at labor in manufactured commodities we should further punish ourselves by diminishing the productive powers of the general labor in the supply of raw produce it would be much wiser to acknowledge the errors which are mistaken policy has induced us to adopt and immediately to commence a gradual recurrence to the sound principles of an universally free trade but note from the article corn laws and trade supplement to encyclopedia britannica quote a freedom of trade is alone wanted to guarantee a country like britain abounding in all the varied products of industry in merchandise suited to the wants of every society from the possibility of a scarcity the nations of the earth are not condemned to throw the dice to determine which of them shall submit to famine there is always abundance of food in the world to enjoy a constant plenty we have only to lay aside our prohibitions and restrictions and cease to counteract the benevolent wisdom of providence unquote end of footnote i have already had occasion to remark observes must you say in speaking of what is improperly called the balance of trade that if it suits a merchant better to export the precious metals to a foreign country than any other goods it is also the interest of the state that he should export them because the state only gains or loses through the channel of its citizens and in what concerns foreign trade that which best suits the individual best suits also the state therefore by opposing obstacles to the exportation which individuals would be inclined to make of the precious metals nothing is done than to force them to substitute some other commodity less profitable to themselves and to the state it must however be remarked that i say only in what concerns foreign trade because the profits which merchants make by their dealings with their countrymen as well as those which are made in the exclusive commerce with colonies are not entirely gains for the state in the trade between individuals of the same country there is no other gain but the value of a new utility produced could have allowed the new till a tear productivity footnote i'm not the following passages contradictory to the one just quoted quote besides that home trade though less noticed because it is in a variety of hands is the most considerable it is also the most profitable the commodities exchanged in that trade are necessarily the productions of the same country unquote end of footnote volume 1 page 401 i cannot see the distinction here made between the profits of the home and foreign trade the object of all trade is to increase productions if for the purchase of a pipe of wine i had in my power to export bullion which was bought with the value of the produce of a hundred days labor but government by prohibiting the exportation of bullion should oblige me to purchase my wine with the commodity bought with the value of the produce of 105 days labor the produce of five days labor is lost to me and through me to the state but if these transactions took place between individuals in different provinces of the same country the same advantage would accrue both to the individual and through him to the country if he were unfettered in his choice of the commodities with which he made his purchases and the same disadvantage if he were obliged by government to purchase with the least beneficial commodity if a manufacturer could work up with the same capital more iron where coals are plentiful and he could where coals are scarce the country would be benefited by the difference but if coals were nowhere plentiful and he imported iron and could get this additional quantity by the manufacturer of a commodity with the same capital and labor he would in like manner benefit his country by the additional quantity of iron in the seventh chapter of this work i have endeavored to show that all trade whether foreign or domestic is beneficial by increasing the quantity and not by increasing the value of productions we shall have no greater value whether we carry on the most beneficial home and foreign trade or in consequence of being feted by prohibitory laws we are obliged to content ourselves with the least advantageous the rate of profits and the value produced will be the same the advantage always resolves itself into that which appears to confine to the home trade in both cases there is no other gain but that of the value of an utility productivity chapter 23 on bounties on production it may not be uninstructive to consider the effects of a bounty on the production of raw produce and other commodities with a view to observe the application of the principles which i have been endeavouring to establish with regard to the profits of stock the division of the annual produce of the land and labor and the relative prices of manufacturers and raw produce in the first place that are supposed that a tax was imposed on all commodities for the purpose of raising a fund to be employed by government in giving a bounty on the production of corn as no part of such a tax would be expended by government and as all that was received from one class of the people would be returned to another the nation collectively would neither be richer nor poorer from such a tax and bounty it would be readily allowed that the tax on commodities by which the fund was created would raise the price of the commodities taxed all the consumers of those commodities therefore would contribute towards that fund in other words their natural or necessary price being raised so would do their market price but for the same reason that the natural price of those commodities would be raised the natural price of corn would be lowered before the bounty was paid on production the farmers obtained as greater price for their corn as was necessary to repay them their rent and their expenses and afford them the general rate of profits after the bounty they would receive more than that rate unless the price of corn fell by a sum at least equal to the bounty the effect then of the tax and bounty would be to raise the price of commodities in a degree equal to the tax levied on them and to lower the price of corn by a sum equal to the bounty paid it will be observed too that no permanent alteration could be made in the distribution of capital between agriculture and manufacturers because as there would be no alteration either in the amount of capital or population there would be precisely the same demand for bread and manufacturers the profits of the farmer would be no higher than the general level after the fall in the price of corn nor would the profits of the manufacturer be lower after the rise of manufactured goods the bounty then would not occasion any more capital to be employed on the land in the production of corn nor any less in the manufacture of goods but how would the interest of the landlord be affected on the same principles that attacks on raw produce would lower the corn rent of land leaving the money rent unaltered a bounty on production which is directly the contrary of attacks would raise corn rent leaving the money rent unaltered with the same money rent the landlord would have a greater price to pay for his manufactured goods and a less price for his corn he would probably therefore be neither richer nor poorer now whether such a measure would have any operation on the wages of labor would depend on the question whether the laborer in purchasing commodities would pay as much towards the taxes he would receive from the effects of the bounty in the low price of his food if these two quantities were equal wages would continue unaltered but if the commodities taxed were not those consumed by the laborer his wages would fall and his employer would be benefited by the difference but this is no real advantage to his employer it would indeed operate to increase the rate of his profits as every fall of wages must do but in proportion as the laborer contributed less to the fund from which the bounty was paid and which let it be remembered must be raised his employer must contribute more in other words he would contribute as much to the tax by his expenditure as he would receive in the effects of the bounty and the higher rate of profits together he obtains a higher rate of profits to requite him for his payment not only of his own quota of the tax but of his laborers also the remuneration which he receives for his laborers quota appears in diminished wages or which is the same thing in increased profits the remuneration for his own appears in the diminution in the price of the corn which he consumes arising from the bounty here it will be proper to remark that different effects produced on profits from an alteration in the real labor or natural value of corn and an alteration in the relative value of corn from taxation and from bounties if corn is lowered in price by an alteration in its labor price not only will the rate of the profits of stock be altered but the condition of the capitalist will be improved with greater profits he will have no more to pay for the objects on which those profits are expended which does not happen as we have just seen when the fall is occasioned artificially by a bounty in the real fall in the value of corn arising from less labor being required to produce one of the most important objects of man's consumption labor is rendered more productive with the same capital the same labor is employed and an increase of productions is the result not only then will the rate of profits be increased but the condition of him who obtains them will be improved not only will each capitalist have a greater money revenue if he employs the same money capital but also when that money is expended it will procure him a greater sum of commodities his enjoyments will be augmented in the case of the bounty to balance the advantage which he derives from the fall of one commodity he has the disadvantage of paying a price more than proportionally high for another he receives an increased rate of profits in order to enable him to pay this higher price so that his real situation though not deteriorated is in no way improved though he gets a higher rate of profits he has no greater command of the produce of the land and labor of the country when the fall in the value of corn is brought about by natural causes it is not counteracted by the rise of other commodities on the contrary they fall from the raw material falling from which they are made but when the falling corn is occasioned by artificial means it is always counteracted by a real rise in the value of some other commodity so that if corn be bought cheaper other commodities are bought dearer this then is a further proof that no particular disadvantage arises from taxes on necessaries on account of their raising wages and lowering the rate of profits profits are indeed lowered but only to the amount of the laborers portion of the tax which must at all events be paid either by his employer or by the consumer of the produce of the laborers work whether you deduct £50 per annum from the employer's revenue or add £50 to the prices of the commodities which he consumes can be of no other consequence to him or to the community than as it may equally affect all other classes if it be added to the prices of the commodity a miser may avoid the tax by not consuming if it be indirectly deducted from every man's revenue he cannot avoid paying his fair proportion of the public burdens a bounty on the production of corn then would produce no real effect on the annual produce of the land and labor of the country although it would make corn relatively cheap and manufacturers relatively dear but suppose now that a contrary measure should be adopted that a tax should be raised on corn for the purpose of affording a fund for a bounty on the production of commodities in such case it is evident that corn would be dear and commodities cheap labor would continue at the same price if the laborer were as much benefited by the cheapness of commodities as he was injured by the dearness of corn but if he were not wages would rise and profits would fall while money rent would continue the same as before profits would fall because as we have just explained that would be the mode in which the laborer's share of the tax would be paid by the employers of labor by the increase of wages the laborer would be compensated for the tax which he would pay in the increased price of corn by not expending any part of his wages on the manufactured commodities he would receive no part of the bounty the bounty would be all received by the employers and the tax would be partly paid by the employed a remuneration would be made to the laborers in the shape of wages for this increased burden laid upon them and thus the rate of profits would be reduced in this case too there would be a complicated measure producing no national result whatever in considering this question we have purposely left out of our consideration the effect of such a measure on foreign trade we have rather been supposing the case of an insulated country having no commercial connection with other countries we have seen that as the demand of the country for corn and commodities would be the same whatever direction the bounty might take there would be no temptation to remove capital from unemployment to another but this would no longer be the case if there were foreign commerce and that commerce were free by altering the relative value of commodities and corn by producing so powerful in effect on their natural prices we should be applying a strong stimulus to the exploitation of those commodities whose natural prices were lowered and an equal stimulus to the importation of those commodities whose natural prices were raised and thus such a financial measure might entirely alter the natural distribution of employments to the advantage indeed of the foreign countries but ruinously to that in which so absurd a policy was adopted chapter 24 doctrine of adam smith concerning the rent of land such parts only of the produce of land says adam smith can commonly be brought to market of which the ordinary price is sufficient to replace the stock which must be employed in bringing them 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 land if it is not more though the commodity can be brought to market it can afford no rent to the landlord whether the price is or is not more depends upon the demand this passage would naturally lead the listener to conclude that its author could not have mistaken the nature of rent and that he must have seen that the quality of land which the exigencies of society might require to be taken into cultivation would depend on the ordinary price of its produce whether it were sufficient to replace the stock which must be employed in cultivating it together with its ordinary profits but he had adopted the notion that there were some parts of the produce of land for which the demand must always be such as to afford a greater price than what is sufficient to bring them to market and he considered food as one of those parts he says that land in almost any situation produces a greater quantity of food than what is sufficient to maintain all the labor necessary for bringing it to market in the most liberal way in which that labor is ever maintained the surplus too is always more than sufficient to replace the stock which employed that labor together with its profits something therefore always remains for a rent to the landlord but what proof does he give of this no other than the assertion that the most desert moors in norway in 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 labor necessary for tending them and to pay the ordinary profit to the farmer or owner of the herd or flock but to afford some small rent to the landlord now of this i may be permitted to entertain it out i believe that as yet in every country from the rudest to the most refined there is land of such a quality that it cannot yield a produce more than sufficiently valuable to replace the stock employed upon it together with the profits ordinary and usual in that country in america we all know that this is the case and yet no one maintains that the principles which regulate rent are different in that country and in europe but if it were true that england had so far advanced in cultivation that at this time there were no lands remaining which did not afford a rent it would be equally true that there formerly must have been such lands and that whether they'd be or not is of no importance to this question for it is the same thing if there be any capital employed in great britain on land which yields only the return of stock with its ordinary profits whether it be employed on old or a new land if a farmer agrees for land on a lease of seven or fourteen years he may propose to employ on it a capital of ten thousand pounds knowing that at the existing price of grain and raw produce he can replace that part of his stock which he is obliged to expend pay his rent and obtain the general rate of profit he will not employ eleven thousand pounds unless the last one thousand pounds can be employed so productively as to afford him the usual profits of stock in his calculation whether he shall employ it or not he considers only whether the price of raw produce is sufficient to replace his expenses and profits but he knows that he shall have no additional rent to pay even at the exploration of his lease his rent will not be raised for if his landlord should require rent because this additional one thousand pounds was employed he would withdraw it since by employing it he gets by the supposition only the ordinary and usual profits which he may obtain by any other employment of stock and therefore he cannot afford to pay rent for it unless the price of raw produce should further rise or which is the same thing unless the usual and general rate of profits should fall if the comprehensive mind of adam smith had been directed to this fact he would not have maintained that rent forms one of the component parts of the price of raw produce but price is everywhere regulated by the return obtained by this last portion of capital for which no rent whatever is paid if he had adverted to this principle he would have made no distinction between the law which regulates the rent of mines and the rent of land whether a coal mine for example he says 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 labor 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 brought on account of their barrenness the produce does not pay the expense they can afford neither profit nor rent there are some of which the produce is barely sufficient to pay the labor and replace together with its ordinary profits the stock employed in working them they afford some profit to the undertaker of the work but no rent to the landlord they can be brought advantageously by nobody but the landlord who being himself the undertaker of the work gets the ordinary profit of the capital which he employs in it many coal mines in Scotland are brought in this manner and can be brought in no other the landlord will allow nobody else to work them without paying some rent and nobody can afford to pay any other coal mines in the same country sufficiently fertile cannot be brought on account of their situation a quantity of mineral sufficient to defray the expense of working could be brought from the mine by the ordinary or even less than the ordinary quantity of labor but in an inland country inly inhabited and without either good roads or water carriage this quantity could not be sold the whole principle of rent is here admirably and perspicuously explained every word is as applicable to land as it is to mines yet he affirms that it is otherwise in a states above ground the proportion both of their produce and of their rent is in proportion to their absolute and not to their relative fertility but suppose that there were no land which did not afford a rent then the amount of rent on the worst land would be in proportion to the excess of the value of the produce above the expenditure of capital and the ordinary profits of stock the same principle would govern the rent of land of a somewhat better quality or more favorably situated and therefore the rent of this land would exceed the rent of that inferior to it by the superior advantages which it possessed the same might be said of that of the third quality and so on to the very best is it not then a certain that it is the relative fertility of the land which determines the portion of the produce which shall be paid for the rent of land as it is that the relative fertility of mines determines the portion of their produce which shall be paid for the rent of mines after adam smith has declared that there are some mines which can only be worked by the owners as they will afford only sufficient to defray the expense of working together with the ordinary profits of the capital employed we should expect that he would admit that it was these particular mines which regulated the price of the produce from all mines if the old mines are insufficient to supply the quantity of coal required the price of coal will rise and will continue rising till the owner of a new and inferior mine finds that he can obtain the usual profits of stock by working his mine if his mine be tolerably fertile the rise will not be great before it becomes his interest so to employ his capital but if it be not tolerably fertile it is evident that the price must continue to rise till it will afford him the means of paying his expenses and obtaining the ordinary profits of stock it appears then that it is always the least fertile mine which regulates the price of coal adam smith however is of a different opinion he observes that the most fertile coal mine too regulates the price of coals at all the other mines in its neighborhood 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 neighbors their neighbors are soon obliged to sell at the same price though they cannot so well afford it although 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 if the demand for coal should be diminished or if by new processes the quantity should be increased the price would fall and some mines would be abandoned but in every case the price must be sufficient to pay the expenses and profit of that mine which is worked without being charged with rent it is therefore the least fertile mine which regulates price indeed it is so stated in another place by adam smith himself for he says the lowest price at which coals can be sold for any considerable time is like that of all other commodities the price which is barely 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 at which he must either work himself or let it alone altogether the price of coals must generally be nearly about this price at the same circumstance namely the abundance and consequent cheapness of coals from whatever cause it may arise which would make it necessary to abandon those mines on which there was no rent or a very moderate one would if there were the same abundance and consequent cheapness of raw produce render it necessary to abandon the cultivation of those lands for which either no rent was paid or a very moderate one if for example potatoes should become the general and common food of the people as rice is in some countries one fourth or one half of the land now in cultivation would probably be immediately abandoned for if as adam smith says an acre of potatoes will produce six thousand weight of solid nourishment three times the quantity produced by the acre of wheat they cannot be for a considerable time such a multiplication of people as to consume the quantity that might be raised on the land before employed for the cultivation of wheat much land would consequently be abandoned and rent would fall and it would not be till the population had been doubled or troubled that the same quantity of land could be in cultivation and the rent paid for it as highest before neither would any greater proportion of the gross produce be paid to the landlord whether it consisted of potatoes which would feed 300 people or of wheat which would feed only 100 because though the expenses of production would be very much diminished if the laborers wages were chiefly regulated by the price of potatoes and not by the price of wheat and though therefore the proportion of the whole gross produce after paying the laborers would be greatly increased yet no part of that additional proportion would go to rent but the whole invariably to profits profits being at all times raised as wages fall and lowered as wages rise whether wheat or potatoes were cultivated rent would be governed by the same principle it would be always equal to the difference between the quantities of produce obtained with equal capitals either on the same land or on land of different qualities and therefore while lands of the same quality were cultivated and there was no alteration in their relative fertility or advantages rent would always bear the same proportion to the gross produce adam smith however maintains that the proportion which falls to the landlord would be increased by a diminished cost of production and therefore that he would receive a larger share as well as a larger quantity from an abundant and from a scanty produce a rice field he says produces a much greater quantity of food than the most fertile cornfield two crops in the year from 30 to 60 bushels each are said to be the ordinary produce of an acre though its cultivation therefore requires more labor a much greater surplus remains after maintaining all that labor in those rice countries therefore where rice is the common and favorite vegetable food of the people 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 mr. Buchanan also remarks that it is quite clear that if any other produce which the land yielded more abundantly than corn were to become the common food of the people the rent of the landlord would be improved in proportion to its greater abundance if potatoes were to become the common food of the people there would be a long interval during which the landlords would suffer an enormous deduction of rent they would not probably receive nearly so much of the sustenance of man as they now receive while that sustenance would fall to a third of its present value but all manufactured commodities on which a part of the landlord's rent is expended would suffer no other fall than that which proceeded from the fall in the raw material of which they were made and which would arise only from the greater fertility of the land which might then be devoted to its production when from the progress of population land of the same quality as before should be taken into cultivation the landlord would have not only the same proportion of the producers before but that proportion would also be of the same value as before rent then would be the same as before profits however would be much higher because the price of food and consequently wages would be much lower high profits are favorable to the accumulation of capital the demand for labor would further increase and landlords would be permanently benefited by the increased demand for land indeed the very same lands might be cultivated much higher when such an abundance of food could be produced from them and consequently they would in the progress of society admit of much higher rents and would sustain a much greater population than before this could not fail to be highly beneficial to landlords and is consistent with the principle which this inquiry I think will not fail to establish that all extraordinary profits are in their nature but of limited duration as the whole surplus produce of the soil after deducting from it only such moderate profits as are sufficient to encourage accumulation must finally rest with the landlord with so lower price of labor as such an abundant produce would cause not only with the lands already in cultivation yield a much greater quantity of produce but they would admit of a great additional capital being employed on them and a greater value to be drawn from them and at the same time lands of a very inferior quality could be cultivated with high profits to the great advantage of landlords as well as to the whole class of consumers the machine which produced the most important article of consumption would be improved and would be well paid for according as its services were demanded all the advantages would in the first instance be enjoyed by laborers capitalists and consumers but with the progress of population they would be gradually transferred to the proprietors of the soil independently of these improvements in which the community have an immediate and the landlords a remote interest the interest of the landlord is always opposed to that of the consumer and manufacturer corn can be permanently at an advanced price only because additional labor is necessary to produce it because its cost of production is increased the same cause invariably raises rent it is therefore for the interest of the landlord that the cost attending the production of corn should be increased this however is not the interest of the consumer to him it is desirable that corn should be low relatively to money and commodities for it is always with commodities or money that corn is purchased neither is it the interest of the manufacturer that corn should be at a high price for the high price of corn what occasion high wages but will not raise the price of his commodity not only then must more of his commodity or which comes to the same thing the value of more of his commodity be given in exchange for the corn which he himself consumes but more must be given or the value of more for wages to his workmen for which he will receive no remuneration all classes therefore accept the landlords will be injured by the increase in the price of corn the dealings between the landlord and the public are not like dealings in trade whereby both the seller and buyer may equally be set to gain but the loss is wholly on one side and the gain wholly on the other and if corn could by importation be procured cheaper the loss in consequence of not importing is far greater on one side than the gain is on the other adam smith never makes any distinction between a low value of money and a high value of corn and therefore infers that the interest of the landlord is not opposed to that of the rest of the community in the first case money is low relatively to all commodities in the other corn is high relatively to all in the first corn and commodities continue at the same relative values in the second corn is higher relatively to commodities as well as money the following observation of adam smith is applicable to a low value of money but it is totally inapplicable to a high value of corn if importation of corn was at all times free our farmers and country gentlemen 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 labor their real wealth their real revenue therefore would be the same as at present than it might be expressed by a smaller quantity of silver and they would neither be disabled nor discouraged from cultivating corn as much as they do at present on the contrary as the rise in the real value of silver in consequence of lowering the money price of corn low as somewhat the money price of all other commodities it gives the industry of the country where it takes place some advantage in all foreign markets and thereby tends to encourage and increase that industry at the extent of the home market for corn must be in proportion to the general industry of the country where it grows or to the number of those who produce something else to give in exchange for corn but in every country the home market as it is the nearest most convenient so is it 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 enlarge the greatest and most important market for corn and thereby to encourage instead of discouraging its growth a high or low money price of corn arising from the abundance and cheapness of gold and silver is of no importance to the landlord as every sort of produce would be equally affected just as Adam Smith describes but a relatively high price of corn is at all times greatly beneficial to the landlord for first it gives him a greater quantity of corn for rent and secondly for every equal measure of corn he will have a command not only over a greater quantity of money but over a greater quantity of every commodity which money can purchase chapter 25 on colonial trade Adam Smith in his observations on colonial trade has shown most satisfactorily the advantages of a free trade and the injustice suffered by colonies in being prevented by their mother countries from selling their produce at the dearest market and buying their manufacturers and stores at the cheapest he has shown that by permitting every country freely to exchange the produce of its industry when and where it pleases the best distribution of the labor of the world will be affected and the greatest abundance of the necessaries and enjoyments of human life will be secured he has attempted also to show that this freedom of commerce which undoubtedly promotes the interest of the whole promotes also that of each particular country and that the narrow policy adopted in the countries of Europe respecting their colonies is not less injurious to the mother countries themselves than to the colonies whose interests are sacrificed the monopoly of the colony trade he says like all the other mean and malignant expedience of the mercantile system depresses the industry of all other countries but chiefly that of the colonies without in the least increasing but on the contrary diminishing that of the country in whose favorite is established this part of his subject however is not treated in so clear and convincing a manner as that in which he shows the injustice of this system towards the colony it may i think be doubted whether a mother country may not sometimes be benefited by the restraints to which she subjects her colonial possessions who can doubt for example that if england were the colony of france the latter country would be benefited by a heavy bounty paid by england on the exportation of corn cloth or any other commodities in examining the question of bounties on the supposition of corn being at four pounds per quarter in this country we saw that with a bounty of 10 shillings per quarter on exportation in england corn would have been reduced to three pounds 10 shillings in france now if corn had previously been at three pounds 15 shillings per quarter in france the french consumers would have been benefited by five shillings per quarter on all imported corn if the natural price of corn in france were before four pounds they would have gained the whole bounty of 10 shillings per quarter france would thus be benefited by the loss sustained by england she would not gain a part only of what england lost but the whole it may however be said that a bounty on exportation is a measure of internal policy and could not easily be imposed by the mother country if it would suit the interests of jamaica and holland to make an exchange of the commodities which they respectively produce without the intervention of england it is quite certain that by their being prevented from so doing the interests of holland and jamaica would suffer but if jamaica is obliged to send her goods to england and their exchange them for dutch goods an english capital or english agency will be employed in a trade in which it would not otherwise be engaged it is a lured thither by a bounty not paid by england but by holland and jamaica that the loss sustained through a disadvantageous distribution of labor in two countries may be beneficial to one of them while the other is made to suffer more than the loss actually belonging to such a distribution has been stated by adam smith himself which if true will at once prove that a measure which may be greatly hurtful to a colony may be partially beneficial to the mother country speaking of treaties of commerce he says when a nation binds itself by treaty either to permit the entry of certain goods from one foreign 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 favored must necessarily derive great advantage from the treaty those merchants and manufacturers enjoy a sort of monopoly in the country which is so indulgent to them that 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 them more advantageous because the merchants of the favored country enjoying a sort of monopoly there will often sell their goods for a better price than if exposed to the free competition of all other nations let the two nations between which the commercial treaty is made be the mother country in her colony and adam smith it is evident admits that a mother country may be benefited by oppressing her colony it may however be again remarked that unless the monopoly of the foreign market be in the hands of an exclusive company no more will be paid for commodities by foreign purchasers than by home purchasers the price which they will both pay will not differ greatly from their natural price in the country where they are produced england for example will under ordinary circumstances always be able to buy french goods at the natural price of those goods in france and france would have an equal privilege of buying english goods at their natural price in england but at these prices goods would be bought without a treaty of what advantage or disadvantage then is the treaty to either party the disadvantage of the treaty to the importing country would be this it would bind her to purchase a commodity from england for example at the natural price of that commodity in england when she might perhaps have bought it at the much lower natural price of some other country it occasions then a disadvantageous distribution of the general capital which falls chiefly on the country bound by its treaty to buy in the least productive market but it gives no advantage to the seller on account of any supposed monopoly for he is prevented by the competition of his own countrymen from selling his goods above their natural price at which he would sell them whether he exported them to france spain or the west indies or sold them for home consumption in what then does the advantage of the stipulation in the treaty consist it consists in this these particular goods could not have been made in england for exportation but for the privilege which she alone had of serving this particular market for the competition of that country where the natural price was lower would have deprived her of all chance of selling those commodities this however would have been of little importance if england were quite secure that she could sell to the same amount any other goods which she might fabricate either in the french market or with equal advantage in any other the object which england has in view is for example to buy a quantity of french wines of the value of five thousand pounds she desires then to sell goods somewhere by which she may get five thousand pounds for this purpose if france gives her a monopoly of the cloth market she will readily export cloth for this purpose but if the trade is free the competition of other countries may prevent the natural price of cloth in england from being sufficiently low to enable her to get five thousand pounds by the sale of cloth and to obtain the usual profits by such an employment of her stock the industry of england must be employed then on some other commodity but there may be none of her productions which at the existing value of money she can afford to sell at the natural price of other countries what is the consequence the wine drinkers of england are still willing to give five thousand pounds for their wine and consequently five thousand pounds in money is exported to france for that purpose by this exportation of money its value is raised in england and lowered in other countries and with it the natural price of all commodities produced by british industry is also lowered the advance in the value of money is the same thing as the decline in the price of commodities to obtain five thousand pounds british commodities may now be exported for at their reduced natural price they may now enter into competition with the goods of other countries more goods are sold however at the low prices to obtain the five thousand pounds required which when obtained will not procure the same quantity of wine because whilst the diminution of money in england has lowered the natural price of goods there the increase of money in france has raised the natural price of goods and wine in france less wine then will be imported into england in exchange for its commodities when the trade is perfectly free than when she is peculiarly favored by commercial treaters the rate of profits however will not have varied money will have altered in relative value in the two countries and the advantage gained by france will be the obtaining a greater quantity of english in exchange for a given quantity of french goods while the loss sustained by england will consist in obtaining a smaller quantity of french goods in exchange for a given quantity of those of england or in trade then whether fettered encouraged or free will always continue whatever may be the comparative difficulty of production in different countries but it can only be regulated by altering the natural price not the natural value at which commodities can be produced in those countries and that is affected by altering the distribution of the precious metals this explanation confirms the opinion which i have elsewhere given that there is not a tax a bounty or a prohibition on the importation or exportation of commodities which does not occasion a different distribution of the precious metals and which does not therefore everywhere alter both the natural and the market price of commodities it is evident then that the trade with the colony may be so regulated that it shall at the same time be less beneficial to the colony and more beneficial to the mother country than a perfectly free trade as it is disadvantageous to a single consumer to be restricted in his dealings to one particular shop so is it disadvantageous for a nation of consumers to be obliged to purchase of one particular country if the shop or the country afforded the goods required the cheapest they would be secure of selling them without any such exclusive privilege and if they did not sell cheaper the general interest would require that they should not be encouraged to continue a trade which they could not carry on at an equal advantage with others the shop or the selling country might lose by the change of employment but the general benefit is never so fully secured as by the most productive distribution of the general capital that is to say by a universally free trade an increase in the cost of production of a commodity if it be an article of the first necessity will not necessarily diminish its consumption for although the general power of the purchases to consume is diminished by the rise of any one commodity yet they may relinquish the consumption of some other commodity whose cost of production has not risen in that case the constantly supplied and the constantly demanded will be the same as before the cost of production only will have increased and yet the price will rise and must rise to place the profits of the producer of the enhanced commodity on a level with the profits derived from other trades as he say acknowledges that the cost of production is the foundation of price and yet in various parts of his book he maintains that price is regulated by the proportion which demand bears to supply the real and ultimate regulator of the relative value of any two commodities is the cost of their production and not the respective quantities which may be produced nor the competition amongst the purchasers according to adam smith the colony trade by being mine in which british capital only can be employed has raised the rate of profits of all other trades and as in his opinion high profits as well as high wages raised the prices of commodities the monopoly of the colony trade has been he thinks injurious to the mother country as it has diminished her power of selling manufactured commodities as cheap as other countries he says that in consequence of the monopoly the increase of the colony trade has not so much occasioned an addition to the trade which great britain had before as a total change in its direction secondly this monopoly has necessarily contributed to keep up the rate of profit in all the different branches of british trade higher than it naturally would have been had all nations been allowed a free trade through the british colonies but whatever raises in any country the ordinary rate of profit higher than it otherwise would be necessarily subjects that country both to an absolute and to a relative disadvantage in every branch of trade of which she has not the monopoly it subjects her to an absolute disadvantage because in such branches of trade her merchants cannot get this greater profit without selling dearer than they otherwise would do both the goods of foreign countries which they important to their own and the goods of their own country which they export to foreign countries their own country must both buy dearer and sell dearer must both buy less and sell less must both enjoy less and produce less than she otherwise would do our merchants frequently complain of the high wages of british laborers the cause of their manufacturers being undersold in foreign markets but they're silent about the high profits of stock they complain of the extravagant gain of other people they say nothing of their own the high profits of british stock however may contribute towards raising the price of british manufacture in many cases as much and in some perhaps more than the high wages of british labor i allow that the monopoly of the colony trade will change and often prejudically the direction of capital but from what i have already said on the subject of profits it will be seen that any change from one foreign trade to another or from home to foreign trade cannot in my opinion affect the rate of profits the injury suffered will be what i have just described there will be a worse distribution of the general capital and industry and therefore less will be produced the natural price of commodities will be raised and therefore the consumer will be able to purchase to the same money value he will obtain a less quantity of commodities it will be seen too that if it even had the effect of raising profits it would not occasion the least alteration in prices prices being regulated neither by wages nor profits and does not adam smith agree in this opinion when he says that the prices of commodities or the value of gold and silver as compared with commodities depends upon the proportion between the quantity of labor which is necessary in order to bring a certain quantity of gold and silver to market and that which is necessary to bring with a certain quantity of any other source of goods that quantity will not be affected whether profits be high or low or wages low or high how then can prices be raised by high profits chapter 26 on gross and net revenue adam smith constantly magnifies the advantages which a country derives from a large gross rather than a large net income in proportion as a greater share of the capital of a country is employed in agriculture he says the greater will be the quantity of productive labor which it puts into motion within the country as will likewise be the value which its employment adds to the annual produce of the land and labor of the society after agriculture the capital employed in manufacturers puts into motion the greatest quantity of productive labor and adds the greatest value to the annual produce that which is employed in the trade of exportation has the least effect of any of the three quick note mr say is of the same opinion with adam smith quote the most productive employment of capital for the country in general after that on the land is that of manufacturers and of home trade because it puts in activity an industry of which the profits are gained in the country while those capitals which are employed in foreign commerce make the industry and lands of all countries to be productive without distinction the employment of capital the least favorable to a nation is that of carrying the produce of one foreign country to another unquote say volume two end of footnote granting for a moment that this were true what would be the advantage resulting to a country from the employment of a great quantity of productive labor if whether it employed that quantity or a smaller its net rent and profits together would be the same the whole produce of the land and labor of every country is divided into three portions of these one portion is devoted to wages another to profits and the other to rent it is from the two last portions only that any deductions can be made for taxes or for savings the former if moderate constituting always the necessary expenses of production footnote perhaps this is expressed too strongly as more is generally allotted to the laborer under the name of wages than the absolute necessary expenses of production in that case a part of the net produce of the country is received by the laborer and may be saved or expended by him or it may enable him to contribute to the defense of the country end of footnote to an individual with a capital of 20 000 pounds whose profits were 2000 pounds per annum it would be a matter quite indifferent whether his capital would employ a hundred or a thousand men whether the commodity produced sold for 10 000 pounds or for 20 000 pounds provided in all cases his profits were not diminished below 2000 pounds it's not the real interest of the nation similar provided its net real income its rent and profits be the same it is of no importance whether the nation consists of 10 or of 12 millions of inhabitants its power of supporting fleets and armies and all species of unproductive labor must be in proportion to its net and not in proportion to its gross income if five millions of men could produce as much food and clothing as was necessary for 10 millions food and clothing for five millions would be the net revenue would it be of any advantage to the country that to produce this same net revenue seven millions of men should be required that is to say that seven millions should be employed to produce food and clothing sufficient for 12 millions the food and clothing of five millions would be still the net revenue the employing a greater number of men would enable us neither to add a man to our army and navy nor to contribute one guinea moor in taxes it is not on the grounds of any supposed advantage accruing from a large population or of the happiness that may be enjoyed by a greater number of human beings that adam smith supports the preference of that employment of capital which gives motion to the greatest quantity of industry but expressly on the ground of its increasing the power of the country footnote let's just say has totally misunderstood me and supposing that i have considered as nothing the happiness of so many human beings i think the text sufficiently shows that i was confining my remarks to the particular grounds on which adam smith addressed it end of footnote for he says that the riches and so far as power depends upon riches the power 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 it must however be obvious that the power of paying taxes is in proportion to the net and not in proportion to the gross revenue in the distribution of employments amongst all countries the capital of poor nations will be naturally employed in those pursuits wherein a great quantity of labor is supported at home because in such countries the food and necessaries for an increasing population can be most easily procured in rich countries on the contrary where food is dear capital will naturally flow when trade is free into those occupations wherein the least quantity of labor is required to be maintained at home such as the carrying trade the distant foreign trade and trades where expensive machinery is required to trades where profits are in proportion to the capital and not in proportion to the quantity of labor employed footnote in volume two mr say writes quote it is fortunate that the natural course of things draws capital not to those employments where the greatest profits are made but to those where the operation is most profitable to the community unquote mr say has not told us what those employments are which while they are the most profitable to the individual are not the most profitable to the state if countries with limited capitals but with abundance of fertile land do not early engage in foreign trade the reason is because it is less profitable to individuals and therefore also less profitable to the state end of footnote although i admit that from the nature of rent a given capital employed in agriculture on any but the land last cultivated puts in motion a greater quantity of labor than an equal capital employed in manufacturers and trade yet i cannot admit that there is any difference in the quantity of labor employed by a capital engaged in the home trade and an equal capital engaged in the foreign trade the capital which sends scott's manufacturers to london and brings back english corn and manufacturers to edinburgh says adam smith necessarily replaces by every such operation two british capitals which had both been employed in the agriculture or manufacturers 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 two by every such operation two distinct capitals but one of them only is employed in supporting domestic industry the capital which sends british goods to portugal and brings back portuguese goods to great britain replaces by every such operation only one british capital the other is a portuguese one though the returns therefore of the foreign trade of consumption should be as quick as the home trade the capital employed in it will give but one half the encouragement to the industry or productive labor of the country this argument appears to me to be fallacious for though two capitals one portuguese and one english be employed as dr smith supposes still a capital will be employed in the foreign trade double of what would be employed in the home trade suppose that scotland employs a capital of a thousand pounds in making linen which she exchanges for the produce of a similar capital employed in making silks in england two thousand pounds and a proportional quantity of labor will be employed by the two countries suppose now that england discovers that she can import more linen from germany for the silks which she before exported to scotland and that scotland discovers that she can obtain more silks from france in return for her linen than she before obtained from england will not england and scotland immediately cease trading with each other and will not the home trade of consumption be changed for a foreign trade of consumption but although two additional capitals will enter into this trade the capital of germany and that of france will not the same amount of scotch and of english capital continue to be employed and will it not give motion to the same quantity of industry as when it was engaged in the home trade chapter 27 on currency and banks so much has already been written on currency that of those who give their attention to such subjects none but the prejudiced are ignorant of its true principles i shall therefore take only a brief survey of some of the general laws which regulate its quantity and value gold and silver like all other commodities are valuable only in proportion to the quantity of labor necessary to produce them and bring them to market gold is about 15 times dearer than silver not because there is a greater demand for it nor because the supply of silver is 15 times greater than that of gold but solely because 15 times the quantity of labor is necessary to procure a given quantity of it the quantity of money that can be employed in a country must depend on its value if gold alone were employed for the circulation of commodities a quantity would be required one 15th only of what would be necessary if silver were made use of for the same purpose a circulation can never be so abundant as to overflow for by diminishing its value in the same proportion you will increase its quantity and by increasing its value diminish its quantity while the state coins money and charges no sinurage money will be of the same value as any other piece of the same metal of equal weight and fineness but if the state charges a sinurage for coinage the coined piece of money will generally exceed the value of the uncoined piece of metal by the whole sinurage charged because it will require a greater quantity of labor or which is the same thing the value of the produce of a greater quantity of labor to procure it while the state alone coins there can be no limit to this charge of sinurage for by limiting the quantity of coin it can be raised to any conceivable value it is on this principle that paper money circulates the whole charge for paper money may be considered a sinurage though it has no intrinsic value yet by limiting its quantity its value in exchange is as great as an equal denomination of coin or of bullion in that kind on the same principle too namely by limitation of its quantity a debased coin would circulate at the value it should bear if it were of the legal weight and fineness and not at the value of the quantity of metal which it actually contained in the history of the british coinage we find accordingly that the currency was never depreciated in the same proportion that it was debased the reason of which was that it never was increased in quantity in proportion to its diminished intrinsic value footnote whatever i say of gold coin is equally applicable to silver coin but it is not necessary to mention both on every occasion end of footnote there is no point more important in issuing paper money than to be fully impressed with the effects which follow from the principle of limitation of quantity it will scarcely be believed 50 years hence that bank directors and ministers gravely contended in our times both in parliament and before committees of parliament that the issues of notes by the bank of england unchecked by any power in the holders of such notes to demand an exchange either specie or bullion had not nor could have had any effect on the prices of commodities bullion or foreign exchanges after the establishment of banks the state has not the sole power of coining or issuing money the currency may as effectively be increased by paper as by coin so that if a state were to debase its money and limit its quantity it could not support its value because the banks would have an equal power of adding to the whole quantity of circulation on these principles it will be seen that it is not necessary that paper money should be payable in specie to secure its value it is only necessary that its quantity should be regulated according to the value of the metal which is declared to be the standard if the standard were gold of a given weight and fineness paper might be increased with every fall in the value of gold or which is the same thing in its effect with every rise in the price of goods by assuming too great a quantity of paper says dr. smith of which the excess was continually returning in order to be exchanged for gold and silver the bank of england was for many years together obliged to coin gold to the extent of between 800 000 pounds and a million a year or at an average about 850 000 pounds for this great coinage the bank in consequence of the worn and degraded state into which the gold coin had fallen a few years ago was frequently obliged to purchase bullion at the high price of four pounds an ounce which it soon after issued in coin at three pounds seventeen tenon apence an ounce losing in this manner between two and a half and three percent upon the coinage of so very large a sum though the bank therefore paid no synergy though the government was probably at the expense of the coinage this liberality of government did not prevent altogether the expense of the bank on the principle above stated it appears to me most clear that by not reissuing the paper thus brought in the value of the whole currency of the degraded as well as the new gold coin would have been raised when all demands on the bank would have ceased mr. bucannon however is not of this opinion for he says that the great expense to which the bank was at this time exposed was occasioned not as dr. smith seems to imagine by any imprudent issue of paper but by the debased state of the currency and the consequent high price of bullion the bank it will be observed having no other way of procuring guineas but by sending bullion to the mint to be coined was almost forced to issue new coined guineas in exchange for its returned notes and when the currency was generally deficient in weight and the price of bullion high in proportion it became profitable to draw these heavy guineas from the bank in exchange for its paper to convert them into bullion and to sell them with a profit for bank paper to be again returned to the bank for a new supply of guineas which were again melted and sold to this drain of specie the bank must always be exposed while the currency is deficient in weight as both an easy and a certain profit then arises from the constant interchange of paper for specie it may be remarked however that to whatever inconvenience and expense the bank was then exposed by the drain of its specie it never was imagined necessary to rescind the obligation to pay money for its notes mr. bucannon evidently thinks that the whole currency must necessarily be brought down to the level of the value of the debased pieces but surely by diminution of the quantity of the currency the whole that remains can be elevated to the value of the best pieces dr. smith appears to have forgotten his own principle in his argument on colony currency instead of ascribing the depreciation of that paper to its two great abundance he asks whether allowing the colony security to be perfectly good a hundred pounds payable fifteen years hence would be equally valuable with a hundred pounds to be paid immediately i also yes if it be not too abundant experience however shows that neither a state nor a bank ever have had the unrestricted power of issuing paper money without abusing that power in all states therefore the issue of paper money ought to be under some check and control and none seems so proper for that purpose as that of subjecting the issuers of paper money to the obligation of paying their notes either in gold coin or bullion to secure the public against any other variations in the value of currency than those to which the standard itself is subject and at the same time to carry on the circulation with a medium the least expensive is to attain the most perfect state to which a currency can be brought and we should possess all these advantages by subjecting the bank to the delivery of un coined gold or silver at the mint standard and price in exchange for their notes instead of the delivery of guineas by which means paper would never fall below the value of bullion without being followed by a reduction of its quantity to prevent the rise of paper above the value of bullion the bank should be also obliged to give their paper in exchange for standard gold at the price of three pound seventeen shillings per ounce not to give too much trouble to the bank the quantity of gold to be demanded in exchange for paper at the mint price of three pound seventeen tenenhappens or the quantity to be sold to the bank at three pound seventeen shillings should never be less than twenty ounces in other words the bank should be obliged to purchase any quantity of gold that was offered them not less than twenty ounces at three pound seventeen shillings per ounce and to sell any quantity that might be demanded at three pound seventeen tenenhappens footnote the price of three pound seventeen shillings here mentioned is of course an arbitrary price there might be good reason perhaps for fixing it either a little above or a little below in naming three pound seventeen shillings i wish only to elucidate the principle the price ought to be so fixed as to make it the interest of the seller of gold rather to sell it to the bank than to carry it to the mint to be coined the same remark applies to the specified quantity of twenty ounces there might be good reason for making it ten north thirty end of footnote while they have the power of regulating the quantity of their paper there is no possible inconvenience that could result to them from such a regulation the most perfect liberty should be given at the same time to export or import every description of bullion these transactions in bullion would be very few in number if the bank regulated their loans and issues of paper by the criterion which i have so often mentioned namely the price of standard bullion without attending to the absolute quantity of paper in circulation the object which i have in view would be in a great measure attained if the bank were obliged to deliver un coined bullion in exchange for their notes at the mint price and standard though they were not under the necessity of purchasing any quantity of bullion offered them at the prices to be fixed particularly if the mint were to continue open to the public for the coinage of money but that regulation is merely suggested to prevent the value of money from varying from the value of bullion more than the trifling difference between the prices at which the bank should buy and sell and which would be an approximation to that uniformity in its value which is acknowledged to be so desirable if the bank capriciously limited the quantity of their paper they would raise its value and gold might appear to fall below the limits at which i propose the bank should purchase gold in that case might be carried to the mint and the money returned from thence being added to the circulation would have the effect of lowering its value and making it again conform to the standard but it would neither be done so safely so economically nor so expeditiously as by the means which i have proposed against which the bank can have no objection to offer as it is for their interest to furnish the circulation with paper rather than oblige others to furnish it with coin under such a system and with a currency so regulated the bank would never be liable to any embarrassments whatever accepting on those extraordinary occasions when a general panic seizes the country and when everyone is desirous of possessing the precious metals as the most convenient mode of realizing or concealing his property against such panics banks have no security on any system from their very nature they are subject to them as at no time can there be in a bank or in a country so much specie or bullion as the moneyed individuals of such country have a right to demand should every man withdraw his balance from his banker on the same day many times the quantity of bank notes now in circulation would be insufficient to answer such a demand a panic of this kind was the cause of the crisis in 1797 and not as has been supposed the large advances which the bank had then made to government neither the bank nor government were at that time to blame it was the contagion of the unfounded fears of the timid part of the community which occasioned the run on the bank and it would equally have taken place if they had not made any advances to government and had possessed twice their present capital if the bank had continued paying in cash probably the panic would have subsided before their coin had been exhausted with the known opinion of the bank directors as to the rule for issuing paper money they may be said to have exercised their powers without any great indiscretion it is evident that they have followed their own principle with extreme caution in the present state of the law they have the power without any control whatever of increasing or reducing the circulation in any degree they may think proper the power which should neither be entrusted to the state itself nor to anybody in it as there can be no security for the uniformity in the value of the currency when its augmentation or diminution depends solely on the will of the issuers that the bank have the power of reducing the circulation to the very narrowest limits will not be denied even by those who agree in opinion with the directors that they have not the power of adding indefinitely to its quantity though i am fully assured that it is both against the interest and the wish of the bank to exercise this power to the detriment of the public yet when i contemplate the evil consequences which might ensue from a sudden and great reduction of the circulation as well as from a great addition to it i cannot but deprecate the facility with which the state has armed the bank with so formidable a prerogative the inconvenience to which country banks were subjected before the restriction on cash payments must at times have been very great but all periods of alarm or of expected alarm they must have been under the necessity of providing themselves with guineas that they might be prepared for every exigency which might occur guineas on these occasions were obtained at the bank in exchange for the larger notes and were conveyed by some confidential agent at expense and risk for the country bank after performing the offices to which they were destined they found their way again to london and in all probability were again lodged in the bank provided they had not suffered such a loss of weight as to reduce them below the legal standard if the plan now proposed of paying bank notes in bullion be adopted it would be necessary either to extend the same privilege to country banks or to make bank notes a legal tender in which later case there would be no alteration in the law respecting country banks as they would be required precisely as they now are to pay their notes when demanded in bank of england notes the saving which would take place from not submitting the guineas to the loss of weight from the friction which they must undergo in their repeated journeys as well as of the expenses of convenience would be considerable but by far the greatest advantage would result from the permanent supply of the country as well as of the london circulation as far as the smaller payments are concerned being provided in the very cheap medium paper instead of the very valuable medium gold thereby enabling the country to derive all the profit which may be obtained by the productive employment of a capital to that amount we should surely not be justified in rejecting so decided a benefit unless some specific inconvenience could be pointed out as likely to follow from adopting the cheaper medium a currency is in its most perfect state when it consists wholly of paper money but of paper money of an equal value with the gold which it professes to represent the use of paper instead of gold substitutes the cheapest in place of the most expensive medium and enables the country without loss to any individual to exchange all the gold which it before used for this purpose for raw materials utensils and food by the use of which both its wealth and its enjoyments are increased in a national point of view it is of no importance whether the issuers of this well-regulated paper money be the government or a bank it will on the whole be equally productive of riches whether it be issued by one or by the other but it is not so with respect to the interest of individuals in a country where the market rate of interest is seven percent and where the state requires for a particular expense seventy thousand pounds per annum it is a question of importance to the individuals of that country whether they must be taxed to pay this seventy thousand pounds per annum or whether they could raise it without taxes suppose that a million of money should be required to fit out an expedition if the state issued a million of paper and displaced a million of coin the expedition would be fitted out without any charge to the people but if a bank issued a million of paper and lent it to government at seven percent thereby displacing a million of coin the country would be charged with a continual tax of seventy thousand pounds per annum the people would pay the tax the bank would receive it and the society would in either case be as wealthy as before the expedition would have been rarely fitted out by the improvement of our system by rendering capital of the value of a million productive in the form of commodities instead of letting it remain unproductive in the form of coin but the advantage would always be in favor of the issuers of paper and as the state represents the people the people would have saved the tax if they and not the bank had issued this million i have already observed that if there were perfect security that the power of issuing paper money would not be abused it would be of no importance with respect to the riches of the country collectively by whom it was issued and i have now shown that the public would have a direct interest that the issuers should be the state and not a company of merchants or bankers the danger however is that this power would be more likely to be abused if in the hands of government than if in the hands of a banking company a company would it is said be more under the control of law and although it might be their interest to extend their issues beyond the bounds of discretion they would be limited and checked by the power which individuals would have of calling for bullion or specie it is argued that the same check would not be long respected if government had the privilege of issuing money that they would be too apt to consider present convenience rather than future security and might therefore on the alleged grounds of expediency be too much inclined to remove the checks by which the amount of their issues was controlled under an arbitrary government this objection would have great force but in a free country with an enlightened legislature the power of issuing paper money under the requisite checks of convertibility at the will of the holder might be safely lodged in the hands of commissioners appointed for that special purpose and they might be made totally independent of the control of ministers the sinking fund is managed by commissioners responsible only to parliament and the investment of the money entrusted to their charge proceeds with the utmost regularity what reason can there be to doubt that the issues of paper money might be regulated with equal fidelity if placed under similar management it may be said that although the advantage accruing to the state and therefore to the public from issuing paper money is sufficiently manifest as it would exchange a portion of the national debt on which interest is paid by the public into a debt bearing no interest yet it would be disadvantageous to commerce as it would preclude the merchants from borrowing money and getting their bills discounted the method in which bank paper is partly issued this however is to suppose that money could not be borrowed if the bank did not lend it and that the market rate of interest and profit depends on the amount of the issues of money and on the channel through which it is issued but as a country would have no deficiency of cloth of wine or any other commodity if they had the means of paying for it in the same manner neither would there be any deficiency of money to be lent if the borrowers offered good security and were willing to pay the market rate of interest for it in another part of this work I have endeavored to show that the real value of a commodity is regulated not by the accidental advantages which may be enjoyed by some of its producers but by the real difficulties encountered by that producer who is least favored it is so with respect to the interest for money it is not regulated by the rate at which the bank will then whether it be five four or three percent but by the rate of profits which can be made by the employment of capital and which is totally independent of the quantity or of the value of money whether a bank lent one million ten millions or a hundred millions would not permanently alter the market rate of interest they would alter only the value of the money which they thus issued in one case ten or twenty times more money might be required to carry on the same business than what might be required in the other the applications to the bank for money then depend on the comparison between the rate of profits that may be made by the employment of it and the rate at which they are willing to lend it if they charged less than the market rate of interest there is no amount of money which they might not lend if they charge more than that rate none but spend thrifts and prodigals would be found to borrow of them we accordingly find that when the market rate of interest exceeds the rate of five percent at which the bank uniformly lend the discount office is besieged with applicants for money and on the contrary when the market rate is even temporarily under five percent the clerks of that office have no employment the reason then why for the last 20 years the bank is said to have given so much aid to commerce by assisting the merchants with money is because they have during that whole period lent money below the market rate of interest below that rate at which the merchants could have borrowed elsewhere but i confess that to me this seems rather an objection to their establishment than an argument in favor of it what should we save an establishment which should regularly supply half the clothiest with wool under the market price of what benefit would it be to the community it would not extend our trade because the wool would equally have been bought if they had charged the market price for it it would not lower the price of cloth to the consumer because the price as i have said before would be regulated by the cost of its production to those who were the least favored its sole effect then would be to swell the profits of a part of the clothiest beyond the general and common rates of profits the establishment would be deprived of its fair profits and another part of the community would be in the same degree benefited now this is precisely the effect of our banking establishments a rate of interest is fixed by the law below that at which it can be borrowed in the market and at this rate the banks are required to lend or not to lend at all from the nature of their establishment they have large funds which they can only dispose of in this way and a part of the traders of the country are unfairly and for the country unprofitably benefited by being enabled to supply themselves with an instrument of trade at a less charge than those who must be influenced only by market price the whole business which the whole community can carry on depends on the quantity of its capital that is of its raw material machinery food vessels etc employed in production after a well regulated paper money is established these can neither be increased nor diminished by the operations of banking if then the state were to issue the paper money of the country although it should never discount a bill or lend one shilling to the public there would be no alteration in the amount of trade for we should have the same quantity of raw materials of machinery food and ships and it is probable too that the same amount of money might be lend not always at five percent indeed a rate fixed by law when that might be under the market rate but at six seven or eight percent the result of the fair competition in the market between the lenders and the borrowers adam smith speaks of the advantages derived by merchants from the superiority of the scotch mode of affording accommodation to trade over the english mode by means of cash accounts these cash accounts are credits given by the scotch banker to his customers in addition to the bills which he discounts for them but as the banker in proportion as he advances money and sends it into circulation in one way is debarred from issuing so much in the other it is difficult to perceive in what the advantage consists if the whole circulation will bear only one million of paper one million only will be circulated and it can be of no real importance either to the banker or merchant whether the whole be issued in discounting bills or apart be so issued and the remainder be issued by means of these cash accounts it may perhaps be necessary to say a few words on the subject of the two metals gold and silver which are employed in currency particularly as this question appears to perplex in many people's minds the plain and simple principles of currency in england says dr smith gold was not considered as a legal tender for a long time after it was coined into money the proportion between the values of gold and silver money was not fixed by any public law or proclamation but was left to be settled by the market if a debtor offered payment in gold the creditor might either reject such payment altogether or accept of it at such evaluation of the gold as he and his debtor could agree upon in this state of things it is evident that a guinea might sometimes pass for 22 shillings or more and sometimes for 18 shillings or less depending entirely on the alteration in the relative market value of gold and silver all the variations too in the value of gold as well as in the value of silver would be rated in the gold coin it would appear as if silver was invariable and as if gold only was subject to rise and fall thus although guinea passed for 22 shillings instead of 18 shillings gold might not have varied in value the variation might have been wholly confined to the silver and therefore 22 shillings might have been of no more value than 18 shillings were before and on the contrary the whole variation might have been in the gold a guinea which was worth 18 shillings might have risen to the value of 22 shillings if now we suppose this silver currency to be debased by clipping and also increased in quantity a guinea might pass for 30 shillings for the silver in 30 shillings of such debased money might be of no more value than the gold in one guinea by restoring the silver currency to its mint value silver money would rise but it would appear as if gold fell for a guinea would probably be of no more value than 21 of such good shillings if now gold be also made illegal tender and every debtor be at liberty to discharge a debt by the payment of 420 shillings or 20 guineas for every 21 pounds that he owes he will pay in one or the other according as he can most cheaply discharge his debt if with five quarters of wheat he can procure as much gold bullion as the mint will coin into 20 guineas and for the same wheat as much silver bullion as the mint will coin for him into 430 shillings he will prefer paying in silver because he would be a gainer of 10 shillings by so paying his debt but if on the contrary he could obtain with this wheat as much gold as would be coined into 20 guineas and a half and as much silver only as would coin into 420 shillings he would naturally prefer paying his debt in gold if the quantity of gold which he could procure could be coined only into 20 guineas and the quantity of silver into 420 shillings it would be a matter of perfect indifference to him in which money silver or gold it was that he paid his debt it is not then a matter of chance it is not because gold is better fitted for carrying on the circulation of a rich country that gold is ever preferred for the purpose of paying debts but simply because it is the interest of the debtor so to pay them during a long period previous to 1797 the year of the restriction on the bank payments in coin gold was so cheap compared with silver that it suited the bank of england and all other debtors to purchase gold in the market and not silver for the purpose of carrying it to the mint to be coined as they could in that coin metal more cheaply discharged their debts the silver currency was during a great part of this period very much debased but it existed in a degree of scarcity and therefore on the principle which i have before explained it never sunk in its current value though so debased it was still the interest of debtors to pay in the gold coin if indeed the constancy of this debased silver coin had been enormously great or if the mint had issued such debased pieces it might have been the interest of debtors to pay in this debased money but its quantity was limited and it sustained its value and therefore gold was in practice the real standard of currency that it was so is nowhere denied but it has been contended that it was made so by the law which declared that silver should not be a legal tender for any debt exceeding 25 pounds unless by weight according to the mint standard but this law did not prevent any debtor from paying his debt however large its amount in the silver currency fresh from the mint that the debtor did not pay in this metal was not a matter of chance nor a matter of compulsion but holy the effect of choice it did not suit him to take silver to the mint it did suit him to take gold liver it is probable that if the quantity of this debased silver in circulation had been enormously great and also a legal tender that a guinea would have been again worth 30 shillings but it would have been the debased shilling that would have fallen in value and not the guinea that had risen it appears though that whilst each of the two metals was equally a legal tender for debts of any amount we were subject to a constant change in the principal standard measure of value it would sometimes be gold sometimes silver depending entirely on the variations in the relative value of the two metals and at such times the metal which was not the standard would be melted and withdrawn from circulation as its value would be greater in premium than in coin this was an inconvenience which it was highly desirable should be remedied it's so slow is the progress of improvement that although it had been unanswerably demonstrated by mr lock and had been noticed by all writers on the subject of money since his day a better system was never adopted till the session of parliament 1816 when it was enacted that gold only should be a legal tender for any sum exceeding 40 shillings dr smith does not appear to have been quite aware of the effect of employing two metals as currency and both the legal tender for debts of any amount for he says that in reality during the continuance of any one regulated proportion between the respective values of the different metals in coin the value of the most precious metal regulates the value of the whole coin because gold was in his day the medium in which it suited debtors to pay their debts he thought that it had some inherent quality by which it did then and always would regulate the value of silver coin on the reformation of the gold coin in 1774 a new guinea fresh from the mint would exchange for only 21 debased shillings but in the reign of king william when the silver coin was in precisely the same condition a guinea also new and fresh from the mint would exchange for 30 shillings on this mr bucannon observes here then is a most singular fact of which the common theories of currency offer no account the guinea exchanging at one time for 30 shillings its intrinsic worth in a debased silver currency and after which the same guinea exchange for only 21 of those debased shillings it is clear that some great change must have intervened in the state of the currency between these two different periods of which dr smith's hypothesis offers no explanation it appears to me that the difficulty may be very simply solved by referring this different state of the value of the guinea at the two periods mentioned to the different quantities of debased silver currency in circulation in king william's reign gold was not a legal tender it passed only at conventional value all the large payments were probably made in silver particularly as paper currency and the operations of banking were then little understood the quantity of this debased silver money exceeded the quantity of silver money which would have been maintained in circulation if nothing but undebased money had been in use and consequently it was depreciated as well as debased but in the succeeding period when gold was a legal tender when banknotes also were used in effecting payments the quantity of debased silver money did not exceed the quantity of silver coin fresh from the mint which would have circulated if there had been no debased silver money hence though the money was debased it was not depreciated mr bucannon's explanation is somewhat different he thinks that a subsidiary currency is not liable to depreciation but that the main currency is in king william's reign silver was the main currency and hence was liable to depreciation in 1774 it was a subsidiary currency and therefore maintained its value depreciation however does not depend on a currency being the subsidiary of the main currency it depends wholly on its being in excess of quantity footnote it has lately been contended in parliament by lord lordedale that with the existing mint regulation the bank could not pay their notes in specie because the relative value of the two metals is such that it would be for the interest of all debtors to pay their debts with silver and not with gold coin while the law gives a power to all the creditors of the bank to demand gold in exchange for banknotes this gold is lordship things could be profitably exported and if so it contends that the bank to keep a supply will be obliged to buy gold constantly at a premium and sell it at par if every other debtor could pay in silver lord lordedale would be right but he cannot do so if this debt exceed 40 shillings this then would limit the amount of silver coin in circulation if government had not reserved to itself the power to stop the coinage of that metal whenever they might think it expedient because if too much silver were coined it would sink in relative value to gold and no man would accept it in payment for a debt exceeding 40 shillings unless a compensation were made for its lower value to pay a debt of 100 pounds 100 sovereigns or banknotes to the amount of 100 pounds would be necessary but 105 pounds in silver coin might be required if there were too much silver in circulation there are then two checks against an excessive quantity of silver coin first the direct check which government made any time interposed to prevent more from being coined secondly no motive of interest would lead anyone to take silver to the mint if he might do so for if it were coined it would not pass current at its mint but only at its market value end of footnote to a modern sinurage on the coinage of money there cannot be much objection particularly on that currency which is to affect the smaller payments money is generally enhanced in value to the full amount of the sinurage and therefore it is a tax which in no way affects those who pay it while the quantity of money is not in excess it must however be remarked that in a country where a paper currency is established although the issuers of such paper should be liable to pay it in specie on the demand of the holder still both their notes and the coin might be depreciated to the full amount of the sinurage on that coin which is alone the legal tender before the check which limits the circulation of paper would operate if the sinurage of gold coin were five percent for instance the currency by an abundant issue of banknotes might be really depreciated five percent before it would be the interest of the holders to demand coin for the purpose of melting it into bullion a depreciation to which we should never be exposed if either there was no sinurage on the gold coin or if a sinurage were allowed the holders of banknotes might demand bullion and not coin in exchange for them at the mint price of three pounds seventeen shillings ten and apence unless then the bank should be obliged to pay their notes in bullion or coin at the will of the holder the late law which allows a sinurage of six percent or four pence per ounce on the silver coin but which directs that gold shall be coined by the mint without any charge whatever is perhaps the most proper as it will most effectively prevent any unnecessary variation of the currency chapter 28 on the comparative value of gold corn and labor in rich and poor countries gold and silver like all other commodities says adam smith naturally seek the market where the best price is given for them and the best price is commonly given for everything in the country which can best afford it labor it must be remembered is the ultimate price which is paid for everything and in countries where labor is equally well rewarded the money price of labor will be in proportion to that of the subsistence of the laborer but gold and silver will naturally exchange for a greater quantity of substance in a rich than in a poor country in a country which abounds with subsistence but in one which is but indifferently supplied with it but corn is a commodity as well as gold silver and other things if all commodities therefore have a high exchangeable value in a rich country corn must not be accepted and hence we might correctly say that corn exchanged for a great deal of money because it was dear and that money do exchanged for a great deal of corn because that also was dear which is to assert that corn is dear and cheap at the same time no point in political economy can be better established than that a rich country is prevented from increasing in population in the same ratio as a poor country by the progressive difficulty of providing food that difficulty must necessarily raise the relative price of food and give encouragement to its importation how then can money or gold and silver exchange for more corn in rich than in poor countries it is only in rich countries where corn is dear that landholders induce the legislature to prohibit the importation of corn who ever heard of a law to prevent the importation of raw produce in america or poland nature has effectually precluded its importation by the comparative facility of its production in those countries how then can it be true that if you accept corn and such other vegetables as are raised all together by human industry all other sorts of raw produce cattle poultry game of all kinds the useful fossils and minerals of the earth etc naturally grow dearer as the society advances why should corn and vegetables alone be accepted dr smith's error throughout his whole work lies in supposing that the value of corn is constant that though the value of all other things may the value of corn never can be raised corn according to him is always of the same value because it will always feed the same number of people in the same manner it might be said that cloth is always of the same value because it would always make the same number of coats what can value have to do with the power of feeding and clothing corn like every other commodity has in every country its natural price there's that price which is necessary to its production and without which it could not be cultivated it is this price which governs its market price and which determines the expediency of exporting it to foreign countries if the importation of corn were prohibited in england its natural price might rise to six pounds per quarter in england when it was only at half that price in france if at this time the prohibition of importation were removed corn would fall in the english market not to a price between six pounds and three pounds but ultimately and permanently to the natural price of france the price at which it could be furnished to the english market and afford the usual and ordinary profits of stock in france and it would remain at this price where the england consumed a hundred thousand or a million of quarters if the demand of england were for the latter quantity it is probable that owing to the necessity under which france would be of having recourse to land of a worse quality to furnish this large supply the natural price would rise in france and this would of course affect also the price of corn in england all that i contend for is that it is the natural price of commodities in the exporting country which ultimately regulates the prices at which they shall be sold if they are not the objects of monopoly in the importing country but dr smith who has so ably supported the doctrine of the natural price of commodities ultimately regulating the market price has supposed a case in which he thinks that the market price would not be regulated either by the natural price of the exporting or of the importing country diminished the real opulence either of holland or the territory of genoa he says while the number of their inhabitants remains the same 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 it scores or as its effect will rise to the price of a famine to me it appears that the very reverse would take place the diminished power of the dutch or genoese to purchase generally might depress the price of corn for a time below its natural price in the country from which it was exported as well as in the countries in which it was imported but it is quite impossible that it could ever raise it above that price it is only by increasing the opulence of the dutch or genoese that you could increase the demand and raise the price of corn above its former price and that would also take place only for a very limited time unless new difficulties should arise in obtaining the supply dr smith further observes on this subject when we are in want of necessaries we must part with all superfluities of which the value as it rises in times of opulence and prosperity so it sinks in times of poverty and distress this is undoubtedly true but he continues it is otherwise with necessaries their real price the quantity of labor which they can purchase or command rises in times of poverty and distress 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 is a necessary silver is only a superfluity two propositions are here advanced which have no connection with each other one that under the circumstances supposed corn would command more labor which is not disputed the other that corn would sell at a higher money price that it would exchange for more silver this i can tend to be abronious it might be true if corn were at the same time scarce if the usual supplier not being furnished but in this case it is abundant it is not pretended that a less quantity than usual is imported or that more is required to purchase corn the dutch or genoese want money and to obtain this money they are obliged to sell their superfluities it is the market value and price of these superfluities which falls and money appears to rise as compared with them this will not tend to increase the demand for corn nor to lower the value of money the only two causes which can raise the price of corn money from a want of credit and from other causes may be in great demand and consequently dear comparatively with corn but on no just principle can it be maintained that under such circumstances money would be cheap and therefore that the price of corn would rise when we speak of the high or low value of gold silver or any other commodity in different countries we should always mention some medium in which we are estimating them or no idea can be attached to the proposition thus when gold is said to be dearer in england than in spain if no commodity is mentioned what notion does the assertion convey if corn olives oil wine and wool be at a cheaper price in spain than in england estimated in those commodities gold is dearer in spain if again hardware sugar cloth etc be at a lower price in england than in spain then estimated in those commodities gold is dearer in england thus gold appears dearer or cheaper in spain as the fancy of the observer may fix on the medium by which he estimates its value adam smith having stamped corn and labour as an universal measure of value would naturally estimate the comparative value of gold by the quantity of those two objects for which it would exchange and accordingly when he speaks of the comparative value of gold in two countries i understand him to mean its value estimated in corn and labour but we have seen that estimated in corn gold may be a very different value in two countries i have endeavored to show that it will be low in rich countries and high in poor countries adam smith is of a different opinion he thinks that the value of gold estimated in corn is highest in rich countries but without further examining which of these opinions is correct either of them is sufficient to show that gold will not necessarily be lower in those countries which are in possession of the mines though this is a proposition maintained by adam smith suppose england to be possessed of the mines and adam smith's opinion that gold is of the greatest value in rich countries to be correct although gold would naturally flow from england to all other countries in exchange for their goods it would not follow that gold was necessarily lower in england as compared with corn and labour than in those countries in another place however adam smith speaks of the precious metals being necessarily lower in spain and portugal than in other parts of europe because those countries happen to be almost the exclusive possessors of the mines which produce them poland where the feudal system still continues to take place is at this day as beggerly a country as it was before the discovery of america the money price of corn however has risen the real value of the precious metals has fallen in poland in the same manner as in other parts of europe the quantity therefore must have increased there as in other places and nearly in the same proportion to the annual produce of the land and labour this increase of the quantity of those metals however has not it seems increased that annual produce has neither improved the manufacturers and agriculture of the country nor mended the circumstances of its inhabitants spain and portugal the countries which possess the mines are after poland perhaps the two most beggerly countries in europe the value of the precious metals however must be lower in spain and portugal than in any other parts of europe loaded not only with a freight and insurance but with the expense of smuggling the exportation being either prohibited or subjected to a duty in proportion to the annual produce of the land and labour therefore their quantity must be greater in those countries than in any other part of europe those countries however are poorer than the greater part of europe though the feudal system has been abolished in spain and portugal it has not been succeeded by a much better doctor smith's argument appears to me to be this gold when estimated in corn is cheaper in spain than in other countries and the proof of this is not that corn is given by other countries to spain for gold but that cloth sugar hardware are by those countries given in exchange for that metal chapter 29 taxes paid by the producer must just say greatly magnifies the inconveniences which result if a tax on a manufactured commodity is levied at an early rather than at a late period of its manufacture the manufacturers he observes through whose hands the commodity may successfully pass must employ greater funds in consequence of having to advance the tax which is often attended with considerable difficulty to a manufacturer a very limited capital and credit to this observation no objection can be made another inconvenience on which he dwells is that in consequence of the advance of the tax the profits on the advance also must be charged to the consumer and that this additional tax is one from which the treasury derives no advantage in this latter objection i cannot agree with monsieur say the state we will suppose wants to raise immediately one thousand pounds and levies it on a manufacturer who will not for a twelve month be able to charge it to the consumer on his finished commodity in consequence of such delay he is obliged to charge for his commodity an additional price not only of one thousand pounds the amount of the tax but probably of one thousand one hundred pounds one hundred pounds being for interest on the one thousand pounds advanced but in return for this additional one hundred pounds paid by the consumer he has a real benefit in as much as his payment of the tax which government required immediately and which he must finally pay has been postponed for a year an opportunity therefore has been afforded to him of lending to the manufacturer who had occasion for it the one thousand pounds at ten percent or at any other rate of interest which might be agreed upon eleven hundred pounds payable at the end of one year when money is a ten percent interest is of no more value than one thousand pounds to be paid immediately if government delayed receiving the tax for one year till the manufacturer of the commodity was completed it would perhaps be obliged to issue an exchequer bill bearing interest and it would pay as much for interest as the consumer would save in price accepting indeed that portion of the price which the manufacturer might be enabled in consequence of the tax to add to his own real gains if the interest of the exchequer bill government would have paid five percent a tax of fifty pounds is saved by not issuing it if the manufacturer borrowed the additional capital at five percent and charged the consumer ten percent he also would have gained five percent on his advance over and above his usual profits so that the manufacturer and government together gain or save precisely the sum which the consumer pays mr. cimand in his excellent work the larice yes commercial following the same line of argument as mr. say has calculated that a tax of four thousand francs paid originally by a manufacturer whose profits were at the moderate rate of ten percent would if the commodity manufactured only passed through the hands of five different persons be raised to the consumer to the sum of six thousand seven hundred and thirty four francs this calculation proceeds on the supposition that he who first advanced the tax would receive from the next manufacturer four thousand four hundred francs and he again from the next four thousand eight hundred and forty francs so that at each step ten percent on its value would be added to it this is to suppose that the value of the tax would be accumulating at compound interest not at the rate of ten percent per annum but at an absolute rate of ten percent at every step of its progress this opinion of mr. disarmul would be correct if five years elapsed between the first advance of the tax and the sale of the taxed commodity to the consumer but if one year only elapsed a remuneration of four hundred francs instead of two thousand seven hundred and thirty four would give a profit at the rate of ten percent per annum to all who had contributed to the advance of the tax whether the commodity had passed through the hands of five manufacturers or fifty chapter thirty on the influence of demand and supply on prices it is the cost of production which must ultimately regulate the price of commodities and not as has been often said the proportion between the supply and demand the proportion between supply and demand may indeed for a time affect the market value of a commodity until it is supplied in greater or less abundance according as the demand may have increased or diminished but this effect will be only of temporary duration diminished the cost of production of hats and their price will ultimately fall to their new natural price although the demand should be doubled troubled or quadrupled diminished the cost of subsistence of men by diminishing the natural price of food and clothing by which life is sustained and wages will ultimately fall not withstanding that the demand for laborers may very greatly increase the opinion that the price of commodities depends solely on the proportion of supply to demand or demand to supply has become almost an axiom in political economy and has been the source of much error in that science it is this opinion which has made mr. Buchanan maintain that wages are not influenced by a rise or fall in the price of provisions but solely by the demand and supply of labor and that attacks on the wages of labor would not raise wages because it would not alter the proportion of the demand of laborers to the supply the demand for a commodity cannot be said to increase if no additional quantity of it be purchased or consumed and yet under such circumstances its money value may rise thus if the value of money were to fall the price of every commodity would rise for each of the competitors would be willing to spend more money than before on its purchase but though its price rose 10 or 20 percent if no more were bought than before it would not I apprehend be admissible to say that the variation in the price of the commodity was caused by the increased demand for it its natural price its money cost of production would be really altered by the altered value of money and without any increase of demand the price of the commodity would be naturally adjusted to that new value we have seen says mr. say that the cost of production determines the lowest price to which things can fall the price below which they cannot remain for any length of time because production would then be either entirely stopped or diminished volume 2 page 26 the afterwards says that the demand for gold having increased and a still greater proportion than the supply since the discovery of the mines its price in goods instead of falling in the proportion of 10 to 1 felt only in the proportion of 4 to 1 that is to say instead of falling in proportion as its natural price had fallen fell in proportion as the supply exceeded the demand footnote mr. say writes in volume 1 quote if with the quantity of golden silver which actually exists these metals only served for the manufacture of utensils and ornaments they would be abundant and would be much cheaper than they are at present in other words in exchanging them for any other species of goods we should be obliged to give proportionally a greater quantity of them but as a large quantity of these metals is used for money and as this portion is used for no other purpose there remains less to be employed in furniture and jewelry now this scarcity adds to their value unquote end of footnote the value of every commodity rises always in a direct ratio to the demand and in an inverse ratio to the supply the same opinion is expressed by the Earl of lauderdale with respect to the variations in value of which everything valuable is susceptible if we could for a moment suppose that any substance possessed intrinsic and fixed value so as to render an assumed quantity of it constantly under all circumstances of an equal value then the degree of value of all things ascertained by such a fixed standard would vary according to the proportion betwixt the quantity of them and the demand for them and every commodity would of course be subject to a variation in its value from four different circumstances one it would be subject to an increase of its value from a diminution of its quantity two to a diminution of its value from an augmentation of its quantity three it might suffer an augmentation in its value from the circumstance of an increased demand four its value might be diminished by a failure of demand as it will however clearly appear that no commodity can possess fixed and intrinsic value so as to qualify it for a measure of the value of other commodities mankind are induced to select as a practical measure of value that which appears the least liable to any of these four sources of variations which are the sole causes of alteration of value when in common language therefore we express the value of any commodity it may vary at one period from what it is at another in consequence of eight different contingencies one from the four circumstances above stated in relation to the commodity of which we mean to express the value two from the same four circumstances in relation to the commodity we have adopted as a measure of value this is true of monopolized commodities and indeed of the market price of all other commodities for a limited period if the demand for hats should be doubled the price would immediately rise but that rise would be only temporary unless the cost of production of hats or their natural price were raised if the natural price of bread should fall 50 percent from some great discovery in the science of agriculture the demand would not greatly increase for no man would desire more than would satisfy his wants and as the demand would not increase neither would the supply for a commodity is not supplied merely because it can be produced but because there is a demand for it here then we have a case where the supply and demand have scarcely varied or if they have increased they have increased in the same proportion and yet the price of bread will have fallen 50 percent at a time too when the value of money had continued invariable commodities which are monopolized either by an individual or by a company vary according to the law which lord lordedale has laid down they fall in proportion as the sellers augment their quantity and rise in proportion to the eagerness of the buyers to purchase them their price has no necessary connection with their natural value but the prices of commodities which are subject to competition and whose quantity may be increased in any moderate degree will ultimately depend not on the state of demand and supply but on the increased or diminished cost of their production chapter 31 on machinery in the present chapter i shall enter into some inquiry respecting the influence of machinery on the interests of the different classes of society a subject of great importance and one which appears never to have been investigated in a manner to lead to any certain or satisfactory results it is more incumbent on me to declare my opinion on this question because they have on further reflection undergone a considerable change and although i'm not aware that i have ever published anything respecting machinery which it is necessary for me to retract yet i have in other ways given my support to doctrines which i now think erroneous it therefore becomes a duty in me to submit my present views to examination with my reasons for entertaining them ever since i first turned my attention to questions of political economy i have been of opinion that such an application of machinery to any branch of production as should have the effect of saving labor was a general good accompanied only with that portion of inconvenience which in most cases attends the removal of capital and labor from one employment to another it appeared to me that provided the landlords had the same money rents they would be benefited by the reduction in the prices of some of the commodities on which those rents were expanded and which reduction of price could not fail to be the consequence of the employment of machinery the capitalist i thought was eventually benefited precisely in the same manner he indeed who made the discovery of the machine or who first usefully applied it would enjoy an additional advantage by making great profits for a time but in proportion as the machine came into general use the price of the commodity produced would from the effects of competition sink to its cost of production when the capitalist would get the same money profits as before and he would only participate in the general advantage as a consumer by being enabled with the same money revenue to command an additional quantity of comforts and enjoyments the class of laborers also i thought was equally benefited by the use of machinery as they would have the means of buying more commodities with the same money wages and i thought that no reduction of wages would take place because the capitalist would have the power of demanding and employing the same quantity of laborers before although he might be under the necessity of employing it in the production of a new or at any rate of a different commodity if by improved machinery with the employment of the same quantity of labor the quantity of stockings could be quadrupled and the demand for stockings were only doubled some laborers would necessarily be discharged from the stocking trade but as the capital which employed them was still in being and as it was the interest of those who had it to employ it productively it appeared to me that it would be employed on the production of some other commodity useful to the society for which they could not fail to be a demand for i was and am deeply impressed with the truth of the observation of adam smith that the desire for food is limited in every man by the narrow capacity of the human stomach at the desire of the conveniences and ornaments of building dress equipment and household furniture seems to have no limit or certain boundary as then it appeared to me that there would be the same demand for laborers before and that wages would be no lower i thought that the laboring class would equally with the other classes participate in the advantage from the general cheapness of commodities arising from the use of machinery these were my opinions and they continue on altered as far as regards the landlord and the capitalist but i am convinced that the substitution of machinery for human labor is often very injurious to the interests of the class of laborers my mistake arose from the supposition that whenever the net income of a society increased its gross income would also increase i now however see reason to be satisfied that the one fund from which landlords and capitalists derive their revenue may increase while the other that upon which the laboring classes mainly depend may diminish and therefore it follows if i am right that the same cause which may increase the net revenue of the country may at the same time render the population redundant and deteriorate the condition of the laborer a capitalist we will suppose employs a capital of the value of 20 000 pounds and that he carries on the junk business of a farmer and a manufacturer of necessities we will further suppose that 7 000 pounds of this capital is invested in fixed capital viz in buildings implements etc etc and that the remaining 13 000 pounds is employed as circulating capital in the support of labor let us suppose too that profits are 10 percent and consequently that the capitalists capital is every year put into its original state of efficiency and yields a profit of 2000 pounds each year the capitalist begins his operations by having food and necessaries in his possession of the value of 13 000 pounds all of which he sells in the course of the year to his own workmen for that sum of money and during the same period he pays them the like amount of money for wages at the end of the year they replace in his possession food and necessaries the value of 15 000 pounds 2000 pounds of which he consumes himself or disposes of as may best suit his pleasure and gratification as far as these products are concerned the gross produce for that year is 15 000 pounds and the net produce 2000 pounds suppose now that the following year the capitalist employs half his men in constructing a machine and the other half in producing food and necessaries as usual during that year he would pay the sum of 13 000 pounds in wages as usual and would sell food and necessaries to the same amount to his workmen but what would be the case the following year while the machine was being made only one half of the usual quantity of food and necessaries would be obtained and they would be only one half the value of the quantity which was produced before the machine would be worth 7 500 pounds and the food and necessaries 7 500 pounds and therefore the capital of the capitalist would be as great as before for he would have besides these two values his fixed capital worth 7 000 pounds making in the whole 20 000 pounds capital and 2000 pounds profit after deducting this latter sum for his own expenses he would have a no greater circulating capital than 5 500 pounds with which to carry on his subsequent operations and therefore his means of employing labour would be reduced in the proportion of 13 000 pounds to 5 500 pounds and consequently all the labour which was before employed by 7 500 pounds would become redundant the reduced quantity of labour which the capitalist can employ must indeed with the assistance of the machine and after deductions for its repairs produce a value equal to 7 500 pounds it must replace the circulating capital with a profit of 2000 pounds on the whole capital but if this be done if the net income be not diminished of what importance is it to the capitalist whether the gross income be of the value of 3000 pounds of 10 000 pounds or 15 000 pounds in this case then although the net produce will not be diminished in value although its power of purchasing commodities may be greatly increased the gross produce will have fallen from a value of 15 000 pounds to a value of 7 500 pounds but as the power of supporting a population and employing labour depends always on the gross produce of a nation and not on its net produce there will necessarily be a diminution in the demand for labour population will become redundant and the situation of the labouring classes will be that of distress and poverty as however the power of saving from revenue to add to capital must depend on the efficiency of the net revenue to satisfy the wants of the capitalist it could not fail to follow from the reduction in the price of commodities consequent on the introduction of machinery that with the same wants he would have increased means of saving increased facility of transferring revenue into capital but with every increase of capital he would employ more labourers and therefore a portion of the people thrown out of work in the first instance would be subsequently employed and if the increased production in consequence of the employment of the machine was so great as to afford in the shape of net produce as greater quantity of food and necessary as existed before in the form of gross produce there would be the same ability to employ the whole population and therefore there would not necessarily be any redundancy of people all I wish to prove is that the discovery and use of machinery may be attended with a diminution of gross produce and whenever that is the case it will be injurious to the labouring class as some of their number will be thrown out of employment and population will become redundant compared with the funds which are to employ it the case which I have supposed is the most simple that I could select but it would make no difference in the result if we suppose that the machinery was applied to the trade of any manufacturer that of a clothier for example or of a cotton manufacturer if in the trade of a clothier less cloth would be produced after the introduction of machinery for a part of that quantity which is disposed of for the purpose of paying a large body of workmen would not be required by their employer in consequence of using the machine it would be necessary for him to reproduce a value only equal to the value consumed together with the profits on the whole capital seven thousand five hundred pounds might do this as effectively as fifteen thousand pounds did before the case differing in no respect from the former instance it may be said however that the demand for cloth would be as great as before and it may be asked from whence would this supply come by whom would the cloth be demanded by the farmers and the other producers of necessaries who employed their capitals in producing these necessaries as a means of obtaining cloth they gave corn and necessaries to the clothier for cloth and he bestowed them on his workmen for the cloth which their work afforded him this trade would now cease the clothier would not want the food and clothing having fewer men to employ and having less cloth to dispose of the farmers and others who only produced necessaries as a means to an end could no longer obtain cloth by such an application of their capitals and therefore they would either themselves employ their capitals in producing cloth or would lend them to others in order that the commodity really wanted might be furnished and that for which no one had the means