certain, though perhaps but a 
small incumbrance. It is difficult to regulate the fees of court ef- 
fectually, wherea person so powerful as the sovereign isto sharein 
them and to derive any considerable part of his revenuefrom them. 
It is very easy, where the judge is the principal person who can 
reap any benefit from them. The law can very easily oblige the 
judge to respect the regulation though it might not always be able 
to make the sovereign respect it. W here the fees of court are pre- 
cisely regulated and ascertained where they are paid all at once, at 
a certain period of every process, into the hands of a cashier or 
receiver, to be by him distributed in certain known proportions 
amongthediff erentjudges after theprocessisdecided and not till 
it isdecided; there seemsto be no moredanger of corruption than 
when such fees are prohibited altogether. Those fees, without 
occasioning any considerable increase in theexpense of a law-suit, 
might be rendered fully sufficient for defraying the wholeexpense 
of justice. But not being paid to the judges till the process was 
determined, they might be some incitement to the diligence of 
thecourt in examining and deciding it. In courts which consisted 



of a considerable number of judges, by proportioning theshareof 
each judge to the number of hours and days which he had em- 
ployed in examining the process, either in thecourt, or in a com- 
mittee, by order of thecourt, those fees might give some encour- 
agement to the diligence of each particular judge. Public services 
are never better performed, than when their reward comes only in 
consequence of their being performed, and is proportioned to the 
diligence employed in performing them. In the different parlia- 
ments of France, the fees of court (called epices and vacations) 
constitute the far greater part of the emoluments of the judges. 
After all deductionsaremade, theneat salary paid bythecrown to 
a counsellor or judgein the parliament of Thoulouse, in rankand 
dignity the second parliament of the kingdom, amounts only to 
150 livres, about £6:lls sterling a-year. About seven years ago, 
that sum was in the same place the ordinary yearly wages of a 
common footman. The distribution of these epices, too, is ac- 
cording to the diligence of the judges. A diligent judge gains a 
comfortable, though moderate revenue, by his office; an idle one 
gets little more than his salary. Those parliaments are, perhaps, in 
many respects, not very convenient courts of justice; buttheyhave 
never been accused; they seem never even to have been suspected 
of corruption. 
The fees of court seem originally to have been the principal 



587 



The Wealth of Nations 



support of the different courts of justice in England. Each court 
endeavoured to draw to itself as much business as it could, and 
was, upon that account, willing to take cognizance of many suits 
which were not originally intended to fall under itsjurisdiction. 
Thecourt of king's bench, instituted for thetrial of criminal causes 
only, took cognizance of civil suits; the plaintiff pretending that 
the defendant, in not doing him justice, had been guilty of some 
trespass or misdemeanour. Thecourt of exchequer, instituted for 
the levying of the king's revenue, and for enforcing the payment 
of such debts only as were dueto the king, took cognizance of all 
other contract debts; the planitiff alleging that he could not pay 
the king, because the defendant would not pay him. In conse- 
quence of such fictions, it came, in many cases, to depend alto- 
gether upon the parties, before what court they would choose to 
have their cause tried, and each court endeavoured, by superior 
dispatch and impartiality, to draw to itself as many causes as it 
could. Thepresentadmirableconstitution of thecourtsof justice 
in England was, perhaps, originally, in agreat measure, formed by 
this emulation, which anciently took place between their respec- 
tivejudges: each judgeendeavouring to give, in hisown court, the 
speediest and most effectual remedy which the law would admit, 
for every sort of injustice. riginally, thecourtsof law gavedam- 
ages only for breach of contract. The court of chancery, as a court 



of conscience, first took upon it to enforce the specific perfor- 
mance of agreements. W hen the breach of contract consisted in 
the non-payment of money, the damage sustained could Decom- 
pensated in no other way than by ordering payment, which was 
equivalent to a specific performance of the agreement. In such 
cases, therefore, the remedy of thecourtsof law was sufficient. It 
was not so in others. When the tenant sued his lord for having 
unjustly outed him of his lease, the damages which he recovered 
were by no means equivalent to the possession of the land. Such 
causes, therefore, for sometime, went all to thecourt of chancery, 
to theno small loss of the courts of law. It was to draw back such 
causes to themselves, that the courts of law are said to have in- 
vented the artificial and fictitious writ of ejectment, the most ef- 
fectual remedy for an unjust outer or dispossession of land. 

A stamp-duty upon thelaw proceedings of each particular court, 
to be levied by that court, and applied towards the maintenance 
of thejudges, and other officers belonging to it, might in thesame 
manner, afford a revenue sufficient for defraying the expense of 
the administration of justice, without bringing any burden upon 
the general revenue of the society. Thejudges, indeed, might in 
this case, be under the temptation of multiplying unnecessarily 
the proceedings upon every cause, in order to increase, asmuch as 
possible, the produce of such a stamp-duty. It has been the cus- 



588 



Adam Smith 



torn in modern Europeto regulate, upon most occasions, thepay- 
ment of theattorneys and clerks of court according to thenumber 
of pages which they had occasion to write; the court, however, 
requiring that each page should contain so many lines, and each 
lineso many words. In order to increase their payment, theattor- 
neys and clerks have contrived to multiply words beyond all ne- 
cessity, to the corruption of the law language of, I believe, every 
court of justice in Europe. A like temptation might, perhaps, oc- 
casi on a I i ke corru pti on i n th e f orm of I aw p roceed i n gs. 

But whether the administration of justice be so contrived as to 
defray its own expense, or whether the judges be maintained by 
fixed salaries paid to them from someother fund, it does not seen 
necessary that the person or persons entrusted with the executive 
power should be charged with the management of that fund, or 
with the payment of those salaries. That fund might arise from 
the rent of landed estates, the management of each estate being 
entrusted to the particular court which was to be maintained by 
it. T hat fund might arise even from the interest of a sum of money, 
thelendingout of which might, in thesamemanner, be entrusted 
to the court which was to be maintained by it. A part, though 
indeed but a small part of the salary of the judges of the court of 
session in Scotland, arises from the interest of a sum of money. 
Thenecessary instability of such a fund seems, however, to render 



it an improper one for the maintenance of an institution which 
ought to last for ever. 

The separation of thejudicial from the executive power, seems 
originally to have arisen from the increasing business of the soci- 
ety, in consequence of its increasing improvement. The adminis- 
tration of justice becameso laborious and so complicated a duty, 
as to require theundivided attention of theperson to whom it was 
entrusted. The person entrusted with the executive power, not 
having lei sure to attend to thedecision of private causeshimself, a 
deputy was appointed to decidethem in hisstead. Intheprogress 
of the Roman greatness, the consul was too much occupied with 
thepolitical affairs of the state, to attend to the administration of 
justice. A praetor, therefore, was appointed to administer it in his 
stead. In the progress of the European monarchies, which were 
founded upontheruinsoftheRoman empire, the sovereign sand 
thegreat lords came universally to consider the administration of 
justice as an officeboth too laboriousand too ignoblefor them to 
executein theirown persons. They universally, therefore, discharged 
themselves of it, by appointing a deputy, bailiff or judge. 

When thejudicial is united to the executive power, it is scarce 
possible that justice should notfrequently besacrificed to what is 
vulgarly called politics. The persons entrusted with thegreat in- 
terests of the state may even without any corrupt views, some- 



589 



The Wealth of Nations 



times imagine it necessary to sacrifice to those interests the rights 
of a private man. But upon theimpartial administration of justice 
depends the liberty of every individual, thesense which hehasof 
his own security. In order to make every individual feel himself 
perfectly secure in the possession of every right which belongs to 
him, it is not only necessary that thejudicial should be separated 
from the executive power, but that it should be rendered as much 
as possible independent of that power. The judge should not be 
liable to be removed from his office according to the caprice of 
that power. T he regular payment of his salary should not depend 
upon thegood will, or even upon thegood economy of that power. 



PART III 

f the Expense of public Works and public Institutions 

The third and last duty of the sovereign or commonwealth, is 
that of erecting and maintaining those public institutionsand those 
public works, which though they may be in the highest degree ad- 
van tageousto a great society, are, however, of such a nature, that the 
profit could never repay the expense to any individual, or small 
number of individuals; and which it, therefore, cannot be expected 
that any individual, or small number of individuals, should erect or 
maintain. Theperformanceofthisduty requires, too, verydifferent 
degrees of expense i n the different periods of society. 

After the public institutionsand public works necessary for the 
defence of the society, and for the administration of justice, both 
of which have already been mentioned, theother works and insti- 
tutionsofthiskind are chiefly for facilitating thecommerceof the 
society, and those for promoting the instruction of the people. 
The institutions for instruction are of two kinds: those for the 
education of theyouth, and those for the instruction of peopleof 
all ages.Theconsideration of the manner in which theexpenseof 
those different sortsof public works and institutionsmay bemost 
properly defrayed will dividethisthird part of the present chapter 



590 



Adam Smith 



into three different articles. 

ARTICLE I. - Of the public Works and Institutions for fa- 
cilitating the Commerce of the Society. 

And, first, of those which are necessary for facilitating Com- 
merce in general. 

That the erection and maintenance of the public works which 
facilitate thecommerceof any country, such asgood roads, bridges, 
navigable canals, harbours, etc. must require very different de- 
greesof expensein thedifferent periodsof society, isevident with- 
out any proof. T heexpenseof making and maintaining the public 
roadsof any country must evidently increase with theannual pro- 
duce of the land and labour of that country, or with the quantity 
and weight of the goods which it becomes necessary to fetch and 
carry upon those roads. The strength of abridgemust be suited to 
the number and weight of the carriages which are likdy to pass 
over it. The depth and the supply of water for a navigable canal 
must be proportioned to the number and tonnage of the lighters 
which arelikdy to carry goodsupon it; the extent of a harbour, to 
the number of the shipping which are I i kely to take shelter i n it. 

1 1 does not seem necessary th at theexpenseofthosepublic works 
should be defrayed from that public revenue, as it is commonly 
called, of which the collection and application are in most coun- 



tries, assigned to the executive power. The greater part of such 
public works may easily be so managed, as to afford a particular 
revenue, sufficient for defraying thar own expense without bring- 
ing any burden upon the general revenue of the society. 

A highway, a bridge, a navigable canal, for example, may, in 
most cases, be both madeadd maintained byasmall toll upon the 
carriages which makeuseof them; a harbour, by a moderate port- 
duty upon thetonnageoftheshipping which load or unload in it. 
Thecoinage, another institution for facilitating commerce, in many 
countries, not only defrays its own expense, but affords a small 
revenue or a sagnorageto the soveragn. The post-office, another 
institution for thesame purpose, over and above defraying its own 
expense, affords, in almost all countries, a very considerable rev- 
enue to the soveragn. 

When the carriages which pass over a highway or a bridge, and 
thelighters which sail upon a navigable canal, pay toll in propor- 
tion to thar waght or thar tonnage, they pay for the mainte- 
nanceofthosepublic works exactly in proportion to the wear and 
tear which they occasion of them. It seems scarce possible to in- 
vent a more equitable way of maintaining such works. T his tax or 
toll, too, though itisadvanced bythecarrier, isfinally paid by the 
consumer, to whom it must always be charged in the price of the 
goods. As the expense of carriage, however, is very much reduced 



591 



The Wealth of Nations 



by means of such public works, the goods, notwithstanding the 
toll, come cheaper to the consumer than they could otherwise 
have done, their price not being so much raised by the toll, as it is 
lowered by the cheapness of the carriage. The person who finally 
pays this tax, therefore, gains by the application more than he 
loses by the payment of it. His payment isexactly in proportion to 
hisgain. Itis, in reality, no more than a part of that gain which he 
is obliged to give up, in order to get the rest. It seems impossible 
to imagine a more equitable method of raising a tax. 

When the toll upon carriages of luxury, upon coaches, post- 
chaises, etc. ismadesomewhat higher in proportion to theirweight, 
than upon carriages of necessary use, such as carts, waggons, etc. 
the indolence and vanity of the rich is made to contribute, in a 
very easy manner, to the relief of the poor, by rendering cheaper 
the transportation of heavy goods to all the different parts of the 
country. 

When high-roads, bridges, canals, etc. are in this manner made 
and supported by the commerce which is carried on by means of 
them, they can bemadeonly where that commerce requires them, 
and, consequently, where it is proper to make them. Their ex- 
pense, too, their grandeur and magnificence, must be suited to 
what that commerce can afford to pay. T hey must be made, con- 
sequently, as it is proper to make them. A magnificent high-road 



cannot be made through a desert country, where there is little or 
no commerce, or merely because it happens to lead to the country 
villa of the intendant of the province, or to that of some great 
lord, to whom theintendantfindsitconvenienttomakehiscourt. 
A great bridge cannot be thrown over a river at a place where 
nobody passes, or merely to embellish theview from the windows 
of a neighbouring pal ace; things which sometimes happen in coun- 
tries, where works of this kin dare carried on by any other revenue 
than that which they themselves are capable of affording. 

I n several different parts of Europe, thetoll or lock-duty upon a 
canal is the property of private persons, whose private interest 
obliges them to keep up the canal. If it is not kept in tolerable 
order, thenavigation necessarily ceases altogether, and, along with 
it, the whole profit which they can make by the tolls If those tolls 
wereput under themanagement of commissioners, who had them- 
selves no interest in them, they might beless attentive to themain- 
tenance of the works which produced them. The canal of 
Languedoc cost the king of France and the province upwards of 
thirteen millionsof livres, which (at twenty-eight livres the mark 
of silver, the value of French money in the end of the last century) 
amounted to upwardsof ninehundred thousand poundssterling. 
When that great work was finished, the most likely method, it 
was found, of keeping it in constant repair, was to make a present 



592 



Adam Smith 



of the tolls to Riquet, the engineer who planned and conducted 
the work. T hose tolls constitute, at present, a very large estate to 
the different branches of the family of that gentleman, who have, 
therefore, a great interest to keep the work in constant repair. But 
had those tolls been put under the management of commission- 
ers, who had no such interest, they might perhaps, have been dis- 
sipated in ornamental and unnecessary expenses, while the most 
essential parts of the works were allowed to go to ruin. 

T he tolls for the maintenance of a highroad cannot, with any 
safety, be madethe property of privatepersons. A high-road, though 
entirely neglected, does not become altogether impassable, though 
a canal does. T he proprietors of the tolls upon a high-road, there 
fore, might neglect altogether the repair of the road, and yet con- 
tinueto levy very nearly the sametolls. It is proper, therefore, that 
thetollsfor the maintenance of such a work should beput under 
the management of commissioners or trustees. 

In Great Britain, the abuses which the trustees have committed 
in the management of those tolls, have, in many cases, been very 
justly complained of. At many turnpikes, it has been said, the 
money levied ismorethan doubleof what is necessary for execut- 
ing, in the completest manner, the work, which is often executed 
in a very slovenly manner, and sometimes not executed at all. The 
system of repairing the high-roads by tolls of this kind, it must be 



observed, is not of very long standing. We should not wonder, 
therefore, if it has not yet been brought to that degree of perfec- 
tion of which it seems capable. If mean and improper persons are 
frequently appointed trustees; and if proper courts of inspection 
and account have not yet been established for controlling their 
conduct, and for reducing thetollsto what is barely sufficient for 
executing the work to be done by them; the recency of the institu- 
tion both accounts and apologizes for those defects, of which, by 
the wisdom of parliament, the greater part may, in due time, be 
gradually remedied. 

The money levied at the different turnpikes in Great Britain, is 
supposed to exceed so much what is necessary for repairing the 
roads, that the savings which, with proper economy, might be 
madefrom it, have been considered, even by some ministers, asa 
very great resource, which might, at some time or another, be 
applied to the exigencies of the state. Government, it has been 
said, by takingthemanagement of theturnpikesintoitsown hands, 
and by employing the soldiers, who would work for a very small 
addition to their pay, could keep the roads in good order, at a 
much less expense than it can be done by trustees, who have no 
other workmen to employ, but such as derive their whole subsis- 
tence from their wages. A great revenue, half a million, perhaps 
{Since publishing the two first editions of this book, I have got 



593 



The Wealth of Nations 



good reasons to believe that all the turnpike tolls levied in Great 
Britain do not producea neat revenuethat amounts to half a mil- 
lion; a sum which, under the management of government, would 
not besufficientto keep, in repairfiveof theprincipal roadsin the 
kingdom}, it has been pretended, might in thismanner be gained, 
without laying any new burden upon the people; and the turn- 
pikeroads might bemade to contribute to thegeneral expenseof 
the state, in the same manner as the post-office does at present. 

That a considerable revenue might be gained in thismanner, I 
have no doubt, though probably not near so much as the projec- 
tors of this plan have supposed. The plan itself, however, seems 
liable to several very important objections. 

First, If thetollswhich arelevied attheturnpikesshould ever be 
considered as one of the resources for supplying the exigencies of 
the state, they would certainly be augmented as those exigencies 
were supposed to require. According to the policy of Great Brit- 
ain, therefore, they would probably he augmented very fast. The 
facility with which a great revenue could be drawn from them, 
would probably encourage administration to recur very frequently 
te this resource. Though it may, perhaps, be more than doubtful 
whether half a million could by any economy be saved out of the 
present tolls, it can scarcely be doubted, but that a million might 
be saved out of them, if they were doubled; and perhaps two mil- 



lions, if they were tripled {I have now good reason to believe that 
all these conjectural sums are by much too large.}. This great rev- 
enue, too, might be levied without the appointment of a single new 
officer to collect and receive it. But the turnpike tolls, being con- 
tinually augmented in thismanner, instead of faci I itati ng the i n land 
commerce of the country, as at present, would soon become a very 
great incumbrance upon it. The expense of transporting all heavy 
goods from one part of the country to another, would soon be so 
much increased, themarketfor all such goods, consequently, would 
soon be so much narrowed, that their production would be in a 
great measurediscouraged, and themost important branches of the 
domestic industry of the country annihilated altogether. 

Secondly, A tax upon carriages, in proportion to their weight, 
though a very equal tax when applied to the sole purpose of re- 
pai ring the roads, isa very unequal onewhen applied to any other 
purpose, or to supply the common exigencies of the state. W hen 
it is applied to the sole purpose above mentioned, each carriage is 
supposed to pay exactly for the wear and tear which that carriage 
occasions of the roads. But when it is applied to any other pur- 
pose, each carriage is sup posed to pay for more than that wear and 
tear, and contributes to the supply of some other exigency of the 
state. Butastheturnpiketoll raises the price of goods in propor- 
tion to their weight and not to their value, it ischiefly paid by the 



594 



Adam Smith 



consumers of coarse and bulky, not by those of precious and light 
commodities. W hatever exigency of the state, therefore, this tax 
might be intended to supply, that exigency would be chiefly sup- 
plied at the expense of the poor, not of the rich; at the expense of 
those who are least able to supply it, not of those who are most 
able. 

Thirdly, If government should at any time neglect the repara- 
tion of the high-roads, it would be still more difficult, than itisat 
present, to compel the proper application of any part of theturn- 
pike tolls. A large revenue might thus be levied upon the people, 
without any part of it being applied to the only purpose to which 
a revenue levied in this manner ought ever to be applied. If the 
meanness and poverty of the trustees of turnpike roads render it 
sometimesdiffi cult, at present, to oblige them to repair their wrong; 
their wealth and greatness would render it ten times more so in 
the case which is here supposed. 

In France, the funds destined for the reparation of the high- 
roads are under the immediate direction of the executive power. 
Those funds consist, partly in a certain number of days labour, 
which the country people are in most parts of Europe obliged to 
give to the reparation of the highways; and partly in such a por- 
tion of thegeneral revenueof thestate as theking chooses to spare 
from his other expenses. 



By the ancient law of France, as well as by that of most other 
parts of Europe, the labour of the country people was under the 
direction of a local or provincial magistracy, which had no imme- 
diate dependency upon the king's council. But, by the present 
practice, both thelabourof thecountry people, and whatever other 
fund the king may choose to assign for thereparation of thehigh- 
roads in any particular province or generality, are entirely under 
the management of the intendant; an officer who is appointed 
and removed by theking's council who receives hisorders from it, 
and is in constant correspondence with it. In the progress of des- 
potism, the authority of the executive power gradually absorbs 
that of every other power in the state, and assumes to itself the 
management of every branch of revenue which isdestined for any 
public purpose. I n France, however, thegreat post-roads, theroads 
which make the communication between the principal towns of 
the kingdom, are in general kept in good order; and, in some 
provinces, are even a good deal superior to the greater part of the 
turnpike roads of England. But what we call the cross roads, that 
is, the far greater part of the roads in the country, are entirely 
neglected, and are in many places absolutely impassable for any 
heavy carriage. In some places it is even dangerous to travel on 
horseback, and mules are theonly conveyance which can safely be 
trusted. The proud minister of an ostentatious court, may fre- 



595 



The Wealth of Nations 



quently take pleasure in executing a work of splendour and mag- 
nificence, such as a great highway, which is frequently seen by the 
principal nobility, whose applauses not only flatter his vanity, but 
even contribute to support his interest at court. But to execute a 
great number of little works, in which nothing that can be done 
can make any great appearance, or excite the smallest degree of 
admiration in any traveller, and which, in short, have nothing to 
recommend them but their extreme utility, is a business which 
appears, in every respect, too mean and paltry to merit the atten- 
tion of so great a magistrate. Under such an administration there- 
fore, such works are almost always entirely neglected. 

In China, and in several other governments of Asia, the execu- 
tive power charges itself both with the reparation of the high- 
roads, and with the maintenance of the navigable canals In the 
instructions which are given to the governor of each province, 
those objects, it is said, are constantly recommended to him, and 
the judgment which the court forms of his conduct is very much 
regulated by the attention which he appears to have paid to this 
part of hisinstructions Thisbranch of public police, accordingly, 
is said to be very much attended to in all those countries, but 
particularly in China, where the high-roads, and still more the 
navigable canals, it is pretended, exceed very much everything of 
the same kind which is known in Europe. T he accounts of those 



works, however, which have been transmitted to Europe, have gen- 
erally been drawn up by weak and wondering travellers; frequently 
by stupid and lying missionaries. If they had been examined by 
more intelligent eyes, and if the accounts of them had been re- 
ported by more faithful witnesses, they would not, perhaps, ap- 
pear to be so wonderful. Theaccount which Bernier gives of some 
works of this kind in Indostan, falls very short of what had been 
reported of them by other travellers, moredisposed tothemarvel- 
lousthan he was. It may too, perhaps, be in those countries, as it 
is in France, where the great roads, the great communications, 
which arelikelyto be thesubjectsof conversation at thecourt and 
in thecapital, are attended to, and all therest neglected. In C hina, 
besides, in Indostan, and in several other governments of Asia, the 
revenue of the sovereign arises almost altogether from a land tax 
or land rent, which rises or falls with theriseand fall of theannual 
produceof the land. Thegreat interest of the sovereign, therefore, 
his revenue, is in such countries necessarily and immediately con- 
nected with the cultivation of the land, with the greatness of its 
produce, and with the value of its produce. But in order to render 
that produce both as great and as valuable as possible, it is neces- 
sary to procure to it as extensive a market as possible, and conse- 
quently to establish thefreest, theeasiest, and the least expensive 
communication between all the different parts of the country; 



596 



Adam Smith 



which can be done only by means of the best roads and the best 
navigable canals. But the revenue of thesovereign doesnot, in any 
part of Europe, arise chiefly from a land tax or land rent. I n all the 
great kingdoms of Europe, perhaps, the greater part of it may 
ultimately depend upon the produce of the land: but that depen- 
dency is neither so immediate nor so evident. In Europe, there- 
fore, thesovereign does not fed himself so directly called upon to 
promote the increase, both in quantity and value of the produce 
of theland, or, by maintaining good roadsand canals, to provide 
the most extensive market for that produce. T hough it should be 
true, therefore, what I apprehend is not a little doubtful, that in 
some parts of Asia this department of the public police is very 
properly managed by the executive power, there is not the least 
probability that, during the present state of things, it could be 
tolerably managed by that power in any part of Europe. 

Even those public works, which are of such a nature that they 
cannot afford any revenueformaintainingthem selves, but of which 
the conveniency is nearly confined to some particular place or 
district, are always better maintained by a local or provincial rev- 
enue, under the management of a local and provincial administra- 
tion, than by the general revenue of the state, of which the execu- 
tive power must alwayshave the management. Were thestreets of 
London to be lighted and paved at the expense of the treasury, is 



there any probability that they would be so well lighted and paved 
as they are at present, or even at so small an expense?T he expense, 
besides, instead of being raised by a local tax upon the inhabitants 
of each particular street, parish, or district in London, would, in 
this case, be defrayed out of the general revenue of the state, and 
would consequently be raised byataxupon all theinhabitantsof 
the kingdom, of whom the greater part derive no sort of benefit 
from the lighting and paving of the streets of London. 

Theabuses which sometimes creep intothelocal and provincial 
administration of a local and provincial revenue, how enormous 
soever they may appear, arein reality, however, almost always very 
trifling in comparison of those which commonly take place in the 
administration and expenditure of the revenue of a great empire. 
They are, besides, much more easily corrected. Under the local or 
provincial administration of thejustices of thepeacein Great Brit- 
ain, the six days labour which the country people are obliged to 
give to the reparation of the highways, isnot always, perhaps, very 
judiciously applied, but it is scarce ever exacted with any circum- 
stance of cruelty or oppression. In France, under the administra- 
tion of the intendants, the application is not always more judi- 
cious, and the exaction is frequently the most cruel and oppres- 
sive. Such corvees, as they are called, make one of the principal 
instruments of tyranny by which those officers chastise any parish 



597 



The Wealth of Nations 



or communeaute, which hashadthemisfortuneto fall under their 
displeasure. 

Of the public Works and Institution which are necessary for 
facilitating particular Branches of Commerce. 

T heobject of the public works and institutions above mentioned, 
isto facilitate commercein general. Butin order to facilitate some 
particular branchesof it, particular institutionsarenecessary, which 
again require a particular and extraordinary expense. 

Some particular branches of commerce which are carried on 
with barbarousand uncivilized nations, require extraordinary pro- 
tection. An ordinary store or counting-house could give little se- 
curity to the goods of the merchants who trade to the western 
coast of Africa. To defend them from the barbarous natives, it is 
necessary that the place where they are deposited should be in 
some measure fortified. The disorders in the government of 
Indostan have been supposed to render a like precaution neces- 
sary, even among that mild and gentle people; and it was under 
pretence of securing their persons and property from violence, 
that both the English and French East India companies were al- 
lowed to erect thefirst forts which they possessed in that country. 
Among other nations, whose vigorous government will suffer no 



strangers to possess any fortified place within their territory, it 
may be necessary to maintain some ambassador, minister, or con- 
sul, who may both decide, according to their own customs, the 
differences arising among his own countrymen, and, in their dis- 
putes with the natives, may by means of his public character, in- 
terfere with moreauthorityand afford them a more powerful pro- 
tection than they could expect from any private man. T he inter- 
ests of commerce have frequently made it necessary to maintain 
ministersin foreign countries, where thepurposes either of war or 
alliance would not have required any. T he commerce of theTur- 
key company first occasioned the establishment of an ordinary 
ambassador at Constantinople. The first English embassies to 
Russia arose altogether from commercial interests. The constant 
interference with those interests, necessarily occasioned between 
the subjects of the different states of Europe, has probably intro- 
duced the custom of keeping, in all neighbouring countries, am- 
bassadorsor ministersconstantly resident, even in thetimeof peace. 
This custom, unknown to ancient times, seems not to be older 
than the end of the fifteenth, or beginning of the sixteenth cen- 
tury; that is, than thetimewhen commerce first began to extend 
itself to the greater part of the nations of Europe, and when they 
first began to attend to its interests. 
It seems not unreasonable, that the extraordinary expensewhich 



598 



Adam Smith 



the protection of any particular branch of commerce may occa- 
sion, should be defrayed by a moderate tax upon that particular 
branch; by a moderate fine, for example, to be paid bythetraders 
when they first enter into it; or, what ismore equal, by a particular 
duty of so much per cent, upon the goods which they either im- 
port into, or export out of, the particular countries with which it 
iscarried on. The protection of trade, in general, from pirates and 
freebooters, issaid to have given occasion to thefirst institution of 
the duties of customs. But, if it was thought reasonable to lay a 
general tax upon trade, in order to defray the expense of protect- 
ing trade in general, it should seem equally reasonable to lay a 
particular tax upon a particular branch of trade, in order to defray 
the extraordinary expense of protecting that branch. 

The protection of trade, in general, has always been considered 
as essential to the defence of the commonwealth, and, upon that 
account, a necessary part of the duty of the executive power. T he 
collection and application ofthegeneral dutiesof customs, there 
fore, have always been left to that power. But the protection of 
any particular branch of trade is a part of the general protection of 
trade; a part, therefore, of the duty of that power; and if nations 
always acted consistently, the particular duties levied for the pur- 
poses of such particular protection, should always have been left 
equally to itsdisposal. But in thisrespect, as well asin many oth- 



ers, nations have not always acted consistently; and in the greater 
part of the commercial states of Europe, particular companies of 
merchants have had the address to persuade the legislature to en- 
trust to them the performance of this part of the duty of the sov- 
ereign, together with all the powers which are necessarily con- 
nected with it. 

These companies, though they may, perhaps, have been useful 
for thefirst introduction of some branches of commerce, by mak- 
ing, at their own expense, an experiment which the state might 
not think it prudent to make, have in the long-run proved, uni- 
versally, either burdensome or useless, and have either misman- 
aged or confined the trade. 

When those companies do not trade upon a joint stock, but are 
obliged to admit any person, properly qualified, upon paying a 
certain fine, and agreeingto submit to theregulationsofthecom- 
pany, each member trading upon his own stock, and at his own 
risk, they are called regulated companies. W hen they tradeupon a 
joint stock, each member sharing in the common profit or loss, in 
proportion to his share in this stock, they are called joint-stock 
companies. Such companies, whether regulated or joint-stock, 
sometimes have, and sometimes have not, exclusive privileges. 

Regulated companies resemble, in every respect, the corpora- 
tion of trades, so common in the cities and towns of all thediffer- 



599 



The Wealth of Nations 



ent countries of Europe; and area sort of enlarged monopoliesof 
the same kind. As no inhabitant of a town can exercise an incor- 
porated trade, without first obtaining hisfreedom in theincorpo- 
ration, so, in most cases, no subject of the state can lawfully carry 
on any branch of foreign trade, for which a regulated company is 
established, without first becoming a member of that company. 
The monopoly is more or less strict, according as the terms of 
admission aremore or lessdiffi cult, and according as thedirectors 
of thecompany havemoreor less authority, or haveit more or less 
in their power to man agein such a manner as to confinethegreater 
part of the trade to themselves and their particular friends. In the 
most ancient regulated companies, the privileges of apprentice- 
ship were the same as in other corporations, and entitled the per- 
son who had served his time to a member of the company, to 
becomehimself a member, either without paying any fine, or upon 
paying a much smaller onethan what was exacted of other people. 
Theusual corporation spirit, wherever the law does not restrain it, 
prevails in all regulated companies. When they have been allowed 
to act according to their natural genius, they have always, in order 
to confine the competition to as small a number of persons as 
possible, endeavoured to subject the trade to many burdensome 
regulations. When the law has restrained them from doing this, 
they have become altogether useless and insignificant. 



T heregulated companiesfor foreign commerce which at present 
subsist in G reat Britain, aretheanci ent merchant-adventurerscom- 
pany, now commonly called the H amburgh company, the Russia 
company, the Eastland company, the Turkey company, and the 
African company. 

The terms of admission into the Hamburgh company are now 
said to be quite easy; and the directors either haveit not in their 
power to subject the trade to any troublesome restraint or regula- 
tions, or, at least, have not of late exercised that power. It has not 
always been so. About the middle of the last century, the fine for 
admission was fifty, and atonetimeonehundred pounds, and the 
conduct of the company was said to be extremely oppressive. In 
1643, in 1645, and in 1661, the clothiers and free traders of the 
west of England complained of them to parliament, as of mo- 
nopolists, who confined the trade, and oppressed the manufac- 
turesofthecountry.Though those complaintsproducednoact of 
parliament, they had probably intimidated thecompany so far, as 
to oblige them to reform their conduct. Since that time, at least, 
there have been no complaints against them. By the 10th and 
11th of W illiam III. c.6, the fine for admission into the Russia 
company was reduced to five pounds; and by the 25th of C harles 
II. c.7, that for admission into the Eastland company to forty 
shillings; while, at the same time, Sweden, Denmark, and Nor- 



600 



Adam Smith 



way, all the countries on the north side of the Baltic, were ex- 
empted from their exclusive charter. The conduct of those com- 
panies had probably given occasion to those two acts of parlia- 
ment. Before that time, Sir Josiah Child had represented both 
these and the H amburgh company as extremely oppressive, and 
imputed to their bad management thelowstateofthetrade, which 
we at that time carried on to the countries comprehended within 
their respective charters. But though such companies may not, in 
the present times, be very oppressive, they are certainly altogether 
useless. To be merely useless, indeed, is perhaps, the highest eu- 
logy which can ever justly be bestowed upon a regulated com- 
pany; and all thethree companies above mentioned seem, in their 
present state, to deserve this eulogy. 

T he fine for admission into theTurkey company was formerly 
twenty-five pounds for all persons under twenty-six years of age, 
and fifty poundsfor all persons above that age. N obody but mere 
merchantscould be admitted; a restriction which excluded all shop- 
keepers and retailers. Byabye-law, no British manufactures could 
be exported to Turkey but in the general ships of the company; 
and as those ships sailed always from the port of London, this 
restriction confined thetradeto that expensive port, and thetrad- 
ersto those who lived in London and in its neighbourhood. By 
another bye- 1 aw, no person living within twenty milesof London, 



and not free of the city, could be admitted a member; another 
restriction which, joined to theforegoing, necessarily excluded all 
but the freemen of London. As the time for the loading and sail- 
ing of those general shipsdep ended altogether upon thedirectors, 
they could easily fill them with their own goods, and those of 
their particular friends, to theexdusion of others, who, they might 
pretend, had made their proposals too late. In thisstateof things, 
therefore, this company was, in every respect, a strict and oppres- 
sive monopoly. T hose abuses gave occasion to the act of the 26th 
of George II. c. 18, reducing the fine for admission to twenty 
pounds for all persons, without any distinction of ages, or any 
restriction, either to mere merchants, or to the freemen of Lon- 
don; and granting to all such persons the liberty of exporting, 
from all the ports of Great Britain, to any port in Turkey, all Brit- 
ish goods, of which the exportation wasnot prohibited, upon pay- 
ing both the general duties of customs, and the particular duties 
assessed for defrayi ng the necessary expenses of the company; and 
submitting, at thesametime, to thelawful authority of theBritish 
ambassador and consuls resident in Turkey, and to thebye-lawsof 
the company duly enacted. To prevent any oppression by those 
bye-laws, it was by the same act ordained, that if any seven mem- 
bers of the company conceived themselves aggrieved by any bye- 
law which should be enacted after the passing of this act, they 



601 



The Wealth of Nations 



might appeal to the board of trade and plantations (to the author- 
ity of which acommitteeoftheprivy council has now succeeded), 
provided such appeal was brought within twelve months after the 
bye-law was enacted; and that, if any seven members conceived 
themselves aggrieved by any bye-law which had been enacted be- 
fore the passing of this act, they might bring a like appeal, pro- 
vided it was within twelve monthsafter the day on which thisact 
was to take place. T he experience of one year, however, may not 
always be sufficient to discover to all the members of a great com- 
pany the pernicious tendency of a particular bye-law; and if sev- 
eral of them should afterwards discover it, neither the board of 
trade, nor the committee of council, can afford them any redress. 
The object, besides, of the greater part of the bye-laws of all regu- 
lated companies, as well as of all other corporations, is not so much 
to oppress those who are already members, as to discourage others 
from becoming so; which may be done, not only by a high fine, 
but by many other contrivances. T he constant view of such com- 
panies is always to raise therateof their own profit as high as they 
can; to keep the market, both for the goods which they export, 
and for those which they import, as much understocked as they 
can; which can bedoneonly by restraining thecompetition, or by 
discouraging new ad venturersfrom entering into thetrade. A fine, 
even of twenty pounds, besides, though it may not, perhaps, be 



sufficient to discourage any man from entering into theTurkey 
trade, with an intention to continue in it, may be enough to dis- 
couragea speculative merchant from hazarding a singleadventu re 
in it. In all trades, the regular established traders, even though not 
incorporated, naturally combineto raiseprofits, which arenoway 
so likely to be kept, at all times, down to their proper level, as by 
the occasional competition of speculative adventurers. The Tur- 
key trade, though in some measure laid open by thisact of parlia- 
ment, is still considered by many people as very far from being 
altogether free. TheTurkey company contribute to maintain an 
ambassador and two or threeconsuls, who, likeother public min- 
isters, ought to be maintained altogether by the state, and the 
trade laid open to all his majesty's subjects. The different taxes 
levied by the company, for this and other corporation purposes, 
might afford a revenue much more than sufficient to enable a 
state to maintain such ministers. 

Regulated companies, it wasobserved by Sir Josi ah Child, though 
they had frequently supported public ministers, had never main- 
tained anyfortsor garrisonsin thecountriesto which they traded; 
whereasjoint-stock companies frequently had. And, in reality, the 
former seem to be much more unfit for this sort of service than 
thelatter. First, the directors of a regulated companyhaveno par- 
ticular interest in the prosperity of the general trade of the com- 



602 



Adam Smith 



pany, for the sake of which such forts and garrisons are main- 
tained. T he decay of that general trade may even frequently con- 
tribute to the advantage of their own private trade; as, by dimin- 
ishing the number of their competitors, it may enable them both 
to buy cheaper, and to sell dearer. The directors of a joint-stock 
company, on the contrary, having only their share in the profits 
which are made upon the common stock committed to their man- 
agement, haveno private tradeof their own, of which the interest 
can be separated from that of the general trade of the company. 
T heir private interest is connected with the prosperity of the gen- 
eral tradeof the company, and with the maintenance of the forts 
and garrisons which are necessary for its defence. T hey are more 
likely, therefore, to have that continual and careful attention which 
that maintenance necessarily requires. Secondly, The directors of 
a joint-stock company have always the management of a large 
capital, thejoint stock of the company, a part of which they may 
frequently employ, with propriety, in building, repairing, and 
maintaining such necessary forts and garrisons. But the directors 
of a regulated company, having the management of no common 
capital, have no other fund to employ in this way, but the casual 
revenue arising from the admission fines, and from the corpora- 
tion duties imposed upon thetrade of the company. Though they 
had the same interest, therefore, to attend to the maintenance of 



such forts and garrisons, they can seldom havethesameability to 
render that attention effectual. T he maintenance of a public min- 
ister, requiring scarce any attention, and but a moderate and lim- 
ited expense, isa business much more suitable both to thetemper 
and abilities of a regulated company. 

Long after the time of Sir J osiah Child, however, in 1750, a 
regulated company was established, the present company of mer- 
chants trading to Africa; which was expressly charged at first with 
the maintenance of all the British forts and garrisons that lie be- 
tween Cape Blanc and the Cape of Good H ope, and afterwards 
with that of those only which lie between Cape Rouge and the 
Capeof Good H ope. Theact which establishes thiscompany (the 
23rd of George 1 1, c.51 ), seems to have had two distinct objects 
in view; first, to restrain effectually theoppressive and monopoliz- 
ing spirit which isnatural to thedirectors of a regulated company; 
and, secondly, to force them, asmuch aspossible, to give an atten- 
tion, which is not natural to them, to wards the maintenance of 
forts and garrisons. 

For thefirst of these purposes, thefinefor admission is limited 
to forty shillings. Thecompany is prohibited from trading in their 
corporate capacity, or upon a joint stock; from borrowing money 
upon common seal, or from laying any restraints upon thetrade, 
which may be carried on freely from all places, and by all persons 



603 



The Wealth of Nations 



being British subjects, and paying thefine.Thegovernment isin 
a committee of nine persons, who meet at London, but who are 
chosen annually by thefreem en of thecompany at London, Bristol, 
and Liverpool; three from each place. N o committeeman can be 
continued in office for more than three years together. Any com- 
mittee-man might be removed by the board of trade and planta- 
tions, now by a committeeof council, after being heard in hisown 
defence. The committee are forbid to export negroes from Africa, 
or to import any African goodsinto Great Britain. But as they are 
charged with the maintenance of forts and garrisons, they may, 
for that purpose export from Great Britain to Africa goods and 
stores of different kinds. Out of the moneys which they shall re 
ceive from the company, they are allowed a sum, not exceeding 
eight hundred pounds, for the salaries of their clerks and agents at 
London, Bristol, and Liverpool, the house-rent of their offices at 
London, and all other expenses of management, commission, and 
agency, in England. What remains of this sum, after defraying 
these different expenses, they may divide among themselves, as 
compensation for their trouble, in what manner they think proper. 
By this constitution, it might have been expected, that the spirit 
of monopoly would have been effectually restrained, and thefirst 
of these purposes sufficiently answered. It would seem, however, 
that it had not. Though by the 4th of George 1 1 I.e. 20, the fort of 



Senegal, with all its dependencies, had been invested in the com- 
pany of merchants trading to Africa, yet, in theyear following (by 
the 5th of G eorge III. c.44), not only Senegal and its dependen- 
cies, but the whole coast, from the port of Sallee, in South Bar- 
bary, to Cape Rouge, was exempted from the jurisdiction of that 
company, was vested in thecrown, and thetradeto it declared free 
to all his majesty's subjects. Thecompany had been suspected of 
restraining the trade and of establishing some sort of improper 
monopoly. It is not, however, very easy to conceive how, under 
the regulations of the 23d George II. they could do so. In the 
printed debates of the house of commons, not always the most 
authentic recordsof truth, I observe, however, that they have been 
accused of this. The members of the committee of nine being all 
merchants, and the governors and factors in their different forts 
and settlements being all dependent upon them, it is not unlikely 
that thelatter might have given peculiar attention totheconsign- 
ments and commissions of the former, which would establish a 
real monopoly. 

For the second of these purposes, the maintenance of the forts 
and garrisons, an annual sum has been allotted to them by parlia- 
ment, generally about £13,000. For the proper application of this 
sum, the committee is obliged to account annually to thecursitor 
baron of exchequer; which account is afterwards to belaid before 



604 



Adam Smith 



parliament. But parliament, which gives so little attention to the 
application of millions, isnot likely to givemuch to that of £13,000 
a-year; and the cursitor baron of exchequer, from his profession 
and education, isnot likely to be profoundly skilled in the proper 
expense of forts and garrisons. The captains of his majesty's navy, 
indeed, or any other commissioned officers, appointed bytheboard 
of admiralty, may inquire into thecondition of thefortsand gar- 
risons, and report their observations to that board. But that board 
seems to haveno direct jurisdiction over the committee, nor any 
authority to correct those whose conduct it may thusinquireinto; 
and thecaptainsof his majesty'snavy, besides, arenot supposed to 
be always deeply learned in the science of fortification. Removal 
from an office, which can be enjoyed only for the term of three 
years, and of which thelawful emoluments, even during that term, 
are so very small, seems to be the utmost punishment to which 
any committee-man isliable, for any fault, except direct malversa- 
tion, or embezzlement, either of the public money, or of that of 
the company; and thefear of the punishment can never be a mo- 
tive of sufficient weight to force a continual and careful attention 
to a business to which he has no other interest to attend. The 
committee are accused of having sent out bricks and stones from 
England for the reparation of Cape Coast Castle, on the coast of 
Guinea; a business for which parliament had several times granted 



an extraordinary sum of money.These bricks and stones, too, which 
had thus been sent upon so long a voyage, were said to have been 
of so bad a quality, that it was necessary to rebuild, from thefoun- 
dation, the walls which had been repaired with them. The forts 
and garrisons which lie north of C ape Rouge, are not only main- 
tained at the expense of the state, but are under the immediate 
government of the executive power; and why those which liesouth 
of that cape, and which, too, are, in part at least, maintained at 
the expense of the state, should be under a different government, 
it seems not very easy even to imagine a good reason. T he protec- 
tion of the M editerranean trade was the original purpose or pre- 
tence of the garrisons of Gibraltar and M inorca; and the mainte- 
nance and government of those garrisons have always been, very 
properly, committed, not to the Turkey company, but to the ex- 
ecutive power. In the extent of its dominion consists, in a great 
measure, the pride and dignity of that power; and it is not very 
likely to fail in attention to what is necessary for the defence of 
that dominion. The garrisons at Gibraltar and M inorca, accord- 
ingly, have never been neglected. Though M inorca has been twice 
taken, and is now probably lost for ever, that disaster has never 
been imputed to any neglect in the executive power. I would not, 
however, be understood to insinuate, that either of those expen- 
sive garrisons was ever, even in the smallest degree, necessary for 



605 



The Wealth of Nations 



thepurposefor which they were originally dismembered from the 
Spanish monarchy. That dismemberment, perhaps, never served 
any other real purpose than to alienate from England her natural 
ally the king of Spain, and to unite thetwo principal branches of 
the house of Bourbon in a much stricter and more permanent 
alliance than the ties of blood could ever have united them. 

J oint-stock companies, established either by royal charter, or by 
act of parliament, are different in several respects, not only from 
regulated companies, but from private copartneries. 

First, in a private copartnery, no partner without the consent of 
the company, can transfer his share to another person, or intro- 
duce a new member into the company. Each member, however, 
may, upon proper warning, withdraw from the copartnery, and 
demand payment from them of hisshareof thecommon stock. In 
a joint-stock company, on the contrary, no member can demand 
payment of his share from the company; but each member can, 
without their consent, transfer his share to another person, and 
thereby introduce a new member. The value of a share in a joint 
stock isalwaysthepricewhich it will bring in themarket; and this 
may be either greater or less in any proportion, than thesum which 
its owner stands credited for in the stock of the company. 

Secondly, in a private copartnery, each partner is bound for the 
debts contracted by the company, to the whole extent of his for- 



tune. In a joint-stock company, on the contrary, each partner is 
bound only to the extent of his share. 

T hetradeof ajoint-stock company is always man aged by a court 
of directors. This court, indeed, is frequently subject, in many 
respects, to the control of a general court of proprietors. But the 
greater part of these proprietors seldom pretend to understand 
any thing of the business of the company; and when the spirit of 
faction happens not to prevail among them, give themselves no 
trouble about it, but receive contentedly such halfyearly or yearly 
dividend as the directors think proper to maketo them. Thistotal 
exemption front trouble and front risk, beyond a limited sum, 
encourages many people to become adventurers in joint-stock 
companies, who would, upon no account, hazard their fortunes 
in any private copartnery. Such companies, therefore, commonly 
draw to themselves much greater stocks, than any private 
copartnery can boast of. The trading stock of the South Sea com- 
pany at one time amounted to upwards of thirty-three millions 
eight hundred thousand pounds. T he divided capital of the Bank 
of England amounts, at present, to ten millions seven hundred 
and eighty thousand pounds The directors of such companies, 
however, being the managers rather of other people's money than 
of their own, it cannot well be expected that they should watch 
over it with thesameanxiousvigilancewith which thepartnersin 



606 



Adam Smith 



a private copartnery frequently watch over their own. Like the stew- 
ards of a rich man, they are apt to consider attention to small mat- 
ters as not for their master's honour, and very easily give themselves 
adispensation from having it. N egligenceand profusion, therefore, 
must always prevail, more or less, in the management of the affairs 
of such a company. It is upon this account, that joint-stock compa- 
nies for foreign tradehavesddom been ableto maintain thecompe- 
tition against private adventurers. T hey have, accordingly, very sel- 
dom succeeded without an exclusive privilege; and frequently have 
not succeeded with one. W ithout an exclusive privilege, they have 
commonly mismanaged thetrade. W ith an exclusive privilege, they 
have both mismanaged and confined it. 

T he Royal African company, the predecessors of the present Af- 
rican company, had an exclusive privilege by charter; but as that 
charter had not been confirmed by act of parliament, thetrade, in 
consequenceof thedeclaration of rights, was, soon after the Revo- 
lution, laid open to all his majesty's subjects. The H udson's Bay 
company are, as to their legal rights, in the same situation as the 
Royal African company. T heir exclusive charter has not been con- 
firmed by act of parliament. The South Sea company, as long as 
they continued to be a trading company, had an exclusive privi- 
lege confirmed by act of parliament; as have likewise the present 
united company of merchants trading to the East I ndies. 



The Royal African company soon found that they could not 
maintain thecompetition against private adventurers, whom, not- 
withstanding the declaration of rights, they continued for some 
time to call interlopers, and to persecute as such. In 1698, how- 
ever, the private adventurers were subjected to a duty of ten per 
cent, upon almost all the different branches of their trade, to be 
employed by the company in the maintenance of their forts and 
garrisons. But, notwithstanding thisheavy tax, thecompany were 
still unable to maintain the competition. Their stock and credit 
gradually declined. In 1712, their debts had becomeso great, that 
a particular act of parliament was thought necessary, both for their 
security and for that of their creditors. It was enacted, that the 
resolution of two-thirds of these creditors in number and value 
should bind the rust, both with regard to the time which should 
be allowed to the company for the payment of their debts, and 
with regard to any other agreement which it might bethought 
proper to make with them concerning those debts. In 1730, their 
affairs were in so great disorder, that they were altogether inca- 
pable of maintaining their forts and garrisons, the sole purpose 
and pretext of their institution. From that year till their final dis- 
solution, the parliament judged it necessary to allow the annual 
sum of £10,000 for that purpose. In 1732, after having been for 
many years losers by the trade of carrying negroes to the West 



607 



The Wealth of Nations 



I ndies, they at last resolved to give it up altogether; to sell to the 
private traders to America thenegroes which they purchased upon 
the coast; awl to employ their servants in a trade to the inland 
parts of Africa for gold dust, elephants teeth, dyeing drugs, etc. 
But their success in this more confined trade was not greater than 
in their former extensive one. Their affairs continued to go gradu- 
ally to decline, till at last, being in every respect a bankrupt com- 
pany, they were dissolved by act of parliament, and their forts and 
garrisons vested in the present regulated company of merchants 
trading to Africa. Before the erection of the Royal African com- 
pany, there had been three other joint-stock companies succes- 
sively established, one after another, for the African trade. They 
were all equally unsuccessful. They all, however, had exclusive 
charters, which, though not confirmed by act of parliament, were 
in those days supposed to convey a real exclusive privilege. 

TheH udson'sBay company, before their misfortunesin thelate 
war, had been much more fortunate than the Royal African com- 
pany. Their necessary expense is much smaller. The whole num- 
ber of people whom they maintain in their different settlements 
and habitations, which they havehonoured with thenameof forts, 
is said not to exceed a hundred and twenty persons. This number, 
however, is sufficient to prepare beforehand the cargo of furs and 
other goods necessary for loading their ships, which, on account 



of the ice, can seldom remain above six or eight weeks in those 
seas. This advantage of having a cargo ready prepared, could not, 
for several years, be acquired by private adventurers; and without 
it there seemsto beno possibility of trading to H udson's Bay. T he 
moderate capital of the company, which, it is said, does not ex- 
ceed one hundred and ten thousand pounds, may, besides, be suf- 
ficient to enable them to engross the whole, or almost the whole 
tradeand surplus produce, of themiserablethough extensive coun- 
try comprehended within their charter. No private adventurers, 
accordingly, have ever attempted to tradeto that country in com- 
petition with them.Thiscompany, therefore, have always enjoyed 
an exclusive trade, in fact, though they may have no right to it in 
law. Over and above all this, the moderate capital of thiscompany 
is said to be divided among a very small number of proprietors. 
But a joint-stock company, consisting of a small number of pro- 
prietors, with a moderate capital, approaches very nearly to the 
nature of a private copartnery, and may be capable of nearly the 
same degree of vigilance and attention. It is not to be wondered 
at, therefore, if, in consequence of these different advantages, the 
H udson's Bay company had, before the I ate war, been ableto carry 
on their trade with a considerable degree of success. It does not 
seem probable, however, that their profits ever approached to what 
thelateM rDobbs imagined them. A much more sober and judi- 



608 



Adam Smith 



cious writer, M r Anderson, author of the H istorical and Chrono- 
logical Deduction of Commerce, very justly observes, that upon 
examining the accounts which Mr Dobbs himself has given for 
several years together, of their exports and imports, and upon 
maki n g proper al I owan ces for th ei r extraord i n ary ri sk and expen se, 
it does not appear that their profits deserve to be envied, or that 
they can much, if at all, exceed the ordinary profits of trade. 

The South Sea company never had any forts or garrisons to 
maintain, and therefore were entirely exempted from one great 
expense, to which other joint-stock companies for foreign trade 
are subject; but they had an immense capital divided among an 
immense number of proprietors. It was naturally to be expected, 
therefore, that folly, negligence, and profusion, should prevail in 
the whole management of their affairs. The knavery and extrava- 
gance of their stock-jobbing projects are sufficiently known, and 
the explication of them would be foreign to the present subject. 
Their mercantile projects were not much better conducted. The 
first trade which they engaged in, was that of supplying theSpan- 
ish West Indies with negroes, of which (in consequence of what 
was called the Assiento Contract granted them by the treaty of 
Utrecht) they had the exclusive privilege. But as it was not ex- 
pected that much profit could be made by this trade, both the 
Portuguese and French companies, who had enjoyed it upon the 



same terms before them, having been ruined by it, they were al- 
lowed, as compensation, to send annually a ship of a certain bur- 
den, to trade directly to the Spanish West Indies. Of the ten voy- 
ages which this annual ship was allowed to make, they are said to 
have gained considerably by one, that of the Royal Caroline, in 
1731; and to have been losers, more or less, by almost all the rest. 
Their ill success was imputed, by their factors and agents, to the 
extortion and oppression of the Spanish government; but was, 
perhaps, principally owing to the profusion and depredations of 
those very factors and agents; some of whom are said to have ac- 
quired great fortunes, even in one year. In 1734, the company 
petitioned the king, that they might be allowed to dispose of the 
trade and tonnage of their annual ship, on account of the little 
profit which they made by it, and to accept of such equivalent as 
they could obtain from the king of Spain. 

In 1724, this company had undertaken the whale fishery. Of 
this, indeed, they had no monopoly; but as long as they carried it 
on, no other British subjects appear to have engaged in it. Of the 
eight voyages which their ships made to Greenland, they were 
gainers by one, and losers by all the rest. After their eighth and last 
voyage, when they had sold their ships, stores, and utensils, they 
found that their whole loss upon this branch, capital and interest 
included, amounted to upwards of £237,000. 



609 



The Wealth of Nations 



In 1722, this company petitioned the parliament to be allowed 
to dividetheir immense capital of more than thirty-three millions 
eight hundred thousand pounds, the whole of which had been 
lent to government, into two equal parts; theonehalf, or upwards 
of £16,900,000, to be put upon the same footing with other gov- 
ernment annuities, and not to be subject to the debts contracted, 
or losses incurred, by the directors of the company, in the pros- 
ecution of their mercantile projects; the other half to remain as 
before, a trading stock, and to be subject to thosedebtsand losses. 
T he petition was too reasonable not to be granted. I n 1733, they 
again petitioned the parliament, that three- fourths of their trad- 
ing stock might be turned into annuity stock, and only one-fourth 
remain as trading stock, or exposed to the hazards arising from 
the bad management of their directors. Both their annuity and 
trading stocks had, by this time, been reduced more than two 
millionseach, by several different payments from government; so 
that this fourth amounted only to £3,662,784:8:6. In 1748, all 
the demands of the company upon the king of Spain, in conse- 
quence of the assiento contract, were, by the treaty of Aix-la- 
Chapelle, given up for what was supposed an equivalent. An end 
wasputtotheirtradewiththeSpanish West Indies; theremainder 
of their trading stock was turned into an annuity stock; and the 
company ceased, in every respect, to be a trading company. 



It ought to be observed, that in the trade which the South Sea 
company carried on by means of their annual ship, the only trade 
by which it ever was expected that they could make any consider- 
able profit, they were not without competitors, either in the for- 
eign or in the home market. At Carthagena, Porto Bel lo, and La 
Vera Cruz, they had to encounter the competition of the Spanish 
merchants, who brought from Cadiz to those markets European 
goods, of the same kind with the outward cargo of their ship; and 
in England they had to encounter that of the English merchants, 
who imported from Cadiz goods of the Spanish West Indies, of 
thesamekind with theinward cargo. Thegoods, both of theSpan- 
ish and English merchants, indeed, were, perhaps, subject to higher 
duties. But the loss occasioned by the negligence, profusion, and 
malversation of the servants of the company, had probably been a 
tax much heavier than all those duties. That a joint-stock com- 
panyshould beableto carry on successfully any branch of foreign 
trade, when private adventurers can come into any sort of open 
and fair competition with them, seems contrary to all experience. 

The old English East India company was established in 1600, 
by a charter from Queen Elizabeth. In the first twelve voyages 
which they fitted out for India, they appear to have traded as a 
regulated company, with separate stocks, though only in the gen- 
eral ships of the company. In 1612, they united into a joint stock. 



610 



Adam Smith 



Their charter was exclusive, and, though not confirmed by act of 
parliament, was in those days supposed to convey a real exclusive 
privilege. For many years, therefore, they were not much disturbed 
by interlopers. T heir capital, which never exceeded £744,000, and 
ofwhich £50 wasa share, wasnot so exorbitant, nor their dealings 
so extensive, as to afford either a pretext for gross negligence and 
profusion, or a cover to gross malversation. Notwithstanding some 
extraordinary losses, occassioned partly by themaliceof the Dutch 
East India company, and partly by other accidents, they carried 
on for many years a successful trade. But in process of time, when 
the principles of liberty were better understood, it became every 
day more and more doubtful, how far a royal charter, not con- 
firmed by act of parliament, could convey an exclusive privilege. 
Upon this question the decisions of the courts of justice were not 
uniform, but varied with the authority of government, and the 
humours of thetimes. Interlopers multiplied upon them; and to- 
wards the end of the reign of C harles 1 1 ., through the whole of 
that of James II., and during a part of that of William III., re- 
duced them to great distress. In 1698, a proposal was made to 
parliament, of advancing two millionsto government, at eight per 
cent, provided the subscribers were erected into a new East India 
company, with exclusive privileges. The old East India company 
offered seven hundred thousand pounds, nearly the amount of 



their capital, at four per cent, upon thesameconditions. But such 
was at that time the state of public credit, that it wasmore conve- 
nient for government to borrow two millions at eight per cent, 
than seven hundred thousand poundsatfour.Theproposal of the 
new subscribers was accepted, and a new East India company es- 
tablished in consequence. The old East India company, however, 
had arightto continuetheir tradetill 1701. They had, at thesame 
time, in the name of their treasurer, subscribed very artfully three 
hundred and fifteen thousand pounds into the stock of the new. 
By a negligence in the expression of the act of parliament, which 
vested the East India trade in the subscribers to this loan of two 
millions, it did not appear evident that they were all obliged to 
uniteinto ajoint stock. A few private traders, whose subscriptions 
amounted only to seven thousand two hundred pounds, insisted 
upon the privilege of trading separately upon their own stocks, 
and at their own risks. T heold East I ndia company had a right to 
a separate trade upon their own stock till 1701; and they had 
likewise, both before and after that period, a right, like that or 
other private traders, to aseparatetradeupon thef 315,000, which 
they had subscribed into thestock of thenew company. T hecom- 
petition of the two companies with the private traders, and with 
one another, is said to have well nigh ruined both. Upon a subse- 
quent occasion, in 1750, when a proposal was made to parlia- 



611 



The Wealth of Nations 



merit for putting the trade under the management of a regulated 
company, and thereby laying it in some measure open, the East 
Indiacompany, in opposition to thisproposal, represented, in very 
strongterms, what had been, atthistime, the miserable effects, as 
they thought them, of this competition. In India, they said, it 
raised the price of goods so high, that they were not worth the 
buying; and in England, by overstocking the market, it sunk their 
price so low, that no profit could be made by them. That by a 
more plentiful supply, to the great advantage and conveniencyof 
the public, it must have reduced very much the price of India 
goods in the English market, cannot well be doubted; but that it 
should have raised very much their price in the Indian market, 
seems not very probable, as all the extraordinary demand which 
that competition could occasion must have been but as a drop of 
water in the immense ocean of Indian commerce. The increase of 
demand, besides, though in thebeginning it may sometimes raise 
the price of goods, never fails to lower it in the long-run. It en- 
courages production, and thereby increases thecompetition of the 
producers, who, in order to undersell one another, have recourse 
to new divisions or labour and new improvements of art, which 
might never otherwise have been thought of. The miserable ef- 
fects of which the company complained, were the cheapness of 
consumption, and the encouragement given to production; pre- 



cisely the two effects which it is the great business of political 
economy to promote. The competition, however, of which they 
gave this doleful account, had not been allowed to beof long con- 
tinuance. In 1702, the two companies were, in some measure, 
united by an in denture tripartite, to which thequeen wasthethird 
party; and in 1708, they were by act of parliament, perfectly con- 
solidated into one company, by their present name of the United 
C ompany of M erchants trading to the East I ndies. I nto this act it 
was thought worth whileto insert a clause, allowing the separate 
traders to continue their trade till M ichaelmas 1711; but at the 
same time empowering the directors, upon three years notice, to 
redeem their littlecapital of seven thousand two hundred pounds, 
and thereby to convert the whole stock of the company into a 
joint stock. By the same act, the capital ofthecompany, in conse- 
quence of a new loan to government, was augmented from two 
millionsto threemillionstwo hundred thousand pounds. In 1743, 
the company advanced another million to government. But this 
million being raised, not by a call upon the proprietors, but by 
selling annuities and contracting bond-debts, it did not augment 
the stock upon which the proprietors could claim a dividend. It 
augmented, however, their trading stock, it being equally liable 
with the other threemillionstwo hundred thousand pounds, to 
thelosses sustained, and debts contracted by the company in pros- 



612 



Adam Smith 



ecution of their mercantile projects. From 1708, or at least from 
1711, this company, being delivered from all competitors, and 
fully established in the monopoly of theEnglishcommerceto the 
East Indies, carried on a successful trade, and from their profits, 
made annually a moderate dividend to their proprietors. D uring 
the French war, which began in 1741, theambition of M r. D upleix, 
the French governor of Pondicherry, involved them in thewarsof 
theCarnatic, and in thepoliticsof thelndian princes. After many 
signal successes, and equally signal losses, they at last lost M adras, 
at that time their principal settlement in India. It was restored to 
them by the treaty of Aix-la-C hapelle; and, about this time the 
spirit of war and conquest seems to have taken possession of their 
servants in India, and never since to have left them. During the 
French war, which began in 1755, their arms partook of the gen- 
eral good fortune of those of G reat Britain. T hey defended M a- 
dras, took Pondicherry, recovered Calcutta, and acquired the rev- 
enues of a rich and extensive territory, amounting, it was then 
said, to upwards of three millions a-year. They remained for sev- 
eral yearsin quiet possession of this revenue; but in 1767, admin- 
istration laid claim to their territorial acquisitions, and the rev- 
enue arising from them, as of right belonging to the crown; and 
the company, in compensation for this claim, agreed to pay to 
government £400,000 a-year. T hey had, before this, gradually aug- 



mented their dividend from about six to ten per cent.; that is, 
upon theircapital of threemillionstwo hundred thousand pounds, 
they had increased it by £128,000, or had raised it from one hun- 
dred and ninety-two thousand to threehundred and twen ty thou- 
sand poundsa-year. They were attempting about thistimeto raise 
it still further, to twelve and a-half per cent., which would have 
made their annual payments to their proprietors equal to what 
they had agreed to pay annually to government, or to £400,000 a- 
year. But during thetwo yearsin which their agreement with gov- 
ernment was to take pi ace, they were restrained from any further 
increaseof dividend bytwo successive acts of parliament, of which 
the object was to enable them to make a speedier progress in the 
payment of their debts, which were at this time estimated atup- 
wardsof six or seven millionssterling. In 1769, they renewed their 
agreement with government for five years more, and stipulated, 
that during thecourseof that period, they should be allowed gradu- 
ally to increase their dividend to twelve and a-half percent; never 
increasing it, however, more than one per cent, in one year. This 
increase of dividend, therefore, when it had risen to its utmost 
height, could augment their annual payments, to their propri- 
etors and government together, but by £680,000, beyond what 
they had been before their late territorial acquisitions What the 
gross revenue of those territorial acquisitions was supposed to 



613 



The Wealth of Nations 



amount to, has already been mentioned; and by an account brought 
bytheCruttenden Eastlndiaman in 1769, the neat revenue, clear 
of all deductions and military charges, was stated at two millions 
forty-eight thousand seven hundred and forty-seven pounds. They 
were said, at the same time, to possess another revenue, arising 
partlyfrom lands, but chieflyfrom thecustomsestablished at their 
different settlements, amounting to £439,000. The profits of their 
trade, too, accordingtotheevidenceoftheirchairman before the 
house of commons, amounted, atthistime, to at least £400,000 
a-year; according to that of their accountant, to at least £500,000; 
according to the lowest account, at least equal to the highest divi- 
dend that was to be paid to their proprietors So great a revenue 
might certainly have afforded an augmentation of £680,000 in 
their annual payments; and, at the same time, have left a large 
sinking fund, sufficient for the speedy reduction of their debt. In 
1773, however, their debts, instead of being reduced, were aug- 
mented by an arrear to the treasury in the payment of the four 
hundred thousand pounds; by another to the custom-house for 
duties unpaid; by a large debt to the bank, for money borrowed; 
and by a fourth, for bills drawn upon them from India, and wan- 
tonly accepted, to theamount of upwardsoftwelvehundred thou- 
sand pounds. Thedistress which these accumulated daimsbrought 
upon them, obliged them not only to reduce all at oncetheir divi- 



dend to six per cent, but to throw themselves upon the mercy of 
government, and to supplicate, first, a release from the further 
payment of the stipulated £400,000 a-year; and, secondly, a loan 
of fourteen hundred thousand, to save them from i m mediate ban k- 
ruptcy.Thegreatincreaseoftheirfortunehad, it seems, only served 
to furnish their servants with a pretext for greater profusion, and a 
cover for greater malversation, than in proportion even to that 
increase of fortune. The conduct of their servants in India, and 
the general state of their affairs both in India and in Europe, be- 
came the subject of a parliamentary inquiry: in consequence of 
which, several very important alterations were made in theconsti- 
tution of their government, both at home and abroad. In India, 
their principal settlementsor M adras, Bombay, and C alcutta, which 
had before been altogether independent of one another, were sub- 
jected to a governor-general, assisted by a council of four asses- 
sors, parliament assuming to itself the first nomination of this 
governor and council, who were to reside at Calcutta; that city 
having now become, what M adras was before, the most impor- 
tant of the English settlements in India. The court of the M ayor 
of C alcutta, originally instituted for thetrial of mercantile causes, 
which arosein thecityand neighbourhood, had gradually extended 
its jurisdiction with the extension of the empire. It was now re- 
duced and confined to the original purpose of its institution. In- 



614 



Adam Smith 



stead of it, a new supreme court of judicature was established, 
consisting of a chief justice and three judges, to be appointed by 
thecrown. In Europe, the qualification necessary to entitle a pro- 
prietor to vote at their general courts was raised, from five hun- 
dred pounds, theoriginal priceof a share in the stock of the com- 
pany, to a thousand pounds. In order to vote upon this qualifica- 
tion, too, it was declared necessary, that he should have possessed 
it, if acquired by his own purchase, and not by inheritance, for at 
least one year, instead of six months, the term requisite before. 
The court of twenty-four directors had before been chosen annu- 
ally; but it was now enacted, that each director should, for the 
future, be chosen for four years; six of them, however, to go out of 
office by rotation every year, and not be capable of being re-cho- 
sen at the election of the six new directors for the ensuing year. In 
consequence of these alterations, the courts, both of the propri- 
etors and directors, it was expected, would be likely to act with 
more dignity and steadiness than they had usually done before. 
But it seems impossible, by any alterations, to render those courts, 
in any respect, fit to govern, or even to share in the government of 
a great empire; because the greater part of their members must 
always have too little interest in the prosperity of that empire, to 
give any serious attention to what may promote it. Frequently a 
man of great, sometimes even a man of small fortune, is willing to 



purchase a thousand pounds share in I ndia stock, merely for the 
influence which he expects to aquire by a vote in the court of 
proprietors. It giveshim ashare, though not in theplunder, yet in 
theappointment of the plunderers of I ndia; thecourt of directors, 
though they make that appointment, being necessarily more or 
less under the influence of the proprietors, who not only elect 
those directors, but sometimes over-ruletheappointmentsofthar 
servants in India. Provided he can enjoy this influence for a few 
years, and thereby provide for a certain number of his friends, he 
frequently cares little about the dividend, or even about the value 
ofthestock upon which hisvoteisfounded. About theprosperity 
of the great empire, in the government of which that vote gives 
him a share, heseldom cares at all. No other sovereign sever were, 
or, from the nature of things, ever could be, so perfectly indiffer- 
ent about the happiness or misery of thar subjects, the improve- 
ment or waste of their dominions, the glory or disgrace of their 
administration, as, from irresistible moral causes, the greater part 
of the proprietors of such a mercantile company are, and neces- 
sarily must be. This indifference, too, was more likely to be in- 
creased than diminished by some of the new regulations which 
weremadein consequence of unparliamentary inquiry. By a reso- 
lution of the house of commons, for example, it was declared, 
that when the £1,400,000 lent to the company by government, 



615 



The Wealth of Nations 



should be paid, and their bond-debts be reduced to £1,500,000, 
they might then, and not till then, divide eight per cent, upon 
their capital; and that whatever remained of their revenues and 
neat profits at home should be divided into four parts; three of 
them to be paid into the exchequer for the use of the public, and 
thefourth to be reserved as a fund, either for thefurther reduction 
of their bond-debts, or for the discharge of other contingent exi- 
gencies which the company might labour under. But if the com- 
pany were bad stewards and bad sovereigns, when the whole of 
their neat revenueand profits belonged to themselves, and were at 
their own disposal, they were surely not likely to be better when 
three-fourths of them were to belong to other people, and the 
other fourth, though to belaid out for the benefit of thecompany, 
yet to be so under the inspection and with the approbation of 
other people. 

1 1 might be more agreeable to the company, that their own ser- 
vants and dependants should have either the pleasure of wasting, 
or the profit of embezzling, whatever surplus might remain, after 
paying the proposed dividend of eight per cent, than that it should 
come into the hands of a set of people with whom those resolu- 
tions could scarce fail to set them in some measure at variance. 
The interest of those servants and dependants might so far pre 
dominatein thecourt of proprietors, as sometimes todisposeitto 



support the authors of depredations which had been committed 
in direct violation of itsown authority. With the majority of pro- 
prietors, thesupport even of the authority of their own courtmight 
sometimes be a matter of less consequence than the support of 
those who had set that authority at defiance. 

T he regulations of 1773, accordingly, did not put an end to the 
disorder of thecompany's government in India. Notwithstanding 
that, during a momentary fit of good conduct, they had at one 
timecollected into thetreasury of Calcutta more than £3,000,000 
sterling; notwithstanding that they had afterwards extended ei- 
ther their dominion or their depredations over a vast accession of 
some of the richest and most fertile countries in India, all was 
wasted and destroyed. They found themselves altogether unpre- 
pared to stop or resist the incursion of H yder AN; and in conse- 
quence of those disorders, thecompany is now (1784) in greater 
distress than ever; and, in order to prevent immediate bankruptcy, 
is once more reduced to supplicate the assistance of government. 
Different plans have been proposed by thedifferent parties in par- 
liamentforthebetter management of its affairs; and all thoseplans 
seem to agree in supposing, what was indeed always abundantly 
evident, that it is altogether unfit to govern its territorial posses- 
sions. Even the company itself seems to be convinced of its own 
incapacity so far, and seems, upon that account willing to give 



616 



Adam Smith 



them up to government. 

W ith the right of possessing forts and garrisons in distant and 
barbarous countries is necessarily connected the right of making 
peaceand war in thosecountries.T hejoint-stock companies, which 
have had the one right, have constantly exercised the other, and 
have frequently had it expressly conferred upon them. H ow un- 
justly, how capriciously, how cruelly, they have commonly exer- 
cised it, is too well known from recent experience. 

When a company of merchants undertake, at their own risk 
and expense, to establish a new trade with some remote and bar- 
barous nation, it may not be unreasonable to incorporate them 
into a joint-stock company, and to grant them, in case of their 
success, a monopoly of the trade for a certain number of years. It 
is the easiest and most natural way in which thestatecan recom- 
pense them for hazarding a dangerous and expensive experiment, 
of which the public is afterwards to reap the benefit. A temporary 
monopoly of this kind may be vindicated, upon the same prin- 
ciples upon which a like monopoly of anew machineisgranted to 
its inventor, and that of a new book to its author. But upon the 
expiration of the term, the monopoly ought certainly to deter- 
mine; thefortsand garrisons, if it wasfound necessary to establish 
any, to betaken into the hands of government, their value to be 
paid to the company, and the trade to belaid open to all the sub- 



jects of the state. By a perpetual monopoly, all the other subjects 
of the state are taxed very absurdly in two different ways: first, by 
the high price of goods, which, in the case of a free trade, they 
could buy much cheaper; and, secondly, by their total exclusion 
from a branch of business which it might be both convenient and 
profitablefor many of them to carry on. It isfor the most worth- 
less of all purposes, too, that they are taxed in this manner. It is 
merely to enable the company to support the negligence, profu- 
sion, and malversation of their own servants, whose disorderly 
conduct seldom allows thedividend of thecompany to exceed the 
ordinary rate of profit in trades which are altogether free, and very 
frequently makes a fall even a good deal short of that rate. W ith- 
out a monopoly, however, a joint-stock company, it would appear 
from experience, cannot long carry on any branch of foreign trade. 
To buy in one market, in order to sell with profit in another, when 
there are many competitors in both; to watch over, not only the 
occasional variations in the demand, but the much greater and 
morefrequent variations in thecompetition, or in thesupply which 
that demand is likely to get from other people; and to suit with 
dexterity and judgment both the quantity and quality of each as- 
sortment of goods to all these circumstances, is a species of war- 
fare, of which theoperationsarecontinually changing, and which 
can scarce ever be conducted successfully, without such an unre- 



617 



The Wealth of Nations 



mitting exertion of vigilance and attention as cannot long be ex- 
pected from the directors of a joint-stock company. The East In- 
dia company, upon the redemption of their funds, andtheexpira- 
tion of their exclusive privilege, havea right, by act of parliament, 
to continue a corporation with ajoint stock, and totradein their 
corporate capacity to the East Indies, in common with therestof 
their fellow subjects. But in this situation, the superior vigilance 
and attention of a private adventurer would, in all probability, 
soon make them weary of the trade. 

An eminent French author, of great knowledge in matters of 
political economy, theAbbeM orellet, givesalist of fi fty-fivejoint- 
stock companies for foreign trade, which have been established in 
different parts of Europe si nee the year 1600, and which, accord- 
ing to him, have all failed from mismanagement, notwithstand- 
ing they had exclusive privileges. H e has been misinformed with 
regard to the history of two or three of them, which were not 
joint-stock companies and have not failed. But, in compensation, 
there have been several joint-stock companies which have failed, 
and which he has omitted. 

The only trades which it seems possible for a joint-stock com- 
pany to carry on successfully, without an exclusive privilege, are 
those, of which all the operations are capable of being reduced to 
what is called a routine, or to such a uniformity of method as 



admits of little or no variation. Of this kind is, first, the banking 
trade; secondly, thetradeof in su ranee from fire and from sea risk, 
and capturein timeof war; thirdly, thetradeof making and main- 
taining a navigablecut or canal; and, fourthly, thesimilar tradeof 
bringing water for the supply of a great city. 

T hough the principles of the banking trade may appear some- 
what abstruse, the practice is capable of being reduced to strict 
rules. To depart upon any occasion from those rules, in conse- 
quence of some flattering speculation of extraordinary gain, is al- 
most always extremely dangerous and frequently fatal tothebank- 
ing company which attempts it. But the constitution of joint- 
stock companies renders them in general, more tenacious of es- 
tablished rulesthan any privatecopartnery Such companies, there- 
fore, seem extremely well fitted for this trade. The principal bank- 
ing companies in Europe, accordingly, arejoint-stock companies, 
many of which manage their trade very successfully without any 
exclusive privilege. The bank of England has no other exclusive 
privilege, except that no other banking company in England shall 
consist of more than six persons. The two ban ksof Edinburgh are 
joint-stock companies, without any exclusive privilege. 

Thevalueoftherisk, either from fire, or from loss by sea, or by 
capture, though it cannot, perhaps, be calculated very exactly, ad- 
mits, however, of such a gross estimation, as renders it, in some 



618 



Adam Smith 



degree, reducible to strict rule and method. The trade of insur- 
ance, therefore, may be carried on successfully by a joint-stock 
company, without any exclusive privilege. Neither the London 
Assurance, northeRoyal ExchangeAssurancecompanieshaveany 
such privilege. 

W hen a navigable cut or canal has been once made, the man- 
agement of it becomesquitesimpleand easy, and it isreducibleto 
strict rule and method. Even the making of it is so, as it may be 
contracted for with undertakers, at so much a mile, and so much 
a lock. The same thing may be said of a canal, an aqueduct, or a 
great pipe for bringing water to supply a great city. Such under- 
takings, therefore, may be, and accordingly frequently are, very 
successfully managed by joint-stock companies, without any ex- 
clusive privilege. 

To establish ajoint-stock company, however, for any undertak- 
ing, merely because such a company might be capable of manag- 
ing it successfully; or, to exempt a particular set of dealers from 
some of the general laws which take place with regard to all their 
neighbours, merely because they might be capable of thriving, if 
they had such an exemption, would certainly not be reasonable. 
To render such an establishment perfectly reasonable, with the 
circumstance of being reducible to strict rule and method, two 
other circumstancesoughtto concur. First, it ought to appear with 



the clearest evidence, that the undertaking is of greater and more 
general utility than the greater part of common trades; and, sec- 
ondly, that it requ ires a greater capital than can easily Decollated 
into a private copartnery. If a moderate capital were sufficient, the 
great utility of the undertaking would not be a sufficient reason 
for establishing ajoint-stock company; because, in this case, the 
demand for what it was to produce, would readily and easily be 
supplied by private adventurers. In the four trades above men- 
tioned, both those circumstances concur. 

The great and general utility of the banking trade, when pru- 
dently managed, has been fully explained in the second book of 
this I nquiry. But a public bank, which isto support public credit, 
and, upon particular emergencies, to advance to government the 
whole produce of a tax, to the amount, perhaps, of several mil- 
lions, a year or two before it comes in, requires a greater capital 
than can easily be collected into any private copartnery. 

The trade of insurance gives great security to the fortunes of 
private people, and, by dividing among a great many that loss 
which would ruin an individual, makes it fall light and easy upon 
the whole society. In order to give this security, however, itisnec- 
essary that theinsurers should have a very large capital. Before the 
establishment of the two joint-stock companies for insurance in 
London, a list, it is said, was laid before the attorney-general, of 



619 



The Wealth of Nations 



onehundred and fifty private usurers, who had failed in thecourse 
of a few years. 

That navigable cuts and canals, and the works which are some- 
times necessary for supplying a great city with water, are of great 
and general utility, while, at the same time, they frequently re- 
quireagreater expense than suits thefortunes of private people, is 
sufficiently obvious. 

Except thefourtradesabovementioned, I havenotbeen ableto 
recollect any other, in which all the three circumstances requisite 
for rendering reasonable the establishment of a joint-stock com- 
pany concur. The English copper company of London, the lead- 
smelting company, the glass-grinding company, have not even the 
pretext of any great or singular utility in the object which they 
pursue; nor does the pursuit of that object seem to require any 
expense unsuitabletothefortunesof many private men. Whether 
the trade which those companies carry on, is reducible to such 
strict rule and method as to render it fit for the management of a 
joint-stock company, or whether they have any reason to boast of 
their extraordinary profits, I do not pretend to know. The mine- 
adventurers company has been long ago bankrupt. A share in the 
stock of the British Linen company of Edinburgh sells, at present, 
very much below par, though less so than it did some years ago. 
The joint-stock companies, which are established for the public- 



spirited purpose of promoting some particular manufacture, over 
and abovemanaging their own affairs ill, to thediminution of the 
general stock of the society, can, in other respects, scarce ever fail 
to do more harm than good. N otwithstanding the most upright 
intentions, the unavoidable parti ality of their directors to particu- 
lar branches of the manufacture, of which the undertakers mis- 
lead and impose upon them, is a real discouragement to the rest, 
and necessarily breaks, moreor less, that natural proportion which 
would otherwise establish itself between judicious industry and 
profit, and which, to the general industry of the country, is of all 
encouragements the greatest and the most effectual . 

ART. II. — Of the Expense of the Institution for the Educa- 
tion of Youth. 

Theinstitutionsfortheeducation of theyouth may, in thesame 
manner, furnish a revenue sufficient for defraying their own ex- 
pense. T he fee or honorary, which the scholar pays to the master, 
naturally constitutes a revenue of this kind. 

Even where the reward of the master does not arise altogether 
from this natural revenue, it still is not necessary that it should be 
derived from that general revenue of the society, of which the col- 
lection and application are, in most countries, assigned to the ex- 
ecutive power. Through the greater part of Europe, accordingly, 



620 



Adam Smith 



the endowment of schools and colleges makes either no charge 
upon that general revenue, or but a very small one. It everywhere 
arises chiefly from somelocal or provincial revenue, from therent 
of some landed estate, or from the interest of some sum of money, 
allotted and put under the management of trustees for this par- 
ticular purpose, sometimes by the sovereign himself, and some- 
times by some private donor. 

H ave those public endowments contributed in general, to pro- 
mote the end of their institution? Have they contributed to en- 
courage the diligence, and to improve the abilities, of the teach- 
ers? H ave they directed the course of education towards objects 
more useful, both to the individual and to the public, than those 
to which it would naturally have gone of its own accord? It should 
not seem very difficult to give at least a probable answer to each of 
those questions. 

I n every profession, theexertion of thegreater part of those who 
exercise it, is always in proportion to the necessity they are under 
of making that exertion. This necessity is greatest with those to 
whom theemolumentsof their profession are theonlysourcefrom 
which they expect their fortune, or even their ordinary revenue 
and subsistence. In order to acquire this fortune, or even to get 
this subsistence, they must, in the course of a year, execute a cer- 
tain quantity of work of aknown value; and, where the competi- 



tion isfree, the rival ship of competitors, who are all endeavouring 
to justle one another out of employment, obliges every man to 
endeavour to execute his work with a certain degree of exactness. 
Thegreatnessoftheobjectswhich are to be acquired bysuccessin 
some particular professions may, no doubt, sometimes animate 
the exertions of a few men of extraordinary spirit and ambition. 
Great objects, however, are evidently not necessary, in order to 
occasion the greatest exertions. Rivalship and emulation render 
excellency, even in mean professions, an object of ambition, and 
frequently occasion the very greatest exertions. Great objects, on 
the contrary, alone and unsupported by the necessity of applica- 
tion, have seldom been sufficient to occasion any considerable 
exertion. In England, success in the profession of the law leadsto 
some very great objects of ambition; and yet how few men, born 
to easy fortunes, have ever in this country been eminent in that 
profession? 

The endowments of schools and colleges have necessarily di- 
minished, more or less, the necessity of application in the teach- 
ers. Their subsistence, so far as it arises from their salaries, is evi- 
dently derived from a fund, altogether independent of their suc- 
cess and reputation in their particular professions. 

I n some universities, thesalary makesbut a part, and frequently 
but a small part, of the emoluments of the teacher, of which the 



621 



The Wealth of Nations 



greater part arises from thehonorariesor fees of his pupils. The 
necessity of application, though always more or less diminished, 
is not, in this case, entirely taken away. Reputation in his profes- 
sion is still of some importance to him, and he still has some de- 
pendency upon the affection, gratitude, and favourable report of 
those who have attended upon his instructions; and these 
favourable sentiments he is likely to gain in no way so well as by 
deserving them, that is, by the abilities and diligence with which 
he discharges every part of his duty. 

In other universities, the teacher is prohibited from receiving 
any honorary or fee from his pupils, and hissalary constitutes the 
wholeof the revenue which he derives from hisoffice. H isinterest 
is, in this case, set as directly in opposition to his duty as it is 
possibleto set it. It is the interest of every man to live as much at 
his ease as he can; and if his emoluments are to be precisely the 
same, whether he does or does not perform some very laborious 
duty, it is certainly his interest, at least as interest is vulgarly un- 
derstood, either to neglect it altogether, or, if he is subject to some 
authority which will not suffer him to do this, to perform it in as 
careless and slovenly a manner as that authority will permit. If he 
is naturally active and a lover of labour, it is his interest to employ 
that activity in any way from which he can derive some advan- 
tage, rather than in the performance of his duty, from which he 



can derive none. 

I f the authority to which he is subject resides in the body corpo- 
rate, thecollege, or university, of which hehimself isa member, and 
in which the greater part of the other members are, like himself, 
persons who either are, or ought to be teachers, they are likely to 
makea common cause, to be all very indulgent to oneanother, and 
every man to consent that his neighbour may neglect his duty, pro- 
vided hehimself is allowed to neglect his own. In the university of 
Oxford, thegreaterpartof thepublicprofessorshave, forthesemany 
years, given up altogether even the pretence of teaching. 

If the authority to which he is subject resides, not so much in 
the body corporate, of which he is a member, as in some other 
extraneous persons, in the bishop of the diocese, for example, in 
the governor of the province, or, perhaps, in some minister of 
state, it is not, indeed, in this case, very likely that he will be suf- 
fered to neglect his duty altogether. All that such superiors, how- 
ever, can force him to do, is to attend upon his pupils a certain 
number of hours, that is, to give a certain number of lectures in 
the week, or in the year. W hat those lectures shall be, must still 
depend upon the diligence of the teacher; and that diligence is 
likely to beproportioned to the motives which he has for exerting 
it. An extraneous jurisdiction of this kind, besides, is liable to be 
exercised both ignorantlyand capriciously. In its nature, itisarbi- 



622 



Adam Smith 



trary and discretionary; and the persons who exercise it, neither 
attending upon the lectures of the teacher themselves, nor per- 
haps understanding the sciences which it is his business to teach, 
are seldom capable of exercising it with judgment. From theinso- 
lenceof office, too, they are frequently indifferent how they exer- 
cise it, and are very apt to censure or deprive him of his office 
wantonly and without any just cause. The person subject to such 
jurisdiction is necessarily degraded by it, and, instead of being one 
of the most respectable, is rendered one of the meanest and most 
contemptible persons in the society. It is by powerful protection 
only, thathecan effectually guard himself against thebad usage to 
which he is at all times exposed; and this protection he is most 
likely to gain, not by ability or diligence in his profession, but by 
obsequiousness to the will of his superiors, and by being ready, at 
all times, to sacrifice to that will the rights, the interest, and the 
honour of the body corporate, of which he is a member. W hoever 
has attended for any considerabletime to the administration of a 
French university, must have had occasion to remark the effects 
which naturally result from an arbitrary and extraneous jurisdic- 
tion of this kind. 

W hatever forces a certain number of students to any college or uni- 
versity, independent of the merit or reputation of the teachers tends 
more or less to diminish the necessity of that merit or reputation. 



The privileges of graduates in arts, in law, physic, and divinity, 
when they can be obtained only by residing a certain number of 
years in certain universities, necessarily force a certain number of 
students to such universities, independent of the merit or reputa- 
tion of the teachers T he privileges of graduates are a sort of stat- 
utes of apprenticeship, which have contributed to the improve- 
ment of education just astheother statutes of apprenticeship have 
to that of arts and manufactures. 

The charitable foundations of scholarships, exhibitions, bursa- 
ries, etc. necessarily attach a certain number of students to certain 
colleges, independent altogether of the merit of those particular 
colleges. Were the students upon such charitablefoundations left 
free to choose what college they liked best, such liberty might 
perhaps contribute to excitesomeemulation among different col- 
leges. A regulation, on the contrary, which prohibited even the 
independent members of every particular college from leaving it, 
and going to any other, without leave first asked and obtained of 
that which they meant to abandon, would tend very much to 
extinguish that emulation. 

If in each college, thetutor or teacher, who was to instruct each 
student in all arts and sciences, should not be voluntarily chosen 
by thestudent, but appointed bythehead of thecollege; and if, in 
case of neglect, inability, or bad usage, thestudent should not be 



623 



The Wealth of Nations 



allowed to change him for another, without leave first asked and 
obtained; such a regulation would not only tend very much to 
extinguish all emulation among the different tutors of the same 
college, but to diminish very much, in all of them, the necessity of 
diligence and of attention to their respective pupils. Such teach- 
ers, though very well paid by their students, might be as much 
disposed to neglect them, as those who arenot paid by them at all 
or who have no other recompense but their salary. 

I f the teacher happens to be a man of sense, it must be an un- 
pleasant thing to him to be conscious, while he is lecturing to his 
students, that heiseither speaking or reading nonsense, or what is 
very little better than nonsense. ltmust,too, beunpleasanttohim 
to observe, that the greater part of his students desert his lectures; 
or perhaps, attend upon them with plain enough marks of ne- 
glect, contempt, and derision. If heisobliged, therefore, togivea 
certain number of lectures, thesemotives alone, without any other 
interest, might dispose him to take some pains to give tolerably 
good ones. Several different expedients, however, may befallen 
upon, which will effectually blunt the edge of all those incite- 
ments to diligence. Theteacher, instead of explaining to hispupils 
himself the science in which he proposes to instruct them, may 
read some book upon it; and if this book is written in a foreign 
and dead language, by interpreting it to them into their own, or, 



what would givehim still less trouble, by makingthem interpret it 
to him, and by now and then making an occasional remark upon 
it, he may flatter himself that he is giving a lecture. T he slightest 
degree of knowledge and application will enable him to do this, 
without exposing himself to contempt or derision, by saying any 
thing that is really foolish, absurd, or ridiculous. Thedisciplineof 
the college, at the same time, may enable him to force all his pu- 
pils to the most regular attendance upon his sham lecture, and to 
maintain the most decent and respectful behaviour during the 
whole time of the performance. 

Thedisciplineof colleges and universitiesisin general contrived, 
not for the benefit of the students, but for the interest, or, more 
properly speaking, for the ease of the masters. Its object is, in all 
cases, to maintain the authority of the master, and, whether he 
neglects or performs his duty, to oblige thestudentsin all cases to 
behaveto him asif heperformed it with th e greatest diligenceand 
ability. It seemsto presume perfect wisdom and virtuein theone 
order, and the greatest weakness and folly in the other. W here the 
masters, however, really perform their duty, there areno examples, 
I believe, that the greater part of the students ever neglect theirs. 
No discipline is ever requisite to force attendance upon lectures 
which are really worth the attending, as is well known wherever 
any such lectures are given. Force and restraint may, no doubt, be 



624 



Adam Smith 



in somedegree requisite, in order to obligechildren, or very young 
boys, to attend to those parts of education, which it is thought 
necessary for them to acquire during that early period of life; but 
after twelve or thirteen years of age, provided the master does his 
duty, forceor restraint can scarce ever be necessary to carry on any 
part of education. Such is the generosity of the greater part of 
young men, that so far from being disposed to neglect or despise 
the instructions of their master, provided he shews some serious 
intention of being of use to them, they are generally inclined to 
pardon a great deal of incorrectness in theperformanceof hisduty, 
and sometimes even to conceal from the public a good deal of 
gross negligence. 

Those parts of education, it is to be observed, for the teaching 
of which there are no public institutions, are generally the best 
taught. W hen a young man goes to a fencing or a dancing school, 
he does not, indeed, always learn to fence or to dance very well; 
but he seldom fails of learning to fence or to dance. The good 
effects of the riding school are not commonly so evident. The 
expense of a riding school is so great, that in most places it is a 
public institution. Thethree most essential parts of literary educa- 
tion, to read, write, and account, it still continues to be more 
common to acquire in private than in public schools; and it very 
seldom happens, that anybody fails of acquiring them to the de- 



gree in which it is necessary to acquire them. 

In England, thepublicschoolsaremuch less corrupted than the 
universities. In the schools, the youth are taught, or at least may 
be taught, Greek and Latin; that is, everything which the masters 
pretend to teach, or which it isexpected they should teach. In the 
universities, theyouth neither are taught, nor always can find any 
proper meansofbeingtaughtthesciences, which itisthebusiness 
of those incorporated bodies to teach. The reward of the school- 
master, in most cases, depends principally, in some cases almost 
entirely, upon thefeesor honoraries of his scholars. Schools have 
no exclusive privileges. In order to obtain the honours of gradua- 
tion, it is not necessary that a person should bring a certificate of 
his having studied a certain number of years at a public school. If, 
upon examination, he appears to understand what istaught there, 
no questions are asked about the place where he learnt it. 

Thepartsof education which arecommonly taught in universi- 
ties, it may perhaps be said, are not very well taught. But had it 
not been for those institutions, they would not have been com- 
monly taught at all; and both theindividual and thepublic would 
have suffered a good deal from the want of those important parts 
of education. 

The present universities of Europe were originally, the greater 
part of them, ecclesiastical corporations, instituted fortheeduca- 



625 



The Wealth of Nations 



tion of churchmen. They were founded by the authority of the 
pope; and were so entirely under his immediate protection, that 
their members, whether masters or students, had all of them what 
was then called the benefit of clergy, that is, were exempted from 
thecivil jurisdiction of the countries in which their respecti veuni- 
versities were situated, and were amenable only to the ecclesiasti- 
cal tribunals. W hat was taught in the greater part of those univer- 
sities was suitable to the end of their institution, either theology, 
or something that was merely preparatory to theology. 

When Christianity was first established bylaw, a corrupted Latin 
had become the common language of all the western parts of Eu- 
rope. The service of the church, accordingly, and the translation of 
theBiblewhich were read in churches, were both in that corrupted 
Latin; that is, in the common language of the country, After the 
irruption of the barbarous nations who overturned the Roman 
empire, Latin gradually ceased to be the language of any part of 
Europe. But the reverence of the people naturally preserves the es- 
tablished forms and ceremonies of religion long after the circum- 
stances which first introduced and rendered them reasonable, are 
no more. Though Latin, therefore, was no longer understood any- 
where by the great body of the people, the whole service of the 
church still continued to be performed in that language. Two differ- 
ent languages were thus established in Europe, in thesamemanner 



asin ancient Egypt: a language of the priests, and a language of the 
people; a sacred and a profane, a learned and an unlearned lan- 
guage. But it wasnecessary that thepriests should understand some- 
thing of that sacred and learned language in which they were to 
officiate; and the study of the Latin language therefore made, from 
the beginning, an essential part of university education. 

It was not so with that either of the Greek or of the H ebrew 
language. The infallible decrees of the church had pronounced 
the Latin translation of the Bible, commonly called the Latin 
Vulgate, to have been equally dictated by divine inspiration, and 
therefore of equal authoritywith theGreekand H ebrew originals. 
The knowledge of those two languages, therefore, not being in- 
dispensably requisite to a churchman, the study of them did not 
for along time make a necessary part of the common course of 
university education. There are some Spanish universities, I am 
assured, in which the study of the Greek language has never yet 
madeany part of that course. T hefirst reformers found theG reek 
text of the New Testament, and even the Hebrew text of the Old, 
more favourable to their opinions than the vulgate translation, 
which, as might naturally be supposed, had been gradually ac- 
commodated to support the doctrines of the Catholic Church. 
T hey set themselves, therefore, to expose the many errors of that 
translation, which the Roman catholic clergy were thus put under 



626 



Adam Smith 



the necessity of defending or explaining. But this could not well 
be done without some knowledge of the original languages, of 
which thestudy was thereforegradually introduced into the greater 
part of universities; both of those which embraced, and of those 
which rejected, the doctrines of the reformation. T he G reek lan- 
guage was connected with every part of that classical learning, 
which, though at first principally cultivated by catholics and Ital- 
ians, happened to come into fashion much about the same time 
that the doctrines of thereformation wereseton foot. In thegreater 
part of universities, therefore, that language was taught previous 
to the study of philosophy, and as soon as the student had made 
some progress in the Latin. T he H ebrew language having no con- 
nection with classical learning, and, except the H oly Scriptures, 
being the language of not a single book in any esteem thestudy of 
it did not commonly commence till after that of philosophy, and 
when the student had entered upon thestudy of theology. 

riginally, thefirst rudiments, both of theGreek and Latin lan- 
guages, were taught in universities; and in some universities they 
still continue to be so. In others, it is expected that the student 
should have previously acquired, at least, the rudiments of oneor 
both of those languages, of which the study continues to make 
everywhere a very considerable part of university education. 

The ancient Greek philosophy was divided into three great 



branches; physics, or natural philosophy; ethics, or moral phi- 
losophy; and logic. This general division seems perfectly agreeable 
to the nature of things. 

T hegreat phenomena of nature, therevolutionsof the heavenly 
bodies, eclipses, comets; thunder and lightning, and other extraor- 
dinary meteors; the generation, the life, growth, and dissolution 
of plants and animals; are objects which, as they necessarily excite 
the wonder, so they naturally call forth the curiosity of mankind 
to inquire into their causes. Superstition first attempted to satisfy 
this curiosity, by referring all those wonderful appearances to the 
immediate agency of thegods. Philosophy afterwardsendeavoured 
to account for them from more familiar causes, or from such as 
mankind were better acquainted with, than theagency of thegods. 
Asthose great phenomena are the first objects of human curiosity, 
so thescience which pretendsto explain them must naturally have 
been thefirst branch of philosophy that was cultivated. The first 
philosophers, accordingly, of whom history has preserved any ac- 
count, appear to have been natural philosophers. 

In every age and country of the world, men must have attended 
to the characters, designs, and actions of one another; and many 
reputable rules and maxims for the conduct of human life must 
have been laid down and approved of by common consent. As 
soon as writing came into fashion, wise men, or those whofancied 



627 



The Wealth of Nations 



themselves such, would naturally endeavour to increase the num- 
ber of those established and respected maxims, and to express their 
own sense of what was either proper or improper conduct, some- 
timesinthemore artificial form of apologues, like what are called 
the fables of Aesop; and sometimes in the more simple one of 
apophthegms or wise sayings, like the proverbs of Solmnon, the 
verses of Theogn is and Phocyllides, and some part of the worksof 
H esiod. They might continue in this manner, for a long time, 
merely to multiply the number of those maxims of prudence and 
morality, without even attempting to arrange them in any very 
distinct or methodical order, much less to connect them together 
by one or more general principles, from which they were all de- 
ducible, like effects from their natural causes The beauty of a 
systematical arrangement of different observations, connected by 
a few common principles, was first seen in the rude essays of those 
ancient times to wards a system of natural philosophy. Something 
of the same kind was afterwards attempted in morals. The max- 
imsof common life were arranged in some methodical order, and 
connected together by afew common principles, in thesameman- 
ner as they had attempted to arrange and connect the phenomena 
of nature. The science which pretends to investigate and explain 
those connecting principles, is what is properly called Moral Phi- 
losophy. 



Different authors gave different systems, both of natural and 
moral philosophy. But the arguments by which they supported 
thosedifferent systems, far from being alwaysdemonstrations, were 
frequently at best but very slender probabilities, and sometimes 
mere sophisms, which had no other foundation but the inaccu- 
racy and ambiguity of common language. Speculative systems, 
have, in all ages of the world, been adopted for reasonstoo frivo- 
lous to have determined the judgment of any man of common 
sense, in a matter of the smallest pecuniary interest. Gross soph- 
istry has scarce ever had any influenceupon theopinionsof man- 
kind, except in mattersof philosophy and speculation; and in these 
it has frequently had the greatest. The patrons of each system of 
natural and moral philosophy, naturally endeavoured to expose 
the weakness of the arguments adduced to support the systems 
which were opposite to their own. In examining those arguments, 
they were necessarily led to consider thedifference between a prob- 
able and a demonstrative argument, between a fallacious and a 
conclusive one; and logic, or the science of the general principles 
of good and bad reasoning, necessarily arose out of the observa- 
tionswhich ascrutiny of thiskind gave occasion to; though, in its 
origin, posterior both to physics and to ethics, it was commonly 
taught, not indeed in all, but in the greater part of the ancient 
schools of philosophy, previously to either of those sciences. T he 



628 



Adam Smith 



student, it seems to have been thought, ought to understand well 
the difference between good and bad reasoning, before he was led 
to reason upon subjects of so great importance. 

Thisancient division of philosophy into three parts was, in the 
greater part of the universities of Europe, changed for another 
into five. 

In the ancient philosophy, whatever was taught concerning the 
nature either of the human mind or of the D eity, made a part of 
thesystem of physics.Those beings, in whatever their essence might 
be supposed to consist, were parts of the great system of the uni- 
verse, and parts, too, productive of the most important effects. 
W hatever human reason could either condudeor conjecture con- 
cerning them, made, as it were, two chapters, though no doubt 
two very important ones, of the science which pretended to give 
an account of the origin and revolutionsof the great system of the 
universe. Butin theuniversitiesof Europe, where philosophy was 
taught only as subservient to theology, itwasnatural to dwell longer 
upon these two chaptersthan upon any other of thescience. T hey 
were gradually more and more extended, and were divided into 
many inferior chapters; till at last the doctrineof spirits, of which 
so little can be known, came to take up as much room in the 
system of philosophy as thedoctrineof bodies, of which so much 
can be known. The doctrines concerning those two subjects were 



considered as making two distinct sciences. W hat are called meta- 
physics, or pneumatics, wereset in opposition to physics, and were 
cultivated not only as themore sublime, but, for thepurposesof a 
particular profession, as the more useful science of the two. T he 
proper subject of experiment and observation, a subject in which 
a careful attention is capable of making so many useful discover- 
ies, was almost entirely neglected. The subject in which, after a 
very few simpleand almost obvioustruths, themost careful atten- 
tion can discover nothing but obscurity and uncertainty, and can 
consequently produce nothing but subtleties and sophisms, was 
greatly cultivated. 

W hen those two scienceshad thusbeen set in opposition to one 
another, the comparison between them naturally gave birth to a 
third, to what was called ontology, or the science which treated of 
thequalitiesand attributes which werecommon to both the sub- 
jects of theother two sciences. But if subtleties and sophismscom- 
posed the greater part of the metaphysics or pneumatics of the 
schools, they composed the whole of this cobweb science of on- 
tology, which was likewise sometimes called metaphysics. 

Wherein consisted the happiness and perfection of a man, con- 
sidered not only as an individual, but as the member of a family, 
of a state, and of the great society of mankind, was the object 
which the ancient moral philosophy proposed to investigate. In 



629 



The Wealth of Nations 



that philosophy, thedutiesof human life were treated of as subser- 
vient to the happiness and perfection of human life, But when 
moral, as well as natural philosophy, came to be taught only as 
subservient to theology, thedutiesof human life were treated of as 
chiefly subservient to the happiness of a life to come. I n the an- 
cient philosophy, the perfection of virtue was represented as nec- 
essarily productive, to the person who possessed it, of the most 
perfect happiness in this life. In the modern philosophy, it was 
frequently represented as generally, or rather as almost always, in- 
consistent with any degree of happiness in this life; and heaven 
was to be earned only by penance and mortification, by the aus- 
terities and abasement of a monk, not by the liberal, generous, 
and spirited conduct of a man. Casuistry, and an ascetic morality, 
made up, in most cases, the greater part of the moral philosophy 
of the schools. By far the most important of all the different 
branches of philosophy became in this manner by far the most 
corrupted. 

Such, therefore, was the common course of philosophical edu- 
cation in the greater part of the universities in Europe. Logic was 
taught first; ontology came in the second place; pneumatology, 
comprehending thedoctrine concerning the nature of the human 
soul and of the Deity, in the third; in the fourth followed a de- 
based system of moral philosophy, which was considered as im- 



mediately connected with the doctrines of pneumatology, with 
the immortality of the human soul, and with the rewards and 
punishments which, from the justice of the Deity, were to be ex- 
pected in a life to come: a short and superficial system of physics 
usually concluded the course. 

T healterations which theuniversities of Europethus introduced 
into the ancient course of philosophy were all meant for the edu- 
cation of ecclesiastics, and to render it a moreproper introduction 
to the study of theology But the additional quantity of subtlety 
and sophistry, the casuistry and ascetic morality which those alter- 
ations introduced into it, certainly did not render it more for the 
education of gentlemen or men of the world, or morelikely either 
to improve the understanding or to mend the heart. 

Thiscourse of philosophy is what still continues to be taught in 
the greater part of the universities of Europe, with more or less 
diligence, according as the constitution of each particular univer- 
sity happensto render diligence moreor lessnecessary to theteach- 
ers. In some of the richest and best endowed universities, the tu- 
tors content themselves with teaching a few unconnected shreds 
and parcels of this corrupted course; and even these they com- 
monly teach very negligently and superficially. 

The improvements which, in modern times have been madein 
several different branchesof philosophy, havenot, the greater part 



630 



Adam Smith 



of them, been madein universities, though some, no doubt, have. 
The greater part of universities have not even been very forward 
to adopt those improvements after they were made; and several of 
those learned societies have chosen to remain, for a longtime, the 
sanctuaries in which exploded systems and obsolete prejudices 
found shelter and protection, after they had been hunted out of 
every other corner of the world. In general, the richest and best 
endowed universitieshavebeen slowest in adoptingthoseimprove- 
ments, and the most averse to permit any considerable change in 
the established plan of education. Those improvements were more 
easily introduced into some of the poorer universities, in which 
theteachers, depending upon their reputation for thegreater part 
of their subsistence, were obliged to pay more attention to the 
current opinions of the world. 

But though the public schools and universities of Europe were 
originally intended only for the education of a particular profes- 
sion, that of churchmen; and though they were not always very 
diligent in instructing their pupils, even in thesciences which were 
supposed necessary for that profession; yet they gradually drew to 
themselves the education of almost all other people, particularly 
of almost all gentlemen and men of fortune. N o better method, it 
seems, could befallen upon, of spending, with any advantage, the 
long interval between infancy and that period of life at which men 



begin to apply in good earnest to the real business of the world, 
the business which is to employ them during the remainder of 
their days. Thegreater part of what istaught in schools and uni- 
versities, however, does not seem to be the most proper prepara- 
tion for that business. 

In England, it becomes every day more and morethecustomto 
send young peopleto travel in foreign countriesimmediately upon 
their leaving school, and without sending them to any university. 
Our young people, it is said, generally return home much im- 
proved by their travels. A young man, who goes abroad at seven- 
teen or eighteen, and returns home at one-and-twenty, returns 
three or fouryears older than he was when he went abroad; and at 
that age it is very difficult not to improve a good deal in three or 
fouryears. In the course of his travels, hegenerally acquires some 
knowledge of one or two foreign languages; a knowledge, how- 
ever, which is seldom sufficient to enable him either to speak or 
write them with propriety. In other respects, he commonly re- 
turns home more conceited, moreunprincipled, moredissipated, 
and more incapable of my serious application, either to study or 
to business, than hecould well havebecomein so short atimehad 
he lived at home. By travelling so very young, by spending in the 
most frivolous dissipation the most previous years of his life, at a 
distance from the inspection and control of his parents and rda- 



631 



The Wealth of Nations 



tions, every useful habit, which the earlier parts of his education 
might have had some tendency to form in him, instead of being 
riveted and confirmed, is almost necessarily either weakened or 
effaced. N othing but the discredit into which the universities are 
allowing them selvesto fall, could ever havebrought into repute so 
very absurd a practice as that of travelling at this early period of 
life. By sending his son abroad, a father delivers himself, at least 
for some time, from so disagreeable an object as that of a son 
unemployed, neglected, and going to ruin before his eyes. 

Such have been the effects of some of the modern institutions 
for education. 

D ifferent plansand different institutionsfor education seem to 
have taken placein other ages and nations. 

In the republics of ancient Greece, every free citizen was in- 
structed, under thedirection of the public magistrate, in gymnas- 
tic exercises and in music. By gymnastic exercises, it was intended 
to harden hisbody, to sharpen hiscourage, and to preparehim for 
the fatigues and dangers of war; and as the Greek militia was, by 
all accounts, oneofthebest that ever wasin theworld, thispart of 
their public education must have answered completely the pur- 
pose for which it was intended. By the other part, music, it was 
proposed, at least by the philosophers and historians, who have 
given us an account of those institutions, to humanize the mind, 



to soften the tern per, and to dispose it for performing all the social 
and moral duties of public and private life. 

In ancient Rome, theexercises of theCampusM arti us answered 
the same purpose as those of the Gymnasium in ancient Greece, 
and they seem to have answered it equally well. But among the 
Romans there was nothing which corresponded to the musical 
education of the Greeks. The morals of the Romans, however, 
both in private and public life, seem to have been, not only equal, 
but, upon the whole, a good deal superior to those of the G reeks. 
That they were superior in private life, we have the express testi- 
mony of Polybius, and of Dionysius of H alicarnassus, two au- 
thors well acquainted with both nations; and the whole tenor of 
the G reek and Roman history bears witness to the superiority of 
the public morals of the Romans. T he good temper and modera- 
tion of contending factionsseem to be the most essential circum- 
stances in the public morals of a free people. But the factions of 
the G reeks were almost always violent and sanguinary; whereas, 
till the time of the Gracchi, no blood had ever been shed in any 
Roman faction; and from the time of the Gracchi, the Roman 
republic may be considered asin reality dissolved. Notwithstand- 
ing, therefore, the very respectable authority of Plato, Aristotle, 
and Polybius, and notwithstanding the very ingenious reasons by 
which M r. M ontesquieu endeavours to support that authority, it 



632 



Adam Smith 



seems probable that the musical education of the Greeks had no 
great effect in mending their morals, since, without any such edu- 
cation, those of the Romans were, upon thewhole, superior.The 
respect of those ancient sagesfor the institutionsof their ancestors 
had probably disposed them to find much political wisdom in 
what was, perhaps, merely an ancient custom, continued, without 
interruption, from theearliest period of those societies, to thetimes 
in which they had arrived at a considerable degree of refinement. 
Music and dancing arethegreat amusements of almost all barba- 
rous nations, and the great accomplishments which are supposed 
tofitanyman for entertaining hissociety Itisso at thisday among 
the negroes on the coast of Africa. It was so among the ancient 
Celtes, among the ancient Scandinavians, and, as we may learn 
from Homer, among the ancient Greeks, in the times preceding 
the Trojan war. When the Greek tribes had formed themselves 
into little republics, it was natural that the study of those accom- 
plishments should for a long time make a part of the public and 
common education of the people. 

The masters who instructed the young people, either in music 
or in military exercises, do not seem to have been paid, or even 
appointed by the state, either in Romeor even at Athens, theG reek 
republic of whose laws and customs wearethebest informed. The 
state required that every free citizen should fit himself for defend- 



ing it in war, and should upon that account, learn his military 
exercises. But it left him to learn them of such masters as he could 
find; and it seems to have advanced nothing for this purpose, but 
a public field or place of exercise, in which heshould practise and 
perform them. 

I n the early ages, both of the G reek and Roman republics, the 
other parts of education seem to have consisted in learning to 
read, write, and account, according to thearithmetic of thetimes. 
These accomplishmen ts thericher ci tizensseem frequentlyto have 
acquired at home, by the assistance of some domestic pedagogue, 
who was, generally, either a slave or a freedman; and the poorer 
citizensin the schools of such masters as made a trade of teaching 
for hire. Such parts of education, however, were abandoned alto- 
gether to thecare of theparents or guardiansof each individual. It 
does not appear that the state ever assumed any inspection or di- 
rection of them. By a law of Solon, indeed, the children were ac- 
quitted from maintaining those parents who had neglected to in- 
struct them in some profitable trade or business. 

In the progress of refinement, when philosophy and rhetoric 
came into fashion, the better sort of people used to send their 
children to the schools of philosophers and rhetoricians, in order 
to be instructed in these fash ion able sciences. But those schools 
were not supported by the public. They were, for a long time, 



633 



The Wealth of Nations 



barely tolerated by it. The demand for philosophy and rhetoric 
was, for a long time, so small, that the first professed teachers of 
either could not find constant employment in any one city, but 
were obliged to travel about from place to place. I n this manner 
lived Zeno of Elea, Protagoras, Gorgias, H ippias, and many oth- 
ers. As the demand increased, the school, both of philosophy and 
rhetoric, becamestationary, first in Athens, and afterwards in sev- 
eral other cities. T he state, however, seems never to have encour- 
aged them further, than by assigning to some of them a particular 
place to teach in, which was sometimes done, too, by private do- 
nors. The state seems to have assigned the Academy to Plato, the 
Lyceum to Aristotle, and the Portico to Zeno of C itta, thefounder 
of the Stoics. But Epicurus bequeathed his gardens to his own 
school. Till about the time of M arcus Antoninus, however, no 
teacher appears to have had any salary from the public, or to have 
had any other emoluments, but what arose from the honorarius 
or fees of his scholars. T he bounty which that philosophical em- 
peror, aswelearn from Lucian, bestowed upon one of the teachers 
of philosophy, probably lasted no longer than his own life. There 
was nothing equivalent to theprivileges of graduation; and to have 
attended any of those schools was not necessary, in order to be 
permitted to practise any particular tradeor profession. If theopin- 
ion of their own utility could not draw scholars to them, the law 



neither forced anybody to go to them, nor rewarded anybody for 
having gone to them. The teachers had no jurisdiction over their 
pupils, nor any other authority besides that natural authority which 
superior virtueand abilitiesneverfail to procurefrom young people 
towards those who are entrusted with any part of their education. 
At Rome, thestudy of thecivil lawmadeapartoftheeducation, 
not of the greater part of the citizens, but of some particular fami- 
lies. T heyoung people, however, who wished to acquire knowledge 
in the law, had no public school to go to, and had no other method 
of studying it, than by frequenting the company of such of their 
relations and friends as were supposed to understand it. It is, per- 
haps, worth while to remark, that though the laws of the twelve 
tables were many of them copied from thoseof someancient G reek 
republics, yet law never seems to have grown up to be a science in 
any republic of ancient G reece. I n Rome it became a science very 
early, and gave a considerable degree of illustration to those citizens 
who had the reputation of understanding it. In the republics of 
an cientGreece, parti cularly in Athens, theordinarycourtsof justice 
consisted of numerous, and therefore disorderly, bodies of people, 
who frequently decided almost at random, or as clamour, faction, 
and party-spirit, happened to determine. The ignominy of an un- 
just decision, when it was to be divided among five hundred, a 
thousand, or fifteen hundred people (for some of their courts were 



634 



Adam Smith 



so very numerous), could not fall very heavy upon any individual. 
At Rome, on the contrary, the principal courts of justice consisted 
either of asinglejudge, or of a small number of judges, whosechar- 
acters, especially as they deliberated always in public, could not fail 
to be very much affected by any rash or unjust decision. In doubtful 
cases such courts, from their anxiety to avoid blame, would natu- 
rally endeavour to shelter themselves under the example or prece- 
dent of the judges who had sat before them, either in thesameor in 
some other court. This attention to practice and precedent, neces- 
sarily formed the Roman law into that regular and orderly system in 
which it has been delivered down to us; and the like attention has 
had the I ike effects upon thelawsof every other country where such 
attention has taken place. The superiority of character in the Ro- 
mans over that of the G reeks, so much remarked by Polybius and 
Dionysiusof H alicarnassus, was probably more owing to the better 
constitution of their courts of justice, than to any of the circum- 
stances to which those authors ascribe it. The Romans are said to 
have been particularly distinguished for their superior respect to an 
oath. But the people who were accustomed to make oath only be- 
fore somediligent and well informed court of justice, would natu- 
rally be much more attentive to what they swore, than they who 
were accustomed to do the same thing before mobbish and disor- 
derly assemblies. 



The abilities, both civil and military, of the Greeks and Ro- 
mans, will readily be allowed to have been at least equal to those 
of any modern nation. Our prejudice is perhaps rather to overrate 
them. But except in what related to military exercises, the state 
seems to have been at no painstoform those great abilities; fori 
cannot be induced to believe that the musical education of the 
Greeks could beof much consequence in forming them. Masters, 
however, had been found, it seems, for instructing the better sort 
of people among those nations, in every art and science in which 
the circumstances of their society rendered it necessary or conve- 
nient for them to be instructed. Thedemand for such instruction 
produced, what it always produces, the talent for giving it; and 
the emulation which an unrestrained competition never fails to 
excite, appears to have brought that talent to a very high degree of 
perfection. In the attention which the ancient philosophers ex- 
cited, in the empire which they acquired over the opinions and 
principlesof their auditors, in thefaculty which they possessed of 
giving a certain tone and character to the conduct and conversa- 
tion of those auditors, they appear to have been much superior to 
any modern teachers. In modern times, the diligence of public 
teachers is more or less corrupted bythecircumstanceswhich ren- 
der them more or less independent of theirsuccess and reputation 
in their particular professions. Their salaries, too, put the private 



635 



The Wealth of Nations 



teacher, who would pretend to comeinto competition with them, 
in the same state with a merchant who attempts to trade without 
a bounty, in competition with those who trade with a consider- 
able one. If he sells his goods at nearly the same price, he cannot 
have thesame profit; and poverty and beggary at least, if not bank- 
ruptcy and ruin, will infallibly be his lot. If he attempts to sell 
them much dearer, he is likely to have so few customers, that his 
circumstanceswill notbemuch mended. Theprivilegesof gradu- 
ation, besides, arein many countries necessary, or at least extremely 
convenient, to most men of learned professions, that is, to thefar 
greater part of those who have occasion for a learned education. 
But those privileges can be obtained only by attending the lec- 
turesofthepublicteachers.Themost careful attendance upon the 
ablest instructions of any private teacher cannot always give any 
title to demand them. It is from these different causes that the 
private teacher of any of thesciences, which are commonly taught 
in universities, is, in modern times, generally considered as in the 
very lowest order of men of letters. A man of real abilities can 
scarce find out a more humiliating or a more unprofitable em- 
ployment to turn them to. T he endowments of schools and col- 
leges have in this manner not only corrupted thediligence of pub- 
lic teachers, but have rendered it almost impossible to have any 
good private ones. 



Were there no public institutionsfor education, no system, no 
science, would be taught, for which there was not some demand, 
or which the circumstances of the times did not render it either 
necessary or convenient, or at least fashionableto learn. A private 
teacher could never find hisaccountin teaching either an exploded 
and antiquated system of a science acknowledged to be useful, or 
a science universally believed to be a mere useless and pedantic 
heap of sophistry and nonsense. Such systems, such sciences, can 
subsist nowhere but in those incorporated societies for education, 
whose prosperity and revenuearein a great measure independent 
of their industry. Were there no public institutionsfor education, 
a gentleman, after going through, with application and abilities, 
the most complete course of education which the circumstances 
of the times were supposed to afford, could not come into the 
world completely ignorant of everything which is the common 
subject of conversation among gentlemen and men of the world. 

T here are no public institutions for the education of women, 
and there is accordingly nothing useless, absurd, or fantastical, in 
thecommon courseof their education. They are taught what their 
parentsor guardiansjudge it necessary or useful for them to learn, 
and they are taught nothing else. Every part of their education 
tends evidently to someuseful purpose; either to improve thenatu- 
ral attractions of their person, or to form their mind to reserve, to 



636 



Adam Smith 



modesty, to chastity, and to economy; to render them both likely 
to becamethemistressesof a family, and to behave properly when 
they have become such. In every part of her life, a woman feels 
someconveniency or advantage from every part of her education. 
It seldom happensthataman, in any part of his life, derives any 
conveniency or advantage from some of the most laborious and 
troublesome parts of hiseducation. 

Ought the public, therefore, to give no attention, it may be 
asked, to the education of the people? Or, if it ought to give any, 
what are the different parts of education which it ought to attend 
toin thedifferentordersof thepeople? and in what manner ought 
it to attend to them? 

I n some cases, the state of society necessarily places the greater 
part of individuals in such situations as naturally form in them, 
without any attention of government, almost all the abilities and 
virtues which that state requires, or perhaps can admit of. In other 
cases, the state of the society does not place the greater part of 
individuals in such situations; and some attention of government 
is necessary, in order to prevent the almost entire corruption and 
degeneracy of the great body of the people. 

In the progress of thedivision of labour, the employment of the 
far greater part of those who live by labour, that is, of the great 
body of the people, comes to be confined to a few very simple 



operations; frequently to one or two. But the understandings of 
the greater part of men are necessarily formed by their ordinary 
employments. T he man whose whole life is spent in performing a 
few simple operations, of which the effects, too, are perhaps al- 
ways the same, or very nearly the same, has no occasion to exert 
his understanding, or to exercise his invention, in finding out ex- 
pedientsfor removing difficulties which never occur. Henaturally 
loses, therefore, the habit of such exertion, and generally becomes 
as stupid and ignorant as it is possible for a human creature to 
become. T he torpor of his mind renders him not only incapable 
of relishing or bearing a part in any rational conversation, but of 
conceiving any generous, noble, or tender sentiment, and conse- 
quently of forming any just judgment concerning many even of 
the ordinary duties of private life. Of the great and extensive in- 
terests of his country he is altogether incapable of judging; and 
unless very particular painshavebeen taken to render him other- 
wise, he is equally incapable of defending hiscountry in war.The 
uniformity of his stationary life naturally corrupts the courage of 
his mind, and makes him regard, with abhorrence, the irregular, 
uncertain, and adventurous life of a soldier. It corrupts even the 
activity of his body, and renders him incapable of exerting his 
strength with vigour and perseverance in any other employment, 
than that to which he has been bred. H is dexterity at his own 



637 



The Wealth of Nations 



particular trade seems, in this manner, to be acquired at the ex- 
pense of his intellectual, social, and martial virtues. But in every 
improved and civilized society, this is the state into which the 
labouring poor, that is, the great body of the people, must neces- 
sarily fall, unless government takes some pains to prevent it. 

1 1 is otherwise in the barbarous societies, as they are commonly 
called, of hunters, of shepherds, and even of husbandmen in that 
rudestateof husbandry which precedes theimprovement of manu- 
factures, and the extension of foreign commerce. In such societ- 
ies, the varied occupations of every man oblige every man to exert 
his capacity, and to invent expedients for removing difficulties 
which are continually occurring. Invention is kept alive, and the 
mind is not suffered to fall into that drowsy stupidity, which, in a 
civilized society, seemsto benumbtheunderstandingof almost all 
the inferior ranks of people. I n those barbarous societies, as they 
are called, every man, it has already been observed, is a warrior. 
Every man, too, is in some measure a statesman, and can form a 
tolerable judgment concerning the interest of the society, and the 
conduct of those who govern it. H ow far their chiefs are good 
judgesin peace, or good leadersin war, is obvious to the observa- 
tion of almost every single man among them. In such a society, 
indeed, no man can well acquire that improved and refined un- 
derstanding which a few men sometimes possess in a more civi- 



lized state. Though in a rude society there is a good deal of variety 
in the occupations of every individual, there is not a great deal in 
those of the whole society. Everyman does, or iscapableof doing, 
almost every thing which any other man does, or is capable of 
being. Every man has a considerable degree of knowledge, inge- 
nuity, and invention but scarce any man has a great degree. T he 
degree, however, which is commonly possessed, is generally suffi- 
cient for conducting thewholesimplebusinessof thesociety. In a 
civilized state, on thecontrary, though there is little variety in the 
occupations of the greater part of individuals, there is an almost 
infinite variety in those of the whole society These varied occupa- 
tions present an almost infinite variety of objects to the contem- 
plation of those few, who, being attached to no particular occupa- 
tion themselves, haveleisure and inclination to examinetheoccu- 
pationsof other people. The contemplation of so great a variety of 
objects necessarily exercises their minds in endless comparisons 
and combinations, and renders their understandings, in an ex- 
traordinary degree, both acute anti comprehensive. Unless those 
few, however, happen to be placed in some very particular situa- 
tions, their great abilities, though honourableto themselves, may 
contributevery littletothegood government or happinessof their 
society. N otwithstanding the great abilities of those few, all the 
nobler parts of the human character may be, in a great measure, 



638 



Adam Smith 



obliterated and extinguished in the great body of the people. 

The education of the common people requires, perhaps, in a 
civilized and commercial society, theattention of thepublic, more 
than that of people of some rank and fortune. People of some 
rank and fortune are generally eighteen or nineteen years of age 
before they enter upon that particular business, profession, or trade, 
by which they propose to distinguish themselves in the world. 
T hey have, before that, full timeto acquire, or at least to fit them- 
selves for afterwards acquiring, every accomplishment which can 
recommend them to the public esteem, or render them worthy of 
it. Their parents or guardians are generally sufficiently anxious 
that they should be so accomplished, and are in most cases, will- 
ing enough to lay out the expense which is necessary for that pur- 
pose. If they are not always properly educated, it is seldom from 
the want of expense laid out upon their education, but from the 
improper application of that expense. It is seldom from the want 
of masters, but from the negligence and incapacity of the masters 
who are to be had, and from the difficulty, or rather from the 
impossibility, which thereis, in the present state of things, of find- 
ing any better. The employments, too, in which people of some 
rank or fortune spend the greater part of their lives, are not, like 
those of the common people, simple and uniform. They are al- 
most all of them extremely complicated, and such as exercise the 



head more than the hands. T he understandings of those who are 
engaged in such employments, can seldom grow torpid for want 
of exercise. The employments of people of some rank and for- 
tune, besides, are seldom such as harass them from morning to 
night. They generally have a good deal of leisure, during which 
they may perfect themselves in every branch, either of useful or 
ornamental knowledge, of which they may have laid the founda- 
tion, or for which they may have acquired sometastein theearlier 
part of life. 

1 1 is otherwise with the common people. T hey have little time 
to spare for education. Their parents can scarce afford to maintain 
them, even in infancy. As soon as they are able to work, they must 
apply to some trade, by which they can earn their subsistence. 
That trade, too, isgenerally so simpleand uniform, as to give little 
exercise to the understanding; while, atthesametime, their labour 
is both so constant and so severe, that it leaves them little leisure 
and less inclination to apply to, or even to think of any thing else. 

But though thecommon peoplecannot, in any civilized society, 
be so well instructed as peopleof some rank and fortune; themost 
essential parts of education, however, to read, write, and account, 
can be acquired at so early a period of life, that the greater part, 
even of those who are to be bred to the lowest occupations, have 
timeto acquire them before they can be employed in those occu- 



639 



The Wealth of Nations 



pations. For a very small expense, the public can facilitate, can 
encourage and can even impose upon almost the whole body of 
the people, thenecessity of acquiring those most essential parts of 
education. 

Thepubliccan facilitate this acquisition, by establishing in ev- 
ery parish or district a little school, where children maybe taught 
for a reward so moderate, that even a common labourer may af- 
ford it; themaster being partly, but not wholly, paid by thepublic; 
because, if hewas wholly, or even principally, paid by it, hewould 
soon learn to neglect his business. In Scotland, the establishment 
of such parish schoolshas taught almost thewholecommon people 
to read, and a very great proportion of them to writeand account. 
In England, theestablishment of charity schoolshashad an effect 
of thesame kind, though not so universally, because the establish- 
ment is not so universal. If, in those little schools, the books by 
which the children are taught to read, were a little more instruc- 
tive than they commonly are; and if, instead of a little smattering 
in Latin, which thechildren of thecommon people are sometimes 
taught there, and which can scarce ever be of any use to them, 
they were instructed in the elementary parts of geometry and 
mechanics; the literary education of this rank of people would, 
perhaps, be as complete as can be. T here isscarcea common trade, 
which does not afford some opportunities of applying to it the 



principlesof geometry and mechanics, and which would not, there- 
fore, gradually exercise and improve the common peoplein those 
principles, thenecessary introduction to themost sublime, as well 
as to the most useful sciences. 

T he public can encourage the acquisition of those most essen- 
tial parts of education, bygivingsmall premiums, and littlebadges 
of distinction, to thechildren of thecommon people who excel in 
them. 

Thepubliccan imposeupon almost thewholebody of thepeople 
thenecessity of acquiringthemost essential parts of education, by 
obliging every man to undergo an examination or probation in 
them, beforehecan obtain thefreedom in any corporation, or be 
allowed to set up any trade, either in a village or town corporate. 

It was in this manner, by facilitating the acquisition of their 
military and gymnastic exercises, by encouraging it, and even by 
imposing upon thewholebody of the peoplethe necessity of learn- 
ing those exercises, that the Greek and Roman republics main- 
tained the martial spirit of their respective citizens. They facili- 
tated the acquisition of those exercises, by appointing a certain 
place for learning and practising them, and by granting to certain 
masters the privilege of teaching in that place. Those masters do 
not appear to havehad either salaries or exclusive privilegesof any 
kind. Their reward consisted altogether in what they got from 



640 



Adam Smith 



their scholars; and a citizen, who had learnt his exercises in the 
public gymnasia, had no sort of legal advantageover one who had 
learnt them privately, provided the latter had learned them equally 
well. Those republics encouraged the acquisition of those exer- 
cises, by bestowing littlepremiumsand badgesof distinction upon 
those who excelled in them. To have gained a prize in the Olym- 
pic, Isthmian, or Nemaean games, gave illustration, not only to 
the person who gained it, but to his whole family and kindred. 
The obligation which every citizen was under, to serve a certain 
number of years, if called upon, in the armies of the republic, 
sufficiently imposed the necessity of learning those exercises, with- 
out which he could not befit for that service. 

That in the progress of improvement, the practice of military 
exercises, unless government takes proper painsto support it, goes 
gradually to decay, and, together with it, the martial spirit of the 
great body of the people, the example of modern Europe suffi- 
ciently demonstrates. But the security of every society must al- 
ways depend, more or less, upon the martial spirit of the great 
body of the people. In the present times, indeed, that martial spirit 
alone, and unsupported by a well-disciplined standing army, would 
not, perhaps, be sufficient for the defence and security of any so- 
ciety. But where every citizen had the spirit of a soldier, a smaller 
standing army would surely be requisite. T hat spirit, besides, would 



necessarily diminish very much the dangers to liberty, whether 
real or imaginary, which arecommonly apprehended from a stand- 
ing army. As it would very much facilitate the operations of that 
army again st a foreign invader; so it would obstruct them asmuch, 
if unfortunately they should ever be directed against the constitu- 
tion of the state. 

T heancientinstitutionsof Greece and Romeseem to have been 
much moreeffectual for maintaining themartial spirit of the great 
body of the people, than the establishment of what are called the 
militias of modern times. They were much more simple. When 
they were once established, they executed themselves, and it re- 
quired little or no attention from government to maintain them 
in themost perfect vigour. W hereasto maintain, even in tolerable 
execution, thecomplexregulationsof any modern militia, requires 
thecontinual and painful attention of government, without which 
they are constantly falling into total neglect and disuse. Theinflu- 
ence, besides, of the ancient institutions, was much more univer- 
sal. By means of them, the whole body of the people was com- 
pletely instructed in theuseof arms; whereas it is but a very small 
part of them who can ever be so instructed by the regulations of 
any modern militia, except, perhaps, that of Switzerland. But a 
coward, a man in capable either of defending or of revenging him- 
sdf, evidently wants one of the most essential parts of the charac- 



641 



The Wealth of Nations 



terof a man. He is as much mutilated and deformed in his mind 
as another is in his body, who is either deprived of some of its 
most essential members, or has lost the use of them. H e is evi- 
dently the more wretched and miserableof thetwo; becausehap- 
pinessand misery, which reside altogether in themind, must nec- 
essarily depend moreupon thehealthful or un healthful, themuti- 
lated or entire state of themind, than upon that of the body. Even 
though the martial spirit of the people were of no use towardsthe 
defence of the society, yet, to prevent that sort of mental mutila- 
tion, deformity, and wretchedness, which cowardice necessarily 
involves in it, from spreading themselves through the great body 
of the people, would still deserve the most serious attention of 
government; in thesamemannerasit would deserve itsmost seri- 
ous attention to prevent a leprosy, or any other loathsome and 
offensive disease, though neither mortal nor dangerous, from 
spreading itself among them; though, perhaps, no other public 
good might result from such attention, besides the prevention of 
so great a public evil. 

Thesamethingmaybesaid of the gross ignorance and stupid- 
ity which, in a civilized society, seem so frequently to benumb the 
understandings of all the inferior ranks of people. A man without 
the proper use of the intellectual faculties of aman, is, if possible, 
more contemptible than even a coward, and seems to be muti- 



lated and deformed in a still more essential part of thecharacterof 
human nature. Though the state was to derive no advantage from 
the instruction of the inferior ranks of people, it would still de- 
serveits attention that they should not be altogether uninstructed. 
Thestate, however, derivesno inconsiderableadvantagefrom their 
instruction. The more they are instructed, the less liable they are 
to the delusions of enthusiasm and superstition, which, among 
ignorant nationsfrequently occasion the most dreadful disorders. 
An instructed and intelligent people, besides, are always more de- 
cent and orderly than an ignorant and stupid one. They feel them- 
selves, each individually, more respectable, and more likely to ob- 
tain the respect of their lawful superiors, and they are, therefore, 
more disposed to respect those superiors. T hey are more disposed 
to examine, and more capable of seeing through, the interested 
complaints of faction and sedition; and they are, upon that ac- 
count, lessaptto bemisled into any wanton or unnecessary oppo- 
sition to the measures of government. In free countries, where the 
safety of government depends very much upon thefavourablejudg- 
ment which the people may form of its conduct, it must surely be 
of the highest importance, that they should not be disposed to 
judge rashly or capriciously concerning it. 



642 



Adam Smith 



A it. 1 1 1 . — f the Expense of the I nstitutions for the I nstruc- 
tion of People of all Ages. 

The institutions for the instruction of people of all ages, are 
chiefly those for religious instruction. T his is a species of instruc- 
tion, of which theobject isnotso much to render the people good 
citizens in this world, as to prepare them for another and a better 
world in thelife to come.Theteachers of thedoctrinewhich con- 
tains this instruction, in the same manner as other teachers, may 
either depend altogether for their subsistence upon the voluntary 
contributions of their hearers; or they may derive it from some 
other fund, to which the law of their country may entitle them; 
such asa landed estate, a tytheor land tax, an established salary or 
stipend. Their exertion, their zeal and industry, are likely to be 
much greater in the former situation than in the latter. In this 
respect, the teachers of anew religion have always had a consider- 
able advantage in attacking those ancient and established systems, 
ofwhichthedergy, reposingthemselvesupon their benefices, had 
neglected to keep up thefervour of faith and devotion in thegreat 
body of the people; and having given themselves up to indolence, 
were become altogether incapable of making any vigorous exer- 
tion in defence even of their own establishment. The clergy of an 
established and well endowed religion frequently become men of 
learning and elegance, who possess all thevirtuesof gentlemen, or 



which can recommend them to theesteem of gentlemen; but they 
are apt gradually to lose the qualities, both good and bad, which 
gavethem authority and influence with theinferiorranksof people, 
and which had perhaps been theoriginal causes of the success and 
establishment of their religion. Such a clergy, when attacked by a 
set of popular and bold, though perhaps stupid and ignorant en- 
thusiasts, feel themselves as perfectly defenceless as the indolent, 
effeminate, and full fed nationsof thesouthern partsof Asia, when 
they were invaded by the active, hardy, and hungry Tartars of the 
north. Such a clergy, upon such an emergency, have commonly 
no other resource than to call upon the civil magistrate to perse- 
cute, destroy, or drive out their adversaries, as disturbers of the 
public peace. It was thus that the Roman catholic clergy called 
upon the civil magistrate to persecute the protestants, and the 
church of England to persecute the dissenters; and that in general 
every religious sect, when it has once enjoyed, for a century or 
two, the security of a legal establishment, has found itself inca- 
pable of making any vigorous defence against any new sect which 
chose to attack its doctrine or discipline. Upon such occasions, 
the advantage, in point of learning and good writing, may some- 
times be on the side of the established church. But the arts of 
popularity, all theartsof gaining proselytes, are constantly on the 
side of its adversaries. In England, those arts have been long ne- 



643 



The Wealth of Nations 



glected by thewell endowed clergy of the established church, and 
are at present chiefly cultivated bythedissentersand bythemeth- 
odists.Theindependentprovisions, however, which in manyplaces 
have been made for dissenting teachers, by means of voluntary 
subscriptions, of trust rights, and other evasions of the law, seem 
very much to have abated the zeal and activity of those teachers. 
They have many of them become very learned, ingenious, and 
respectable men; but they have in general ceased to be very popu- 
lar preachers. The methodists, without half the learning of the 
dissenters, are much more in vogue. 

In the church of Rome the industry and zeal of the inferior 
clergy are kept more alive by the powerful motive of self-interest, 
than perhaps in any established protestant church. The parochial 
clergy derive many of them, a very considerable part of their sub- 
sistence from the voluntary oblations of the people; a source of 
revenue, which confession gives them many opportunities of im- 
proving. Themendicant ordersderive their wholesubsistencefrom 
such oblations. It iswith them as with thehussarsand light infan- 
try of some armies; no plunder, no pay. The parochial clergy are 
I ike those teachers whose reward depends partly upon their salary, 
and partly upon the fees or honoraries which they get from their 
pupils; and these must always depend, more or less, upon their 
industry and reputation. Themendicant orders arelikethose teach- 



ers whosesubsistencedependsaltogether upon their industry. T hey 
are obliged, therefore, to use every art which can animate the de- 
votion of thecommon people. Theestablishment of thetwo great 
mendicant ordersof St Dominic and St. Francis, it isobserved by 
M achiavel, revived, in thethirteenth and fourteenth centuries, the 
languishing faith and devotion of the catholic church. In Roman 
catholic countries, the spirit of devotion is supported altogether 
by themonks, and bythepoorer parochial clergy. The great digni- 
taries of the church, with all the accomplishments of gentlemen 
and men of the world, and sometimes with those of men of learn- 
ing, are careful to maintain the necessary discipline over their in- 
feriors, but seldom give themselves any troubleabout the instruc- 
tion of the people. 

"M ostoftheartsand professions in a state," says by far the most 
illustrious philosopher and historian of the present age, "are of 
such a nature, that, whilethey promote theinterests of thesociety, 
they are also useful or agreeableto some individuals; and, in that 
case, the constant rule of the magistrate, except, perhaps, on the 
first introduction of any art, is, to leave the profession to itself, 
and trust its encouragement to the individuals who reap the ben- 
efit of it. The artizans, finding their profits to rise by thefavour of 
their customers, increase, as much as possible, their skill and in- 
dustry; and as matters are not disturbed by any injudicious tam- 



644 



Adam Smith 



pering, thecommodityisalwayssureto beat all timesnearly pro- 
portioned to the demand. 

"But there are also somecallings which, though useful and even 
necessary in a state, bring no advantage or pleasure to any indi- 
vidual; and thesupreme power isobliged to alter its conduct with 
regard to theretainersofthoseprofessions. Itmustgivethem public 
encouragement in order to their subsistence; and it must provide 
against that negligence to which they will naturally be subject, 
either by annexing particular honours to profession, by establish- 
ing a long subordination of ranks, and a strict dependence, or by 
someother expedient. T hepersonsemployed in thefinances, fleets, 
and magistracy, are instances of this order of men. 

"It may naturally bethought, at first sight, that the ecclesiastics 
belong to the first class, and that their encouragement, as well as 
that of lawyers and physicians, may safely be entrusted to theliber- 
ality of individuals, who are attached to their doctrines, and who 
find benefit or consolation from their spiritual ministry and assis- 
tance. Their industry and vigilance will, no doubt, be whetted by 
such an additional motive; and their skill in the profession, as well 
as their address in governing the minds of the people, must receive 
daily increase, from their increasing practice, study, and attention. 

"But if we consider the matter more closely, we shall find that 
this interested diligence of the clergy is what every wise legislator 



will study to prevent; because, in every religion except the true, it 
is highly pernicious, and it has even a natural tendency to pervert 
thetruth, by infusing into it a strong mixture of superstition, folly, 
and delusion. Each ghostly practitioner, in order to render him- 
self more precious and sacred in the eyes of his retainers, will in- 
spire them with the most violent abhorrence of all other sects, and 
continually endeavour, by some novelty, to excite the languid de- 
votion of his audience. No regard will be paid to truth, morals, or 
decency, in the doctrines inculcated. Every tenet will be adopted 
that best suits the disorderly affections of the human frame. Cus- 
tomers will be drawn to each conventicle by new industry and 
address, in practising on the passions and credulity of the popu- 
lace. And, in the end, the civil magistrate will find that he has 
dearly paid for his intended frugality, in saving a fixed establish- 
ment for the priests; and that, in reality, the most decent and ad- 
vantageous composition, which he can make with the spiritual 
guides, is to bribe their indolence, by assigning stated salaries to 
their profession, and rendering it superfluous for them to be far- 
ther active, than merely to prevent their flock from straying in 
quest of new pastors. And in this manner ecclesiastical establish- 
ments, though commonly they arose at first from religious views, 
provein theend advantageousto thepolitical interests of society." 
But whatever may have been thegood or bad effects of the inde- 



645 



The Wealth of Nations 



pendent provision of the clergy, it has, perhaps, been very seldom 
bestowed upon them from any view to those effects. Times of 
violent religious controversy have generally been times of equally 
violent political faction. Upon such occasions, each political party 
has either found it, or imagined it, for his interest, to league itself 
with someoneor other of thecontending religioussects. But this 
could be done only by adopting, or, at least, by favouring the 
tenets of that particular sect. T hesect which had thegood fortune 
to be leagued with the conquering party necessarily shared in the 
victory of its ally, by whose favour and protection it was soon 
enabled, in some degree, to silence and subdue all its adversaries. 
Those adversaries had generally leagued themselves with the en- 
emies of the con quering party, and were, therefore theenemies of 
that party. The clergy of this particular sect having thus become 
complete masters of the field, and their influence and authority 
with thegreat body of the people being in its highest vigour, they 
were powerful enough to overawe the chiefs and leaders of their 
own party, and to oblige thecivil magistrateto respect their opin- 
ions and inclinations. Their first demand was generally that he 
should silence and subdue all their adversaries; and their second, 
that he should bestow an independent provision on themselves. 
As they had generally contributed a good deal to the victory, it 
seemed not unreason able that they should have some share in the 



spoil. They were weary, besides, of humouring the people, and of 
depending upon their caprice for a subsistence. I n making this de- 
mand, therefore, they consulted their own ease and comfort, with- 
out troubling themselves about the effect which it might have, in 
future times, upon the influence and authority of their order. The 
civil magistrate, who could comply with their demand only by giv- 
ing them something which he would have chosen much rather to 
take, or to keep to himself, was seldom very forward to grant it. 
N ecessity, however, alwaysforced him to submit at last, though fre- 
quently not till after many delays, evasions, and affected excuses. 

But if politics had never called in the aid of religion, had the 
conquering party never adopted the tenets of one sect more than 
those of another, when it had gained the victory, it would prob- 
ably have dealt equally and impartially with all the different sects, 
and have allowed every man to choosehisown priest, and hisown 
religion, ashethought proper. There would, and, in thiscase, no 
doubt, have been, a great multitude of religioussects. Almost ev- 
ery different congregation might probably have had a little sect by 
itself, or have entertained some peculiar tenets of its own. Each 
teacher, would, no doubt, have felt himself under the necessity of 
making the utmost exertion, and of using every art, both to pre- 
serve and to increase the number of his disciples. But as every 
other teacher would have felt himself under the same necessity, 



646 



Adam Smith 



the success of no oneteacher, or sect of teachers, could have been 
very great. The interested and active zeal of religi ous teachers can 
be dangerous and troublesome only where there is either but one 
sect tolerated in thesociety or where the wholeof a large society is 
divided into two or three great sects; theteachers of each acting by 
concert, and under a regular discipline and subordination. But 
that zeal must be altogether innocent, where thesociety isdivided 
into two or three hundred, or, perhaps, into as many thousand 
small sects, of which no one could be considerable enough to dis- 
turb the public tranquillity. T heteachersof each sect, seeingthem- 
selves surrounded on all sides with more adversaries than friends, 
would beobliged to learn that candour and moderation which are 
so seldom to be found among the teachers of those great sects, 
whose tenets, being supported by the civil magistrate, are held in 
veneration by almost all the inhabitants of extensive kingdoms 
and empires, and who, therefore, see nothing round them but 
followers, disciples, and humble admirers. The teachers of each 
little sect, finding themselves almost alone, would be obliged to 
respect those of almost every other sect; and theconcessionswhich 
they would mutually find in both convenient and agreeable to 
makeoneto another, might in time, probably reduce thedoctrine 
of the greater part of them to that pure and rational religion, free 
from every mixture of absurdity, imposture, or fanaticism, such as 



wise men have, in all ages of the world, wished to see established; 
but such as positive law has, perhaps, never yet established, and 
probably never will establish in any country; because, with regard 
to religion, positivelaw always has been, and probably always will 
be, more or less influenced by popular superstition and enthusi- 
asm. This plan of ecclesiastical government, or, more properly, of 
no ecclesiastical government, was what the sect called Indepen- 
dents (a sect, no doubt, of very wild enthusiasts), proposed to 
establish in England towards the end of the civil war. If it had 
been established, though of a very unphilosophical origin, it would 
probably, by this time, have been productive of the most philo- 
sophical good temper and moderation with regard to every sort of 
religious principle. It hasbeen established in Pennsylvania, where, 
though the quakers happen to be the most numerous, the law, in 
reality, favours no one sect more than another; and it is there said 
to have been productive of this philosophical good temper and 
moderation, 

But though this equality of treatment should not be productive 
of this good temper and moderation in all, or even in the greater 
part of the religious sects of a particular country; yet, provided 
those sects were sufficiently numerous, and each of them conse- 
quently too small to disturb the public tranquillity, the excessive 
zeal of each for its particular tenets could not well be productive 



647 



The Wealth of Nations 



of any very hurtful effects, but, on the contrary, of several good 
ones; and if the government was perfectly decided, both to let 
them all alone, and to oblige them all to let alone one another, 
there is little danger that they would not of their own accord, 
subdivide them selves fast enough, so as soon to becomesufficiently 
numerous. 

In every civilized society, in every society where the distinction 
of ranks has once been completely established, there have been 
always two different schemes or systemsof morality current at the 
sametime; of which theone may be called the strict or austere; the 
other the liberal, or, if you will, the loose system. The former is 
generally admired and revered by thecommon people; the latter is 
commonly more esteemed and adopted by what are called the 
people of fashion. The degree of disapprobation with which we 
ought to mark the vices of levity, the vices which are apt to arise 
from great prosperity, and from the excess of gaiety and good 
humour, seemsto constitute theprinci pal distinction between those 
two opposite schemes or systems. In the liberal or loose system, 
luxury, wanton, and even disorderly mirth, thepursuit of pleasure 
to some degree of intemperance, the breach of chastity, at least in 
oneof the two sexes, etc. provided they are not accompanied with 
gross indecency, and do not lead to falsehood and injustice, are 
generally treated with a good deal of indulgence, and are easily 



either excused or pardoned altogether. In the austere system, on 
the contrary, those excesses are regarded with the utmost abhor- 
renceand detestation. Thevices of levity are always ruinousto the 
common people, and a singleweek's thoughtlessness and dissipa- 
tion is often sufficient to undo a poor workman for ever, and to 
drivehim, through despair, upon committing the most enormous 
crimes. T he wiser and better sort of the common people, there- 
fore, have always the utmost abhorrence and detestation of such 
excesses, which their experience tellsthem are so immediately fa- 
tal to peopleof their condition. Thedisorder and extravagance of 
several years, on the contrary, will not always ruin a man of fash- 
ion; and peopleof that rank are very apt to consider the power of 
indulging in some degree of excess, as one of the advantages of 
their fortune; and the liberty of doing so without censure or re- 
proach, as one of the privileges which bdong to thar station. In 
people of thar own station, therefore, they regard such excesses 
with but a small degree of disapprobation, and censure them a- 
ther very slightly or not at all. 

Almost all rdigioussectshave begun among thecommon people, 
from whom they have generally drawn thar earliest, as wdl as 
thar most numerous prosdytes. The austere system of morality 
has, accordingly, been adopted by those sects almost constantly, 
or with very few exceptions; for there have been some. It was the 



648 



Adam Smith 



system by which they could best recommend themselves to that 
order of people, to whom they first proposed their plan of refor- 
mation upon what had been before established. M any of them, 
perhaps the greater part of them, have even endeavoured to gain 
credit by refining upon this austere system, and by carrying it to 
some degree of folly and extravagance; and this excessive rigour 
has frequently recommended them, more than any thing else, to 
the respect and veneration of the common people. 

A man of rank and fortune is, by his station, the distinguished 
member of a great society, who attend to every part of his con- 
duct, and who thereby oblige him to attend to every part of it 
himself. H is authority and consideration depend very much upon 
the respect which this society bears to him. H e dares not do any- 
thing which would disgraceor discredit him in it; and heisobliged 
to a very strict observation of that species of morals, whether lib- 
eral or austere, which the general consent of thissociety prescribes 
to persons of his rank and fortune. A man of low condition, on 
the contrary, is far from being a distinguished member of any 
great society. W hile he remains in a country village, his conduct 
may be attended to, and hemay be obliged to attend to it himself. 
In this situation, and in this situation only, hemay have what is 
called a character to lose. But as soon as he comes into a great city, 
heissunk in obscurity and darkness. Hisconductisobservedand 



attended to by nobody; and he is, therefore, very likely to neglect 
it himself, and to abandon himself to every sort of low profligacy 
and vice. H e never emerges so effectually from this obscurity, his 
conduct never excites so much the attention of any respectable 
society, as by his becoming the member of a small religious sect. 
H efrom that moment acquires a degree of consideration which 
he never had before. All his brother sectaries are, for the credit of 
the sect, interested to observe his conduct; and, if he gives occa- 
sion to any scandal, if he deviates very much from those austere 
morals which they almost always require of one another, to pun- 
ish him by what is always a very severe punishment, even where 
no evil effects attend it, expulsion or excommunication from the 
sect. In little religious sects, accordingly, the morals of the com- 
mon people have been almost always remarkably regular and or- 
derly; generally much more so than in the established church. The 
morals of those little sects, indeed, have frequently been rather 
disagreeably rigorous and unsocial. 

There are two very easy and effectual remedies, however, by 
whose joint operation the state might, without violence, correct 
whatever wasunsocial or disagreeably rigorousin the moralsof all 
the little sects into which the country wasdivided. 

T he first of those remedies is the study of science and philoso- 
phy, which thestatemight render almost universal among all people 



649 



The Wealth of Nations 



of middling or more than middling rank and fortune; not by giv- 
ing salaries to teachers in order to make them negligent and idle, 
but by instituting some sort of probation, even in the higher and 
morediffi cult sciences, to beundergoneby every person beforehe 
was permitted to exercise any liberal profession, or beforehecould 
be received as a candidate for any honourable office, of trust or 
profit, if the state imposed upon this order of men the necessity of 
learning, it would haveno occasion to giveitself any troubleabout 
providing them with proper teachers. They would soon find bet- 
ter teachers for themselves, than any whom the state could pro- 
videfor them. Science is the great antidote to thepoison of enthu- 
siasm and superstition; and where all thesuperior ranks of people 
were secured from it, the inferior ranks could not be much ex- 
posed to it. 

The second of those remedies is the frequency and gaiety of 
public diversions. The state, by encouraging, that is, by giving 
entire liberty to all those who, from their own interest, would 
attempt, without scandal or indecency, to amuse and divert the 
people by painting, poetry, music, dancing; by all sorts of dra- 
matic representations and exhibitions; would easily dissipate, in 
the greater part of them, that melancholy and gloomy humour 
which is almost always the nurse of popular superstition and en- 
thusiasm. Public diversions have always been the objects of dread 



and hatred to all the fanatical promotersofthosepopular frenzies. 
Thegaietyand good humour which thosediversionsinspire, were 
altogether inconsistent with that temper of mind which was fit- 
test for their purpose, or which they could best work upon. D ra- 
matic representations, besides, frequently exposing their artifices 
to public ridicule, and sometimes even to public execration, were, 
upon that account, more than all other diversions, the objects of 
their peculiar abhorrence. 

In a country where the law favoured the teachers of no one reli- 
gion more than those of another, it would not be necessary that any 
of them should haveany particular or immediatedependency upon 
the sovereign or executive power; or that he should have anything 
to do either in appointing or in dismissing them from their offices. 
In such a situation, he would have no occasion to give himself any 
concern about them, further than to keep the peace among them, 
in the same manner as among the rest of his subjects, that is, to 
hinder them from persecuting, abusing, or oppressing oneanother. 
But it isquiteotherwisein countries where thereisan established or 
governing religion. The sovereign can in this case never be secure, 
unless he has the means of influencing in a considerable degree the 
greater part of the teachers of that religion. 

The clergy of every established church constitute a great incor- 
poration. They can act in concert, and pursue their interest upon 



650 



Adam Smith 



one plan, and with one spirit as much as if they were under the 
direction of one man; and they are frequently, too, under such 
direction. Their interest as an incorporated bodyisneverthesame 
with that of the sovereign, and is sometimes directly opposite to 
it. T heir great interest isto maintain their authority with thepeople, 
and this authority depends upon the supposed certainty and im- 
portance of the whole doctrine which they inculcate, and upon 
the supposed necessity of adopting every part of it with the most 
implicit faith, in order to avoid eternal misery. Should the sover- 
eign have the imprudence to appear either to deride, or doubt 
himself of themost trifling part of theirdoctrine, or from human- 
ity, attempt to protect those who did either the one or the other, 
the punctilious honour of a clergy, who have no sort of depen- 
dency upon him, is immediately provoked to proscribe him as a 
profane person, and to employ all the terrors of religion, in order 
to oblige the people to transfer their allegiance to some more or- 
thodox and obedient prince. Should he oppose any of their pre- 
tensions or usurpations, the danger is equally great. T he princes 
who have dared in this manner to rebel against the church, over 
and above this crime of rebellion, have generally been charged, 
too, with the additional crime of heresy, notwithstanding their 
solemn protestationsoftheirfaith, and humblesubmission to every 
tenet which she thought proper to prescribe to them. But the au- 



thority of religion is superior to every other authority. The fears 
which it suggests conquer all other fears. When the authorized 
teachers of religion propagate through thegreat body of thepeople, 
doctrines subversive of the authority of the sovereign, it is by vio- 
lence only, or by the force of a standing army, that he can main- 
tain his authority. Even a standing army cannot in this case give 
him any lasting security; because if the soldiers are not foreigners, 
which can seldom be the case, but drawn from thegreat body of 
thepeople, which must almost always be the case, they are likely 
to be soon corrupted by those very doctrines.Therevolutionswhich 
the turbulence of the Greek clergy was continually occasioning at 
Constantinople, as long as the eastern empire subsisted; thecon- 
vulsionswhich, during the course of several centuries, theturbu- 
lence of the Roman clergy was continually occasioning in every 
part of Europe, sufficiently demonstrate how precariousand inse- 
cure must always be the situation of the sovereign, who has no 
proper meansof influencingtheclergy of theestablished and gov- 
erning religion of his country. 

Articles of faith, as well as all other spiritual matters, it is evi- 
dent enough, are not within the proper department of a temporal 
sovereign, who, though he may be very well qualified for protect- 
ing, is seldom supposed to be so for instructing thepeople. With 
regard to such matters, therefore, his authority can seldom besuf- 



651 



The Wealth of Nations 



ficient to counterbalance the united authority of the clergy of the 
established church. The public tranquillity however, and hisown 
security may frequently depend upon the doctrines which they 
may think proper to propagate concerning such matters. As he 
can seldom directly op pose their decision, therefore, with proper 
weight and authority, it is necessary that he should be able to in- 
fluence it; and he can influence it only by the fears and expecta- 
tions which he may excite in the greater part of the individuals of 
the order. Those fears and expectations may consist in thefearof 
deprivation or other punishment, and in the expectation of fur- 
ther preferment. 

In all Christian churches, thebenefices of the clergy area sort of 
freeholds, which they enjoy, not during pleasure, but during life 
or good behaviour. Iftheyheldthembyamoreprecarioustenure, 
and were liable to be turned out upon every slight disobligation 
either of the sovereign or of his ministers, it would perhaps be 
impossible for them to maintain their authority with the people, 
who would then consider them as mercenary dependents upon 
the court, in the sincerity of whose instructions they could no 
longer have any confidence. But should the sovereign attempt ir- 
regularly, and by violence, to deprive any number of clergymen of 
their freeholds, on account, perhaps, of their having propagated, 
with more than ordinary zeal, somefactiousorseditiousdoctrine, 



he would only render, by such persecution, both them and their 
doctrine ten times more popular, and therefore ten times more 
troublesome and dangerous, than they had been before. Fearisin 
almost all cases a wretched instrument of government, and ought 
in particular never to be em ployed against any order of men who 
have the smallest pretensions to independency. To attempt to ter- 
rify them, servesonly to irritatetheir bad humour, and to confirm 
them in an opposition, which more gentle usage, perhaps, might 
easily induce them either to soften, or to lay aside altogether. T he 
violence which the French government usually employed in order 
to oblige all their parliaments, or sovereign courts of justice, to 
en register any unpopular edict, very seldom succeed ed.Themeans 
commonly employed, however, the imprisonment of all the re- 
fractory members, one would think, were forcible enough. The 
princesof the houseof Stuart sometimes employed the like means 
in order to influence some of the members of the parliament of 
England, and they generally found them equally intractable. The 
parliament of England is now managed in another manner; and a 
very small experiment, which the duke of Choiseul made, about 
twelve years ago, upon the parliament of Paris, demonstrated suf- 
ficiently that all the parliaments of France might have been man- 
aged still more easily in the same manner. That experiment was 
not pursued. For though management and persuasion are always 



652 



Adam Smith 



the easi est and safest instrumentsof government asforce and vio- 
lence are the worst and the most dangerous; yet such, it seems, is 
the natural insolence of man, that he almost always disdains to 
use the good instrument, except when he cannot or dare not use 
the bad one. The French government could and durst use force, 
and therefore disdained to use management and persuasion. But 
there is no order of men, it appears I believe, from the experience 
of all ages, upon whom it is so dangerous or rather so perfectly 
ruinous, to employ force and violence, as upon the respected clergy 
of an established church. The rights, the privileges, the personal 
liberty of every individual ecclesiastic, who is upon good terms 
with his own order, are, even in the most despotic governments, 
more respected than those of any other person of nearly equal 
rank and fortune. It is so in every gradation of despotism, from 
that of the gentle and mild government of Paris, to that of the 
violent and furious government of Constantinople. But though 
thisorder of men can scarceever be forced, they may be managed 
as easily as any other; and the security of the sovereign, as well as 
thepublic tranquillity, seemsto depend very much upon themeans 
which he has of managing them; and those means seem to consist 
altogether in the preferment which he has to bestow upon them. 
I n the ancient constitution of the C hristian church, the bishop 
of each diocese was elected by the joint votes of the clergy and of 



the people of the episcopal city. The people did not long retain 
their right of election; and while they did retain it, they almost 
always acted under theinfluence of thedergy, who, in such spiri- 
tual matters, appeared to be their natural guides. Thedergy, how- 
ever, soon grew weary of thetroubleof managing them, and found 
it easier to elect their own bishops themselves. The abbot, in the 
same manner, wasdected by the monksof the monastery, at least 
in the greater part of abbacies. All the inferior ecclesiastical ben- 
efices comprehended within thediocese were collated bythebishop, 
who bestowed them upon such ecclesiastics as hethought proper. 
All church preferments were in thismannerin thedisposal of the 
church. Thesoverdgn, though he might have some indirect influ- 
ence in those elections, and though it was sometimes usual to ask 
both his consent to dect, and his approbation of the election, yet 
had no direct or sufficient means of managing the clergy. The 
ambition of every clergyman naturally led him to pay court, not 
so much to hissoverdgn as to his own order, from which only he 
could expect preferment. 

T hrough the greater part of Europe, the pope gradually drew to 
himsdf, first thecollation of almost all bishoprics and abbacies, or 
of what were called consistorial benefices, and afterwards, by vari- 
ous machinations and pretences, of the greater part of inferior 
bendices comprehended within each diocese, little more bang 



653 



The Wealth of Nations 



left to the bishop than what was barely necessary to give him a 
decent authority with his own clergy. By this arrangement the 
condition of the sovereign was still worse than it had been before. 
T heel ergy of all thedifferent countries of Europe were thusformed 
into a sort of spiritual army dispersed in different quarters in- 
deed, but of which all the movements and operations could now 
be directed by one head, and conducted upon one uniform plan. 
The clergy of each particular country might be considered as a 
particular detachment of that army, of which theoperationscould 
easily be supported and seconded by all the other detachments 
quartered in the different countries round about. Each detach- 
ment was not only independent of the sovereign of the country in 
which it was quartered, and by which it was maintained, but de- 
pendent upon a foreign sovereign, who could atanytimeturn its 
arms again st the sovereign of that particular country, and support 
them by the arms of all the other detachments. 

Those arms were the most formidable that can well be imag- 
ined. I n the ancient state of Europe, before the establishment of 
arts and manufactures, the wealth of the clergy gave them the 
samesort of influence over the common peoplewhichthatofthe 
great barons gave them over their respective vassals, tenants, and 
retainers. In the great landed estates, which the mistaken piety 
both of princes and private persons had bestowed upon thechurch, 



jurisdictions were established, of the same kind with those of the 
great barons, and for the same reason. In those great landed es- 
tates, the clergy, or their bailiffs, could easily keep thepeace, with- 
out the support or assistance either of the king or of any other 
person; and neither the king nor any other person could keep the 
peace there without the support and assistance of the clergy. T he 
jurisdictionsof theel ergy, therefore, in their particular baroniesor 
manors, were equally independent, and equally exclusive of the 
authority of the king'scourts, as those of the great temporal lords. 
The tenants of the clergy were, like those of the great barons, al- 
most all tenants at will, entirely dependent upon their immediate 
lords, and, therefore, liableto be called out at pleasure, in order to 
fight in any quarrel in which the clergy might think proper to 
en gage them. Over and above the rents of those estates, thedergy 
possessed in the tithes a very large portion of the rents of all the 
other estates in every kingdom of Europe. The revenues arising 
from both those species of rents were, the greater part of them, 
paid in kind, in corn, wine, cattle, poultry, etc. The quantity ex- 
ceeded greatly what the clergy could themselves consume; and 
there were neither arts nor manufactures, for the produce of which 
they could exchange the surplus. The clergy could derive advan- 
tage from this immense surplus in no other way than by employ- 
ing it, as the great barons employed the like surplus of their rev- 



654 



Adam Smith 



enues, in the most profuse hospitality, and in the most extensive 
charity. Both the hospitality and the charity of the ancient clergy, 
accordingly, are said to have been very great. They not only main- 
tained almost thewholepoor of every kingdom, but manyknights 
and gentlemen had frequently no other meansof subsistence than 
by travel ling about from monastery to monastery, under pretence 
of devotion, but in reality to enjoy the hospitality of the clergy. 
T he retainers of some particular prelates were often as numerous 
as those of the greatest lay-lords; and the retainers of all the clergy 
taken together were, perhaps, more numerous than those of all 
thelay-lords.Therewasalwaysmuch moreunion among thedergy 
than among the lay-lords. T he former were under a regular disci- 
pline and subordination to the papal authority. The latter were 
under no regular discipline or subordination, but almost always 
equally jealous of one another, and of the king. Though the ten- 
ants and retainers of thedergy, therefore, had both together been 
less numerous than those of the great lay-lords, and thar tenants 
were probably much less numerous, yet thar union would have 
rendered them more formidable. The hospitality and charity of 
the clergy, too, not only gave them the command of a great tem- 
poral force, but increased very much the weight of their spiritual 
weapons. Those virtues procured them the highest respect and 
veneration among all the inferior ranks of people, of whom many 



were constantly, and almost all occasionally, fed by them. Every- 
thing bdonging or rdated to so popular an order, its possessions, 
its privileges, itsdoctrines, necessarily appeared sacred in theeyes 
of the common people; and every violation of them, whether real 
or pretended, the highest act of sacrilegious wickedness and pro- 
faneness. In this state of things, if the sovereign frequently found 
it difficult to resist the confederacy of a few of the great nobility, 
wecannot wonder that heshould find it still more so to resist the 
united force of the clergy of his own dominions, supported by 
that of the clergy of all the neighbouring dominions. In such cir- 
cumstances, the wonder is, not that he was sometimes obliged to 
yidd, but that he ever was able to resist. 

The privileges of the clergy in those ancienttimes(which to us, 
who live in the present times, appear the most absurd), thar total 
exemption from the secular jurisdiction, for example, or what in 
England was called thebenefit of clergy, were the natural, or rather 
the necessary, consequences of this state of things. How danger- 
ous must it have been for the soverdgn to attempt to punish a 
clergyman for any crime whatever, if his order were disposed to 
protect him, and to represent ather the proof as insufficient for 
convicting so holy a man, or the punishment as too severe to be 
inflicted upon one whose person had been rendered sacred byre- 
ligion?T he soverdgn could, in such circumstances, do no better 



655 



The Wealth of Nations 



than leavehimtobetried by the ecclesiastical courts, who, for the 
honour of their own order, were interested to restrain, as much as 
possible, every member of it from committing enormous crimes, 
or even from giving occasion to such gross scandal as might dis- 
gust the minds of the people. 

In the state in which things were, through the greater part of 
Europe, during thetenth, eleventh, twelfth, and thirteenth centu- 
ries, and for sometime both before and after that period, thecon- 
stitution of the church of Rome may be considered as the most 
formidablecombination that ever was formed against theauthor- 
ityand security of civil government, as well as against the liberty, 
reason, and happiness of mankind, which can flourish only where 
civil government is able to protect them. In that constitution, the 
grossest delusions of superstition were supported in such a man- 
ner by the private interests of so great a number of people, as put 
them out of all danger from any assault of human reason; because, 
though human reason might, perhaps, have been ableto unveil, 
even to the eyes of the common people, some of the delusions of 
superstition, it could never have dissolved theties of privateinter- 
est. H ad this constitution been attacked by no other enemies but 
the feeble efforts of human reason, it must have endured for ever. 
But that immense and well-built fabric, which all the wisdom and 
virtueof man could never have shaken, much I ess have overturned, 



was, by the natural course of things, first weakened, and after- 
wards in part destroyed; and is now likely, in the course of a few 
centuries more, perhaps, to crumble into ruins altogether. 

Thegradual improvements of arts, manufactures, and commerce, 
the same causes which destroyed the power of the great barons, 
destroyed, in the same manner, through the greater part of Eu- 
rope, thewholetemporal manufactures, and commerce, theclergy, 
like the great barons, found something for which they could ex- 
change their rude produce, and thereby discovered the means of 
spending their whole revenues upon their own persons, without 
giving any considerable share of them to other people. T heir char- 
ity becamegradually less extensive, their hospitality less liberal, or 
less profuse. T heir retainers became consequently less numerous, 
and, by degrees, dwindled away altogether. Theclergy, too, like 
the great barons, wished to get a better rent from their landed 
estates, in order to spend it, in thesame manner, upon the gratifi- 
cation of their own private vanity and folly. But this increase of 
rent could be got only by granting leases to their tenants, who 
thereby became, in a great measure, independent of them. The 
ties of interest, which bound the inferior ranks of people to the 
clergy, were in this manner gradually broken and dissolved. They 
were even broken and dissolved sooner than those which bound 
thesameran ks of peopleto thegreat barons; because thebenefices 



656 



Adam Smith 



of the church being, the greater part of them, much smaller than 
the estates of the great barons, the possessor of each benefice was 
much sooner ableto spend thewholeof its revenueupon hisown 
person. D uring the greater part of the fourteenth and fifteenth 
centuries, the power of the great barons was, through the greater 
part of Europe, in full vigour. Butthetemporal power of the clergy, 
the absolute command which they had once had over the great 
body of the people was very much decayed. The power of the 
church was, by that time, very nearly reduced, through thegreater 
part of Europe, to what arose from their spiritual authority; and 
even that spiritual authority was much weakened, when it ceased 
to be supported by the charity and hospitality of the clergy. T he 
inferior ranks of people no longer looked upon that order as they 
had donebefore; as the comforters of their distress, and thereliev- 
ers of their indigence. n the contrary, they were provoked and 
disgusted by the vanity, luxury, and expense of the richer clergy, 
who appeared to spend upon their own pleasures what had always 
before been regarded as the patrimony of the poor. 

In this situation of things, the sovereigns in the different states 
of Europe endeavoured to recover the influence which they had 
once had in the disposal of the great benefices of the church; by 
procuring to the deans and chapters of each diocese the restora- 
tion of their ancient right of electing the bishop; and to the monks 



of each abbacy that of electing the abbot. T he re-establishing this 
ancient order was theobject of several statutes enacted in England 
during the course of the fourteenth century, particularly of what 
is called the statute of provisors; and of the pragmatic sanction, 
established in France in the fifteenth century. In order to render 
the election valid, it was necessary that the sovereign should both 
consent to it before hand, and afterwards approve of the person 
elected; and though the election was still supposed to be free, he 
had, however all the indirect means which his situation necessar- 
ily afforded him, of influencing the clergy in hisown dominions. 
Other regulations, of a similar tendency, were established in other 
parts of Europe. But the power of the pope, in the collation of the 
great benefices of the church, seems, before the reformation, to 
have been nowhere so effectually and so universally restrained as 
in France and England. Theconcordat afterwards, in thesixteenth 
century, gaveto the kings of France the absolute right of present- 
ing to all thegreat, or what are called theconsistorial, beneficesof 
theGallican church. 

Since the establishment of the pragmatic sanction and of the 
concordat, the clergy of France have in general shewn less respect 
to the decrees of the papal court, than the clergy of any other 
catholic country. In all the disputes which their sovereign has had 
with the pope, they have almost constantly taken part with the 



657 



The Wealth of Nations 



former. T his independency of the clergy of France upon thecourt 
of Romeseemstobeprincipallyfoundeduponthepragmaticsanc- 
tion and the concordat. Intheearlierperiodsofthemonarchy the 
clergy of France appear to have been as much devoted to the pope 
asthoseof any other country. When Robert, the second princeof 
theCapetian race, wasmost unjustly excommunicated by thecourt 
of Rome, his own servants, it is said, threw the victuals which 
came from his table to the dogs, and refused to taste any thing 
themselves which had been polluted by the contact of a person in 
his situation. They were taught to do so, it may very safely be 
presumed, by the clergy of his own dominions. 

The claim of collating to the great benefices of the church, a 
claim in defenceof which thecourt of Rom eh ad frequently shaken, 
and sometimes overturned, the thrones of some of the greatest 
sovereigns in Christendom, was in this manner either restrained 
or modified, or given up altogether, in many different parts of 
Europe, even before the time of the reformation. As the clergy had 
now lessinfluenceoverthepeople, sothestatehad moreinfluence 
overtheclergy.Thedergy, therefore, had both less power, and less 
inclination, to disturb the state. 

Theauthorityofthechurch of Romewasin misstate of declen- 
sion, when the disputes which gave birth to the reformation be- 
gan in Germany, and soon spread themsdves through every part 



of Europe. The new doctrines were everywhere recdved with a 
high degree of popular favour. They were propagated with all that 
enthusiastic zeal which commonly animates the spirit of party, 
when it attacks established authority. T he teachers of those doc- 
trines, though perhaps, in other respects not more learned than 
many of thedivineswhodef ended the established church, seem in 
general to have been better acquainted with ecclesiastical history, 
and with the origin and progress of that system of opinions upon 
which the authority of the church was established; and they had 
thereby the advantage in almost every dispute. The austerity of 
thdr manners gave them authority with thecommon people, who 
contrasted the strict regularity of their conduct with the disor- 
derly lives of the greater part of thdr own clergy. T hey possessed, 
too, in a much higher degree than thdr adversaries, all the arts of 
popularity and of gaining prosdytes; arts which thelofty and dig- 
nified sons of the church had long neglected, as bang to them in 
a great measure usdess. The reason of the new doctrines recom- 
mended them to some, thdr novdty to many; the hatred and con- 
tempt of the established clergy to a still greater number: but the 
zealous, passionate, and fanatical, though frequently coarse and 
rustic doquence, with which they were almost everywhere incul- 
cated, recommended them to by far the greatest number. 
T hesuccessof thenew doctrineswas almost everywhereso great, 



658 



Adam Smith 



that the princes, who at that time happened to be on bad terms 
with the court of Rome, were, by means of them, easily enabled, 
in their own dominions, to overturn the church, which having 
lost the respect and veneration of the inferior ranks of people, 
could makescarce any resistance. Thecourt of Romehad disobliged 
some of the smaller princes in the northern parts of Germany, 
whom it had probably considered as too insignificant to beworth 
the managing. They universally, therefore, established the refor- 
mation in their own dominions. The tyranny of Christiern II., 
and of Troll archbishop of Upsal, enabled GustavusVasato expel 
them both from Sweden. The pope favoured the tyrant and the 
archbishop, and GustavusVasa found no difficulty in establishing 
the reformation in Sweden. Christiern II. was afterwards deposed 
from the throne of Denmark, where his conduct had rendered 
him asodiousasin Sweden. The pope, however, was still disposed 
to favour him; and Frederic of H olstein, who had mounted the 
thronein hisstead, revenged himself, by following theexampleof 
GustavusVasa. The magistrates of Berneand Zurich, who had no 
particular quarrel with the pope, established with great ease the 
reformation in their respective cantons, wherejust before someof 
the clergy had, by an imposture somewhat grosser than ordinary, 
rendered thewholeorder both odiousand contemptible. 
In thiscritical situation of its affairs the papal court was at suf- 



ficient painsto cultivate thefriendship of thepowerful sovereigns 
of France and Spain, of whom the latter was at that time emperor 
of Germany. With their assistance, it was enabled, though not 
without great difficulty, and much bloodshed, either to suppress 
altogether, or to obstruct very much, the progress of the reforma- 
tion in their dominions. It was well enough inclined, too, to be 
complaisant to the king of England. But from the circumstances 
of the times, it could not be so without giving offence to a still 
greater sovereign, Charles V., king of Spain and emperor of Ger- 
many. Henry VI 1 1., accordingly, though he did not embrace him- 
self the greater part of the doctrines of the reformation, was yet 
enabled, by their general prevalence, to suppress all the monaster- 
ies, and to abolish the authority of the church of Rome in his 
dominions That he should go so far, though he went no further, 
gave some satisfaction to the patrons of the reformation, who, 
having got possession of the government in the reign of his son 
and successor completed, without any difficulty, the work which 
Henry VII I. had begun. 

In some countries, as in Scotland, where the government was 
weak, unpopular, and not very firmly establish ed, the reformation 
was strong enough to overturn, not only thechurch, butthestate 
likewise, for attempting to support thechurch. 

Among the followers of the reformation, dispersed in all the 



659 



The Wealth of Nations 



different countriesof Europe, there was no general tribunal, which, 
likethatof thecourtof Rome, or an oecumenical council, could 
settle all disputes among them, and, with irresistible authority, 
prescribe to all of them the precise limitsof orthodoxy. When the 
followers of the reformation in one country, therefore, happened 
to differ from their brethren in another, as they had no common 
judge to appeal to, the dispute could never be decided; and many 
such disputes arose among them. T hose concerning the govern- 
ment of the church, and the right of conferring ecclesiastical ben- 
efices, were perhaps the most interesting to the peace and welfare 
of civil society. They gave birth, accordingly, tothetwo principal 
parties or sects among the followers of the reformation, the 
Lutheran and Calvinistic sects, theonly sects among them, of which 
the doctrine and discipline have ever yet been established bylaw 
in any part of Europe. 

Thefollowers of Luther, together with what iscalled thechurch 
of England, preserved more or less of the episcopal government, 
established subordination among the clergy, gave the sovereign 
the disposal of all the bishoprics, and other consistorial benefices 
within his dominions, and thereby rendered him the real head of 
the church; and without depriving the bishop of the right of col- 
lating to the smaller benefices within his diocese, they, even to 
those benefices, not only admitted, but favoured the right of pre- 



sentation, both in the sovereign and in all other lay patrons. This 
system of church government was, from the beginning, favourable 
to peace and good order, and to submission to thecivil sovereign. 
It has never, accordingly, been the occasion of any tumult or civil 
commotion in any country in which it has once been established. 
Thechurch of England, in particular, has always valued herself, 
with great reason, upon the unexceptionable loyalty of her prin- 
ciples. Under such a government, the clergy naturally endeavour 
to recommend themselves to the sovereign, to the court, and to 
the nobility and gentry of the country, by whose influence they 
chiefly expect to obtain preferment. T hey pay court to those pa- 
trons, sometimes, no doubt, by the vilest flattery and assentation; 
but frequently, too, by cultivating all those arts which best de- 
serve, and which are therefore most likely to gain them, the es- 
teem of people of rank and fortune; by their knowledge in all the 
different branches of useful and ornamental learning, by the de- 
cent liberality of their manners, by the social good humour of 
their conversation, and bytheiravowed contempt of those absurd 
and hypocritical austerities which fanatics inculcate and pretend 
to practise, in order to draw upon themselves the veneration, and 
upon the greater part of men of rank and fortune, who avow that 
they do not practise them, theabhorrence of thecommon people. 
Such a clergy, however, whilethey pay their court in this manner 



660 



Adam Smith 



to the higher ranks of life, are very apt to neglect altogether the 
meansof maintaining their influence and authori ty with thelower. 
They are listened to, esteemed, and respected by their superiors; 
but before their inferiors they are frequently incapableof defend- 
ing, effectually, and to the conviction of such hearers, their own 
sober and moderate doctrines, against the most ignorant enthusi- 
ast who chooses to attack them. 

Thefollowersof Zuinglius, or more properly thoseof Calvin, on 
the contrary, bestowed upon the people of each parish, whenever 
the church became vacant, the right of electing their own pastor; 
and established, at the same time, the most perfect equality among 
the clergy. Theformer part of thisinstitution, aslong asit remained 
in vigour, seems to have been productive of nothing but disorder 
and confusion, and to have tended equally to corrupt the morals 
both of the clergy and of the people. The latter part seems never to 
have had any effects but what were perfectly agreeable. 

Aslong as thepeopleof each parish preserved the right of elect- 
ing their own pastors, they acted almost always under the influ- 
ence of the clergy, and generally of the most factiousand fanatical 
of the order. The clergy, in order to preserve their influence in 
those popular elections, became, or affected to become, many of 
them, fanatics themselves, encouraged fanaticism among the 
people, and gave the preference almost always to the most fanati- 



cal candidate. So small a matter as the appointment of a parish 
priest, occasioned almost alwaysa violent contest, not only in one 
parish, but in all theneighbouring parisheswho seldom failed to 
take part in the quarrel. W hen the parish happened to be situated 
in a great city, it divided all the inhabitants into two parties; and 
when that city happened, either to constitute itself a little repub- 
lic, or to be the head and capital of a little republic, as in the case 
with many of the considerable cities in Switzerland and Holland, 
every paltry disputeof this kind, over and above exasperating the 
animosity of all thar other factions, threatened to leave behind it, 
both a new schism in thechurch, and a new faction in thestate. I n 
those small republics, therefore, the magistrate very soon found it 
necessary, for thesakeof preserving thepublic peace, to assumeto 
himself theright of presenting to all vacant benefices I n Scotland, 
the most extensive country in which this presbyterian form of 
church government has ever been established, the rights of pa- 
tronage were in effect abolished by the act which established 
presbytery in the beginning of the reign of William 1 1 1. That act, 
at least, put in the power of certain classes of people in each parish 
to purchase, for a very small price, the right of electing their own 
pastor. Theconstitution which thisact established, was allowed to 
subsist for about two-and-twenty years, but was abolished by the 
10th of queen Anne, ch.12, on account of the confusions and 



661 



The Wealth of Nations 



disorders which this more popular mode of election had almost 
everywhereoccasioned. In so extensive a country as Scotland, how- 
ever, a tumult in a remote parish was not so likely to give distur- 
bance to government as in a smaller state. T he 10th of queen Anne 
restored the rights of patronage. But though, in Scotland, thelaw 
gives the benefice, without any exception to the person presented 
by the patron; yet the church requires sometimes (for she has not 
in this respect been very uniform in her decisions) a certain con- 
currence of the people, before she will confer upon the presentee 
what iscalled thecureof souls, or theecclesiastical jurisdiction in 
the parish. She sometimes, at least, from an affected concern for 
the peace of the parish, delays thesettlement till this concurrence 
can be procured. The private tampering of some of the 
neighbouring clergy, sometimes to procure, but more frequently 
to prevent this concurrence, and the popular arts which they cul- 
tivate, in order to enable them upon such occasions to tamper 
more effectually, are perhaps thecauses which principally keep up 
whatever remainsof theold fanatical spirit, either in thedergy or 
in the people of Scotland. 

The equality which the presbyterian form of church govern- 
ment establishes among thedergy, consists, first, in the equality 
of authority or ecclesiastical jurisdiction; and, secondly, in the 
equality of benefice. In all presbyterian churches, the equality of 



authority is perfect; that of benefice isnot so. T hedifference, how- 
ever, between one benefice and another, is sddom so consider- 
able, as commonly to tempt thepossessor even of thesmall oneto 
pay court to hispatron, by the vile arts of flattery and assentation, 
in order to get a better. In all the presbyterian churches, where the 
rights of patronage are thoroughly established, it is by nobler and 
better arts, that theestablished clergy in general endeavour to gain 
thefavour of thar superiors; by their learning, by the irreproach- 
able regularity of thar life, and by the faithful and diligent dis- 
charge of thar duty. Thar patrons even frequently complain of 
the independency of their spirit, which they are apt to construe 
into ingratitude for past favours, but which, at worse, perhaps, is 
seldom anymore than that indifference which naturally arises from 
theconsciousnessthatnofurtherfavoursofthekindareevertobe 
expected. There is scarce, perhaps, to be found anywhere in Eu- 
rope, a more learned, decent, independent, and respectable set of 
men, than the greater part of the presbyterian clergy of H olland, 
Geneva, Switzerland, and Scotland. 

Where the church benefices are all nearly equal, none of them 
can be very great; and this mediocrity of benefice, though it may 
be, no doubt, carried too far, has, however, some very agreeable 
effects. N othing but exemplary morals can give dignity to a man 
of small fortune. T he vices of levity and vanity necessarily render 



662 



Adam Smith 



him ridiculous, and are, besides, almost as ruinousto him as they 
are to the common people. In his own conduct, therefore, he is 
obliged to follow that system of morals which thecommon people 
respect the most. Hegainstheir esteem and affection, by that plan 
of life which his own interest and situation would lead him to 
follow. Thecommon people look upon him with that kindness 
with which we naturally regard one who approaches somewhat to 
our own condition, but who, we think, ought to be in a higher. 
Theirkindnessnaturallyprovokeshiskindness. He becomes care- 
ful to instruct them, and attentive to assist and relieve them. H e 
doesnotevendespisetheprejudicesofpeoplewhoaredisposedto 
be so favourable to him, and never treats them with those con- 
temptuous and arrogant airs, which we so often meet with in the 
proud dignitaries of opulent and well endowed churches. The 
presbyterian clergy, accordingly, havemoreinfluenceovertheminds 
of the common people, than perhaps the clergy of any other es- 
tablished church. It is, accordingly, in presbyterian countries only, 
that weever find thecommon peopleconverted, without persecu- 
tion completely, and almost to a man, to the established church. 
In countries wherechurch beneficesare, thegreater part of them, 
very moderate, a chair in a university is generally a better estab- 
lishment than a church benefice. The universities have, in this 
case, thepicking and chusing of their members from all thechurch- 



men of the country, who, in every country, constitute by far the 
most numerous class of men of letters. W here church benefices, 
on the contrary, are many of them very considerable, the church 
naturally draws from the universities thegreater part of their emi- 
nent men of letters; who generally find some patron, who does 
himself honour by procuring them church preferment. In the 
former situation, we are likely to find the universities filled with 
themost eminent men of letters that are to be found in thecoun- 
try. In the latter, we are likely to find few eminent men among 
them, and those few among theyoungest members of the society, 
who are likely, too, to be drained away from it, before they can 
have acquired experience and knowledge enough to be of much 
use to it. It is observed by M r. de Voltaire, that father Poree, a 
Jesuit of no great eminencein therepublic of letters, wastheonly 
professor they had ever had in France, whose works were worth 
the reading. I n a country which has produced so many eminent 
men of letters, it must appear somewhat singular, that scarce one 
of them should have been a professor in a university. The famous 
Cassendi was, in the beginning of his life, a professor in the uni- 
versity of Aix. Upon the first dawning of his genius, it was repre- 
sented to him, that by going into thechurch hecould easily find a 
much more quiet and comfortable subsistence, as well as a better 
situation for pursuing his studies; and he immediately followed 



663 



The Wealth of Nations 



the advice. The observation of M r. de Voltaire may be applied, I 
believe, not only to France, but to all other Roman Catholic coun- 
tries. We very rarely find in any of them an eminent man of let- 
ters, who is a professor in a university, except, perhaps, in the 
professionsof law and physic; professionsfrom which thechurch 
is not so likely to draw them. After the church of Rome, that of 
England is by far the richest and best endowed church in 
Christendom. In England, accordingly, thechurch is continually 
draining the universities of all their best and ablest members; and 
an old college tutor who is known and distinguished in Europe as 
an eminent man of letters, isas rarely to be found there as in any 
Roman catholic country, In Geneva, on the contrary, in theprot- 
estant cantons of Switzerland, in theprotestant countries of Ger- 
many, in Holland, in Scotland, in Sweden, and Denmark, the 
most eminent men of letters whom those countries haveproduced, 
have, not all indeed, but thefar greater part of them, been profes- 
sors in universities. In those countries, the universities are con- 
tinually drainingthechurch of all its most eminent men of letters. 
Itmay, perhaps, beworth whileto remark, that, if weexceptthe 
poets, a few orators, and a few historians, thefar greater part of 
the other eminent men of letters, both of Greece and Rome, ap- 
pear to have been either public or private teachers; generally either 
of philosophy or of rhetoric. This remark will be found to hold 



true, from the days of Lysiasand Isocrates, of Plato and Aristotle, 
down to those of Plutarch and Epictetus, Suetonius, and 
Q uintilian. To impose upon any man the necessity of teaching, 
year after year, in any particular branch of science seems in reality 
to be the most effectual method for rendering him completely 
master of it himself. By being obliged to go every year over the 
same ground, if he is good for any thing, he necessarily becomes, 
in a few years, well acquainted with every part of it, and if, upon 
any particular point, he should form too hasty an opinion one 
year, when hecomes, in thecourse of hislectures to reconsider the 
same subject the year thereafter, he is very likely to correct it. Asto 
be a teacher of science is certainly the natural employment of a 
mere man of letters; so is it likewise, perhaps, theeducation which 
is most likely to render him a man of solid learning and knowl- 
edge. The mediocrity of church benefices naturally tends to draw 
the greater part of men of letters in the country where it takes 
place, to the employment in which they can be the most useful to 
thepublic, and at the same time to give them the best education, 
perhaps, they arecapableof receiving. Ittendsto render their learn- 
ing both as sol id as possible, and as useful as possible. 

T he revenueof every established church, such partsof it excepted 
as may arise from particular lands or manors, is a branch, it ought 
to be observed, of the general revenue of the state, which is thus 



664 



Adam Smith 



diverted to a purpose very different from the defence of the state. 
The tithe, for example, is a real land tax, which puts it out of the 
power of the proprietors of land to contributes) largely towardsthe 
defence of the state as they otherwise might be able to do. The rent 
of land, however, is, according to some, thesolefund; and, accord- 
ing to others, the principal fund, from which, in all great monar- 
chies, the exigencies of the state must be ultimately supplied. T he 
more of this fund that is given to the church, the less, it is evident, 
can be spared to the state. Itmay belaid down asacertain maxim, 
that all other things being supposed equal, the richer the church, 
thepoorer must necessarily be, either thesovereign on theonehand, 
or the people on the other; and, in all cases, the less able must the 
state be to defend itself. In several protestant countries, particularly 
in all the protestant cantons of Switzerland, the revenue which an- 
ciently belonged to the Roman catholic church, thetithesand church 
lands, has been found a fund sufficient, not only to afford compe- 
tent salaries to theestablished clergy, but to defray, with littleorno 
addition, all the other expenses of the state. The magistrates of the 
powerful canton of Berne, in particular, have accumulated, out of 
th e savi n gs f rom th i s f u n d , a very I arge su m , su pposed to am ou n t to 
several millions; part or which isdeposited in a public treasure, and 
part is placed at interest in what are called the public funds of the 
different indebted nations of Europe; chiefly in those of France and 



Great Britain. W hat may be theamount of thewholeexpensewhich 
thechurch, either of Berne, or of any other protestant canton, costs 
the state, I do not pretend to know. By a very exact account it ap- 
pears, that, in 1755, the whole revenue of the clergy of thechurch 
of Scotland, including their glebe or church lands, and the rent of 
their manses or dwelling-houses, estimated according to a reason- 
able valuation, amounted only to £68,514:1:5 l/12d. This very 
moderate revenue affords a decent subsistence to ninehundred and 
fortyfour ministers. The whole expense of the church, including 
what is occasionally laid out for the building and reparation of 
churches, and of the manses of ministers, cannot well be supposed 
to exceed eighty or eighty-five thousand pounds a-year. T he most 
opulent church in Christendom does not maintain better the uni- 
formity of faith, thefervour of devotion, thespirit of order, regular- 
ity, and austere morals, in the great body of the people, than this 
very poorly endowed church of Scotland. All thegood effects, both 
civil and religious, which an established church can be supposed to 
produce, are produced by it as completely as by any other. The 
greater part of the protestant churches of Switzerland, which, in 
general, are not better endowed than thechurch of Scotland, pro- 
duce those effects in a still higher degree. In the greater part of the 
protestant cantons, there is not a single person to be found, who 
does not profess himself to be of theestablished church. If hepro- 



665 



The Wealth of Nations 



fesses himself to beof any other, indeed, thelaw obligeshim to leave 
the canton. But so severe, or, rather, indeed, so oppressive a law, 
could never have been executed in such free countries, had not the 
diligenceof thedergy beforehand converted to theestablished church 
the whole body of the people, with theexception of, perhaps, afew 
individuals only. In some parts of Switzerland, accordingly, where, 
fromtheaccidental union of aprotestantand Roman catholic coun- 
try, theconversion hasnot been so complete, both religions are not 
only tolerated, but established bylaw. 

T he proper performance of every service seems to require, that 
its pay or recompence should be, as exactly as possible, propor- 
tioned to the nature of the service. If any service is very much 
underpaid, it is very apt to suffer by the meanness and incapacity 
of the greater part of those who are employed in it. If it is very 
much overpaid, it isapt to suffer, perhaps still more, by their neg- 
ligenceand idleness. A man of a large revenue, whatever may be 
hisprofession, thinksheoughtto livelikeother men of large rev- 
enues; and to spend a great part of histimein festivity, in vanity, 
and in dissipation. But in a clergyman, this train of life not only 
consumes the time which ought to be employed in the duties of 
his function, but in the eyes of the common people, destroys al- 
most entirely that sanctity of character, which can alone enable 
him to perform those duties with proper weight and authority. 



PART IV 

f the Expense of supporting the D ignity of the Sovereign 

Over and above the expenses necessary for enabling thesovereign 
to perform hisseveral duties, acertain expense is requisite for the 
support of hisdignity. Thisexpen se varies, both with thedifferent 
periods of improvement, and with the different forms of govern- 
ment. 

In an opulent and improved society, where all thedifferent or- 
dersof peopleare growing every day moreexpen si vein their houses, 
in their furniture, in their tables, in their dress, and in their equi- 
page; it cannot well be expected that thesovereign should alone 
hold out against the fashion. H e naturally, therefore, or rather 
necessarily, becomes more expensive in all those different articles 
too. His dignity even seems to require that he should become so. 

As, in point of dignity, amonarch ismore raised abovehissub- 
jects than the chief magistrate of any republic is ever supposed to 
be above his fellow-citizens; so a greater expense is necessary for 
supporting that higher dignity. Wenaturally expect more splendour 
in the court of a king, than in the mansion-house of a doge or 
burgo- master. 



666 



Adam Smith 



CONCLUSION 

The expense of defending the society, and that of supporting the 
dignity of the chief magistrate, are both laid out for the general 
benefit of the whole society. It is reasonable, therefore, that they 
should bedefrayed bythegeneral contribution of the whole soci- 
ety; all the different members contributing, as nearly as possible, 
in proportion to their respective abilities. 

Theexpenseoftheadministration of justice, too, may no doubt 
be considered aslaid outforthebenefit of thewholesociety There 
is no impropriety, therefore, in its being defrayed by the general 
contribution of thewholesociety.Thepersons, however, whogive 
occasion to this expense, are those who, by their injustice in one 
way or another, make it necessary to seek redress or protection 
from the courts of justice. The persons, again, most immediately 
benefited by this expense, are those whom the courts of justice 
either restore to their rights, or maintain in their rights. Theex- 
penseoftheadministration of justice, therefore, may very prop- 
erly be defrayed by the particular contribution of one or other, or 
both, of those two different sets of persons, according asdifferent 
occasions may require, that is, by the fees of court. It cannot be 
necessary to have recourse to thegeneral contribution of thewhole 
society, except for the conviction of those criminalswhohavenot 



themselves any estate or fund sufficient for paying those fees. 

T hose local or provincial expenses, of which the benefit is local 
or provincial (what is laid out, for example, upon the police of a 
particular town or district), ought to be defrayed by a local or 
provincial revenue, and ought to be no burden upon thegeneral 
revenue of the society. It is unjust that the whole society should 
contribute towardsan expense, of which thebenefitisconfined to 
a part of the society. 

The expense of maintaining good roads and communications 
is, no doubt, beneficial to thewholesociety, and may, therefore, 
without any injustice, bedefrayed bythegeneral contributionsof 
thewholesociety.Thisexpense, however, ismost immediately and 
directly beneficial to those who travd or carry goods from one 
placeto another, and to those who consumesuch goods. Theturn- 
pike tolls in England, and the duties called peagesin other coun- 
tries, lay it altogether upon those two different sets of people, and 
thereby discharge the general revenue of the society from a very 
considerable burden. 

T he expense of the institutions for education and rdigious in- 
struction, is likewise, no doubt, beneficial to thewholesociety, 
and may, therefore, without injustice, bedefrayed bythegeneral 
contribution of thewholesociety. This expense, however, might, 
perhaps, with equal propriety, and even with some advantage, be 



667 



The Wealth of Nations 



defrayed altogether by thosewho receive the immediate benefit of 
such education and instruction, or by the voluntary contribution 
of those who think they have occasion for either the one or the 
other. 

When the institutions, or public works, which are beneficial to 
the whole society, either cannot be maintained altogether, or are 
not maintained altogether, bythecontribution of such particular 
members of thesociety as are most immediately benefited by them; 
the deficiency must, in most cases, be made up by the general 
contribution of thewholesociety.Thegeneral revenueof thesoci- 
ety, over and above defraying the expense of defending thesociety, 
and of supporting the dignity of the chief magistrate, must make 
up for the deficiency of many particular branches of revenue. T he 
sources of this general or public revenue, I shall endeavour to ex- 
plain in thefollowing chapter. 



CHAPTER II 



OF THE SOURCES OF THE GENERAL OR 
PUBLIC REVENUE OFTHE SOCIETY 

The revenue which must defray, not only the expense of defend- 
ing the society and of supporting the dignity of the chief magis- 
trate, but all theother necessary expensesof government, for which 
the constitution of the state has not provided any particular rev- 
enuemay bedrawn, either, first, from somefund which peculiarly 
belongs to the sovereign or commonwealth, and which is inde- 
pendent of the revenue of the people; or, secondly, from the rev- 
enue of the people. 



PART I 

Of the Funds, or Sources, of Revenue, which may peculiarly 
belong to the Sovereign or Commonwealth 

The funds, or sources, of revenue, which may peculiarly belong 
to the sovereign or commonwealth, must consist, either in stock, 
or in land. 



668 



Adam Smith 



Thesovereign, like, any other owner of stock, may derive a rev- 
enuefrom it, either by employing it himself, or by lending it. H is 
revenue is, in the one case, profit, in the other interest. 

The revenue of a Tartar or Arabian chief consists in profit. It 
arisesprincipally from themilk and increase of hi sown herdsand 
flocks, of which he himself superintends the management, and is 
the principal shepherd or herdsman of hisown horde or tribe. It 
is, however, in this earliest and rudest state of civil government 
only, that profit has ever made the principal part of the public 
revenue of a monarchical state. 

Small republics have sometimes derived a considerable revenue 
from the profit of mercantile projects. The republic of Hamburgh 
is said to do so from the profits of a public wine-cellar and 
apothecary's shop. {5eeM emoiresconcernantlesDroitset Impo- 
sitions en Europe, tome i. page 73. This work was compiled by 
the order of the court, for the use of a commission employed for 
some years past in considering the proper means for reforming 
the finances of France. The account of the French taxes, which 
takes up three volumes in quarto, may be regarded as perfectly 
authentic. That of those of other European nations was com pi led 
from such information as the French ministers at the different 
courts could procure. It is much shorter, and probably not quite 
so exact as that of the French taxes.} That state cannot be very 



great, of which thesovereign has leisure to carry on the trade of a 
wine-merchant or an apothecary. T he profit of a public bank has 
been a source of revenue to more considerable states. It has been 
so, not only to Hamhurgh, but to Venice and Amsterdam. A rev- 
enue of this kind has even by some people been thought not be- 
low the attention of so great an empire as that of Great Britain. 
Reckoning the ordinary dividend of the bank of England at five 
and a-half percent., and its capital at ten millions seven hundred 
and eighty thousand pounds, the neat annual profit, after paying 
the expense of management, must amount, it is said, to five hun- 
dred and ninety-two thousand nine hundred pounds. Govern- 
ment, it is pretended, could borrow this capital at three per cent, 
interest, and, by taking the management of the bank into its own 
hands, might make a clear profit of two hundred and sixty-nine 
thousand five hundred pounds a-year. The orderly, vigilant, and 
parsimoniousadministration of such aristocracies as those of Venice 
and Amsterdam, is extremely proper, it appears from experience, 
for the management of a mercantile project of this kind. But 
whether such a government us that of England, which, whatever 
may beits virtues, hasneverbeen famousforgood economy; which, 
in time of peace, has generally conducted itself with the slothful 
and negligent profusion that is, perhaps, natural to monarchies; 
and, in time of war, has constantly acted with all the thoughtless 



669 



The Wealth of Nations 



extravagance that democracies are apt to fall into, could be safely 
trusted with the management of such a project, must at least be a 
good deal more doubtful. 

The post-office is properly a mercantile project. The govern- 
ment advances the expense of establishing the different offices, 
and of buying or hiring the necessary horses or carriages, and is 
repaid, with a largeprofit, by thedutiesupon what iscarried. It is, 
perhaps, the only mercantile project which has been successfully 
managed by, I believe, every sort of government. The capital to be 
advanced isnot very considerableThereisno mystery in the busi- 
ness. T he returns are not only certain but immediate. 

Princes, however, have frequently engaged in many other mer- 
cantile projects, and have been willing, like private persons, to 
mend their fortunes, by becoming adventurers in the common 
branches of trade. T hey have scarce ever succeeded. T heprofusion 
with which the affairs of princes are always managed, renders it 
almost impossible that they should. The agents of a prince regard 
the wealth of their master as inexhaustible; are careless at what 
price they buy, are careless at what price they sell, are careless at 
what expense they transport his goods from one place to another. 
Those agents frequently live with the profusion of princes; and 
sometimes, too, in spiteof that profusion, and by a proper method 
of making up their accounts, acquire the fortunes of princes. It 



was thus, as we are told by M achiavd, that the agents of Lorenzo 
of M edicis, not a prince of mean abilities, carried on his trade. 
Therepublic of Florencewas several timesobliged to pay thedebt 
into which their extravagance had involved him. H efound it con- 
venient, accordingly to giveup thebusiness of merchant, thebusi- 
ness to which hisfamily had originally owed their fortune, and, in 
the latter part of his life, to employ both what remained of that 
fortune, and the revenue of the state, of which he had the dis- 
posal, in projects and expenses more suitable to hisstation. 

N o two characters seem more inconsistent than those of trader 
and sovereign. If the trading spirit of the English East India com- 
pany renders them very bad sovereigns, the spirit of sovereignty 
seemsto have rendered them equally bad traders. W hilethey were 
traders only, they managed their trade successfully, and were able 
to pay from their profits a moderate dividend to the proprietors of 
their stock. Since they became sovereigns, with a revenue which, 
it is said, was originally more than three millions sterling, they 
have been obliged to beg the ordinary assistance of government, 
in order to avoid immediate bankruptcy. In their former situa- 
tion, their servants in India considered themselves as thederks of 
merchants; in thdr present situation, thoseservants consider them- 
sdves as the ministers of soverdgns. 

A state may somdimes derive some part of its public revenue 



670 



Adam Smith 



from the interest of money, as well as from the profits of stock. If 
it has amassed a treasure, it may lend a part of that treasure, either 
to foreign states, or to its own subjects. 

T he canton of Berne derives a considerable revenue by lending 
a part of its treasure to foreign states, that is, by placing it in the 
public funds of the different indebted nations of Europe, chiefly 
in thoseof France and England. T hesecurity of this revenue must 
depend, first, upon thesecurity of thefunds in which itisplaced, 
or upon the good faith of the government which has the manage- 
ment of them; and, secondly, upon thecertainty or probability of 
the continuance of peace with the debtor nation. In the case of a 
war, the very first act of hostility on the part of the debtor nation 
might be the forfeiture of thefunds of its credit or. This policy of 
lending money to foreign states is, so far as I know peculiar to the 
canton of Berne. 

Thecityof H amburgh {SeeM emoireconcernantlesDroiteset 
I mpositionsen Europe tomei p. 73. }has established asort of pub- 
lic pawn-shop, which lends money to the subjects of the state, 
upon pledges, at six per cent, interest. T hispawn-shop, or lombard, 
as it is called, affords a revenue, it is pretended, to the state, of a 
hundred and fifty thousand crowns, which, at four and sixpence 
the crown, amounts to £33,750 sterling. 

The government of Pennsylvania, without amassing any trea- 



sure, invented a method of lending, not money, indeed, but what 
is equivalent to money, to its subjects. By advancing to private 
people, at interest, and upon land security to double the value, 
paper bills of credit, to be redeemed fifteen years after their date; 
and, in themean time, made transferable from hand to hand, like 
banknotes, and declared by act of assembly to be a legal tender in 
all payments from one inhabitant of the province to another, it 
raised a moderate revenue, which went a considerable way to- 
wards defraying an annual expense of about £4,500, the whole 
ordinary expense of that frugal and orderly government. The suc- 
cess of an expedient of this kind must have depended upon three 
different circumstances: first, upon the demand for some other 
instrument of commerce, besides gold and silver money, or upon 
the demand for such a quantity of consumable stock as could not 
be had without sending abroad the greater part of their gold and 
silver money, in order to purchase it; secondly, upon the good 
credit of the government which made use of this expedient; and, 
thirdly, upon the moderation with which it was used, the whole 
value of the paper bills of credit never exceeding that of the gold 
and silver money which would have been necessary for carrying 
on their circulation, had there been no paper bills of credit. The 
same expedient was, upon different occasions, adopted by several 
other American colonies; but, from want of this moderation, it 



671 



The Wealth of Nations 



produced, in the greater part of them, much more disorder than 
convenience 

The unstable and perishable nature of stock and credit, how- 
ever, renders them unfit to be trusted to as the principal funds of 
that sure, steady, and permanent revenue, which can alone give 
security and dignity to government. The government of no great 
nation, that was advanced beyond the shepherd state, seems ever 
to have derived the greater part of its public revenue from such 
sources. 

Land is a fund of more stable and permanent nature; and the 
rent of public lands, accordingly, has been the principal source of 
thepublicrevenueof manyagreatnation that wasmuch advanced 
beyond the shepherd state. From theproduceor rent of thepublic 
lands, theancient republics of Greece and Italy derived foralong 
the the greater part of that revenue which defrayed the necessary 
expenses of the commonwealth. The rent of thecrown lands con- 
stituted for a long time the greater part of the revenue of the an- 
cient sovereigns of Europe. 

War, and the preparation for war, are the two circumstances 
which, in modern times, occasion the greater part of the necessary 
expense or all great states. But in theancient republics of Greece 
and Italy, every citizen was a soldier, and both served, and pre- 
pared himself for service, at hi sown expense. Neither of those two 



circumstances, therefore, could occasion any very considerableex- 
pen se to thestate. T he rent of a very moderate landed estate might 
be fully sufficient for defraying all theother necessary expenses of 
government. 

I n theancient monarchiesof Europe, the manners and customs 
of the time sufficiently prepared the great body of the people for 
war; and when they took the field, they were, by the condition of 
their feudal tenures, to be maintained either at their own expense, 
or at that of their immediate lords, without bringing any new 
chargeuponthesovereign. Theother expenses of government were, 
the greater part of them, very moderate. The administration of 
justice, it has been shewn, instead of being a cause of expense was 
a source of revenue. T he labour of the country people, for three 
days before, and for three days after, harvest, was thought a fund 
sufficient for making and maintaining all the bridges, highways, 
and other public works, which the commerce of the country was 
supposed to require. In those days the principal expense of the 
sovereign seems to have consisted in the maintenance of his own 
family and household. Theofficersofhishousehold, accordingly, 
were then the great officers of state. T he lord treasurer received his 
rents. The lord steward and lord chamberlain looked after the ex- 
pense of his family. T he care of his stables was committed to the 
lord constable and the lord marshal. His houses were all built in 



672 



Adam Smith 



the form of castles, and seem to have been the principal fortresses 
which he possessed. T he keepers of those houses or castles might 
be considered as a sort of military governors T hey seem to have 
been theonly military officers whom it was necessary to main tain 
in timeof peace. I n these circumstances, therent of a great landed 
estate might, upon ordinary occasions, very well defray all the 
necessary expenses of government. 

I n the present state of the greater part of the civilized monar- 
chies of Europe, the rent of all thelandsin thecountry, managed 
as they probably would be, if they all belonged to one proprietor, 
would scarce, perhaps, amount to the ordinary revenuewhich they 
levy upon the people even in peaceable times. The ordinary rev- 
enue of Great Britain, for example, including not only what is 
necessary for defraying the current expense of the year, but for 
paying the interest of the public debts, and for sinking a part of 
the capital of those debts, amounts to upwards of ten millions a- 
year. But the land tax, at four shillings in the pound, fallsshort of 
two millions a-year. This land tax, as it is called however, is sup- 
posed to be one-fifth, not only of the rent of all the land, but of 
that of all the houses, and of the interest of all the capital stock of 
Great Britain, that part of it only excepted which is either lent to 
the public, or employed as farming stock in the cultivation of 
land. A very considerable part of the produce of this tax arises 



from the rent of houses and the interest of capital stock. T he land 
tax of the city of London, for example, at four shillings in the 
pound, amounts to £123,399: 6: 7; that of the city of Westminster 
to £63,092: 1: 5; that of the palaces of Whitehall and St. James's, 
to £30,754: 6: 3. A certain proportion of the land tax is, in the 
same manner, assessed upon all the other cities and towns corpo- 
rate in the kingdom; and arises almost altogether, either from the 
rent of houses, or from what is supposed to be the interest of 
trading and capital stock. According to the estimation, therefore, 
by which Great Britain is rated to the land tax, the whole mass of 
revenue arising from the rent of all the lands, from that of all the 
houses, and from the interest of all the capital stock, that part of it 
only excepted which is either lent to the public, or employed in 
the cultivation of land, does not exceed ten millions sterling a- 
year, the ordinary revenue which government levies upon the 
people, even in peaceable times. The estimation by which Great 
Britain is rated to the land tax is, no doubt, taking the whole 
kingdom at an average, very much below the real value; though in 
several particular counties and districts it is said to benearly equal 
to that value. The rent of the lands alone, exclusive of that of 
houses and of the interest of stock, has by many people been esti- 
mated at twenty millions; an estimation made in a great measure 
at random, and which, I apprehend, is as likely to be above as 



673 



The Wealth of Nations 



below the truth. But if the lands of Great Britain, in the present 
state of their cultivation, do not afford a rent of more than twenty 
mil lions a-year, they could not well afford thehalf, most probably 
not the fourth part of that rent, if they all belonged to a single 
proprietor, and were put under the negligent, expensive, and op- 
pressive management of his factors and agents T he crown lands 
of Great Britain do not at present afford the fourth part of the 
rent which could probably be drawn from them if they were the 
property of private persons. If the crown lands were more exten- 
sive, it is probable, they would be still worse managed. 

T he revenue which the great body of the people derives from 
land is, in proportion, not to the rent, but to the produce of the 
land. The whole annual produce of the land of every country, if 
we except what is reserved for seed, is either annually consumed 
by the great body of the people, or exchanged for something else 
that is consumed by them. Whatever keeps down the produce of 
the land below what it would otherwise rise to, keeps down the 
revenue of the great body of the people, still more than it does 
that of the proprietors of land. The rent of land, that portion of 
the produce which belongs to the proprietors, is scarce anywhere 
in Great Britain supposed to be more than a third part of the 
whole produce. If the land which, in one state of cultivation, af- 
fords a revenue of ten millions sterling a-year, would in another 



afford a rent of twenty millions; the rent being, in both cases, 
supposed a third part of the produce, the revenue of the propri- 
etors would be less than it otherwise might be, by ten millions a- 
year only; but the revenue of the great hotly of the people would 
be less than it otherwise might be, by thirty millions a-year, de- 
ductingonly what would benecessary for seed. Thepopulation of 
the country would be less by the number of people which thirty 
millions a-year, deducting always the seed, could maintain, ac- 
cording to theparticularmodeof living, and expense which might 
take place in the different ranks of men, among whom the re- 
mainder was distributed. 

Though there is not at present in Europe, any civilized state of 
any kind which derives the greater part of itspublicrevenuefrom 
the rent of lands which are the property of the state; yet, in all the 
great monarchies of Europe, there are still many large tracts of 
land which belong to the crown. They are generally forest, and 
sometimes forests where, after travelling several miles, you will 
scarce find a single tree; a mere waste and loss of country, in re- 
spect both of produce and population. In every great monarchy of 
Europe, the sale of the crown lands would produce a very large 
sum of money, which, if applied to the payment of the public 
debts, would deliver from mortgage a much greater revenuethan 
any which those lands have even afforded to the crown. In coun- 



674 



Adam Smith 



tries where lands, improved and cultivated very highly, and yield- 
ing, at the time of sale, as great a rent as can easily be got from 
them, commonly sell at thirty years purchase; the unimproved, 
uncultivated, and low-rented crown lands, might well beexpected 
to sell at forty, fifty, or sixty years purchase. The crown might 
immediately enjoy the revenue which this great price would re 
deem from mortgage. In the course of a few years, it would prob- 
ably enjoy another revenue. W hen the crown lands had become 
private property, they would, in the course of a few years, become 
well improved and well cultivated. The increase of their produce 
would increase the population of thecountry, by augmenting the 
revenue and consumption of the people. But the revenue which 
the crown derives from the duties or custom and excise, would 
necessarily increase with the revenue and consumption of the 
people. 

The revenue which, in any civilized monarchy, the crown de- 
rives from the crown lands, though it appears to cost nothing to 
individuals, in reality costs more to the society than perhaps any 
other equal revenue which thecrown enjoys. It would, in all cases, 
be for the interest of the society, to replace this revenue to the 
crown by someother equal revenue, and to dividethelandsamong 
the people, which could not well bedone better, perhaps, than by 
exposing them to public sale. 



Lands, for the purposes of pleasure and magnificence, parks, 
gardens, public walks, etc. possessions which are everywhere con- 
sidered as causes of expense, not as sources of revenue, seem to be 
the only lands which, in a great and civilized monarchy, ought to 
belong to the crown. 

Public stock and public lands, therefore, thetwo sources of rev- 
enue which may peculiarly belong to the sovereign or common- 
wealth, being both improper and insufficient fundsfor defraying 
the necessary expense of any great and civilized state; it remains 
that this expense must, the greater part of it, be defrayed by taxes 
of one kind or another; the people contributing a part of their 
own private revenue, in order to make up a public revenue to the 
sovereign or commonwealth. 



675 



The Wealth of Nations 



PART II 

Of Taxes 

The private revenue of individuals, it has been shown in the 
first book of this Inquiry, arises, ultimately from three different 
sources; rent, profit, and wages. Every tax must finally be paid 
from some one or other of those three different sources of rev- 
enue, or from all of them indifferently. I shall endeavour to give 
the best account I can, first, of those taxes which, it is intended 
should fall upon rent; secondly, of those which, it isintended should 
fall upon profit; thirdly, of those which, it isintended should fall 
upon wages; and fourthly, of those which, it isintended should 
fall indifferently upon all those three different sources of private 
revenue. The particular consideration of each of these four differ- 
ent sorts of taxes will dividethe second part of the present chapter 
into four articles, three of which will require several other subdivi- 
sions. M any of these taxes, it will appear from the following re- 
view, are not finally paid from the fund, or source of revenue, 
upon which it isintended they should fall. 

Before I enter upon the examination of particular taxes,it isnec- 
essary to premise thefourfollowingmaximiswith regard to taxes 
in general. 



1. Thesubjectsof every state ought to contributetowardsthesup- 
port of the government, as nearly as possible, in proportion to 
their respective abilities; that is, in proportion to therevenuewhich 
they respectively enjoy under the protection of the state. T he ex- 
pense of government to the individuals of a great nation, is like 
the expense of management to the joint tenants of a great estate, 
who are all obliged to contributein proportion to their respective 
interests in the estate. In the observation or neglect of thismaxim, 
consists what iscalled theequality or inequality of taxation. Every 
tax, it must be observed once for all, which falls finally upon one 
only of the three sorts of revenue above mentioned, is necessarily 
unequal, in so far asit doesnot affect theother two. I n thefollow- 
ing examination of different taxes, I shall seldom take much far- 
ther notice of this sort of inequality; but shall, in most cases, con- 
fine my observations to that inequality which is occasioned by a 
particular tax falling unequally upon that particular sort of pri- 
vate revenue which is affected by it. 

2. The tax which each individual is bound to pay, ought to be 
certain and not arbitrary. The time of payment, the manner of 
payment, the quantity to be paid, ought all to be clear and plain 
to the contributor, and to every other person. Where it is other- 
wise, every person subject to the tax is put more or less in the 



676 



Adam Smith 



power of the tax-gatherer, who can either aggravate the tax upon 
any obnoxiouscontributor, or extort, by the terror of such aggra- 
vation, some present or perquisite to himself. The uncertainty of 
taxation encourages the insolence, and favours the corruption, of 
an order of men who arenaturally unpopular, even where they are 
neither insolent nor corrupt. T hecertainty of what each individual 
ought to pay is, in taxation, a matter of so great importance, that 
a very considerable degree of inequality, it appears, I believe, from 
the experience of all nations, is not near so great an evil as a very 
small degree of uncertainty. 

3. Every tax ought to be levied at the time, or in the manner, in 
which it is most likely to be convenient for the contributor to pay 
it. A tax upon the rent of land or of houses, payable at the same 
term at which such rents are usually paid, is levied at the time 
when it is most likely to beconvenient for the contributor to pay; 
or when heismost likely to have wherewithal! to pay. Taxes upon 
such consumable goods as are articles of luxury, are all finally paid 
by the consumer, and generally in a manner that is very conve- 
nientfor him. Hepaysthem bylittleand little, as he has occasion 
to buy the goods. As he is at liberty too, either to buy or not to 
buy, as he pleases, it must be his own fault if he ever suffers any 
considerable inconveniency from such taxes. 



4. Every tax ought to be so contrived, as both to take out and to 
keep out of the pockets of the people as little as possible, over and 
above what it brings into the public treasury of the state. A tax 
may either take out or keep out of the pockets of the people a 
great deal more than it brings into the public treasury, inthefour 
following ways. First, thelevying of it may requirea great number 
of officers, whose salaries may eat up the greater part of the pro- 
duce of thetax, and whose perquisites may impose another addi- 
tional tax upon the people. Secondly, it may obstruct the industry 
of the people, and discourage them from applying to certain 
branches of business which might give maintenance and employ- 
ment to great multitudes. W hile it obliges the people to pay, it 
may thus diminish, or perhaps destroy, some of the funds which 
might en ablethem moreeasilyto do so. Thirdly, bytheforfeitures 
and other penalties which those unfortunate individuals incur, 
who attempt unsuccessfully to evade the tax, it may frequently 
ruin them, and thereby put an end to the benefit which the com- 
munity might have received from the employment of their capi- 
tals. An injudicious tax offers a great temptation to smuggling. 
But the penalties of smuggling must arise in proportion to the 
temptation. The law, contrary to all the ordinary principles of 
justice, first creates the temptation, and then punishes those who 
yield to it; and it commonly enhances the punishment, too, in 



677 



The Wealth of Nations 



proportion to the very circumstance which ought certainly to al- 
leviate it, the temptation to commit the crime. {See Sketches of 
the H istory of M an page 474, and Seq.} Fourthly, by subjecting 
the people to the frequent visits and the odious examination of 
the tax- gatherers, it may expose them to much unnecessary trouble, 
vexation, and oppression; and though vexation isnot, strictly speak- 
ing, expense, it is certainly equivalent to the expense at which 
every man would be willing to redeem himself from it. It is in 
some one or other of these four different ways, that taxes are fre- 
quently so much more burdensome to the people than they are 
beneficial to the sovereign. 

The evident justice and utility of the foregoing maxims have 
recommended them, more or less, to the attention of all nations. 
All nations have endeavoured, to the best of their judgment, to 
render their taxes as equal as they could contrive; as certain, as 
convenient to the contributor, both the time and the mode of 
payment, and in proportion to the revenue which they brought to 
the prince, as littleburdensometo the people. Thefollowing short 
review of some of the principal taxes which have taken place in 
different ages and countries, will show, that the endeavours of all 
nations have not in this respect been equally successful. 



ARTICLE I. — Taxes upon Rent— Taxes upon the Rent of 
Land. 

A tax upon the rent of land may either be imposed according to 
acertain canon, every district being valued atacurtain rent, which 
valuation is not afterwards to be altered; or it may be imposed in 
such a manner, as to vary with every variation in the real rent of 
theland, and to riseor fall with the improvement or declension of 
its cultivation. 

A land tax which, like that of Great Britain, isassessed upon each 
district according to a certain invariablecanon, though it should be 
equal at thetimeof its first establishment, necessarily becomes un- 
equal in process of time, according to the unequal degrees of im- 
provement or neglect in the cultivation of the different parts of the 
country. In England, the valuation, according to which the differ- 
ent counties and parishes were assessed to theland tax by the4th of 
William and M ary, was very unequal even at itsfirst establishment. 
T his tax, therefore, so far offends against the first of the four max- 
ims above mentioned. It is perfectly agreeable to the other three. It 
isperfectly certain. T hetimeof payment for thetax, being thesame 
as that for the rent, isasconvenientasitcan be to the contributor. 
Though the landlord is, in all cases, the real contributor, thetax is 
commonly advanced bythetenant, to whom thelandlord isobliged 
to allow it in the payment of the rent. T his tax is levied by a much 



678 



Adam Smith 



smaller number of officers than any other which affords nearly the 
same revenue. As the tax upon each district does not rise with the 
rise of the rent, the sovereign does not share in the profits of the 
landlord'simprovem en ts.Thoseimprovem en ts sometimes contrib- 
ute, indeed, to the discharge of the other landlords of the district. 
But the aggravation of thetax, which this may sometimes occasion 
upon a particular estate, is always so very small, that it never can 
discourage thoseimprovem en ts, nor keep down theproduceof the 
land below what it would otherwise rise to. Asithasno tendency to 
diminish the quantity, it can have none to raise the price of that 
produce. It does not obstruct the industry of the people; it subjects 
thelandlord to no other inconveniency besides theunavoidableone 
of paying thetax. 

The advantage, however, which the land-lord hasderived from 
the invariable constancy of thevaluation, by which all thelands 
of Great Britain are rated to the land-tax, has been principally 
owing to some circumstances altogether extraneous to the na- 
ture of thetax. 

It hasbeen owingin part, to the great prosperity of almost every 
part of the country, the rents of almost all the estates of Great 
Britain having, si nee the time when this valuation was first estab- 
lished, been continually rising, and scarce any of them havingfallen. 
The landlords, therefore, have almost all gained the difference 



between the tax which they would have paid, according to the 
present rent of thar estates, and that which they actually pay ac- 
cording to the ancient valuation. H ad the state of the country 
been different, had rents been gradually falling in consequence of 
the declension of cultivation, the landlords would almost all have 
lost this difference. I n the state of things which has happened to 
takeplacesincetherevolution, theconstancy of thevaluation has 
been advantageous to the landlord and hurtful to thesoveragn. 
I n a different state of things it might have been advantageous to 
thesoveragn and hurtful to the landlord. 

As the tax is made payable in money, so the valuation of the 
land isexpressed in money. Since theestablishment of this valua- 
tion, the value of silver has been pretty uniform, and there has 
been no alteration in the standard of the coin, either as to weight 
or fineness. H ad silver risen considerably in its value, asitseemsto 
have done in the course of the two centuries which preceded the 
discovery of the mines of America, the constancy of the valuation 
might haveproved very oppressive to thelandlord. H ad silver fall en 
considerably in its value, as it certainly did for about a century at 
least after the discovery of those mines, the same constancy of 
valuation would have reduced very much this branch of the rev- 
enue of thesoveragn. H ad any considerablealteration been made 
in the standard of the money, ather by sinking the same quantity 



679 



The Wealth of Nations 



of silver to a lower denomination, or by raising it to a higher; had 
an ounce of silver, for example, instead of being coined into five 
shillings and two pence, been coined either into pieces which bore 
so low a denomination as two shillings and seven pence, or into 
pieces which bore so high aoneasten shillings and four pence, it 
would, in theonecase, havehurttherevenueof the proprietor, in 
the other that of the soverei gn . 

In circumstances, therefore, somewhat different from those 
which have actually taken place, thisconstancy of valuation might 
have been a very great inconveniency, either to the contributors or 
to the commonwealth. In the course of ages, such circumstances, 
however, must at some time or other happen. But though em- 
pires, like all the other works of men, have all hitherto proved 
mortal, yet every empire aimsat immortality. Every constitution, 
therefore, which it ismeant should be as permanent as theempire 
itself, ought to be convenient, not in certain circumstances only, 
but in all circumstances; or ought to be suited, not to those cir- 
cumstances which are transitory, occasional, or accidental, but to 
those which are necessary, and therefore always the same. 

A tax upon the rent of land, which varies with every variation of 
the rent, or which rises and fallsaccordingtotheimprovement or 
neglect of cultivation, is recommended by that sect of men of 
letters in France, who call themselves the economists, as the most 



equitable of all taxes. All taxes, they pretend, fall ultimately upon 
therent of land, and ought, therefore, to beimposed equally upon 
thefund which must finally pay them. T hat all taxes ought to fall 
asequally aspossibleupon thefund which must finally pay them, 
is certainly true. But without entering into the disagreeable dis- 
cussion of the metaphysical arguments by which they support their 
very ingenioustheory, it will sufficiently appear, from the follow- 
ing review, what are the taxes which fall finally upon therent of 
the land, and what are those which fall finally upon some other 
fund. 

In the Venetian territory, all the arable lands which are given in 
lease to farmers are taxed at a tenth of the rent. {M emoires 
concernant les Droits, p. 240, 241. }T he leases are recorded in a 
public register, which is kept by the officers of revenue in each 
province or district. W hen theproprietor cultivateshisown lands, 
they are valued according to an equitable estimation, and he is 
allowed a deduction of one-fifth of the tax; so that for such land 
he pays only eight instead of ten per cent, of the supposed rent. 

A land-tax of thiskind iscertainly more equal than theland-tax 
of England. It might not, perhaps, be altogether so certain, and 
the assessment of the tax might frequently occasion a good deal 
more trouble to the landlord. It might, too, be a good deal more 
expensive in the levying. 



680 



Adam Smith 



Such a system of administration, however, might, perhaps, be 
contrived, as would in a great measure both prevent this uncer- 
tainty, and moderate this expense. 

The landlord and tenant, for example, might jointly be obliged 
to record their lease in a public register. Proper penalties might be 
enacted against concealing or misrepresenting any of the condi- 
tions; and if part of those penalties were to be paid to either of the 
two parties who informed against and convicted theother of such 
concealment or misrepresentation, itwould effectually deter them 
from combining together in order to defraud the public revenue. 
All the conditions of the lease might be sufficiently known from 
such a record. 

Some landlords, instead of raising the rent, take a fine for the 
renewal of the I ease. This practice is, in most cases, the expedient 
of a spendthrift, who, for a sum of ready money sells a future 
revenueof much greater value. It is, in most cases, therefore, hurt- 
ful to the landlord; it is frequently hurtful to the tenant; and it is 
alwayshurtfultothecommunity. Itfrequentlytakesfromtheten- 
ant so great a part of his capital, and thereby diminishes so much 
his ability to cultivate the land, that he finds it more difficult to 
pay a small rent than it would otherwise have been to pay a great 
one. W hatever diminish eshisability to cultivate, necessarily keeps 
down, below what it would otherwise have been, the most impor- 



tant part of the revenue of the community. By rendering the tax 
upon such fines a good deal heavier than upon the ordinary rent, 
this hurtful practice might be discouraged, to the no small advan- 
tage of all the different parties concerned, of the landlord, of the 
tenant, of the sovereign, and of the whole community. 

Some leases prescribe to the tenant a certain mode of cultiva- 
tion, and a certain succession of crops, during the wholecontinu- 
anceof the lease. This condition, which is generally the effect of 
the landlord's conceit of hisown superior knowledge (a conceit in 
most cases very ill-founded), ought always to be considered as an 
additional rent, asarentin service, instead of a rent in money. In 
order to discourage the practice, which is generally a foolish one, 
thisspeciesof rent might be valued rather high, and consequently 
taxed somewhat higher than common money-rents. 

Some landlords, instead of a rent in money, require a rent in 
kind, in corn, cattle, poultry, wine, oil, etc.; others, again, require 
a rent in service. Such rents are always more hurtful to thetenant 
than beneficial to the landlord. They either take more, or keep 
more out of the pocket of the former, than they put into that of 
the latter. I n every country where they take place, the tenants are 
poor and beggarly, pretty much according to the degree in which 
they take place. Byvaluing, in the same manner, such rents rather 
high, and consequently taxing them somewhat higher than com- 



681 



The Wealth of Nations 



mon money-rents, a practice which is hurtful to the whole com- 
munity, might, perhaps, be sufficiently discouraged. 

W hen the landlord chose to occupy himself a part of his own 
lands, therent might be valued according to an equitable arbitra- 
tion of the farmers and landlords in the neighbourhood, and a 
moderate abatement of the tax might be granted to him, in the 
same manner as in the Venetian territory, provided the rent of the 
lands which he occupied did not exceed a certain sum. It is of 
importance that the landlord should be encouraged to cultivate a 
part of his own land. H is capital is generally greater than that of 
the tenant, and, with less skill, he can frequently raise a greater 
produce. The landlord can afford to try experiments, and is gen- 
erally disposed to do so. H is unsuccessful experiments occasion 
only a moderate I oss to himself. H issuccessful ones contribute to 
the improvement and better cultivation of the whole country. It 
might be of importance, however, that the abatement of the tax 
should encourage him to cultivate to a certain extent only. If the 
landlordsshould, thegreater part of them, be tempted to farm the 
wholeof their own lands, the country (instead of sober and indus- 
trioustenants, who are bound by their own interest to cultivate as 
well as their capital and skill will allow them) would be filled with 
idleand profligate bailiffs, whose abusive management would soon 
degrade the cultivation, and reduce the annual produce of the 



land, to thediminution, not only of the revenue of their masters, 
but of the most important part of that of the whole society. 

Such a system of administration might, perhaps, free a tax of 
this kind from any degree of uncertainty, which could occasion 
either oppression or inconveniency to thecontributor; and might, 
at the same time, serve to introduce into the common manage- 
ment of land such a plan of policy asmight contribute a good deal 
to the general improvement and good cultivation of the country. 

T heexpenseof levying a land-tax, which varied with every varia- 
tion of the rent, would, no doubt, be somewhat greater than that 
of levying one which was always rated according to a fixed valua- 
tion. Someadditional expensewould necessarily beincurred, both 
by thedifferent register-offices which itwould be proper to estab- 
lish in the different districts of the country, and by the different 
valuations which might occasionally be made of the lands which 
the proprietor chose to occupy himself. T he expense of all this, 
however, might be very moderate, and much below what is in- 
curred in the levying of many other taxes, which afford a very 
inconsiderable revenue in comparison of what might easily be 
drawn from a tax of this kind. 

Thediscouragement which a variable land-tax of thiskind might 
give to the improvement of land, seems to be the most important 
objection which can bemadeto it. The landlord would certainly 



682 



Adam Smith 



be less disposed to improve, when the sovereign, who contributed 
nothing to the expense, was to share in the profit of the improve- 
ment. Even this objection might, perhaps, be obviated, by allow- 
ing the landlord, before he began his improvement, to ascertain, 
in conjunction with the officers of revenue, theactual valueof his 
lands, according to the equitable arbitration of a certain number 
of landlordsand farmers in the neighbourhood, equally chosen by 
both parties: and by rating him, according to this valuation, for 
such a number of years as might be fully sufficient for his com- 
plete indemnification. To draw the attention of the sovereign to- 
wards the improvement of the land, from a regard to the increase 
of his own revenue, is one or the principal advantages proposed 
by this species of land-tax. T he term, therefore, allowed, for the 
indemnification of thelandlord, oughtnotto beagreat deal longer 
than what was necessary for that purpose, lest the remoteness of 
theinterest should discourage too much this attention. It had bet- 
ter, however, be somewhat too long, than in any respect too short. 
No incitement to theattention of the sovereign can ever counter- 
balance the smallest discouragement to that of the landlord. T he 
attention of the sovereign can be, at best, but a very general and 
vague consideration of what is likely to contribute to the better 
cultivation of the greater part of his dominions. Theattention of 
the landlord is a particular and minute consideration of what is 



likely to be the most advantageous application of every inch of 
ground upon his estate. The principal attention of the sovereign 
oughtto be, to encourage, by every meansin hispower, theatten- 
tion both of the landlord and of the farmer, by allowing both to 
pursue their own interest in their own way, and according to their 
own judgment; by giving to both the most perfect security that 
they shall enjoy thefull recompenceof their own industry; and by 
procuring to both the most extensive market for every part of 
their produce, in consequenceof establishing theeasi est and safest 
communications, both by land and by water, through every part 
of hisown dominions, as well as the most unbounded freedom of 
exportation to the dominions of all other princes. 

If, by such a system of administration, a tax of this kind could 
be so managed as to give, not only no discouragement, but, on the 
contrary, someencouragementtotheimprovementorland, itdoes 
not appear likely to occasion any other inconveniency to theland- 
lord, except always the unavoidable one of being obliged to pay 
the tax. 

In all the variations of the state of the society, in the improve- 
ment and in the declension of agriculture; in all the variations in 
the value of silver, and in all thosein thestandard of thecoin, atax 
of this kind would, of its own accord, and without any attention 
of government, readily suit itself to theactual situation of things, 



683 



The Wealth of Nations 



and would be equally just and equitable in all those different 
changes. It would, therefore, be much more proper to be estab- 
lished asa perpetual and unalterableregulation, or aswhat iscalled 
afundamental law of the common wealth, than anytax which was 
always to be levied according to a certain valuation. 

Some states, instead of the simple and obvious expedient of a 
register of leases, havehad recoursetothelaboriousand expensive 
one of an actual survey and valuation of all the lands in the coun- 
try. T hey have suspected, probably, that the lessor and lessee, in 
order to defraud the public revenue, might combine to conceal 
the real terms of the lease. D oomsday-book seems to have been 
the result of a very accurate survey of this kind. 

I n the ancient dominions of the king of Prussia, the land-tax is 
assessed according to an actual survey and valuation, which is re 
viewed and altered from time to time. {M emoiresconcurent les 
Droits, etc. torn, i. p. 114, 115, 116, etc.}According to that valu- 
ation, the lay proprietors pay from twenty to twenty-five per cent, 
of their revenue; ecclesiastics from forty to forty-five per cent. The 
survey and valuation of Silesia was made by order of the present 
king, it is said, with great accuracy. According to that valuation, 
the lands belonging to the bishop of Breslaw are taxed at twenty- 
five per cent, of their rent. T he other revenues of the ecclesiastics 
of both religions at fifty per cent. T he commanderies of theTeu- 



tonic order, and of that of M alta, at forty per cent. Lands held by 
anobletenure, at thirty-eight and one-third percent. Lands held 
by a base tenure, at thirty-five and one-third per cent. 

The survey and valuation of Bohemia is said to have been the 
work of more than a hundred years. It wasnot perfected till after 
the peace of 1748, by the orders of the present empress queen. 
{Id. torn i. p.85, 84.}The survey of the duchy of M ilan, which 
was begun in the time of Charles VI., wasnot perfected till after 
1760 It is esteemed one of the most accurate that has ever been 
made. Thesurvey of Savoy and Piedmont was executed under the 
orders of the late king of Sardinia. {Id. p. 280, etc.; also p, 287. 
etc. to 316.} 

I nthedominionsoftheking of Prussia, the revenue of the church 
istaxed much higher than that of lay proprietors. The revenue of 
the church is, the greater part of it, a burden upon the rent of 
land. It seldom happens that any part of it is applied towards the 
improvement of land; or is so employed as to contribute, in any 
respect, towards increasing the revenue of the great body of the 
people. H is Prussian majesty had probably, upon that account, 
thought it reasonable that it should contribute a good deal more 
towards relieving the exigencies of the state. In some countries, 
the lands of the church are exempted from all taxes. In others, 
they are taxed morelightlythan other lands. In theduchy of M ilan, 



684 



Adam Smith 



the lands which thechurch possessed before 1575, are rated to the 
tax at a third only or their value. 

In Silesia, landsheld byanobletenurearetaxed three per cent, 
higher than those held by a base tenure. T he honours and privi- 
leges of different kinds annexed to the former, his Prussian maj- 
esty had probably imagined, would sufficiently compensateto the 
proprietor a small aggravation of the tax; while, at the same time, 
thehumiliating inferiority of thelatter would bein somemeasure 
alleviated, by being taxed somewhat more lightly. In other coun- 
tries, the system of taxation, instead of alleviating, aggravates this 
inequality. In the dominions of the king of Sardinia, and in those 
provinces of France which are subject to what is called the real or 
predial taille, thetax falls altogether upon the lands held by a base 
tenure. T hose held by a noble one are exempted. 

A land tax assessed according to a general survey and valuation, 
how equal soever it may be at first, must, in the course of a very 
moderate period of time, become unequal. To prevent its becom- 
ing so would require the continual and painful attention of gov- 
ernment to all the variations in the state and produce of every 
different farm in the country. The governments of Prussia, of 
Bohemia, of Sardinia, and of theduchyof M ilan, actually exert an 
attention of thiskind; an attention so unsuitable to the nature of 
government, that it is not likely to be of long continuance, and 



which, if it is continued, will probably, in the long-run, occasion 
much more trouble and vexation than it can possibly bring relief 
to the contributors. 

I n 1666, the generality of M ontauban was assessed to the real or 
predial taille, according, it issaid, to a very exact survey and valu- 
ation. {Memoiresconcernant les Droits, etc. torn, ii p. 139, etc.} 
By 1727, this assessment had become altogether unequal. In or- 
der to remedy this inconveniency, government has found no bet- 
ter expedient, than to imposeupon the whole generality an addi- 
tional tax of a hundred and twenty thousand livres. This addi- 
tional tax is rated upon all the different districts subject to the 
taille according to the old assessment. But it is levied only upon 
those which, in the actual state of things, are by that assessment 
under-taxed; and it is applied to the relief of those which, by the 
same assessment, are over-taxed. Two districts, for example, one 
of which ought, in the actual state of things, to be taxed at nine 
hundred, theother at eleven hundred livres, are, by the old assess- 
ment, both taxed at a thousand livres. Both these districts are, by 
the additional tax, rated at eleven hundred livres each. But this 
additional tax is levied only upon the district under-charged, and 
it is applied altogether to the relief of that overcharged, which 
consequently pays only nine hundred livres. Thegovernment nei- 
ther gains nor loses by the additional tax, which is applied alto- 



685 



The Wealth of Nations 



gether to remedy theinequalitiesarisingfrom theold assessment. 
The application is pretty much regulated according to the di sere 
tion of the intendant of the generality and must, therefore, be in 
a great measure arbitrary. 

Taxes which are proportioned, not in the Rent, but to the 
Produce of Land. 

Taxes upon the produce of land are, I n reality, taxes upon the rent; 
and though they may be originally advanced by the farmer, are fi- 
nally paid bythelandlord. When acertain portion of the produce is 
to be paid away for a tax, the farmer computes as well as he can, 
what the value of this portion is, one year with another, likely to 
amount to, and he makes a proportionable abatement in the rent 
which heagreestopaytothelandlord.Thereisno farmer who does 
not compute beforehand whatthechurch tythe, which isaland tax 
of this kind, is, oneyear with another, likely to amount to. 

Thetythe, and every other land tax of this kind, under the ap- 
pearanceof perfect equality, are very unequal taxes; a certain por- 
tion of the produce being in differrent situations, equivalent to a 
very different portion of the rent. In some very rich lands, the 
produce is so great, that the one half of it is fully sufficient to 
replace to thefarmer hiscapital employed in cultivation, together 



with the ordinary profits of farming stock in the neighbourhood. 
Theother half, or, what comes to the samething, thevalueof the 
other half, he could afford to pay as rent to the landlord, if there 
was no tythe. But if a tenth of the produce is taken from him in 
the way of tythe, he must require an abatement of the fifth part of 
his rent, otherwise he cannot get back his capital with the ordi- 
nary profit. In this case, the rent of thelandlord, instead of amount- 
ing to a half, or five-tenths of the whole produce, will amount 
only to four-tenths of it. In poorer lands, on the contrary, the 
produce is sometimes so small, and the expense of cultivation so 
great, that it requires four-fifths of the whole produce, to replace 
to the farmer his capital with the ordinary profit. In this case, 
though there was no tythe, the rent of the landlord could amount 
to no more than one-fifth or two-tenths of the whole produce. 
But if the farmer pays one-tenth of the produce in the way of 
tythe, he must require an equal abatement of the rent of theland- 
lord, which will thus be reduced to one-tenth only of the whole 
produce. Upon the rent of rich landsthetythe may sometimes be 
a tax of no more than one-fifth part, or four shillings in the pound; 
whereas upon that of poorer lands, it may sometimes be a tax of 
one half, or of ten shillings in the pound. 

Thetythe, as it is frequently a very unequal tax upon the rent, so 
it is always a great discouragement, both to the improvements of 



686 



Adam Smith 



the landlord, and to the cultivation of the farmer. The one cannot 
venture to makethemost important, which are generally the most 
expensive improvements; nor the other to raise the most valuable, 
which aregenerally, too, the most expensivecrops; when thechurch, 
which lays out no part of the expense, is to share so very largely in 
the profit. T hecultivation of madder was, for a long time, confined 
by the tythe to the United Provinces, which, being presbyterian 
countries, and upon that account exempted from this destructive 
tax, enjoyed a sort of monopoly of that useful dyeing drug against 
therestof Europe. The I ate attempts to introduce thecultureof this 
plant into England, have been made only in consequence of the 
statute, which enacted that five shillings an acre should be received 
in lieu of all manner of tythe upon madder. 

As through the greater part of Europe, thechurch, so in many 
different countries of Asia, the state, is principally supported bya 
land tax, proportioned not to the rent, but to the produce of the 
land. In China, theprincipal revenueof thesovereign consistsin a 
tenth partof theproduceof all thelandsof theempire. Thistenth 
part, however, isestimated so very moderately, that, in many prov- 
inces, it is said not to exceed a thirtieth partof the ordinary pro- 
duce. The land tax or land rent which used to be paid to the 
M ahometan government of Bengal, before that country fell into 
the hands of the English East India company, is said to have 



amounted to about a fifth part of the produce. The land tax of 
ancient Egypt is said likewise to have amounted to a fifth part. 

In Asia, thissort of land tax issaid to interest thesovereign in the 
improvement and cultivation of land. T h e sovereigns of C hina, those 
of Bengal while under the M ahometan government, and those of 
ancient Egypt, are said, accordingly, to have been extremely atten- 
tive to the making and maintaining of good roads and navigable 
canals, in order to increase, as much as possible, both the quantity 
and value of every part of the produce of the land, by procuring to 
every part of it the most extensive market which their own domin- 
ionscould afford. Thetytheof thechurch isdivided into such small 
portionsthat no one of its proprietors can have any interest of this 
kind. The parson of a parish could never find his account, in mak- 
ing a road or canal to a distant part of the country, in order to 
extend the market for the produce of his own particular parish. 
Such taxes, when destined for the maintenance of the state, have 
someadvantages, which may servein somemeasureto balance their 
inconveniency When destined for the maintenance of thechurch, 
they are attended with nothing but inconveniency. 

Taxes upon the produce of land may be levied, either in kind, 
or, according to a certain valuation in money. 

The parson of a parish, or a gentleman of small fortune who 
lives upon his estate, may sometimes, perhaps find someadvan- 



687 



The Wealth of Nations 



tagein receiving, theonehistythe, and theother hisrent, in kind. 
The quantity to be collected, and thedistrict within which itisto 
be collected, are so small, that they both can oversee, with their 
own eyes, the collection and disposal of every part of what is due 
to them. A gentleman of great fortune, who lived in the capital, 
would bein danger of suffering much bytheneglect, and more by 
the fraud, of his factors and agents, if the rents of an estate in a 
distantprovinceweretobepaidtohiminthismanner.Thelossof 
the sovereign, from the abuse and depredation of his tax-gather- 
ers, would necessarily be much greater. The servants of the most 
careless private person are, perhaps, more under the eye of their 
master than those of the most careful prince; and a public rev- 
enue, which was paid in kind, would suffer so much from the 
mismanagement of the collectors, that a very small part of what 
waslevied upon thepeoplewould ever arrive at thetreasury of the 
prince. Somepartof thepublicrevenueof China, however, issaid 
tobepaid in thismanner.Themandarinsand other tax-gatherers 
will, no doubt, find their advantage in continuing the practiceof 
a payment, which is so much more liable to abuse than any pay- 
ment in money. 

A tax upon the produce of land, which is levied in money, may 
belevied, either according to a valuation, which varies with all the 
variations of the market price; or according to a fixed valuation, a 



bushel of wheat, for example, being always valued at oneand the 
same money price, whatever may be the state of the market. T he 
produce of a tax levied in theformer way will vary only according 
to the variations in thereal produce of the land, according to the 
improvement or neglect of cultivation. The produce of a tax lev- 
ied in thelatter way will vary, not only according to the variations 
in the produce of the land, but according both to those in the 
value of the precious metals, and those in the quantity of those 
metals which is at different times contained in coin of the same 
denomination. The produce of the former will always bear the 
same proportion to the value of the real produceof the land. T he 
produce of the latter may, at different times, bear very different 
proportions to that value. 

When, instead either of a certain portion of theproduceof land, 
or of th e pri ce of a certai n portion, acertain sum of moneyisto be 
paid in full compensation for all tax or tythe; the tax becomes, in 
this case, exactly of the same nature with the land tax of England. 
It neither rises nor falls with the rent of the land. It neither en- 
courages nor discourages improvement. T he tythe in the greater 
part of thoseparishes which pay what iscalled a modus, in lieu of 
all other tythe is a tax of this kind. D uring the M ahometan gov- 
ernment of Bengal, instead of the payment in kind of the fifth 
part of the produce, a modus, and, it issaid, a very moderate one, 



688 



Adam Smith 



was established in the greater part of the districts or zemindaries 
of the country. Some of the servants of the East I ndia company, 
under pretenceof restoring the public revenueto its proper value, 
have, in some provinces, exchanged this modusfor a payment in 
kind. Under their management, this change is likely both to dis- 
courage cultivation, and to give new opportunities for abuse in 
the collection of the public revenue, which has fallen very much 
below what it was said to have been when it first fell under the 
management of the company. T he servants of the company may, 
perhaps, have profited by the change, but at the expense, it is 
probable, both of their masters and of the country. 

Taxes upon the Rent of H ouses. 

Therentof ahousemaybedistinguished into two parts, of which 
theonemay very properly be called the building-rent; theotheris 
commonly called the ground-rent. 

T he building-rent isthe interest or profit of thecapital expended 
in building the house. In order to put thetrade of a builder upon 
a level with other trades, it is necessary that this rent should be 
sufficient, first, to pay him the same interest which hewould have 
got for his capital, if he had lent it upon good security; and, sec- 
ondly, to keep the house in constant repair, or, what comes to the 



same thing, to replace, within a certain term of years, thecapital 
which had been employed in building it. The building-rent, or 
theordinary profit of building, is, therefore, everywhere regulated 
by theordinary interest of money. W here themarket rate of inter- 
est is four per cent, the rent of a house, which, over and above 
paying the ground-rent, affordssix or six and a-half per cent, upon 
the whole expense of building, may, perhaps, afford a sufficient 
profit to the builder. W here the market rate of interest is five per 
cent, it may perhaps require seven or seven and a half per cent. If, 
in proportion to the interest of money, thetrade of the builders 
affordsatanytimemuch greater profit than this, itwill soon draw 
so much capital from other trades as will reduce the profit to its 
proper level. If it affords at any time much less than this, other 
trades will soon draw so much capital from it as will again raise 
that profit. 

W hatever part of the whole rent of a house is over and above 
what is sufficient for affording this reasonable profit, naturally 
goes to the ground-rent; and, where the owner of the ground and 
the owner of the building are two different persons, is, in most 
cases, completely paid to theformer. This surplus rent isthe price 
which the inhabitant of the house pays for some real or supposed 
advantage of the situation. I n country houses, at a distance from 
any great town, where there is plenty of ground to chuse upon, 



689 



The Wealth of Nations 



the ground-rent is scarce anything, or no more than what the 
ground which the house stands upon would pay, if employed in 
agriculture. In country villas, in the neighbourhood of somegreat 
town, it is sometimes a good deal higher; and the peculiar 
conveniency or beauty of situation is there frequently very well 
paid for. Ground-rents are generally highest in thecapital, and in 
those particular parts of it where there happens to be the greatest 
demand for houses, whatever bethereason of that demand, whether 
fortradeand business, for pleasure and society, or for mere vanity 
and fashion. 

A tax upon house-rent, payablebythetenant, and proportioned 
to the whole rent of each house, could not, for any considerable 
timeat least, affect thebuilding-rent. If thebuilder did not get his 
reasonable profit, hewould be obliged toquitthetrade; which, by 
raising the demand for building, would, in a short time, bring 
back his profit to its proper level with that of other trades. N either 
would such a tax fall altogether upon theground-rent; but it would 
divideitself in such a manner, as to fall partly upon the inhabitant 
of the house, and partly upon the owner of the ground. 

Let ussuppose, for example, that a particular person judges that 
he can afford for house-rent all expense of sixty pounds a-year; 
and let us suppose, too, that a tax of four shillings in the pound, 
or of one-fifth, payablebytheinhabitant, islaid upon house-rent. 



A house of sixty pounds rent will, in that case, cost him seventy- 
two pounds a-year, which is twelve pounds more than he thinks 
he can afford. H e will, therefore, content himself with a worse 
house, or a house of fifty pounds rent, which, with the additional 
ten poundsthathemustpayforthetax, will makeup thesum of 
sixty pounds a-year, the expense which he judges he can afford, 
and, in orderto paythetax, hewill giveup apartof theadditional 
conveniency which hemighthavehad from ahouse of ten pounds 
a-year more rent. Hewill giveup, I say, apart of this additional 
conveniency; for hewill sddom be obliged to give up the whole, 
but will, in consequence of the tax, get a better house for fifty 
pounds a-year, than he could have got if there had been no tax for 
as a tax of this kind, by taking away this particular competitor, 
must diminish thecompetition for houses of sixty pounds rent, so 
it must likewise diminish it for those of fifty pounds rent, and in 
the same manner for those of all other rents, except the lowest 
rent, for which it would for some time increase the competition. 
But the rents of every class of houses for which the competition 
wasdiminished, would necessarily be more or less reduced. Asno 
part of this reduction, however, could for any considerabletimeat 
least, affect the building-rent, the whole of it must, in the long- 
run, necessarily fall upon theground-rent. The final payment of 
this tax, therefore, would fall partly upon the inhabitant of the 



690 



Adam Smith 



house, who, in order to pay his share, would be obliged to give up 
a part of hisconveniency; and partly upon theowner of theground, 
who, in order to pay his share, would be obliged to give up a part 
of his revenue. In what proportion this final payment would be 
divided between them, it is not, perhaps, very easy to ascertain. 
The division would probably be very different in different cir- 
cumstances, and a tax of this kind might, according to those dif- 
ferent circumstances, affect very unequally, both theinhabitantof 
the house and the owner of the ground. 

Theinequality with which a tax of thiskind mightfall upon the 
ownersof different ground-rents, would arise altogether from the 
accidental inequality of thisdivision. But theinequality with which 
it might fall upon theinhabitantsof different houses, would arise, 
notonlyfrom this, but from another cause. The proportion of the 
expense of house-rent to the whole expense of living, is different 
in the different degrees of fortune. It is, perhaps, highest in the 
highest degree, and it diminishes gradually through the inferior 
degrees, so as in general to be lowest in the lowest degree. The 
necessaries of life occasion the great expense of the poor. They 
find it difficult to get food, and the greater part of their little rev- 
enue is spent in getting it. The luxuries and vanities of life occa- 
sion the principal expense of the rich; and a magnificent house 
embellish es and sets off to thebest advantage all theother luxuries 



and vanities which they possess. A tax upon house-rents, there- 
fore, would in general fall heaviest upon the rich; and in this sort 
of inequality there would not, perhaps, be any thing very unrea- 
sonablelt isnotvery unreasonablethattherich should contribute 
to the public expense, not only in proportion to their revenue, but 
something more than in that proportion. 

The rent of houses, though it in some respects resembles the 
rent of land, isin onerespect essentially different from it.Therent 
of land is paid for the use of a productive subject. The land which 
pays it produces it. The rent of houses is paid for the use of an 
unproductive subject. Neither the house, nor theground which it 
stands upon, produce anything. The person who pays the rent, 
therefore, must draw it from some other source of revenue, dis- 
tinct from and independent of thissubject. A taxupon therent of 
houses, so far asitfallsupon theinhabitants, must be drawn from 
the same source as the rent itself, and must be paid from their 
revenue, whether derived from the wages of labour, the profits of 
stock, or the rent of land. So far as it falls upon the inhabitants, it 
is one of those taxes which fall, not upon one only, but indiffer- 
ently upon all the three different sources of revenue; and is, in 
every respect, of the same nature as a tax upon any other sort of 
consumable commodities. In general, there is not perhaps, any 
one article of expense or consumption by which the liberality or 



691 



The Wealth of Nations 



narrowness of a man's whole expense can be better judged of than 
by his house-rent. A proportional tax upon this particular article 
of expense might, perhaps, produce a more considerable revenue 
than any which has hitherto been drawn from it in any part of 
Europe. If thetax, indeed, was very high, thegreater part of people 
would endeavour to evade it as much as they could, by contenting 
themselves with smaller houses, and by turning thegreater part of 
their expense into some other channel. 

The rent of houses might easily be ascertained with sufficient 
accuracy, by a policy of the same kind with that which would be 
necessary for ascertaining the ordinary rent of land. H ouses not 
inhabited ought to pay no tax. A tax upon them would fall alto- 
gether upon the proprietor, who would thus be taxed for a subject 
which afforded him neither conveniency nor revenue. Houses in- 
habited by the proprietor ought to be rated, not according to the 
expense which they might havecost in building, but according to 
therentwhich an equitablearbitration mightjudgethem likely to 
bring if leased to a tenant. If rated according to theexpense which 
they might havecost in building, atax of three or four shillings in 
the pound, joined with other taxes, would ruin almost all the rich 
and great families of this, and, I believe, of every other civilized 
country. Whoever will examine with attention the different town 
and country houses of some of the richest and greatest families in 



this country, will find that, at the rate of only six and a-half, or 
seven percent, upontheoriginal expense of building, their house- 
rent is nearly equal to the whole neat rent of their estates. It is the 
accumulated expense of several successive generations, laid out 
upon objects of great beauty and magnificence, indeed, but, in 
proportion to what they cost, of very small exchangeable value. 
{Since the first publication of this book, a tax nearly upon the 
above-mentioned principles has been imposed.} 

Ground-rents are a still more proper subject of taxation than 
the rent of houses. A tax upon ground-rents would not raise the 
rent of houses; it would fall altogether upon the owner of the 
ground-rent, who acts always asa monopolist, and exacts the great- 
est rent which can be got for the use of his ground. M ore or less 
can be got for it, according as the competitors happen to be richer 
or poorer, or can afford to gratify their fancy for a particular spot 
of ground at a greater or smaller expense. In every country, the 
greatest number of rich competitors is in the capital, and it is 
there accordingly that the highest ground-rents are always to be 
found. Asthe wealth of those competitors would in no respect be 
increased by a tax upon ground-rents, they would not probably be 
disposed to pay more for the use of the ground. W hether the tax 
wastobeadvancedbytheinhabitantorbytheowneroftheground, 
would beof littleimportance.Themoretheinhabitantwasobliged 



692 



Adam Smith 



to pay for thetax, the less he would incline to pay for the ground; 
so that the final payment of thetax would fall altogether upon the 
owner of theground-rent. T heground-rentsof uninhabited houses 
ought to pay no tax. 

Both ground-rents, and the ordinary rent of land, area species 
of revenue which the owner, in many cases, enjoys without any 
care or attention of hisown. Though apart of thisrevenueshould 
betaken from him in order to defray the expenses of the state, no 
discouragement will thereby be given to any sort of industry. The 
annual produceof the land and labour of thesociety, thereal wealth 
and revenue of the great body of the people, might be the same 
after such a tax as before. G round-rents, and the ordinary rent of 
land, are therefore, perhaps, the species of revenue which can best 
bear to have a peculiar tax imposed upon them. 

Ground-rents seem, in this respect, a more proper subject of 
peculiar taxation, than even the ordinary rent of land. T he ordi- 
nary rent of land is, in many cases, owing partly, at least, to the 
attention and good management of the landlord. A very heavy tax 
might discourage, too much, this attention and good manage- 
ment. Ground-rents, so far as they exceed the ordinary rent of 
land, are altogether owing to the good government of the sover- 
eign, which, by protecting the industry either of the whole people 
or of the inhabitants of some particular place, enables them to pay 



so much more than its real valuefortheground which they build 
their houses upon; or to make to its owner so much more than 
compensation for thelosswhich hemight sustain bythisuseof it. 
Nothing can be more reasonable, than that a fund, which owes its 
existence to the good government of the state, should be taxed 
peculiarly, or should contribute something more than the greater 
part of other funds, towards the support of that government. 

Though, in many different countries of Europe, taxeshave been 
imposed upon the rent of houses, I do not know of any in which 
ground-rents have been considered as a separate subject of taxa- 
tion. Thecontri vers of taxeshave, probably, found somedifficulty 
in ascertaining what part of the rent ought to be considered as 
ground-rent, and what part ought to be considered as building- 
rent. It should not, however, seem very difficult to distinguish 
those two parts of the rent from one another. 

I n Great Britain the rent of houses issupposed to be taxed in the 
same proportion as the rent of land, by what is called the annual 
land tax. Thevaluation, according to which each different parish 
and district is assessed to this tax, isalwaysthesame. It was origi- 
nally extremely unequal, and it still continues to be so. Through 
the greater part of the kingdom this tax falls still more lightly 
upon the rent of houses than upon that of land. In some few 
districts only, which were originally rated high, and in which the 



693 



The Wealth of Nations 



rents of houses have fallen considerably, the land tax of three or 
four shillings in the pound issaid to amount to an equal propor- 
tion of the real rent of houses. Untenanted houses, though bylaw 
subject to the tax, are, in most districts, exempted from it by the 
favour of the assessors; and this exemption sometimes occasions 
some little variation in the rate of particular houses, though that 
of the district is always the same. I mprovements of rent, by new 
buildings, repairs, etc. go to the discharge of the district, which 
occasions still further variations in the rate of particular houses. 
In the province of Holland, {Memoiresconcernant les Droits, 
etc. p. 223.}everyhouseistaxed at two and a-half percent, of its 
value, without any regard, either to the rent which it actually pays, 
or to the circumstance of its being ten anted or untenanted. There 
seems to bea hardship in obliging the proprietor to pay a tax for 
an untenanted house, from which hecan deriveno revenue, espe- 
cially so very heavy a tax. In Holland, where the market rate of 
interest does not exceed three per cent., two and a-half per cent, 
uponthewholevalueofthehousemust, in most cases, amount to 
more than a third of the building-rent, perhaps of the whole rent. 
The valuation, indeed, according to which the houses are rated, 
though very unequal, is said to be always below the real value. 
When a house is rebuilt, improved, or enlarged, there is a new 
valuation, and thetaxisrated accordingly. 



The contrivers of the several taxes which in England have, at 
different times, been imposed upon houses, seem to have imag- 
ined that there was somegreat difficulty in ascertaining, with tol- 
erable exactness, what was the real rent of every house. They have 
regulated their taxes, therefore, according to some more obvious 
circumstance, such as they had probably imagined would, in most 
cases, bear some proportion to the rent. 

The first tax of this kind was hearth-money; or a tax of two 
shillingsupon every hearth. In order to ascertain how many hearths 
were in the house, it was necessary that the tax-gatherer should 
enter every room in it. This odious visit rendered the tax odious. 
Soon after the Revolution, therefore, it was abolished as a badge 
of slavery. 

The next tax of this kind was a tax of two shillings upon every 
dwelling-house inhabited. A house with ten windows to pay four 
shillingsmore. A housewithtwentywindowsandupwardstopay 
eight shillings. This tax was afterwards so far altered, that houses 
with twenty windows, and with less than thirty, were ordered to 
pay ten shillings, and those with thirty windows and upwards to 
pay twenty shillings. The number of windows can, in most cases, 
be counted from the outside, and, in all cases, without entering 
every room in the house. T he visit of the tax-gatherer, therefore, 
was I ess offensive in thistaxthan in the hearth-money. 



694 



Adam Smith 



This tax was afterwards repealed, and in the room of it was 
established the window-tax, which has undergone two several al- 
terations and augmentations. The window tax, as it stands at 
present (January 1775), over and above theduty of three shillings 
upon every house in England, and of oneshilling upon every house 
in Scotland, lays a duty upon every window, which in England 
augments gradually from twopence, the lowest rate upon houses 
with not more than seven windows, to two shillings, the highest 
rate upon houses with twenty-five windows and upwards. 

The principal objection to all such taxes is their inequality; an 
inequality of the worst kind, as they must frequently fall much 
heavier upon the poor than upon the rich. A houseoften pounds 
rent in acountrytown, may sometimeshave more windows than 
a house of five hundred pounds rent in London; and though the 
inhabitant of the former is likely to be a much poorer man than 
that of the latter, yet, so far ashiscontribution isregulated by the 
window tax, he must contribute more to the support of the state. 
Such taxes are, therefore, directly contrary to the first of the four 
maxims above mentioned. They do not seem to offend much 
agai n st an y of th e oth er th ree. 

The natural tendency of the window tax, and of all other taxes 
upon houses, is to lower rents. The more a man pays for the tax, 
the less, it is evident, he can afford to pay for the rent. Since the 



imposition of the window tax, however, the rents of houses have, 
upon the whole, risen more or less, in almost every town and vil- 
lage of Great Britain, with which I am acquainted. Such has been, 
almost everywhere, the increase of the demand for houses, that it 
has raised the rents more than the window tax could sink them; 
one of the many proofs of the great prosperity of the country, and 
of the increasing revenue of its inhabitants. H ad it not been for 
thetax, rents would probably have risen still higher. 

ARTICLE II. — Taxes upon Profit, or upon the Revenue 
arising from Stock. 

T he revenue or profit arising from stock naturally divides itself 
into two parts; that which pays the interest, and which belongs to 
the owner of the stock; and that surplus part which is over and 
above what is necessary for paying the interest. 

This latter part of profit is evidently a subject not taxable di- 
rectly. It is the compensation, and, in most cases, it is no more 
than a very moderate compensation for the risk and trouble of 
employing thestock.Theemployer must have this compensation, 
otherwise he cannot, consistently with hisown interest, continue 
the employment. If hewas taxed directly, therefore, in proportion 
to the whole profit, hewould be obliged either to raise the rate of 
his profit, or to charge the tax upon the interest of money; that is, 



695 



The Wealth of Nations 



to pay less interest. If he raised the rate of his profit in proportion 
to the tax, the whole tax, though it might be advanced by him, 
would befinally paid by oneor other of two different sets of people, 
according to the different ways in which he might employ the 
stock of which he had the management. If he employed it as a 
farming stock, in the cultivation of land, hecould raise the rate of 
his profit only by retaining a greater portion, or, what comes to 
the same thing, the price of a greater portion, of the produce of 
theland; and asthiscould bedoneonly by a reduction of rent, the 
final payment of the tax would fall upon the landlord. If heem- 
ployed it as a mercantile or manufacturing stock, he could raise 
the rate of his profit only by raising the price of his goods; in 
which case, thefinal payment of thetax would fall altogether upon 
the consumers of those goods. I f he did not raise the rate of his 
profit, he would be obliged to charge the wholetax upon that part 
of it which was allotted for the interest of money. H e could afford 
less i nterest for whatever stock he borrowed, and the whole weight 
of thetax would, in this case, fall ultimately upon the interest of 
money. So far as he could not relieve himself from thetax in the 
oneway, he would be obliged to relieve himself in the other. 

The interest of money seems, at first sight, a subject equally 
capableof beingtaxed directly as therent of land. Liketherentof 
land, it is a neat produce, which remains, after completely corn- 



pen sating thewholerisk and troubleof employing thestock. Asa 
tax upon the rent of land cannot raise rents, because the neat pro- 
duce which remains, after replacing the stock of the farmer, to- 
gether with his reasonable profit, cannot be greater after the tax 
than before it, so, for the same reason, a tax upon the interest of 
money could not raise the rate of interest; thequantity of stock or 
money in the country, like the quantity of land, being supposed 
to remain the same after the tax as before it. T he ordinary rate of 
profit, it has been shewn, in thefirstbook, is everywhere regulated 
by the quantity of stock to be employed, in proportion to the 
quantity of the employment, or of the business which must be 
donebyit. Butthequantityoftheemployment, or of the business 
to be done by stock, could neither be increased nor diminished by 
any tax upon the i nterest of money. I f the quantity of the stock to 
be employed, therefore, was neither increased nor diminished by 
it, the ordinary rate of profit would necessarily remain the same. 
Buttheportion of thisprofit, necessary for compensating the risk 
and troubleof theemployer, would likewise remain thesame; that 
risk and trouble being in no respect altered. The residue, there- 
fore, that portion which belongs to the owner of the stock, and 
which pays the interest of money, would necessarily remain the 
same too. At first sight, therefore, the interest of money seems to 
be a subject as fit to be taxed directly as the rent of land. 



696 



Adam Smith 



There are, however, two different circumstances, which render 
the interest of money a much less proper subject of direct taxation 
than the rent of land. 

First, the quantity and value of the land which any man pos- 
sesses, can never be a secret, and can always be ascertained with 
great exactness. But the whole amount of the capital stock which 
hepossessesisalmostalwaysasecret, and can scarceever be ascer- 
tained with tolerable exactness. Itisliable, besides, to almost con- 
tinual variations. A year seldom passes away, frequently not a 
month, sometimes scarce a single day, in which it does not rise or 
fall more or less. An inquisition into every man's private circum- 
stances, and an inquisition which, in order to accommodate the 
tax to them, watched overall thefluctuationsof hisfortune, would 
be a source of such continual and endless vexation as no person 
could support. 

Secondly, land is a subject which cannot be removed; whereas 
stock easily may. The proprietor of land is necessarily a citizen of 
the particular country in which his estate lies. The proprietor of 
stock is properly a citizen of the world, and is not necessarily at- 
tached to any particular country. H e would be apt to abandon the 
country in which he was exposed to a vexatious inquisition, in 
order to be assessed to a burdensome tax; and would remove his 
stock to some other country, where he could either carry on his 



business, or enjoy hisfortune more at his ease. By removing his 
stock, hewould put an end to all the industry which it had main- 
tained in the country which he left. Stock cultivates land; stock 
employs labour. A tax which tended to drive away stock from any 
particular country, would so far tend to dry up every source of 
revenue, both to the sovereign and to the society. N ot only the 
profits of stock, but the rent of land, and the wages of labour, 
would necessarily be more or less diminished by its removal. 

The nations, accordingly, who have attempted to tax the rev- 
enue arising from stock, instead of any severe inquisition of this 
kind, have been obliged to content themselves with some very 
loose, and, therefore, more or less arbitrary estimation. The ex- 
treme inequality and uncertainty of a tax assessed in this manner, 
can be compensated only by its extreme moderation; in conse- 
quence of which, every man finds himself rated so very much 
below his real revenue, that he gives himself little disturbance 
though his neighbour should berated somewhat lower. 

By what is called the land tax in England, it was intended that 
the stock should be taxed in the same proportion as land. When 
the tax upon land was at four shillings in the pound, or at one- 
fifth of the supposed rent, it was intended that stock should be 
taxed at one-fifth of the supposed interest. When the present an- 
nual land tax was first imposed, the legal rate of interest was six 



697 



The Wealth of Nations 



percent. Every hundred pounds stock, accordingly, was supposed 
to be taxed at twenty-four shillings, the fifth part of six pounds. 
Since the legal rate of interest has been reduced to five per cent, 
every hundred pounds stock is supposed to be taxed at twenty 
shillings only. The sum to be raised, by what is called the land tax, 
was divided between the country and the principal towns The 
greater part of it was laid upon the country; and of what was laid 
upon the towns, the greater part was assessed upon the houses. 
W hat remained to beassessed upon the stock or trade of thetowns 
(for the stock upon the land was not meant to be taxed) was very 
much below the real value of that stock or trade. W hatever in- 
equalities, therefore, there might be in the original assessment, 
gave little disturbance. Every parish and district still continues to 
be rated for its land, its houses, and its stock, according to the 
original assessment; and the almost universal prosperity of the 
country, which, in most places, has raised very much the value of 
all these, has rendered those inequalities of still less importance 
now. The rate, too, upon each district, continuing always thesame, 
the uncertainty of this tax, so far as it might he assessed upon the 
stock of any individual, has been very much diminished, as well as 
rendered of much less consequence. If the greater part of the lands 
of England are not rated to the land tax at half their actual value, 
the greater part of the stock of England is, perhaps, scarce rated at 



the fiftieth part of its actual value. In sometowns, thewholeland 
tax is assessed upon houses; as in Westminster, where stock and 
trade are free. It is otherwise in London. 

I n all countries, a severe inquisition into the circumstances of 
private persons has been carefully avoided. 

At H amburg, {M emoires concernant les Droits, torn, i, p.74} 
every inhabitant isobliged to pay to the state one fourth percent, 
of all that he possesses; and as the wealth of the people of H am- 
burg consists principally in stock, this tax maybe considered as a 
tax upon stock. Every man assesses himself, and, in the presence 
of the magistrate, puts annually into the public coffer a certain 
sum of money, which he declares upon oath,tobeonefourth per 
cent, of all that hepossesses, but without declaring what it amounts 
to, or being liableto any examination upon that subject. This tax 
is generally supposed to be paid with great fidelity. I n a small re- 
public, where the people have entire confidence in their magis- 
trates, are convinced of the necessity of the tax for the support of 
thestate, and believethatitwill befaithfully applied to that pur- 
pose, such conscientious and voluntary payment may sometimes 
be expected. 1 1 is not peculiar to the people of H amburg. 

Thecanton of Underwald, in Switzerland, isfrequently ravaged 
by storms and inundations, and it isthereby exposed to extraordi- 
nary expenses. Upon such occasionsthepeopleassemble, and ev- 



698 



Adam Smith 



ery one is said to declare with the greatest frankness what he is 
worth, in order to be taxed accordingly. At Zurich, the law orders, 
that in cases of necessity, every one should be taxed in proportion 
to his revenue; the amount of which heisobliged to declare upon 
oath. They have no suspicion, it is said, that any of their fellow 
citizens will deceive them. At Basil, the principal revenue of the 
state arises from a small custom upon goods exported. All the 
citizens make oath, that they will pay every three months all the 
taxes imposed bylaw. All merchants, and even all inn-keepers, are 
trusted with keeping themselves the account of the goods which 
they sell, either within or without theterritory At theend of every 
three months, they send this account to the treasurer, with the 
amount of the tax computed at the bottom of it. It is not sus- 
pected that the revenue suffers by this confidence. {M emoires 
concernant les Droits, torn, i p. 163, 167,171.} 

To oblige every citizen to declare publicly upon oath, theamount 
of hisfortune, must not, it seems, in those Swiss cantons, be reck- 
oned a hardship. At Hamburg it would be reckoned the greatest. 
M erchants engaged in the hazardous projects of trade, all tremble 
at the thoughts of being obliged, at all times, to expose the real 
state of their circumstances. The ruin of their credit, and the mis- 
carriage of their projects, they foresee, would too often be the 
consequence. A sober and parsimonious people, who are strangers 



to all such projects, do not feel that they have occasion for any 
such concealment. 

I n H olland, soon after the exaltation of the late prince of r- 
ange to the stadtholdership, a tax of two per cent, or the fiftieth 
penny, as it was called, was imposed upon the whole substance of 
every citizen. Every citizen assesed himself, and paid histax, in the 
same manner as at H amburg, and it was in general supposed to 
have been paid with great fidelity. T he people had at that time the 
greatest affection for their new government, which they had just 
established by a general insurrection. The tax was to be paid but 
once, in order to relieve the state in a particular exigency. It was, 
indeed, too heavy to be permanent. In a country where the mar- 
ket rate of interest seldom exceeds three per cent., a tax of two per 
cent, amounts to thirteen shillings and four pence in the pound, 
upon the highest neat revenue which is commonly drawn from 
stock. It is a tax which very few people could pay, without en- 
croaching more or less upon their capitals. In a particular exi- 
gency, the people may, from great public zeal, make a great effort, 
and give up even a part of their capital, in order to relieve the 
state. But it is impossible that they should continue to do so for 
any considerable time; and if they did, the tax would soon ruin 
them so completely, as to render them altogether incapableof sup- 
porting the state. 



699 



The Wealth of Nations 



The tax upon stock, imposed by the land tax bill in England, 
though it is proportioned to thecapital, isnot intended to dimin- 
ish or, takeaway any part of that capital. It is meant only to bea 
tax upon the interest of money, proportioned to that upon the 
rent of land; so that when thelatterisat four shillings in thepound, 
the former may be at four shillings in thepound too. The tax at 
H amburg, and the still more moderate taxes of U nderwald and 
Zurich, aremeant, in the same manner, to be taxes, not upon the 
capital, but upon the interest or neat revenue of stock. That of 
Holland was meant to be a tax upon thecapital. 

Taxes upon the Profit of particular Employments. 

In somecountries, extraordinary taxes areimposed upon theprofits 
of stock; sometimes when employed in particular branchesof trade, 
and sometimes when employed in agriculture. 

Of the former kind, are in England, the tax upon hawkers and 
pedlars, that upon hackney-coaches and chairs, and that which 
the keepers of ale-houses pay for a licence to retail ale and spiritous 
liquors. During the late war, another tax of the same kind was 
proposed upon shops. The war having been undertaken, it was 
said, in defence of the trade of the country, the merchants, who 
were to profit by it, ought to contribute towards the support of it. 



A tax, however, upon the profits of stock employed in any par- 
ticular branch of trade, can never fall finally upon thedealers(who 
must in all ordinary cases have their reasonable profit, and, where 
the competition is free, can seldom have more than that profit), 
but always upon the consumers, who must be obliged to pay in 
thepriceofthegoodsthetax which thedealer advances; and gen- 
erally with some overcharge. 

A tax of this kind, when it is proportioned to the trade of the 
dealer, is finally paid by the consumer, and occasions no oppres- 
sion to thedealer. W hen it isnot so proportioned, but isthesame 
upon all dealers, though in this case, too, it is finally paid by the 
consumer, yet it favours the great, and occasionssomeoppression 
to the small dealer. The tax of five shillings a-week upon every 
hackney coach, and that of ten shillings a- year upon every hack- 
ney chair, so far as it is advanced by the different keepers of such 
coaches and chairs, is exactly enough proportioned to the extent 
of their respective dealings. It neither favours the great, nor op- 
presses the smaller dealer. The tax of twenty shillings a- year for a 
licence to sell ale; of forty shillings for a licence to sell spiritous 
liquors; and of forty shillingsmore for a licence to sell wine, being 
the same upon all retailers, must necessarily give some advantage 
to the great, and occasion some oppression to the small dealers. 
Theformer must find it more easy to get back thetax in the price 



700 



Adam Smith 



of their goods than the latter. The moderation of thetax, however, 
renders this inequality of less importance; and it may to many 
people appear not improper to give some discouragement to the 
multiplication of little ale-houses. The tax upon shops, it was in- 
tended, should bethesameupon all shops. It could not well have 
been otherwise. It would have been impossible to proportion, with 
tolerable exactness, the tax upon a shop to the extent of the trade 
carried on in it, without such an inquisition as would have been 
altogether insupportable in a free country. If the tax had been 
considerable, it would have oppressed the small, and forced al- 
most the wholeretail trade into the hands of the great dealers. The 
competition of theformer being taken away, the latter would have 
enjoyed a monopoly of the trade; and, I ike all other monopolists, 
would soon have combined to raise their profits much beyond 
what was necessary for the payment of thetax. Thefinal payment, 
instead of falling upon the shop-keeper, would have fallen upon 
the consumer, with a considerable overcharge to the profit of the 
shop-keeper. For these reasons, the project of a tax upon shops 
was laid aside, and in the room of it was substituted the subsidy, 
1759. 

What in Franceiscalled thepersonal taille, is perhaps, the most 
important tax upon the profits of stock employed in agriculture, 
that is levied in any part of Europe. 



I n the disorderly state of Europe, during the prevalence of the 
feudal government, the sovereign was obliged to content himself 
with taxing those who were too weak to refuse to pay taxes. T he 
great lords, though willing to assist him upon particular emergen- 
cies, refused to subject themselves to any constant tax, and he was 
not strong enough to force them. The occupiers of land all over 
Europe were, the greater part of them, originally bond-men. 
T hrough the greater part of Europe, they were gradually emanci- 
pated. Someof them acquired the property of landed estates, which 
they held by some base or ignoble tenure, sometimes under the 
king, and sometimes under some other great lord, liketheancient 
copy-holders of England. Others, without acquiring the property, 
obtained leases for terms of years, of the lands which they occu- 
pied under their lord, and thus became less dependent upon him. 
T he great lords seem to have beheld the degree of prosperity and 
independency, which thisinferior order of men had thuscometo 
enjoy, with a malignant and contemptuous indignation, and will- 
ingly consented that the sovereign should tax them. In somecoun- 
tries, this tax was confined to the lands which were held in prop- 
erty by an ignoble tenure; and, in thiscase, thetaille was said to be 
real. The land tax established by the late king of Sardinia, and the 
taille in the provinces of Languedoc, Provence, Dauphine, and 
Britanny; in the generality of Montauban, and in the elections of 



701 



The Wealth of Nations 



Agen and Condom, as well as in some other districts of France; 
are taxes upon lands held in property by an ignoble tenure. In 
other countries, the tax was laid upon the supposed profits of all 
those who held, in farm or lease, lands belonging to other people, 
whatever might be thetenure by which the proprietor held them; 
and in this case, the taille was said to be personal. In the greater 
part of those provincesof France, which are called the countries of 
elections, the taille is of this kind. T he real taille, as it is imposed 
only upon a part of the lands of the country, is necessarily an 
unequal, but it is not always an arbitrary tax, though it is so upon 
someoccasions. Thepersonal taille, as it is intended to be propor- 
tioned to the profits of a certain class of people, which can only be 
guessed at, is necessarily both arbitrary and unequal. 

In France, the personal taille at present (1775) annually im- 
posed upon the twenty generalities, called the countries of elec- 
tions, amounts to 40,107,239 livres, 16 sous. {Memoires 
concernant les D roits, etc torn, ii, p.l7.}the proportion in which 
this sum is assessed upon those different provinces, varies from 
year to year, according to the reports which are madeto the king's 
council concerning the goodness or badness of the crops, as well 
asother circumstances, which may either increaseor diminish their 
respective abilities to pay. Each generality isdivided into a certain 
number of elections; and the proportion in which the sum im- 



posed upon thewholegenerality isdivided among those different 
elections, varies likewise from year to year, according to the re- 
ports made to the council concerning their respective abilities. It 
seems impossible, that the council, with the best intentions, can 
ever proportion, with tolerable exactness, either of these two as- 
sessments to thereal abilitiesoftheprovinceor district upon which 
they are respectively laid. Ignorance and misinformation must al- 
ways, more or less, mislead the most upright council. Thepropor- 
tion which each parish ought to support of what is assessed upon 
the whole election, and that which each individual ought to sup- 
port of what is assessed upon his particular parish, are both in the 
same manner varied from year to year, according as circumstances 
are supposed to require. These circumstances arejudged of, in the 
one case, by the officers of the election, in the other, by those of 
theparish; and both theoneand theother are, more or less, under 
the direction and influence of the intendant. Not only ignorance 
and misinformation, but friendship, party animosity, and private 
resentment, are said frequently to mislead such assessors. N o man 
subject to such atax, it is evident, can ever be certain, beforeheis 
assessed, of what he isto pay. Hecannoteven be certai n after he i s 
assessed. If any person has been taxed who ought to have been 
exempted, or if any person has been taxed beyond his proportion, 
though both must pay in the mean time, yet if they complain, and 



702 



Adam Smith 



make good their complaints, the whole parish isreimposed next 
year, in order to reimburse them. If any of the contributors be- 
come bankrupt or insolvent, the collector is obliged to advance 
his tax; and the whole parish is reimposed next year, in order to 
reimburse the collector. If the collector himself should become 
bankrupt, the parish which elects him must answer for his con- 
duct to the receiver- general of the election. But, as it might be 
troublesomefor thereceiver to prosecute thewholeparish, hetakes 
at his choice five or six of the richest contributors, and obliges 
them to make good what had been lost by the insolvency of the 
collector. The parish is afterwards reimposed, in order to reim- 
burse those five or six. Such reim positions are always over and 
above the taille of the particular yearin which they arelaid on. 

When a tax is imposed upon the profits of stock in a particular 
branch of trade, the traders are all careful to bring no more goods 
to market than what they can sell at a price sufficient to reimburse 
them from advancing the tax. Some of them withdraw a part of 
their stocks from the trade, and the market is more sparingly sup- 
plied than before. The price of the goods rises, and the final pay- 
ment of the tax falls upon the consumer. But when a tax is im- 
posed upon the profits of stock employed in agriculture, it is not 
the interest of the farmers to withdraw any part of their stock 
from that employment. Each farmer occupies a certain quantity 



of land, for which he pays rent. For the proper cultivation of this 
land, a certain quantity of stock is necessary; and by withdrawing 
any part of this necessary quantity, the farmer is not likely to be 
more able to pay either the rent or thetax. I n order to pay the tax, 
it can never be his interest to diminish the quantity of his pro- 
duce, nor consequently to supply themarket more sparingly than 
before. Thetax, therefore, will never enablehim to raise theprice 
of his produce, so as to reimburse himself, by throwing the final 
paymentupon theconsumer.Thefarmer, however, musthavehis 
reasonable profit as well as every other dealer, otherwise he must 
giveupthetrade. Aftertheimposition of ataxof thiskind, hecan 
get this reasonable profit only by paying less rent to the landlord. 
The more he is obliged to pay in the way of tax, the less he can 
afford to pay in the way of rent. A tax of thiskind, imposed dur- 
ing the currency of a lease, may, no doubt, distress or ruin the 
farmer. Upon the renewal of the lease, it must always fall upon the 
landlord. 

In thecountrieswherethepersonal tailletakesplace, thefarmer 
iscommonly assessed in proportion to thestock which heappears 
to employ in cultivation. H eis, upon thisaccount, frequently afraid 
to havea good team of horses or oxen, but endeavours to cultivate 
with the meanest and most wretched instruments of husbandry 
that hecan. Such is his distrust in thejusticeof hisassessors, that 



703 



The Wealth of Nations 



he counterfeits poverty, and wishes to appear scarce able to pay 
anything, for fear of being obliged to pay too much. By this mis- 
erablepolicy, hedoesnot, perhaps, always consult his own inter- 
est in the most effectual manner; and he probably loses more by 
the diminution of his produce, than he saves by that of his tax. 
Though, in consequence of this wretched cultivation, the market 
is, no doubt, somewhat worse supplied; yet the small rise of price 
which this may occasion, as it is not likely even to indemnify the 
farmer for the diminution of his produce, it is still less likely to 
enablehimtopaymorerenttothelandlord.Thepublicthefarmer, 
the landlord, all suffer more or less by this degraded cultivation. 
T hat the personal tailletends, in many different ways, to discour- 
age cultivation, and consequently to dry up the principal source 
of the wealth of every great country, I have already had occasion 
to observe in thethird book of this Inquiry. 

W hat are called poll-taxes in the southern provinces of N orth 
America, and the West India islands, annual taxes of so much a- 
head upon every negro, are properly taxes upon the profits of a 
certain species of stock employed in agriculture. As the planters, 
are the greater part of them, both farmers and landlords, thefinal 
payment of the tax falls upon them in their quality of landlords, 
without any retribution. 

Taxes of so much a head upon the bondmen employed in culti- 



vation, seem anciently to have been common all over EuropeThere 
subsists at present a tax of this kind in the empire of Russia. It is 
probably upon thisaccount that poll-taxes of all kinds have often 
been represented as badges of slavery. Every tax, however, is, to the 
person who pays it, a badge, not of slavery, but of liberty. It de- 
notes that he is subject to government, indeed; but that, ashehas 
some property, he cannot himself be the property of a master. A 
poll tax upon slaves is altogether different from a poll-tax upon 
freemen. The latter is paid by the persons upon whom it is im- 
posed; the former, by a different set of persons. T he latter is either 
altogether arbitrary, or altogether unequal, and, in most cases, is 
both the one and the other; the former, though in some respects 
unequal, different slaves being of different values, is in no respect 
arbitrary. Every master, who knows the number of hisown slaves, 
knows exactly what he has to pay. T hose different taxes, however, 
being called by the same name, have been considered as of the 
same nature. 

The taxes which in Holland are imposed upon men and maid 
servants, are taxes, not upon stock, but upon expense; and so far 
resemble the taxes upon consumable commodities. T he tax of a 
guinea a-head for every man-servant, which has lately been im- 
posed in Great Britain, is of the same kind. It falls heaviest upon 
themiddling rank. A man of two hundred a-year may keep asingle 



704 



Adam Smith 



man-servant. A man often thousand a-year will not keep fifty. It 
does not affect the poor. 

Taxesupon the profits of stock, in particular employments, can 
never affect the interest of money. N obody will lend his money 
for less interest to those who exercise the taxed, than to those who 
exercise the untaxed employments. Taxes upon the revenue aris- 
ing from stock in all employments, where thegovernment attempts 
to levy them with any degree of exactness, will, in many cases, fall 
upon theinterestof money.Thevingtieme, or twentieth penny, in 
France, is a tax of the same kind with what iscalled the land tax in 
England, and is assessed, in the same manner, upon the revenue 
arising upon land, houses, and stock. So far as it affects stock, it is 
assessed, though not with great rigour, yet with much more exact- 
ness than that part of the land tax in England which is imposed 
upon the same fund. It, in many cases, falls altogether upon the 
interest of money. M oney isfrequently sunk in France, upon what 
are called contractsfortheconstitution of a rent; that is, perpetual 
annuities, redeemableatanytimebythedebtor, upon payment of 
the sum originally advanced, but of which this redemption is not 
exigible by the creditor except in particular cases. The vingti erne 
seems not to have raised the rate of those annuities, though it is 
exactly levied upon them all. 



APPENDIX TO ARTICLES I. AND II.- Taxes upon the 
Capital Value of Lands, H ouses, and Stock. 

While property remains in the possession of the same person, 
whatever permanent taxes may have been imposed upon it, they 
have never been intended to diminish or takeaway any part of its 
capital value, but only some part of the revenue arising from it. 
But when property changes hands, when it is transmitted either 
from the dead to the living, or from the living to the living, such 
taxes have frequently been imposed upon it as necessarily take 
away some part of its capital value. 

T he transference of all sorts of property from the dead to the 
living, and that of immoveable property of land and houses from 
the living to the living, are transactions which are in their nature 
either public and notorious, or such as cannot belong concealed. 
Such transactions, therefore, may be taxed directly. The transfer- 
ence of stock or moveable property, from the living to the living, 
by the lending of money, is frequently a secret transaction, and 
may always be made so. It cannot easily, therefore, be taxed di- 
rectly. It has been taxed indirectly in two different ways; first, by 
requiring that thedeed, containing theobligation to repay, should 
be written upon paper or parchment which had paid a certain 
stamp duty, otherwise not to be valid; secondly, by requiring, un- 



705 



The Wealth of Nations 



der the like penalty of invalidity, that it should be recorded either 
in a public or secret register, and by imposing certain duties upon 
such registration. Stamp duties, and duties of registration, have 
frequently been imposed likewiseupon thedeedstransf erring prop- 
erty of all kindsfrom thedead to theliving, and upon those trans- 
ferring immoveable property from the living to the living; trans- 
actions which might easily have been taxed directly. 

The vicesima hereditatum, or the twentieth penny of inherit- 
ances, imposed by Augustus upon the ancient Romans, was a tax 
upon the transference of property from the dead to the living. 
Dion Cassius, {Lib. 55. See also Burman. de Vectigalibus Pop. 
Rom. cap. xi. and Bouchaud deTimpot du vingtiemesur lessuc- 
cessions.}theauthor who writes concerning it theleast indistinctly, 
says, that it was imposed upon all successions, legacies and dona- 
tions, in case of death, except upon those to the nearest rdations, 
and to the poor. 

Of the same kind is the Dutch tax upon successions. {See 
Memoiresconcernant les Droits, etc. torn i, p. 225.} Collateral 
successions are taxed accordingto thedegreeof relation, from five 
to thirty per cent, upon the whole value of the succession. Testa- 
mentary donations, or legacies to collaterals, aresubjecttothelike 
duties. Those from husband to wife, or from wife to husband, to 
the fiftieth penny. The luctuosa hereditas, the mournful succes- 



sion of ascendants to descendants, to the twentieth penny only. 
Direct successions, or those of descendants to ascendants, pay no 
tax. The death of a father, to such of his children as live in the 
same house with him, issddom attended with any increase, and 
frequently with aconsiderablediminution of revenue; bytheloss 
of his industry, of his office, or of some life-rent estate, of which 
he may have been in possession. That tax would becrud and op- 
pressive, which aggravated thar loss, by taking from them any part 
of his succession. It may, however, sometimes be otherwise with 
those children, who, in the language of the Roman law, are said to 
be emancipated; in that of the Scotch law, to be foris-familiated; 
that is, who have recaved their portion, have got families of their 
own, and aresupported byfundsseparateand independent of those 
of their father. W hatever part of his succession might come to such 
children, would beareal addition to tharfortune, and might, there- 
fore, perhaps, without more inconveniency than what attends all 
duties of this kind, beliabletosometax. 

T he casualties of the feudal law were taxes upon the transfer- 
enceof land, both from thedead to theliving, and from theliving 
to the living. In ancient times, they constituted, in every part of 
Europe, one of the principal branches of therevenueof thecrown. 

T he heir of every immediate vassal of the crown paid a certain 
duty, generally a year's rent, upon recaving the investiture of the 



706 



Adam Smith 



estate. I f the heir was a minor, the whole rents of the estate, during 
the continuance of theminority, devolved to the superior, without 
any other charge besides the maintenance of the minor, and the 
payment of the widow's dower, when therehappened to beadowa- 
ger upon the land. W hen the minor cameto de of age, another tax, 
called relief, was still dueto thesuperior, which generally amounted 
likewiseto ayear's rent. A long minority, which, in the present times, 
so frequently disburdens a great estate of all its incumbrances, and 
restores the family to their ancient splendour, could in those times 
have no such effect. The waste, and notthedisincumbranceof the 
estate, was the common effect of a long minority. 

By a feudal law, the vassal could not alienate without the con- 
sent of his superior, who generally extorted a fine or composition 
on granting it. This fine, which was at first arbitrary, came, in 
many countries, to be regulated at a certain portion of thepriceof 
the land. I n some countries, where the greater part of the other 
feudal customs have gone into disuse, thistaxupon thealienation 
of land still continues to make a very considerable branch of the 
revenue of the sovereign. In the canton of Berne it is so high as a 
sixth part of thepriceof all noble fiefs, and a tenth part of that of 
all ignobleones. {M emoiresconcernant lesD roits, etc, tom.i p.154} 
I n the canton of Lucern, the tax upon the sale of land is not uni- 
versal, and takes place only in certain districts. But if any person 



sells his land in order to remove out of the territory, he pays ten 
percent, upon thewholepriceof thesale. {id. p.l57.}Taxesof the 
same kind, upon the sale either of all lands, or of lands held by 
certain tenures, take place in many other countries, and make a 
more or less considerable branch of the revenue of the sovereign. 

Such transactions may be taxed indirectly, by means either of 
stamp duties, or of duties upon registration; and those duties ei- 
ther may, or may not, be proportioned to the value of the subject 
which is transferred. 

In Great Britain, the stamp duties are higher or lower, not so 
much accordingtothevalueof theproperty transferred (an eigh- 
teen-penny or half-crown stamp being sufficient upon a bond for 
the largest sum of money), as according to the nature of the deed. 
T he highest do not exceed six pounds upon every sheet of paper, 
or skin of parchment; and thesehigh dutiesfall chiefly upon grants 
from the crown, and upon certain law proceedings, without any 
regard to the value of the subject. There are, in Great Britain, no 
duties on the registration of deeds or writings, except the fees of 
the officers who keep theregister; and these are seldom more than 
a reasonable recom pence for their labour. The crown derives no 
revenue from them. 

In Holland {M emoiresconcernant les Droits, etc. tom.i. p 223, 
224, 225.}there are both stamp duties and duties upon registra- 



707 



The Wealth of Nations 



tion; which in some cases are, and in some are not, proportioned 
to the value of the property transferred. All testaments must be 
written upon stamped paper, of which the price is proportioned 
to the property disposed of; so that there are stamps which cost 
from three pence or three stivers a-sheet, to three hundred florins, 
equal to about twenty-seven poundsten shillings of our money. If 
the stamp isof an inferior price to what thetestator ought to have 
made use of, his succession is confiscated. This is over and above 
all their other taxes on succession. Except bills of exchange, and 
someother mercantile bills, all other deeds, bonds, and contracts, 
are subject to a stamp duty. This duty, however, does not rise in 
proportion to the value of the subject. All sales of land and of 
houses, and all mortgages upon either, must be registered, and, 
upon registration, pay a duty to the state of two and a- half per 
cent, upon the amount of the price or of the mortgage. T his duty 
is extended to the sale of all ships and vessels of more than two 
tons burden, whether decked or undecked. These, it seems, are 
considered asasort of housesupon thewater.Thesaleof moveables, 
when it isordered by a court of justice, issubject to thelikeduty 
of two and a-half per cent. 

In France, there are both stamp dutiesanddutiesupon registra- 
tion. The former are considered as a branch of the aids of excise, 
and, in the provinces where those duties take pi ace, are levied by 



the excise officers. The latter are considered as a branch of the 
domain of the crown and are levied by a different set of officers. 

T hose modes of taxation by stamp duties and by duties upon 
registration, are of very modern invention. In the course of little 
more than a century, however, stamp duties have, in Europe, be- 
comealmost universal, and duties upon registration extremely com- 
mon. T here is no art which one government sooner learns of an- 
other, than that of draining money from thepockets of thepeople. 

Taxes upon the transference of property from the dead to the 
living, fall finally, aswdl asimmediatdy, upon thepersonsto whom 
the property is transferred. Taxes upon the sale of land fall alto- 
gether upon thesdler.Thesdlerisalmost always under the neces- 
sity of sd ling, and must, therefore, take such a price as he can get. 
The buyer is scarce ever under the necessity of buying, and will, 
therefore, only give such apriceashelikes. H e considers what the 
land will cost him, in tax and price together.Themoreheisobliged 
to pay in the way of tax, the less he will be disposed to give in the 
way of price. Such taxes, therefore, fall almost always upon a ne- 
cessitous person, and must, therefore, be frequently very crud and 
oppressive. Taxes upon the sale of new-built houses, where the 
building issold withouttheground, fall generally upon thebuyer, 
because the builder must generally have his profit; otherwise he 
must give up thetrade. If he advances the tax, therefore, thebuyer 



708 



Adam Smith 



must generally repay it to him. Taxes upon the sale of old houses, 
for the same reason as those upon the sale of land, fall generally 
upon the seller; whom, in most cases, either conveniency or ne- 
cessity obliges to sell. The number of new-built houses that are 
annually brought to market, is more or less regulated by the de- 
mand. Unless thedemand issuch as to afford thebuilder hisprofit, 
after paying all expenses, he will build no more houses. The num- 
ber of old houses which happen at any time to come to market, is 
regulated by accidents, of which the greater part have no relation 
to the demand. Two or three great bankruptcies in a mercantile 
town, will bring many houses to sale, which must be sold for what 
can be got for them. Taxes upon the saleof ground-rents fall alto- 
gether upon the seller, for the same reason as those upon the sale 
of lands. Stamp duties, and duties upon the registration of bonds 
and contracts for borrowed money, fall altogether upon the bor- 
rower, and, in fact, are always paid by him. D uties of the same 
kind upon law proceedings fall upon the suitors. They reduce to 
both the capital value of the subject in dispute. The more it costs 
to acquire any property, the less must be the neat value of it when 
acquired. 

All taxesupon the transference of property of every kind, so far 
as they diminish thecapital valueof that property, tend to dimin- 
ish the funds destined for the maintenance of productive labour. 



They are all more or I ess unthrifty taxes that in crease the revenue 
of the sovereign, which seldom maintains any but unproductive 
labourers, at the expense of thecapital of the people, which main- 
tains none but productive. 

Such taxes, even when they are proportioned to the value of the 
property transferred, are still unequal; the frequency of transfer- 
ence not being always equal in property of equal value. When 
they arenot proportioned to this value, which isthe case with the 
greater part of thestamp duties and dutiesof registration, they are 
still more so. They are in no respect arbitrary, but are, or may be, 
in all cases, perfectly clear and certain. Though they sometimes 
fall upon the person who is not very able to pay, thetimeof pay- 
ment is, in most cases, sufficiently convenient for him. When the 
payment becomes due, he must, in most cases, have the more to 
pay. They are levied at very little expense, and in general subject 
the contributors to no other inconveniency, besides always the 
unavoidable one of paying the tax. 

I n France, thestamp duties are not much complained of. Those 
of registration, which they call theControle, are. They give occa- 
sion, it ispretended, to much extortion in theofficersof thefarm- 
ers-general who collect the tax, which is in a great measure arbi- 
trary and uncertain. In the greater part of the libels which have 



709 



The Wealth of Nations 



been written against the present system of finances in France, the 
abuses of the control e make a principal article. Uncertainty, how- 
ever, doesnot seem to benecessarily inherent in thenature of such 
taxes. If thepopular complaints are well founded, the abusemust 
arise, not so much from the nature of the tax as from the want of 
precision and distinctness in the words of the edicts or lawswhich 
impose it. 

The registration of mortgages, and in general of all rights upon 
immoveable property, as it gives great security both to creditors 
and purchasers, is extremely advantageous to the public. That of 
thegreater part of deedsof other kinds, isfrequently inconvenient 
and even dangerousto individuals, without any advantage to the 
public. All registers which, it is acknowledged, ought to be kept 
secret, ought certainly never to exist. The credit of individuals 
ought certainly never to depend upon so very slender a security, as 
the probity and religion of the inferior officers of revenue. But 
where the fees of registration have been made a source of revenue 
to the sovereign, register-offices have commonly been multiplied 
without end, both for thedeeds which ought to be registered, and 
for those which ought not. In France there are several different 
sorts of secret registers. This abuse, though not perhaps a neces- 
sary, it must be acknowledged, isa very natural effect of such taxes. 

Such stamp duties as those in England upon cards and dice, 



upon newspapersand periodical pamphlets, etc. are properly taxes 
upon consumption; thefinal payment falls upon the persons who 
use or consume such commodities. Such stamp duties as those 
upon licences to retail ale, wine, and spiritous liquors, though 
intended, perhaps, to fall upon theprofits of theretailers, arelike- 
wise finally paid by the consumers of those liquors Such taxes, 
though called by the same name, and levied by the same officers, 
and in the same manner with the stamp duties above mentioned 
upon the transference of property, are, however, of a quite differ- 
ent nature, and fall upon quite different funds. 

ARTICLE III. — Taxes upon the Wages of Labour. 

The wages of the inferior classes of work men, I have endeav- 
oured to show in the first book are everywhere necessarily regu- 
lated by two different circumstances; the demand for labour, and 
theordinary or average price of provisions. Thedemand for labour, 
according as it happens to be either increasing stationary or de- 
clining; or to require an increasing, stationary, or declining popu- 
lation, regulates the subsistence of thelabourer, and determinesin 
what degree it shall be either liberal, moderate, or scanty. The 
ordinary average price of provisions determines the quantity of 
money which must be paid to the workman, in order to enable 
him, oneyear with another, to purchase this liberal, moderate, or 



710 



Adam Smith 



scanty subsistence. W hilethedemand for the labour and the price 
of provisions, therefore, remain the same, a direct tax upon the 
wagesof labour can have no other effect, than to raise them some- 
what higher than the tax. Let us suppose, for example, that, in a 
particular place, the demand for labour and the price of provi- 
sionsweresuch as to render ten shillings a-weektheordinary wages 
of labour; and thatatax of one-fifth, orfour shillingsin thepound, 
was imposed upon wages. If the demand for labour and the price 
of provisions remained the same, it would still be necessary that 
the labourer should, in that place, earn such a subsistence ascould 
be bought only for ten shillings a-week; so that, after paying the 
tax, he should have ten shillings a-week free wages. But, in order 
to leave him such free wages, after paying such a tax, the price of 
labour must, in that place, soon rise, nottotwelveshillingsaweek 
only, but to twelve and sixpence; that is, in order to enable him to 
pay a tax of one-fifth, his wages must necessarily soon rise, not 
one-fifth part only, but one-fourth. Whatever was theproportion 
of the tax, the wages of labour must, in all cases rise, not only in 
that proportion, but in a higher proportion. I fthetax for example, 
was one-tenth, the wages of labour must necessarily soon rise, not 
one-tenth part only, but one-eighth. 

A direct tax upon the wages of labour, therefore, though the 
labourer might, perhaps, pay it out of his hand, could not prop- 



erly be said to be even advanced by him; at least if thedemand for 
labour and theaveragepriceof provisionsremained thesameafter 
the tax as before it. In all such cases, not only the tax, but some- 
thing more than the tax, would in reality be advanced bytheper- 
son who immediately employed him. The final payment would, 
in different cases, fall upon different persons. The rise which such 
a tax might occasion in the wages of manufacturing labour would 
be advanced by the master manufacturer, who would both be en- 
titled and obliged to charge it, with a profit, upon the price of his 
goods. The final payment of this rise of wages, therefore, together 
with the additional profit of the master manufacturer would fall 
upon the consumer. T he rise which such a tax might occasion in 
the wages of country labour would be advanced by the farmer, 
who, in order to maintain the same number of labourers as be- 
fore, would be obliged to employ a greater capital. In order to get 
back thisgreater capital, together with theordinary profitsof stock, 
it would be necessary that he should retain a larger portion, or, 
what comes to the same thing, the priceof a larger portion, of the 
produce of the land, and, consequently, that he should pay less 
rent to the landlord. T hefinal payment of this rise of wages, there- 
fore, would, in thiscase, fall upon thelandlord, together with the 
additional profit of thefarmer who had advanced it. In all cases, a 
direct tax upon the wages of labour must, in the long-run, occa- 



711 



The Wealth of Nations 



sion both a greater reduction in the rent of land, and a greater rise 
in the price of manufactured goods than would have followed 
from the proper assessment of a sum equal to the produce of the 
tax, partly upon the rent of land, and partly upon consumable 
commodities. 

If direct taxes upon the wages of labour have not always occa- 
sioned aproportionablerisein thosewages, itisbecause they have 
generally occasioned a considerable fall in the demand of labour. 
The declension of industry, the decrease of employment for the 
poor, thediminution of theannual produce of the land and labour 
of the country, have generally been the effects of such taxes. In 
consequence of them, however, the price of labour must always be 
higher than itotherwisewould have been in theactual state of the 
demand; and this enhancement of price, together with the profit 
of those who advance it, must always be finally paid by the land- 
lords and consumers. 

A tax upon the wages of country labour does not raise the price 
of the rude produce of land in proportion to thetax; for thesame 
reason that a tax upon the farmer's profit does not raise that price 
in that proportion. 

Absurd and destructive as such taxes are, however, they take 
placein many countries. In France, that part of thetaille which is 
charged upon theindustry of workmen and day-labourersin coun- 



try villages, is properly a tax of this kind. Their wages are com- 
puted according to the common rateof the district in which they 
reside; and, that they may be aslittleliableaspossibleto any over- 
charge, their yearly gains are estimated at no more than two hun- 
dred working days in the year. {M emoiresconcernant les Droits, 
etc. torn. ii. p. 108.}Thetaxofeach individual isvaried from year 
to year, according to different circumstances, of which thecollec- 
tor or the commissary, whom intendant appoints to assist him, 
are the judges. In Bohemia, in consequence of the alteration in 
thesystem of finances which was begun in 1748, a very heavy tax 
is imposed upon the industry of artificers. They aredivided into 
four dasses.Thehighest class payahundredflorinsayear, which, 
at two-and-twenty pence half penny a-florin, amounts to £9:7:6. 
The second class are taxed at seventy; the third at fifty; and the 
fourth, comprehending artificers in villages, and the lowest class 
of those in towns, at twenty-five florins. {M emoires concemant 
les Droits, etc. torn. iii. p. 87.} 

Therecompenceof ingeniousartists, and of men of liberal pro- 
fessions, I have endeavoured to show in thefirst book, necessarily 
keepsa certain proportion to theemolumentsof inferior trades. A 
tax upon this recompence, therefore, could have no other effect 
than to raise it somewhat higher than in proportion to thetax. If 
it did not rise in this manner, the ingenious arts and the liberal 



712 



Adam 

professions, being; no longer upon a level with other trades, would 
be so much deserted, that they would soon return to that level. 

Theemolumentsof offices arenot, likethoseof trades and pro- 
fessions, regulated by the free competition of the market, and do 
not, therefore, always bear a just proportion to what the nature of 
the employment requires. They are, perhaps, in most countries, 
higher than it requires; the persons who have the administration 
of government being generally disposed to regard both themselves 
and their immediate dependents, rather more than enough. The 
emoluments of offices, therefore, can, in most cases, very well bear 
to be taxed. The persons, besides, who enjoy public offices, espe- 
cially the more lucrative, are, in all countries, the objects of gen- 
eral envy; and a tax upon their emoluments, even though it should 
be somewhat higher than upon any other sort of revenue, is al- 
ways a very popular tax. In England, for example, when, by the 
land-tax, every other sort of revenue was supposed to be assessed 
at four shillingsin thepound, it was very popular to layareal tax 
of five shillings and sixpence in the pound upon the salaries of 
offices which exceeded a hundred pounds a-year; the pensions of 
the younger branches of the royal family, the pay of the officers of 
the army and navy, and a few others less obnoxious to envy, ex- 
cepted. There are in England no other direct taxes upon the wages 
of labour. 



Smith 

ARTICLE IV. — Taxes which it isintended should fall in- 
differently upon every different Species of Revenue. 

The taxes which it is intended should fall indifferently upon 
every different species of revenue, are capitation taxes, and taxes 
upon consumablecommodities.Thosemust be paid indifferently, 
from whatever revenue the contributors may possess; from the 
rent of their land, from the profits of their stock, or from the 
wages of their labour. 

Capitation Taxes. 

Capitation taxes, if it is attempted to proportion them to thefor- 
tuneor revenue of each contributor, become altogether arbitrary. 
The state of a man's fortune varies from day to day; and, without 
an inquisition, moreintolerablethan any tax, and renewed at least 
once every year, can only be guessed at. H isassessment, therefore, 
must, in most cases, depend upon thegood or bad humour of his 
assessors, and must, therefore, be altogether arbitrary and uncer- 
tain. 

Capitation taxes, if they are proportioned, not to the supposed 
fortune, but to the rank of each contributor, become altogether 
unequal; the degrees of fortune being frequently unequal in the 
same degree of rank. 



713 



The Wealth of Nations 



Such taxes, therefore, if it is attempted to render them equal, 
become altogether arbitrary and uncertain; and if it is attempted 
to render them certain and not arbitrary, become altogether un- 
equal. Let the tax be light or heavy, uncertainty is always a great 
grievance. In a light tax, a considerable degree of inequality may 
be supported; in a heavy one, it is altogether intolerable. 

In the different poll-taxes which took place in England during 
the reign of William 1 1 1, the contributors were, the greater part of 
them, assessed according to the degree of their rank; as dukes, 
marquises, earls, viscounts, barons, esquires, gentlemen, the el- 
dest and youngest sons of peers, etc. All shop-keepers and trades- 
men worth more than three hundred pounds, that is, the better 
sort of them, weresubject to the same assessment, how great soever 
might be the difference in their fortunes. Their rank was more 
considered than their fortune. Several of those who, in the first 
poll-tax, were rated according to their supposed fortune were af- 
terwards rated according to their rank. Serjeants, attorneys, and 
proctors at law, who, in the first poll-tax, were assessed at three 
shillings in the pound of their supposed income, were afterwards 
assessed as gentlemen. I n the assessment of a tax which was not 
very heavy, a considerable degree of inequality had been found 
less insupportable than any degree of uncertainty. 

In thecapitation which has been levied in France, without-any 



interruption, sincethebeginning of thepresent century, thehigh- 
est orders of peopleare rated accordingtotheirrank, by an invari- 
able tariff; the lower orders of people, according to what is sup- 
posed to be their fortune, by an assessment which varies from year 
to year. The officers of the king's court, thejudges, and other of- 
ficers in the superior courts of justice, the officers of the troops, 
etc are assessed in thefirst manner.Theinferior ran ksof peoplein 
the provinces are assessed inthesecond. In France, the great easily 
submitto aconsiderabledegreeof inequality in atax which, so far 
as it affects them, is not a very heavy one; but could not brook the 
arbitrary assessment of an intendant. 

The inferior ranks of people must, in that country, suffer pa- 
tiently the usage which their superiors think proper to give them. 

In England, the different poll-taxes never produced the sum 
which had been expected from them, or which it was supposed 
they might have produced, had they been exactly levied. In France, 
thecapitation alwaysproducesthesum expected from it.Themild 
government of England, when it assessed the different ranks of 
people to the poll-tax, contented itself with what that assessment 
happened to produce, and required no compensation for the loss 
which the state might sustain, either by those who could not pay, 
or by those who would not pay (for there were many such), and 
who, by the indulgent execution of the law, were not forced to 



714 



Adam Smith 



pay. The more severe government of France assesses upon each 
generality a certain sum, which theintendant must find ashecan. 
If any province complains of being assessed too high, it may, in 
theassessment of next year, obtain an abatement proportioned to 
the overcharge of the year before; but it must pay in the mean 
time. T he intendant, in order to be sure of finding the sum as- 
sessed upon his generality, was empowered to assess it in a larger 
sum, that thefailure or inability of someofthecontributorsmight 
be compensated by the overcharge of the rest; and till 1765, the 
fixation of this surplus assessment was I eft altogether to hisdiscre- 
tion. In that year, indeed, thecouncil assumed thispower to itself. 
I n the capitation of the provinces, it is observed by the perfectly 
well informed author of the M emoirs upon the Impositions in 
France, the proportion which falls upon the nobility, and upon 
those whose privileges exempt them from the taille, is the least 
considerable. T he largest falls upon thosesubject to thetaille, who 
are assessed to the capitation at so much a-pound of what they 
pay to that other tax. 

Capitation taxes, so far as they are levied upon the lower ranks 
of people, are direct taxes upon the wages of labour, and are at- 
tended with all theinconvenienciesof such taxes. 

Capitation taxes are levied at little expense; and, where they are 
rigorously exacted, afford a very sure revenue to the state. It is 



upon thisaccountthat, in countries where thecase, comfort, and 
security of the inferior ranks of peoplearelittleattendedto, capi- 
tation taxes are very common. Itisin general, however, butasmall 
part of the public revenue, which, in a great empire, has ever been 
drawn from such taxes; and thegreatest sum which they have ever 
afforded, might always have been found in someother way much 
more convenient to the people. 

Taxes upon Consumable Commodities. 

Theimpossibility of taxingthe people, in proportion to their rev- 
enue, by any capitation, seems to have given occasion to the in- 
vention of taxes upon consumable commodities. The state not 
knowing how to tax, directly and proportionably, the revenue of 
its subjects, endeavoursto tax it indirectly by taxing their expense, 
which, it is supposed, will, in most cases, be nearly in proportion 
to their revenue. Their expense is taxed, by taxing theconsumable 
commodities upon which it is laid out. 

C onsumable commodities are either necessaries or luxuries. 

By necessaries I understand, not only the commodities which 
are indispensibly necessary for the support of life, but whatever 
thecustom of thecountry renders it indecent for creditable people, 
even of the lowest order, to be without. A linen shirt, for example, 



715 



The Wealth of Nations 



is, strictly speaking, not a necessary of life. The Greeks and Ro- 
manslived, I suppose, very comfortably, though they had no linen. 
But in the present times, through the greater part of Europe, a 
creditable day-labourer would be ashamed to appear in public 
without a linen shirt, the want of which would be supposed to 
denote that disgraceful degree of poverty, which, it is presumed, 
nobody can well fall into without extreme bad conduct. Custom, 
in the same manner, has rendered leather shoes a necessary of life 
in England. Thepoorestcreditableperson, of either sex, would be 
ashamed to appear in public without them. I n Scotland, custom 
has rendered them a necessary of life to the lowest order of men; 
but not to the same order of women, who may, without any dis- 
credit, walk about barefooted. In France, they are necessaries nei- 
ther to men nor to women; the lowest rank of both sexes appear- 
ing there publicly, without any discredit, sometimes in wooden 
shoes, and sometimes barefooted. Under necessaries, therefore, I 
comprehend, not onlythose things which nature, butthose things 
which the established rulesof decency have rendered necessary to 
the lowest rank of people. All other things I call luxuries, without 
meaning, by this appellation, to throw the smallest degree of re- 
proach upon the temperate use of them. Beer and ale, for example, 
in Great Britain, and wine, even in the wine countries, I call luxu- 
ries. A man of any rank may, without any reproach, abstain totally 



from tasting such liquors. Nature does not render them necessary 
for thesupport of life; and custom nowhere renders it indecent to 
live without them. 

As the wages of labour are everywhere regulated, partly by the 
demand for it, and partly by the average price of the necessary 
articles of subsistence; whatever raises thisaveragepricemust nec- 
essarily raise those wages; so that the labourer may still beableto 
purchase that quantity of those necessary articles which the state 
of the demand for labour, whether increasing, stationary, or de- 
clining, requires that he should have. {See book i.chap. 8} A tax 
upon those articles necessarily raises their price somewhat higher 
than the amount of the tax, because the dealer, who advances the 
tax, must generally get it back, with a profit. Such a tax must, 
therefore, occasion a risein the wages of labour, proportionableto 
this rise of price. 

Itisthusthatataxupon the necessaries of life operates exactly 
in the same manner as a direct tax upon the wages of labour. T he 
labourer, though he may pay it out of his hand, cannot, for any 
considerable time at least, be properly said even to advance it. It 
must always, in thelong-run, be advanced to him byhisimmedi- 
ateemployer, in theadvanced state of wages. H isemployer, if heis 
a manufacturer, will chargeupon thepriceof hisgoodstheriseof 
wages, together with a profit, so that the final payment of the tax, 



716 



Adam Smith 



together with this overcharge, will fall upon theconsumer. If his 
employer is a farmer, the final payment, together with a like over- 
charge, will fall upon the rent of the landlord. 

It is otherwise with taxes upon what I call luxuries, even upon 
those of the poor. T he rise in the price of the taxed commodities, 
will not necessarily occasion any rise in the wages of labour. A tax 
upon tobacco, for example, though a luxury of the poor, as well as 
of therich, will not raise wages. Though it istaxed in England at 
three times, and in France at fifteen times its original price, those 
high duties seem to have no effect upon the wages of labour. The 
same thing maybe said of the taxes upon tea and sugar, which, in 
England and Holland, have become luxuries of the lowest ranks 
of people; and of those upon chocolate, which, in Spain, issaid to 
have become so. 

The different taxes which, in Great Britain, have, in thecourseof 
the present century, been imposed upon spiritous liquors, are not 
supposed to have had any effect upon the wages of labour. T he rise 
in the price of porter, occasioned by an additional tax of three shil- 
lings upon the barrel of strong beer, has not raised the wages of 
common labour in London. These were about eighteen pence or 
twenty pence a-day before the tax, and they are not more now. 

The high price of such commodities does not necessarily di- 
minish theability of the inferior ran ksof peopleto bring up fami- 



lies. Upon the sober and industrious poor, taxes upon such com- 
modities act as sumptuary laws, and dispose them either to mod- 
erate, or to refrain altogether from the use of superfluities which 
they can no longer easily afford. Their ability to bring up families, 
in consequence of this forced frugality, instead of being dimin- 
ished, is frequently, perhaps, increased by the tax. It is the sober 
and industrious poor who generally bring up the most numerous 
families, and who principally supply thedemand for useful labour. 
All the poor, indeed, are not sober and industrious; and the disso- 
lute and disorderly might continue to indulge themselves in the 
useof such commodities, after this rise of price, in thesame man- 
ner as before, without regarding the distress which thisindulgence 
might bring upon their families. Such disorderly persons, how- 
ever, seldom rear up numerous families, their children generally 
perishing from neglect, mismanagement, and the scantiness or 
unwholesomeness of their food. If by the strength of their consti- 
tution, they survive the hardships to which the bad conduct of 
their parents exposes them, yet the example of that bad conduct 
commonly corrupts their morals; so that, instead of being useful 
to society by their industry, they becomepublicnuisancesby their 
vices and disorders. Through theadvanced price of theluxuriesof 
the poor, therefore, might increase somewhat the distress of such 
disorderly families, and thereby diminish somewhat their ability 



717 



The Wealth of Nations 



to bring up children, it would not probably diminish much the 
useful population of the country. 

Anyrisein the average price of necessaries, unless it Decompen- 
sated byaproportionableriseinthewages of labour, must neces- 
sarily diminish, more or less, the ability of the poor to bring up 
numerous families, and, consequently, to supply the demand for 
useful labour; whatever may be the state of that demand, whether 
increasing, stationary, or declining; or such as requires an increas- 
ing, stationary, or declining population. 

Taxes upon luxuries have no tendency to raise the price of any 
other commodities, except that of the commodities taxed. Taxes 
upon necessaries, by raising the wages of labour, necessarily tend 
to raise thepriceof all manufactures, and consequently to dimin- 
ish the extent of their sale and consumption. Taxes upon luxuries 
are finally paid by theconsumersof thecommodities taxed, with- 
out any retribution. They fall indifferently upon every species of 
revenue, the wages of labour, the profits of stock, and the rent of 
land. Taxes upon necessaries, so far as they affect the labouring 
poor, are finally paid, partly by landlords, in the diminished rent 
of their lands, and partly by rich consumers, whether landlordsor 
others, in the advanced price of manufactured goods; and always 
with aconsiderableoverchargeTheadvanced priceof such manu- 
factures as are real necessaries of life, and aredestined forthecon- 



sumption of the poor, of coarse woollens, for example, must be 
compensated to the poor by a farther advancement of thei r wages. 
The middling and superior ranks of people, if they understood 
their own interest, ought always to oppose all taxes upon the nec- 
essaries of life, as well as all taxes upon the wages of labour. The 
final payment of both the one and the other falls altogether upon 
themselves, and always with a considerable overcharge. They fall 
heaviest upon the landlords, who always pay in adoublecapacity; 
in that of landlords, by the reduction, of their rent; and in that of 
rich consumers, by theincreaseof their expense. The observation 
of Sir M atthew D ecker, that certain taxes are, in the price of cer- 
tain goods, sometimes repeated and accumulated fourorfivetimes, 
is perfectly just with regard to taxes upon the necessariesof life. I n 
thepriceof leather, for example, you must pay not only for thetax 
upon the leather of your own shoes, but for a part of that upon 
those of the shoemaker and the tanner. You must pay, too, for the 
tax upon the salt, upon the soap, and upon the candles which 
those workmen consume whileemployed in your service; and for 
the tax upon the leather, which the saltmaker, the soap-maker, 
and the candle-maker consume, whileemployed in their service. 
In Great Britain, the principal taxes upon the necessaries of life, 
are those upon the four commodities just now mentioned, salt, 
leather, soap, and candles. 



718 



Adam Smith 



Salt is a very ancient and a very universal subject of taxation. It 
was taxed among the Romans, and it is so at present in, I believe, 
every part of Europe. The quantity annually consumed by any 
individual is so small, and may be purchased so gradually, that 
nobody, it seems to have been thought, could feel very sensibly 
even a pretty heavy tax upon it. It is in England taxed at three 
shillings and fourpence a bushel; about three times the original 
price of the commodity. In some other countries, the tax is still 
higher. Leather is a real necessary of life. The use of linen renders 
soap such. In countries where thewinter nights are long, candles 
are a necessary instrument of trade. Leather and soap are in Great 
Britain taxed atthreehalfpencea-pound; candlesatapenny; taxes 
which, upon the original price of leather, may amount to about 
eight or ten per cent.; upon that of soap, to about twenty or five 
and-twenty per cent.; and upon that of candles to about fourteen 
or fifteen per cent.; taxes which, though lighter than that upon 
salt, are still very heavy. As all those four commodities are real 
necessaries of life, such heavy taxes upon them must increase some 
what the expense of the sober and industrious poor, and must 
consequently raise more or less the wages of their labour. 

In a country where the winters are so cold as in Great Britain, 
fuel is, during that season, in the strictest sense of the word, a 
necessary of life, not only for the purpose of dressing victuals, but 



for the comfortable subsistence of many different sorts of work- 
men who work within doors; and coals are the cheapest of all fuel. 
Thepriceof fuel has so important an influenceupon that of labour, 
that all over Great Britain, manufactures haveconfined themselves 
principally to the coal counties; other parts of the country, on 
account of the high price of this necessary article, not being able 
to work so cheap. I n some manufactures, besides, coal is a neces- 
sary instrument of trade; as in those of glass, iron, and all other 
metals. If a bounty could in any case be reasonable, it might per- 
haps be so upon the transportation of coals from those parts of 
the country in which they abound, to those in which they are 
wanted. But the legislature, instead of abounty, hasimposed atax 
of threeshillingsand threepence a-ton upon coalscarried coastways; 
which, upon most sorts of coal, is more than sixty per cent, of the 
original price at the coal pit. Coalscarried, either by land or by 
inland navigation, pay no duty. Where they are naturally cheap, 
they are consumed duty free; where they are naturally dear, they 
are loaded with a heavy duty. 

Such taxes, though they raise the price of subsistence, and con- 
sequently the wages of labour, yet they afford a considerable rev- 
enue to government, which it might not be easy to find in any 
other way. There may, therefore, be good reasons for continuing 
them. T he bounty upon theexportation of corn, so far us it tends, 



719 



The Wealth of Nations 



in the actual state of tillage, to raise the price of that necessary 
article, produces all the like bad effects; and instead of affording 
any revenue, frequently occasions a very great expense to govern- 
ment.Thehigh dutiesupon theimportation of foreign corn, which, 
in years of moderate plenty, amount to a prohibition; and the 
absolute prohibition of theimportation, either of live cattle, or of 
salt provisions, which takes place in the ordinary state of the law, 
and which, on account of the scarcity, is at present suspended for 
a limited time with regard to Ireland and the British plantations, 
have all had the bad effects of taxes upon the necessaries of life, 
and produce no revenueto government. Nothing seems necessary 
for the repeal of such regulations, but to convince the public of 
thefutilityof that system in consequenceof which they have been 
established. 

Taxes upon the necessaries of life aremuch higher in many other 
countries than in Great Britain. Dutiesupon flour and meal when 
ground at the mill, and upon bread when baked at the oven, take 
placein many countries. In Holland themoney-priceof the: bread 
consumed in towns is supposed to be doubled by means of such 
taxes. In lieu of a part of them, the people who live in the country, 
pay every year so much a-head, according to the sort of bread they 
are supposed to consume. Those who consume wheaten bread 
pay threeguilders fifteen stivers; about six shillings and ninepence 



halfpenny. T hose, and some other taxes of the same kind, by rais- 
ing the price of labour, are said to have ruined the greater part of 
the manufactures of H olland {M emoires concernant les D roits, 
etc. p. 210, 211.}. Similar taxes, though not quite so heavy, take 
place in the M ilanese, in the states of Genoa, in the duchy of 
M odena, in the duchies of Parma, Placentia, and Guastalla, and 
the Ecclesiastical state. A French author {LeReformateur}of some 
note, has proposed to reform the finances of his country, by sub- 
stituting in the room of the greater part of other taxes, this most 
ruinousof all taxes.Thereisnothing so absurd, saysCicero, which 
has not sometimes been asserted by some philosophers. 

Taxes upon butcher's meat are still more common than those 
upon bread. It may indeed bedoubted, whether butcher's meat is 
any where a necessary of life. Grain and other vegetables, with the 
help of milk, cheese, and butter, or oil, where butter is not to be 
had, it is known from experience, can, without any butcher's meat, 
afford the most plentiful, the most wholesome, the most nourish- 
ing, and the most invigorating diet. Decency nowhere requires 
that any man should eat butcher's meat, as it in most places re- 
quires that heshould wear a linen shirt or a pair of leather shoes. 

Consumablecommodities, whether necessariesor luxuries, may 
be taxed in two different ways. The consumer may either pay an 
annual sum on account of his using or consuming goods of a 



720 



Adam Smith 



certain kind; or the goods may be taxed whilethey remain in the 
handsof thedealer, and beforethey aredelivered totheconsumer. 
The consumable goods which last a considerabletime beforethey 
are consumed altogether, are most properly taxed in the one way; 
those of which the consumption is either immediate or more 
speedy, in the other. The coach-tax and plate tax are examples of 
the former method of imposing; the greater part of the other du- 
ties of excise and customs, of the latter. 

A coach may, with good management, last ten or twelve years. It 
might be taxed, once for all, beforeit comes out of the handsof the 
coach-maker. But it is certainly more convenient for the buyer to 
pay four pounds a-year for the privilege of keeping a coach, than to 
pay all at once forty or forty-eight pounds additional price to the 
coach-maker; or a sum equivalent to what the tax is likely to cost 
him duringthetimeheusesthesamecoach. A serviceof platein the 
samemanner, may last more than a century. Itiscertainly-easierfor 
the consumer to pay five shillings a-year for every hundred ounces 
of plate, near one per cent, of the value, than to redeem this long 
annuity at five-and-twenty or thirty years purchase, which would 
enhance the price at least five-and-twenty or thirty per cent. The 
different taxes which affect houses, are certainly more conveniently 
paid by moderate annual payments, than by a heavy tax of equal 
value upon thefirst building or sale of the house. 



It was the well-known proposal of Sir M atthew Decker, that all 
commodities, even those of which the consumption is either im- 
mediate or speedy, should be taxed in this manner; thedealer ad- 
vancing nothing, but the consumer paying a certain annual sum 
for thelicencetoconsumecertain goods. Theobject of hisscheme 
was to promote all the different branches of foreign trade, par- 
ticularly thecarrying trade, by taking away all dutiesupon impor- 
tation and exportation, and thereby enabling the merchant to 
employ his whole capital and credit in the purchaseof goods and 
the freight of ships, no part of either being diverted towards the 
advancing of taxes, The project, however, of taxing, in this man- 
ner, goods of immediate or speedy consumption, seems liable to 
thefour following very important objections. First, the tax would 
be more unequal, or not so well proportioned to the expense and 
consumption ofthedifferentcontributors, asintheway in which 
it is commonly imposed. The taxes upon ale, wine, and spiritous 
liquors, which are advanced bythedealers, are finally paid by the 
different consumers, exactly in proportion to their respective con- 
sumption. Butifthetaxweretobepaid by purchasing a licenceto 
drink those liquors, the sober would, in proportion to his con- 
sumption, be taxed much more heavily than the drunken con- 
sumer. A family which exercised great hospitality, would be taxed 
much more lightly than one who entertained fewer guests. Sec- 



721 



The Wealth of Nations 



ondly, this mode of taxation, bypayingforan annual, half-yearly, 
or quarterly licence to consume certain goods, would diminish 
very much one of the principal conveniences of taxes upon goods 
of speedy consumption; the piece-meal payment. In the price of 
threepence halfpenny, which is at present paid for a pot of porter, 
the different taxes upon malt, hops, and beer, together with the 
extraordinary profit which thebrewer chargesfor having advanced 
than, may perhaps amount to about three halfpence. If a work- 
man can conveniently spare those three halfpence, he buys a pot 
of porter. If he cannot, he contents himself with a pint; and, as a 
pennysaved isapennygot, hethusgainsa farthing by histemper- 
ance. H e pays the tax piece-meal, as he can afford to pay it, and 
when he can afford to pay it, and every act of payment is perfectly 
voluntary, and what he can avoid if he chusesto do so. Thirdly, 
such taxes would operate less as sumptuary laws. When the li- 
cence was once purchased, whether the purchaser drunk much or 
drunk little, his tax would be the same. Fourthly, if a workman 
were to pay all at once, by yearly, half-yearly, or quarterly pay- 
ments, a tax equal to what he at present pays, with little or no 
inconveniency, upon all thedifferent pots and pintsof porter which 
he drinks in any such period of time, the sum might frequently 
distresshim very much. Thismodeof taxation, therefore, itseems 
evident, could never, without the most grievous oppression, pro- 



duce a revenue nearly equal to what is derived from the present 
modewithout any oppression. In several countries, however, com- 
modities of an immediate or very speedy consumption are taxed 
in this manner. In Holland, people pay so much a-head for a li- 
cence to drink tea. I have already mentioned a tax upon bread, 
which, so far as it is consumed in farm houses and country vil- 
lages, istherelevied in the same manner. 

T he duties of excise are imposed chiefly upon goods of home 
produce, destined for homeconsumption. They areimposed only 
upon a few sorts of goods of the most general use.Therecan never 
be any doubt, either concerning the goods which are subject to 
thoseduties, or concerning the particular duty which each species 
of goods issubject to. T hey fall almost altogether upon whatl call 
luxuries, excepting always the four duties above mentioned, upon 
salt, soap, leather, candles, and perhaps that upon green glass. 

The duties of customs are much more ancient than those of 
excise. They seem to have been called customs, as denoting cus- 
tomary payments, which had been in use for time immemorial. 
They appear to have been originally considered astaxesupon the 
profits of merchants. During the barbarous times of feudal anar- 
chy, merchants, likeall theother inhabitantsof burghs, werecon- 
sidered as little better than emancipated bondmen, whose persons 
were despised, and whose gains were envied. The great nobility, 



722 



Adam Smith 



who had consented thattheking should tall age the profits of their 
own tenants, were not unwilling that he should tallage likewise 
those of an order of men whom it was much less their interest to 
protect. I n those ignorant times, it was not understood, that the 
profits of merchants are a subject not taxable directly; or that the 
final payment of all such taxes must fall, withaconsiderableover- 
charge, upon the consumers. 

The gains of alien merchants were looked upon more 
unfavourably than those of English merchants. It was natural, there 
fore, that those of the former should be taxed more heavily than 
those of thelatter. Thisdistinction between thedutiesupon aliens 
and those upon English merchants, which was begun from igno- 
rance, has been continued front the spirit of monopoly, or in or- 
der to give our own merchants an advantage, both in the home 
and in theforeign market. 

W ith this distinction, the ancient duties of customs were im- 
posed equally upon all sorts of goods, necessaries as well its luxu- 
ries, goods exported as well as goods imported. Why should the 
dealers in one sort of goods, it seems to have been thought, be 
more favoured than those in another? or why should the mer- 
chant exporter be more favoured than the merchant importer? 

T heancient customs weredivided into threebranches. The first, 
and, perhaps, the most ancient of all those duties, was that upon 



wool and leather. It seems to have been chiefly or altogether an 
exportation duty. When the woollen manufacture came to be es- 
tablished in England, lest the king should lose any part of his 
customs upon wool by the exportation of woollen cloths, a like 
duty wasimposed upon them. Theother two brancheswere, first, 
a duty upon wine, which being imposed at so much a-ton, was 
called atonnage; and, secondly, adutyupon all other goods, which 
being imposed at so much a-pound of their supposed value, was 
called a poundage. I n theforty-seventh year of Edward 1 1 1 ., a duty 
of sixpence in the pound was imposed upon all goods exported 
and imported, except wools, wool-felts, leather, and wines which 
were subject to particular duties. In thefourteenth of Richard II., 
thisduty was raised to one shilling in thepound; but, three years 
afterwards, it was again reduced to sixpence. It was raised to 
eightpencein thesecond year of Henry IV.; and, in thefourth of 
the same prince, to one shilling. From this time to the ninth year 
of William III., this duty continued at one shilling in thepound. 
The duties of tonnage and poundage were generally granted to 
the king by one and the same act of parliament, and were called 
the subsidy of tonnage and poundage. T he subsidy of poundage 
having continued for so long a time at one shilling in thepound, 
or at five per cent., a subsidy came, in the language of the cus- 
toms, to denote a general duty of this kind of five per cent. This 



723 



The Wealth of Nations 



subsidy, which is now called the old subsidy, still continues to be 
levied, according to thebook of rates established bythetwelfth of 
Charles II. The method of ascertaining, by a book of rates, the 
valueof goodssubjecttothisduty, issaid to be older than thetime 
of James I. The new subsidy, imposed bytheninth and tenth of 
W illiam III., was an additional five per cent, upon thegreater part 
of goods. The one-third and the two-third subsidy made up be- 
tween them another five per cent, of which they were proportion- 
able parts. T he subsidy of 1747 made a fourth five per cent, upon 
the greater part of goods; and that of 1759, a fifth upon some 
particular sorts of goods. Besides those five subsidies, a great vari- 
ety of other duties have occasionally been imposed upon particu- 
lar sorts of goods, in order sometimes to relieve the exigence's of 
the state, and sometimes to regulate the trade of the country, ac- 
cording to the principles of the mercantile system. 

That system has come gradually more and more into fashion. 
The old subsidy was imposed indifferently upon exportation, as 
well asimportation.Thefour subsequent subsidies, aswdl as the 
other duties which have since been occasionally imposed upon 
particular sorts of goods, have, with a few exceptions, been laid 
altogether upon importation. The greater part of the ancient du- 
ties which had been imposed upon the exportation of the goods 
of home produce and manufacture, haveatherbeen lightened or 



taken away altogether. I n most cases, they have been taken away. 
Bounties have even been given upon the exportation of some of 
them. D rawbacks, too, sometimes of thewhole, and, in most cases, 
of a part of the duties which are paid upon the importation of 
foragn goods, have been granted upon thar exportation. Only 
half the duties imposed bytheold subsidy upon importation, are 
drawn back upon exportation; but the whole of those imposed by 
the latter subsidies and other imposts are, upon the greater parts 
of thegoods, drawn back in thesamemanner.Thisgrowingfavour 
of exportation, and discouragement of importation, have suffered 
only a few exceptions, which chiefly concern the materialsof some 
manufactures. These our merchants and manufacturers are willing 
should come as cheap as possible to themsdves, and asdearaspos- 
sibletotheir rivalsand competitorsin other countries. Foreign ma- 
terials are, upon this account, sometimes allowed to be imported 
duty-free; Spanish wool, for example, flax, and raw linen yarn. The 
exportation of the materials of home produce, and of those which 
aretheparticularproduceof our colonies, has sometimes been pro- 
hibited, and sometimes subjected to higherdutiesTheexportation 
of English wool has been prohibited. That of beaver skins, of beaver 
wool, and of gum-senega, has been subjected to higher duties; G reat 
Britain, by theconquests of Canada and Senegal, having got almost 
the monopoly of those commodities. 



724 



Adam Smith 



That the mercantile system has not been very favourable to the 
revenue of the great body of the people, to the annual produce of 
theland and labour of thecountry, I haveendeavouredtoshowin 
the fourth book of this Inquiry. It seems not to have been more 
favourable to the revenue of the sovereign; so far, at least, as that 
revenue depends upon the duties of customs. 

In consequence of that system, the importation of several sorts 
of goods has been prohibited altogether. This prohibition has, in 
some cases, entirely prevented, and in others has very much di- 
minished, theimportation of those commodities, by reducingthe 
importers to the necessity of smuggling. It has entirely prevented 
theimportation of foreign wollens; and it has very much dimin- 
ished that of foreign silks and velvets, In both cases, it has entirely 
annihilated the revenue of customs which might have been levied 
upon such importation. 

The high duties which have been imposed upon theimporta- 
tion of many different sorts of foreign goods in order to discour- 
age their consumption in Great Britain, have, in many cases, served 
only to encourage smuggling, and, in all cases, have reduced the 
revenues of the customs below what more moderate duties would 
have afforded. The saying of D r. Swift, that in the arithmetic of 
the customs, two and two, instead of making four, make some- 
times only one, holds perfectly true with regard to such heavy 



duties, which never could have been imposed, had not the mer- 
cantile system taught us, in many cases, to employ taxation as an 
instrument, not of revenue, but of monopoly. 

The bounties which are sometimes given upon the exportation 
of homeproduceand manufactures, and the drawbacks which are 
paid upon there-exportation of the greater part of foreign goods, 
have given occasion to many frauds, and to a species of smug- 
gling, more destructive of the public revenue than any other. In 
order to obtain thebounty or drawback, thegoods, it is well known, 
are sometimes shipped, and sent to sea, but soon afterwards clan- 
destinely re-landed in some other part of thecountry. The defal- 
cation of therevenueof customsoccasioned by bounties and draw- 
backs, of which agreat part are obtained fraudulently, isvery great. 
The gross produce of the customs, in theyear which ended on the 
5th of J anuary 1755, amounted to £5,068,000. T hebounties which 
were paid out of this revenue, though in that year there was no 
bounty upon corn, amounted to £167,806. T he drawbacks which 
were paid upon debentures and certificates, to £2,156,800. Boun- 
ties and drawbacks together amounted to £2,324,600. In conse- 
quenceofthesedeductions, therevenueof thecustoms amounted 
only to £2,743,400; from which deducting £287,900 for the ex- 
pense of management, in salaries and other incidents, the neat 
revenue of the customsfor that year comes out to be £2,455,500. 



725 



The Wealth of Nations 



The expense of management, amounts, in this manner, to be- 
tween five and six per cent, upon the gross revenue of the cus- 
toms; and to something more than ten per cent, upon what re 
mainsof that revenue, after deducting what is paid away in boun- 
ties and drawbacks. 

H eavy duties being imposed upon almost all goods imported, 
our merchant importers smuggle as much, and make entry of as 
littleas they can. ur merchant exporters, on the contrary, make 
entry of more than they export; sometimes out of vanity, and to 
pass for great dealers in goods which pay no duty gain a bounty 
back. ur exports, in consequence of these different frauds, ap- 
pear upon the custom-house books greatly to overbalance our 
imports, to theunspeakablecomfort of those politicians, who mea- 
sure thenational prosperity by what they call thebalanceof trade. 

All goods imported, unless particularly exempted, and such ex- 
emptions are not very numerous, are liable to some duties of cus- 
toms. If any goods are imported, not mentioned in the book of 
rates, they are taxed at 4s:9 3 /4d. for every twenty shillings value, 
according to the oath of the importer, that is, nearly at five subsi- 
dies, or five poundageduties. T he book of rates is extremely com- 
prehensive, and enumerates a great variety of articles, many of 
them little used, and, therefore, not well known. It is, upon this 
account, frequently uncertain under what article a particular sort 



of goods ought to be classed, and, consequently what duty they 
ought to pay. M istakes with regard to this sometimes ruin the 
custom-house officer, and frequently occasion much trouble, ex- 
pense, and vexation to the importer. In point of perspicuity, preci- 
sion, and distinctness, therefore, the duties of customs are much 
inferior to those of excise. 

I n order that the greater part of the members of any society 
should contribute to the public revenue, in proportion to their 
respective expense, it does not seem necessary that every single 
artideof that expense should be taxed. The revenue which is lev- 
ied by the duties of excise is supposed to fall as equally upon the 
contributors as that which is levied by the duties of customs; and 
the duties of excise are imposed upon a few articles only of the 
most general used and consumption. It has been the opinion of 
many people, that, by proper management, the duties of customs 
might likewise, without any loss to the public revenue, and with 
great advantage to ford gn trade, be confined to a few articles only. 

Thefordgn articles, of the most general use and consumption 
in G reat Britain, seem at present to consist chiefly in ford gn wines 
and brandies; in someof theproductionsof America and theWest 
Indies, sugar, rum, tobacco, cocoa-nuts, etc. and in someof those 
of the East Indies, tea, coffee, china-ware, spiceries of all kinds, 
several sorts of piece-goods, etc. These different articles afford, the 



726 



Adam Smith 



greater part of the perhaps, at present, revenue which is drawn 
from the duties of customs. The taxes which at present subsist 
upon foreign manufactures, if you except those upon thefew con- 
tained in theforegoing enumeration, have, thegreater part of them, 
been imposed for the purpose, not of revenue, but of monopoly, 
or to give our own merchants an advantage in the home market. 
By removing all prohibitions, and by subjecting all foreign manu- 
factures to such moderate taxes, as it was found from experience, 
afforded upon each article the greatest revenue to the public, our 
own workmen might still have a considerable advantage in the 
home market; and many articles, some of which at present afford 
no revenue to government, and othersa very inconsiderable one, 
might afford a very great one. 

High taxes, sometimes by diminishing the consumption of the 
taxed commodities, and sometimes by encouraging smuggling fre- 
quently afford a smaller revenue to government than what might 
be drawn from more moderate taxes. 

Whenthediminutionof revenueistheeffectofthediminution 
of consumption, there can be but one remedy, and that is the 
lowering of the tax. 

When thediminution of revenue is the effect of the encourage- 
ment given to smuggling, it may, perhaps, be remedied in two 
ways; either by diminishing the temptation to smuggle, or by in- 



creasing the difficulty of smuggling. The temptation to smuggle 
can be diminished only by the lowering of the tax; and the diffi- 
culty of smuggling can be increased only by establishing that sys- 
tem of administration which is most proper for preventing it. 

The excise laws, it appears, I believe, from experience, obstruct 
and embarrass theoperationsof the smuggler much more effectu- 
ally than those of the customs. By introducing into the customs a 
system of administration as similar to that of the excise as the 
nature of the different duties will admit, the difficulty of smug- 
gling might be very much increased. This alteration, it has been 
supposed by many people, might very easily be brought about. 

T he importer of commodities liableto any duties of customs, it 
has been said, might, at his option, be allowed either to carry 
them to his own private warehouse; or to lodge them in a ware- 
house, provided either at his own expenseor at that of the public, 
but under the key of the custom-house officer, and never to be 
opened but in his presence. If the merchant carried them to his 
own private warehouse, the duties to be immediately paid, and 
never afterwardsto bedrawn back; and that warehouseto beat all 
times subject to the visit and examination of the custom-house 
officer, in order to ascertain how far the quantity contained in it 
corresponded with that for which the duty had been paid. If he 
carried them to the public warehouse, no duty to be paid till they 



727 



The Wealth of Nations 



were taken out for home consumption. If taken out for exporta- 
tion, to beduty-free; proper security being always given that they 
should be so exported. The dealers in those particular commodi- 
ties, either by wholesale or retail, to beat all times subject to the 
visit and examination of thecustom-houseofficer; and to beobliged 
to justify, by proper certificates, thepayment of theduty upon the 
whole quantity contained in their shops or warehouses. W hat are 
called the excise duties upon rum imported, are at present levied 
in this manner; and the same system of administration might, 
perhaps, be extended to all dutiesupon goods imported; provided 
always that thoseduties were, liketheduties of excise, confined to 
a few sorts of goods of the most general use and consumption. If 
they were extended to almost all sortsof goods, as at present, pub- 
lic warehouses of sufficient extent could not easily be provided; 
and goods of a very delicate nature, or of which the preservation 
required much care and attention, could not safely be trusted by 
the merchant in any warehouse but his own. 

If, by such a system of administration, smuggling to any con- 
siderable extent could be prevented, even under pretty high du- 
ties; and if every duty was occasionally either heightened or low- 
ered according as it was most likely, either the one way or the 
other, to afford the greatest revenue to the state; taxation being 
always employed as an instrument of revenue, and never of mo- 



nopoly; it seems not improbable that a revenue, at least equal to 
the present neat revenue of the customs, might be drawn from 
duties upon the importation of only a few sorts of goods of the 
most general use and consumption; and that the duties of cus- 
toms might thus be brought to the same degree of simplicity, cer- 
tainty, and precision, as those of excise. W hat the revenue at present 
loses by drawbacks upon there-exportation of foreign goods, which 
are afterwards re-landed and consumed at home, would, under 
this system, be saved altogether. If to this saving, which would 
alone be very considerable, were added the abolition of all boun- 
ties upon the exportation of home produce; in all cases in which 
those bounties were not in reality drawbacks of some duties of 
excise which had before been advanced; it cannot well bedoubted, 
but that the neat revenue of customs might, after an alteration of 
this kind, be fully equal to what it had ever been before. 

If, by such a change of system, the public revenue suffered no 
loss, the trade and manufactures of the country would certainly 
gain a very considerable advantage. T hetrade in the commodities 
not taxed, by far the greatest number would be perfectly free, and 
might be carried on to and from all parts of the world with every 
possible advantage. Among those commodities would be compre- 
hended all the necessaries of life, and all the materials of manufac- 
ture. So far as the free importation of the necessaries of life re- 



728 



Adam Smith 



duced their average money price in the home market, it would 
reduce the money price of labour, but without reducing in any 
respect its real recompence. The value of money is in proportion 
to the quantity of the necessaries of life which it will purchase. 
That of the necessaries of life is altogether independent of the 
quantity of money which can be had for them. The reduction in 
the money price of labour would necessarily be attended with a 
proportionableonein thatof all home manufactures, which would 
thereby gain some advantage in all foreign markets. The price of 
some manufactures would be reduced, in a still greater propor- 
tion, by thefree importation of the raw materials. If raw silk could 
be imported from China and Indostan, duty-free, the silk manu- 
facturers^ England could greatly undersell those of both France 
and I taly. There would beno occasion to prohibittheimportation 
of foreign silks and velvets. The cheapness of their goods would 
securetoourown workmen, not only the possession of a home, but 
a very great command of the foreign market. Even the trade in the 
commodities taxed, would be carried on with much more advan- 
tage than at present. If those commodities weredelivered out of the 
public warehousefor foreign exportation, beingin this case exempted 
from all taxes, thetradein them would be perfectly free. The carry- 
ing trade, in all sorts of goods, would, under this system, enjoy 
every possible advantage. If these commodities were delivered out 



for homeconsumption, the importer not being obliged to advance 
thetax till hehad an opportunity of selling hisgoods, either to some 
dealer, or to some consumer, he could always afford to sell them 
cheaper than if hehad been obliged to advance it at the moment of 
importation. Under the same taxes, theforeign trade of consump- 
tion, even in the taxed commodities, might in this manner be car- 
ried on with much more advantage than it is at present. 

It was the object of the famous excise scheme of Sir Robert 
Walpole, to establish, with regard to wine and tobacco, a system 
not very unlike that which is here proposed. But though the bill 
which was then brought into Parliament, comprehended those 
two commodities only, it was generally supposed to be meant as 
an introduction to a more extensive scheme of the same kind. 
Faction, combined with theinterest of smuggling merchants, raised 
so violent, though so unjust a clamour, against that bill, that the 
minister thought proper to drop it; and, from a dread of exciting 
a clamour of the same kind, none of his successors have dared to 
resumethe project. 

Thedutiesupon foreign luxuries, imported for homeconsump- 
tion, though they sometimes fall upon the poor, fall principally 
upon people of middling or more than middling fortune. Such 
are, for example, thedutiesupon foreign wines, upon coffee, choco- 
late, tea, sugar, etc. 



729 



The Wealth of Nations 



The duties upon the cheaper luxuries of home produce, des- 
tined for home consumption, fall pretty equally upon people of 
all ranks, in proportion to their respective expense. The poor pay 
the duties upon malt, hops, beer, and ale, upon their own con- 
sumption; the rich, upon both their own consumption and that 
of their servants. 

The whole consumption of the inferior ranks of people, or of 
those below the middling rank, it must be observed, is, in every 
country, much greater, not only in quantity, but in value, than 
that of the middling, and of those above the middling rank. The 
whole expense of the inferior is much greater titan that of the 
superior ranks. In the first place, almost the whole capital of every 
country isannually distributed among theinferior ranks of people, 
as the wages of productive labour. Secondly, a great part of the 
revenue, arisingfrom both therent of land and the profits of stock, 
is annually distributed among the same rank, in the wages and 
maintenanceof menial servants, and other unproductivelabourers. 
Thirdly, some part of the profits of stock belongs to the same 
rank, as a revenue arising from the employment of their small 
capitals. T he amount of the profits annually made by small shop- 
keepers, tradesmen, and retailers of all kinds, is everywhere very 
considerable, and makesaveryconsiderableportion of theannual 
produce. Fourthly and lastly, some part even of the rent of land 



belongs to the same rank; a considerable part to those who are 
somewhat below the middling rank, and a small part even to the 
lowest rank; common labourers sometimes possessing in property 
an acreor two of land. Though theexpense of those inferior ranks 
of people, therefore, taking them individually, is very small, yet 
the whole mass of it, taking them collectively, amounts always to 
by much the largest portion of the whole expense of the society; 
what remains of theannual produce of the land and labour of the 
country, for the consumption of the superior ranks, being always 
much less, not only in quantity, but in value. Thetaxes upon ex- 
pense, therefore, which fall chiefly upon that of thesuperior ranks 
of people, upon the smaller portion of the annual produce, are 
likely to be much less productive than either those which fall in- 
differently upon the expense of all ranks, or even those which fall 
chiefly upon that of theinferior ranks, than either those which fall 
indifferently upon the whole annual produce, or those which fall 
chiefly upon the larger portion of it. T he excise upon the materi- 
als and manufacture of home-made fermented and spirituous li- 
quors, is, accordingly, of all the different taxes upon expense, by 
far the most productive; and this branch of the excise falls very 
much, perhaps principally, upon the expense of the common 
people. In theyear which ended on the 5th of July 1775, the gross 
produceofthisbranch of theexcise amounted to £3,341,837:9:9. 



730 



Adam Smith 



It must always be remembered, however, that it is the luxuries, 
and not the necessary expense of the inferior ranks of people, that 
ought ever to be taxed. The final payment of any tax upon their 
necessary expense, would fall altogether upon the superior ranks 
of people; upon the smaller portion of the annual produce, and 
not upon the greater. Such a tax must, in all cases, either raise the 
wages of labour, or lessen the demand for it. It could not raise the 
wages of labour, without throwing the final payment of the tax 
upon thesuperior ranks of people. It could not lessen the demand 
for labour, without lessening the annual produce of the land and 
labour of the country, the fund upon which all taxes must be fi- 
nally paid. W hatever might bethestateto which a tax of this kind 
reduced the demand for labour, it must always raise wages higher 
than they otherwise would bein that state; and thefinal payment 
of this enhancement of wages must, in all cases, fall upon the 
superior ranks of people. 

Fermented liquors brewed, and spiritous liquors distilled, not 
for sale, but for private use, are not in Great Britain liableto any 
duties of excise. This exemption, of which the object is to save 
privatefamiliesfrom theodiousvisit and examination of the tax- 
gatherer, occasions the burden of those duties to fall frequently 
much lighter upon therich than upon thepoor. Itisnot, indeed, 
very common to distil for private use, though it is done some- 



times. But in the country, many middling and almost all rich and 
great families, brew thar own beer. Thar strong beer, therefore, 
costs them eight shillings a-barrel less than it costs the common 
brewer, who must have his profit upon thetax, as well as upon all 
the other expense which he advances. Such families, therefore, 
must drink their beer at least nineor ten shillings a-barrel cheaper 
than any liquor of the same quality can be drank by the common 
people, to whom it is everywhere more convenient to buy their 
beer, by little and little, from the brewery or the ale-house. M alt, 
in the same manner, that is madefor the use of a private family, is 
not liableto the visit or examination of the tax-gatherer but, in 
this case thefamily must compound at seven shillings and sixpence 
a-head for the tax. Seven shillings and sixpence are equal to the 
excise upon ten bushels of malt; a quantity fully equal to what all 
the different members of any sober family, men, women, and chil- 
dren, are, at an average, likdy to consume. But in rich and great 
families, where country hospitality is much practised, the malt li- 
quors consumed by the members of the family make but a small 
part of the consmnption of the house. Either on account of this 
composition, however, or for other reasons, it is not near so com- 
mon to malt as to brew for private use. It isdifficultto imagineany 
equitable reason, why those who ather brew or distil for privateuse 
should not be subject to a composition of thesamekind. 



731 



The Wealth of Nations 



A greater revenue than what is at present drawn from all the 
heavy taxes upon malt, beer, and ale, might be raised, it has fre- 
quently been said, by a much lighter tax upon malt; the opportu- 
nities of defrauding the revenue being much greater in a brewery 
than in a malt-house; and those who brew for private use being 
exempted from all duties or composition for duties, which is not 
the case with those who malt for private use. 

In the porter brewery of London, a quarter of malt is com- 
monly brewed into more than two barrels and a-half, sometimes 
into three barrels of porter. The different taxes upon malt amount 
to six shillings a-quarter; those upon strong ale and beer to eight 
shillings a-barrel. In the porter brewery, therefore, the different 
taxes upon malt, beer, and ale, amount to between twenty-six and 
thirty shillingsupon theproduceof a quarter of malt. In thecountry 
brewery for common country sale, a quarter of malt is seldom 
brewed into less than two barrels of strong, and one barrel of small 
beer; frequently into two barrels and a-half of strong beer. The 
different taxes upon small beer amount to one shilling and 
fourpence a-barrel. In thecountry brewery, therefore, the differ- 
ent taxes upon malt, beer, and ale, seldom amount to less than 
twenty-three shillings and fourpence, frequently to twenty-six shil- 
lings, upon the produce of a quarter of malt. Taking the whole 
kingdom at an average, therefore, the whole amount of theduties 



upon malt, beer, and ale, cannot be estimated at less than twenty- 
four or twenty-five shillings upon theproduceof a quarter of malt. 
But by taking off all thedifferent duties upon beer and ale, and by 
trebling the malt tax, or by raising it from six to eighteen shilling's 
upon the quarter of malt, a greater revenue, it is said, might be 
raised by this single tax, than what is at present drawn from all 
those heavier taxes. 

In 1772, the old malt tax produced £722,023:11:11 

Theadditional £356,776: 7: 9% 

In 1775, the old tax produced £561,627: 3: Th 

Theadditional £278,650: 15: 3% 

In 1774, the old tax produced £624,614:17: 5% 

Theadditional £310,745: 2: 8% 

In 1775, the old tax produced £657,357: 0: 8% 

Theadditional £323,785: 12: 6% 

£5,855,580: 12: 0% 
Average of these four years £958,895: 3:0 

In 1772, the country excise produced £1,243,120: 5: 3 

The London brewery 408,260: 7:2% 

In 1773, the country excise £1,245,808: 3: 3 

The London brewery 405,406: 17:10% 



732 



Adam Smith 

In 1774, the country excise £1,246,373: 14: 5V2 thatliquor. Butto balance whatever may be the ordinary amount 

The London brewery 320,601:18: 0V* of those two taxes, there is comprehended under what iscalled the 

In 1775, the country excise £1,214,583: 6: V-A country excise, first, the old excise of six shillings and eightpence 

The London brewery 463,670: 7: l A upon the hogshead of cyder; secondly, a like tax of six shillings 

4) £6,547,832:19: 2Va and eightpence upon the hogshead of verjuice; thirdly, another of 

Average of these four years £1,636,958: 4: 9V2 eight shillings and ninepence upon the hogshead of vinegar; and, 

To which adding the average malt tax.. 958,895: 3: 0Y4 lastly, a fourth tax of elevenpence upon the gallon of mead or 

metheglin.Theproduceofthosedifferent taxes will probably much 

The whole amount of those different taxes comes out to more than counterbalance that of theduties imposed, by what is 

be £2,595,835: 7: 10 called the annual malt tax, upon cyder and mum. 

Malt is consumed, not only in the brewery of beer and ale, but 

But, by trebling the malt tax, or by raising it from six to eighteen in themanufactureof low winesand spirits. If the malt tax were to 

shillings upon the quarter of malt, that single tax would pro- beraised to eighteen shillingsupon thequarter, it might beneces- 

duce £2,876,685: 9: sary to make some abatement in the different excises which are 

A sum which exceeds the foregoing by... 280,832: 1: 3 imposed upon those particular sorts of low winesand spirits, of 

which malt makes any part of the materials. In what are called 

Under the old malt tax, indeed, is comprehended a tax of four malt spirits, it makes commonly but a third part of the materials; 

shillingsupon the hogshead of cyder, and another of ten shillings the other two-thirds being either raw barley, or one-third barley 

upon the barrel of mum. In 1774, the tax upon cyder produced and one-third wheat. In thedistillery of malt spirits, both theop- 

only £3,083:6:8. It probably fell somewhat short of its usual portunity and the temptation to smuggle are much greater than 

amount; all the different taxes upon cyder, having, that year, pro- either in a brewery or in a malt-house; the opportunity, on ac- 

duced lessthan ordinary. Thetax upon mum, though much heavier, count of the smaller bulk and greater valueof thecommodity, and 

is still less productive, on account of the smaller consumption of the temptation, on account of the superior height of theduties, 



733 



The Wealth of Nations 



which amounted to 3s. 10 2/ 3d. upon thegallon of spirits. {Though 
thedutiesdirectly imposed upon proof spirits amount only to 2s. 
6d per gallon, these, added to thedutiesupon the low wines, from 
which they are distilled, amount to 3s 10 2/3d. Both low wines 
and proof spirits are, to prevent frauds, now rated according to 
what they gauge in thewash.} 

By increasing the duties upon malt, and reducing those upon 
the distillery, both theopportunitiesand thetemptation to smuggle 
would be diminished, which might occasion a still further aug- 
mentation of revenue. 

It has for some time past been the policy of Great Britain to 
discourage the consumption of spiritous liquors, on account of 
their supposed tendency to ruin the health and to corrupt the 
moralsofthecommon people. Accordingtothispolicy, theabate- 
ment of the taxes upon the distillery ought not to be so great as to 
reduce, in any respect, the price of thoseliquors. Spiritousliquors 
might remain as dear as ever; while, at the same time, the whole- 
some and invigorating liquors of beer and ale might be consider- 
ably reduced in their price. The people might thus be in part re- 
lieved from one of the burdens of which they at present complain 
the most; while, at thesametime, the revenue might beconsider- 
ably augmented. 

T he objections of D r. D avenant to this alteration in the present 



system of excise duties, seem to be without foundation. Those 
objections are, that the tax, instead of dividing itself, as at present, 
pretty equally upon the profit of the maltster, upon that of the 
brewer and upon that of the retailer, would so far as it affected 
profit, fall altogether upon that of the maltster; that the maltster 
could not so easily get back theamount of thetax in theadvanced 
price of his malt, as the brewer and retailer in theadvanced price 
of their liquor; and that so heavy a tax upon malt might reduce 
the rent and profit of barley land. 

N o tax can ever reduce, for any considerable time, the rate of 
profit in any particular trade, which must always keep its level 
with other trades in the neighbourhood. T he present duties upon 
malt, beer, and ale, do not affect the profits of the dealers in those 
commodities, who all get back thetax with an additional profit, 
in the enhanced price of their goods. A tax, indeed, may render 
the goods upon which it is imposed so dear, as to diminish the 
consumption of them. But the consumption of malt is in malt 
liquors; and a tax of eighteen shillings upon the quarter of malt 
could not well render thoseliquorsdearer than the different taxes, 
amounting to twenty-four or twenty-five shillings, do at present. 
Thoseliquors, on the contrary, would probably become cheaper, 
and the consumption of them would be more likely to increase 
than to diminish. 



734 



Adam Smith 



1 1 isnot very easy to understand why it should be moredifficult 
for themaltster to get back eighteen shillingsin theadvanced price 
of his malt, than it is at present for the brewer to get back twenty- 
four or twenty-five, sometimes thirty shillings, in that of his li- 
quor. The maltster, indeed, instead of a tax of six shillings, would 
beobliged to advance one of eighteen shilling upon every quarter 
of malt. But the brewer is at present obliged to advance a tax of 
twenty-four ortwentyfive, sometimes thirty shillings, upon every 
quarter of malt which he brews. It could not be more inconve- 
nient for the maltster to advance a lighter tax, than it is at present 
for the brewer to advance a heavier one. The maltster does not 
alwayskeepin hisgranariesa stock of malt, which itwill requirea 
longer timeto disposeof than thestock of beer and ale which the 
brewer frequently keeps in his cellars The former, therefore, may 
frequently get the returns of his money as soon as the latter. But 
whatever inconveniency might arise to the maltster from being 
obliged to advance a heavier tax, it could easily be remedied, by 
granting him a few months longer credit than is at present com- 
monly given to the brewer. 

N othing could reduce the rent and profit of barley land, which 
did not reduce the demand for barley. But a change of system, 
which reduced thedutiesupon a quarter of malt brewed into beer 
and ale, from twentyfour and twenty-five shillings to eighteen shil- 



lings, would be more likdy to increase than diminish that de- 
mand. The rent and profit of barley land, besides, must always be 
nearly equal to those of other equally fertile and equally wdl cul- 
tivated land. If they were less, some part of the barley land would 
soon be turned to some other purpose; and if they were greater, 
more land would soon be turned to the raising of barley. W hen 
the ordinary price of any particular produce of land is at what 
may be called a monopoly price, a tax upon it necessarily reduces 
the rent and profit of the land which grows it. A tax upon the 
produce of those precious vineyards, of which the wine falls so 
much short of the effectual demand, that its price is always above 
the natural proportion to that of the produce of other equally 
fertile and equally wdl cultivated land, would necessarily reduce 
the rent and profit of those vineyards. T he price of the wines be- 
ing already the highest that could be got for the quantity com- 
monly sent to market, it could not be raised higher without di- 
minishing that quantity; and the quantity could not be dimin- 
ished without still greater loss, because the lands could not be 
turned to any other equally valuable produce. T he whole weight 
of thetax, therefore, would fall upon the rent and profit; properly 
upon the rent of the vineyard. W hen it has been proposed to lay 
any new tax upon sugar, our sugar planters have frequently com- 
plained that the whole wdght of such taxes fdl not upon the con- 



735 



The Wealth of Nations 



sumer, but upon the producer; they never having been able to 
raise the price of their sugar after the tax higher than it was before. 
The price had, it seems, before the tax, been a monopoly price; 
and the arguments adduced to show that sugar was an improper 
subject of taxation, demonstrated perhaps that it was a proper 
one; the gains of monopolists, whenever they can be come at, 
being certainly of all subjects the most proper. But the ordinary 
price of barley has never been a monopoly price; and the rent and 
profit of barley land have never been above their natural propor- 
tion to those of other equally fertile and equally well cultivated 
land. The different taxes which have been imposed upon malt, 
beer, and ale, have never lowered the price of barley; have never 
reduced the rent and profit of barley land. T he priceof malt to the 
brewer has constantly risen in proportion to the taxes imposed 
upon it; and those taxes, together with the different duties upon 
beer and ale, have constantly either raised theprice, or, what comes 
to the same thing, reduced the quality of those commodities to 
the consumer. The final payment of those taxes has fallen con- 
stantly upon the consumer, and not upon the producer. 

The only people likely to suffer by the change of system here 
proposed, are those who brew for their own private use. But the 
exemption, which this superior rank of people at present enjoy, 
from very heavy taxes which are paid by the poor labourer and 



artificer, issurely most unjust and unequal, and ought to betaken 
away, even though thischange was never to takeplace. It has prob- 
ably been the interest of this superior order of people, however, 
which has hitherto prevented a change of system that could not 
well fail both to increase the revenue and to relieve the people. 

Besides such duties as those of custom and excise above men- 
tioned, there are several others which affect the price of goods 
more unequally and more indirectly. Of this kind are the duties, 
which, in French, are called peages, which in old Saxon timeswere 
called the duties of passage, and which seem to have been origi- 
nally established for thesamepurpose as our turn pike tolls, or the 
tolls upon our canals and navigable rivers, for the maintenance of 
the road or of the navigation. Thoseduties, when applied to such 
purposes, are most properly imposed according to the bulk or 
weight of the goods. As they were originally local and provincial 
duties, applicable to local and provincial purposes, the adminis- 
tration of them was, in most cases, entrusted to the particular 
town, parish, or lordship, in which they were levied; such com- 
munities being, in someway or other, supposed to be accountable 
for the application. T he sovereign, who is altogether unaccount- 
able, has in many countries assumed to himself the administra- 
tion of those duties; and though he has in most cases enhanced 
very much the duty, he has in many entirely neglected theapplica- 



736 



Adam Smith 



tion. If theturnpiketollsof Great Britain should ever becomeone 

of the resources of government, we may learn, by the example of 
many other nations, what would probably be the consequence. 
Such tolls, no doubt, are finally paid by the consumer; but the 
consumer is not taxed in proportion to his expense, when he pays, 
not according to thevalue, but according to thebulk or weight of 
what he consumes. When such duties are imposed, not according 
to the bulk or weight, but according to the supposed value of the 
goods, they become properly a sort of inland customs or excise, 
which obstruct very much the most important of all branches of 
commerce, the interior commerce of the country. 

I n some small states, duties similar to those passage duties are 
imposed upon goods carried across the territory, either by land or 
by water, from oneforeign country to an other. These are in some 
countri es called transit-duties. Some of the little I tali an states which 
are situated upon thePo, and the rivers which run into it, derive 
some revenue from duties of this kind, which are paid altogether 
by foreigners, and which, perhaps, are the only duties that one 
state can impose upon the subjects of another, without obstruc- 
tion in any respect, the industry or commerce of its own. The 
most important transit-duty in the world, is that levied by the 
king of D enmark upon all merchant shipswhich pass through the 
Sound. 



Such taxes upon luxuries, as the greater part of the duties of 
customs and excise, though they all fall indifferently upon every 
different species of revenue, and are paid finally, or without any 
retribution, by whoever consumes the commodities upon which 
they are imposed; yet they do not always fall equally or propor- 
tionally upon the revenue of every individual. As every man's 
humour regulates the degree of his consumption, every man con- 
tributes rather according to his humour, than proportion to his 
revenue: the profuse contribute more, the parsimonious less, than 
their proper proportion. D uring the minority of a man of great 
fortune, he contributes commonly very little, by his consump- 
tion, towards the support of that state from whose protection he 
derives a great revenue. Those who live in another country, con- 
tribute nothing by their consumption towards the support of the 
government of that country, in which is situated the source of 
theirrevenue. If in this latter country there should beno land tax, 
nor any considerable duty upon the transference either of move- 
ableor immoveable property, asisthecasein Ireland, such absen- 
tees may derive a great revenue from the protection of a govern- 
ment, to the support of which they do not contribute a single 
shilling. This inequality is likely to be greatest in a country of 
which the government is, in some respects, subordinate and de- 
pendant upon that of some other. The people who possess the 



737 



The Wealth of Nations 



most extensive property in the dependant, will, in thiscase, gener- 
ally chuse to live in the governing country. Ireland is precisely in 
this situation; and we cannot therefore wonder, that the proposal 
of ataxupon absentees should be so very popular in that country. 
It might, perhaps, be a little difficult to ascertain either what sort, 
or what degree of absence, would subject a man to be taxed as an 
absentee, or at what precise time the tax should either begin or 
end. If you except, however, this very peculiar situation, any in- 
equality in the contribution of individuals which can arise from 
such taxes, is much more than compensated by the very circum- 
stance which occasions that inequality; the circumstance that ev- 
ery man's contribution isaltogether voluntary; it being altogether 
in hispower, either to consume, or not to consume, thecommod- 
ity taxed. W here such taxes, therefore, are properly assessed, and 
upon proper commodities, they are paid with lessgrumblingthan 
any other. W hen they are advanced by the merchant or manufac- 
turer, the consumer, who finally pays them, soon comes to con- 
found them with thepriceof thecommodities, and almost forgets 
that he pays any tax. 

Such taxes are, or may be, perfectly certain; or may be assessed, 
so as to leave no doubt concerning either what ought to be paid, 
or when it ought to be paid; concerning either the quantity or the 
time of payment. W hat ever uncertainty there may sometimes be, 



either in the duties of customs in Great Britain, or in other duties 
of the same kind in other countries, it cannot arise from the na- 
ture of those duties, but from the inaccurate or unskilful manner 
in which the I aw that imposes them is expressed. 

Taxesupon luxuries generally are, and alwaysmay be, paid piece 
meal, or in proportion as the contributors have occasion to pur- 
chase the goods upon which they are imposed. I n the time and 
mode of payment, they are, or may be, of all taxes the most conve- 
nient. U pon thewhole, such taxes, therefore, are perhaps as agree- 
able to the three first of thefour general maxims concerning taxa- 
tion, as any other. They offend in every respect against the fourth. 

Such taxes, in proportion to what they bring into the public 
treasury of the state, always take out, or keep out, of the pockets 
of the people, more than almost any other taxes. They seem to do 
this in all thefour different ways in which it is possibleto do it. 

First, the levying of such taxes, even when imposed in the most 
judicious manner, requires a great number of custom-house and 
excise officers, whose salaries and perquisites are a real tax upon 
the people, which brings nothing into the treasury of the state. 
This expense, however, it must be acknowledged, is more moder- 
ated Great Britain than in most other countries. In theyear which 
ended on the 5th of J uly, 1775, the gross produce of the different 
duties, under the management of the commissioners of excise in 



738 



Adam Smith 



England, amounted to f 5,507, 308:18:8y4, which waslevied at an 
expense of little more than five and a-half per cent. From this 
gross produce, however, there must be deducted what was paid 
away in bounties and drawbacks upon theexportation of exciseable 
goods, which will reduce the neat produce below five millions. 
{The neat produce of that year, after deducting all expenses and 
allowances, amounted to £4,975,652:19:6.} The levying of the 
salt duty, and excise duty, but under a different management, is 
much more expensive. T he neat revenue of the customs does not 
amount to two millions and a-half, which is levied at an expense 
of more than ten per cent., in the salaries of officers and other 
incidents. But the perquisites of custom-house officers are every- 
where much greater than their salaries; at some ports more than 
doubleor triplethose salaries If the salaries of officers, and other 
incidents, therefore, amount to more than ten per cent, upon the 
neat revenue of the customs, the whole expense of levying that 
revenue may amount, in salaries and perquisites together, to more 
than twenty or thirty per cent. T heofficers of excise receive few or 
no perquisites; and theadministration of that branch of therevenue 
being of more recent establishment, isin general lesscorrupted than 
that of the customs, into which length of time has introduced and 
authorised manyabuses. By charging upon malt the whole revenue 
which is at present levied by the different duties upon malt and 



malt liquors, a saving, it issupposed, of more than £50,000, might 
bemadeintheannual expenseoftheexcise. By confining theduties 
of customs to a few sorts of goods, and by levying those duties 
according to the excise laws, a much greater saving might probably 
be made in the annual expense of the customs. 

Secondly, such taxes necessarily occasion some obstruction or 
discouragement to certain branches of industry. As they always 
raise the price of the commodity taxed, they so far discourage its 
consumption, and consequently its production. If it is a com- 
modity of home growth or manufacture, less labour comes to be 
employed in raising and producing it. If it isa foreign commodity 
of which the tax increases in this manner the price, thecommodi- 
ties of the same kind which are made at home may thereby, in- 
deed, gain someadvantagein the home market, and a greater quan- 
tity of domestic industry may thereby be turned toward preparing 
them. But though this rise of price in a foreign commodity, may 
encourage domestic industry in one particular branch, it neces- 
sarily discourages that industry in almost every other. The dearer 
the Birmingham manufacturer buyshisforeign wine, the cheaper 
he necessarily sells that part of his hard ware with which, or, what 
comes to the same thing, with the price of which, he buys it. T hat 
part of his hardware, therefore, becomes of less value to him, and 
he has less encouragement to work at it. The dearer the consumers 



739 



The Wealth of Nations 



in onecountry pay for thesurplusproduceof another, thecheaper 
they necessarily sell that part of their own surplus produce with 
which, or, what comes to thesamething, with thepriceof which, 
they buy it. T hat part of their own surplus produce becomes of 
less value to them, and they have less encouragement to increase 
its quantity. All taxes upon consumable commodities, therefore, 
tend to reduce the quantity of productive labour below what it 
otherwise would be, either in preparingthecommodities taxed, if 
they are home commodities, or in preparing those with which 
they are purchased, if they are foreign commodities. Such taxes, 
too, always alter, more or less, the natural direction of national 
industry, and turn it into a channel always different from, and 
generally less advantageous, than that in which it would have run 
of its own accord. 

Thirdly, the hopeof evading such taxes by smuggling, gives fre- 
quent occasion to forfeitures and other penalties, which entirely 
ruin thesmuggler; a person who, though no doubt highly blame- 
able for violating the laws of his country, is frequently incapable 
of vi dating those of natural justice, and would have been, in every 
respect, an excellent citizen, had not the laws of his country made 
that a crime which nature never meant to be so. In those cor- 
rupted governments, where there is at least a general suspicion of 
much unnecessary expense, and great misapplication of the pub- 



lic revenue, the laws which guard it are little respected. N ot many 
people are scrupulous about smuggling, when, without perjury, 
they can find an easy and safe opportunity of doing so. To pretend 
to have any scrupleabout buying smuggled goods, though a mani- 
fest encouragement to the violation of the revenue laws, and to 
the perjury which almost always attends it, would, in most coun- 
tries, be regarded as oneof those pedanticpiecesof hypocrisy which, 
instead of gaining credit with anybody, serve only to expose the 
person who affects to practise them to the suspicion of being a 
greater knave than most of his neighbours. By this indulgence of 
the public, thesmuggler is often encouraged to continue a trade, 
which heisthustaught to consider asin some measure innocent; 
and when the severity of the revenue laws is ready to fall upon 
him, he is frequently disposed to defend with violence, what he 
has been accustomed to regard as hisjust property. From being at 
first, perhaps, rather imprudent than criminal, he at last too often 
becomes oneof the hardiest and most determined violators of the 
laws of society. By the ruin of the smuggler, hiscapital, which had 
before been employed in maintaining productive labour, is ab- 
sorbed either in the revenue of the state, or in that of the revenue 
officer; and isemployed in maintaining unproductive, to thedimi- 
nution of the general capital of the society, and of the useful in- 
dustry which it might otherwise have maintained. 



740 



Adam Smith 



Fourthly, such taxes, by subjecting at least the dealers in the 
taxed commodities, to thefrequentvi sits and odious examination 
of the tax-gatherers, expose them sometimes, no doubt, to some 
degree of oppression, and always to much trouble and vexation; 
and though vexation, as has already been said, is not strictly speak- 
ing expense, it is certainly equivalent to the expense at which ev- 
ery man would be willing to redeem himself from it. The laws of 
excise, though more effectual for the purpose for which they were 
instituted, are, in this respect, more vexatious than those of the 
customs. W hen a merchant hasimported goods subject to certain 
duties of customs; when he has paid those duties, and lodged the 
goods in his warehouse; he is not, in most cases, liable to any 
further trouble or vexation from the custom-house officer. It is 
otherwise with goods subject to duties of excise. The dealers have 
no respite from thecontinual visits and examination of theexcise 
officers. The duties of excise are, upon this account, more un- 
popular than those of the customs; and so are the officers who 
levy them. Those officers, it is pretended, though in general, per- 
haps, they do their duty fully as well as those of the customs; yet, 
as that duty obliges them to be frequently very troublesome to 
some of their neighbours, commonly contract a certain hardness 
of character, which the others frequently have not. This observa- 
tion, however, may very probably be themeresuggestion of fraudu- 



lent dealers, whose smuggling is either prevented or detected by 
their diligence. 

Theinconveniencies, however, which are, perhaps, in some de- 
gree inseparable from taxes upon consumable communities, fall 
as light upon the people of Great Britain as upon those of any 
other country of which the government is nearly as expensive. 
Our state is not perfect, and might be mended; but it is as good, 
or better, than that of most of our neighbours. 

In consequence of the notion, that duties upon consumable 
goods were taxes upon the profits of merchants, those duties have, 
in some countries, been repeated upon every successive sale of the 
goods. I f the prof its of the merchant-i mporter or merchant-manu- 
facturer were taxed, equality seemed to requirethatthoseof all the 
middle buyers, who intervened between either of them and the 
consumer, should likewise betaxed.Thefamousalcavala of Spain 
seems to have been established upon thisprinciple. 1 1 was at f i rst a 
tax of ten per cent, afterwards of fourteen per cent, and it is at 
present only six per cent, upon the sale of every sort of property 
whether moveable or immoveable; and it is repeated every time 
the property is sold. {M em o ires concern ant les D roits, etc. torn, i, 
p. 15}T he levying of this tax requires a multitude of revenue of- 
ficers, sufficient to guard the transportation of goods, not only 
from one province to another, but from one shop to another. It 



741 



The Wealth of Nations 



subjects, not only the dealers in some sorts of goods, butthosein 
all sorts, every farmer, every manufacturer, every merchant and 
shopkeeper, tothecontinual visit and examination of thetax-gath- 
erers. Through the greater part of the country in which a tax of 
this kind is established, nothing can be produced for distant sale. 
Theproduceof every part of thecountry must be proportioned to 
the consumption of the neighbourhood. It is to the alcavala, ac- 
cordingly, that Ustaritz imputes the ruin of the manufactures of 
Spain. He might have imputed to it, likewise, the declension of 
agriculture, it being imposed not only upon manufactures, but 
upon the rude produce of the land. 

In the kingdom of Naples, there is a similar tax of three per 
cent, upon thevalueof all contracts, and consequently upon that 
of all contracts of sale. It is both lighter than the Spanish tax, and 
thegreater part of townsand parishes are allowed to pay a compo- 
sition in lieu of it. They levy this composition in what manner 
they please, generally in a way that gives no interruption to the 
interior commerce of the place. The N eapolitan tax, therefore, is 
notnearsoruinousastheSpanish one. 

The uniform system of taxation, which, with a few exception of 
no great consequence, takes place in all the different parts of the 
united kingdom of Great Britain, leaves the interior commerceof 
the country, the inland and coasting trade, almost entirely free. 



The inland trade is almost perfectly free; and the greater part of 
goods may be carried from one end of the kingdom to the other, 
without requiring any permit or let-pass, without being subject to 
question, visit or examination, from the revenue officers There 
are a few exceptions, but they are such as can give no interruption 
to any important branch of inland commerceof thecountry. Goods 
carried coastwise, indeed, require certificates or coast-cockets. If 
you except coals, however, the rest are almost all duty-free. This 
freedom of interior commerce, the effect of the uniformity of the 
system of taxation, is perhaps one of the principal causes of the 
prosperity of Great Britain; every great country being necessarily 
the best and most extensive market for the greater part of the pro- 
ductions of its own industry. If the same freedom in consequence 
of thesameuniformity, could be extended to I reland and theplan- 
tations, both thegrandeur of thestate, and the prosperity of every 
part of theempire, would probably be still greater than at present. 
In France, the different revenue laws which take place in the 
different provinces, requireamultitudeof revenueofficers to sur- 
round, not only thefrontiersof thekingdom, but those of almost 
each particular province, in order either to prevent the importa- 
tion of certain goods, or to subject it to the payment of certain 
duties, to the no small interruption of the interior commerce of 
the country. Some provinces are allowed to compound for the 



742 



Adam Smith 



gabelle, or salt tax; others are exempted from it altogether. Some 
provinces are exempted from the exclusive sale of tobacco, which 
the farmers- general enjoy through the greater part of the king- 
dom. The aides, which correspond to the excise in England, are 
very different in different provinces. Someprovinces are exempted 
from them, and pay a composition or equivalent. Inthosein which 
they take place, and arein farm, there are many local duties which 
do not extend beyond a particular town or district. The traites, 
which correspond to our customs, divide the kingdom into three 
great parts; first, the provinces subject to the tariff of 1664, which 
are called the provinces of the five great farms, and under which 
are comprehended Picardy, Normandy, and the greater part of the 
interior provincesofthekingdom; secondly, theprovinces subject 
tothetariff of 1667, which are called the provinces reckoned for- 
eign, and under which are comprehended the greater part of the 
frontier provinces; and, thirdly, those provinces which are said to 
be treated as foreign, or which, because they are allowed a free 
commerce with foreign countries, are, in their commerce with the 
other provinces of France, subjected to the same duties as other 
foreign countries. These are Alsace, thethree bishoprics of M entz, 
Toul, and Verdun, and thethree cities of Dunkirk, Bayonne, and 
M arseilles. Both in theprovinces of thefive great farms(called so 
on account of an ancient division of the duties of customs into 



five great branches, each of which was originally the subject of a 
particular farm, though they are now all united into one), and in 
those which are said to be reckoned foreign, there are many local 
duties which do not extend beyond a particular town or district. 
There are some such even in the provinces which are said to be 
treated as foreign, particularly in the city of Marseilles. It is un- 
necessary to observe how much both the restraints upon the inte- 
rior commerce of the country, and the number of the revenue 
officers, must be multiplied, in order to guard the frontiers of 
those different provinces and districts which are subject to such 
different systems of taxation . 

Over and above the general restraints arising from this compli- 
cated system of revenue laws, the commerce of wine (after corn, 
perhaps, themost important production of France) is, in thegreater 
part of theprovinces, subject to particular restraints arising from 
the favour which has been shown to the vineyards of particular 
provinces and districts above those of others. T he provinces most 
famous for their wines, it will be found, I believe, are those in 
which thetrade in that article is subject to the fewest restraints of 
this kind. The extensive market which such provinces enjoy, en- 
courages good management both in the cultivation of their vine- 
yards, and in the subsequent preparation of their wines. 

Such various and complicated revenue laws are not peculiar to 



743 



The Wealth of Nations 



France. The little duchy of M Nan is divided into six provinces, in 
each of which there is a different system of taxation, with regard to 
several different sortsof consumablegoods.Thestill smaller territo- 
ries of the duke of Parma are divided into three or four, each of 
which has, in the same manner, a system of its own. Under such 
absurd management, nothing but thegreat fertility of thesoil, and 
happiness of the climate, could preserve such countries from soon 
relapsing into the lowest state of poverty and barbarism. 

Taxes upon consumable commodities may either he levied by 
an administration, of which the officers are appointed by 
government, and are immediately accountableto government, of 
which the revenue must, in this case, vary from year to year, ac- 
cording to the occasional variations in the produce of the tax; or 
they may be let in farm for a rent certain, the farmer being al- 
lowed to appoint his own officers, who, though obliged to levy 
thetaxin themanner directed bythelaw, areunderhisimmediate 
inspection, and are immediately accountableto him. T hebest and 
most frugal way of levying a tax can never be by farm. ver and 
above what isnecessary for paying the stipulated rent, the salaries 
of theofficers, and the wholeexpenseof administration, thefarmer 
must always draw from the produce of the tax a certain profit, 
proportioned at least to the advance which he makes, to the risk 
which heruns, tothetroublewhich heisat, and to the knowledge 



and skill which it requires to manage so very complicated a con- 
cern. Government, by establishing an administration under their 
own immediate inspection, of thesamekind with that which the 
farmer establishes, might at least save this profit, which is almost 
alwaysexorbitant.Tofarm any considerable branch of the public 
revenue requires either a great capital, or a great credit; circum- 
stances which would alone restrain the competition for such an 
undertaking to a very small number of people. Of the few who 
have this capital or credit, a still smaller number have the neces- 
sary knowledge or experience; another circumstance which restrains 
the com petition still further. The very few who arein condition to 
become competitors, find it more for their interest to combine 
together; to become copartners, instead of competitors; and, when 
the farm is set up to auction, to offer no rent but what is much 
below the real value. In countries where the public revenues are in 
farm, the farmers are generally the most opulent people. Their 
wealth would alone excite the public indignation; and the vanity 
which almost always accompanies such upstart fortunes, thefool- 
ish ostentation with which they commonly display that wealth, 
excite that indignation still more. 

The farmers of the public revenue never find the laws too se- 
vere, which punish any attempt to evade the payment of a tax. 
T hey have no bowels for the contributors, who are not their sub- 



744 



Adam Smith 



jects, and whose universal bankruptcy, if it should happen theday 
after the farm is expired, would not much affect their interest. In 
the greatest exigencies of the state, when the anxiety of the sover- 
eign for the exact payment of his revenue is necessarily the great- 
est, they seldom fail to complain, that without laws more rigorous 
than those which actually took place, it will be impossible for 
them to pay even the usual rent. In those moments of public dis- 
tress, their commandscannot bedisputed. The revenue laws, there- 
fore, become gradually more and more severe. T he most sangui- 
nary are always to be found in countries where thegreater part of 
the public revenue is in farm; the mildest, in countries where it is 
levied under the immediate inspection of the sovereign. Even a 
bad sovereign feels more compassion for his people than can ever 
be expected from the farmers of his revenue. H e knows that the 
permanent grandeur of hisfamily depends upon the prosperity of 
his people, and he will never knowingly ruin that prosperity for 
the sake of any momentary interest of his own. It is otherwise 
with the farmers of his revenue, whose grandeur may frequently 
be the effect of the ruin, and not of the prosperity, of his people. 
A tax is sometimes not only farmed for a certain rent, but the 
farmer has, besides, the monopoly of the commodity taxed. In 
France, thedutiesupon tobacco and salt arelevied in thismanner. 
In such cases, the farmer, instead of one, levies two exorbitant 



profitsupon thepeople; theprofitof thefarmer, and the still more 
exorbitant one of the monopolist. Tobacco being a luxury, every 
man is allowed to buy or not to buy as he chuses; but salt being a 
necessary, every man isobliged to buy of thefarmer a certain quan- 
tity of it; because, if hedid not buy thisquantity of thefarmer, he 
would, it is presumed, buy it of some smuggler. T he taxes upon 
both commodities are exorbitant. The temptation to smuggle, 
consequently, is to many people irresistible; while, at the same 
time, the rigour of the law, and the vigilance of the farmer's offic- 
ers, render the yielding to the temptation almost certainly ruin- 
ous. The smuggling of salt and tobacco sends every year several 
hundred people to the gal leys, besides a very considerable number 
whom it sends to the gibbet. Those taxes, levied in thismanner, 
yield a very considerable revenue to government. In 1767, the 
farm of tobacco was let for twenty-two millionsfive hundred and 
forty-one thousand two hundred and seventy-eight livresa-year; 
that of salt for thirty-six millions four hundred and ninety-two 
thousand four hundred and four livres. The farm, in both cases, 
was to commence in 1768, and to last for six years. Those who 
consider the blood of the people as nothing, in comparison with 
the revenue of the prince, may, perhaps, approve of this method 
of levying taxes. Similar taxes and monopolies of salt and tobacco 
have been established in many other countries, particularly in the 



745 



The Wealth of Nations 



Austrian and Prussian dominions, and in the greater part of the 
states of Italy. 

In France, th e greater part of the actual revenue of the crown is 
derived from eight different sources; thetaille, the capitation, the 
two vingtiemes, the gabelles, the aides, thetraites, thedomaine, 
and thefarm of tobacco. T he livelast are, i n th e greater p art of th e 
provinces, under farm. Thethree first are everywhere levied by an 
administration, under the immediate inspection and direction of 
government; and it is universally acknowledged, that in propor- 
tion to what they takeout of the pockets of the people, they bring 
moreintothetreasuryof theprincethan theother five, of which 
the administration is much more wasteful and expensive. 

The finances of France seem, in their present state, to admit of 
three very obvious reformations. First, by abolishing thetailleand 
the capitation, and byincreasingthenumberof the vingtiemes, so 
as to produce an additional revenue equal to the amount of those 
other taxes, the revenue of the crown might be preserved; the ex- 
pense of collection might be much diminished; the vexation of 
theinferior ranksof people, which thetailleand capitation occa- 
sion, might be entirely prevented; and the superior ranks might 
not bemore burdened than thegreater part of them are at present. 
Thevingtieme, I have already observed, isa tax very nearly of the 
same kind with what is called the land tax of England. T he bur- 



den of thetaille, it is acknowledged, fallsfinally upon thepropri- 
etors of land; and as the greater part of the capitation is assessed 
upon those who are subject to thetaille, at so much a-pound of 
that other tax, the final payment of the greater part of it must 
likewise fall upon the same order of people. Though the number 
of the vingtiemes, therefore, was increased, so as to produce an 
additional revenue equal to the amount of both those taxes, the 
superior ranks of people might not be more burdened than they 
are at present; many individuals, no doubt, would, on account of 
the great inequalities with which thetaille is commonly assessed 
upon the estates and ten ants of different individuals. The interest 
and opposition of such favoured subjects, are the obstacles most 
likely to prevent this, or any other reformation of the same kind. 
Secondly, by rendering the gabel I e, theaides, thetraites, the taxes 
upon tobacco, all thedifferentcustomsand excises, uniform in all 
the different parts of the kingdom, those taxes might be levied at 
much less expense, and the interior commerce of the kingdom 
might be rendered as free as that of England. Thirdly, and lastly, 
by subjecting all those taxes to an administration under the im- 
mediate inspection and direction or government, the exorbitant 
profits of the farmers- general might be added to the revenue of 
the state. The opposition arising from the private interest of indi- 
viduals, islikely to be as effectual for preventing thetwo last as the 



746 



Adam Smith 



first-mentioned scheme of reformation. 

The French system of taxation seems, in every respect, inferior 
to the British. In Great Britain, ten millions sterling are annually 
levied upon less than eight millions of people, without its being 
possible to say that any particular order is oppressed. From the 
Collections of the Abbe Expilly, and the observations of the au- 
thor of the Essay upon the Legislation and C ommerceof C orn, it 
appears probablethat France, including the provinces of Lorraine 
and Bar, contains about twenty-three or twenty-four millions of 
people; three times thenumber, perhaps, contained in Great Brit- 
ain. The soil and dim ate of France are better than those of Great 
Britain. The country has been much longer in a state of improve 
ment and cultivation, and is, upon that account, better stocked 
with all those things which it requires a long time to raise up and 
accumulate; such as great towns, and convenient and well-built 
houses, both in town and country. W ith these advantages, it might 
be expected, that in France a revenue of thirty millions might be 
levied for thesupport of thestate, with aslittleinconvenienceasa 
revenueoften millions is in Great Britain. In 1765 and 1766, the 
whole revenue paid into the treasury of France, according to the 
best, though, I acknowledge, very imperfect accounts which I could 
get of it, usually run between 308 and 325 millionsof livres; that 
is, it did not amount to fifteen millions sterling; not the half of 



what might have been expected, had the people contributed in 
thesame proportion to their numbers as the people of Great Brit- 
ain. The people of France, however, it is generally acknowledged, 
are much more oppressed by taxes than the people of G reat Brit- 
ain. France, however, iscertainlythegreatempirein Europe, which, 
after that of Great Britain, enjoys the mildest and most indulgent 
government. 

I n H olland, the heavy taxes upon the necessaries of life have ru- 
ined, it is said, their principal manufacturers, and are likely to dis- 
courage, gradually, even theirfisheriesand theirtradein ship-build- 
in g. T h e taxes u pon th e n ecessari es of I i fe are i n con si d erabl e i n G reat 
Britain, and no manufacturehashitherto been ruined bythem. The 
British taxes which bear hardest on manufactures, are some duties 
upon the importation of raw materials, particularly upon that of 
raw silk. The revenue of the States-General and of the different cit- 
ies, however, issaid to amount to more than fivemillionstwo hun- 
dred and fifty thousand pounds sterling; and as the inhabitants of 
the U nited Provinces cannot well be supposed to amount to more 
than athird part of thoseof Great Britain, they must, in proportion 
to their number, be much more heavily taxed. 

After all the proper subjects of taxation have been exhausted, if 
the exigencies of the state still continueto require new taxes, they 
must be imposed upon improper ones. Thetaxes upon the neces- 



747 



The Wealth of Nations 



sariesof life, therefore, may be no impeachment of the wisdom of 
that republic, which, in order to acquire and to maintain itsinde- 
pendency, has, in spite of its meat frugality, been involved in such 
expensive wars as have obliged it to contract great debts. T he sin- 
gular countries of H olland and Zealand, besides, requirea consid- 
erable expense even to preserve their existence, or to preventtheir 
being swallowed up by the sea, which must have contributed to 
increase considerably the load of taxesin those two provinces.The 
republican form of government seems to be the principal support 
of the present grandeur of H olland. T he owners of great capitals, 
the great mercantile families, have generally either some direct 
share, or some indirect influence, in the administration of that 
government. For the sake of the respect and authority which they 
derive from this situation, they are willing to live in a country 
where their capital, if they employ it thansdves, will bring them 
less profit, and if they lend it to another, less interest; and where 
the very moderate revenue which they can draw from it will pur- 
chase I ess of the necessaries and conveniencies of life than in any 
other part of Europe. Theresidenceof such wealthy peopleneces- 
sarily keeps alive, in spite of all disadvantages, a certain degree of 
industry in the country. Any public calamity which should de- 
stroy the republican form of government, which should throw the 
whole administration into the hands of nobles and of soldiers, 



which should annihilate altogether theimportanceof thosewealthy 
merchants, would soon render it disagreeable to them to live in a 
country where they were no longer likdy to be much respected. 
They would remove both thar residence and thar capital to some 
other country, and the industry and commerce of H olland would 
soon follow the capitals which supported them. 



748 



Adam Smith 



CHAPTER III 

OF PUBLIC DEBTS 

In that rude state of society which precedes the extension of 
commerce and the improvement of manufactures; when those ex- 
pensive luxuries, which commerce and manufactures can alone 
introduce, are altogether unknown; the person who possesses a 
large revenue, I have endeavoured to show in the third book of 
this Inquiry, can spend or enjoy that revenue in no other way than 
by maintaining nearly as many people as it can maintain. A large 
revenue may at all times be said to consist in the command of a 
largequantity of thenecessariesof life. In that rudestate of things, 
itiscommonlypaid in a large quantity of those necessaries, in the 
materials of plain food and coarse clothing, in corn and cattle, in 
wool and raw hides. When neither commerce nor manufactures 
furnish any thing for which the owner can exchange the greater 
part of those materials which are over and above his own con- 
sumption, hecan do nothing with thesurplus, but feed and clothe 
nearly as many people as it will feed and clothe. A hospitality in 
which there is no luxury, and a liberality in which there is no 
ostentation, occasion, in this situation of things, the principal ex- 
penses of the rich and the great. Butthesel have I ikewise endeav- 



oured to show, in thesamebook, are expenses by which peopleare 
not very apt to ruin themselves. There is not, perhaps, any selfish 
pleasure so frivolous, of which the pursuit has not sometimes ru- 
ined even sensible men. A passion for cock-fighting has ruined 
many. But the instances, I believe, arenot very numerous, of people 
who have been ruined by a hospitality or liberality of this kind; 
though the hospitality of luxury, and the liberality of ostentation 
have ruined many. Among our feudal ancestors, the long time 
during which estates used to continue in the same family, suffi- 
ciently demonstrates thegeneral disposition of peopleto livewithin 
their income. Though the rustic hospitality, constantly exercised 
by thegreat landholders, may not, to usin the present times, seem 
consistent with that order which we are apt to consider as insepa- 
rably connected with good economy; yet we must certainly allow 
them to have been at least so far frugal, as not commonly to have 
spent their whole income. A part of their wool and rawhides, they 
had generally an opportunity of selling for money. Some part of 
this money, perhaps, they spent in purchasing the few objects of 
vanity and luxury, with which thecircumstancesofthetimescould 
furnish them; but some part of it they seem commonly to have 
hoarded. They could not well, indeed, do anything else but hoard 
whatever money they saved. To trade, was disgraceful to a gentle- 
man; and to lend money at interest, which at that time was con- 



749 



The Wealth of Nations 



sidered asusury, and prohibited bylaw, would have been still more 
so. In those times of violence and disorder, besides, it was conve- 
nient to have a hoard of money at hand, that in case they should 
be driven from their own home, they might have something of 
known valueto carry with them to some placeof safety. The same 
violence which made it convenient to hoard, made it equally con- 
venient to conceal the hoard. The frequency of treasure-trove, or 
of treasurefound, of which no owner was known, sufficiently dem- 
onstrates the frequency, in those times, both of hoarding and of 
concealing the hoard. Treasure-trove was then considered as an 
important branch of the revenueof the sovereign. All thetreasure- 
trove of the kingdom would scarce, perhaps, in the present times, 
make an important branch of the revenue of a private gentleman 
of a good estate. 

The same disposition, to save and to hoard, prevailed in the 
sovereign, as well as in the subjects. Among nations, to whom 
commerce and manufacture are little known, the sovereign, it has 
already been observed in the Fourth book, is in a situation which 
naturally disposes him to the parsimony requisite for accumula- 
tion. In that situation, the expense, even of a sovereign, cannot be 
directed by that vanity which delights in the gaudy finery of a 
court.Theignoranceofthetimesaffordsbutfewofthetrinketsin 
which that finery consists. Standing armies are not then neces- 



sary; so that the expense, even of asovereign, likethatof anyother 
great lord can be employed in scarce any thing but bounty to his 
tenants, and hospitality to his retainers. But bounty and hospital- 
ity very seldom lead to extravagance; though vanity almost always 
does. All the ancient sovereigns of Europe, accordingly, it has al- 
ready been observed, had treasures. Every Tartar chief, in thepresent 
times, is said to have one. 

I n a commercial country, abounding with every sort of expen- 
sive luxury, the sovereign, in the same manner as almost all the 
great proprietors in his dominions, naturally spends a great part 
of his revenue in purchasing those luxuries. H is own and the 
neighbouring countries supply him abundantly with all thecostly 
trinkets which composethesplendid, but insignificant, pageantry 
of acourt. For the sake of an inferior pageantry of thesamekind, 
hisnoblesdismiss their retainers, make their tenants independent, 
and become gradually themselves as insignificant as the greater 
part of the wealthy burghers in hisdominions.Thesamefrivolous 
passions, which influencetheir conduct, influencehis. H ow can it 
be supposed that heshould betheonly rich man in hisdominions 
who isinsensibleto pleasuresof thiskind? If hedoesnot, what he 
is very likely to do, spend upon those pleasures so great a part of 
his revenue as to debilitate very much the defensive power of the 
state, it cannot well be expected that he should not spend upon 



750 



Adam Smith 



them all that part of it which is over and above what is necessary 
for supporting that defensive power. H is ordinary expense becomes 
equal to his ordinary revenue, and it is well if it does not fre- 
quently exceed it. T he amassing of treasure can no longer be ex- 
pected; and when extraordinary exigencies require extraordinary 
expenses, hemust necessarily call upon hissubjectsfor an extraor- 
dinary aid. The present and the late king of Prussia are the only 
great princes of Europe, who, since the death of H enry IV. of 
France, in 1610, are supposed to have amassed any considerable 
treasure. The parsimony which leadsto accumulation has become 
almost as rare in republican as in monarchical governments. The 
Italian republics, the United Provinces of the Netherlands, are all 
in debt. Thecanton of Berneisthesinglerepublic in Europe which 
has amassed any considerable treasure. T he other Swiss republics 
havenot.Thetasteforsomesortof pageantry, for splendid build- 
ings, at least, and other public ornaments, frequently prevails as 
much in the apparently sober senate-house of a little republic, as 
in the dissipated court of the greatest king. 

Thewant of parsimony, in timeof peace, imposes the necessity 
of contracting debt in timeof war. When war comes, there is no 
money in the treasury, but what is necessary for carrying on the 
ordinary expense of the peace establishment. In war, an establish- 
ment of three or four times that expense becomes necessary for 



the defence of the state; and consequently, a revenue three or four 
times greater than the peace revenue. Supposing that the sover- 
eign should have, what hescarce ever has, theimmediatemeansof 
augmenting his revenue in proportion to the augmentation of his 
expense; yet still the produce of the taxes, from which thisincrease 
of revenue must be drawn, will not begin to come into the trea- 
sury, till perhaps ten ortwelvemonthsaftertheyareimposed. But 
the moment in which war begins, or rather the moment in which 
it appears likely to begin, the army must be augmented, the fleet 
must befitted out, the garrisoned towns must be put intoapos- 
tu re of defence; that army, that fleet, those garrisoned towns, must 
be furnished with arms, ammunition, and provisions. An imme- 
diate and great expense must be incurred in that moment of im- 
mediate danger, which will not wait for the gradual and slow re- 
turns of the new taxes. In this exigency, government can have no 
other resource but in borrowing. 

T he same commercial state of society which, by the operation 
of moral causes, brings government in thismanner into theneces- 
sity of borrowing, produces in the subjects both an ability and an 
inclination to lend. If it commonly bringsalong with ittheneces- 
sity of borrowing, itlikewisebringswith it thefacility of doing so. 

A country abounding with merchants and manufacturers, nec- 
essarily abounds with a set of people through whose hands, not 



751 



The Wealth of Nations 



only their own capitals, but the capitals of all those who either 
lend them money, or trust them with goods, pass as frequently, or 
more frequently, than the revenue of a private man, who, without 
tradeor business, livesupon hisincome, passes through hishands. 
The revenue of such a man can regularly pass through hishands 
only once in a year. But the whole amount of the capital and 
credit of a merchant, who deals in a trade of which the returns are 
very quick, may sometimes pass through his hands two, three, or 
four times in a year. A country abounding with merchants and 
manufacturers, therefore, necessarily aboundswith aset of people, 
who have it at all times in their power to advance, if they chuseto 
do so, a very large sum of money to government. Hence the abil- 
ity in the subjects of a commercial state to lend. 

Commerce and manufactures can seldom flourish long in any 
state which does not enjoy a regular administration of justice; in 
which the people do not feel themselves secure in the possession 
of their property; in which thefaith of contracts is not supported 
bylaw; and in which the authority of the state is not supposed to 
be regularly employed in enforcing the payment of debts from all 
those who areableto pay. Commerce and manufactures, in short, 
can seldom flourish in any state, in which there is not a certain 
degree of confidence in thejustice of government. The same con- 
fidence which disposes great merchants and manufacturers upon 



ordinary occasions, to trust their property to the protection of a 
particular government, disposes them, upon extraordinary occa- 
sions, to trust that government with the use of their property. By 
lending money to government, they do not even for a moment 
diminish their ability to carry on theirtradeand manufactures; on 
the contrary, they commonly augment it. The necessities of the 
state render government, upon most occasions willing to borrow 
upon terms extremely advantageous to the lender. The security 
which it grants to theoriginal creditor, is made transferable to any 
other creditor; and from the universal confidence in thejustice of 
thestate, generally sellsin themarket for more than was originally 
paid for it. T he merchant or monied man makes money by lend- 
ing money to government, and instead of diminishing, increases 
histrading capital. H e generally considers it asa favour, therefore, 
when the administration admits him to a share in the first sub- 
scription for a new loan. Hence the inclination or willingness in 
the subjects of a commercial state to lend. 

T he government of such a state is very apt to repose itself upon 
thisabilityand willingness of its subjects to lend it theirmoney on 
extraordinary occasions. It foresees the facility of borrowing, and 
therefore dispenses itself from the duty of saving. 

I n a rude state of society, there areno great mercantileor manu- 
facturing capitals. The individuals, who hoard whatever money 



752 



Adam Smith 



they can save, and who conceal their hoard, do so from a distrust 
of the justice of government; from a fear, that if it was known that 
they had a hoard, and where that hoard was to be found, they 
would quickly be plundered. In such a state of things, few people 
would be able, and nobody would be willing to lend their money 
to government on extraordinary exigencies. The sovereign feels 
that he must provide for such exigencies by saving, because he 
foresees the absolute impossibility of borrowing. This foresight 
increases still further his natural disposition to save. 

T he progress of the enormous debts which at present oppress, 
and will in the long-run probably ruin, all the great nations of 
Europe, has been pretty uniform. Nations, like private men, have 
generally begun to borrow upon what may becalled personal credit, 
without assigning or mortgaging any particular fund for the pay- 
ment of the debt; and when this resource has failed them, they 
have gone on to borrow upon assignments or mortgages of par- 
ticular funds. 

W hat iscalled theunfunded debt of Great Britain, iscontracted 
in theformer of those two ways. It consists partly in a debt which 
bears, or issupposed to bear, no interest, and which resembles the 
debts that a private man contracts upon account; and partly in a 
debt which bears interest, and which resembles what a private man 
contracts upon his bill or promissory-note. The debts which are 



due, either for extraordinary services, or for services either not 
provided for, or not paid at the time when they are performed; 
part of the extraordinaries of the army, navy, and ordnance, the 
arrears of subsidies to foreign princes, those of seamen's wages, 
etc. usually constitute a debt of thefirst kind. Navy and exchequer 
bills, which are issued sometimes in payment of a part of such 
debts, and sometimes for other purposes, constitute a debt of the 
second kind; exchequer billsbearing interest from thedayon which 
they are issued, and navy bills six months after they are issued. 
T hebank of England, ather by voluntarily discounting those bills 
at their current value, or by agreeing with government for certain 
considerationsto circulate exchequer bills, that is, to receive them 
at par, paying the interest which happens to be due upon them, 
keeps up their value, and facilitates their circulation, and thereby 
frequently enables government to contract a very largedebt of this 
kind. In France, where there is no bank, the state bills (billets 
d'etat {See Examen des Reflections Politiques sur les Finances.}) 
have sometimes sold at sixty and seventy per cent, discount. Dur- 
ing the great recoinage in king William's time, when the bank of 
England thought proper to put a stop to its usual transactions, 
exchequer billsand tallies are said to have sold from twenty-five to 
sixty per cent, discount; owing partly, no doubt, to the supposed 
instability of the new government established by the Revolution, 



753 



The Wealth of Nations 



but partly, too, tothewantofthesupportofthebankof England. 

W hen this resource is exhausted, and it becomes necessary, in 
order to raise money, to assign or mortgage someparticular branch 
of the public revenue for the payment of the debt, government 
has, upon different occasions, done this in two different ways. 
Sometimes it has made this assignment or mortgage for a short 
period of time only, a year, or a few years, for example; and some- 
times for perpetuity. In theonecase, thefund was supposed suffi- 
cient to pay, within the limited time, both principal and interest 
of the money borrowed. In theother, it was supposed sufficientto 
pay the interest only, or a perpetual annuity equivalent to the in- 
terest, government being at liberty to redeem, at any time, this 
annuity, upon paying back the principal sum borrowed. When 
money was raised in theoneway, it was said to beraised by antici- 
pation; when in theother, by perpetual funding, or, more shortly, 
by funding. 

In Great Britain, the annual land and malt taxes are regularly 
anticipated every year, by virtue of a borrowing clause constantly 
inserted into the acts which impose them. The bank of England 
generally advances at an interest, which, sincethe Revolution, has 
varied from eight to three per cent., thesums of which those taxes 
are granted, and receives payment astheirproducegradually comes 
in. If there is a deficiency, which there always is, it is provided for 



in the supplies of the ensuing year. T he only considerable branch 
of the public revenue which yet remains unmortgaged, is thus 
regularly spent before it comes in. Like an improvident spend- 
thrift, whose pressing occasions will not allow him to wait for the 
regular payment of his revenue, the state is in the constant prac- 
tice of borrowing of its own factors and agents, and of paying 
interest for the use of its own money. 

In the reign of king William, and during a great part of that of 
queen Anne, beforewehad becomeso familiar aswearenow with 
thepracticeof perpetual funding, thegreater part of the new taxes 
were imposed but for a short period of time (for four, five, six, or 
seven years only), and a great part of the grants of every year con- 
sisted in loans upon anticipations of the produce of those taxes. 
The producebeing frequently insufficient for paying, within the 
limited term, the principal and interest of the money borrowed, 
deficiencies arose; to make good which, it became necessary to 
prolong the term. 

I n 1697, by the 8th of William 1 1 1 ., c. 20, the deficiencies of 
several taxes were charged upon what was then called the first 
general mortgageorfund, consisting of a prolongation to thefirst 
of August 1706, of several different taxes, which would have ex- 
pired within a shorter term, and of which the produce was accu- 
mulated into one general fund. The deficiencies charged upon 



754 



Adam Smith 



this prolonged term amounted to £5,160,459: 14: 9V2. 

In 1701, those duties, with some others, were still further pro- 
longed, for the like purposes, till the first of August 1710, and 
were called the second general mortgageorfund.Thedeficiencies 
charged upon it amounted to £2,055,999: 7: 11%. 

In 1707, thoseduties were still further prolonged, as a fund for 
new loans, to thefirst of August 1712, and were called the third 
general mortgage or fund. The sum borrowed upon it was 
£983,254:ll:9y4. 

In 1708, those duties were all (except the old subsidy of ton- 
nage and poundage, of which one moiety only was made a part of 
thisfund, and a duty upon the importation of Scotch linen, which 
had been taken off by the articles of union) still further contin- 
ued, asafund for new loans, to thefirst of August 1714, and were 
called the fourth general mortgage or fund. The sum borrowed 
uponitwas£925,176:9:2y4. 

I n 1709, those duties were all ( except the old subsidy of ton- 
nage and poundage, which was now left out of this fund alto- 
gether ) still further continued, for the same purpose, to thefirst 
of August 1716, and were called the fifth general mortgage or 
fund. The sum borrowed upon it was f 922,029:6s. 

I n 1710, those duties were again prolonged to the first of Au- 
gust 1720, and were called the sixth general mortgage or fund. 



The sum borrowed upon it was £l,296,552:9:ll 3 /4. 

In 1711, the same duties (which at this time were thus subject 
to four different anticipations), together with several others, were 
continued for ever, and madeafundforpayingtheinterestofthe 
capital of the South-sea company, which had that year advanced 
to government, for paying debts, and making good deficiencies, 
thesum of £9,177,967:15:4d, thegreatest loan which at that time 
had ever been made. 

Before this period, the principal, so far as I have been able to 
observe, the only taxes, which, in orderto paytheinterestof adebt, 
had been imposed for perpetuity, were those for paying theinterest 
of themoney which had been advanced to government by thebank 
and East-India company, and of what it was expected would be 
advanced, but which was never advanced, by a projected land bank. 
The bank fund at this time amounted to£3,375,027:17:10 1 /2 I for 
which was paid an annuity or interest of £206,501:15:5d.TheEast- 
I ndia fund amounted to £3,200,000, for which was paid an annu- 
ity or interest of £160,000; the bank fund being at six per cent., the 
East-India fund at five per cent, interest. 

In 1715, by thefirst of George I., c. 12, thedifferent taxes which 
had been mortgaged for paying the bank annuity, together with 
several others, which, by thisact, werelikewise rendered perpetual, 
were accumulated into one common fund, called the aggregate 



755 



The Wealth of Nations 



fund, which was charged not only with the payment of the bank 
annuity, but with several other annuities and burdens of different 
kinds. Thisfund was afterwards augmented by thethird of George 
I., c.8., and by thefifth of Georgel ., c. 3, and the different duties 
which were then added to it were likewise rendered perpetual. 

In 1717, by thethird of Georgel., c. 7, several other taxes were 
rendered perpetual, and accumulated into another common fund, 
called the general fund, for the payment of certain annuities, 
amounting in thewholeto £724,849:6:10y2. 

I n consequence of those different acts, the greater part of the 
taxes, which before had been anticipated only for a short term of 
years were rendered perpetual, as a fund for paying, not the capi- 
tal, but the interest only, of the money which had been borrowed 
upon them by different successive anticipations. 

H ad money never been raised but by anticipation, thecourseof 
a few years would have liberated the public revenue, without any 
other attention of government besides that of not overloading the 
fund, by charging it with more debt than it could pay within the 
limited term, and not of anticipating a second time before the 
expiration of the first anticipation. But the greater part of Euro- 
pean governments have been incapable of those attentions They 
have frequently overloaded thefund, even upon thefirst anticipa- 
tion; and when thishappened not to bethecase, they have gener- 



ally taken care to overload it, by anticipating a second and athird 
time, before the expiration of thefirst anticipation. Thefund be- 
coming in thismanner altogether insufficientfor paying both prin- 
cipal and interest of the money borrowed upon it, it became nec- 
essary to charge it with the interest only, or a perpetual annuity 
equal to the interest; and such improvident anticipations neces- 
sarily gave birth to the more ruinous practice of perpetual fund- 
ing. But though this practice necessarily puts off the liberation of 
thepublic revenue from a fixed period, to oneso indefinitethat it 
is not very likely ever to arrive; yet, as a greater sum can, in all 
cases, be raised by this new practice than by the old one of antici- 
pation, theformer, when men have once become familiar with it, 
has, in the great exigencies of the state, been universally preferred 
to the latter. To relieve the present exigency, is always the object 
which principally interests those immediately concerned in the 
administration of public affairs. Thefuture liberation of thepub- 
lic revenue they leave to the care of posterity. 

D uring thereign of queen Anne, the market rateof interest had 
fallen from six to five per cent.; and, in the twelfth year of her 
reign, five per cent, wasdeclared to be thehighest rate which could 
lawfully betaken for money borrowed upon private security. Soon 
after the greater part of the temporary taxes of G reat Britain had 
been rendered perpetual, and distributed into the aggregate, South- 



756 



Adam Smith 



sea, and general funds, the creditors of the public, like those of 
private persons, were induced to accept of five per cent, for the 
interest of their money, which occasioned a saving of one per cent, 
upon the capital of the greater part or the debts which had been 
thus funded for perpetuity, or of one-sixth of the greater part of 
the annuities which were paid out of the three great funds above 
mentioned. Thissaving left aconsiderablesurplusin theproduce 
of thedifferent taxes which had been accumulated intothosefunds, 
over an d above wh at was n ecessary f or payi n g th e an n u i ti es wh i ch 
were now charged upon them, and laid the foundation of what 
has since been called the sinking fund. In 1717, it amounted to 
£523,454:7:7y 2 . In 1727, the interest of the greater part of the 
public debts was still further reduced to four per cent.; and, in 
1753 and 1757, to three and a- half, and three per cent., which 
reductions still further augmented the sinking fund. 

A sinkingfund, though instituted for thepayment of old, facili- 
tates very much the contracting of new debts. It is a subsidiary 
fund, always at hand, to be mortgaged in aid of any other doubt- 
ful fund, upon which money is proposed to be raised in any exi- 
gency of the state. W hether the sinking fund of Great Britain has 
been more frequently applied to the one or to other of those two 
purposes, will sufficiently appear by and by. 

Besides those two methods of borrowing, by anticipations and 



by a perpetual funding, there are two other methods, which hold 
a sort of middle place between them; these are, that of borrowing 
upon annuities for terms of years, and that of borrowing upon 
annuities for lives. 

During the reigns of king William and queen Anne, large sums 
were frequently borrowed upon annuitiesfortermsof years, which 
were sometimes longer and sometimes shorter. In 1695, an act 
was passed for borrowing one million upon an annuity of four- 
teen per cent., or £140,000 a-year, for sixteen years. In 1691, an 
act was passed for borrowing a million upon annuities for lives, 
upon terms which, in the present times, would appear very ad- 
vantageous; but the subscription wasnot filled up. In thefollow- 
ing year, the deficiency was made good, by borrowing upon annu- 
ities for lives, at fourteen percent, or a little more than seven years 
purchase. In 1695, the persons who had purchased those annu- 
ities were all owed to exchange them for others of ninety- six years, 
upon paying into the exchequer sixty-three pounds in the hun- 
dred; that is, the difference between fourteen per cent, for life, 
and fourteen per cent, for ninety-six years, was sold for sixty-three 
pounds, or for four and a-half years purchase. Such was the sup- 
posed instability of government, that even these terms procured 
few purchasers. In the reign of queen Anne, money was, upon 
different occasions, borrowed both upon annuities for lives, and 



757 



The Wealth of Nations 



upon annuities for terms of thirty-two, of eighty-nine, of ninety- 
eight, and of ninety-nine years. In 1719, the proprietors of the 
annuities for thirty-two years were induced to accept, in lieu of 
them, South-sea stock to the amount of eleven and a- half years 
purchase of the annuities, together with an additional quantity of 
stock, equal to the arrears which happened then to be due upon 
them. In 1720, the greater part of the other annuities for terms of 
years, both long and short, were subscribed into the same fund. 
The long annuities, at that time, amounted to £666,821: 8:3V2a- 
year. n the 5th of January 1775, the remainder of them, or what 
was not subscribed at that time, amounted onlytof 136,453:12:8d. 
During the two wars which began in 1739 and in 1755, little 
money was borrowed, either upon annuitiesfortermsof years, or 
upon those for lives. An annuity for ninety-eight or ninety-nine 
years, however, isworth nearly asmuch as a perpetuity, and should 
therefore, onemightthink, beafund for borrowing nearly asmuch. 
But those who, in order to make family settlements, and to pro- 
vide for remote futurity, buy into the public stocks, would not 
care to purchase into one of which the value was continually di- 
minishing; and such people make a very considerable proportion, 
both of the proprietors and purchasers of stock. An annuity for a 
long term of years, therefore, though its intrinsic value may be 
very nearly the same with that of a perpetual annuity, will not find 



nearly the same number of purchasers. T he subscribers to a new 
loan, who mean generally to sell their subscription as soon as pos- 
sible, prefer greatly a perpetual annuity, redeemableby parliament, 
to an irredeemable annuity, for a long term of years, of only equal 
amount. The value of the former may be supposed always the 
same, or very nearly the same; and it makes, therefore, a more 
convenient transferable stock than the latter. 

D uring the two last-mentioned wars, annuities, either for terms 
of years or for lives, were seldom granted, but as premiums to the 
subscribers of a new loan, over and above theredeemableannuity or 
interest, upon thecredit of which theloan was supposed to be made. 
They were granted, not as the proper fund upon which the money 
was borrowed, but as an additional encouragement to the lender. 

Annuitiesfor lives have occasionally been granted in two differ- 
ent ways; either upon separate lives, or upon lots of lives, which, 
in French, are called tontines, from the name of their inventor. 
When annuities are granted upon separate lives, the death of ev- 
ery individual annuitant disburdens the public revenue, so far as 
it was affected by his annuity. W hen annuities are granted upon 
tontines, the liberation ofthepublicrevenuedoesnot commence 
till thedeath of all theannuitants comprehended in onelot, which 
may sometimes consist of twenty or thirty persons, of whom the 
su rvivors succeed to theannuities of all those whodiebefore them; 



758 



Adam Smith 



thelast survivor succeeding to theannuitiesof the wholelot. Upon 
the same revenue, more money can always be raised by tontines 
than by annuities for separate lives An annuity, with a right of 
survivorship, is really worth more than an equal annuity for a 
separate life; and, from theconfidence which every man naturally 
hasin hisown good fortune, theprincipleupon which isfounded 
the success of all lotteries, such an annuity generally sellsfor some- 
thing more than it is worth. In countries where it is usual for 
government to raise money by granting annuities, tontines are, 
upon this account, generally preferred to annuities for separate 
lives. Theexpedient which will raisemost money, is almost always 
preferred to that which is likely to bring about, in the speediest 
manner, the liberation of the public revenue. 

I n France, a much greater proportion of the public debts con- 
sistsin annuities for livesthan in England. According to a memoir 
presented by the parliament of Bourdeaux to the king, in 1764, 
the whole public debt of France is estimated at twenty-four hun- 
dred millions of livres; of which the capital, for which annuities 
for lives had been granted, is supposed to amount to three hun- 
dred millions, theeighth partofthewholepublicdebt.Theannu- 
ities them selves arecomputed to amount to thirty millions a-year, 
thefourth part of onehundred and twenty millions, thesupposed 
interest of that whole debt. These estimations, I know very well, 



are not exact; but having been presented by so very respectable a 
body as approximations to the truth, they may, I apprehend, be 
considered as such. It is not thedifferent degrees of anxiety in the 
two governments of France and England for the liberation of the 
public revenue, which occasions this difference in their respective 
modes of borrowing; it arises altogether from the different views 
and interests of the lenders. 

In England, the seat of government being in the greatest mer- 
cantile city in the world, the merchants are generally the people 
who advance money to government. By advancing it, they do not 
mean to diminish, but, on the contrary, to increase their mercan- 
tile capitals; and unless they expected to sell, with some profit, 
their share in the subscription for a new loan, they never would 
subscribe. But if, by advancing their money, they were to pur- 
chase, instead of perpetual annuities, annuities for lives only, 
whether their own or those of other people, they would not al- 
ways be so likely to sell them with a profit. Annuities upon their 
own lives they would always sell with loss; because no man will 
give for an annuity upon the life of another, whose age and state 
of health are nearly the same with his own, the same price which 
hewould give for one upon hisown. An annuity upon the life of 
a third person, indeed, is, no doubt, of equal value to the buyer 
and the seller; but its real value begins to diminish from themo- 



759 



The Wealth of Nations 



merit it isgranted, and continues to do so, more and more, aslong 
as it subsists. It can never, therefore, make so convenient a trans- 
ferable stock as a perpetual annuity, of which the real value may 
be supposed always the same, or very nearly the same. 

In France, the seat of government not being in a great mercan- 
tilecity, merchantsdo not makeso great a proportion of thepeople 
who advance money to government. T he people concerned in the 
finances, the farmers- general, the receivers of the taxes which are 
notin farm, the court-bankers, etc. makethe greater part of those 
who advance their money in all public exigencies. Such peopleare 
commonly men of mean birth, but of great wealth, and frequently 
of great pride. They are too proud to marry their equals, and women 
of quality disdain to marry them. T hey frequently resolve, there 
fore, to live bachelors; and having neither any families of their 
own, nor much regard for those of their relations, whom they are 
not always very fond of acknowledging, they desire only to livein 
splendour during their own time, and are not unwilling that their 
fortune should end with themselves. T he number of rich people, 
besides, who are either averse to marry, or whose condition of life 
renders it either improper or inconvenient for them to do so, is 
much greater in France than in England. To such people, who 
have little or no care for posterity, nothing can be more conve- 
nient than to exchange their capital for a revenue, which isto last 



just as long, and no longer, than they wish it to do. 

The ordinary expense of the greater part of modern govern- 
ments, in timeof peace, being equal, or nearly equal, to their ordi- 
nary revenue, when war comes, they are both unwilling and un- 
ableto increase their revenuein proportion to theincrease of their 
expense. T hey areunwilling, for fear of offending thepeople, who, 
by so great and so sudden an increase of taxes, would soon be 
disgusted with the war; and they are unable, from not well know- 
ing what taxes would be sufficient to producetherevenue wanted. 
Thefacility of borrowing delivers them from the embarrassment 
which thisfear and inability would otherwise occasion. By means 
of borrowing, they are enabled, with a very moderate increase of 
taxes, to raise, from year to year, money sufficient for carrying on 
the war; and by the practice of perpetual funding, they are en- 
abled, with the smallest possible increase of taxes, to raise annu- 
ally thelargestpossiblesum of money. In great empires, thepeople 
who livein thecapital, and in the provinces remote from thescene 
of action, feel, many of them, scarce any inconveniency from the 
war, but enjoy, at their ease, theamusement of reading in thenews- 
papers the exploits of their own fleets and armies. To them this 
amusement compensates the small difference between the taxes 
which they pay on account of the war, and those which they had 
been accustomed to pay in time of peace. They are commonly 



760 



Adam Smith 



dissatisfied with the return of peace, which puts an end to their 
amusement, and to a thousand visionary hopes of conquest and 
national glory, from a longer continuance of the war. 

The return of peace, indeed, seldom relieves them from the 
greater part of the taxes imposed during the war. These are mort- 
gaged for the interest of the debt contracted, in order to carry it 
on. If, over and above paying the interest of thisdebt, and defray- 
ingtheordinaryexpenseof government, theold revenue, together 
with the new taxes, produce some surplus revenue, it may, per- 
haps, be converted into a sinking fund for paying off the debt. 
But, in thefirst place, thissinking fund, even supposing it should 
be applied to no other purpose, is generally altogether inadequate 
for paying, in thecourseof any period during which it can reason- 
ably be expected that peace should continue, the wholedebt con- 
tracted during the war; and, in the second place, this fund is al- 
most always applied to other purposes. 

T he new taxes were imposed for the sole purpose of paying the 
interest of the money borrowed upon them. If they produce more, 
it isgenerally something which was neither intended nor expected, 
and is, therefore, seldom very considerable. Sinking funds have 
generally arisen, not so much from any surplus of the taxes which 
was over and above what was necessary for paying the interest or 
annuity originally charged upon them, as from a subsequent re- 



duction of that interest; that of Holland in 1655, and that of the 
ecclesiastical state i n 1685, wereboth formed in thismanner. H ence 
the usual insufficiency of such funds. 

During the most profound peace, various events occur, which 
require an extraordinary expense; and government finds it always 
more convenient to defray this expense by misapplying the sink- 
ing fund, than by imposing a new tax. Every new tax is immedi- 
ately felt more or less by the people. It occasions always some 
murmur, and meets with some opposition. The more taxes may 
have been multiplied, the higher they may have been raised upon 
every different subject of taxation; the more loudly the people 
complain of every new tax, the more difficult it becomes, too, 
either to find out new subjects of taxation, ortoraisemuch higher 
the taxes already imposed upon theold. A momentary suspension 
of the payment of debt is not immediately felt by the people, and 
occasions neither murmur nor complaint. To borrow of thesink- 
ingfund isalwaysan obviousandeasyexpedientforgettingoutof 
the present difficulty. The more the public debts may have been 
accumulated, the more necessary it may have become to study to 
reduce them; the more dangerous, the more ruinous it may be to 
misapply any part of the sinking fund; the less likely isthe public 
debt to be reduced to any considerabledegree, the more likely, the 
more certainly, is the sinking fund to be misapplied towards de- 



761 



The Wealth of Nations 



frayingall theextraordinaryexpenseswhich occurin timeof peace. 
When a nation is already overburdened with taxes, nothing but 
the necessities of a new war, nothing but either the animosity of 
national vengeance, or the anxiety for national security, can in- 
duce the people to submit, with tolerable patience, to a new tax. 
Hence the usual misapplication of the sinking fund. 

In Great Britain, from thetimethat we had first recourse to the 
ruinousexpedientof perpetual funding, thereduction of thepub- 
lic debt, in time of peace, has never borne any proportion to its 
accumulation in time of war. It was in the war which began in 
1668, and was concluded by the treaty of Ryswick, in 1697, that 
thefoundation of the present enormous debt of Great Britain was 
first laid. 

n the 31st of D ecember 1697, the public debts of G reat Brit- 
ain, funded and unfunded, amounted to f 21,515,742:13:8V2. A 
great part of those debts had been contracted upon short anticipa- 
tions, and some part upon annuities for lives; so that, before the 
31st of December 1701, in less than four years, there had partly 
been paid off; and partly reverted to the public, the sum of 
£5,121,041:12:0 3 /4d; a greater reduction of the public debt than 
has ever since been brought about in so short a period of time. 
The remaining debt, therefore, amounted only to 
£16,394,701:l:7y4d. 



I n the war which began in 1702, and which was concluded by 
the treaty of Utrecht, the public debts were still more accumu- 
lated. On the 31st of December 1714, they amounted to 
£53,681, 076:5:6y2. The subscription into the South-sea fund, of 
the short and long annuities, increased the capital of the public 
debt; so that, on the 31st of December 1722, it amounted to 
£55,282,978:1:3 5/6. Thereduction of the debt began in 1723, 
and went on so slowly, that, on the 31st of D ecember 1739, dur- 
ing seventeen years-of profound peace, the whole sum paid off 
wasno more than £8,328,554:17:11 3/12, thecapital of thepub- 
lic debt, at that time, amounting to £46,954,623:3:4 7/12. 

TheSpanish war, which began in 1739, and the French war which 
soon followed it, occasioned a further increase of the debt, which, 
on the 31st of D ecember 1748, after the war had been concluded 
bythetreatyofAix-la-Chapdle, amounted to £78,293,313:l:10 3 /4. 
The most profound peace, of 17 years continuance, had taken no 
more than £8,328,354, 17:liy4 from it. A war, of less than nine 
years continuance, added £31,338,689:18: 6 1/6 to it. -(Beejames 
Postlethwaite'sH istory of the Public Revenue.} 

D uring the administration of M r. Pelham, the interest of the 
public debt was reduced, or at least measures were taken for re- 
ducing it, from four to three per cent.; the sinking fund was in- 
creased, and some part of the public debt was paid off. I n 1755, 



762 



Adam Smith 



before the breaking out of the late war, the funded debt of G reat 
Britain amounted to £72,289,675. On the 5th of January 1763, 
at the conclusion of the peace, thefunded debt amounted debt to 
£122,603,336:8:2 1 /4. The unfunded debt has been stated at 
£13,927,589:2:2. But the expense occasioned by the war did not 
end with the conclusion of the peace; so that, though on the 5th 
of January 1764, thefunded debt was increased (partly by a new 
loan, and partly by funding a part of the unfunded debt) to 
£129,586,789:10:l 3 /4, there still remained (according to the very 
well informed author of C onsiderationson theTradeand Finances 
of Great Britain) an unfunded debt, which was brought to ac- 
count in that and thefollowing year, of £9,975,017: 12:2 15/44d. 
In 1764, therefore, the public debt of Great Britain, funded and 
unfunded together, amounted, according to this author, to 
£139,561,807:2:4. The annuities for lives, too, which had been 
granted aspremiumstothesubscriberstothenewloansin 1757, 
estimated at fourteen years purchase, were valued at £472,500; 
and the annuities for long terms of years, granted as premiums 
likewise, in 1761 and 1762, estimated at twenty-seven and a-half 
years purchase, were valued at£6,826,875. During a peaceof about 
seven years continuance, theprudent and truly patriotic adminis- 
tration of M r. Pelham was not able to pay off an old debt of six 
millions. During a war of nearly the same continuance, a new 



debt of more than seventy-five millions was contracted. 

n the 5th of J anuary 1775, the funded debt of G reat Britain 
amounted to £124,996,086, l:6 l A6. The unfunded, exclusive of 
a large civil-list debt, to £4,150,236:3:11 7/8. Both together, to 
£129,146,322:5:6. According to thisaccount, thewholedebt paid 
off, during eleven years of profound peace, amounted only to 
£10,415,476:16:9 7/8. Even this small reduction of debt, how- 
ever, has not been all made from the savings out of the ordinary 
revenue of the state. Several extraneous sums, altogether indepen- 
dent of that ordinary revenue, have contributed towards it. 
Amongst thesewe may reckon an additional shilling in thepound 
land tax, for three years; thetwo millions received from theEast- 
Indiacompany, asindemnifi cation for their territorial acquisitions; 
and the one hundred and ten thousand pounds received from the 
bank for the renewal of their charter. To these must be added sev- 
eral other sums, which, as they arose out of the late war, ought 
perhaps to be considered as deductions from the expenses of it. 
The principal are, 

The produce of French prizes £690,449: 18: 9 Com- 
position for French prisoners 670,000: 0:0 



763 



The Wealth of Nations 



What has been received from the sale of the ceded islands 
95,500: 0:0 

Total £1,455,949: 18: 9 

If we add to this sum the balance of the earl of Chatham's and 
M r. Calcraft's accounts, and other army savings of the same kind, 
together with what has been received from the bank, the East- 
India company, and the additional shilling in thepound land tax, 
thewholemustbeagood deal more than fivemillions. Thedebt, 
therefore, which, si nee the peace, has been paid out of the savings 
from the ordinary revenue of the state, has not, one year with 
another, amounted to half a million a-year.Thesinkingfund has, 
no doubt, been considerably augmented since the peace, by the 
debt which had been paid off, by the reduction of the redeemable 
four per cents to three per cents, and by the annuities for lives 
which have fallen in; and, if peace were to continue, a million, 
perhaps, might now be annually spared out of it towards the dis- 
charge of thedebt. Another million, accordingly, was paid in the 
courseof last year; but at thesametime, a large civil-list debt was 
left unpaid, and we are now involved in a new war, which, in its 
progress, may prove as expensive as any of our former wars. {It has 
proved more expensive than any one of our former wars, and has 



involved us in an additional debt of more than onehundred mil- 
lions. During a profound peace of eleven years, little more than 
ten millions of debt was paid; during a war of seven years, more 
than onehundred millionswas contracted. }Thenew debt which 
will probably be contracted before theend of the next campaign, 
may, perhaps, be nearly equal to all the old debt which has been 
paid off from the savings out of theordinary revenueof thestate. 
It would be altogether chimerical, therefore, to expect that the 
public debt should ever be completely discharged, by any savings 
which arelikely to be madefrom that ordinary revenueasit stands 
at present. 

The public funds of the different indebted nations of Europe, 
particularly those of England, have, by one author, been repre- 
sented as the accumulation of a great capital, superadded to the 
other capital of the country, by means of which its trade is ex- 
tended, its manufactures are multiplied, and its lands cultivated 
and improved, much beyond what they could have been by means 
of that other capital only. H e does not consider that the capital 
which the first creditors of the public advanced to government, 
was, from the moment in which headvanced it, a certain portion 
of the annual produce, turned away from serving in thefunction 
of a capital, to serve in that of a revenue; from maintaining pro- 
ductive labourers, to maintain unproductiveones, and to bespent 



764 



Adam Smith 



and wasted, generally in the course of the year, without even the 
hope of any future reproduction. In return for the capital which 
they advanced, they obtained, indeed, an annuity of the public 
funds, in most cases, of more than equal value. This annuity, no 
doubt, replaced to them their capital, and enabled them to carry 
on their trade and business to the same, or, perhaps, to a greater 
extent than before; that is, they were enabled, either to borrow of 
other people a new capital, upon the credit of this annuity or, by 
selling it, to get from other people a new capital of their own, 
equal, or superior, to that which they had advanced to govern- 
ment. This new capital, however, which they in this manner ei- 
ther bought or borrowed of other people, must have existed in the 
country before, and must have been employed, as all capitals are, 
in maintaining productive labour. W hen it came into the hands 
of those who had advanced their money to government, though it 
was, in some respects, a new capital to them, it was not so to the 
country, but was only a capital withdrawn from certain employ- 
ments, in order to be turned towards others. Though it replaced 
to them what they had advanced to government, it did not replace 
it to the country. H ad they not advanced this capital to govern- 
ment, there would have been in the country two capitals, two 
portionsof theannual produce, instead of one, employed in main- 
taining productive labour. 



When, for defraying theexpenseof government, a revenue is raised 
within the year, from the produce of free or unmortgaged taxes, a 
certain portion of therevenueof private peopleisonly turned away 
from maintaining onespeciesof unproductivelabour, towards main- 
taining another. Some part of what they pay in those taxes, might, 
no doubt, have been accumulated into capital, and consequently 
employed in maintaining productive labour; but the greater part 
would probably have been spent, and consequently employed in 
maintaining unproductive labour. The public expense, however, 
when defrayed in this manner, no doubt hinders, more or less, the 
further accumulation of new capital; but it does not necessarily oc- 
casion the destruction of any actually-existing capital. 

When the public expense is defrayed by funding, it is defrayed 
by the annual destruction of some capital which had before ex- 
isted in the country; by the perversion of some portion of the 
annual produce which had before been destined for the mainte- 
nance of productive labour, towardsthat of unproductive labour. 
Asin thiscase, however, thetaxes are lighter than they would have 
been, had a revenuesufficient for defraying thesameexpense been 
raised within theyear; the private revenueof individualsisneces- 
sarily less burdened, and consequently their ability to save and 
accumulate some part of that revenue into capital, is a good deal 
lessimpaired. Ifthemethod of funding destroys more old capital, 



765 



The Wealth of Nations 



it, at the same time, hinders less the accumulation or acquisition 
of new capital, than that of defraying the public expense by a 
revenue raised within the year. Under the system of funding, the 
frugality and industry of private people can more easily repair the 
breaches which the waste and extravagance of government may 
occasionally make in the general capital of the society. 

It is only during the continuance of war, however, that the sys- 
tem of funding has thisadvantage over theother system. Were the 
expense of war to be defrayed always by a revenue raised within 
theyear, thetaxesfrom which that extraordinary revenue wasdrawn 
would last no longer than the war. The ability of private people to 
accumulate, though less during the war, would have been greater 
during the peace, than under the system of funding. War would 
not necessarily have occasioned the destruction of any old capi- 
tals, and peace would have occasioned the accumulation of many 
more new. Wars would, in general, be more speedily concluded, 
and less wantonly undertaken. The people feeling, during con- 
tinuance of war, the complete burden of it, would soon grow weary 
of it; and government, in order to humour them, would not be 
under the necessity of carrying it on longer than it was necessary 
to do so. T he foresight of the heavy and unavoidable burdens of 
war would hinder the people from wantonly calling for it when 
there was no real or solid interest to fight for. T he seasons during 



which the ability of private people to accumulate was somewhat 
impaired, would occur more rarely, and be of shorter continu- 
ance. Those, on the contrary, during which that ability was in the 
highest vigour would be of much longer duration than they can 
well be under the system of funding. 

When funding, besides, has made a certain progress, the multi- 
plication of taxes which it brings along with it, sometimes impairs 
asmuch the ability of private peopleto accumulate, even in time 
of peace, as the other system would in time of war. The peace 
revenue of Great Britain amounts at present to more than ten 
millions a-year. If free and unmortgaged, it might be sufficient, 
with proper management, and without contracting a shilling of 
new debt, to carry on the most vigorous war. T he private revenue 
of the inhabitants of Great Britain is at present asmuch incum- 
bered in time of peace, their ability to accumulate is as much im- 
paired, as it would have been in the time of the most expensive 
war, had the pernicious system of funding never been adopted. 

I n the payment of the interest of the public debt, it has been 
said, itistherighthand which pays the left. The money does not 
go out of the country. It is only a part of the revenue of one set of 
the inhabitants which istransferred to another; and the nation is 
not a farthing the poorer. This apology is founded altogether in 
the sophistry of the mercantile system; and, after the long exami- 



766 



Adam Smith 



nation which I have already bestowed upon that system, it may, 
perhaps, be unnecessary to say anything further about it. It sup- 
poses, besides, that the whole public debt is owing to the inhabit- 
ants of the country, which happens not to be true; the Dutch, as 
well as several other foreign nations, having a very considerable 
sharein our public funds. But though the whole debt were owing 
to the inhabitants of the country, it would not, upon that ac- 
count, be less pernicious. 

Land and capital stock are the two original sources of all rev- 
enue, both private and public. Capital stock pays the wages of 
productive labour, whether employed in agriculture, manufactures, 
or commerce. T he management of those two original sources of 
revenue belongs to two different sets of people; the proprietorsof 
land, and the owners or employers of capital stock. 

The proprietor of land is interested, for the sake of his own 
revenue, to keep his estate in as good condition as he can, by 
building and repairing his tenants houses, by making and main- 
taining the necessary drains and inclosures, and all those other 
expensive improvements which it properly belongs to the land- 
lord to make and maintain. But, by different land taxes, the rev- 
enue of the landlord may be so much diminished, and, by differ- 
ent duties upon the necessaries and conveniences of life, that di- 
minished revenue may be rendered of so little real value, that he 



may find himself altogether unable to make or maintain those 
expensive improvements. When the landlord, however, ceases to 
dohispart, it isaltogetherimpossiblethatthetenant should con- 
tinue to do his. As the distress of the landlord increases, the agri- 
culture of the country must necessarily decline. 

W hen, by differenttaxesupon the necessaries and conveniences 
of life, theownersand employers of capital stock find, that what- 
ever revenue they derive from it, will not, in a particular country, 
purchase thesamequantity of those necessaries and conveniences 
which an equal revenue would in almost any other, they will be 
disposed to remove to some other. And when, in order to raise 
those taxes, all or the greater part of merchants and manufactur- 
ers, that is, all or thegreater part of theemployers of great capitals, 
come to be continually exposed to the mortifying and vexatious 
visits of the tax-gatherers, this disposition to remove will soon be 
changed into an actual removing. The industry of the country 
will necessarily fall with the removal of the capital which sup- 
ported it, and the ruin of trade and manufactures will follow the 
declension of agriculture. 

To transfer from the owners of those two great sources of rev- 
enue, land, and capital stock, from the persons immediately inter- 
ested in the good condition of every particular portion of land, 
and in the good management of every particular portion of capi- 



767 



The Wealth of Nations 



tal stock, to another set of persons (the creditors of the public, 
who have no such particular interest ), the greater part of the rev- 
enuearisingfrom either, must, in thelong-run, occasion both the 
neglect of land, and the waste or removal of capital stock. A credi- 
tor of the public has, no doubt, a general interest in theprosperity 
of the agriculture, manufactures, and commerce of the country; 
and consequently in the good condition of its land, and in the 
good management of its capital stock. Should there be any gen- 
eral failureor declension in any of these things, theproduce of the 
different taxes might no longer be sufficient to pay him theannu- 
ity or interest which is due to him. But a creditor of the public, 
considered merely as such, has no interest in the good condition 
of any particular portion of land, or in the good management of 
any particular portion of capital stock. Asa creditor of thepublic, 
he has no knowledge of any such particular portion. H e has no 
inspection of it. H e can have no care about it. Its ruin may in 
some cases be unknown to him, and cannot directly affect him. 
Thepracticeof funding has gradually enfeebled every state which 
has adopted it. The Italian republicsseem to have begun it. Genoa 
and Venice, the only two remaining which can pretend to an in- 
dependent existence, have both been enfeebled by it. Spain seems 
to have learned the practice from the Italian republics, and (its 
taxes being probably less judicious than theirs) it has, in propor- 



tion to its natural strength, been-still more enfeebled. The debts 
of Spain areof very old standing. It was deeply in debt before the 
end of the sixteenth century, about a hundred years before En- 
gland owed a shilling. France, notwithstanding all its natural re- 
sources, languishes under an oppressive load of the same kind. 
The republic of the United Provinces is as much enfeebled by its 
debts as either Genoa or Venice. Is it likely that, in Great Britain 
alone, a practice, which has brought either weakness or dissolu- 
tion into every other country, should prove altogether innocent? 
The system of taxation established in those different countries, 
it may be said, isinferior to that of England. I believe it is so. But 
it ought to be remembered, that when the wisest government has 
exhausted all the proper subjects of taxation, it must, in cases of 
urgent necessity, have recourse to improper ones. T he wise repub- 
lic of Holland has, upon some occasions, been obliged to have 
recourse to taxes as inconvenient as the greater part of those of 
Spain. Another war, begun before any considerable liberation of 
the public revenue had been brought about, and growing in its 
progress as expensive as the last war, may, from irresistible neces- 
sity, render the British system of taxation as oppressive as that of 
H olland, or even as that of Spain. To the honour of our present 
system of taxation, indeed, it has hitherto given so little embar- 
rassment to industry, that, during the course even of the most 



768 



Adam Smith 



expen si vewars, thefrugality and good conduct of individualsseem 
to have been able, by saving and accumulation, to repair all the 
breaches which the waste and extravagance of government had 
madein thegeneral capital ofthesociety. At the conclusion of the 
late war, the most expensive that Great Britain ever waged, her 
agriculturewas as flourishing, her manufacturers asnumerousand 
as fully employed, and her commerce as extensive, as they had 
ever been before. The capital, therefore, which supported all those 
different branches of industry, must have been equal to what it 
had ever been before. Since the peace, agriculture has been still 
further improved; therents of houses have risen in every town and 
village of the country, a proof of the increasing wealth and rev- 
enue of the people; and the annual amount of the greater part of 
theold taxes, of the principal branches of the excise and customs, 
in particular, hasbeen continually increasing, an equally clear proof 
of an increasing consumption, and consequently of an increasing 
produce, which could alone support that consumption. Great 
Britain seemsto support with ease, a burden which, half a century 
ago, nobody believed her capable of supporting, Letusnot, how- 
ever, upon this account, rashly conclude that she is capable of 
supporting any burden; nor even be too confident that she could 
support, without great distress, a burden a little greater than what 
has already been laid upon her. 



When national debts have once been accumulated to a certain 
degree, there is scarce, I believe, a single instance of their having 
been fairly and completely paid. The liberation of the public rev- 
enue, if it has ever been brought about at all, has always been 
brought about by a bankruptcy; sometimes by an avowed one, 
though frequently by a pretended payment. 

The raising of the denomination of the coin hasbeen the most 
usual expedient by which a real public bankruptcy has been dis- 
guised under the appearance of a pretended payment. If a six- 
pence, for example, should, either by act of parliament or royal 
proclamation, be raised to the denomination of a shilling, and 
twenty sixpences to that of a pound sterling; the person who, un- 
der theold denomination, had borrowed twenty shillings, or near 
four ounces of silver, would, under the new, pay with twenty six- 
pences, or with something less than two ounces. A national debt 
of about a hundred and twenty-eight millions, near the capital of 
the funded and unfunded debt of Great Britain, might, in this 
manner, be paid with about sixty-four millions of our present 
money. It would, indeed, be a pretended payment only, and the 
creditors of the public would really be defrauded of ten shillings 
in thepound of what was due to them. The calamity, too, would 
extend much further than to the creditors of thepublic, and those 
of every private person would suffer a proportionable loss; and 



769 



The Wealth of Nations 



this without any advantage, but in most cases with a great addi- 
tional loss, to the creditors of the public. If the creditors of the 
public, indeed, were generally much in debt to other people, they 
might in somemeasurecompen sate their lossby paying their credi- 
tors in the same coin in which the public had paid them. But in 
most countries, the creditors of the public are, the greater part of 
them, wealthy people, who stand more in the relation of creditors 
than in that of debtors, towards the rest of their fellow citizens. A 
pretended payment of this kind, therefore, instead of alleviating, 
aggravates, in most cases, the loss of the creditors of the public; 
and, without any advantage to the public, extendsthe calamity to 
a great number of other innocent people. It occasions a general 
and most pernicious subversion of thefortunes of private people; 
enriching, in most cases, the idle and profuse debtor, at the ex- 
pense of the industrious and frugal creditor; and transporting a 
great part of the national capital from the hands which were I ikely 
to increase and improveit, to thosewhoarelikely to dissipate and 
destroy it. W hen it becomes necessary for a state to declare itself 
bankrupt, in the same manner as when it becomes necessary for 
an individual to do so, a fair, open, and avowed bankruptcy, is 
always themeasure which isboth least dishonourabletothedebtor, 
and least hurtful to the creditor. The honour of a state is surely 
very poorly provided for, when, in order to cover the disgrace of a 



real bankruptcy, it hasrecourseto a juggling trick of this kind, so 

easily seen through, and at thesametimeso extremely pernicious. 
Almost all states, however, ancient as well as modern, when re- 
duced to this necessity, have, upon some occasions, played this 
very juggling trick. T he Romans, at theend of thefirst Punic war, 
reduced the As, the coin or denomination by which they com- 
puted the value of all their other coins, from containing twelve 
ounces of copper, to contain only two ounces; that is, they raised 
two ouncesof copper to a denomination which had always before 
expressed the value of twelve ounces. The republic was, in this 
manner, enabled to pay the great debts which it had contracted 
with the sixth part of what it really owed. So sudden and so great 
a bankruptcy, we should in the present times be apt to imagine, 
must have occasioned a very violent popular clamour. It does not 
appear to have occasioned any. The law which enacted it was, like 
all other laws relating to thecoin, introduced and carried through 
the assembly of the people by a tribune, and was probably a very 
popular law. In Rome, as in all other ancient republics, the poor 
people were constantly in debt to the rich and the great, who, in 
order to secure their votes at the annual elections, used to lend 
them money at exorbitant interest, which, being never paid, soon 
accumulated into a sum too great either for the debtor to pay, or 
for any body else to pay for him. T he debtor, for fear of a very 



770 



Adam Smith 



severe execution, wasobliged, without any further gratuity, to vote 
for thecandidatewhomthecreditor recommended. In spite of all 
the laws against bribery and corruption, the bounty of thecandi- 
dates, together with the occasional distributions of coin which 
were ordered by the senate, were the principal fundsfrom which, 
during the latter timesof the Roman republic, the poorer citizens 
derived their subsistence. To deliver themselves from this subjec- 
tion to their creditors, the poorer citizens were continually calling 
out, either for an entire abolition of debts, or for what they called 
new tables; that is, for a law which should entitle them to a com- 
plete acquittance, upon paying only a certain proportion of their 
accumulated debts. The law which reduced the coin of all de- 
nominationstoasixth partof its former value, as it enabled them 
to pay their debts with a sixth part of what they really owed, was 
equivalent to the most advantageous new tables. I n order to sat- 
isfy the people, the rich and the great were, upon several different 
occasions, obliged to consent to laws, both for abolishing debts, 
and for introducing new tables; and they probably were induced 
to consent to this law, partly for the same reason, and partly that, 
by liberating the public revenue, they might restore vigour to that 
government, of which they themselves had the principal direc- 
tion. An operation of this kind would at once reduce a debt of 
£128,000,000 to £21,333,333:6:8. In the course of the second 



Punic war, theAs was still further reduced, first, from two ounces 
of copper to one ounce, and afterwards from oneounceto half an 
ounce; that is, to the twenty-fourth part of its original value. By 
combiningthethreeRomanoperationsintoone, adebtof ahun- 
dred and twenty-eight millions of our present money, might in 
this manner be reduced all at once to a debt of £5,333,333:6:8. 
Even the enormous debt of Great Britain might in this manner 
soon be paid. 

By means of such expedients, the coin of, I believe, all nations, 
has been gradually reduced more and more below its original value, 
andthesamenominalsum has been gradually brought to contain 
a smaller and a smaller quantity of silver. 

Nations have sometimes, for the same purpose, adulterated the 
standard of their coin; that is, have mixed a greater quantity of 
alloy in it. If in the pound weight of our silver coin, for example, 
instead of eighteen penny-weight, according to the present stan- 
dard, there were mixed eight ounces of alloy; a pound sterling, or 
twenty shillings of such coin, would be worth little more than six 
shillings and eightpenceof our present money. The quantity of 
silver contained in six shillings and eightpence of our present 
money, would thus be raised very nearly to thedenomination of a 
pound sterling. The adulteration of the standard has exactly the 
same effect with what the French call an augmentation, or a direct 



771 



The Wealth of Nations 



raising of the denomination of the coin. 

An augmentation, or a direct raising of the denomination of the 
coin, always is, and from its nature must be, an open and avowed 
operation. Bymeansof it, pieces of a smaller weight and bulk are 
called by the same name, which had before been given to piecesof 
a greater weight and bulk. The adulteration of the standard, on 
the contrary, has generally been a concealed operation. By means 
of it, pieces are issued from the mint, of the same denomination, 
and, asnearly as could be contrived, of the same weight, bulk, and 
appearance, with pieces which had been current before of much 
greater value. When king John of France, {See Du Cange Glos- 
sary, voceMoneta; the Benedictine Edition.} in order to pay his 
debts, adulterated hiscoin, all theofficersof hismint were sworn 
to secrecy. Both operations are unjust. Butasimpleaugmentation 
is an injustice of open violence; whereas an adulteration is an in- 
justice of treacherous fraud. This latter operation, therefore, as 
soon as it has been discovered, and it could never be concealed 
very long, has always excited much greater indignation than the 
former. The coin, after any considerable augmentation, has very 
seldom been brought back to its former weight; but after the great- 
est adulterations, it has almost always been brought back to its 
former fineness It has scarce ever happened, that the fury and 
indignation of the people could otherwise be appeased. 



In the end of the reign of Henry VI 1 1., and in the beginning of 
that of Edward VI., the English coin was not only raised in its 
denomination, but adulterated in its standard. Thelikefraudswere 
practised in Scotland during the minority of J ames V I . T hey have 
occasionally been practised in most other countries. 

That the public revenue of Great Britain can never be com- 
pletely liberated, or even that any considerable progress can ever 
be made towards that liberation, while the surplus of that rev- 
enue, or what is over and above defraying the annual expense of 
the peace establishment, is so very small, it seems altogether in 
vain to expect. That liberation, itisevident, can never be brought 
about, without either someveryconsiderableaugmentation of the 
public revenue, or some equally considerable reduction of the 
public expense. 

A more equal land tax, a moreequal tax upon therent of houses, 
and such alterationsin the present system of customsand excise as 
those which have been mentioned in the foregoing chapter, might, 
perhaps, without increasing the burden of the greater part of the 
people, but only distributing the weight of it more equally upon 
the whole, produce a considerable augmentation of revenue. The 
most sanguine projector, however, could scarce flatter himself, that 
any augmentation of this kind would be such as could give any 
reasonable hopes, either of liberating thepublic revenue altogether, 



772 



Adam Smith 



or even of making such progress towardsthat liberation intimeof 
peace, as either to prevent or to compensate thefurther accumula- 
tion of the public debt in the next war. 

By extending the British system of taxation to all the different 
provinces of the empire, inhabited by people either of British or 
European extraction, a much greater augmentation of revenue 
might be expected. This, however, could scarce, perhaps, bedone, 
consistently with the principles of the British constitution, with- 
out admitting into the British parliament, or, if you will, into the 
states- general of the British empire, a fair and equal representa- 
tion of all those different provinces; that of each province bearing 
the same proportion to the produce of its taxes, as the representa- 
tion of G reat Britain might bear to the produce of the taxes levied 
upon Great Britain. The private interest of many powerful indi- 
viduals, theconfirmed prejudicesof great bodies of people, seem, 
indeed, at present, to oppose to so great a change, such obstacles 
as it may be very difficult, perhaps altogether impossible, to sur- 
mount. W ithout, however, pretending to determine whether such 
a union be practicable or impracticable, it may not, perhaps, be 
improper, in a speculative work of this kind, to consider how far 
theBritish system of taxation might be applicableto all thediffer- 
ent provinces of theempire; what revenuemight be expected from 
it, if so applied; and in what manner a general union of this kind 



might be likely to affect the happiness and prosperity of the 
differrent provinces comprehended within it. Such a speculation, 
can, at worst, be regarded but as a new Utopia, less amusing, cer- 
tainly, but no more useless and chimerical than the old one. 

T he land-tax, the stamp duties, and the different duties of cus- 
tomsand excise, constitute thefour principal branches of theBritish 
taxes. 

Ireland is certainly as able, and our American and West India 
plantations more able, to pay aland tax, than Great Britain. W here 
the landlord is subject neither to tythe nor poor's rate, he must cer- 
tainly be more able to pay such a tax, than where he is subject to 
both those other burdens. Thetythe, where there isno modus, and 
whereitislevied in kind, diminishesmore what would otherwise be 
the rent of the landlord, than a land tax which really amounted to 
five shillings in the pound. Such a tythe will be found, in most 
cases, to amount to more than a fourth part of the real rent of the 
land, or of what remains after replacing completely the capital of 
the farmer, together with his reasonable profit. If all modusesand 
all impropriations were taken away, the complete church tythe of 
Great Britain and Ireland could not well be estimated at less than six 
or seven millions If there was no tythe either in Great Britain or 
Ireland, thelandlordscould afford to pay six or seven millionsaddi- 
tional land tax, without being more burdened than a very great part 



773 



The Wealth of Nations 



of them are at present. America pays no tythe, and could, therefore, 
very well afford to pay a land tax. The lands in America and the 
West Indies, indeed, are, in general, not tenanted nor leased out to 
farmers. They could not, therefore, be assessed according to any 
rent roll. But neither were the lands of Great Britain, in the 4th of 
W illiam and M ary, assessed according to any rent roll, but accord- 
ing to a very loose and inaccurate estimation. The lands in America 
might be assessed either in the same manner, or according to an 
equitablevaluation, in consequence of an accurate survey, likethat 
which was lately made in the M ilanese, and in the dominions of 
Austria, Prussia, and Sardinia. 

Stamp duties, it is evident, might be levied without any varia- 
tion, in all countrieswheretheformsof law process, and thedeeds 
by which property, both real and personal, is transferred, are the 
same, or nearly the same. 

Theextension of the custom-house laws of Great Britain to Ire 
land and the plantations, provided it was accompanied, as in jus- 
tice it ought to be, with an extension of the freedom of trade, 
would be in the highest degree advantageous to both. All the in- 
vidious restraints which at present oppress the trade of Ireland, 
thedistinction between theenumerated and non-enumerated com- 
modities of America, would be entirely at an end. T he countries 
north of Cape Finisterre would be as open to every part of the 



produce of America, as those south of that cape are to some parts 
of that produce at present. The trade between all the different 
parts of the British empire would, in consequence of this unifor- 
mity in the custom-house laws, be as free as the coasting trade of 
Great Britain is at present. The British empire would thus afford, 
within itself, an immense internal market for every part of the 
produce of all its different provinces. So great an extension of 
market would soon compensate, both to Ireland and the planta- 
tions, all that they could suffer from the increase of the duties of 
customs. 

The excise is the only part of the British system of taxation, 
which would require to be varied in any respect, according as it 
was applied to the different provinces of the empire. It might be 
applied to Ireland without any variation; the produce and con- 
sumption of that kingdom being exactly of tho same nature with 
those of Great Britain. In itsapplication to America and the West 
Indies, of which the produce and consumption are so very d iff er- 
ent from those of Great Britain, some modification might be nec- 
essary, in the same manner as in itsapplication to the cyder and 
beer counties of England. 

A fermented liquor, for example, which iscalled beer, but which, 
asit is made of molasses, bears very little resemblance to our beer, 
makes a considerable part of the common drink of the people in 



774 



Adam Smith 



America. This liquor, as it can be kept only for a few days, cannot, 
likeour beer, beprepared and stored upforsalein great breweries; 
but every private family must brew it for their own use, in the 
same manner as they cook their victuals But to subject every pri- 
vate family to theodiousvisitsand examination of the tax-gather- 
ers, in the same manner as we subject the keepers of ale-houses 
and the brewers for public sale, would be altogether inconsistent 
with liberty. If, forthesakeof equality, it was thought necessary to 
lay atax upon thisliquor, it might be taxed by taxing the material 
of which it is made, either at the place of manufacture, or, if the 
circumstances of the trade rendered such an excise improper, by 
laying a duty upon its importation intothecolonyin which itwas 
tobeconsumed. Besides theduty of one penny a-gallon imposed 
by the British parliament upon the importation of molasses into 
America, thereisa provincial tax of thiskind upon their importa- 
tion into M assachu setts Bay, in shipsbdongingto any other colony, 
of eight- pence the hogshead; and another upon their importation 
from the northern coloniesinto South Carolina, of five-pence the 
gallon. Or, if neither of these methods wasfound convenient, each 
family might compound for its consumption of thisliquor, either 
according to the number of persons of which it consisted, in the 
same manner as private families compound for the malt tax in 
England; or according to the different ages and sexesof those per- 



sons, in the same manner as several different taxes are levied in 
H olland; or, nearly as Sir M atthew D ecker proposes, that all taxes 
upon consumable commodities should belevied in England. This 
mode of taxation, it has already been observed, when applied to 
objects of a speedy consumption, is not a very convenient one. It 
might be adopted, however, in cases where no better could bedone. 
Sugar, rum, and tobacco, are commodities which are nowhere 
necessaries of life, which are become objects of almost universal 
consumption, and which are, therefore, extremely proper subjects 
of taxation. If a union with the colonies were to take place, those 
com modi ties might be taxed, either before they go out of the hands 
of the manufacturer or grower; or, if this modeof taxation did not 
suit the circumstances of those persons, they might be deposited 
in public warehouses, both at the pi ace of manufacture, and at all 
the different ports of the empire, to which they might afterwards 
be transported, to remain there, under the joint custody of the 
owner and the revenue officer, till such time as they should be 
ddivered out, ether to the consumer, to the merchant-retailer for 
home consumption, or to the merchant- exporter; the tax not to 
be advanced till such ddivery When ddivered out for exporta- 
tion, to go duty-free, upon proper security bang given, that they 
should really be exported out of the empire. T hese are, perhaps, 
the principal commodities, with regard to which the union with 



775 



The Wealth of Nations 



thecoloniesmightrequiresomeconsiderablechangeinthepresent 
system of British taxation. 

W hat might be theamount of the revenue which this system of 
taxation, extended to all the different provinces of the empire, 
might produce, it must, no doubt, be altogether impossible to 
ascertain with tolerable exactness. By means of this system, there 
is annually levied in Great Britain, upon less than eight millions 
of people, more than ten millions of revenue. Ireland contains 
more than two millionsof people, and, according to the accounts 
laid before thecongress, thetwelve associated provinces of America 
contain more than three. Those accounts, however, may have been 
exaggerated, in order, perhaps, either to encourage their own 
people, or to intimidate those of this country; and we shall sup- 
pose, therefore, that our North American and West Indian colo- 
nies, taken together, contain no more than three millions; or that 
the whole British empire, in Europe and America, contains no 
more than thirteen millionsof inhabitants. If, upon lessthan eight 
millionsof inhabitants, thissystem of taxation raises a revenue of 
more than ten millions sterling; it ought, upon thirteen millions 
of inhabitants, to raise a revenue of more than sixteen millions 
two hundred and fifty thousand pounds sterling. From this rev- 
enue, supposing that this system could produce it, must be de- 
ducted the revenue usually raised in Ireland and the plantations, 



for defraying the expense of the respective civil governments. The 
expense of the civil and military establishment of Ireland, together 
with the interest of the public debt, amounts, at a medium of the 
two years which ended March 1775, to something lessthan seven 
hundred and fifty thousand pounds a year. By a very exact ac- 
count of the revenue of the principal colonies of America and the 
West Indies, it amounted, before thecommencement of the present 
disturbances, to a hundred and forty-onethousand eight hundred 
pounds. In this account, however, the revenue of M aryland, of 
North Carolina, and of all our late acquisitions, both upon the 
continent, and in the islands, is omitted; which may, perhaps, 
make a difference of thirty or forty thousand pounds. Forthesake 
of even numbers, therefore, let ussuppose that the revenue neces- 
sary for supporting the civil government of I reland and the plan- 
tations may amount to a million. There would remain, conse- 
quently, a revenue of fifteen millions two hundred and fifty thou- 
sand pounds, to be applied towards defraying the general expense 
of the empire, and towards paying the public debt. But if, from 
the present revenueof G reat Britain, a million could, in peaceable 
times, be spared towards the payment of that debt, six millions 
two hundred and fifty thousand poundscould very well be spared 
from this improved revenue. This great sinking fund, too, might 
be augmented every year by the interest of the debt which had 



776 



Adam Smith 



been discharged the year before; and might, in this manner, in- 
crease so very rapidly, as to be sufficient in afew years to discharge 
the whole debt, and thus to restore completely the at-present de- 
bilitated and languishing vigour of the empire. In the meantime, 
the people might be relieved from some of the most burdensome 
taxes; from those which are imposed either upon the necessaries 
of life, or upon the materials of manufacture. T he labouring poor 
would thus be enabled to live better, to work cheaper, and to send 
th eirgoodscheaper to market. Thecheapnessof their goods would 
increase thedemand for them, and consequently for the labour of 
those who produced them.Thisincreasein thedemand for labour 
would both increase the numbers, and improvethe circumstances 
of the labouring poor. Their consumption would increase, and, 
together with it, the revenue arising from all those articles of their 
consumption upon which the taxes might be allowed to remain. 
Therevenuearisingfrom thissystem of taxation, however, might 
not immediately increase in proportion to the number of people 
who were subjected to it. Great indulgence would for sometime 
bedueto those provinces of theempire which were thussubjected 
to burdens to which they had not before been accustomed; and 
even when the same taxes came to belevied everywhere as exactly 
as possible, they would noteverywhereproducearevenuepropor- 
tioned to the numbers of the people. In a poor country, the con- 



sumption of the principal commodities subject to the duties of 
customsand excise, isvery small; and in a thinly inhabited coun- 
try, the opportunities of smuggling are very great. T he consump- 
tion of malt liquors among the inferior ranks of people in Scot- 
land isvery small; and the excise upon malt, beer, and ale, pro- 
duces I ess there than in England, in proportion to the numbers of 
the people and the rate of the duties, which upon malt isdifferent, 
on account of a supposed difference of quality. In these particular 
branchesof theexcise, thereisnot, I apprehend, much moresmug- 
gling in the one country than in the other. The duties upon the 
distillery, and thegreater part of theduties of customs, in propor- 
tion to thenumbersof peoplein therespectivecountries, produce 
lessin Scotland than in England, not only on account of thesmaller 
consumption of the taxed commodities, but of the much greater 
facility of smuggling. In Ireland, the inferior ranks of people are 
still poorer than in Scotland, and many parts of the country are 
almost as thinly inhabited. In I reland, therefore, theconsumption 
of the taxed commodities might, in proportion to the number of 
thepeople, be still less than in Scotland, and thefacility of smug- 
gling nearly the same. I n America and the West I ndies, the white 
people, even of the lowest rank, are in much better circumstances 
than those of thesamerank in England; and their consumption of 
all the luxuries in which they usually indulge themselves, is prob- 



777 



The Wealth of Nations 



ably much greater. The blacks, indeed, who make the greater part 
of the inhabitants, both of the southern colonies upon the conti- 
nent and of theWest I ndia islands, as they arein a state of slavery, 
are, no doubt, in a worse condition than thepoorest peopleeither 
in Scotland or Ireland. Wemust not, however, upon that account, 
imagine that they are worse fed, or that their consumption of ar- 
ticles which might be subjected to moderate duties, is less than 
that even of the lower ranks of people in England. I n order that 
they may work well, it is the interest of their master that they 
should befed well, and kept in good heart, in thesame manner as 
it is his interest that his working cattle should be so. T he blacks, 
accordingly, have almost everywhere their allowance of rum, and 
of molasses or spruce-beer, in the same manner as the white ser- 
vants; and this allowance would not probably be withdrawn, 
though those articles should be subjected to moderateduties. The 
consumption of the taxed commodities, therefore, in proportion 
to the number of inhabitants, would probably be as great in 
America and the West I ndies as in any part of the British empire. 
The opportunities of smuggling, indeed, would be much greater; 
America, in proportion to the extent of the country, being much 
more thinly inhabited than either Scotland or Ireland. Iftherev- 
enue, however, which is at present raised by the different duties 
upon malt and malt liquors, were to be levied by a single duty 



upon malt, the opportunity of smuggling in the most important 
branch of the excise would be almost entirely taken away; and if 
the duties of customs, instead of being imposed upon almost all 
the different articles of importation, were confined to a few of the 
most general use and consumption, and if the levying of those 
duti eswere subjected to the excise laws, the opportunity of smug- 
gling, though not so entirely taken away, would be very much 
diminished. In consequence of those two apparently very simple 
and easy alterations, theduties of customsand excisemight prob- 
ably produce a revenue as great, in proportion to the consump- 
tion of the most thinly inhabited province, as they do at present, 
in proportion to that of the most populous. 

The Americans, it has been said, indeed, have no gold or silver 
money, the interior commerce of the country being carried on by 
a paper currency; and thegold and silver, which occasionally come 
among them, being all sent to Great Britain, in return for the 
commodities which they receive from us. But without gold and 
silver, it is added, there is no possibility of paying taxes. We al- 
ready get all the gold and silver which they have. H ow is it pos- 
sibleto draw from them what they have not? 

T he present scarcity of gold and si Iver money in America, is not 
the effect of the poverty of that country, or of the inability of the 
people there to purchase those metals. In a country where the 



778 



Adam Smith 



wages of labour are so much higher, and the price of provisions so 
much lower than in England, the greater part of the people must 
surely have wherewithal to purchase a greater quantity, if it were 
either necessary or convenient for them to do so. The scarcity of 
those metals, therefore, must be the effect of choice, and not of 
necessity. 

It is for transacting either domestic or foreign business, that 
gold or silver money is either necessary or convenient. 

The domestic business of every country, it has been shewn in 
the second book of this Inquiry, may, at least in peaceable times, 
be transacted by means of a paper currency, with nearly the same 
degree of conveniency as by gold and silver money. It is conve- 
nient for the Americans, who could always employ with profit, in 
the improvement of their lands, a greater stock than they can eas- 
ily get, to save as much as possible the expense of so costly an 
instrument of commerce as gold and silver; and rather to employ 
that part of their surplus produce which would be necessary for 
purchasing those metals, in purchasing the instruments of trade, 
the materials of clothing, several partsof household furniture, and 
the iron work necessary for building and extending their settle- 
ments and plantations; in purchasing not dead stock, but active 
and productive stock. The colony governments find it for their 
interest to supply thepeoplewith such aquantity of paper money 



as isfully sufficient, and generally more than sufficient, for trans- 
acting their domestic business. Some of those governments, that 
of Pennsylvania, particularly, derive a revenue from lending this 
paper money to their subjects, at an interest of so much per cent. 
Others, like that of M assachu setts Bay, advance, upon extraordi- 
nary emergencies, a paper money of this kind for defraying the 
public expense; and afterwards, when it suits the conveniency of 
the colony, redeem it at the depreciated value to which it gradu- 
ally falls. In 1747, {See H utchinson's H istory of M assachusetts 
Bay vol. ii. page436 etseq.}that colony paid in this manner the 
greater part of its public debts with the tenth part of the money 
for which itsbillshad been granted. Itsuitstheconveniencyof the 
planters, to save the expense of employing gold and silver money 
in their domestic transactions; and itsuitstheconveniencyof the 
colony governments, to supply them with a medium, which, 
though attended with some very considerable disadvantages, en- 
ables them to save that expense. T he redundancy of paper money 
necessarily banishes gold and silver from the domestic transac- 
tionsofthecolonies,forthesamereason that it has banished those 
metals from the greater part of the domestic transactions in Scot- 
land; and in both countries, it is not the poverty, but the 
enterprizing and projecting spirit of the people, their desire of 
employing all the stock which they can get, as active and produc- 



779 



The Wealth of Nations 



tivestock, which has occasioned this redundancy of paper money. 

I n the exterior commerce which the different colonies carry on 
with Great Britain, gold and silver are more or less employed, 
exactly in proportion as they are more or less necessary. W here 
those metals are not necessary, they seldom appear. W here they 
are necessary, they are generally found. 

In the commerce between Great Britain and the tobacco colo- 
nies, the British goods are generally advanced to the colonists at a 
pretty long credit, and are afterwards paid for in tobacco, rated at 
a certain price. It is more convenient for the colonists to pay in 
tobacco than in gold and silver. It would be more convenient for 
any merchant to pay for the goods which his correspondents had 
sold to him, in some other sort of goods which he might happen 
to deal in, than in money. Such a merchant would have no occa- 
sion to keep any part of his stock by him unemployed, and in 
ready money, for answering occasional demands. H e could have, 
at all times, a larger quantity of goods in his shop or warehouse, 
and hecould deal to a greater extent. But it seldom happenstobe 
convenient for all the correspondents of a merchant to receive 
payment for the goods which they sell to him, in goods of some 
other kind which he happens to deal in. The British merchants 
who tradeto Virginia and M aryland, happen to bea particular set 
of correspondents, to whom it is more convenient to receive pay- 



ment for the goods which they sell to those colonies in tobacco, 
than in gold and silver. They expect to makea profit by thesaleof 
the tobacco; they could make none by that of the gold and silver. 
Gold and silver, therefore, very seldom appear in the commerce 
between Great Britain and the tobacco colonies. Maryland and 
Virginia haveaslittleoccasion for thosemetalsin their foreign, as 
in their domestic commerce. They are said, accordingly, to have 
less gold and silver money than any other colonies in America. 
They are reckoned, however, as thriving, and consequently as rich, 
as any of their neighbours. 

In the northern colonies, Pennsylvania, New York, New Jersey, 
thefour governments of N ew England, etc. thevalueof their own 
produce which they export to G reat Britain is not equal to that of 
the manufactures which they import for their own use, and for 
that of some of the other colonies, to which they are the carriers. 
A balance, therefore, must be paid to the mother-country in gold 
and silver and this balance they generally find. 

In thesugar colonies, thevalueof theproduce annually exported 
to Great Britain is much greater than that of all the goods im- 
ported from thence. If the sugar and rum annually sent to the 
mother-country were paid for in those colonies, Great Britain 
would be obliged to send out, every year, a very large balance in 
money; and the trade to the West Indies would, by a certain spe- 



780 



Adam Smith 



cies of politicians, be considered as extremely disadvantageous. 
But it so happens, that many of the principal proprietors of the 
sugar plantations reside in Great Britain. Their rents are remitted 
to them in sugar and rum, the produce of their estates. The sugar 
and rum which theWest India merchants purchase in thosecolo- 
niesupon their own account, are not equal in value to the goods 
which they annually sell there. A balance, therefore, must neces- 
sarily be paid to them in gold and silver, and this balance, too, is 
generally found. 

The difficulty and irregularity of payment from the different 
colonies to Great Britain, havenotbeenatall in proportion to the 
greatness or smallness of the balances which were respectively due 
from them. Payments have, in general, been more regular from 
the northern than from the tobacco colonies, though the former 
have generally paid a pretty large balance in money, whilethe lat- 
ter haveeither paid no balance, or a much smaller one. The diffi- 
culty of getting payment from our different sugar colonies has 
been greater or less in proportion, not so much to the extent of 
the balances respectively due from them, as to the quantity of 
uncultivated land which they contained; that is, to the greater or 
smaller temptation which the planters have been under of over- 
trading, or of undertaking the settlement and plantation of greater 
quantities of waste land than suited the extent of their capitals. 



The returns from the great island of Jamaica, where there is still 
much uncultivated land, have, upon this account, been, in gen- 
eral, more irregular and uncertain than those from the smaller 
islands of Barbadoes, Antigua, and St. Christopher's, which have, 
for these many years, been completely cultivated, and have, upon 
that account, afforded less field for thespeculationsoftheplanter. 
The new acquisitions of Grenada, Tobago, St. Vincent's, and 
Dominica, have opened a new field for speculations of this kind; 
and the returns front those islands have of late been as irregular 
and uncertain as those from the great island of Jamaica. 

It isnot, therefore, thepoverty of thecolonies which occasions, 
in the greater part of them, the present scarcity of gold and silver 
money. T heir great demand for active and productive stock makes 
it convenient for them to have as little dead stock as possible, and 
disposes them, upon that account, to content themselves with a 
cheaper, though lesscommodiousinstrumentof commerce, than 
gold and silver. They are thereby enabled to convert the value of 
that gold and silver into theinstrumentsof trade, intothemateri- 
als of clothing, into household furniture, and into the iron work 
necessary for building and extending their settlements and plan- 
tations. In those branchesof business which cannot be transacted 
without gold and silver money, it appears, that they can always 
find the necessary quantity of those metals; and if they frequently 



781 



The Wealth of Nations 



do not find it, their failure is generally the effect, not of their 
necessary poverty, but of their unnecessary and excessive enter- 
prise. It is not because they are poor that their payments are ir- 
regular and uncertain, but because they are too eager to become 
excessively rich. T hough all that part of the produce of the colony 
taxes, which was over and above what was necessary for defraying 
theexpenseof their own civil and military establishments, were to 
be remitted to Great Britain in gold and silver, the colonies have 
abundantly wherewithal to purchase the requisitequantity of those 
metals. They would in this case be obliged, indeed, toexchangea 
part of their surplus produce, with which they now purchase ac- 
tive and productive stock, for dead stock. In transacting their do- 
mestic business, they would beobliged to employ a costly, instead 
of a cheap instrument of commerce; and the expense of purchas- 
ing this costly instrument might damp somewhat the vivacity and 
ardour of their excessive enterpriseintheimprovement of land. It 
might not, however, be necessary to remit any part of the Ameri- 
can revenuein gold and silver. It might be remitted in billsdrawn 
upon, and accepted by, particular merchants or companiesin Great 
Britain, to whom a part of the surplus produce of America had 
been consigned, who would pay into the treasury the American 
revenuein money, after having them selves received the value of it 
in goods; and the whole business might frequently be transacted 



without exporting a single ounce of gold or silver from America. 

I tisnot contrary to justice, that both Ireland and America should 
contribute towards the discharge of the public debt of Great Brit- 
ain. That debt has been contracted in support of the government 
established by the Revolution; a government to which the 
protestants of Ireland owe, not only the whole authority which 
they at present enjoy in theirown country, but every security which 
they possess for their liberty, their property, and their religion; a 
government to which several of thecoloniesof America owe their 
present charters, and consequently their present constitution; and 
to which all thecoloniesof America owe the liberty, security, and 
property, which they have ever since enjoyed. That public debt 
has been contracted in thedefence, not of Great Britain alone, but 
of all the different provinces of the empire. The immense debt 
contracted in the late war in particular, and a great part of that 
contracted in the war before, were both properly contracted in 
defence of America. 

By a union with Great Britain, Ireland would gain, besides the 
freedom of trade, other advantages much more important, and 
which would much more than compensate any increase of taxes 
that might accompany that union. By the union with England, 
the middling and inferior ranks of people in Scotland gained a 
completedeliverancefrom the power of an aristocracy, which had 



782 



Adam Smith 



always before oppressed them. By a union with Great Britain, the 
greater part of people of all ranksin Ireland would gain an equally 
complete deliverance from a much more oppressive aristocracy; 
an aristocracy not founded, like that of Scotland, in the natural 
and respectabledistinctionsof birth and fortune, but in the most 
odious of all distinctions, those of religious and political preju- 
dices; distinctions which, more than any other, animate both the 
insolenceof the oppressors, and the hatred and indignation of the 
oppressed, and which commonly render the inhabitants of the 
same country more hostileto one another than those of different 
countries ever are. Without a union with Great Britain, thein- 
habitantsof I reland arenot likely, for many ages, to consider them- 
selves as one people. 

N o oppressive aristocracy has ever prevailed in thecolonies. Even 
they, however, would, in point of happiness and tranquillity, gain 
considerably by a union with Great Britain. It would, at least, 
deliver them from those rancourous and virulent factions which 
are inseparable from small democracies, and which have so fre- 
quently divided the affections of their people, and disturbed the 
tranquillity of their governments, in their form so nearly demo- 
cratical. In the case of a total separation from Great Britain, which, 
unless prevented byaunion of thiskind, seems very likely to take 
place, those factions would be ten times more virulent than ever. 



Before the commencement of the present disturbances, the coer- 
cive power of the mother-country had always been ableto restrain 
those factions from breaking out into any thing worse than gross 
brutality and insult. If that coercive power were entirely taken 
away, they would probably soon break out into open violence and 
bloodshed. In all great countries which are united under one uni- 
form government, the spirit of party commonly prevails less in 
the remote provinces than in the centre of the empire. The dis- 
tance of those provinces from the capital, from the principal seat 
of the great scramble of faction and ambition, makes them enter 
less into the views of any of the contending parties, and renders 
them more indifferent and impartial spectators of the conduct of 
all. Thespiritof party prevails less in Scotlandthan in England. In 
the case of a union, it would probably prevail less in Ireland than 
in Scotland; and thecolonieswould probably soon enjoyadegree 
of concord and unanimity, at present unknown in any part of the 
British empire. Both Ireland and thecolonies, indeed, would be 
subjected to heavier taxes than any which they at present pay. In 
consequence, however, of a diligent and faithful application of the 
public revenue towards the discharge of the national debt, the 
greater part of those taxes might not be of long continuance, and 
the public revenueof Great Britain mightsoon be reduced to what 
was necessary for maintaining a moderate peace- establishment. 



783 



The Wealth of Nations 



The territorial acquisitions of the East India Company, theun- 
doubted right of the Crown, that is, of the state and people of 
G reat Britain, might be rendered another sourceof revenue, more 
abundant, perhaps, than all those already mentioned. T hosecoun- 
tries are represented as more fertile, more extensive, and, in pro- 
portion to their extent, much richer and more populousthan Great 
Britain. In order to draw a great revenue from them, it would not 
probably be necessary to introduce any new system of taxation 
into countries which are already sufficiently, and more than suffi- 
ciently, taxed. It might, perhaps, be more proper to lighten than 
to aggravate the burden of those unfortunate countries, and to 
endeavour to draw a revenue from them, not by imposing new 
taxes, but by preventing the embezzlement and misapplication of 
the greater part of those which they already pay. 

If it should be found impracticable for Great Britain to draw 
any considerable augmentation of revenue from any of the re- 
sources above mentioned, the only resource which can remain to 
her, isadiminution of her expense. In the modeof collecting and 
in that of expending the public revenue, though in both there 
may be still room for improvement, Great Britain seems to beat 
least as economical as any of her neighbours. T he military estab- 
lishmentwhich shemaintainsfor her own defencein timeof peace, 
is more moderate than that of any European state, which can pre- 



tend to rival her either in wealth or in power. N one of these ar- 
ticles, therefore, seem to admit of any considerable reduction of 
expense. T he expense of the peace-establishment of the colonies 
was, before the commencement of the present disturbances, very 
considerable, and isan expense which may, and, if no revenuecan 
bedrawn from them, ought certainly to be saved altogether. This 
constant expense in timeof peace, though very great, is insignifi- 
cant in comparison with what thedefence of thecolonies has cost 
us in timeof war. The last war, which was undertaken altogether 
on account of thecolonies, cost Great Britain, it has already been 
observed, upwards of ninety millions. The Spanish war of 1739 
was principally undertaken on their account; in which, and in the 
French war that was the consequence of it, Great Britain, spent 
upwards of forty millions; a great part of which ought justly to be 
charged to thecolonies. I n those two wars, thecoloniescost Great 
Britain much more than doublethesum which the national debt 
amounted to before the commencement of thefirst of them. Had 
it not been for those wars, that debt might, and probably would 
by this time, have been completely paid; and had it not been for 
the colonies, the former of those wars might not, and the latter 
certainly would not, have been undertaken. It was because the 
coloniesweresupposedtobeprovincesoftheBritish Empire, that 
this expense was laid out upon them. But countries which con- 



784 



Adam Smith 



tribute neither revenue nor military force towards the support of 
the empire, cannot be considered as provinces. They may per- 
haps, be considered as appendages, asa sort of splendid and shewy 
equipage of the empire. But if the empire can no longer support 
theexpenseof keeping up thisequipage, it ought certainly to lay it 
down; and if it cannot raise its revenue in proportion to its ex- 
pense, it ought at least to accommodate its expense to its revenue. 
If the colonies, notwithstanding their refusal to submit to British 
taxes, are still to be considered as provinces of the British empire, 
their defence, in some future war, may cost Great Britain as great 
an expense as it ever has done in any former war. The rulers of 
Great Britain have, for more than a century past, amused thepeople 
with the imagination that they possessed a great empire on the 
west side of the Atlantic. This empire, however, has hitherto ex- 
isted in imagination only. It has hitherto been, not an empire, but 
the project of an empire; not a gold mine, but the project of a gold 
mine; a project which hascost, which continues to cost, and which, 
if pursued in the same way as it has been hitherto, is likely to cost, 
immense expense, without being likely to bring any profit; for the 
effects of themonopoly of thecolony trade, it has been shewn, are 
to the great body of the people, mere loss instead of profit. It is 
surely now time that our rulers should either realize this golden 
dream, in which they have been indulging themselves, perhaps, as 



well as the people; or that they should awake from it themselves, 
and endeavour to awaken the people. If the project cannot be 
completed, it ought to be given up. If any of the provinces of the 
British empirecannot bemadeto contribute towardsthe support 
of the whole empire, it is surely time that Great Britain should 
free herself from theexpenseof defendingthoseprovincesin time 
of war, and of supporting any part of their civil or military estab- 
lishment in time of peace; and endeavour to accommodate her 
future views and designs to the real mediocrity of her circum- 
stances. 



785 



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