The Principle of the Commercial or Mercantile System

That wealth consists in money, or in gold and 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 in every respect synonymous.

Many people believe that wealth consists of money, or gold and silver. This belief naturally arises from money’s two functions: it is a means of trade and a measure of value. Because money is a means of trade, we can use it to obtain whatever else we need more easily than we can with any other commodity. We always find that the main thing is to get money. Once we have it, making any further purchase is easy. Because money is also a measure of value, we estimate the value of all other commodities by how much money they can be exchanged for. We say that a rich man is worth a great deal of money, and a poor man very little. A frugal man, or one eager to become rich, is said to love money. A careless, generous, or lavish man is said to be indifferent to it. To grow rich is to get money. In short, in everyday language, wealth and money are treated as meaning exactly the same thing.

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 neighbourhood? By the information which they received, they judged whether it was worth while to make a settlement there, or if the country was worth the conquering. Plano Carpino, a monk sent ambassador from the king of France to one of the sons of the famous Gengis 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.

A rich country, like a rich man, is thought to have plenty of money. Amassing gold and silver in a country is therefore thought to be the quickest way to enrich it. For some time after the discovery of America, the Spaniards first asked about gold and silver whenever they reached an unknown coast. They wanted to know whether any could be found nearby. From the answers, they judged whether it was worth establishing a settlement there or conquering the country. Plano Carpino was a monk sent as an ambassador by the king of France to one of the sons of the famous Gengis Khan. He says that the Tartars often asked him whether there were plenty of sheep and oxen in the kingdom of France. Their question had the same purpose as that of the Spaniards. They wanted to know whether the country was rich enough to be worth conquering. Among the Tartars, as among all other nations of shepherds, cattle are used for trade and to measure value. These nations are generally unfamiliar with the use of money. So, for the Tartars, wealth consisted in cattle, just as for the Spaniards it consisted in gold and silver. Of the two, the Tartar idea was perhaps closer to the truth.

Mr Locke remarks a distinction between money and other moveable goods. All other moveable goods, he says, are of so consumable a nature, that the wealth which consists in them cannot be much depended on; and a nation which abounds in them one year may, without any exportation, but merely by their own waste 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 must solid and substantial part of the moveable wealth of a nation; and to multiply those metals ought, he thinks, upon that account, to be the great object of its political economy.

Mr Locke notes a distinction between money and other movable goods. He says that all other movable goods are so easily consumed that the wealth they represent cannot be relied on. A nation may have plenty of them one year and be in great need of them the next. This can happen without any exports, simply through waste and extravagance. Money, by contrast, is a steady friend. Though it may pass from hand to hand, it is not easily used up if kept within the country. According to Locke, gold and silver are therefore the most solid and substantial part of a nation's movable wealth. For that reason, he thinks increasing the supply of these metals should be the chief aim of its economic policy.

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 endeavour, in time of peace, to accumulate gold and silver, that when occasion requires, it may have wherewithal to carry on foreign wars.

Others admit that, if a nation could be isolated from the rest of the world, the amount of money circulating within it would not matter. Consumable goods would simply be exchanged for more or fewer pieces of money. They agree that the country’s real wealth or poverty would depend entirely on how abundant or scarce those goods were. But they think the situation is different for countries that have ties with foreign nations. Such countries must fight foreign wars and maintain fleets and armies in distant countries. They say this can only be done by sending money abroad to pay them. And a nation cannot send much money abroad unless it has a good deal at home. Every such nation must therefore try to accumulate gold and silver in peacetime. Then, when necessary, it will have the means to fight 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 the severest penalties, or subjected it to a considerable duty. The like prohibition seems anciently to have made a part of the policy of most other European nations. It is even to be found, where we should least of all expect to find it, in some old Scotch acts of Parliament, which forbid, under heavy penalties, the carrying gold or silver forth of the kingdom. The like policy anciently took place both in France and England.

Because of these popular beliefs, all the nations of Europe have tried every possible way to accumulate gold and silver within their borders, though with little success. Spain and Portugal own the main mines that supply Europe with these metals. They have either forbidden exports under the harshest penalties or imposed a substantial tax on them. A similar ban seems to have been part of the policy of most other European nations in the past. It can even be found where we would least expect it, in some old Scottish acts of Parliament. These acts forbid the export of gold or silver from the kingdom under heavy penalties. France and England once had the same policy.

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.

When those countries became commercial, merchants often found the ban extremely inconvenient. They could frequently buy the foreign goods they wanted more cheaply with gold and silver than with any other commodity. They wanted these goods either to import into their own country or to carry to another foreign country. They therefore protested against the ban as harmful 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 Mun compares this operation of foreign trade to the seed-time and harvest of agriculture. “If we only behold,” says he, “the actions of the husbandman 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 labours in the harvest, which is the end of his endeavours, we shall find the worth and plentiful increase of his actions.”

They argued, first, that exporting gold and silver to buy foreign goods did not always reduce the kingdom’s supply of those metals. On the contrary, it could often increase that supply. If the country did not consume more foreign goods as a result, the goods could be exported again to other countries. There they could be sold for a large profit, bringing back much more treasure than was originally sent out to buy them. Mr Mun compares this kind of foreign trade to planting and harvesting in agriculture. “If we only watch the farmer at planting time,” he says, “when he throws much good grain into the ground, we would think him a madman rather than a farmer. But when we consider his work at harvest, the goal of his efforts, we will see its value and abundant yield.”

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 five per cent. against England, it would require 105 ounces of silver in England to purchase a bill for 100 ounces of silver in Holland: that 105 ounces of silver in England, therefore, would be worth only 100 ounces of silver in 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.

Second, they argued that the prohibition could not stop gold and silver from being exported. Because these metals took up little space compared with their value, they could easily be smuggled abroad. They argued that exports could be prevented only by paying proper attention to what they called the balance of trade. When a country exported more in value than it imported, foreign nations owed it the difference. They necessarily paid this balance in gold and silver, increasing the quantity of those metals in the kingdom. But when the country imported more in value than it exported, it owed the difference to foreign nations. It necessarily paid them in the same way, reducing the quantity of those metals in the kingdom. In that case, prohibiting their export could not prevent it. The prohibition only made exporting them more dangerous and therefore more expensive. The exchange rate was thus turned further against the country that owed the balance than it otherwise might have been. A merchant buying a bill of exchange on the foreign country had to pay the banker who sold it. The merchant had to pay not only for the usual risk, trouble, and expense of sending money there. He also had to pay for the extra risk caused by the prohibition. But the more the exchange rate was against a country, the more the balance of trade was necessarily against it. Its money was necessarily worth that much less compared with the money of the country it owed. Suppose, for example, that the exchange rate between England and Holland was five percent against England. It would then take 105 ounces of silver in England to buy a bill for 100 ounces in Holland. So 105 ounces of silver in England would be worth only 100 ounces in Holland. They would buy only a corresponding quantity of Dutch goods. Conversely, 100 ounces of silver in Holland would be worth 105 ounces in England. They would buy a corresponding quantity of English goods. Because of the difference in the exchange rate, English goods sold to Holland would be that much cheaper. Dutch goods sold to England would be that much dearer. The English goods would therefore bring that much less Dutch money to England. The Dutch goods would draw that much more English money to Holland. The balance of trade would necessarily be that much more against England. A larger balance in gold and silver would have to be exported to Holland.

Those arguments were partly solid and partly sophistical. They were solid, so far as they asserted that the exportation of gold and silver in trade might frequently be advantageous to the country. They were solid, too, in asserting that no prohibition could prevent their exportation, when private people found any advantage in exporting them. But they were sophistical, in supposing, that either to preserve or to augment the quantity of those metals 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 sophistical, too, perhaps, in asserting that the high price of exchange necessarily increased what they called the unfavourable balance of trade, or occasioned the exportation of a greater quantity of gold and silver. That high price, indeed, was extremely disadvantageous to the merchants who had any money to pay in foreign countries. They paid so much dearer for the bills which their bankers granted them upon those countries. But though the risk arising 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 endeavour 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 unfavourable balance of trade, and consequently the exportation of gold and silver.

Those arguments were partly sound and partly misleading. They were sound in asserting that exporting gold and silver in trade could often benefit the country. They were also sound in asserting that no ban could prevent exports when private individuals found it profitable to export them. But the arguments were misleading in supposing that preserving or increasing the supply of those metals required special government attention. They needed no more attention than any other useful goods. Free trade never fails to supply such goods in the proper quantity without government attention. The arguments were also perhaps misleading in another claim. They asserted that a high exchange rate necessarily increased what they called the unfavorable balance of trade. Or, they said, it caused more gold and silver to be exported. A high exchange rate was indeed extremely disadvantageous to merchants who had money to pay in foreign countries. They had to pay more for the bills their bankers issued for payment in those countries. The risk created by the export ban might cause bankers some extra expense. But that would not necessarily take any more money out of the country. The extra expense would generally be spent entirely within the country on smuggling the money out. It could seldom cause the export of a single sixpence beyond the exact sum drawn for. A high exchange rate would also naturally encourage merchants to make their exports nearly balance their imports. They would do this to pay the high exchange rate on as small a sum as possible. Besides, a high exchange rate must necessarily have acted like a tax. It raised the price of foreign goods and thereby reduced their consumption. It would therefore tend to reduce, not increase, what they called the unfavorable balance of trade. Consequently, it would tend to reduce exports 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 them selves 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 Mun’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.

Whatever their merits, those arguments convinced the people they were meant to persuade. Merchants addressed them to parliaments, princes’ councils, nobles, and country gentlemen. Those thought to understand trade were addressing people who knew they understood nothing about it. Experience showed nobles and country gentlemen, as well as merchants, that foreign trade enriched the country. But none of them knew quite how it did so. Merchants knew perfectly well how foreign trade enriched them. It was their business to know. But knowing how it enriched the country was no part of their business. They thought about the subject only when they sought changes in their country’s laws on foreign trade. Then they had to say something about foreign trade’s benefits and how the existing laws hindered them. Those who had to decide the matter were told that foreign trade brought money into the country. They were also told that the laws in question kept it from bringing in as much as it otherwise would. This seemed to them a most satisfactory account. The arguments therefore had the desired effect. In France and England, the ban on exporting gold and silver was limited to each country’s own coins. Foreign coins and bullion could be exported freely. In Holland and some other places, this freedom was extended even to the country’s own coins. Governments turned their attention away from preventing the export of gold and silver. They turned instead to watching the balance of trade, as the only cause of any increase or decrease in those metals. They turned from one fruitless concern to another that was far more complicated, far more troublesome, and just as fruitless. The title of Mun’s book, England’s Treasure in Foreign Trade, became a basic principle of political economy. This was true not only in England but in all other commercial countries. Domestic trade was treated as merely secondary to foreign trade. Yet domestic trade is the most important of all. In domestic trade, an equal amount of capital produces the greatest revenue and creates the most employment for the country’s people. It was said to bring no money into the country and carry none out. The country, therefore, could never become richer or poorer through domestic trade. It could do so only insofar as the prosperity or decline of domestic trade indirectly affected 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.

A country with no mines of its own must, of course, get its gold and silver from other countries. In the same way, a country with no vineyards of its own must get its wine from abroad. But government does not seem to need to pay more attention to one than to the other. A country that can afford to buy wine will always get the wine it needs. And a country that can afford to buy gold and silver will never lack those metals. They can be bought for a price, like all other goods. Gold and silver are the price of all other goods, and all other goods are the price of those metals. We trust completely that free trade will always supply the wine we need, without government attention. We can trust just as completely that it will supply all the gold and silver we can afford to buy or use. We can use the metals either to circulate our goods or for other purposes.

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, labour, and profits, which must be paid in order to prepare and bring it to market. But no commodities regulate themselves more easily or more exactly, according to this effectual demand, than gold and silver; because, on account of the small bulk and great value of 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.

In every country, the supply of each commodity that human labor can purchase or produce naturally adjusts to effective demand. Effective demand comes from those willing to pay the full rent, labor costs, and profits needed to prepare a commodity and bring it to market. But no commodities adjust to effective demand more easily or precisely than gold and silver. Because these metals are compact and valuable, no commodities are easier to transport. They can be moved from places where they are cheap to places where they are expensive. They can also be moved from places where their supply exceeds effective demand to places where it falls short. Suppose, for example, that England had an effective demand for more gold. A packet boat could bring fifty tons of gold from Lisbon or wherever else it was available. That gold could be coined into more than five million guineas. But suppose there were an effective demand for grain worth the same amount. At five guineas a ton, importing the grain would require a million tons of shipping capacity, or a thousand ships of a thousand tons each. England's navy would not be enough.

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 neighbouring 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 neighbouring 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 Lycurgus opposed to their entrance into Lacedaemon. All the sanguinary laws of the customs are not able to prevent the importation of the teas of the Dutch and Gottenburg 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, sixteen 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.

When a country imports more gold and silver than people can afford and wish to buy, no government vigilance can prevent their export. All the bloody laws of Spain and Portugal cannot keep their gold and silver at home. The continual imports from Peru and Brazil exceed what people in those countries can afford and wish to buy. As a result, the price of the metals falls below their price in neighboring countries. On the other hand, a country might have less gold and silver than people can afford and wish to buy. If this shortage raised their price above that in neighboring countries, the government would not need to encourage imports. Even if the government tried to prevent imports, it could not succeed. Once the Spartans had the means to buy these metals, they entered Lacedaemon despite all the barriers imposed by the laws of Lycurgus. All the bloody customs laws cannot prevent the import of tea from the Dutch and Gottenburg East India companies. This is because their tea is somewhat cheaper than that of the British company. Yet a pound of tea takes up about a hundred times as much space as sixteen shillings in silver. Sixteen shillings is one of the highest prices commonly paid for a pound of tea. The tea takes up more than two thousand times as much space as the same price in gold. It is therefore that 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 under-stocked 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.

Gold and silver are easy to transport from places where they are plentiful to places where they are needed. This partly explains why their prices do not constantly fluctuate like those of most other goods. Most other goods are too bulky to move easily when a market has too much or too little of them. The prices of gold and silver do change, but the changes are generally slow, gradual, and steady. In Europe, for example, people believe that gold and silver have steadily but gradually fallen in value during this century and the previous one. They attribute this decline to continual imports from the Spanish West Indies. Perhaps there is little basis for this belief. But a sudden change in the price of gold and silver would require a revolution in commerce like that caused by the discovery of America. Only such a revolution could noticeably and dramatically raise or lower the money prices of all other goods at once.

If, not withstanding all this, gold and silver should at any time fall short in a country which has wherewithal to purchase them, there are more expedients for supplying their place, than that of almost any other commodity. If the materials of manufacture are wanted, industry must stop. If provisions are wanted, the people must starve. But if money is wanted, barter will supply its place, though with a good deal of inconveniency. Buying and selling upon credit, and the different dealers compensating their credits with one another, once a-month, or once a-year, will supply it with less inconveniency. A well-regulated paper-money will supply it not only without any inconveniency, 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.

Despite all this, gold and silver may sometimes run short in a country that can afford to buy them. If so, there are more ways to replace them than almost any other commodity. If manufacturing materials are lacking, industry must stop. If food is lacking, people must starve. But if money is lacking, barter can replace it, though with considerable inconvenience. Buying and selling on credit can replace money with less inconvenience. Dealers can then settle their accounts with one another once a month or once a year. Well-regulated paper money can replace gold and silver without any inconvenience and, in some cases, with advantages. By every measure, then, the government has never wasted its attention more than when trying to preserve or increase the amount of money in a 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 occasion 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 neighbourhood. Over-trading is the common cause of it. Sober men, whose projects have been disproportioned to their capitals, are as likely to have neither wherewithal to buy money, nor credit to borrow it, as prodigals, whose 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 over-trading becomes a general error, both among great and small dealers. They do not always send more money abroad than usual, but they buy upon credit, both at home and abroad, an unusual quantity of goods, which they send to some distant market, in hopes that the returns will come in before the demand for payment. The demand comes before the returns, and they have nothing at hand with which they can either purchase money or give solid security for borrowing. It is not any scarcity of gold and silver, but the difficulty which such people find in borrowing, and which their creditor find in getting payment, that occasions the general complaint of the scarcity of money.

No complaint, however, is more common than that there is too little money. Money, like wine, must always be scarce for those who cannot afford to buy it or borrow it on credit. Those who can do either will seldom lack the money or wine they need. Yet this complaint is not confined to careless spendthrifts. It sometimes spreads throughout a whole trading town and the surrounding countryside. Overtrading is the usual cause. Sensible people may undertake projects too large for their capital. They are then as likely to lack the means to buy money or the credit to borrow it as spendthrifts who spend more than their income. Before their projects can succeed, their capital is gone, and so is their credit. They run everywhere to borrow money, and everyone tells them they have none to lend. Even such widespread complaints do not always prove that fewer gold and silver coins than usual are circulating in the country. They show instead that many people want those coins but have nothing to give for them. When trading profits are unusually high, overtrading becomes a common mistake among both large and small dealers. They do not always send more money abroad than usual. But they buy an unusual quantity of goods on credit, both at home and abroad. They send these goods to a distant market, hoping to receive the proceeds before payment is due. Payment is demanded before the proceeds arrive. They have nothing on hand with which to buy money or provide solid security for a loan. It is not a shortage of gold and silver that causes the general complaint about scarce money. It is the difficulty these traders have in borrowing, and their creditors have in getting paid.

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 would be ridiculous to try to prove seriously that wealth consists not in money, gold, or silver, but in what money buys. Money is valuable only because it can buy things. Money is certainly always part of a nation's capital. But as already shown, it is generally only a small part and always the least profitable part.

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 every thing is readily given in exchange, but which is not always with equal readiness to be got in exchange for every thing. 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 labour of a country, which can ever be destined for purchasing gold and silver from their neighbours. 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 inconveniency, and be forced upon some of those expedients which are necessary for supplying the place of money. The annual produce of its land and labour, 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.

A merchant generally finds it easier to buy goods with money than to buy money with goods. This is not because wealth consists more essentially in money than in goods. It is because money is the recognized and established instrument of trade. People readily give anything in exchange for money, but money is not always as readily obtained in exchange for everything. Most goods are also more perishable than money, so a merchant may often lose much more by holding them. When he still has his goods, he is also more likely to face demands for money he cannot meet. He is less exposed once he has sold the goods and has their price in his coffers. On top of all this, his profit comes more directly from selling than from buying. For all these reasons, he is generally much more eager to exchange goods for money than money for goods. A merchant with plenty of goods in his warehouse may sometimes be ruined because he cannot sell them in time. But a nation or country is not exposed to the same misfortune. A merchant’s entire capital often consists of perishable goods intended to purchase money. But only a very small part of a country’s annual produce of land and labor can ever be intended to purchase gold and silver from its neighbors. By far the greater part circulates and is consumed within the country. Even of the surplus sent abroad, the greater part is generally intended to purchase other foreign goods. So even if a nation could not obtain gold and silver in exchange for the goods intended to purchase them, it would not be ruined. It might indeed suffer some loss and inconvenience. It might also be forced to adopt some of the expedients needed to take the place of money. Still, the annual produce of its land and labor would be the same, or nearly the same, as usual. That is because the same, or nearly the same, consumable capital would be used to maintain that production. Goods do not always draw money as readily as money draws goods. But in the long run, goods draw money more necessarily than money draws goods. Goods can serve many purposes besides purchasing money, but money can serve no purpose except purchasing goods. Money, therefore, necessarily runs after goods, but goods do not always or necessarily run after money. A person who buys does not always intend to sell again. Often, the buyer intends to use or consume what was bought. But a person who sells always intends to buy again. The buyer may often have completed the whole transaction, but the seller can never have completed more than half. People desire money not for its own sake, but for 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 for such 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 cheer 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 idle and unemployed so great, that no law could prevent their being immediately sent out of the country.

Consumable goods, it is said, are soon used up. Gold and silver, however, are more durable. If they were not continually exported, they could be accumulated for ages, enormously increasing the country’s real wealth. Therefore, it is claimed, nothing could be worse for a country than trading such lasting goods for perishable ones. Yet we do not think it harmful to trade English hardware for French wine. Hardware is also very durable. If it were not continually exported, it too could be accumulated for ages, enormously increasing the country’s supply of pots and pans. But we readily see that every country needs only as many such utensils as it can use. It would be absurd to have more pots and pans than are needed to cook the food usually consumed there. If the amount of food increased, the number of pots and pans would readily increase with it. Some of the additional food would be used to buy them or to support more workers who make them. It should be just as obvious that every country needs only as much gold and silver as it can use. These metals are used as coins to circulate goods and as silver and gold plate to furnish households. The amount of coin in a country is determined by the value of the goods it circulates. Increase that value, and part of it will immediately be sent abroad to buy the additional coin needed, wherever it can be found. The amount of plate depends on the number and wealth of private families who choose to enjoy that kind of luxury. Increase their number and wealth, and they will most likely use some of their additional wealth to buy more plate, wherever it can be found. Trying to increase a country’s wealth by bringing in or holding on to unnecessary gold and silver is absurd. It is as absurd as trying to improve a family’s meals by making them keep unnecessary kitchen utensils. The cost of buying those utensils would reduce, rather than increase, either the quantity or quality of the family’s food. In the same way, the cost of buying unnecessary gold and silver must reduce a country’s wealth. It reduces the wealth that feeds, clothes, and houses the people, and that supports and employs them. We must remember that gold and silver, whether in coins or plate, are utensils just as kitchen equipment is. Increase their use, and increase the consumable goods that they help circulate, manage, and prepare. You will then certainly increase the amount of gold and silver. But if you try to increase their amount by extraordinary means, you will just as certainly reduce their use, and even their amount. The amount of these metals can never exceed what their use requires. If they were ever accumulated beyond that amount, no law could prevent their immediate export. They are too easy to transport, and the loss from letting them lie idle and unused is too great.

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 labour, and consumable stock, has wherewithal to purchase those consumable goods in distant countries, can maintain foreign wars there.

A country does not always need to accumulate gold and silver to fight foreign wars and maintain fleets and armies in distant countries. Fleets and armies are maintained not with gold and silver, but with goods they consume. A nation can maintain wars in distant countries if it can buy those goods there. It can do so with the annual output of its domestic industry and the yearly income from its land, labor, and stock of consumable goods.

A nation may purchase the pay and provisions of an army in a distant country three different ways; by sending abroad either, first, some part of its accumulated gold and silver; or, secondly, some part of the annual produce of its manufactures; or, last of all, some part of its annual rude produce.

A nation can pay and supply an army in a distant country in three ways. It can send abroad some of its accumulated gold and silver, some of the manufactured goods it produces each year, or some of the raw products it produces each year.

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.

The gold and silver properly counted as accumulated or stored in a country can be divided into three parts. First is the money in circulation. Second is the gold and silver plate owned by private families. Last is the money that may have been saved in the ruler's treasury through many years of thrift.

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 exchequer 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.

A country can seldom spare much of its circulating money, because it seldom has much more than it needs. The value of the goods bought and sold each year requires a certain amount of money to circulate them and distribute them to their proper consumers. No more money than this can be put to use. The channel of circulation necessarily draws in enough money to fill it, and never admits any more. Some money, however, is generally withdrawn from this channel during a foreign war. Many people are supported abroad, so fewer are supported at home. Fewer goods circulate at home, and less money is needed to circulate them. On such occasions, an unusually large amount of paper money is also generally issued. In England, this includes exchequer notes, navy bills, and bank bills. This paper money takes the place of circulating gold and silver, allowing more of those metals to be sent abroad. All this, however, would provide only a poor resource for supporting a costly foreign war lasting several years.

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.

Melting down the silverware of private families has always proved an even less significant measure. At the beginning of the last war, the French gained less from it than they lost in the value of the workmanship.

The accumulated treasures of the prince have in former times afforded a much greater and more lasting resource. In the present times, if you except the king of Prussia, to accumulate treasure seems to be no part of the policy of European princes.

In the past, a ruler’s accumulated treasure provided a much greater and longer-lasting resource. Today, European rulers seem to have no policy of accumulating treasure, except for the king of Prussia.

The funds which maintained the foreign wars of the present century, the most expensive perhaps which history records, seem to have had little dependency upon the exportation either of the circulating money, or of the plate of private families, or of the treasure of the prince. The last French war cost Great Britain upwards of £90,000,000, including not only the £75,000,000 of new debt that was contracted, but the additional 2s. 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, in 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 £18,000,000. Since the late recoinage of the gold, however, it is believed to have been a good deal under-rated. Let us suppose, therefore, according to the most exaggerated computation which I remember to have either seen or heard of, that, gold and silver together, it amounted to £30,000,000. 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 any body’s knowing any thing 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 foreign wars of this century were perhaps the most expensive in recorded history. Yet the money spent on them seems to have depended little on exporting the country’s circulating money, private families’ gold and silver plate, or the ruler’s treasure. The last French war cost Great Britain more than £90,000,000. This included not only the £75,000,000 in new debt, but also the additional land tax of 2s. per pound and the sums borrowed each year from the sinking fund. More than two-thirds of the money was spent in distant countries: Germany, Portugal, America, the ports of the Mediterranean, and the East and West Indies. The kings of England had no accumulated treasure, and we never heard of any unusually large quantity of plate being melted down. The country’s circulating gold and silver had not been thought to exceed £18,000,000. Since the recent recoinage of gold, however, that amount is believed to have been greatly underestimated. So let us suppose that the gold and silver together amounted to £30,000,000. That is the most exaggerated estimate I remember seeing or hearing. If our money had paid for the war, the entire amount would have had to leave the country and return at least twice in six to seven years. If we suppose that happened, it would provide the strongest possible argument that the government need not watch over the preservation of money. The country’s entire supply of money would have left and returned twice in that short time, without anyone knowing anything about it. Yet the flow of money never seemed lower than usual during any part of this period. Few people lacked money if they had the means to pay for it. Profits from foreign trade were indeed higher than usual throughout the war, especially toward the end. As always, these higher profits led to widespread over-trading in all the ports of Great Britain. This in turn led to the usual complaint of a shortage of money, which always follows over-trading. Many people needed money but had neither the means to buy it nor the credit to borrow it. Because debtors found it difficult to borrow, creditors found it difficult to collect payment. Gold and silver, however, could generally be obtained at their value by those who had that value to give in exchange.

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 endeavour 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 endeavour 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.

The enormous expense of the recent war must therefore have been paid mainly by exporting British goods of one kind or another, not gold and silver. The government, or those acting for it, would contract with a merchant to send money to a foreign country. The merchant would naturally try to pay his foreign correspondent, on whom he had drawn a bill of exchange, by sending goods abroad rather than gold and silver. If British goods were not in demand in that country, he would try to send them elsewhere. There he could buy a bill of exchange payable in the first country. Shipping goods always brings a considerable profit when they are well suited to the market. Shipping gold and silver, on the other hand, hardly ever brings a profit. When a merchant sends those metals abroad to buy foreign goods, his profit comes from selling the goods he receives, not from buying them. But when he sends the metals abroad merely to pay a debt, he receives nothing in return and therefore makes no profit. He naturally uses his ingenuity to find a way to pay his foreign debts by exporting goods rather than gold and silver. The author of the Present State of the Nation accordingly notes the large quantity of British goods exported during the recent war without anything being brought back in return.

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 between 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 neighbouring 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 labour 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 £19,000,000. 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 £6,000,000 sterling, which, in some years, would scarce have paid four months expense of the late war.

Besides the three kinds of gold and silver mentioned above, all great commercial countries import and export considerable amounts of bullion for foreign trade. This bullion circulates among commercial countries much as national coins circulate within each country. It may therefore be considered the money of the great mercantile republic. The movement and direction of national coins depend on the goods circulating within each country. The movement and direction of the mercantile republic’s money depend on the goods circulating between countries. Both kinds of money help make exchanges possible. National coins facilitate exchanges between individuals in the same country. The money of the mercantile republic facilitates exchanges between people in different nations. Some of this money may have been, and probably was, used to carry on the late war. During a general war, it is natural to suppose that this money would move and circulate differently than in peacetime. It would circulate more around the seat of war. More of it would be used there and in neighboring countries to pay and supply the different armies. But whatever portion of this money Great Britain used each year for the war had to be purchased each year. It was purchased either with British goods or with something else purchased with British goods. This brings us back to goods, the annual produce of the country’s land and labor, as the ultimate resources that enabled us to carry on the war. Indeed, it is natural to suppose that such great yearly expense had to be paid from a great yearly output. In 1761, for example, the expense amounted to more than £19,000,000. No accumulated wealth could have supported such great yearly spending. No yearly output, even of gold and silver, could have supported it. According to the best accounts, the gold and silver imported each year into Spain and Portugal together do not usually amount to much more than £6,000,000 sterling. In some years, that would scarcely have paid for four months 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, seem to be the finer and more improved manufactures; such as contain a great value in a small bulk, and can therefore be exported to a great distance at little expense. A country whose industry produces a great annual surplus of such manufactures, 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 manufactures 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 manufactures 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 manufactures during the late war, and for some time after the peace, may serve as an illustration of what has been just now said.

The best goods to transport to distant countries for an army’s pay and supplies seem to be finer, more highly finished manufactures. They can be exchanged for the pay and supplies themselves, or for money from the mercantile republic to buy them. Such goods have great value for their size and can therefore be exported far away at little expense. A country’s industries may produce a large annual surplus of these manufactures, which it usually exports. If so, the country may wage a very expensive foreign war for many years. It need not export much gold or silver, or even have much to export. In that case, a considerable part of its annual surplus of manufactures must be exported without bringing anything back to the country. The merchant, however, does receive a return. The government buys the merchant’s bills on foreign countries to purchase the army’s pay and supplies there. Some of the surplus, however, may still bring a return to the country. During the war, manufacturers will face a double demand. First, they will be called on to make goods for export to pay the bills drawn on foreign countries for the army’s pay and supplies. Second, they will be called on to make goods to purchase the usual imports consumed at home. Therefore, even in the midst of the most destructive foreign war, most manufacturing industries may often flourish greatly. By contrast, they may decline when peace returns. They may flourish amid their country’s ruin and begin to decay when its prosperity returns. The condition of many different branches of British manufacturing during the late war, and for some time after the peace, may illustrate this point.

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 manufactures. 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 manufactures 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 manufactures. 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 manufactures 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 endeavours 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 Mazepa, chief of the Cossacks 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, seem 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 aids 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 Dercyllidas said of the court of Persia, may be applied to that of several European princes, that he saw there much splendour, but little strength, and many servants, but few soldiers.

No costly or long foreign war could conveniently be carried on by exporting raw produce from the soil. Sending enough produce abroad to buy pay and provisions for an army would cost too much. Few countries, moreover, produce much more raw produce than their own people need to live on. To send a large quantity abroad would therefore mean sending away part of what the people need to survive. The export of manufactured goods is different. What the workers need to live on stays at home, and only the surplus of their work is exported. Mr Hume often notes that the ancient kings of England could not carry on a long foreign war without interruption. In those days, the English had little with which to buy pay and provisions for their armies abroad. They had only raw produce, of which no large amount could be spared from domestic consumption, or a few very coarse manufactured goods. Both were too expensive to transport. This inability arose not from a lack of money, but from a lack of finer and more advanced manufactured goods. Buying and selling in England were carried on with money then, just as they are now. The amount of money in circulation must have been in the same proportion to the number and value of ordinary purchases and sales as it is today. Or rather, it must have been in a greater proportion, because there was then no paper money to take over much of the work now done by gold and silver. Among nations where commerce and manufacturing are little known, the sovereign can seldom obtain substantial aid from his subjects in extraordinary circumstances. The reasons for this will be explained later. In such countries, the sovereign therefore usually tries to build up a treasure as his only resource for emergencies. Apart from this need, he is naturally inclined to the thrift required to build one up. In that simple state of society, even a sovereign does not spend his money out of vanity on the gaudy finery of a court. Instead, he spends it on generosity to his tenants and hospitality to his retainers. But generosity and hospitality very seldom lead to extravagance, though vanity almost always does. Every Tartar chief accordingly has a treasure. The treasures of Mazepa, chief of the Cossacks in the Ukraine and the famous ally of Charles XII., are said to have been very great. The French kings of the Merovingian line all had treasures. When they divided their kingdom among their children, they divided their treasures too. The Saxon princes and the first kings after the Conquest also seem to have built up treasures. The first act of each new reign was commonly to seize the previous king's treasure. This was considered the most essential step in securing the succession. The sovereigns of developed commercial countries do not have the same need to build up treasures. They can generally obtain extraordinary aid from their subjects in extraordinary circumstances. They are also less inclined to save. They naturally, and perhaps necessarily, follow the fashion of the times. Their spending comes to be governed by the same extravagant vanity that directs the spending of all the other great landowners in their dominions. The empty display of their court grows more brilliant every day. Its cost not only prevents them from accumulating treasure, but often consumes funds intended for more necessary expenses. What Dercyllidas said of the court of Persia may be applied to the courts of several European princes. He saw there much splendour but little strength, and many servants but few soldiers.

The importation of gold and silver is not the principal, much 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 labour 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 labour in any particular branch of art or manufacture from being carried to the highest perfection. By opening a more extensive market for whatever part of the produce of their labour may exceed the home consumption, it encourages them to 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 mines, is, no doubt a part of the business of foreign commerce. It is, however, a most insignificant part of it. A country which carried on foreign trade merely upon this account, could scarce have occasion to freight a ship in a century.

Importing gold and silver is not the main benefit a nation gains from foreign trade, much less the only one. Wherever foreign trade takes place, all the places involved gain two distinct benefits. Trade carries away the surplus produce of their land and labor for which they have no demand. In return, it brings back something they do demand. Trade gives value to their surpluses by exchanging them for goods that can meet some of their needs and increase their enjoyment. Foreign trade also prevents the limited size of the home market from holding back the division of labor. In any craft or manufacturing industry, trade allows the division of labor to reach its highest perfection. It opens a larger market for any goods produced beyond what people at home consume. This encourages people to improve their labor’s productive power and increase its annual output as much as possible. In this way, trade increases the real income and wealth of society. Foreign trade continually performs these great and important services for all the countries that engage in it. All benefit greatly, though the country where the merchant lives generally benefits most. That is because the merchant generally spends more time supplying the needs and carrying away the surpluses of his own country than those of any other particular country. Foreign trade does, of course, bring needed gold and silver into countries without mines. But this is a most insignificant part of its business. A country trading abroad for this reason alone would scarcely need to load a ship once 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 mines, those metals have become cheaper. A service of plate can now be purchased for about a third part of the corn, or a third part of the labour, which it would have cost in the fifteenth century. With the same annual expense of labour 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 bad been its usual price, not only those who purchased it before can purchase three times their former quantity, but it is brought down to the level of a much greater number of purchasers, perhaps to more than ten, perhaps to more than twenty times the former number. So that there may be in Europe at present, not only more than three times, but more than twenty or thirty times the quantity of plate which would have been in it, even in its present state of improvement, had the discovery of the American mines never been made. So far Europe has, no doubt, gained a real conveniency, though surely a very trifling one. The cheapness of gold and silver renders those metals rather less fit for the purposes of money than they were before. In order to make the same purchases, we must load ourselves with a greater quantity of them, and carry about a shilling in our pocket, where a groat would have done before. It is difficult to say which is most trifling, this inconveniency, or the opposite conveniency. Neither the one nor the other could have made any very essential change in the state of Europe. 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 labour 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 labour 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.

Europe has not grown richer from the discovery of America because of imported gold and silver. The abundant American mines have made those metals cheaper. A set of silverware now costs about a third of the grain or labor it would have cost in the fifteenth century. With the same annual expenditure of labor and goods, Europe can now buy about three times as much silverware each year as it could then. But when a commodity sells for a third of its usual price, its previous buyers can buy three times as much. The lower price also brings it within reach of many more buyers. Perhaps the number of buyers becomes more than ten or even twenty times greater. So Europe may now have more than twenty or thirty times as much silverware as it would have had without the discovery of the American mines. That may be true even given Europe's present state of development. In this respect, Europe has undoubtedly gained a real convenience, though surely a very small one. The cheapness of gold and silver makes those metals somewhat less suitable for use as money than before. To make the same purchases, we must carry more of them. We must carry a shilling in our pocket where a groat would have been enough before. It is hard to say which is more trivial, this inconvenience or the convenience gained. Neither could have made a very important change in Europe's condition. The discovery of America, however, certainly did make a very important change. It opened a new and inexhaustible market for all of Europe's goods. This created opportunities for new divisions of labor and improvements in manufacturing. These could never have arisen within the narrow limits of the old trade. There was no market there to buy most of the additional goods they would produce. Labor became more productive, and its output increased in all the countries of Europe. Along with it, the inhabitants' real income and wealth increased. Almost all European goods were new to America, and many American goods were new to Europe. A new set of exchanges therefore began, exchanges that had never been thought of before. These should naturally have proved as beneficial to the new continent as they certainly did to the old one. The savage injustice of the Europeans made an event that should have benefited everyone 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, Indostan, Japan, as well as several others in the East Indies, without having richer mines of gold or silver, were, in every other respect, much richer, better cultivated, and more advanced in all arts and manufactures, than either Mexico or Peru, even though we should credit, what plainly deserves no credit, the exaggerated accounts of the Spanish writers 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 monopolised 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 favour 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 any thing further about either. By the annual exportation of silver to the East Indies, plate is probably somewhat dearer in Europe than it otherwise might have been; and coined silver probably purchases a larger quantity both of labour and commodities. 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 labours under.

The discovery of a route to the East Indies around the Cape of Good Hope happened at about the same time. Despite the greater distance, it perhaps opened an even wider field for foreign trade than the discovery of America. Only two nations in America were in any way superior to the savages. Both were destroyed almost as soon as they were discovered. The rest were mere savages. But the empires of China, Indostan, Japan, and several others in the East Indies did not have richer gold or silver mines. In every other respect, however, they were much richer, better cultivated, and more advanced in all arts and manufactures than Mexico or Peru. This was true even if we accept the Spanish writers’ exaggerated accounts of the ancient state of those empires. Those accounts plainly deserve no credit. Rich and civilized nations can always exchange goods of much greater value with one another than with savages and barbarians. Europe, however, has so far gained much less from trade with the East Indies than from trade with America. The Portuguese monopolized the East India trade for about a century. Other European nations could send goods there or receive them only indirectly, through the Portuguese. At the beginning of the last century, the Dutch began to encroach on the Portuguese trade. They placed all their own East India trade in the hands of an exclusive company. The English, French, Swedes, and Danes have all followed their example. As a result, no great European nation has yet benefited from free trade with the East Indies. This is reason enough why it has never been as profitable as trade with America. Trade between almost every European nation and its own colonies is open to all its subjects. The East India companies’ exclusive privileges and great wealth have stirred much envy. Their wealth has also won them great favor and protection from their respective governments, causing further envy. This envy has often led people to portray the companies’ trade as entirely harmful. They point to the large quantities of silver it exports each year from the countries conducting it. The people involved in the trade have replied that this continual export of silver might indeed impoverish Europe as a whole. But, they argue, it would not impoverish the particular country conducting the trade. By exporting part of what it received in return to other European countries, it brought home far more silver each year than it sent out. Both the objection and the reply rest on the popular notion I have just examined. So there is no need to say anything further about either. The yearly export of silver to the East Indies probably makes silver plate somewhat more expensive in Europe than it otherwise would be. It also probably allows silver coins to buy more labor and goods. The first effect is a very small loss, and the second a very small gain. Both are too insignificant to deserve any public attention. Trade with the East Indies opens a market for European goods. It also opens a market for the gold and silver bought with those goods, which comes to nearly the same thing. This trade must therefore increase Europe’s yearly production of goods, and thus its real wealth and income. The trade has so far increased them very little, probably because of the restrictions placed on it everywhere.

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.

I thought it necessary to examine in detail the popular notion that wealth consists of money, or gold and silver. I did so even at the risk of being tedious. As I have already noted, people often use the word money to mean wealth. This ambiguity has made the popular notion so familiar that even those convinced of its absurdity often forget their own principles. In their reasoning, they are very likely to take it for granted as a certain and undeniable truth. Some of the best English writers on commerce begin by noting that a country's wealth is not just its gold and silver. It also includes its land, houses, and consumable goods of every kind. Yet as they reason, they seem to forget about the land, houses, and consumable goods. Their arguments often assume that all wealth consists of gold and silver. They also assume that increasing the supply of 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.

However, two principles had been established. First, wealth consisted of gold and silver. Second, a country without mines could obtain those metals only through the balance of trade, by exporting more than it imported in value. The main goal of political economy therefore necessarily became to reduce imports of foreign goods for domestic consumption as much as possible. It also became to increase exports of goods produced by domestic industry as much as possible. Its two main tools for enriching the country were therefore restrictions on imports and encouragement of exports.

The restraints upon importation were of two kinds.

There were two kinds of restrictions on imports.

First, restraints upon the importation of such foreign goods for home consumption as could be produced at home, from whatever country they were imported.

First, restrictions on imports of foreign goods for domestic consumption that could be produced at home, regardless of their country of origin.

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.

Second, restrictions on importing almost all kinds of goods from countries with which the balance of trade was thought to be unfavorable.

Those different restraints consisted sometimes in high duties, and sometimes in absolute prohibitions.

These restrictions sometimes took the form of high import taxes and sometimes outright bans.

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.

Exports were encouraged in several ways. These included refunds of duties, subsidies, favorable trade agreements with foreign countries, and colonies established in distant countries.

Drawbacks were given upon two different occasions. When the home manufactures 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.

Drawbacks, or refunds of duties, were given on two occasions. Domestic manufactured goods were sometimes subject to a duty or excise tax. When these goods were exported, all or part of the tax was often refunded. Foreign goods subject to a duty were sometimes imported for re-export. When these goods were exported again, all or part of the duty was sometimes refunded.

Bounties were given for the encouragement, either of some beginning manufactures, or of such sorts of industry of other kinds as were supposed to deserve particular favour.

Bounties were given to encourage new manufacturing industries or other kinds of work thought to deserve special support.

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.

Favorable trade treaties secured special privileges in some foreign countries for a country's goods and merchants. These privileges went beyond those granted to goods and merchants from 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.

By establishing colonies in distant countries, a country often secured special privileges for its goods and merchants. It also often secured a monopoly for them.

The two sorts of restraints upon importation above mentioned, together with these four encouragements to exportation, constitute the six principal 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 favour. I shall consider each of them in a particular chapter, and, without taking much farther notice of their supposed tendency to bring money into the 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.

The two kinds of import restrictions mentioned above, together with these four incentives for exports, make up the six principal means of the commercial system. Through them, the system seeks to increase a country’s supply of gold and silver by turning the balance of trade in its favor. I will consider each measure in a separate chapter. I will say little more about their supposed tendency to bring money into the country. Instead, I will focus on each measure’s likely effects on the annual output of the country’s industry. To the extent that these measures increase or decrease the value of that annual output, they must clearly increase or decrease the country’s real wealth and income.