Introduction and Chapter 1 of the Wealth of Nations, Book 4. This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information or to volunteer, please visit LibriVox.org. Recording by Stephen Escalera. The Wealth of Nations by Adam Smith. Book 4 of Systems of Political Economy. Introduction and Chapter 1, Part A of the Principle of the Commercial or Mercantile System. Introduction. Political Economy, considered as a branch of the science of a statesman or legislator, proposes two distinct objects. First, to provide a plentiful revenue or subsistence for the people, or more properly, to enable them to provide such a revenue or subsistence for themselves. And secondly, to supply the state or commonwealth with a revenue sufficient for the public services. It proposes to enrich both the people and the sovereign. The different progress of opulence in different ages and nations has given occasion to two different systems of political economy with regard to enriching the people. The one may be called the system of commerce, the other that of agriculture. I shall endeavor to explain both as fully and distinctly as I can, and shall begin with the system of commerce. It is the modern system and is best understood in our own country and in our own times. Chapter 1. That wealth consists in money, or in gold or silver, is a popular notion which naturally arises from the double function of money, as the instrument of commerce, and as the measure of value. In consequence of its being the instrument of commerce, when we have money, we can more readily obtain whatever else we have occasion for, than by means of any other commodity. The great affair, we always find, is to get money. When that is obtained, there is no difficulty in making any subsequent purchase. In consequence of its being the measure of value, we estimate that of all other commodities by the quantity of money which they will exchange for. We say of a rich man that he is worth a great deal, and of a poor man that he is worth very little money. A frugal man, or a man eager to be rich, is said to love money, and a careless, a generous, or a profuse man is said to be indifferent about it. To grow rich is to get money, and wealth and money in short are in common language considered as an ever-respect synonymous. A rich country, in the same manner as a rich man, is supposed to be a country abounding in money, and to heap up gold and silver in any country is supposed to be the readiest way to enrich it. For some time after the discovery of America the first inquiry of the Spaniards, when they arrived upon any unknown coast, used to be if there was any gold or silver to be found in the neighborhood. By the information which they received they judged whether it was worthwhile to make a settlement there or if the country was worth conquering. Plano Carpino, a monk sent ambassador from the king of France to one of the sons of the famous Genghis Khan, says that the Tartars used frequently to ask him if there was plenty of sheep and oxen in the kingdom of France. Their inquiry had the same object with that of the Spaniards. They wanted to know if the country was rich enough to be worth the conquering. Among the Tartars, as among all other nations of shepherds who are generally ignorant of the use of money, cattle are the instruments of commerce and the measures of value. Wealth, therefore, according to them, consisted in cattle, as, according to the Spaniards, it consisted in gold and silver. Of the two the Tartar notion, perhaps, was the nearest to the truth. Mr. Locke remarks a distinction between money and other movable goods. All other movable goods, he says, are of so consumable a nature that the wealth which consists in them cannot be much dependent on, and a nation which abounds in them one year may, without any exportation, but merely by their own waste and extravagance, be in great want of them the next. Money, on the contrary, is a steady friend, which, though it may travel about from hand to hand, yet, if it can be kept from going out of the country, is not very liable to be wasted and consumed. Gold and silver, therefore, are, according to him, the most solid and substantial part of the movable wealth of a nation, and to multiply those metals ought, he thinks, upon that account to be the great object of its political economy. Others admit that if a nation could be separated from all the world, it would be of no consequence how much or how little money circulated in it. The consumable goods, which were circulated by means of this money, would only be exchanged for a greater or a smaller number of pieces. But the real wealth or poverty of the country, they allow, would depend altogether upon the abundance or scarcity of those consumable goods. But it is otherwise, they think, with countries which have connections with foreign nations, and which are obliged to carry on foreign wars and to maintain fleets and armies in distant countries. This, they say, cannot be done but by sending abroad money to pay them with, and a nation cannot send much money abroad unless it has a good deal at home. Every such nation, therefore, must endeavor, in time of peace, to accumulate gold and silver, that when occasion requires, it may have wherewithal to carry on foreign wars. In consequence of those popular notions, all the different nations of Europe have studied, though to little purpose, every possible means of accumulating gold and silver in their respective countries. Spain and Portugal, the proprietors of the principal mines which supply Europe with those metals, have either prohibited their exportation under these severest penalties or subjected it to a considerable duty. The like prohibition seems anciently to have made a part of the policy of most other European nations. It is even to be found where we should least of all expect to find it, in some old scotch acts of parliament, which forbid, under heavy penalties, the carrying gold or silver forth of the kingdom. The like policy anciently took place both in France and England. When those countries became commercial, the merchants found this prohibition upon many occasions extremely inconvenient. They could frequently buy more advantageously with gold and silver than with any other commodity, the foreign goods which they wanted, either to import into their own or to carry to some other foreign country. They remonstrated, therefore, against this prohibition as hurtful to trade. They represented, first, that the exportation of gold and silver in order to purchase foreign goods did not always diminish the quantity of those metals in the kingdom, that, on the contrary, it might frequently increase the quantity. Because, if the consumption of foreign goods was not thereby increased in the country, those goods might be re-exported to foreign countries, and being there sold for a large profit might bring back much more treasure than was originally sent out to purchase them. Mr. Munn compares this operation of foreign trade to the seed time and harvest of agriculture. If we only behold, says he, the actions of the husbandmen in the seed time, when he casteth away much good corn into the ground, we shall account him rather a madman than a husbandman. But when we consider his labors in the harvest, which is the end of his endeavors, we shall find the worth and plentiful increase of his actions. They represented, secondly, that this prohibition could not hinder the exportation of gold and silver, which, on account of the smallness of their bulk in proportion to their value, could easily be smuggled abroad. That this exportation could only be prevented by a proper attention to what they called the balance of trade. That when the country exported to a greater value than it imported, a balance became due to it from foreign nations, which was necessarily paid to it in gold and silver, and thereby increased the quantity of those metals in the kingdom. But that when it imported to a greater value than it exported, a contrary balance became due to foreign nations, which was necessarily paid to them in the same manner, and thereby diminished that quantity. That in this case, to prohibit the exportation of those metals could not prevent it, but only, by making it more dangerous, render it more expensive. That the exchange was thereby turned more against the country which owed the balance than it otherwise might have been, the merchant who purchased a bill upon the foreign country being obliged to pay the banker who sold it, not only for the natural risk, trouble, and expense of sending the money thither, but for the extraordinary risk arising from the prohibition. But that the more the exchange was against any country, the more the balance of trade became necessarily against it, the money of that country becoming necessarily of so much less value in comparison with that of the country to which the balance was due. That if the exchange between England and Holland, for example, was 5% against England, it would require 105 ounces of silver in England to purchase a bill for 100 ounces of silver in Holland. That 105 ounces of silver in England, therefore, would be worth only 100 ounces of silver in Holland, and would purchase only a proportionable quantity of Dutch goods. But that 100 ounces of silver in Holland, on the contrary, would be worth 105 ounces in England, and would purchase a proportionable quantity of English goods. That the English goods which were sold to Holland would be sold so much cheaper, and the Dutch goods which were sold to England so much dearer by the difference of the exchange, that the one would draw so much less Dutch money to England, and the other so much more English money to Holland, as this difference amounted to, and that the balance of trade therefore would necessarily be so much more against England, and would require a greater balance of gold and silver to be exported to Holland. Those arguments were partly solid and partly sophisticated. They were solid, so far as they asserted that the exportation of gold and silver in trade might frequently be advantageous to the country. They were solid, too, in asserting that no prohibition could prevent their exportation when private people found any advantage in exporting them. But they were sophisticated in supposing that either to preserve or to augment the quantity of those metals required more the attention of government than to preserve or to augment the quantity of any other useful commodities which the freedom of trade without any such attention never fails to supply in the proper quantity. They were sophisticated, too, perhaps in asserting that the high price of exchange necessarily increased what they called the unfavorable balance of trade, or occasioned the exportation of a greater quantity of gold and silver. That high price, indeed, was extremely disadvantageous to the merchants who had any money to pay in foreign countries. They paid so much dearer for the bills which their bankers granted them upon those countries. But though the risk of rising from the prohibition might occasion some extraordinary expense to the bankers, it would not necessarily carry any more money out of the country. This expense would generally be all laid out in the country, in smuggling the money out of it, and could seldom occasion the exportation of a single sixpence beyond the precise sum drawn for. The high price of exchange, too, would naturally dispose the merchants to endeavor to make their exports nearly balance their imports in order that they might have this high exchange to pay upon as small a sum as possible. The high price of exchange, besides, must necessarily have operated as a tax in raising the price of foreign goods and thereby diminishing their consumption. It would tend, therefore, not to increase, but to diminish what they called the unfavorable balance of trade, and consequently the exportation of gold and silver. Such as they were, however, those arguments convinced the people to whom they were addressed. They were addressed by merchants, to parliaments, and to the councils of princes, to nobles, and to country gentlemen, by those who were supposed to understand trade, to those who were conscious to themselves that they knew nothing about the matter. That foreign trade enriched the country, experience demonstrated to the nobles and country gentlemen, as well as to the merchants. But how, or in what manner, none of them well knew? The merchants knew perfectly in what manner it enriched themselves, it was their business to know it. But to know in what manner it enriched the country was no part of their business. The subject never came into their consideration, but when they had occasion to apply to their country, for some change in the laws relating to foreign trade. It then became necessary to say something about the beneficial effects of foreign trade, and the manner in which those effects were obstructed by the laws as they then stood. To the judges who were to decide the business, it appeared a most satisfactory account of the matter, when they were told that foreign trade brought money into the country, but that the laws in question hindered it from bringing so much as it otherwise would do. Those arguments, therefore, produced the wished for effect. The prohibition of exporting gold and silver was, in France and England, confined to the coin of those respective countries. The exportation of foreign coin and of bullion was made free. In Holland, and in some other places, this liberty was extended even to the coin of the country. The attention of government was turned away from guarding against the exportation of gold and silver to watch over the balance of trade, as the only cause which could occasion any augmentation or diminution of those metals. From one fruitless care, it was turned away to another care much more intricate, much more embarrassing, and just equally fruitless. The title of Munn's book, England's treasure in foreign trade, became a fundamental maxim in the political economy, not of England only, but of all other commercial countries. The inland or home trade, the most important of all, the trade in which an equal capital affords the greatest revenue, and creates the greatest employment to the people of the country, was considered as subsidiary only to foreign trade. It neither brought money into the country, it was said, nor carried any out of it. The country, therefore, could never become either richer or poorer by means of it, except so far as its prosperity or decay might indirectly influence the state of foreign trade. A country that has no mines of its own must undoubtedly draw its gold and silver from foreign countries, in the same manner as one that has no vineyards of its own must draw its wines. It does not seem necessary, however, that the attention of government should be more turned towards the one than towards the other object. A country that has wherewithal to buy wine will always get the wine which it has occasion for, and a country that has wherewithal to buy gold and silver will never be in want of those metals. They are to be bought for a certain price, like all other commodities, and as they are the price of all other commodities, so all other commodities are the price of those metals. We trust, with perfect security, that the freedom of trade, without any attention of government, will always supply us with the wine which we have occasion for, and we may trust with equal security, that it will always supply us with all the gold and silver which we can afford to purchase or to employ, either in circulating our commodities or in other uses. The quantity of every commodity which human industry can either purchase or produce naturally regulates itself in every country according to the effectual demand or according to the demand of those who are willing to pay the whole rent, labor, and profits, which must be paid in order to prepare and bring it to market. But no commodities regulate themselves more easily or more exactly according to this effectual demand than gold and silver. Because, on account of the small bulk and great value of those metals, no commodities can be more easily transported from one place to another, from the places where they are cheap to those where they are dear, from the places where they exceed to those where they fall short of this effectual demand. If there were in England, for example, an effectual demand for an additional quantity of gold a packet boat could bring from Lisbon or from wherever else it was to be had, fifty tons of gold, which could be coined into more than five millions of guineas. But if there were an effectual demand for grain to the same value, to import it would require, at five guineas a ton, a million of tons of shipping, or a thousand ships of a thousand tons each, the Navy of England would not be sufficient. When the quantity of gold and silver imported into any country exceeds the effectual demand, no vigilance of government can prevent their exportation. All the sanguinary laws of Spain and Portugal are not able to keep their gold and silver at home. The continual importations from Peru and Brazil exceed the effectual demand of those countries and sink the price of those metals there below that in the neighboring countries. If on the contrary, in any particular country, their quantity fell short of the effectual demand, so as to raise their price above that of the neighboring countries, the government would have no occasion to take any pains to import them. If it were even to take pains to prevent their importation it would not be able to effectuate it. Those metals, when the Spartans had got wherewithal to purchase them, broke through all the barriers which the laws of Lysurgus opposed to their entrance into Lassadiman. All the sanguinary laws of the customs are not able to prevent the importation of the teas of the Dutch and Gatenburg East India companies, because somewhat cheaper than those of the British company. A pound of tea, however, is about a hundred times the bulk of one of the highest prices, 16 shillings, that is commonly paid for it in silver, and more than two thousand times the bulk of the same price in gold, and, consequently, just so many times more difficult to smuggle. It is partly owing to the easy transportation of gold and silver from the places where they abound to those where they are wanted, that the price of those metals does not fluctuate continually, like that of the greater part of other commodities, which are hindered by their bulk from shifting their situation when the market happens to be either over or understocked with them. The price of those metals, indeed, is not altogether exempted from variation, but the changes to which it is liable are generally slow, gradual, and uniform. In Europe, for example, it is supposed, without much foundation, perhaps, that during the course of the present and preceding century they have been constantly, but gradually, sinking in their value, on account of the continual importations from the Spanish West Indies. But to make any sudden change in the price of gold and silver, so as to raise or lower at once, sensibly and remarkably, the money price of all other commodities requires such a revolution in commerce as that occasioned by the discovery of America. If, notwithstanding all this, gold and silver should, at any time, fall short in a country which has wherewithal to purchase them, there are more expedients for supplying their place than that of almost any other commodity. If the materials of manufacture are wanted, industry must stop. If provisions are wanted, the people must starve. But if money is wanted, barter will supply its place, though with a good deal of inconvenience. Buying and selling upon credit and the different dealers compensating their credits with one another, once a month, or once a year, will supply it with less inconvenience. A well-regulated paper money will supply it not only without any inconvenience, but in some cases with some advantages. Upon every account, therefore, the attention of government never was so unnecessarily employed as when directed to watch over the preservation or increase of the quantity of money in any country. No complaint, however, is more common than that of a scarcity of money. Money, like wine, must always be scarce with those who have neither wherewithal to buy it nor credit to borrow it. Those who have either will seldom be in want either of the money or of the wine which they have occasioned for. This complaint, however, of the scarcity of money, is not always confined to improvident spendthrifts. It is sometimes general through a whole mercantile town and the country in its neighborhood. Overtrading is the common cause of it. Sobermen, whose projects have been disproportioned to their capitals, are as likely to have neither wherewithal to buy money nor credit to borrow it, as prodigals whose expense has been disproportioned to their revenue. Before their projects can be brought to bear, their stock is gone and their credit with it. They run about everywhere to borrow money and everybody tells them that they have none to lend. Even such general complaints of the scarcity of money do not always prove that the usual number of gold and silver pieces are not circulating in the country, but that many people want those pieces who have nothing to give for them. When the profits of trade happen to be greater than ordinary, overtrading becomes a general error, both among great and small dealers. They do not always send more money abroad than usual, but they buy upon credit, both at home and abroad, an unusual quantity of goods which they send to some distant market in hopes that the returns will come in before the demand for payment. The demand comes before the returns and they have nothing at hand with which they can either purchase money or give solid security for borrowing. It is not any scarcity of gold and silver, but the difficulty which such people find in borrowing and which their creditor find in getting payment that occasions the general complaint of the scarcity of money. It would be too ridiculous to go about seriously to prove that wealth does not consist in money or in gold and silver, but in what money purchases and is valuable only for purchasing. Money, no doubt, makes always a part of the national capital, but it has already been shown that it generally makes but a small part and always the most unprofitable part of it. It is not because wealth consists more essentially in money than in goods that the merchant finds it generally more easy to buy goods with money than to buy money with goods, but because money is the known and established instrument of commerce for which everything is readily given in exchange, but which is not always with equal readiness to be got in exchange for everything. The greater part of goods besides are more perishable than money, and he may frequently sustain a much greater loss by keeping them. When his goods are upon hand, too, he is more liable to such demands for money as he may not be able to answer than when he has got their price in his coffers. Over and above all this, his profit arises more directly from selling than from buying, and he is, upon all these accounts, generally much more anxious to exchange his goods for money than his money for goods. But though a particular merchant with abundance of goods in his warehouse may sometimes be ruined by not being able to sell them in time, a nation or country is not liable to the same accident. The whole capital of a merchant frequently consists in perishable goods destined for purchasing money, but it is but a very small part of the annual produce of the land and labor of a country which can ever be destined for purchasing gold and silver from their neighbors. The far greater part is circulated and consumed among themselves, and even of the surplus which is sent abroad, the greater part is generally destined for the purchase of other foreign goods. Though gold and silver, therefore, could not be had in exchange for the goods destined to purchase them, the nation would not be ruined. It might, indeed, suffer some loss and inconvenience, and be forced upon some of those expedience which are necessary for supplying the place of money. The annual produce of its land and labor, however, would be the same, or very nearly the same as usual, because the same or very nearly the same consumable capital would be employed in maintaining it. And though goods do not always draw money so readily as money draws goods, in the long run they draw it more necessarily than even it draws them. Goods can serve many other purposes besides purchasing money, but money can serve no other purpose besides purchasing goods. Money, therefore, necessarily runs after goods, but goods do not always or necessarily run after money. The man who buys does not always mean to sell again, but frequently to use or to consume, whereas he who sells always means to buy again. The one may frequently have done the whole, but the other can never have done more than the one half of his business. It is not for its own sake that men desire money, but for the sake of what they can purchase with it. Consumable commodities, it is said, are soon destroyed, whereas gold and silver are of a more durable nature, and were it not for this continual exportation might be accumulated for ages together to the incredible augmentation of the real wealth of the country. Nothing, therefore, it is pretended, can be more disadvantageous to any country than the trade which consists in the exchange of such lasting perishable commodities. We do not, however, reckon that trade disadvantageous which consists in the exchange of the hardware of England for the wines of France, and yet hardware is a very durable commodity, and were it not for this continual exportation might too be accumulated for ages together to the incredible augmentation of the pots and pans of the country. But it readily occurs that the number of such utensils is in every country necessarily limited by the use which there is for them. That it would be absurd to have more pots and pans than were necessary for cooking the victuals usually consumed there, and that if the quantity of victuals were to increase, the number of pots and pans would readily increase along with it, a part of the increased quantity of victuals being employed in purchasing them or in maintaining an additional number of workmen whose business it was to make them. It should as readily occur that the quantity of gold and silver is, in every country, limited by the use which there is for those metals. That their use consists in circulating commodities as coin, and in affording a species of household furniture as plate. That the quantity of coin in every country is regulated by the value of the commodities which are to be circulated by it. Increase that value, and immediately a part of it will be sent abroad to purchase, wherever it is to be had, the additional quantity of coin requisite for circulating them. That the quantity of plate is regulated by the number and wealth of those private families who choose to indulge themselves in that sort of magnificence. Increase the number and wealth of such families, and a part of this increased wealth will most probably be employed in purchasing, wherever it is to be found, an additional quantity of plate. That to attempt to increase the wealth of any country, either by introducing or by detaining in it an unnecessary quantity of gold and silver is as absurd as it would be to attempt to increase the good sheer of private families by obliging them to keep an unnecessary number of kitchen utensils. As the expense of purchasing those unnecessary utensils would diminish instead of increasing either the quantity or goodness of the family provisions, so the expense of purchasing an unnecessary quantity of gold and silver must in every country as necessarily diminish the wealth which feeds, clothes, and lodges which maintains and employs the people. Gold and silver, whether in the shape of coin or of plate, are utensils, it must be remembered, as much as the furniture of the kitchen. Increase the use of them, increase the consumable commodities which are to be circulated, managed, and prepared by means of them, and you will infallibly increase the quantity. But if you attempt by extraordinary means to increase the quantity, you will as infallibly diminish the use and even the quantity too which in those metals can never be greater than what the use requires. Were they ever to be accumulated beyond this quantity, their transportation is so easy and the loss which attends their lying idol and unemployed so great that no law could prevent their being immediately sent out of the country. End of Book 4, Chapter 1, Part A. Chapter 1, Part B, of the Wealth of Nations, Book 4. This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information or to volunteer, please visit LibriVox.org Recording by Stephen Ascalera. The Wealth of Nations by Adam Smith, Book 4, Chapter 1, Part B, of the principle of the commercial or mercantile system. It is not always necessary to accumulate gold and silver in order to enable a country to carry on foreign wars and to maintain fleets and armies in distant countries. Fleets and armies are maintained, not with gold and silver, but with consumable goods. The nation which, from the annual produce of its domestic industry, from the annual revenue arising out of its lands and labor and consumable stock, has wherewithal to purchase those consumable goods in distant countries, can maintain foreign wars there. A nation may purchase the pay and provisions of an army in a distant country three different ways. By sending abroad either first some part of its accumulated gold and silver, or secondly, some part of the annual produce of its manufacturers, or last of all, some part of its annual produce. The gold and silver which can properly be considered as accumulated or stored up in any country may be distinguished into three parts. First, the circulating money. Secondly, the plate of private families. And, last of all, the money which may have been collected by many years parsimony and laid up in the treasury of the prince. It can seldom happen that much can be spared from the circulating money of the country, because in that there can seldom be much redundancy. The value of goods annually bought and sold in any country requires a certain quantity of money to circulate and distribute them to their proper consumers and can give employment to no more. The channel of circulation necessarily draws to itself a sum sufficient to fill it and never admits any more. Something, however, is generally withdrawn from this channel in the case of foreign war. By the great number of people who are maintained abroad, fewer are maintained at home. Fewer goods are circulated there and less money becomes necessary to circulate them. An extraordinary quantity of paper money of some sort or other, too, such as X checker notes, Navy bills, and bank bills in England is generally issued upon such occasions, and by supplying the place of circulating gold and silver gives an opportunity of sending a greater quantity of it abroad. All this, however, could afford but a poor resource for maintaining a foreign war of great expense and several years duration. The melting down of the plate of private families has, upon every occasion, been found a still more insignificant one. The French, in the beginning of the last war, did not derive so much advantage from this expedient as to compensate the loss of the fashion. The accumulated treasures of the Prince have, in former times, afforded a much greater and more lasting resource. In the present times, if you accept the King of Prussia, to accumulate treasures seems to be no part of the policy of European princes. The funds which maintain the foreign wars of the present century, the most expensive, perhaps which history records, seems to have had little dependency upon the exportation either of the circulating money or of the plate of private families or of the treasure of the Prince. The last French war cost Great Britain upwards of 90 million pounds, including not only the 75 million pounds of new debt that was contracted, but the additional two shillings in the pound land tax and what was annually borrowed of the sinking fund. More than two-thirds of this expense were laid out in distant countries, in Germany, Portugal, America, and the ports of the Mediterranean, in the East and West Indies. The Kings of England had no accumulated treasure. We never heard of any extraordinary quantity of plate being melted down. The circulating gold and silver of the country had not been supposed to exceed 18 million pounds. Since the late recoinage of the gold, however, it is believed to have been a good deal underrated. Let us suppose, therefore, according to the most exaggerated computation which I remember to have either seen or heard of, that gold and silver together it amounted to 30 million pounds. Had the war been carried on by means of our money, the whole of it must, even according to this computation, have been sent out and returned again at least twice in a period of between six and seven years. Should this be supposed, it would afford the most decisive argument to demonstrate how unnecessary it is for government to watch over the preservation of money. Since upon this supposition, the whole money of the country must have gone from it and returned to it again two different times in so short a period without anybody's knowing anything of the matter. The channel of circulation, however, never appeared more empty than usual during any part of this period. Few people wanted money who had wherewithal to pay for it. The profits of foreign trade, indeed, were greater than usual during the whole war, but especially towards the end of it. This occasioned, what it always occasions, a general over-trading in all the ports of Great Britain. And this again occasioned the usual complaint of the scarcity of money, which always follows over-trading. Many people wanted it, who had neither wherewithal to buy it nor credit to borrow it, and because the debtors found it difficult to borrow, the creditors found it difficult to get payment. Gold and silver, however, were generally to be had for their value by those who had that value to give for them. The enormous expense of the late war, therefore, must have been chiefly defrayed, not by the exportation of gold and silver, but by that of British commodities of some kind or other. When the government, or those who acted under them, contracted with a merchant for a remittance to some foreign country, he would naturally endeavor to pay his foreign correspondent, upon whom he granted a bill, by sending abroad rather commodities than gold and silver. If the commodities of Great Britain were not in demand in that country, he would endeavor to send them to some other country in which he could purchase a bill upon that country. The transportation of commodities, when properly suited to the market, is always attended with a considerable profit, whereas that of gold and silver is scarce ever attended with any. When those metals are sent abroad in order to purchase foreign commodities, the merchant's profit arises, not from the purchase, but from the sale of the returns. But when they are sent abroad merely to pay a debt, he gets no returns, and consequently no profit. He naturally, therefore, exerts his invention to find out a way of paying his foreign debts, rather by the exportation of commodities than by that of gold and silver. The great quantity of British goods exported during the course of the late war, without bringing back any returns, is accordingly remarked by the author of the present State of the Nation. Besides the three sorts of gold and silver above mentioned, there is in all great commercial countries a good deal of bullion alternately imported and exported for the purposes of foreign trade. This bullion, as it circulates among different commercial countries, in the same manner as the national coin circulates in every country, may be considered as the money of the great mercantile republic. The national coin receives its movement and direction from the commodities circulated within the precincts of each particular country. The money in the mercantile republic from those circulated from different countries. Both are employed in facilitating exchanges, the one between different individuals of the same, the other between those of different nations. Part of this money of the great mercantile republic may have been, and probably was, employed in carrying on the late war. In time of a general war, it is natural to suppose that a movement and direction should be impressed upon it, different from what it usually follows in profound peace, that it should circulate more about the seat of the war and be more employed in purchasing there and in the neighboring countries the pay and provisions of the different armies. But whatever part of this money of the mercantile republic Great Britain may have annually employed in this manner, it must have been annually purchased either with British commodities or with something else that had been purchased with them, which still brings us back to commodities, to the annual produce of the land and labor of the country, as the ultimate resources which enabled us to carry on the war. It is natural, indeed, to suppose that so great an annual expense must have been defrayed from a great annual produce. The expense of 1761, for example, amounted to more than 19 million pounds. No accumulation could have supported so great an annual profusion. There is no annual produce, even of gold and silver, which could have supported it. The whole gold and silver annually imported into both Spain and Portugal, according to the best accounts, does not commonly much exceed six million pounds sterling, which in some years would scarce have paid four months expense of the late war. The commodities most proper for being transported to distant countries in order to purchase there either the pay and provisions of an army or some part of the money of the mercantile republic to be employed in purchasing them seemed to be the finer and more improved manufacturers, such as contain a great value in small bulk and can therefore be exported to a great distance at little expense. A country whose industry produces a great annual surplus of such manufacturers, which are usually exported to foreign countries, may carry on for many years a very expensive foreign war without either exporting any considerable quantity of gold and silver or even having any such quantity to export. A considerable part of the annual surplus of its manufacturers must indeed in this case be exported without bringing back any returns to the country, though it does to the merchant. The government purchasing of the merchant his bills upon foreign countries in order to purchase there the pay and provisions of an army. Some part of this surplus, however, may still continue to bring back a return. The manufacturers during the war will have a double demand upon them and be called upon first to work up goods to be sent abroad for paying the bills drawn upon foreign countries for the pay and provisions of the army, and secondly to work up such as are necessary for purchasing the common returns that had usually been consumed in the country. In the midst of the most destructive foreign war, therefore, the greater part of manufacturers may frequently flourish greatly and, on the contrary, they may decline on the return of peace. They may flourish amidst the ruin of their country and begin to decay upon the return of its prosperity. The different state of many different branches of the British manufacturers during the late war and for some time after the peace may serve as an illustration of what has been just now said. No foreign war of great expense or duration could conveniently be carried on by the exportation of the rude produce of the soil. The expense of sending such a quantity of it into a foreign country as might purchase the pay and provisions of an army would be too great. Few countries, too, produce much more rude produce than what is sufficient for the subsistence of their own inhabitants. To send abroad any great quantity of it, therefore, would be to send abroad a part of the necessary subsistence of the people. It is otherwise with the exportation of manufacturers. The maintenance of the people employed in them is kept at home and only the surplus part of their work is exported. Mr. Hume frequently takes notice of the inability of the ancient kings of England to carry on without interruption any foreign war of long duration. The English in those days had nothing wherewithal to purchase the pay and provisions of their armies in foreign countries, but either the rude produce of the soil of which no considerable part could be spared from the home consumption or a few manufacturers of the coarsest kind of which, as well as of the rude produce, the transportation was too expensive. This inability did not arise from the want of money but of the finer and more improved manufacturers. Buying and selling was transacted by means of money in England then as well as now. The quantity of circulating money must have borne the same proportion to the number and value of purchases and sales usually transacted at that time, which it does to those transacted at present, or rather, it must have borne a greater proportion because there was then no paper which now occupies a great part of the employment of gold and silver. Among nations to whom commerce and manufacturers are little known, the sovereign, upon extraordinary occasions, can seldom draw any considerable aid from his subjects for reasons which shall be explained hereafter. It is in such countries, therefore, that he generally endeavors to accumulate a treasure as the only resource against such emergencies. Independent of this necessity, he is, in such a situation, naturally disposed to the parsimony requisite for accumulation. In that simple state, the expense even of a sovereign is not directed by the vanity which delights in the gaudy finery of a court, but is employed in bounty to his tenants and hospitality to his retainers. But bounty and hospitality very seldom lead to extravagance, though vanity almost always does. Every Tartar chief, accordingly, has a treasure. The treasures of Mazyape, chief of the Kozaks in the Ukraine, the famous ally of Charles XII, are said to have been very great. The French kings of the Merovingian race had all treasures. When they divided their kingdom among their different children, they divided their treasures, too. The Saxon princes, and the first kings after the conquest, seemed likewise to have accumulated treasures. The first exploit of every new reign was commonly to seize the treasure of the preceding king, as the most essential measure for securing the succession. The sovereigns of improved and commercial countries are not under the same necessity of accumulating treasures, because they can generally draw from their subjects extraordinary aides upon extraordinary occasions. They are likewise less disposed to do so. They naturally, perhaps necessarily, follow the mode of the times, and their expense comes to be regulated by the same extravagant vanity which directs that of all the other great proprietors in their dominions. The insignificant pageantry of their court becomes every day more brilliant, and the expense of it not only prevents accumulation, but frequently encroaches upon the funds destined for more necessary expenses. What Dersilides said of the court of Persia may be applied to that of several European princes, that he saw there much splendor, but little strength, and many servants, but few soldiers. The importation of gold and silver is not the principal, much less the sole benefit which a nation derives from its foreign trade. Between whatever places foreign trade is carried on, they all of them derive two distinct benefits from it. It carries out that surplus part of the produce of their land and labor for which there is no demand among them, and brings back in return for it something else for which there is a demand. It gives a value to their superfluities by exchanging them for something else, which may satisfy a part of their wants and increase their enjoyments. By means of it, the narrowness of the home market does not hinder the division of labor in any particular branch of art or manufacture from being carried to the highest perfection. By opening a more extensive market for whatever part of the produce of their labor may exceed the home consumption, it encourages them to improve its productive power and to augment its annual produce to the utmost, and thereby to increase the real revenue and wealth of the society. These great and important services foreign trade is continually occupied in performing to all the different countries between which it is carried on. They all derive great benefit from it, though that in which the merchant resides generally derives the greatest, as he is generally more employed in supplying the wants and carrying out the superfluities of his own than of any other particular country. To import the gold and silver which may be wanted into the countries which have no minds is no doubt a part of the business of foreign commerce. It is, however, a most insignificant part of it. A country which carried on foreign trade merely upon this account could scarce have occasion to freight a ship in a century. It is not by the importation of gold and silver that the discovery of America has enriched Europe. By the abundance of the American minds those metals have become cheaper. A service of plate can now be purchased for about a third part of the corn or a third part of the labor which it would have cost in the 15th century. With the same manual expense of labor and commodities Europe can annually purchase about three times the quantity of plate which it could have purchased at that time. But when a commodity comes to be sold for a third part of what had been its usual price not only those who purchased it before can purchase three times their former quantity but it is brought down to the level of a much greater number of purchasers perhaps two more than 10 perhaps two more than 20 times the former number so that there may be in Europe at present not only more than three times but more than 20 or 30 times the quantity of plate which would have been in it even in its present state of improvement had the discovery of the American minds never been made. So far Europe has no doubt gained a real convenience though surely a very trifling one. The cheapness of gold and silver renders those metals rather less fit for the purposes of money than they were before. In order to make the same purchases we must load ourselves with a greater quantity of them and carry about a shilling in our pocket where a groat would have done before. It is difficult to say which is most trifling this inconvenience or the opposite convenience. Neither the one nor the other could have made any very essential change in the state of Europe. The discovery of America however certainly made a most essential one. By opening a new and inexhaustible market to all the commodities of Europe it gave occasion to new divisions of labor and improvements of art which in the narrow circle of the ancient commerce could never have taken place for want of a market to take off the greater part of their produce. The productive powers of labor were improved and its produce increased in all the different countries of Europe and together with it the real revenue and wealth of the inhabitants. The commodities of Europe were almost all new to America and many of those of America were new to Europe. A new set of exchanges therefore began to take place which had never been thought of before and which should naturally have proved as advantageous to the new as it certainly did to the old continent. The savage injustice of the Europeans rendered an event which ought to have been beneficial to all, ruinous and destructive to several of those unfortunate countries. The discovery of a passage to the East Indies by the Cape of Good Hope which happened much about the same time opened perhaps a still more extensive range to foreign commerce than even that of America notwithstanding the greater distance. There were but two nations in America in any respect superior to the savages and these were destroyed almost as soon as discovered. The rest were mere savages but the empires of China, India, Japan, as well as several others in the East Indies without having richer minds of gold or silver were in every other respect much richer, better cultivated and more advanced in all arts and manufacturers than either Mexico or Peru even though we should credit what plainly deserves no credit the exaggerated accounts of the Spanish riders concerning the ancient state of those empires. But rich and civilized nations can always exchange to a much greater value with one another than with savages and barbarians. Europe however has hitherto derived much less advantage from its commerce with the East Indies than from that with America. The Portuguese monopolized the East India trade to themselves for about a century and it was only indirectly and through them that the other nations of Europe could either send out or receive any goods from that country. When the Dutch in the beginning of the last century began to encroach upon them they vested their whole East India commerce in an exclusive company. The English, French, Swedes and Danes have all followed their example so that no great nation of Europe has ever yet had the benefit of a free commerce to the East Indies. No other reason need be assigned why it has never been so advantageous as the trade to America which between almost every nation of Europe and its own colonies is free to all its subjects. The exclusive privileges of those East India companies, their great riches, the great favor and protection which these have procured them from their respective governments have excited much envy against them. This envy has frequently represented their trade as altogether pernicious on account of the great quantities of silver which it every year exports from the countries from which it is carried on. The parties concerned have replied that their trade by this continual exportation of silver might indeed tend to impoverish Europe in general but not the particular country from which it was carried on because by the exportation of a part of the returns to other European countries it annually brought home a much greater quantity of that metal than it carried out. Both the objection and the reply are founded in the popular notion which I have been just now examining. It is therefore unnecessary to say anything further about either. By the annual exportation of silver to the East Indies plate is probably somewhat dearer in Europe than it otherwise might have been and coined silver probably purchases a larger quantity both of labor and commodities. The former of these two effects is a very small loss the latter a very small advantage both too insignificant to deserve any part of the public attention. The trade to the East Indies by opening a market to the commodities of Europe or what comes nearly to the same thing to the gold and silver which is purchased with those commodities must necessarily tend to increase the annual production of European commodities and consequently the real wealth and revenue of Europe. That it has hitherto increased them so little is probably owing to the restraints which it everywhere labors under. I thought it necessary though at the hazard of being tedious to examine at full length this popular notion that wealth consists in money or in gold and silver. Money in common language as I have already observed frequently signifies wealth and this ambiguity of expression has rendered this popular notion so familiar to us that even they who are convinced of its absurdity are very apt to forget their own principles and in the course of their reasonings to take it for granted as a certain and undeniable truth. Some of the best English writers upon commerce set out with observing that the wealth of a country consists not in its gold and silver only but in its lands, houses, and consumable goods of all different kinds. In the course of their reasonings however the lands, houses, and consumable goods seem to slip out of their memory and the strain of their argument frequently supposes that all wealth consists in gold and silver and that to multiply those metals is the great object of national industry and commerce. The two principles being established however, that wealth consisted in gold and silver and that those metals could be brought into a country which had no mines only by the balance of trade or by exporting to a greater value than it imported. It necessarily became the great object of political economy to diminish as much as possible the importation of foreign goods for home consumption and to increase as much as possible the exportation of the produce of domestic industry. Its two great engines for enriching the country therefore were restraints upon importation and encouragement to exportation. The restraints upon importation were of two kinds. First, restraints upon the importation of such foreign goods for home consumption as could be produced at home from whatever country they were imported. Secondly, restraints upon the importation of goods of almost all kinds from those particular countries with which the balance of trade was supposed to be disadvantageous. Those different restraints consisted sometimes in high duties and sometimes in absolute prohibitions. Exportation was encouraged sometimes by drawbacks, sometimes by bounties, sometimes by advantageous treaties of commerce with foreign states and sometimes by the establishment of colonies in distant countries. Drawbacks were given upon two different occasions. When the home manufacturers were subject to any duty or excise, either the whole or a part of it was frequently drawn back upon their exportation. And when foreign goods liable to a duty were imported in order to be exported again, either the whole or a part of this duty was sometimes given back upon such exportation. Bounties were given for the encouragement either of some beginning manufacturers or of such source of industry of other kinds as were supposed to deserve particular favor. By advantageous treaties of commerce particular privileges were procured in some foreign state for the goods and merchants of the country beyond what were granted to those of other countries. By the establishment of colonies in distant countries not only particular privileges but a monopoly was frequently procured for the goods and merchants of the country which established them. The two sorts of restraints upon importation above mentioned together with these four encouragements to exportation constitute the six principle means by which the commercial system proposes to increase the quantity of gold and silver in any country by turning the balance of trade in its favor. I shall consider each of them in a particular chapter and without taking much further notice of their supposed tendency to bring money into the country I shall examine chiefly what are likely to be the effects of each of them upon the annual produce of its industry. According as they tend either to increase or diminish the value of this annual produce they must evidently tend either to increase or diminish the real wealth and revenue of the country. End of book 4 chapter 1 part b Chapter 2 part a of the wealth of nations book 4 This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information or to volunteer please visit LibriVox.org Recording by Stephen Escalera The Wealth of Nations by Adam Smith Book 4 chapter 2 part a of restraints upon importation from foreign countries of such goods as can be produced at home. By restraining either by high duties or by absolute prohibitions the importation of such goods from foreign countries as can be produced at home the monopoly of the home market is more or less secured to the domestic industry employed in producing them. Thus the prohibition of importing either live cattle or salt provisions from foreign countries secures to the grazers of Great Britain the monopoly of the home market for butchers meat. The high duties upon the importation of corn, which in times of moderate plenty amount to a prohibition give a like advantage to the growers of that commodity. The prohibition of the importation of foreign woolen is equally favorable to the woolen manufacturers. The silk manufacturer though altogether employed upon foreign materials has lately obtained the same advantage. The linen manufacturer has not yet obtained it but is making great strides towards it. Many other sorts of manufacturers have in the same manner obtained in Great Britain either altogether or very nearly a monopoly against their countrymen. The variety of goods of which the importation into Great Britain is prohibited either absolutely or under certain circumstances greatly exceeds what can easily be suspected by those who are not well acquainted with the laws of the customs. That this monopoly of the home market frequently gives great encouragement to that particular species of industry which enjoys it and frequently turns towards that employment a greater share of both the labor and stock of the society than would otherwise have gone to it cannot be doubted. But whether it tends either to increase the general industry of the society or to give it the most advantageous direction is not perhaps altogether so evident. The general industry of the society can never exceed what the capital of the society can employ. As the number of workmen that can be kept in employment by any particular person must bear a certain proportion to his capital, so the number of those that can be continually employed by all the members of a great society must bear a certain proportion to the whole capital of the society and never can exceed that proportion. No regulation of commerce can increase the quantity of industry in any society beyond what its capital can maintain. It can only divert a part of it into a direction into which it might not otherwise have gone. And it is, by no means, certain that this artificial direction is likely to be more advantageous to the society than that into which it would have gone of its own accord. Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of the society which he has in view. But the study of his own advantage, naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to the society. First, every individual endeavors to employ his capital as near home as he can, and consequently as much as he can in the support of domestic industry, provided always that he can thereby obtain the ordinary, or not a great deal less than the ordinary profits of stock. Thus, upon equal, or nearly equal profits, every wholesale merchant naturally prefers the home trade to the foreign trade of consumption, and the foreign trade of consumption to the carrying trade. In the home trade, his capital is never so long out of his sight as it frequently is in the foreign trade of consumption. He can know better the character and situation of the persons whom he trusts, and if he should happen to be deceived, he knows better the laws of the country from which he must seek redress. In the carrying trade, the capital of the merchant is, as it were, divided between two foreign countries, and no part of it is ever necessarily brought home, or placed under his own immediate view and command. The capital which an Amsterdam merchant employs in carrying corn from Konigsberg to Lisbon, and fruit and wine from Lisbon to Konigsberg, must generally be the one half of it at Konigsberg and the other at Lisbon. No part of it need ever come to Amsterdam. The natural residence of such a merchant should either be at Konigsberg or Lisbon, and it can only be some very particular circumstances which can make him prefer the residence of Amsterdam. The uneasiness, however, which he feels at being separated so far from his capital, generally determines him to bring part both of the Konigsberg goods which he destines for the market of Lisbon and of the Lisbon goods which he destines for that of Konigsberg to Amsterdam. And though this necessarily subjects him to a double charge of loading and unloading as well as to the payment of some duties and customs, yet for the sake of having some part of his capital always under his own view and command he willingly submits to this extraordinary charge. And it is in this manner that every country which has any considerable share of the carrying trade becomes always the Emporium or General Market for the goods of all the different countries whose trade it carries on. The merchant, in order to save a second loading and unloading, endeavors always to sell in the home market as much of the goods of all those different countries as he can, and thus so far as he can to convert his carrying trade into a foreign trade of consumption. A merchant in the same manner who is engaged in the foreign trade of consumption when he collects goods for foreign markets will always be glad upon equal or nearly equal profits to sell as great a part of them at home as he can. He saves himself the risk and trouble of exportation when, so far as he can, he thus converts his foreign trade of consumption into a home trade. Home in this manner is the center, if I may say so, round which the capitals of the inhabitants of every country are continually circulating and towards which they are always tending, though by particular causes, they may sometimes be driven off and repelled from it towards more distant employments. But a capital employed in the home trade it has already been shown necessarily puts into motion a greater quantity of domestic industry and gives revenue and employment to a greater number of the inhabitants of the country than an equal capital employed in the foreign trade of consumption. And one employed in the foreign trade of consumption has the same advantage over an equal capital employed in the carrying trade. Upon equal or only nearly equal profits, therefore, every individual naturally inclines to employ his capital in the manner in which it is likely to afford the greatest support to domestic industry and to give revenue and employment to the greatest number of people of his own country. Secondly, every individual who employs his capital in the support of domestic industry necessarily endeavors so to direct that industry that its produce may be of the greatest possible value. The produce of industry is what it adds to the subject or materials upon which it is employed. In proportion as the value of this produce is great or small, so will likewise be the profits of the employer. But it is only for the sake of profit that any man employs a capital in the support of industry, and he will always therefore endeavor to employ it in the support of that industry of which the produce is likely to be of the greatest value or to exchange for the greatest quantity either of money or of other goods. But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual therefore endeavors as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value. Every individual necessarily labors to render the annual revenue of the society as great as he can. He generally indeed neither intends to promote the public interest nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry he intends only his own security, and by directing that industry in such a manner as its produce may be of the greatest value he intends only his own gain. And he is in this as in many other cases led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worst for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation indeed not very common among merchants and very few words need to be employed in dissuading them from it. What is the species of domestic industry which his capital can employ and of which the produce is likely to be of the greatest value every individual it is evident can in his local situation judge much better than any statesman or law giver can do for him. The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention but assume an authority which could safely be trusted not only to no single person but to no council or senate whatever and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. To give the monopoly of the home market to the produce of domestic industry in any particular art or manufacture is in some measure to direct private people in what manner they ought to employ their capitals and must in almost all cases be either a useless or a hurtful regulation. If the produce of domestic can be brought there as cheap as that of foreign industry the regulation is evidently useless. If it cannot it must generally be hurtful. It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy. The tailor does not attempt to make his own shoes but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes but employs a tailor. The farmer attempts to make neither the one nor the other but employs those different artificers. All of them find it for their interest to employ their whole industry in a way in which they have some advantage over their neighbors and to purchase with a part of its produce or what is the same thing with the price of a part of it whatever else they have occasion for. What is prudence in the conduct of every private family can scarce be folly and that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it better buy it of them with some part of the produce of our own industry employed in a way in which we have some advantage. The general industry of the country being always in proportion to the capital which employs it will not thereby be diminished no more than that of the above mentioned artificers but only left to find out the way in which it can be employed with the greatest advantage. It is certainly not employed to the greatest advantage when it is thus directed towards an object which it can buy cheaper than it can make. The value of its annual produce is certainly more or less diminished when it is thus turned away from producing commodities evidently of more value than the commodity which it is directed to produce. According to the supposition that commodity could be purchased from foreign countries cheaper than it can be made at home. It could therefore have been purchased with a part only of the commodities or what is the same thing with a part only of the price of the commodities which the industry employed by an equal capital would have produced at home had it been left to follow its natural course. The industry of the country therefore is thus turned away from a more to a less advantageous employment and the exchangeable value of its annual produce instead of being increased according to the intention of the law giver must necessarily be diminished by every such regulation. By means of such regulations indeed a particular manufacturer may sometimes be acquired sooner than it could have been otherwise and after a certain time may be made at home as cheap or cheaper than in the foreign country. But though the industry of the society may be thus carried with advantage into a particular channel sooner than it could have been otherwise it will by no means follow that the sum total either of its industry or of its revenue can ever be augmented by any such regulation. The industry of the society can augment only in proportion as its capital augments and its capital can augment only in proportion to what can be gradually saved out of its revenue. But the immediate effect of every such regulation is to diminish its revenue and what diminishes its revenue is certainly not very likely to augment its capital faster than it would have augmented of its own accord had both capital and industry been left to find out their natural employments. Though for want of such regulations the society should never acquire the proposed manufacture it would not upon that account necessarily be the poorer in any one period of its duration. In every period of its duration its whole capital and industry might still have been employed though upon different objects in the manner that was most advantageous at the time. In every period its revenue might have been the greatest which its capital could afford and both capital and revenue might have been augmented with the greatest possible rapidity. The natural advantages which one country has over another in producing particular commodities are sometimes so great that it is acknowledged by all the world to be in vain to struggle with them. By means of glasses, hotbeds, and hotwalls very good grapes can be raised in Scotland and very good wine too can be made of them at about thirty times the expense for which at least equally good can be brought from foreign countries. Would it be a reasonable law to prohibit the importation of all foreign wines merely to encourage the making of claret and burgundy in Scotland? But if there would be a manifest absurdity in turning towards any employment thirty times more of the capital and industry of the country than would be necessary to purchase from foreign countries an equal quantity of the commodities wanted there must be an absurdity though not altogether so glaring yet exactly of the same kind and turning towards any such employment a thirtieth or even a three hundredth part more of either. Whether the advantages which one country has over another be natural or acquired is in this respect of no consequence. As long as the one country has those advantages and the other wants them it will always be more advantageous for the latter rather to buy of the former than to make. It is an acquired advantage only which one artificer has over his neighbor who exercises another trade and yet they both find it more advantageous to buy of one another than to make what does not belong to their particular trades. Merchants and manufacturers are the people who derive the greatest advantage from this monopoly of the home market. The prohibition of the importation to foreign cattle and of salt provisions together with the high duties upon foreign corn which in times of moderate plenty amount to a prohibition are not near so advantageous to the grazers and farmers of Great Britain as other regulations of the same kind are to its merchants and manufacturers. Manufacturers, those of the finer kind especially are more easily transported from one country to another than corn or cattle. It is in the fetching and carrying manufacturers accordingly that foreign trade is chiefly employed. In manufacturers a very small advantage will enable foreigners to undersell our own workmen even in the home market. It will require a very great one to enable them to do so in the rude produce of the soil. If the free importation of foreign manufacturers were permitted several of the home manufacturers would probably suffer and some of them perhaps go to ruin altogether and a considerable part of the stock and industry at present employed in them would be forced to find out some other employment. But the freest importation of the rude produce of the soil could have no such effect upon the agriculture of the country. If the importation of foreign cattle for example were made ever so free so few could be imported that the grazing trade of Great Britain could be little affected by it. Live cattle are perhaps the only commodity of which the transportation is more expensive by sea than by land. By land they carry themselves to market. By sea not only the cattle but their food and their water too must be carried at no small expense and inconvenience. The short sea between Ireland and Great Britain indeed renders the importation of Irish cattle more easy. But though the free importation of them which was lately permitted only for a limited time were rendered perpetual it could have no considerable effect upon the interest of the grazers of Great Britain. Those parts of Great Britain which border upon the Irish sea are all grazing countries. Irish cattle could never be imported for their use but must be drove through those very extensive countries at no small expense and inconvenience before they could arrive at their proper market. Fat cattle could not be drove so far. Lean cattle therefore could only be imported and such importation could interfere not with the interest of the feeding or fattening countries to which by reducing the price of lean cattle it would rather be advantageous but with that of the breeding countries only. The small number of Irish cattle imported since their importation was permitted together with the good price at which lean cattle still continue to sell seemed to demonstrate that even the breeding countries of Great Britain are never likely to be much affected by the free importation of Irish cattle. The common people of Ireland indeed are said to have sometimes opposed with violence the exportation of their cattle. But if the exporters had found any great advantage in continuing the trade they could easily when the law was on their side have conquered this mobish opposition. Feeding and fattening countries besides must always be highly improved whereas breeding countries are generally uncultivated. The high price of lean cattle by augmenting the value of uncultivated land is like a bounty against improvement. To any country which was highly improved throughout it would be more advantageous to import its lean cattle than to breed them. The province of Holland accordingly is said to follow this maxim at present. The mountains of Scotland Wales and Northumberland indeed are countries not capable of much improvement and seem destined by nature to be the breeding countries of Great Britain. The freest importation of foreign cattle could have no other effect than to hinder those breeding countries from taking advantage of the increasing population and the improvement of the rest of the kingdom from raising their price to an exorbitant height and from laying a real tax upon all the more improved and cultivated parts of the country. The freest importation of salt provisions in the same manner could have as little effect upon the interest of the grazers of Great Britain as that of live cattle. Salt provisions are not only a very bulky commodity but when compared with fresh meat they are a commodity both of worse quality and as they cost more labor and expense of higher price. They could never therefore come into competition with the fresh meat though they might with the salt provisions of the country. They might be used for victualing ships for distant voyages and such like uses but could never make any considerable part of the food of the people. The small quantity of salt provisions imported from Ireland since their importation was rendered free is an experimental proof that our grazers have nothing to apprehend from it. It does not appear that the price of butcher's meat has ever been sensibly affected by it. Even the free importation of foreign corn could very little affect the interest of the farmers of Great Britain. Corn is a much more bulky commodity than butcher's meat. A pound of wheat at a penny is as dear as a pound of butcher's meat at four pence. The small quantity of foreign corn imported even in times of the greatest scarcity may satisfy our farmers that they can have nothing to fear from the freest importation. The average quantity imported one year with another amounts only according to the very well-informed author of The Tracks Upon the Corn Trade to 23,728 quarters of all sorts of grain and does not exceed the five hundredth and seventy one part of the annual consumption. But as the bounty upon corn occasions a greater exportation in years of plenty so it must of consequence occasion a greater importation in years of scarcity then in the actual state of tillage would otherwise take place. By means of it the plenty of one year does not compensate the scarcity of another and as the average quantity exported is necessarily augmented by it so must likewise in the actual state of tillage the average quantity imported. If there were no bounty as less corn would be exported suit is probable that one year with another less would be imported than at present. The corn merchants the fetters and carriers of corn between Great Britain and foreign countries would have much less employment and might suffer considerably but the country gentlemen and farmers could suffer very little. It is in the corn merchants accordingly rather than the country gentlemen and farmers that I have observed the greatest anxiety for the renewal and continuation of the bounty. Country gentlemen and farmers are to their great honor of all people the least subject to the wretched spirit of monopoly. The undertaker of a great manufacturing is sometimes alarmed if another work of the same kind is established within 20 miles of him. The Dutch undertaker of the woolen manufacture at Abbeville stipulated that no work of the same kind should be established within 30 leagues of that city. Farmers and country gentlemen on the contrary are generally disposed rather to promote than to obstruct the cultivation and improvement of their neighbors' farms and estates. They have no secrets such as those of the greater part of manufacturers but are generally rather fond of communicating to their neighbors and of extending as far as possible any new practice which they may have found to be advantageous. Pius Cuistus says Old Cato Stabilis Semus Cui Mini Mecui Envidiosus Mini Mecui Male Cajichantes Sunt Cui in Eau Studio Acupati Country gentlemen and farmers dispersed in different parts of the country cannot so easily combine as merchants and manufacturers who being collected into towns and accustomed to that exclusive corporation spirit which prevails in them naturally endeavor to obtain against all their countrymen the same exclusive privilege which they generally possess against the inhabitants of their respective towns. They accordingly seem to have been the original inventors of those restraints upon the importation of foreign goods which secure to them the monopoly of the home market. It was probably in imitation of them and to put themselves upon a level with those who they found were disposed to oppress them that the country gentlemen and farmers of Great Britain so far forgot the generosity which is natural to their station as to demand the exclusive privilege of supplying their countrymen with corn and buttersmeet. They did not perhaps take time to consider how much less their interest could be affected by the freedom of trade than that of the people whose example they followed. End of Book 4 Chapter 2 Part A Chapter 2 Part B of The Wealth of Nations Book 4 This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information or to volunteer please visit LibriVox.org Recording by Stephen Escalera The Wealth of Nations by Adam Smith Book 4 Chapter 2 Part B Of restraints upon importation from foreign countries of such goods as can be produced at home. To prohibit by a perpetual law the importation of foreign corn and cattle is in reality to enact that the population and industry of the country shall, at no time exceed with the rude produce of its own soil can maintain. There seem however to be two cases in which it will generally be advantageous to lay some burden upon foreign for the encouragement of domestic industry. The first is when some particular sort of industry is necessary for the defense of the country. The defense of Great Britain for example depends very much upon the number of its sailors and shipping. The act of navigation therefore very properly endeavors to give the sailors and shipping of Great Britain the monopoly of the trade of their own country in some cases by absolute prohibitions and in others by heavy burdens upon the shipping of foreign countries. The following are the principal dispositions of this act. First, all ships of which the owners, masters and three fourths of the mariners are not British subjects are prohibited upon pain of forfeiting ship and cargo from trading to the British settlements and plantations or from being employed in the coasting trade of Great Britain. Secondly, a great variety of the most bulky articles of importation can be brought into Great Britain only either in such ships as are above described or in ships of the country where those goods are produced and of which the owners, masters and three fourths of the mariners are of that particular country and when imported even in ships of this latter kind they are subject to double aliens duties. If imported in ships of any other country the penalty is forfeiture of ship and goods. When this act was made the Dutch were what they still are the great carriers of Europe and by this regulation they were entirely excluded from being the carriers to Great Britain or from importing to us the goods of any other European country. Thirdly, a great variety of the most bulky articles of importation are prohibited from being imported even in British ships from any country but that in which they are produced under pain of forfeiting ship and cargo. This regulation too was probably intended against the Dutch. Holland was then as now the great emporium for all European goods and by this regulation British ships were hindered from loading in Holland the goods of any other European country. Fourthly, salt fish of all kinds whale fins whale bone oil and blubber not caught by and cured on board British vessels when imported into Great Britain are subject to double aliens duty. The Dutch as they are still the principle were then the only fishers in Europe that attempted to supply foreign nations with fish. By this regulation a very heavy burden was laid upon their supplying Great Britain. When the act of navigation was made though England and Holland were not actually at war the most violent animosity subsisted between the two nations. It had begun during the government of the long parliament which first framed this act and it broke out soon after in the Dutch wars during that of the protector and of Charles II. It is not impossible therefore that some of the regulations of this famous act may have proceeded from national animosity. They are as wise however as if they had all been dictated by the most deliberate wisdom. National animosity at that particular time aimed at the very same object which the most deliberate wisdom would have recommended the diminution of the naval power of Holland the only naval power which could endanger the security of England. The act of navigation is not favorable to foreign commerce or to the growth of that opulence which can arise from it. The interest of a nation in its commercial relations to foreign nations is like that of a merchant with regard to the different people with whom he deals to buy as cheap and to sell as dear as possible. But it will be most likely to buy cheap when by the most perfect freedom of trade it encourages all nations to bring to it the goods which it has occasion to purchase and for the same reason it will be most likely to sell dear when its markets are thus filled with the greatest number of buyers. The act of navigation it is true lays no burden upon foreign ships that come to export the produce of British industry. Even the ancient aliens duty which used to be paid upon all goods exported as well as imported has by several subsequent acts been taken off from the greater part of the articles of exportation. But if foreigners either by prohibitions or high duties are hindered from coming to sell they cannot always afford to come to buy. Because coming without a cargo they must lose the freight from their own country to Great Britain. By diminishing the number of sellers therefore we necessarily diminish that of buyers and are thus likely not only to buy foreign goods dearer but to sell our own cheaper than if there was a more perfect freedom of trade. As defense however is of much more importance than opulence the act of navigation is perhaps the wisest of all the commercial regulations of England. The second case in which it will generally be advantageous to lay some burden upon foreign for the encouragement of domestic industry is when some tax is imposed at home upon the produce of the latter. In this case it seems reasonable that an equal tax should be imposed upon the like produce of the former. This would not give the monopoly of the born market to domestic industry nor turn towards a particular employment a greater share of the stock and labor of the country than what would naturally go to it. It would only hinder any part of what would naturally go to it from being turned away by the tax into a less natural direction and would leave the competition between foreign and domestic industry after the tax as nearly as possible upon the same footing as before it. In Great Britain when any such taxes laid upon the produce of domestic industry it is usual at the same time in order to stop the clamorous complaints of our merchants and manufacturers that they will be undersold at home to lay a much heavier duty upon the importation of all foreign goods of the same kind. This second limitation of the freedom of trade according to some people should upon most occasions be extended much farther than to the precise foreign commodities which could come into competition with those which had been taxed at home. When the necessaries of life have been taxed in any country it becomes proper they pretend to tax not only the like necessaries of life imported from other countries but all sorts of foreign goods which can come into competition with anything that is the produce of domestic industry. Subsistence, they say, becomes necessarily dear in consequence of such taxes and the price of labor must always rise with the price of the laborer's subsistence. Every commodity therefore which is the produce of domestic industry though not immediately taxed itself becomes dearer in consequence of such taxes because the laborer which produces it becomes so. Such taxes therefore are really equivalent, they say, to a tax upon every particular commodity produced at home. In order to put domestic upon the same footing with foreign industry therefore it becomes necessary, they think, to lay some duty upon every foreign commodity equal to this enhancement of the price of the home commodities with which it can come into competition. Whether taxes upon the necessaries of life, such as those in Great Britain upon soap, salt, leather, candles, etc., necessarily raise the price of labor and consequently that of all other commodities I shall consider hereafter when I come to treat of taxes. Supposing however in the meantime that they have this effect and that they have it undoubtedly this general enhancement of the price of all commodities and consequence of that labor is a case which differs in the two following respects from that of a particular commodity of which the price was enhanced by a particular tax immediately imposed upon it. First, it might always be known with great exactness how far the price of such a commodity could be enhanced by such a tax, but how far the general enhancement of the price of labor might affect that of every different commodity about which labor was employed could never be known with any tolerable exactness. It would be impossible therefore to proportion with any tolerable exactness the tax of every foreign to the enhancement of the price of every home commodity. Secondly, taxes upon the necessaries of life have nearly the same effect upon the circumstances of the people as a poor soil and a bad climate. Provisions are thereby rendered dearer in the same manner as if it required extraordinary labor and expense to raise them. As in the natural scarcity arising from soil and climate it would be absurd to direct the people in what manner they ought to employ their capitals and industry so is it likewise in the artificial scarcity arising from such taxes to be left to accommodate as well as they could their industry to their situation and to find out those employments in which notwithstanding their unfavorable circumstances they might have some advantage either in the home or in the foreign market is what in both cases would evidently be most for their advantage. To lay a new tax upon them because they are already overburdened with taxes and because they already pay too dear for the necessaries of life to make them likewise paid too dear for the greater part of other commodities is certainly a most absurd way of making amends. Such taxes when they have grown up to a certain height are a curse equal to the barrenness of the earth and the inclimency of the heavens and yet it is in the richest and most industrious countries that they have been most generally imposed. No other countries could support so great a disorder as the strongest bodies only can live and enjoy health under an unwholesome regimen so the nations only that in every sort of industry have the greatest natural and acquired advantages can subsist and prosper under such taxes. Holland is the country in Europe in which they abound most and which from peculiar circumstances continues to prosper not by means of them as has been most absurdly supposed but in spite of them. As there are two cases in which it will generally be advantageous to lay some burden upon foreign for the encouragement of domestic industry so there are two others in which it may sometimes be a matter of deliberation in the one how far it is proper to continue the free importation of certain foreign goods and in the other how far or in what manner it may be proper to restore that free importation after it has been for some time interrupted. The case in which it may sometimes be a matter of deliberation how far it is proper to continue the free importation of certain foreign goods is when some foreign nation restrains by high duties or prohibitions the importation of some of our manufacturers into their country. Revenge in this case naturally dictates retaliation and that we should impose the like duties and prohibitions upon the importation of some or all of their manufacturers into ours. Nations accordingly seldom fail to retaliate in this manner. The French have been particularly forward to favor their own manufacturers by restraining the importation of such foreign goods as could come into competition with them. In this consisted a great part of the policy of Mr. Colbert who, not withstanding his great abilities seems in this case to have been imposed upon by the sophistry of merchants and manufacturers who are always demanding a monopoly against their countrymen. It is at present the opinion of the most intelligent men in France that his operations of this kind have not been beneficial to his country. That minister by the tariff of 1667 imposed very high duties upon a great number of foreign manufacturers. Upon his refusing to moderate them in favor of the Dutch they, in 1671 prohibited the importation of the wines, brandies, and manufacturers of France. The war of 1672 seems to have been in part occasioned by this commercial dispute. The peace of Nijmegen put an end to it in 1678 by moderating some of those duties in favor of the Dutch who, in consequence, took off their prohibition. It was about the same time that the French and English began mutually to oppress each other's industry by the like duties and prohibitions of which the French, however, seem to have set the first example. The spirit of hostility which has subsisted between the two nations ever since has hitherto hindered them from being moderated on either side. In 1697 the English prohibited the importation of Bone Lace, the manufacturer of Flanders. The government of that country, at that time under the dominion of Spain, prohibited, in return, the importation of English woolens. In 1700 the prohibition of importing Bone Lace into England was taken off upon condition that the importation of English woolens into Flanders should be put on the same footing as before. There may be good policy and retaliations of this kind when there is a probability that they will procure the repeal of the high duties or prohibitions complained of. The recovery of a great foreign market will generally more than compensate the transitory inconvenience of paying dearer during a short time for some sorts of goods. To judge whether such retaliations are likely to produce such an effect does not, perhaps, belong so much to the science of a legislator whose deliberations ought to be governed by general principles which are always the same as to the skill of that insidious and crafty animal vulgarly called a statesman or politician whose councils are directed by the momentary fluctuations of affairs. When there is no probability that any such repeal can be procured it seems a bad method of compensating the injury done to certain classes of our people to do another injury ourselves not only to those classes but to almost all the other classes of them. When our neighbors prohibit some manufacturer of ours we generally prohibit not only the same for that alone would seldom affect them considerably but some other manufacturer of theirs. This may no doubt give encouragement to some particular class of workmen among ourselves and by excluding some of their rivals may enable them to raise their price in the home market. Those workmen however who suffered by our neighbor's prohibition will not be benefited by ours. On the contrary they and almost all the other classes of our citizens will thereby be obliged to pay dearer than before for certain goods. Every such law therefore imposes a real tax upon the whole country not in favor of that particular class of workmen who were injured by our neighbor's prohibitions but of some other class. The case in which it may sometimes be a matter of deliberation how far or in what manner it is proper to restore the free importation to foreign goods after it has been for some time interrupted is when particular manufacturers by means of high duties or prohibitions upon all foreign goods which can come into competition with them have been so far extended as to employ a great multitude of hands. Humanity may in this case require that the freedom of trade should be restored only by slow gradations and with a good deal of reserve and circumspection. Were those high duties and prohibitions taken away all at once cheaper foreign goods of the same kind might be poured so fast into the home market as to deprive all at once many thousands of our people of their ordinary employment and means of subsistence. The disorder which this would occasion might no doubt be very considerable. It would in all probability however be much less than is commonly imagined for the two following reasons. First all those manufacturers of which any part is commonly exported to other European countries without a bounty could be very little affected by the freest importation of foreign goods. Such manufacturers must be sold as cheap abroad as any other foreign goods of the same quality and kind and consequently must be sold cheaper at home. They would still therefore keep possession of the home market and though a capricious man of fashion might sometimes prefer foreign wares merely because they were foreign to cheaper and better goods of the same kind that were made at home this folly could from the nature of things extend to so few that it could make no sensible impression upon the general employment of the people. But a great part of all the different branches of our wool and manufacture of our tan leather and of our hardware are annually exported to other European countries without any bounty and these are the manufacturers which employ the greatest number of hands. The silk perhaps is the manufacture which would suffer the most by this freedom of trade and after it the linen though the latter much less than the former. Secondly though a great number of people should by thus restoring the freedom of trade be thrown all at once out of their ordinary employment and common method of subsistence it would by no means follow that they would thereby be deprived either of employment or subsistence. By the reduction of the army and navy at the end of the late war more than 100,000 soldiers and seamen a number equal to what is employed and the greatest manufacturers were all at once thrown out of their ordinary employment. But though they no doubt suffered some inconvenience they were not thereby deprived of all employment and subsistence. The greater part of the seamen it is probable gradually butook themselves to the merchant service as they could find occasion and in the meantime both they and the soldiers were absorbed in a great mass of the people and employed in a great variety of occupations. Not only no great convulsion but no sensible disorder arose from so great a change in the situation of more than 100,000 men all accustomed to the use of arms and many of them to wrapen and plunder. The number of vagrants was scarce anywhere sensibly increased by it. Even the wages of labor were not reduced by it in any occupation so far as I have been able to learn except in that of seamen in the merchant service. But if we compare together the habits of a soldier and of any sort of manufacturer we shall find that those of the latter do not tend so much to disqualify him from being employed in a new trade as those of the former from being employed in any. The manufacturer has always been accustomed to look for his subsistence from his labor only the soldier to expect it from his pay. Application in industry have been familiar to the one idleness and dissipation to the other but it is surely much easier to change the direction of industry from one sort of labor to another than to turn idleness and dissipation to any. To the greater part of manufacturers besides it has already been observed there are other collateral manufacturers of so similar a nature that a workman can easily transfer his industry from one of them to another. The greater part of such workmen too are occasionally employed in country labor. The stock which employed them in a particular manufacturer before will still remain in the country to employ an equal number of people in some other way. The capital of the country remaining the same the demand for labor will likewise be the same or very nearly the same though it may be exerted in different places and for different occupations. Soldiers and seamen indeed when discharged from the king's service are at liberty to exercise any trade within any town or place of great Britain or Ireland. Let the same natural liberty of exercising what species of industry they please be restored to all his majesty's subjects in the same manner as to soldiers and seamen. That is break down the exclusive privileges of corporations and repeal the statute of apprenticeship both which are really encroachments upon natural liberty and add to those the repeal of the law of settlements so that a poor workman when thrown out of employment either in one trade or in one place may seek for it in another trade or in another place without the fear either of a prosecution or of a removal and neither the public nor the individuals will suffer much more from the occasional disbanding some particular classes of manufacturers than from that of the soldiers. Our manufacturers have no doubt great merit with their country but they cannot have more than those who defend it with their blood nor deserve to be treated with more delicacy. To expect indeed that the freedom of trade should ever be entirely restored in great Britain is as absurd as to expect that Oceana or Utopia should ever be established in it. Not only the prejudices of the public but what is much more unconquerable the private interests of many individuals irresistibly oppose it. Were the officers of the army to oppose with the same zeal and unanimity any reduction in the number of forces with which master manufacturers set themselves against every law that is likely to increase the number of their rivals in the home market were the former to animate their soldiers. In the same manner as the latter inflame their workmen to attack with violence and outrage the proposers of any such regulation to attempt to reduce the army would be as dangerous as it has now become to attempt to diminish in any respect the monopoly which our manufacturers have obtained against us. This monopoly has so much increased the number of some particular tribes of them that like an overgrown standing army they have become formidable to the government and upon many occasions intimidate the legislator. The member of parliament who supports every proposal for strengthening this monopoly is sure to acquire not only the reputation of understanding trade but great popularity and influence with an order of men whose numbers and wealth render them of great importance. If he opposes them on the contrary and still more if he has authority enough to be able to thwart them neither the most acknowledged probity nor the highest rank nor the greatest public services can protect him from the most infamous abuse and detraction from personal insults nor sometimes from real danger arising from the insolent outrage of furious and disappointed monopolists. The undertaker of a great manufacturer who by the home markets being suddenly laid open to the competition of foreigners should be obliged to abandon his trade would no doubt suffer very considerably. That part of his capital which had usually been employed in purchasing materials and in paying his workmen might without much difficulty perhaps find another employment but that part of it which was fixed in workhouses and in the instruments of trade could scarce be disposed of without considerable loss. The equitable regard therefore to his interest requires that changes of this kind should never be introduced suddenly but slowly gradually and after a very long warning. The legislature were it possible that its deliberations could be always directed not by the clamorous importunity of partial interests but by an extensive view of the general good ought upon this very account perhaps to be particularly careful neither to establish any new monopolies of this kind nor to extend further those which are already established. Every such regulation introduces some degree of real disorder into the constitution of the state which it will be difficult afterwards to cure without occasioning another disorder. How far it may be proper to impose taxes upon the importation of foreign goods in order not to prevent their importation but to raise a revenue for government I shall consider hereafter when I come to treat of taxes. Taxes imposed with a view to prevent or even to diminish importation are evidently as destructive of the revenue of the customs as of the freedom of trade. End of Book 4 Chapter 2 Part B.