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THE HARVARD CLASSICS 



The Five-Foot Shelf of Books 



THE HARVARD CLASSICS 
EDITED BY CHARLES W, ELIOT, LL.D. 



An Inquiry Into the Nature 
and Causes of the 

Wealth of Nations 

By Adam Smith 

EDITED BY C. J. BULLOCK, PH.D. 
Pro/euor of Economics, Harvard Unictriity 



W/M Introduction and f'iotcs 
Volume lo 




P. F. Collier & Son Corporation 

NEW YORK 



Copyright, 1909 
By p. F. Collier & Son 

MANVrACTURSD IN U. S. A. 



CONTENTS 

BOOK I 

PAGE 

Of the Causes of Improvement in the productive Power 
OF Labour, and of the Order according to which its 
Produce is naturally distributed among the differ- 
ent Ranks of the People 9 

chap. 

I. Of the Division of Labour 9 

IL Of the Principle Which Gives Occasion to the Division of 

Labour i8 

in. That the Division of Labour is Limited by the Extent of the 

Market 22 

IV. Of the Origin and Use of Money 27 

V. Of the Real and Nominal Price of Commodities, or of Their 

Price in Labour, and Their Price in Money .... 34 

VI. Of the Component Parts of the Price of Commodities 48 

VII. Of the Natural and Market Price of Commodities ... 56 

VIII. Of the Wages of Labour 66 

IX. Of the Profits of Stock 90 

X. Of Wages and Profit in the Different Employments of 

Labour and Stock loi 

XI. Of the Rent of Land 147 

BOOK II 

Of the Nature, Accumulation, and Employment of Stock 212 
chap. 

I. Of the Division of Stock 215 

II. Of Money Considered as a Particular Branch of the General 

Stock of the Society, or of the Expence of Maintaining 

the National Capital 223 

III. Of the Accumulation of Capital, or of Productive and Un- 

productive Labour 258 

IV. Of Stock Lent at Interest 278 

V. Of the Different Employment of Capitals 287 

I 



2 CONTENTS 

BOOK III 

PACE 

Of the Different Progress of Opulencr in Different 

Nations 304 

CHAP. 

I. Of the Natural Progress of Opulence 304 

BOOK IV 
Of Systems of Poutical CEconomy 310 

CHAP. 

I. Of the Principle of the Commercial or Mercantile System . 311 
II. Of Restraints Upon the Importation from Foreign Countries 

of Such Goods as Can Be Produced at Home 332 

III. Of the Extraordinary Restraints upon the Importation of 

Goods of Almost All Kinds, from Those Countries with 

which the Balance Is Supposed to Be Disadvantageous . 353 

IV. Of Drawbacks 371 

V. Of Bounties 374 

VI. Of Treaties of Commerce 389 

VII. Of Colonies 395 

VIII. Conclusion of the Mercantile System 405 

IX. Of the Agricultural Systems, or of the Systems of Political 
CEconomy, Which Represent the Produce of Land as 
Either the Sole or the Principal Source of the Revenue 
and Wealth of Every Country 426 

BOOK V 
Of the Revenue of the Sovereign or Commonwealth . 447 

CHAP. 

I. Of the Expences of the Sovereign or Commonwealth 447 
II. Of the Sources of the General or Public Revenue of the So- 
ciety 468 

III. Of Public Debts 549 



INTRODUCTORY NOTE 

Adam Smith, political economist and moral philosopher, was ix)rn in 
Kirkcaldy, Scotland, June 5, 1723. His father, a lawyer and customs 
official, died before the birth of his son, who was brought up through a 
delicate childhood by his mother. At fourteen he was sent to the Uni- 
versity of Glasgow, where he came under the influence of Francis 
Hutcheson, and in 1740 he went up to Oxford as Snell exhibitioner at 
Balliol College, remaining there till 1746. After leaving Oxford, he gave 
lectures upon English Literature and Economics, and in 1751 became 
professor of logic, and in 1752 of moral philosophy, at Glasgow. The 
reputation won by his lectures was increased by the publication, in 1759, 
of his "Theory of the Moral Sentiments," one result of which was his 
appointment as travelling tutor to the third Duke of Buccleuch. In this 
capacity he spent nearly three years in France, and made the acquaintance 
of many of the intellectual leaders of that country. Returning to Britain 
in the end of 1766, he lived chiefly in Kirkcaldy and London, working 
Ufwn his "Wealth of Nations," which was finally published in 1776. It 
met with immediate success, and in a few years had taken an authorita- 
tive place with both philosophers and men of afTairs. In the following 
year Smith was appointed a Commissioner of Customs, and took a house 
in Edinburgh, where he lived quiedy and at ease till his death on 
July 17, 1790. 

Political economy had been studied long before Adam Smith, but the 
"Wealth of Nations" may be said to constitute it for the first time as a 
separate science. The work was based upon a vast historical knowledge, 
and its principles were worked out with remarkable sanity as well as 
ingenuity, and skilfully illuminated by apt illustrations. In spite of more 
than a century of speculation, criticism, and the amassing of new facts 
and fresh experience, the work still stands as the best all-round state- 
ment and defence of some of the fundamental principles of the science 
of economics. 

The most notable feature of the teaching of the "Wealth of Nations," 
from the point of view of its divergence from previous economic thought 
as well as of its subsequent influence, is the statement of the doctrine of 
natural liberty. Smith believed that "man's self-interest is God's prov- 
idence," and held that if government abstained from interfering with 
free competition, industrial problems would work themselves out and the 
practical maximum of efficiency would be reached. This same doctrine 



4 INTRODUCTORY NOTE 

was applied to international relations, and Smith's working out of it 
here is the classical statement of the argument for free trade. 

In its original form the book contained a considerable number of 
digressions and illustrations which the progress of knowledge and of 
industrial civilization have shown to be inaccurate or useless, and of these 
the present edition has been unburdened. This process, while greatly 
increasing the interest and readableness of the book, has left intact 
Smith's main argument, which is here offered to the reader as admittedly 
the best foundation for the study of [wlitical economy. 



INTRODUCTION 

AND PLAN OF THE WORK 

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

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

But this proportion must in every nation be regulated by two different 
circumstances; first, by the skill, dexterity, and judgment with which its 
labour is generally applied; and, secondly, by the proportion between the 
number of those who are employed in useful labour, and that of those 
who are not so employed. Whatever be the soil, climate, or extent of ter- 
ritory of any particular nation, the abundance or scantiness of its annual 
supply must, in that {particular situation, depend upon those two cir- 
cumstances. 

The abundance or scantiness of this supply too seems to depend more 
ujxjn the former of those two circumstances than upon the latter. Among 
the savage nations of hunters and fishers, every individual who is able 
to work, is more or less employed in useful labour, and endeavours to 
provide, as well as he can, the necessaries and conveniencies of life, for 
himself, or such of his family or tribe as are either too old, or too young, 
or too infirm to go a hunting and fishing. Such nations, however, are 
so miserably poor that, from mere want, they are frequendy reduced, or, 
at least, think themselves reduced, to the necessity sometimes of directly 
destroying, and sometimes of abandoning their infants, their old people, 
and those afflicted with lingering diseases, to perish with hunger, or to 
be devoured by wild beasts. Among civilized and thriving nations, on 
the contrary, though a great number of people do not labour at all, 
many of whom consume the produce of ten times, frequendy of a hun- 
dred times more labour than the greater part of those who work; yet the 
produce of the whole labour of the society is so great, that all are often 
abundandy supplied, and a workman, even of the lowest and poorest 

5 



6 INTRODUCTION 

order, if he is frugal and industrious, may enjoy a greater share of the 
necessaries and conveniencies of life than it is possible for any savage 
to acquire. 

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

Whatever be the actual state of the skill, dexterity, and judgment with 
which labour is applied in any nation, the abundance or scantiness of 
its annual supply must depend, during the continuance of that state, 
upon the proportion between the number of those who are annually 
employed in useful labour, and of those who are not so employed. 
The number of useful and productive labourers, it will hereafter appear, 
is every where in proportion to the quantity of capital stock which is 
employed in setting them to work and to the particular way in which it 
is so employed. The Second Book, therefore, treats of the nature of 
capital stock, of the manner in which it is gradually accumulated, and 
of the different quantities of labour which it puts into motion, according 
to the different ways in which it is employed. 

Nations tolerably well advanced as to skill, dexterity, and judgment, 
in the application of labour, have followed very different plans in the 
general conduct or direction of it; and those plans have not all been 
equally favourable to the greatness of its produce. The policy of some 
nations has given extraordinary encouragement to the industry of the 
country; that of others to the industry of towns. Scarce any nation has 
dealt equally and impartially with every sort of industry. Since the down- 
fall of the Roman empire, the policy of Europe has been more favour- 
able to arts, manufactures, and commerce, the industry of towns; than to 
agriculture, the industry of the country. The circumstances which seem 
to have introduced and established this policy are explained in the Third 
Book. 

Though those different plans were, perhaps, first introduced by the 
private interests and prejudices of particular orders of men, without any 
regard to, or foresight of, their consequences upon the general welfare of 
the society; yet they have given occasion to very different theories of 
political oeconomy; of which some magnify the importance of that indus- 
try which is carried on in towns, others of that which is carried on in 
the country. Those theories have had a considerable influence, not only 
upon the opinions of men of learning, but upon the public conduct of 
princes and sovereign states. I have endeavoured, in the Fourth Book, to 



INTRODUCTION 7 

explain, as fully and distinctly as I can, those different theories, and the 
principal effects which they have produced in different ages and nations. 
To explain in what has consisted the revenue of the great body of the 
people, or what has been the nature of those funds, which, in different 
ages and nations, have supplied their annual consumption, is the object 
of these Four first Books. The Fifth and last Book treats of the revenue 
of the sovereign, or commonwealth. In this book I have endeavoured 
to show; first, what are the necessary expences of the sovereign, or com- 
monwealth; which of those exjxnces ought to be defrayed by the general 
contribution of the whole society; and which of them, by that of some 
particular part only, or of some (xirticular members of it: secondly, what 
are the different methods in which the whole society may be made to 
contribute towards defraying the expwnces incumbent on the whole 
society, and what are the principal advantages and inconvcniencies of 
each of those methods: and, thirdly and lastly, what are the reasons and 
causes which have induced almost all modern governments to mortgage 
some part of this revenue, or to contract debts, and what have been the 
effects of those debts upon the real wealth, the annual produce of the 
land and labour of the society. 



AN INQUIRY INTO THE NATURE AND CAUSES 

OF THE 

WEALTH OF NATIONS 

BOOK I 

Of the Causes of Improvement in the productive Power 

OF Labour and of the Order according to which 

ITS Produce is naturally distributed among 

the different Ranks of the People. 

CHAPTER I 
Of the Division of Labour 

THE greatest improvement in the productive powers of 
labour, and the greater part of the skill, dexterity, and judg- 
ment with which it is any where directed, or applied, seem 
to have been the effects of the division of labour. 

The effects of the division of labour, in the general business, of 
society, will be more easily understood, by considering in what man- 
ner it operates in some particular manufactures. It is commonly sup>- 
posed to be carried furthest in some very trifling ones; not perhaps 
that it really is carried further in them than in others of more impor- 
tance: but in those trifling manufactures which are destined to sup- 
ply the small wants of but a small number of people, the whole 
number of workmen must necessarily be small; and those employed 
in every different branch of the work can often be collected into the 
same workhouse, and placed at once under the view of the spectator. 
In those great manufactures, on the contrary, which are destined 
to supply the great wants of the great body of the people, every dif- 
ferent branch of the work employs so great a number of workmen, 
that it is impossible to collect them all into the same workhouse. We 
can seldom see more, at one time, than those employed in one single 

9 



10 WEALTH OF NATIONS 

branch. Though in such manufactures, therefore, the work may 
really be divided into a much greater number of parts, than in those 
of a more trifling nature, the division is not near so obvious, and has 
accordingly been much less observed. 

To take an example, therefore, from a very trifling manufacture; 
but one in which the division of labour has been very often taken 
notice of, the trade of the pin-maker; a workman not educated to 
this business (which the division of labour has rendered a distinct 
trade), nor acquainted with the use of the machinery employed in 
it (to the invention of which the same division of labour has prob- 
ably given occasion), could scarce, perhaps, with his utmost industry, 
make one pin in a day, and certainly could not make twenty. But 
in the way in which this business is now carried on, not only the 
whole work is a peculiar trade, but it is divided into a number of 
branches, of which the greater part are likewise peculiar trades. One 
man draws out the wire, another straights it, a third cuts it, a fourth 
points it, a fifth grinds it at the top for receiving the head; to make 
the head requires two or three distinct operations; to put it on, is a 
[peculiar business, to whiten the pins is another; it is even a trade by 
itself to put them into the paper; and the important business of 
making a pin is, in this manner, divided into about eighteen dis- 
tinct operations, which, in some manufactories, are all performed by 
distinct hands, though in others the same man will sometimes per- 
form two or three of them. I have seen a small manufactory of this 
kind where ten men only were employed, and where some of them 
consequently f)erformed two or three distinct op)erations. But though 
they were very fxxjr, and therefore but indifferently accommodated 
with the necessary machinery, they could, when they exerted them- 
selves, make among them about twelve pounds of pins in a day. 
There are in a pound upwards of four thousand pins of a middling 
size. Those ten persons, therefore, could make among them upwards 
of forty-eight thousand pins in a day. Each person, therefore, mak- 
ing a tenth part of forty-eight thousand pins, might be considered as 
making four thousand eight hundred pins in a day. But if they had 
all wrought separately and independently, and without any of them 
having been educated to this peculiar business, they certainly could 
not each of them have made twenty, perhaps not one pin in a day; 



DIVISION OF LABOUR II 

that is, certainly, not the two hundred and fortieth, perhaps not the 
four thousand eight hundredth part of what they are at present 
capable of performing, in consequence of a proper division and com- 
bination of their different operations. 

In every other art and manufacture, the effects of the division of 
labour are similar to what they are in this very trifling one; though, 
in many of them, the labour can neither be so much subdivided, nor 
reduced to so great a simplicity of operation. The division of labour, 
however, so far as it can be introduced, occasions, in every art, a 
proportionate increase of the productive powers of labour. The sepa- 
ration of different trades and employments from one another, seems 
to have taken place, in consequence of this advantage. This separa- 
tion too is generally carried furthest in those countries which enjoy 
the highest degree of industry and improvement; what is the work 
of one man in a rude state of society, being generally that of several 
in an improved one. In every improved society, the farmer is gen- 
erally nothing but a farmer; the manufacturer, nothing but a manu- 
facturer. The labour too which is necessary to produce any one 
complete manufacture, is almost always divided among a great num- 
ber of hands. How many different trades are employed in each 
branch of the linen and woollen manufacturers, from the growers of 
the flax and the wool, to the bleachers and smoothers of the linen, 
or to the dyers and dressers of the cloth! The nature of agriculture, 
indeed, does not admit of so many subdivisions of labour, nor of so 
complete a separation of one business from another, as manufactures. 
It is impossible to separate so entirely, the business of the grazier 
from that of the corn-farmer, as the trade of carpenter is commonly 
separated from that of the smith. The spinner is almost always a 
distinct person from the weaver; but the ploughman, the harrower, 
the sower of the seed, and the reaper of the corn, are often the same. 
The occasions for those different sorts of labour returning with the 
different seasons of the year, it is impossible that one man should be 
constandy employed in any one of them. This impossibility of 
making so complete and entire a separation of all the different 
branches of labour employed in agriculture, is perhaps the reason 
why the improvement of the productive powers of labour in this 
art, does not always keep pace with their improvement in manu- 



12 WEALTH OF NATIONS 

factures. The most opulent nations, indeed, generally excel all their 
neighbours in agriculture as well as in manufactures; but they are 
commonly more distinguished by their superiority in the latter than 
in the former. Their lands are in general better cultivated, and hav- 
ing more labour and expence bestowed ujxjn them, produce more 
in proportion to the extent and natural fertility of the ground. But 
this superiority of produce is seldom much more than in proportion 
to the superiority of labour and expence. In agriculture, the labour 
of the rich country is not always much more productive than that 
of the poor; or, at least, it is never so much more productive, as it 
commonly is in manufactures. The corn of the rich country, there- 
fore, will not always, in the same degree of goodness, come cheaper 
to market than that of the poor. The corn of Poland, in the same de- 
gree of goodness, is as cheap as that of France, notwithstanding the 
superior opulence and improvement of the latter country. The corn 
of France is, in the corn provinces, fully as good, and in most years 
nearly about the same price with the corn of England, though, in 
opulence and improvement, France is perhaps inferior to England. 
The corn-lands of England, however, are better cultivated than those 
of France, and the corn-lands of France are said to be much better 
cultivated than those of Poland. But though the poor country, not- 
withstanding the inferiority of its cultivation, can, in some measure, 
rival the rich in the cheapness and goodness of its corn, it can pretend 
to no such competition in its manufactures; at least if those manufac- 
tures suit the soil, climate, and situation of the rich country. The silks 
of France are better and cheaper than those of England, because the 
silk manufacture, at least under the present high duties upon the im- 
portation of raw silk, does not so well suit the climate of England 
as that of France. But the hard-ware and the coarse woollens of 
England are beyond all comparison superior to those of France, and 
much cheaper too in the same degree of goodness. In Poland there 
are said to be scarce any manufactures of any kind, a few of those 
coarser household manufactures excepted, without which no country 
can well subsist. 

This great increase of the quantity of work, which, in consequence 
of the division of labour, the same number of people are capable of 
performing, is owing to three different circumstances; first, to the 



DIVISION OF LABOUR I3 

increase of dexterity in every particular workman; secondly, to the 
saving of the time which is commonly lost in passing from one spe- 
cies of work to another; and lastly, to the invention of a great num- 
ber of machines which facilitate and abridge labour, and enable one 
man to do the work of many. 

First, the improvement of the dexterity of the workman necessar- 
ily increases the quantity of the work he can perform; and the divi- 
sion of labour, by reducing every man's business to some one 
simple operation, and by making this operation the sole employment 
of his life, necessarily increases very much the dexterity of the work- 
man. A common smith, who, though accustomed to handle the 
hammer, has never been used to make nails, if upon some particular 
occasion he is obliged to attempt it, will scarce, I am assured, be 
able to make above two or three hundred nails in a day, and those 
too very bad ones. A smith who has been accustomed to make nails, 
but whose sole or principal business has not been that of a nailer, 
can seldom with his utmost diligence make more than eight hun- 
dred or a thousand nails in a day. I have seen several boys under 
twenty years of age who had never exercised any other trade but that 
of making nails, and who, when they exerted themselves, could 
make, each of them, upwards of two thousand three hundred nails 
in a day. The making of a nail, however, is by no means one of the 
simplest operations. The same person blows the bellows, stirs or 
mends the fire as there is occasion, heats the iron, and forges every 
part of the nail: In forging the head too he is obliged to change his 
tools. The different operations into which the making of a pin, or 
of a metal button, is subdivided, are all of them much more simple, 
and the dexterity of the person, of whose life it has been the sole 
business to perform them, is usually much greater. The rapidity 
with which some of the operations of those manufactures are per- 
formed, exceeds what the human hand could, by those who had 
never seen them, be supposed capable of acquiring. 

Secondly, the advantage which is gained by saving the time com- 
monly lost in passing from one sort of work to another, is much 
greater than we should at first view be apt to imagine it. It is im- 
possible to pass very quickly from one kind of work to another, that 
is carried on in a different place, and with quite different tools. A 



14 WEALTH OF NATIONS 

country weaver, who cultivates a small farm, must lose a good deal 
of time in passing from his loom to the field, and from the field to 
his loom. When the two trades can be carried on in the same 
workhouse, the loss of time is no doubt much less. It is even in this 
case, however, very considerable. A man commonly saunters a little 
in turning his hand from one sort of employment to another. When 
he first begins the new work he is seldom very keen and hearty; his 
mind, as they say, does not go to it, and for some time he rather 
trifles than applies to good purpose. The habit of sauntering and of 
indolent careless application, which is naturally, or rather necessarily 
acquired by every country workman who is obliged to change his 
work and his tools every half hour, and to apply his hand in twenty 
different ways almost every day of his life; renders him almost 
always slothful and lazy, and incapable of any vigorous application 
even on the most pressing occasions. Independent, therefore, of his 
deficiency in point of dexterity, this cause alone must always reduce 
considerably the quantity of work which he is capable of performing. 
Thirdly, and lastly, every body must be sensible how much labour 
is facilitated and abridged by the application of proper machinery. 
It is unnecessary to give any example. I shall only observe, there- 
fore, that the invention of all those machines by which labour is so 
much facilitated and abridged, seems to have been originally owing 
to the division of labour. Men are much more likely to discover 
easier and readier methods of attaining any object, when the whole 
attention of their minds is directed towards that single object, than 
when it is dissipated among a great variety of things. But in conse- 
quence of the division of labour, the whole of every man's attention 
comes naturally to be directed towards some one very simple object. 
It is naturally to be expected, therefore, that some one or other of 
those who are employed in each particular branch of labour should 
soon find out easier and readier methods of performing their own 
particular work, wherever the nature of it admits of such improve- 
ment. A great part of the machines made use of in those manufac- 
tures in which labour is most subdivided, were originally the inven- 
tions of common workmen, who, being each of them employed in 
some very simple of>eration, naturally turned their thoughts towards 
finding out easier and readier methods of performing it. Whoever 



DIVISION OF LABOUR I5 

has been much accustomed to visit such manufactures, must fre- 
quently have been shewn very pretty machines, which were the in- 
ventions of such workmen, in order to facilitate and quicken their 
own particular part of the work. In the first fire-engines, a boy was 
constantly employed to open and shut alternately the communication 
between the boiler and the cylinder, according as the piston either 
ascended or descended. One of those boys, who loved to play with 
his companions, observed that, by tying a string from the handle of 
the valve which opened this communication to another part of the 
machine, the valve would open and shut without his assistance, and 
leave him at liberty to divert himself with his play-fellows. One of 
the greatest improvements that has been made upon this machine, 
since it was first invented, was in this manner the discovery of a boy 
who wanted to save his own labour. 

All the improvements in machinery, however, have by no means 
been the inventions of those who had occasion to use the machines. 
Many improvements have been made by the ingenuity of the makers 
of the machines, when to make them became the business of a pe- 
culiar trade; and some by that of those who are called philosophers 
or men of speculation, whose trade it is not to do any thing, but to 
observe every thing; and who, uf)on that account, are often capable 
of combining together the powers of the most distant and dissimilar 
objects. In the progress of society, philosophy or speculation be- 
comes, like every other employment, the principal or sole trade and 
occupation of a particular class of citizens. Like every other employ- 
ment too, it is subdivided into a great number of different branches, 
each of which affords occupation to a peculiar tribe or class of phi- 
losophers; and this subdivision of employment in philosophy, as well 
as in every other business, improves dexterity, and saves time. Each 
individual becomes more expert in his own peculiar branch, more 
work is done upon the whole, and the quantity of science is con- 
siderably increased by it. 

It is the great multiplication of the productions of all the different 
arts, in consequence of the division of labour, which occasions, in a 
well-governed society, that universal opulence which extends itself 
to the lowest ranks of the people. Every workman has a great quan- 
tity of his own work to dispose of beyond what he himself has oc- 



l6 WEALTH OF NATIONS 

casion for; and every other workman being exactly in the same situa- 
tion, he is enabled to exchange a great quantity of his own goods 
for a great quantity, or, what comes to the same thing, for the price 
of a great quantity of theirs. He supplies them abundantly with 
what they have occasion for, and they accommodate him as amply 
with what he has occasion for, and a general plenty diffuses itself 
through all the different ranks of the society. 

Observe the accommodation of the most common artificer or day- 
labourer in a civilized and thriving country, and you will perceive 
that the number of people of whose industry a part, though but a 
small part, has been employed in procuring him this accommodation, 
exceeds all computation. The woollen coat, for example, which cov- 
ers the day-labourer, as coarse and rough as it may appear, is the 
produce of the joint labour of a great multitude of workmen. The 
shepherd, the sorter of the wool, the wool<omber or carder, the 
dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, 
with many others, must all join their different arts in order to com- 
plete even this homely production. How many merchants and car- 
riers, besides, must have been employed in transporting the materials 
from some of those workmen to others who often live in a very dis- 
tant part of the country! how much commerce and navigation in par- 
ticular, how many ship-builders, sailors, sail-makers, rope-makers, 
must have been employed in order to bring together the different 
drugs made use of by the dyer, which often come from the re- 
motest corners of the world! What a variety of labour too is neces- 
sary in order to produce the tools of the meanest of those workmen! 
To say nothing of such complicated machines as the ship of the 
sailor, the mill of the fuller, or even the loom of the weaver, let us 
consider only what a variety of labour is requisite in order to form 
that very simple machine, the shears with which the shepherd clips 
the wool. The miner, the builder of the furnace for smelting the 
ore, the feller of the timber, the burner of the charcoal to be made 
use of in the smelting-house, the brick-maker, the brick-layer, the 
workmen who attend the furnace, the mill-wright, the forger, the 
smith, must all of them join their different arts in order to produce 
them. Were we to examine, in the same manner, all the different 
parts of his dress and household furniture, the coarse linen shirt 



DIVISION OF LABOUR I7 

which he wears next his skin, the shoes which cover his feet, the 
bed which he Ues on, and all the different parts which compose it, 
the kitchen-grate at which he prepares his victuals, the coals which 
he makes use of for that purpose, dug from the bowels of the earth, 
and brought to him perhaps by a long sea and a long land carriage, 
all the other utensils of his kitchen, all the furniture of his table, the 
knives and forks, the earthen or pewter plates upon which he serves 
up and divides his victuals, the different hands employed in prepar- 
ing his bread and his beer, the glass window which lets in the heat 
and the light, and keeps out the wind and the rain, with all the 
knowledge and art requisite for preparing that beautiful and happy 
invention, without which these northern parts of the world could 
scarce have afforded a very comfortable habitation, together with 
the tools of all the different workmen employed in producing those 
different conveniences; if we examine, I say, all these things, and con- 
sider what a variety of labour is employed about each of them, we 
shall be sensible that without the assistance and co-operation of 
many thousands, the very meanest person in a civilized country could 
not be provided, even according to, what we very falsely imagine, 
the easy and simple manner in which he is commonly accommo- 
dated. Compared, indeed, with the more extravagant luxury of the 
great, his accommodation must no doubt appear extremely simple 
and easy; and yet it may be true, perhaps, that the accommodation 
of an European prince does not always so much exceed that of an 
industrious and frugal peasant, as the accommodation of the latter 
exceeds that of many an African king, the absolute master of the lives 
and liberties of ten thousand naked savages. 



CHAPTER II 

Of the Principle Which Gives Occasion to the 
Division of Labour 

THIS division of labour, from which so many advantages 
are derived, is not originally the effect of any human wis- 
dom, which foresees and intends that general opulence to 
which it gives occasion. It is the necessary, though very slow and 
gradual, consequence of a certain prop>ensity in human nature which 
has in view no such extensive utility; the propensity to truck, barter, 
and exchange one thing for another. 

Whether this propensity be one of those original principles in 
human nature, of which no further account can be given; or whether, 
as seems more probable, it be the necessary consequence of the facul- 
ties of reason and speech, it belongs not to our present subject to en- 
quire. It is common to all men, and to be found in no other race of 
animals, which seem to know neither this nor any other species of 
contracts. Two greyhounds, in running down the same hare, have 
sometimes the appearance of acting in some sort of concert. Each 
turns her towards his companion, or endeavours to intercept her 
when his companion turns her toward himself. This, however, is not 
the effect of any contract, but of the accidental concurrence of their 
passions in the same object at that particular time. Nobody ever saw 
a dog make a fair and deliberate exchange of one bone for another 
with another dog. Nobody ever saw one animal by its gestures and 
natural cries signify to another, this is mine, that yours; I am willing 
to give this for that. When an animal wants to obtain something 
either of a man or of another animal, it has no other means of p)er- 
suasion but to gain the favour of those whose service it requires. A 
puppy fawns upon its dam, and a spaniel endeavours by a thousand 
attractions to engage the attention of its master who is at dinner, 
when it wants to be fed by him. Man sometimes uses the same arts 
with his brethren, and when he has no other means of engaging 

i8 



ORIGIN OF DIVISION OF LABOUR 1 9 

them to act according to his inchnations, endeavours by every servile 
and fawning attention to obtain their good will. He has not time, 
however, to do this upon every occasion. In civilized society he 
stands at all times in need of the co-operation and assistance of great 
multitudes, while his whole life is scarce sufficient to gain the friend- 
ship of a few persons. In almost every other race of animals each in- 
dividual, when it is grown up to maturity, is entirely independent, 
and in its natural state has occasion for the assistance of no other 
living creature. But man has almost constant occasion for the help of 
his brethren, and it is in vain for him to expect it from their benevo- 
lence only. He will be more likely to prevail if he can interest their 
self-love in his favour, and shew them that it is for their own ad- 
vantage to do for him what he requires of them. Whoever offers to 
another a bargain of any kind, proposes to do this: Give me that 
which I want, and you shall have this which you want, is the mean- 
ing of every such offer; and it is in this manner that we obtain from 
one another the far greater part of those good offices which we stand 
in need of. 

It is not from the benevolence of the butcher, the brewer, or the 
baker, that we expect our dinner, but from their regard to their own 
interest. We address ourselves, not to their humanity but to their self- 
love, and never talk to them of our own necessities but of their ad- 
vantages. Nobody but a beggar chuses to depend chieHy up>on the 
benevolence of his fellow-citizens. Even a beggar does not depend 
upon it entirely. The charity of well-disp)osed f)eople, indeed, suf>- 
plies him with the whole fund of his subsistence. But though this 
principle ultimately provides him with all the necessaries of life 
which he has occasion for, it neither does nor can provide him with 
them as he has occasion for them. The greater part of his occasional 
wants are supplied in the same manner as those of other people, by 
treaty, by barter, and by purchase. With the money which one man 
gives him he purchases food. The old cloaths which another bestows 
upon him he exchanges for other old cloaths which suit him better, 
or for lodging, or for food, or for money, with which he can buy 
either food, cloaths, or lodging, as he has occasion. 

As it is by treaty, by barter, and by purchase, that we obtain from 
one another the greater part of those mutual good offices which we 



20 WEALTH OF NATIONS 

Stand in need of, so it is this same trucking disp)osition which origi- 
nally gives occasion to the division of labour. In a tribe of hunters 
or shepherds a particular person makes bows and arrows, for ex- 
ample, with more readiness and dexterity than any other. He fre- 
quently exchanges them for cattle or for venison with his compan- 
ions; and he finds at last that he can in this manner get more catde 
and venison, than if he himself went to the field to catch them. From 
a regard to his own interest, therefore, the making of bows and ar- 
rows grows to be his chief business, and he becomes a sort of ar- 
mourer. Another excels in making the frames and covers of their 
litde huts or moveable houses. He is accustomed to be of use in 
this way to his neighbours, who reward him in the same manner 
with cattle and with venison, till at last he finds it his interest to 
dedicate himself entirely to this employment, and to become a sort 
of house<arpenter. In the same manner a third becomes a smith or 
a brazier; a fourth a tanner or dresser of hides or skins, the principal 
part of the clothing of savages. And thus the certainty of being able 
to exchange all that surplus part of the produce of his own labour, 
which is over and above his own consumption, for such parts of the 
produce of other men's labour as he may have occasion for, en- 
courages every man to apply himself to a particular occupation and 
to cultivate and bring to perfection whatever talent or genius he may 
jxjssess for that particular species of business. 

The difference of natural talents in different men is, in reality, 
much less than we are aware of; and the very different genius which 
appears to distinguish men of different professions, when grown up 
to maturity, is not upon many occasions so much the cause, as the 
effect of the division of labour. The difference between the most 
dissimilar characters, between a philosopher and a common street 
porter, for example, seems to arise not so much from nature, as from 
habit, custom, and education. When they came into the world, and 
for the first six or eight years of their existence, they were, perhaps, 
very much alike, and neither their parents nor playfellows could per- 
ceive any remarkable difference. About that age, or soon after, they 
come to be employed in very different occupations. The difference 
of talents comes then to be taken notice of, and widens by degrees, 
till at last the vanity of the philosopher is willing to acknowledge 



ORIGIN OF DIVISION OF LABOUR 21 

scarce any resemblance. But without the disposition to truck, barter, 
and exchange, every man must have procured to himself every neces- 
sary and conveniency of life which he wanted. All must have had 
the same duties to perform, and the same work to do, and there 
could have been no such difference of employment as could alone 
give occasion to any great difference of talents. 

As it is this disposition which forms that difference of talents, so 
remarkable among men of different professions, so it is this same 
disposition which renders that difference useful. Many tribes of ani- 
mals acknowledged to be all of the same species, derive from nature 
a much more remarkable distinction of genius, than what, antecedent 
to custom and education, appears to take place among men. By na- 
ture a philosopher is not in genius and disposition half so different 
from a street porter, as a mastiff is from a greyhound, or a grey- 
hound from a spaniel, or this last from a shepherd's dog. Those dif- 
ferent tribes of animals, however, though all of the same species, are 
of scarce any use to one another. The strength of the mastiff is not in 
the least supported either by the swiftness of the greyhound, or by 
the sagacity of the spaniel, or by the docility of the shepherd's dog. 
The effects of those different geniuses and talents, for want of the 
power or disposition to barter and exchange, cannot be brought 
into a common stock, and do not in the least contribute to the bet- 
ter accommodation and conveniency of the species. Each animal is 
still obliged to support and defend itself, separately and independ- 
ently, and derives no sort of advantage from that variety of talents 
with which nature has distinguished its fellows. Among men, on the 
contrary, the most dissimilar geniuses are of use to one another; the 
different produces of their respective talents, by the general disposi- 
tion to truck, barter, and exchange, being brought, as it were, into a 
common stock, where every man may purchase whatever part of the 
produce of other men's talents he has occasion for. 



CHAPTER III 

That the Division of Labour is Limited by the Extent 
OF THE Market 

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

There are some sorts of industry, even of the lowest kind, which 
can be carried on no where but in a great town. A porter, for exam- 
ple, can find employment and subsistence in no other place. A 
village is by much too narrow a sphere for him; even an ordinary 
market town is scarce large enough to afford him constant occupa- 
tion. In the lone houses and very small villages which are scattered 
about in so desert a country as the Highlands of Scotland, every 
farmer must be butcher, baker and brewer for his own family. In 
such situations we can scarce expect to find even a smith, a carpenter, 
or a mason, within less than twenty miles of another of the same 
trade. The scattered families that live at eight or ten miles distant 
from the nearest of them, must learn to {perform themselves a great 
number of little pieces of work, for which, in more pwpulous coun- 
tries, they would call in the assistance of those workmen. Country 
workmen are almost everywhere obliged to apply themselves to all 
the different branches of industry that have so much affinity to one 
another as to be employed about the same sort of materials. A coun- 
try carpenter deals in every sort of work that is made of wood: a 
country smith in every sort of work that is made of iron. The former 
is not only a carpenter, but a joiner, a cabinet maker, and even a 



LIMIT OF DIVISION OF LABOUR 2^ 

carver in wood, as well as a wheel-wright, a plough-wright, a cart 
and waggon maker. The employments of the latter are still more 
various. It is impwssible there should be such a trade as even that of 
a nailer in the remote and inland parts of the Highlands of Scot- 
land. Such a workman at the rate of a thousand nails a day, and 
three hundred working days in the year, will make three hundred 
thousand nails in the year. But in such a situation it would be im- 
possible to dispose of one thousand, that is, of one day's work in the 
year. 

As by means of water<arriage a more extensive market is opened 
to every sort of industry than what land-carriage alone can afford 
it, so it is upon the sea<oast, and along the banks of navigable rivers, 
that industry of every kind naturally begins to subdivide and improve 
itself, and it is frequently not till a long time after that those im- 
provements extend themselves to the inland parts of the country. A 
broad-wheeled waggon, attended by two men, and drawn by eight 
horses, in about six weeks time carries and brings back between Lon- 
don and Edinburgh near four ton weight of goods. In about the 
same time a ship navigated by six or eight men, and sailing between 
the ports of London and Leith, frequently carries and brings back 
two hundred ton weight of goods. Six or eight men, therefore, by 
the help of water-carriage, can carry and bring back in the same 
time the same quantity of goods between London and Edinburgh, 
as fifty broad-wheeled waggons, attended by a hundred men, and 
drawn by four hundred horses. Upwn two hundred tons of goods, 
therefore, carried by the cheapest land<arriage from London to 
Edinburgh, there must be charged the maintenance of a hundred 
men for three weeks, and both the maintenance, and, what is nearly 
equal to the maintenance, the wear and tear of four hundred horses 
as well as of fifty great waggons. Whereas, upon the same quantity 
of goods carried by water, there is to be charged only the mainte- 
nance of six or eight men, and the wear and tear of a ship of two 
hundred tons burthen, together with the value of the superior risk, 
or the difference of the insurance between land and water-carriage. 
Were there no other communication between those two places, 
therefore, but by land-carriage, as no goods could be transported 
from the one to the other, except such whose price was very con- 



24 WEALTH OF NATIONS 

siderable in proportion to their weight, they could carry on but a 
small part of that commerce which at present subsists between them, 
and consequendy could give but a small part of that encouragement 
which they at present mutually afford to each other's industry. 
There could be little or no commerce of any kind between the dis- 
tant parts of the world. What goods could bear the expense of land- 
carriage between London and Calcutta? Or if there were any so 
precious as to be able to support this expence, with what safety could 
they be transported through the territories of so many barbarous na- 
tions? Those two cities, however, at present carry on a very consid- 
erable commerce with each other, and by mutually affording a 
market, give a good deal of encouragement to each other's industry. 

Since such, therefore, are the advantages of water<arriage, it is 
natural that the first improvements of art and industry should be 
made where this conveniency opens the whole world for a market 
to the produce of every sort of labour, and that they should always be 
much later in extending themselves into the inland parts of the coun- 
try. The inland parts of the country can for a long time have no 
other market for the greater part of their goods, but the country 
which lies round about them, and separates them from the sea- 
coast, and the great navigable rivers. The extent of their market, 
therefore, must for a long time be in proportion to the riches and 
populousness of that country, and consequently their improvement 
must always be posterior to the improvement of that country. In 
our North American colonies the plantations have constandy fol- 
lowed either the sea<oast or the banks of the navigable rivers, and 
have scarce any where extended themselves to any considerable dis- 
tance from both. 

The nations that, according to the best authenticated history, ap- 
pear to have been first civilized, were those that dwelt round the 
coast of the Mediterranean sea. That sea, by far the greatest inlet 
that is known in the world, having no tides, nor consequendy any 
waves except such as are caused by the wind only, was, by the 
smoothness of its surface, as well as by the multitude of its islands, 
and the proximity of its neighbouring shores, extremely favourable 
to the infant navigation of the world; when, from their ignorance 
of the compass, men were afraid to quit the view of the coast, and 



LIMIT OF DIVISION OF LABOUR 25 

from the imperfection of the art of ship-building, to abandon them- 
selves to the boisterous waves of the ocean. To pass beyond the 
pillars of Hercules, that is, to sail out of the Streights of Gibraltar, 
was, in the antient world, long considered as a most wonderful and 
dangerous exploit of navigation. It was late before even the Phe- 
nicians and Carthaginians, the most skilful navigators and ship- 
builders of those old times, attempted it, and they were for a long 
time the only nations that did attempt it. 

Of all the countries on the coast of the Mediterranean sea, Egypt 
seems to have been the first in which either agriculture or manufac- 
tures were cultivated and improved to any considerable degree. Up- 
per Egypt extends itself nowhere above a few miles from the Nile, 
and in Lower Egypt that great river breaks itself into many different 
canals, which, with the assistance of a little art, seem to have afforded 
a communication by water<arriage, not only between all the great 
towns, but between all the considerable villages, and even to many 
farm-houses in the country; nearly in the same manner as the Rhine 
and the Maese do in Holland at present. The extent and easiness of 
this inland navigation was probably one of the principal causes of 
the early improvement of Egypt. 

The improvements in agriculture and manufactures seem like- 
wise to have been of very great antiquity in the provinces of Bengal 
in the East Indies, and in some of the eastern provinces of China; 
though the great extent of this antiquity is not authenticated by any 
histories of whose authority we, in this part of the world, are well 
assured. In Bengal the Ganges and several other great rivers form a 
great number of navigable canals in the same manner as the Nile 
does in Egypt. In the eastern provinces of China, too, several great 
rivers form, by their different branches, a multitude of canals, and 
by communicating with one another afford an inland navigation 
much more extensive than that either of the Nile or the Ganges, or 
perhaps than both of them put together. It is remarkable that neither 
the antient Egyptians, nor the Indians, nor the Chinese, encouraged 
foreign commerce, but seem all to have derived their great opulence 
from this inland navigation. 

All the inland parts of Africa, and all that part of Asia which lies 
any considerable way north of the Euxine and Caspian seas, the 



26 WEALTH OF NATIONS 

antient Scythia, the modern Tartary and Siberia, seem in all ages ol I 

the world to have been in the same barbarous and uncivilized state ir i 

which we find them at present. The sea of Tartary is the frozen i 

ocean which admits of no navigation, and though some of the great - 

est rivers in the world run through that country, they are at toe t 

great a distance from one another to carry commerce and commu - 

nication through the greater part of it. There are in Africa none oi [ 

those great inlets, such as the Baltic and Adriatic seas in Europe, tht ; 

Mediterranean and Euxine seas in both Europe and Asia, and the : 

gulphs of Arabia, Persia, India, Bengal, and Siam, in Asia, to carr) ' 

maritime commerce into the interior parts of that great continent : 

and the great rivers of Africa are at too great a distance from one : 

another to give cKcasion to any considerable inland navigation. Tht ; 

commerce besides which any nation can carry on by means of a i 

river which does not break itself into any great number of branches > 

or canals, and which runs into another territory before it reaches the ; 

sea, can never be very considerable; because it is always in the powei • 

of the nations who possess that other territory to obstruct the com- ■ 

munication between the upfjer country and the sea. The navigatior i 

of the Danube is of very little use to the different states of Bavaria , 

Austria and Hungary, in comparison of what it would be if any ol : 

them possessed the whole of its course till it falls into the Black Sea . 



CHAPTER IV 
Of the Origin and Use of Money 

WHEN the division of labour has been once thoroughly 
established, it is but a very small part of a man's wants 
which the produce of his own labour can supply. He sup- 
plies the far greater part of them by exchanging that surplus part of 
the produce of his own labour, which is over and above his own con- 
sumption, for such parts of the produce of other men's labour as he 
has occasion for. Every man thus lives by exchanging, or becomes in 
some measure a merchant, and the society itself grows to be what is 
properly a commercial society. 

But when the division of labour first began to take place, this 
power of exchanging must frequently have been very much clogged 
and embarrassed in its operations. One man, we shall suppose, has 
more of a certain commodity than he himself has occasion for, while 
another has less. The former consequently would be glad to dispose 
of, and the latter to purchase, a part of this superfluity. But if this 
latter should chance to have nothing that the former stands in need 
of, no exchange can be made between them. The butcher has more 
meat in his shop than he himself can consume, and the brewer and 
the baker would each of them be willing to purchase a part of it. 
But they have nothing to offer in exchange, except the different pro- 
ductions of their resjjective trades, and the butcher is already pro- 
vided with all the bread and beer which he has immediate occasion 
for. No exchange can, in this case, be made between them. He can- 
not be their merchant, nor they his customers; and they are all of 
them thus mutually less serviceable to one another. In order to avoid 
the inconveniency of such situations, every prudent man in every pe- 
riod of society, after the first establishment of the division of labour, 
must naturally have endeavoured to manage his affairs in such a 
manner, as to have at all times by him, besides the peculiar produce 
of his own industry, a certain quantity of some one commodity or 

27 



28 WEALTH OF NATIONS 

other, such as he imagined few people would be likely to refuse in 
exchange for the produce of their industry. 

Many different commodities, it is probable, were successively both 
thought of and employed for this purpose. In the rude ages of so- 
ciety, cattle are said to have been the common instrument of com- 
merce; and, though they must have been a most inconvenient one, 
yet in old times we find things were frequently valued according to 
the number of cattle which had been given in exchange for them. 
The armour of Diomede, says Homer, cost only nine oxen; but that 
of Glaucus cost an hundred oxen. Salt is said to be the common in- 
strument of commerce and exchanges in Abyssinia; a species of shells 
in some parts of the coast of India; dried cod at Newfoundland; to- 
bacco in Virginia; sugar in some of our West India colonies; hides 
or dressed leather in some other countries; and there is at this day a 
village in Scodand where it is not uncommon, I am told, for a work- 
man to carry nails instead of money to the baker's shop or the ale- 
house. 

In all countries, however, men seem at last to have been deter- 
mined by irresistible reasons to give the preference, for this employ- 
ment, to metals above every other commodity. Metals can not only 
be kept with as little loss as any other commodity, scarce any thing 
being less perishable than they are, but they can likewise, without 
any loss, be divided into any number of parts, as by fusion those parts 
can easily be reunited again; a quality which no other equally dur- 
able commodities pwssess, and which more than any other quality 
renders them fit to be the instruments of commerce and circulation. 
The man who wanted to buy salt, for example, and had nothing but 
cattle to give in exchange for it, must have been obliged to buy salt 
to the value of a whole ox, or a whole sheep, at a time. He could 
seldom buy less than this, because what he was to give for it could 
seldom be divided without loss; and if he had a mind to buy more, 
he must, for the same reasons, have been obliged to buy double or 
triple the quantity, the value, to wit, of two or three oxen, or of two 
or three sheep. If on the contrary, instead of sheep or oxen, he had 
metals to give in exchange for it, he could easily proportion the 
quantity of the metal to the precise quantity of the commodity which 
he had immediate occasion for. 



ORIGIN AND USE OF MONEY 29 

Different metals have been made use o£ by different nations for 
this purpose. Iron was the common instrument of commerce among 
the antient Spartans; copper among the antient Romans; and gold 
and silver among all rich and commercial nations. 

Those metals seem originally to have been made use of for this 
purpose in rude bars, without any stamp or coinage. Thus we are 
told by Pliny, upon the authority of Timacus, an antient historian, 
that, till the time of Servius Tullius, the Romans had no coined 
money, but made use of unstamped bars of copper, to purchase what- 
ever they had occasion for. These rude bars, therefore, performed 
at this time the function of money. 

The use of metals in this rude state was attended with two very 
considerable inconveniences; first with the trouble of weighing; and, 
secondly, with that of assaying them. In the precious metals, where 
a small difference in the quantity makes a great difference in the 
value, even the business of weighing, with proper exactness, requires 
at least very accurate weights and scales. The weighing of gold in 
particular is an operation of some nicety. In the coarser metals, in- 
deed, where a small error would be of litde consequence, less accu- 
racy would, no doubt, be necessary. Yet we should find it excessively 
troublesome, if every time a poor man had occasion either to buy or 
sell a farthing's worth of goods, he was obliged to weigh the farthing. 
The operation of assaying is still more difficult, still more tedious, 
and, unless a part of the metal is fairly melted in the crucible, with 
proper dissolvents, any conclusion that can be drawn from it, is ex- 
tremely uncertain. Before the institution of coined money, however, 
unless they went through this tedious and difficult operation, pieople 
must always have been liable to the grossest frauds and impositions, 
and instead of a pound weight of pure silver, or pure copper, might 
receive in exchange for their goods, an adulterated composition of 
the coarsest and cheapest materials, which had, however, in their 
outward appearance, been made to resemble those metals. To pre- 
vent such abuses, to facilitate exchanges, and thereby to encourage 
all sorts of industry and commerce, it has been found necessary, in 
all countries that have made any considerable advances towards im- 
provement, to affix a public stamp upon certain quantities of such 
particular metals, as were in those countries commonly made use of 



30 WEALTH OF NATIONS 

to purchase goods. Hence the origin of coined money, and of those 
public offices called mints; institutions exactly of the same nature 
with those of the aulnagers and stampmasters of woollen and linen 
cloth. All of them are equally meant to ascertain, by means of a 
public stamp, the quantity and uniform goodness of those different 
commodities when brought to market. 

The first public stamps of this kind that were affixed to the cur- 
rent metals, seem in many cases to have been intended to ascertain, 
what it was both most difficult and most important to ascertain, the 
goodness or fineness of the metal, and to have resembled the sterling 
mark which is at present affixed to plate and bars of silver, or the 
Spanish mark which is sometimes affixed to ingots of gold, and 
which being struck only up)on one side of the piece, and not covering 
the whole surface, ascertains the fineness, but not the weight of the 
metal. Abraham weighs to Ephron the four hundred shekels of 
silver which he had agreed to pay for the field of Machpelah. They 
are said, however, to be the current money of the merchant, and yet 
are received by weight and not by tale, in the same manner as ingots 
of gold and bars of silver are at present. The revenues of the antient 
Saxon kings of England are said to have been paid, not in money 
but in kind, that is, in victuals and provisions of all sorts. William 
the Conqueror introduced the custom of paying them in money. 
This money, however, was, for a long time, received at the excheq- 
uer, by weight and not by tale. 

The inconveniency and difficulty of weighing those metals with 
exactness gave occasion to the institution of coins, of which the 
stamp, covering entirely both sides of the piece and sometimes the 
edges too, was supposed to ascertain not only the fineness, but the 
weight of the metal. Such coins, therefore, were received by tale 
as at present, without the trouble of weighing. 

The denominations of those coins seem originally to have ex- 
pressed the weight or quantity of metal contained in them. In the 
time of Servius Tullius, who first coined money at Rome, the Roman 
As or Pondo contained a Roman pound of good copper. It was di- 
vided in the same manner as our Troyes (xjund, into twelve ounces, 
each of which contained a real ounce of good copper. The English 
pound sterling in the time of Edward I., contained a pound, Tower 



ORIGIN AND USE OF MONEY 3 1 

weight, of silver of a known fineness. The Tower pound seems to 
have been something more than the Roman pound, and something 
less than the Troyes pound. This last was not introduced into the 
mint of England till the i8th of Henry VIII. The French livre con- 
tained in the time of Charlemagne a pound, Troyes weight, of silver 
of a known fineness. The fair of Troyes in Champaign was at that 
time frequented by all the nations of Europe, and the weights and 
measures of so famous a market were generally known and es- 
teemed. The Scots money pound contained, from the time of Alex- 
ander the First to that of Robert Bruce, a pound of silver of the 
same weight and fineness with the English pound sterling. English, 
French, and Scots pennies too, contained all of them originally a real 
pennyweight of silver, the twentieth part of an ounce, and the two- 
hundred-and-fortieth part of a pound. The shilling, too, seems 
originally to have been the denomination of a weight. When wheat 
is at twelve shillings the quarter, says an antient statute of Henry 
III., then wastel bread of a farthing shall weigh eleven shillings and 
four pence. The proportion, however, between the shilling and either 
the penny on the one hand, or the pound on the other, seems not to 
have been so constant and uniform as that between the penny and 
the pound. During the first race of the kings of France, the French 
sou or shilling appears upon different occasions to have contained 
five, twelve, twenty, and forty pennies. Among the antient Saxons 
a shilling appears at one time to have contained only five pennies, 
and it is not improbable that it may have been as variable among 
them as among their neighbours, the antient Franks. From the time 
of Charlemagne among the French, and from that of William the 
Conqueror among the English, the proportion between the pound, 
the shilling, and the penny, seems to have been uniformly the same 
as at present, though the value of each has been very different. For 
in every country of the world, I believe, the avarice and injustice of 
princes and sovereign states, abusing the confidence of their subjects, 
have by degrees diminished the real quantity of metal, which had 
been originally contained in their coins. The Roman As, in the lat- 
ter ages of the Republic, was reduced to the twenty-fourth part of its 
original value, and, instead of weighing a pound, came to weigh 
only half an ounce. The English pound and penny contain at present 



32 WEALTH OF NATIONS 

about a third only; the Scots pound and penny about a thirty-sixth; 
and the French pound and penny about a sixty-sixth part of their 
original value. By means of those operations the princes and sover- 
eign states which performed them were enabled, in appearance, to 
pay their debts and to fufil their engagements with a smaller quan- 
tity of silver than would otherwise have been requisite. It was in- 
deed in appearance only; for their creditors were really defrauded 
of a part of what was due to them. All other debtors in the state 
were allowed the same privilege, and might pay with the same nomi- 
nal sum of the new and debased coin whatever they had borrowed in 
the old. Such ojjerations, therefore, have always proved favourable 
to the debtor, and ruinous to the creditor, and have sometimes pro- 
duced a greater and more universal revolution in the fortunes of 
private persons, than could have been occasioned by a very great 
public calamity. 

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

What are the rules which men naturally observe in exchanging 
them either for money or for one another, I shall now proceed to 
examine. These rules determine what may be called the relative or 
exchangeable value of goods. 

The word value, it is to be observed, has two different meanings, 
and sometimes expresses the utility of some particular object, and 
sometimes the power of purchasing other goods which the possession 
of that object conveys. The one may be called "value in use;" the 
other, "value in exchange." The things which have the greatest 
value in use have frequently litde or no value in exchange; and on 
the contrary, those which have the greatest value in exchange have 
frequendy litde or no value in use. Nothing is more useful than 
water: but it will purchase scarce any thing; scarce any thing can be 
had in exchange for it. A diamond, on the contrary, has scarce any 
value in use; but a very great quantity of other goods may frequendy 
be had in exchange for it. 

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



ORIGIN AND USE OF MONEY 33 

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

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

And, lastly, what are the different circumstances which sometimes 
raise some or all of these different parts of price above, and some- 
times sink them below their natural or ordinary rate; or, what are 
the causes which sometimes hinder the market price, that is, the 
actual price of commodities, from coinciding exactly with what may 
be called their natural price. 

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



CHAPTER V 

Of the Real and Nominal Price of Commodities, or of Their 
Price in Labour, and Their Price in Money 

EVERY man is rich or poor according to the degree in which 
he can afford to enjoy the necessaries, conveniences, and 
amusements of human Hfe. But after the division of labour 
has once thoroughly taken place, it is but a very small part of these 
with which a man's own labour can supply him. The far greater 
part of them he must derive from the labour of other people, and 
he must be rich or poor according to the quantity of that labour 
which he can command, or which he can afford to purchase. The 
value of any commodity, therefore, to the person who possesses it, 
and who means not to use or consume it himself, but to exchange 
it for other commodities, is equal to the quantity of labour which it 
enables him to purchase or command. Labour, therefore, is the real 
measure of the exchangeable value of all commodities. 

The real price of every thing, what every thing really costs to the 
man who wants to acquire it, is the toil and trouble of acquiring it. 
What every thing is really worth to the man who has acquired it, 
and who wants to dispose of it or exchange it for something else, is 
the toil and trouble which it can save to himself, and which it can 
imjx)se upon other f)eople. What is bought with money or with 
goods is purchased by labour, as much as what we acquire by the 
toil of our own body. That money or those goods indeed save us 
this toil. They contain the value of a certain quantity of labour 
which we exchange for what is supposed at the time to contain the 
value of an equal quantity. Labour was the first price, the original 
purchase-money that was paid for all things. It was not by gold or 
by silver, but by labour, that all the wealth of the world was origi- 
nally purchased; and its value, to those who possess it, and who want 
to exchange it for some new productions, is precisely equal to the 
quantity of labour which it can enable them to purchase or com- 
mand. 

34 



REAL AND NOMINAL PRICE 35 

Wealth, as Mr. Hobbes says, is power. But the person who either 
acquires, or succeeds to a great fortune, does not necessarily acquire 
or succeed to any political power, either civil or military. His for- 
tune may, perhaps, afford him the means of acquiring both, but the 
mere possession of that fortune does not necessarily convey to him 
cither. The power which that possession immediately and directly 
conveys to him, is the power of purchasing; a certain command over 
all the labour, or over all the produce of labour which is then in the 
market. His fortune is greater or less, precisely in proportion to the 
extent of this power, or to the quantity either of other men's labour, 
or, what is the same thing, of the produce of other men's labour, 
which it enables him to purchase or command. The exchangeable 
value of every thing must always be precisely equal to the extent of 
this power which it conveys to its owner. 

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

Every commodity besides, is more frequently exchanged for, and 
thereby compared with, other commodities than with labour. It is 
more natural, therefore, to estimate its exchangeable value by the 
quantity of some other commodity than by that of the labour which 
it can purchase. The greater part of people, too, understand better 
what is meant by a quantity of a particular commodity, than by a 



36 WEALTH OF NATIONS 

quantity of labour. The one is a plain palpable object; the other an 
abstract notion, which, though it can be made sufficiently intelligible, 
is not altogether so natural and obvious. 

But when barter ceases, and money has become the common in- 
strument of commerce, every particular commodity is more fre- 
quently exchanged for money than for any other commodity. The 
butcher seldom carries his beef or his mutton to the baker, or the 
brewer, in order to exchange them for bread or for beer; but he car- 
ries them to the market, where he exchanges them for money, and 
afterwards exchanges that money for bread and for beer. The quan- 
tity of money which he gets for them regulates, too, the quantity of 
bread and beer which he can afterwards purchase. It is more natu- 
ral and obvious to him, therefore, to estimate their value by the 
quantity of money, the commodity for which he immediately ex- 
changes them, than by that of bread and beer, the commodities for 
which he can exchange them only by the intervention of another 
commodity; and rather to say that his butcher's meat is worth three- 
pence or fourpence a pound, than that it is worth three or four 
pounds of bread, or three or four quarts of small beer. Hence it 
comes to pass, that the exchangeable value of every commodity is 
more frequendy estimated by the quantity of money, than by the 
quantity either of labour or of any other commodity which can be 
had in exchange for it. 

Gold and silver, however, like every other commodity, vary in 
their value, are sometimes cheaper and sometimes dearer, sometimes 
of easier and sometimes of more difficult purchase. The quantity of 
labour which any particular quantity of them can purchase or com- 
mand, or the quantity of other goods which it will exchange for, de- 
pends always upon the fertility or barrenness of the mines which 
happen to be known about the time when such exchanges are made. 
The discovery of the abundant mines of America reduced, in the 
sixteenth century, the value of gold and silver in Europe to about a 
third of what it had been before. As it cost less labour to bring those 
metals from the mine to the market, so when they are brought 
thither they could purchase or command less labour; and this revo- 
lution in their value, though perhaps the greatest, is by no means the 
only one of which history gives some account. But as a measure of 



REAL AND NOMINAL PRICE 37 

quantity, such as the natural foot, fathom, or handful, which is con- 
tinually varying in its own quantity, can never be an accurate meas- 
ure of the quantity of other things; so a commodity which is itself 
continually varying in its own value, can never be an accurate meas- 
ure of the value of other commodities. Equal quantities of labour, at 
all times and places, may be said to be of equal value to the labourer. 
In his ordinary state of health, strength and spirits; in the ordinary 
degree of his skill and dexterity, he must always lay down the same 
portion of his ease, his liberty, and his happiness. The price which 
he pays must always be the same, whatever may be the quantity of 
the goods which he receives in return for it. Of these, indeed, it may 
sometimes purchase a greater and sometimes a smaller quantity; but 
it is their value which varies, not that of the labour which purchases 
them. At all times and places that is dear which it is difficult to come 
at, or which costs much labour to acquire; and that cheap which is 
to be had easily, or with very litde labour. Labour alone, therefore, 
never varying in its own value, is alone the ultimate and real stand- 
ard by which the value of all commodities can at all times and 
places be estimated and compared. It is their real price; money is 
their nominal price only. 

But though equal quantities of labour are always of equal value to 
the labourer, yet to the person who employs him they appear some- 
times to be of greater and sometimes of smaller value. He purchases 
them sometimes with a greater and sometimes with a smaller quan- 
tity of goods, and to him the price of labour seems to vary like that 
of all other things. It appears to him dear in the one case, and cheap 
in the other. In reality, however, it is the goods which are cheap 
in the one case, and dear in the other. 

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

The distinction between the real and the nominal price of com- 
modities and labour, is not a matter of mere speculation, but may 
sometimes be of considerable use in practice. The same real price is 



38 WEALTH OF NATIONS 

always of the same value; but on account of the variations in the 
value of gold and silver, the same nominal price is sometimes of very 
different value. When a landed estate, therefore, is sold with a reser- 
vation of a perpetual rent, if it is intended that this rent should al- 
ways be of the same value, it is of importance to the family in whose 
favour it is reserved, that it should not consist in a particular sum of 
money. Its value would in this case be liable to variations of two 
different kinds; first, to those which arise from the different quan- 
tities of gold and silver which are contained at different times in 
coin of the same denomination; and, secondly, to those which arise 
from the different values of equal quantities of gold and silver at 
different times. 

Princes and sovereign states have frequently fancied that they had 
a temporary interest to diminish the quantity of pure metal contained 
in their coins; but they seldom have fancied that they had any to 
augment it. The quantity of metal contained in the coins, I believe 
of all nations, has, accordingly, been almost continually diminishing, 
and hardly ever augmenting. Such variations therefore tend almost 
always to diminish the value of a money rent. 

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

The rents which have been reserved in corn have preserved their 
value much better than those which have been reserved in money, 
even where the denomination of the coin has not been altered. By 
the i8th of Elizabeth it was enacted. That a third of the rent of all 
college leases should be reserved in corn, to be paid, either in kind, 
or according to the current prices at the nearest public market. The 
money arising from this corn rent, though originally but a third of 
the whole, is in the present times, according to Doctor Blackstone, 



REAL AND NOMINAL PRICE 39 

commonly near double of what arises from the other two-thirds. The 
old money rents of colleges must, according to this account, have 
sunk almost to a fourth part of their antient value; or are worth lit- 
tle more than a fourth part of the corn which they were formerly 
worth. But since the reign of Philip and Mary the denomination of 
the English coin has undergone little or no alteration, and the same 
number of pounds, shillings and pence have contained very nearly 
the same quantity of pure silver. This degradation, therefore, in the 
value of the money rents of colleges, has arisen altogether from the 
degradation in the value of silver. 

When the degradation in the value of silver is combined with the 
diminution of the quantity of it contained in the coin of the same 
denomination, the loss is frequently still greater. In Scotland, where 
the denomination of the coin has undergone much greater alterations 
than it ever did in England, and in France, where it has undergone 
still greater than it ever did in Scodand, some antient rents, origi- 
nally of considerable value, have in this manner been reduced almost 
to nothing. 

Equal quantities of labour will at distant times be purchased more 
nearly with equal quantities of corn, the subsistence of the labourer, 
than with equal quantities of gold and silver, or perhaps of any other 
commodity. Equal quantities of corn, therefore, will, at distant 
times, be more nearly of the same real value, or enable the possessor 
to purchase or command more nearly the same quantity of the labour 
of other people. They will do this, I say, more nearly than equal 
quantities of almost any other commodity; for even equal quantities 
of corn will not do it exacdy. The subsistence of the labourer, or the 
real price of labour, as I shall endeavour to show hereafter, is very 
different upon different occasions; more liberal in a society advancing 
to opulence, than in one that is standing still; and in one that is 
standing still, than in one that is going backwards. Every other com- 
modity, however, will at any particular time purchase a greater or 
smaller quantity of labour in proportion to the quantity of subsist- 
ence which it can purchase at that time. A rent therefore reserved 
in corn is liable only to the variations in the quantity of labour which 
a certain quantity of corn can purchase. But a rent reserved in any 
other commodity is liable, not only to the variations in the quantity 



40 WEALTH OF NATIONS 

of labour which any particular quantity of corn can purchase, but to 
the variations in the quantity of corn which can be purchased by any 
particular quantity of that commodity. 

Though the real value of a corn rent, it is to be observed however, 
varies much less from century to century than that of a money rent, 
it varies much more from year to year. The money price of labour, 
as I shall endeavour to show hereafter, does not fluctuate from year 
to year with the money price of corn, but seems to be every where 
accommodated, not to the temporary or occasional, but to the aver- 
age or ordinary price of that necessary of life. The average or ordi- 
nary price of corn again is regulated, as I shall likewise endeavour 
to show hereafter, by the value of silver, by the richness or barren- 
ness of the mines which supply the market with that metal, or by 
the quantity of labour which must be employed, and consequendy 
of corn which must be consumed, in order to bring any particular 
quantity of silver from the mine to the market. But the value of 
silver, though it sometimes varies greatly from century to century, 
seldom varies much from year to year, but frequently continues the 
same, or very nearly the same, for half a century or a century to- 
gether. The ordinary or average money price of corn, therefore, 
may, during so long a period, continue the same or very nearly the 
same too, and along with it the money price of labour, provided, at 
least, the society continues, in other respects, in the same or nearly 
in the same condition. In the mean time the temporary and occa- 
sional price of corn may frequently be double, one year, of what it 
had been the year before, or fluctuate, for example, from five and 
twenty to fifty shillings the quarter. But when corn is at the latter 
price, not only the nominal, but the real value of a corn rent will be 
double of what it is when at the former, or will command double 
the quantity either of labour or of the greater part of other commodi- 
ties; the money price of labour, and along with it that of most other 
things, continuing the same during all these fluctuations. 

Labour, therefore, it appears evidently, is the only universal, as 
well as the only accurate measure of value, or the only standard by 
which we can compare the values of different commodities at all 
times and at all places. We cannot estimate, it is allowed, the real 
value of different commodities from century to century by the quan- 



REAL AND NOMINAL PRICE 4I 

titles of silver which were given for them. We cannot estimate it 
from year to year by the quantities of corn. By the quantities of la- 
bour we can, with the greatest accuracy, estimate it both from cen- 
tury to century and from year to year. From century to century, 
corn is a better measure than silver, because, from century to century, 
equal quantities of corn will command the same quantity of labour 
more nearly than equal quantities of silver. From year to year, on 
the contrary, silver is a better measure than corn, because equal 
quantities of it will more nearly command the same quantity of 
labour. 

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

At the same time and place the real and the nominal price of all 
commodities are exactly in proportion to one another. The more or 
less money you get for any commodity, in the London market, for 
example, the more or less labour it will at that time and place enable 
you to purchase or command. At the same time and place, there- 
fore, money is the exact measure of the real exchangeable value 
of all commodities. It is so, however, at the same time and place 
only. 

Though at distant places, there is no regular proportion between 
the real and the money price of commodities, yet the merchant who 
carries goods from the one to the other has nothing to consider but 
their money price, or the difference between the quantity of silver 
for which he buys them, and that for which he is likely to sell them. 
Half an ounce of silver at Canton in China may command a greater 
quantity both of labour and of the necessaries and conveniencies of 
life, than an ounce at London. A commodity, therefore, which sells 
for half an ounce of silver at Canton may there be really dearer, of 
more real importance to the man who possesses it there, than a com- 
modity which sells for an ounce at London is to the man who pos- 
sesses it at London. If a London merchant, however, can buy at 
Canton for half an ounce of silver, a commodity which he can after- 
wards sell at London for an ounce, he gains a hundred per cent, by 
the bargain, just as much as if an ounce of silver was at London 



42 WEALTH OF NATIONS 

exactly of the same value as at Canton. It is of no importance to him 
that half an ounce of silver at Canton would have given him the com- 
mand of more labour and of a greater quantity of the necessaries 
and conveniencies of life than an ounce can do at London. An ounce 
at London will aways give him the command of double the quan- 
tity of all these, which half an ounce could have done there, and 
this is precisely what he wants. 

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

In such a work as this, however, it may sometimes be of use to 
compare the different real values of a particular commodity at differ- 
ent times and places, or the different degrees of power over the labour 
of other people which it may, upon different occasions, have given to 
those who possessed it. We must in this case compare, not so much 
the different quantities of silver for which it was commonly sold, as 
the different quantities of labour which those different quantities of 
silver could have purchased. But the current prices of labour at dis- 
tant times and places can scarce ever be known with any degree of 
exactness. Those of corn, though they have in a few places been 
regularly recorded, are in general better known and have been more 
frequendy taken notice of by historians and other writers. We must 
generally, therefore, content ourselves with them, not as being always 
exactly in the same proportion as the current prices of labour, but as 
being the nearest approximation which can commonly be had to 
that proportion. I shall hereafter have occasion to make several 
comparisons of this kind. 

In the progress of industry, commercial nations have found it con- 
venient to coin several different metals into money; gold for larger 
payments, silver for purchases of moderate value, and copp)er, or 
some other coarse metal, for those of still smaller consideration. They 
have always, however, considered one of those metals as more pe- 
culiarly the measure of value than any of the other two; and this 
preference seems generally to have been given to the metal which 
they happened first to make use of as the instrument of commerce. 
Having once begun to use it as their standard, which they must 



REAL AND NOMINAL PRICE 43 

have done when they had no other money, they have generally con- 
tinued to do so even when the necessity was not the same. 

The Romans are said to have had nothing but copper money till 
within five years before the first Punic war, when they first began to 
coin silver. Copper, therefore, appears to have continued always the 
measure of value in that republic. At Rome all accounts appear to 
have been kept, and the value of all estates to have been computed, 
either in Asses or in Sestertii. The As was always the denomination 
of a copper coin. The word Sestertius signifies two Asses and a half. 
Though the Sestertius, therefore, was originally a silver coin, its 
value was estimated in copf)er. At Rome, one who owed a great 
deal of money, was said to have a great deal of other jjeople's copper. 

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

Originally, in all countries, I believe, a legal tender of payment 
could be made only in the coin of that metal, which was peculiarly 
considered as the standard or measure of value. In England, gold 
was not considered as a legal tender for a long time after it was 
coined into money. The proportion between the values of gold and 
silver money was not fixed by any public law or proclamation; but 
was left to be setded by the market. If a debtor offered payment in 
gold, the creditor might either reject such payment altogether, or 
accept of it at such a valuation of the gold as he and his debtor could 
agree upon. Copper is not at present a legal tender, except in the 
change of the smaller silver coins. In this state of things the distinc- 
tion between the metal which was the standard, and that which was 
not the standard, was something more than a nominal distinction. 

In process of time, and as people became gradually more familiar 



44 WEALTH OF NATIONS 

with the use of the different metals in coin, and consequently better 
acquainted with the proportion between their respective values, it 
has in most countries, I believe, been found convenient to ascertain 
this proportion, and to declare by a public law that a guinea, for 
example, of such a weight and fineness, should exchange for one- 
and-twenty shillings, or be a legal tender for a debt of that amount. 
In this state of things, and during the continuance of any one regU' 
lated proportion of this kind, the distinction between the metal 
which is the standard, and that which is not the standard, becomes 
little more than a nominal distinction. 

In consequence of any change, however, in this regulated propxjr- 
tion, this distinction becomes, or at least seems to become, something 
more than nominal again. If the regulated value of a guinea, for 
example, was either reduced to twenty, or raised to two-and-twenty 
shillings, all accounts being kept and almost all obligations for debt 
being expressed in silver money, the greater part of payments could 
in either case be made with the same quantity of silver money as 
before; but would require very different quantities of gold money; 
a greater in the one case, and a smaller in the other. Silver would 
appear to be more invariable in its value than gold. Silver would ap- 
pear to measure the value of gold, and gold would not appear to 
measure the value of silver. The value of gold would seem to depend 
upon the quantity of silver which it would exchange for; and the 
value of silver would not seem to depend upon the quantity of gold 
which it would exchange for. This difference, however, would be 
altogether owing to the custom of keeping accounts, and of express- 
ing the amount of all great and small sums rather in silver than in 
gold money. One of Mr. Drummond's notes for five-and-twenty or 
fifty guineas would, after an alteration of this kind, be still payable 
with five-and-twenty or fifty guineas in the same manner as before. 
It would, after such an alteration, be payable with the same quantity 
of gold as before, but with very different quantities of silver. In the 
payment of such a note, gold would appear to be moce invariable in 
its value than silver. Gold would appear to measure the value of 
silver, and silver would not appear to measure the value of gold. If 
the custom of keeping accounts, and of expressing promissory notes 
and other obligations for money in this manner, should ever become 



REAL AND NOMINAL PRICE 45 

general, gold, and not silver, would be considered as die metal which 
was peculiarly the standard or measure of value. 

In reality, during the continuance of any one regulated proportion 
between the respective values of the different metals in coin, the 
value of the most precious metal regulates the value of the whole 
coin. Twelve copper pence contain half a pound, avoirdupois, of 
copper, of not the best quality, which, before it is coined, is seldom 
worth sevenpence in silver. But as by the regulation twelve such 
pence are ordered to exchange for a shilling, they are in the market 
considered as worth a shilling, and a shilling can at any time be 
had for them. Even before the late reformation of the gold coin of 
Great Britain, the gold, that part of it at least which circulated in 
London and its neighbourhood, was in general less degraded below 
its standard weight than the greater part of the silver. One-and- 
twenty worn and defaced shillings, however, were considered as 
equivalent to a guinea, which perhaps, indeed, was worn and de- 
faced too, but seldom so much so. The late regulations have brought 
the gold coin as near perhaps to its standard weight as it is possible 
to bring the current coin of any nation; and the order, to receive no 
gold at the public offices but by weight, is likely to preserve it so, as 
long as that order is enforced. The silver coin still continues in the 
same worn and degraded state as before the reformation of the gold 
coin. In the market, however, one-and-twenty shillings of this de- 
graded silver coin are still considered as worth a guinea of this 
excellent gold coin. 

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

The occasional fluctuations in the market price of gold and silver 
bullion arise from the same causes as the like fluctuations in that of 
all other commodities. The frequent loss of those metals from vari- 
ous accidents by sea and by land, the continual waste of them in 
gilding and plating, in lace and embroidery, in the wear and tear o£ 
coin, and in that of plate; require, in all countries which possess no 
mines of their own, a continual importation, in order to repair this 
loss and this waste. The merchant importers, like all other mer- 
chants, we may believe, endeavour, as well as they can, to suit their 
occasional importations to what, they judge, is likely to be the im- 



46 WEALTH OF NATIONS 

mediate demand. With all their attention, however, they sometimes 
over-do the business, and sometimes under-do it. When they import 
more bullion than is wanted, rather than incur the risk and trouble 
of exporting it again, they are sometimes willing to sell a part of it 
for something less than the ordinary or average price. When, on the 
other hand, they import less than is wanted, they get something more 
than this price. But when, under all those occasional fluctuations, 
the market price either of gold or silver bullion continues for several 
years together steadily and constantly, either more or less above, or 
more or less below the mint price: we may be assured that this 
steady and constant, either superiority or inferiority of price, is the 
effect of something in the state of the coin, which, at that time, ren- 
ders a certain quantity of coin either of more value or of less value 
than the precise quantity of bullion which it ought to contain. The 
constancy and steadiness of the effect, supposes a proportionable con- 
stancy and steadiness in the cause. 

The money of any particular country is, at any particular time and 
place, more or less an accurate measure of value according as the 
current coin is more or less exactly agreeable to its standard, or 
contains more or less exactly the precise quantity of pure gold 
or pure silver which it ought to contain. If in England, for exam- 
ple, forty-four guineas and a half contained exactly a pound weight 
of standard gold, or eleven ounces of fine gold and one ounce of 
alloy, the gold coin of England would be as accurate a measure of 
the actual value of goods at any particular time and place as the 
nature of the thing would admit. But if, by rubbing and wearing, 
forty-four guineas and a half generally contain less than a pound 
weight of standard gold; the diminution, however, being greater in 
some pieces than in others; the measure of value comes to be liable to 
the same sort of uncertainty to which all other weights and measures 
are commonly exposed. As it rarely happens that these are exactly 
agreeable to their standard, the merchant adjusts the price of his 
goods, as well as he can, not to what those weights and measures 
ought to be, but to what, upon an average, he finds by experience 
they actually are. In consequence of a like disorder in the coin, the 
price of goods comes, in the same manner, to be adjusted, not to the 
quantity of pure gold or silver which the coin ought to contain, but 



REAL AND NOMINAL PRICE 47 

to that which, upon an average, it is found by experience it actually 
does contain. 

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



CHAPTER VI 
Of the Component Parts of the Price of Commodities 

IN that early and rude state of society which precedes both the 
accumulation of stock and the appropriation of land, the pro- 
portion between the quantities of labour necessary for acquiring 
different objects seems to be the only circumstance which can afford 
any rule for exchanging them for one another. If among a nation 
of hunters, for example, it usually costs twice the labour to kill a 
beaver which it does to kill a deer, one beaver should naturally ex- 
change for or be worth two deer. It is natural that what is usually 
the produce of two days or two hours labour, should be worth double 
of what is usually the produce of one day's or one hour's labour. 

If the one species of labour should be more severe than the other, 
some allowance will naturally be made for this superior hardship; 
and the produce of one hour's labour in the one way may frequently 
exchange for that of two hours labour in the other. 

Or if the one species of labour requires an uncommon degree of 
dexterity and ingenuity, the esteem which men have for such talents, 
will naturally give a value to their produce, superior to what would 
be due to the time employed about it. Such talents can seldom be 
acquired but in consequence of long application, and the superior 
value of their produce may frequently be no more than a reasonable 
compensation for the time and labour which must be spent in ac- 
quiring them. In the advanced state of society, allowances of this 
kind, for superior hardship and superior skill, are commonly made 
in the wages of labour; and something of the same kind must prob- 
ably have taken place in its earliest and rudest jjeriod. 

In this state of things, the whole produce of labour belongs to the 
labourer; and the quantity of labour commonly employed in ac- 
quiring or producing any commodity, is the only circumstance which 
can regulate the quantity of labour which it ought commonly to 
purchase, conunand, or exchange for. 

48 



COMPONENT PARTS OF PRICE 49 

As soon as stock has accumulated in the hands of particular per- 
sons, some of them will naturally employ it in setting to work indus- 
trious people, whom they will supply with materials and subsistence, 
in order to make a profit by the sale of their work, or by what their 
labour adds to the value of the materials. In exchanging the com- 
plete manufacture either for money, for labour, or for other goods, 
over and above what may be sufficient to pay the price of the mate- 
rials, and the wages of the workmen, something must be given for 
the profits of the undertaker of the work who hazards his stock in 
this adventure. The value which the workmen add to the materials, 
therefore, resolves itself in this case into two parts, of which the one 
pays their wages, the other the profits of their employer upon the 
whole stock of materials and wages which he advanced. He could 
have no interest to employ them, unless he expected from the sale 
of their work something more than what was sufficient to replace 
his stock to him; and he could have no interest to employ a great 
stock rather than a small one, unless his profits were to bear some 
proportion to the extent of his stock. 

The profits of stock, it may perhaps be thought, are only a different 
name for the wages of a particular sort of labour, the labour of in- 
spection and direction. They are, however, altogether different, are 
regulated by quite different principles, and bear no proportion to 
the quantity, the hardship, or the ingenuity of this supposed labour 
of inspection and direction. They are regulated altogether by the 
value of the stock employed, and are greater or smaller in propor- 
tion to the extent of this stock. Let us suppose, for example, that in 
some particular place, where the common annual profits of manu- 
facturing stock are ten per cent, there are two different manufac- 
tures, in each of which twenty workmen are employed at the rate of 
fifteen pounds a year each, or at the expence of three hundred a year 
in each manufactory. Let us suppose too, that the coarse materials 
annually wrought up in the one cost only seven hundred pounds, 
while the finer materials in the other cost seven thousand. The capi- 
tal annually employed in the one will in this case amount only to 
one thousand pounds; whereas that employed in the other will 
amount to seven thousand three hundred pounds. At the rate of ten 
per cent, therefore, the undertaker of the one will expect an yearly 



50 WEALTH OF NATIONS 

profit of about one hundred pounds only; while that of the other 
will expect about seven hundred and thirty pounds. But though their 
profits are so very different, their labour of inspection and direction 
may be either altogether or very nearly the same. In many great 
works, almost the whole labour of this kind is committed to some 
principal clerk. His wages properly express the value of this labour 
of inspection and direction. Though in settling them some regard 
is had commonly, not only to his labour and skill, but to the trust 
which is reposed in him, yet they never bear any regular propwrtion 
to the capital of which he oversees the management; and the owner 
of this capital, though he is thus discharged of almost all labour, still 
expects that his profits should bear a regular proportion to his capi- 
tal. In the price of commodities, therefore, the profits of stock con- 
stitute a component part altogether different from the wages of 
labour, and regulated by quite different principles. 

In this state of things, the whole produce of labour does not always 
belong to the labourer. He must in most cases share it with the 
owner of the stock which employs him. Neither is the quantity of 
labour commonly employed in acquiring or producing any com- 
modity, the only circumstance which can regulate the quantity which 
it ought commonly to purchase, command, or exchange for. An ad- 
ditional quantity, it is evident, must be due for the profits of the 
stock which advanced the wages and furnished the materials of that 
labour. 

As soon as the land of any country has all become private prop- 
erty, the landlords, like all other men, love to reap where they never 
sowed, and demand a rent even for its natural produce. The wood 
of the forest, the grass of the field, and all the natural fruits of the 
earth, which, when land was in common, cost the labourer only the 
trouble of gathering them, come, even to him, to have an additional 
price fixed upon them. He must then pay for the licence to gather 
them; and must give up to the landlord a portion of what his labour 
either collects or produces. This portion, or, what comes to the same 
thing, the price of this portion, constitutes the rent of land, and in 
the price of the greater part of commodities makes a third component 
part. 

The real value of all the different component parts of price, it 



COMPONENT PARTS OF PRICE 5 1 

must be observed, is measured by the quantity of labour which they 
can, each of them, purchase or command. Labour measures the 
value not only of that part of price which resolves itself into labour, 
but of that which resolves itself into rent, and of that which resolves 
itself into profit. 

In every society the price of every commodity finally resolves itself 
into some one or other, or all of those three parts; and in every im- 
proved society, all the three enter more or less, as component parts, 
into the price of the far greater part of commodities. 

In the price of corn, for example, one part pays the rent of the 
landlord, another pays the wages or maintenance of the labourers 
and labouring cattle employed in producing it, and the third pays 
the profit of the farmer. These three parts seem either immediately 
or ultimately to make up the whole price of corn. A fourth part, it 
may perhaps be thought, is necessary for replacing the stock of the 
farmer, or for compensating the wear and tear of his labouring 
catde, and other instruments of husbandry. But it must be consid- 
ered that the price of any instrument of husbandry, such as a labour- 
ing horse, is itself made up of the same three parts; the rent of the 
land up)on which he is reared, the labour of tending and rearing him, 
and the profits of the farmer who advances both the rent of this 
land, and the wages of this labour. Though the price of the corn, 
therefore, may pay the price as well as the maintenance of the horse, 
the whole price still resolves itself either immediately or ultimately 
into the same three parts of rent, labour, and profit. 

In the price of flour or meal, we must add to the price of the corn, 
the profits of the miller, and the wages of his servants; in the price of 
bread, the profits of the baker, and the wages of his servants; and in 
the price of both, the labour of transporting the corn from the 
house of the farmer to that of the miller, and from that of the miller 
to that of the baker, together with the profits of those who advance 
the wages of that labour. 

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

As any particular commodity comes to be more manufactiu-ed, 



52 WEALTH OF NATIONS 

that part of the price which resolves itself into wages and profit, 
comes to be greater in proportion to that which resolves itself into 
rent. In the progress of the manufacture, not only the number of 
profits increase, but every subsequent profit is greater than the fore- 
going; because the capital from which it is derived must always be 
greater. The capital which employs the weavers, for example, must 
be greater than that which employs the spinners; because it not only 
replaces that capital with its profits, but pays, besides, the wages of 
the weavers; and the profits must always bear some proportion to the 
capital. 

In the most improved societies, however, there are always a few 
commodities of which the price resolves itself into two parts only, 
the wages of labour, and the profits of stock; and a still smaller num- 
ber, in which it consists altogether in the wages of labour. In the 
price of sea-fish, for example, one part pays the labour of the fisher- 
men, and the other the profits of the capital employed in the fishery. 
Rent very seldom makes any part of it, though it does sometimes, 
as I shall shew hereafter. It is otherwise, at least through the greater 
part of Europe, in river fisheries. A salmon fishery pays a rent, and 
rent, though it cannot well be called the rent of land, makes a part 
of the price of a salmon as well as wages and profit. In some parts 
of Scotland a few poor people make a trade of gathering, along the 
sea-shore, those litde variegated stones commonly known by the 
name of Scotch Pebbles. The price which is paid to them by the 
stone-cutter is altogether the wages of their labour; neither rent nor 
profit make any part of it. 

But the whole price of any commodity must still finally resolve 
itself into some one or other, or all of those three parts; as whatever 
part of it remains after paying the rent of the land, and the price of 
the whole labour employed in raising, manufacturing, and bringing 
it to market, must necessarily be profit to somebody. 

As the price or exchangeable value of every particular commodity, 
taken separately, resolves itself into some one or other, or all of those 
three parts; so that of all the commodities which compose the whole 
annual produce of the labour of every country, taken complexly, 
must resolve itself into the same three parts, and be parcelled out 
among different inhabitants of the country, either as the wages of 



COMPONENT PARTS OF PRICE 53 

their labour, the profits of their stock, or the rent of their land. The 
whole of what is annually either collected or produced by the labour 
of every society, or what comes to the same thing, the whole price 
of it, is in this manner originally distributed among some of its dif- 
ferent members. Wages, profit, and rent, are the three original 
sources of all revenue as well as of all exchangeable value. All other 
revenue is ultimately derived from some one or other of these. 

Whoever derives his revenue from a fund which is his own, must 
draw it either from his labour, from his stock, or from his land. The 
revenue derived from labour is called wages. That derived from 
stock, by the person who manages or employs it, is called profit. That 
derived from it by the person who does not employ it himself, but 
lends it to another, is called the interest or the use of money. It is 
the compensation which the borrower pays to the lender, for the 
profit which he has an opportunity of making by the use of the 
money. Part of that profit naturally belongs to the borrower, who 
runs the risk and takes the trouble of employing it; and part to the 
lender, who affords him the opportunity of making this profit. The 
interest of money is always a derivative revenue, which, if it is not 
paid from the profit which is made by the use of the money, must 
be paid from some other source of revenue, unless perhaps the bor- 
rower is a spendthrift, who contracts a second debt in order to pay 
the interest of the first. The revenue which proceeds altogether from 
land, is called rent, and belongs to the landlord. The revenue of the 
farmer is derived partly from his labour, and pardy from his stock. 
To him, land is only the instrument which enables him to earn the 
wages of this labour, and to make the profits of this stock. All taxes, 
and all the revenue which is founded upon them, all salaries, pen- 
sions, and annuities of every kind, are ultimately derived from some 
one or other of those three original sources of revenue, and are paid 
either immediately or mediately from the wages of labour, the profits 
of stock, or the rent of land. 

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

A gentleman who farms a part of his own estate, after paying the 



54 WEALTH OF NATIONS 

expense o£ cultivation, should gain both the rent of the landlord and 
the profit of the farmer. He is apt to denominate, however, his 
whole gain, profit, and thus confounds rent with profit, at least in 
common language. The greater part of our North American and 
West Indian planters are in this situation. They farm, the greater 
part of them, their own estates, and accordingly we seldom hear of 
the rent of a plantation, but frequently of its profit. 

Common farmers seldom employ any overseer to direct the gen- 
eral operations of the farm. They generally too work a good deal 
with their own hands, as ploughmen, harrowers, &c. What remains 
of the crop after paying the rent, therefore, should not only replace 
to them their stock employed in cultivation, together with its ordi- 
nary profits, but pay them the wages which are due to them, both as 
labourers and overseers. Whatever remains, however, after paying 
the rent and keeping up the stock, is called profit. But wages evi- 
dently make a part of it. The farmer, by saving these wages, must 
necessarily gain them. Wages, therefore, are in this case confounded 
with profit. 

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

A gardener who cultivates his own garden with his own hands, 
unites in his own person the three different characters, of landlord, 
farmer, and labourer. His produce, therefore, should pay him the 
rent of the first, the profit of the second, and the wages of the third. 
The whole, however, is commonly considered as the earnings of his 
labour. Both rent and profit are, in this case, confounded with 
wages. 

As in a civilized country there are but few commodities of which 
the exchangeable value arises from labour only, rent and profit con- 
tributing largely to that of the far greater part of them, so the annual 
produce of its labour will always be sufficient to purchase or com- 
mand a much greater quantity of labour than what was employed 



COMPONENT PARTS OF PRICE 55 

in raising, preparing, and bringing that prcxluce to market. If the 
society were annually to employ all the labour which it can annually 
purchase, as the quantity of labour would increase greatly every year, 
so the produce of every succeeding year would be of vastly greater 
value than that of the foregoing. But there is no country in which 
the whole annual produce is employed in maintaining the indus- 
trious. The idle every where consume a great part of it; and accord- 
ing to the different proportions in which it is annually divided be- 
tween those two different orders of people, its ordinary or average 
value must either annually increase, or diminish, or continue the 
same from one year to another. 



CHAPTER VII 
Of the Natural and Market Price of Commodities 

THERE is in every society or neighbourhood an ordinary 
or average rate both of wages and profit in every different 
employment of labour and stock. This rate is naturally reg- 
ulated, as I shall show hereafter, partly by the general circumstances 
of the society, their riches or poverty, their advancing, stationary, or 
declining condition; and partly by the particular nature of each 
employment. 

There is likewise in every society or neighbourhood an ordinary 
or average rate of rent, which is regulated too, as I shall shew here- 
after, partly by the general circumstances of the society or neighbour- 
hood in which the land is situated, and partly by the natural or 
improved fertility of the land. 

These ordinary or average rates may be called the natural rates 
of wages, profit, and rent, at the time and place in which they com- 
monly prevail. 

When the price of any commodity is neither more nor less than 
what is sufficient to pay the rent of the land, the wages of the labour, 
and the profits of the stock employed in raising, preparing, and 
bringing it to market, according to their natural rates, the commodity 
is then sold for what may be called its natural price. 

The commodity is then sold precisely for what it is worth, or for 
what it really costs the person who brings it to market; for though in 
common language what is called the prime cost of any commodity 
does not comprehend the profit of the person who is to sell it again, 
yet if he sells it at a price which does not allow him the ordinary rate 
of profit in his neighbourhood, he is evidently a loser by the trade; 
since by employing his stock in some other way he might have made 
that profit. His profit, besides, is his revenue, the proper fund of 
his subsistence. As, while he is preparing and bringing the goods 
to market, he advances to his workmen their wages, or their sub- 

56 



NATURAL AND MARKET PRICE 57 

sistence; so he advances to himself, in the same manner, his own sub- 
sistence, which is generally suitable to the profit which he may 
reasonably expect from the sale of his goods. Unless they yield 
him this profit, therefore, they do not repay him what they may very 
properly be said to have really cost him. 

Though the price, therefore, which leaves him this profit, is not 
always the lowest at which a dealer may sometimes sell his goods, 
it is the lowest at which he is likely to sell them for any considerable 
time; at least where there is perfect liberty, or where he may change 
his trade as often as he pleases. 

The actual price at which any commodity is commonly sold is 
called its market price. It may either be above, or below, or exacdy 
the same with its natural price. 

The market price of every particular commodity is regulated by 
the proportion between the quantity which is actually brought to 
market, and the demand of those who are willing to pay the natural 
price of the commodity, or the whole value of the rent, labour, and 
profit, which must be paid in order to bring it thither. Such people 
may be called the effectual demanders, and their demand the effec- 
tual demand; since it may be sufficient to effectuate the bringing of 
the commodity to market. It is different from the absolute demand. 
A very p)oor man may be said in some sense to have a demand 
for a coach and six; he might like to have it; but his demand is not 
an effectual demand, as the commodity can never be brought to 
market in order to satisfy it. 

When the quantity of any commodity which is brought to market 
falls short of the effectual demand, all those who are willing to pay 
the whole value of the rent, wages, and profit, which must be paid 
in order to bring it thither, cannot be supplied with the quantity 
which they want. Rather than want it altogether, some of them will 
be willing to give more. A competition will immediately begin 
among them, and the market price will rise more or less above the 
natural price, according as either the greatness of the deficiency, or 
the wealth and wanton luxury of the competitors, happen 10 animate 
more or less the eagerness of the competition. Among competitors 
of equal wealth and luxury the same deficiency will generally occa- 
sion a more or less eager competition, according as the acquisition 



58 WEALTH OF NATIONS 

of the commodity happens to be of more or less importance to them. 
Hence the exorbitant price of the necessaries of Hfe during the block- 
ade of a town or in a famine. 

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

When the quantity brought to market is just sufficient to supply 
the effectual demand and no more, the market price naturally comes 
to be either exactly, or as nearly as can be judged of, the same with 
the natural price. The whole quantity upon hand can be disposed 
of for this price, and cannot be disposed of for more. The competi- 
tion of the different dealers obliges them all to accept of this price, 
but does not oblige them to accept of less. 

The quantity of every commodity brought to market naturally 
suits itself to the effectual demand. It is the interest of all those who 
employ their land, labour, or stock, in bringing any commodity to 
market, that the quantity never should exceed the effectual demand; 
and it is the interest of all other people that it never should fall short 
of that demand. 

If at any time it exceeds the effectual demand, some of the com- 
ponent parts of its price must be paid below their natural rate. If 
it is rent, the interest of the landlords will immediately prompt them 
to withdraw a part of their land; and if it is wages or profit, the 
interest of the labourers in the one case, and of their employers in 
the other, will prompt them to withdraw a part of their labour or 
stock from this employment. The quantity brought to market will 
soon be no more than sufficient to supply the effectual demand. All 



NATURAL AND MARKET PRICE 59 

the different parts of its price will rise to their natural rate, and the 
whole price to its natural price. 

If, on the contrary, the quantity brought to market should at any 
time fall short of the effectual demand, some of the component parts 
of its price must rise above their natural rate. If it is rent, the interest 
of all other landlords will naturally prompt them to prepare more 
land for the raising of this commodity; if it is wages or profit, the 
interest of all other labourers and dealers will soon prompt them to 
employ more labour and stock in preparing and bringing it to 
market. The quantity brought thither will soon be sufficient to 
supply the effectual demand. All the different parts of its price will 
soon sink to their natural rate, and the whole price to its natural 
price. 

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

The whole quantity of industry annually employed in order to 
bring any commodity to market, naturally suits itself in this manner 
to the effectual demand. It naturally aims at bringing always that 
precise quantity thither which may be sufficient to supply, and no 
more than supply, that demand. 

But in some employments the same quantity of industry will in 
different years produce very different quantities of commodities; 
while in others it will produce always the same, or very nearly the 
same. The same number of labourers in husbandry will, in different 
years, produce very different quantities of corn, wine, oil, hops, &c. 
But the same number of spinners and weavers will every year pro- 
duce the same or very nearly the same quantity of linen and woollen 
cloth. It is only the average produce of the one sf)ecies of industry 
which can be suited in any respect to the effectual demand; and 
as its actual produce is frequently much greater and frequently much 
less than its average produce, the quantity of the commodities 
brought to market will sometimes exceed a good deal, and some- 



6o WEALTH OF NATIONS 

times fall short a good deal, of the effectual demand. Even though 
that demand therefore should continue always the same, their mar- 
ket price will be liable to great fluctuations, will sometimes fall a 
good deal below, and sometimes rise a good deal above, their natural 
price. In the other species of industry, the produce of equal quanti- 
ties of labour being always the same, or very nearly the same, it can 
be more exactly suited to the effectual demand. While that demand 
continues the same, therefore, the market price of the commodities 
is likely to do so too, and to be either altogether, or as nearly as can 
be judged of, the same with the natural price. That the price of 
linen and woollen cloth is liable neither to such frequent nor to 
such great variations as the price of corn, every man's experience will 
inform him. The price of the one species of commodities varies only 
with the variations in the demand : That of the other varies not only 
with the variations in the demand, but with the much greater and 
more frequent variations in the quantity of what is brought to mar- 
ket in order to supply that demand. 

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

Such fluctuations affect both the value and the rate either of wages 
or of profit, according as the market happens to be either over- 
stocked or under-stocked with commodities or with labour; with 
work done, or with work to be done. A public mourning raises the 
price of black cloth (with which the market is almost always under- 
stocked upon such occasions), and augments the profits of the 
merchants who possess any considerable quantity of it. It has no 



NATURAL AND MARKET PRICE 6l 

effect upon the wages of the weavers. The market is under-stocked 
with commodities, not with labour; with work done, not with work 
to be done. It raises the wages of journeymen taylors. The market 
is here under-stocked with labour. There is an effectual demand 
for more labour, for more work to be done than can be had. It smks 
the price of coloured silks and cloths, and thereby reduces the profits 
of the merchants who have any considerable quantity of them upon 
hand. It sinks too the wages of the workmen employed in preparing 
such commodities, for which all demand is stopped for six months, 
perhaps for a twelvemonth. The market is here over-stocked both 
with commodities and with labour. 

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

When by an increase in the effectual demand, the market price of 
some particular commodity happens to rise a good deal above the 
natural price, those who employ their stocks in supplying that mar- 
ket are generally careful to conceal this change. If it was commonly 
known, their great profit would tempt so many new rivals to employ 
their stocks in the same way, that, the effectual demand being fully 
supplied, the market price would soon be reduced to the natural 
price, and perhaps for some time even below it. If the market is at 
a great distance from the residence of those who supply it, they may 
sometimes be able to keep the secret for several years together, and 
may so long enjoy their extraordinary profits without any new rivals. 
Secrets of this kind, however, it must be acknowledged, can seldom 
be long kept; and the extraordinary profit can last very Uttle longer 
than they are kept. 

Secrets in manufactures are capable of being longer kept than 
secrets in trade. A dyer who has found the means of producing a 
particular colour with materials which cost only half the price of 
those commonly made use of, may, with good management, enjoy 
the advantage of his discovery as long as he lives, and even leave it as 
a legacy to his posterity. His extraordinary gains arise from the 



62 WEALTH OF NATIONS 

high price which is paid for his private labour. They properly con- 
sist in the high wages of that labour. But as they are repeated upon 
every part of his stock, and as their whole amount bears, upon that 
account, a regular proportion to it, they are commonly considered as 
extraordinary profits of stock. 

Such enhancements of the market price are evidently the effects 
of particular accidents, of which, however, the operation may some 
times last for many years together. 

Some natural productions require such a singularity of soil and 
situation, that all the land in a great country, which is fit for produc- 
ing them, may not be sufficient to supply the effectual demand. The 
whole quantity brought to market, therefore, may be disposed of to 
those who are willing to give more than what is sufficient to pay the 
rent of the land which produced them, together with the wages of 
the labour, and the profits of the stock which were employed in pre- 
paring and bringing them to market, according to their natural 
rates. Such commodities may continue for whole centuries together 
to be sold at this high price; and that part of it which resolves itself 
into the rent of land is in this case the part which is generally paid 
above its natural rate. The rent of the land which affords such sin- 
gular and esteemed productions, like the rent of some vineyards in 
France of a peculiarly happy soil and situation, bears no regular 
proportion to the rent of other equally fertile and equally well<ulti- 
vated land in its neighbourhood. The wages of the labour and the 
profits of the stock employed in bringing such commodities to mar- 
ket, on the contrary, are seldom out of their natural proportion to 
those of the other employments of labour and stock in their neigh- 
bourhood. 

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

A monofwly granted either to an individual or to a trading com- 
pany has the same effect as a secret in trade or manufactures. The 
monopolists, by keeping the market constantly under-stocked, by 
never fully supplying the effectual demand, sell their commodities 



NATURAL AND MARKET PRICE 63 

much above the natural price, and raise their emoluments, whether 
they consist in wages or profit, greatly above their natural rate. 

The price of monopoly is upon every occasion the highest which 
can be got. The natural price, or the price of free competition, on 
the contrary, is the lowest which can be taken, not upon every occa- 
sion indeed, but for any considerable time together. The one is 
upon every occasion the highest which can be squeezed out of the 
buyers, or which, it is supposed, they will consent to give: The 
other is the lowest which the sellers can commonly afford to take, 
and at the same time continue their business. 

The exclusive privileges of corporations, statutes of apprenticeship, 
and all those laws which restrain, in particular employments, the 
competition to a smaller number than might otherwise go into them, 
have the same tendency, though in a less degree. They are a sort 
of enlarged monopolies, and may frequently, for ages together, and 
in whole classes of employments, keep up the market price of partic- 
ular commodities above the natural price, and maintain both the 
wages of the labour and the profits of the stock employed about them 
somewhat above their natural rate. 

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

The market price of any particular commodity, though it may 
continue long above, can seldom continue long below, its natural 
price. Whatever part of it was paid below the natural rate, the 
{jersons whose interest it affected would immediately feel the loss, 
and would immediately withdraw either so much land, or so 
much labour, or so much stock, from being employed about it, 
that the quantity brought to market would soon be no more than 
sufficient to supply the effectual demand. Its market price, therefore, 
would soon rise to the natural price. This at least would be the case 
where there was perfect liberty. 

The same statutes of apprenticeship and other corporation laws 
indeed, which, when a manufacture is in prosperity, enable the 
workman to raise his wages a good deal above their natural rate, 
sometimes oblige him, when it decays, to let them down a good deal 
below it. As in the one case they exclude many people from his 



64 WEALTH OF NATIONS 

employment, so in the other they exclude him from many employ- 
ments. The effect of such regulations, however, is not near so dur- 
able in sinking the workman's wages below, as in raising them 
above, their natural rate. Their operation in the one way may 
endure for many centuries, but in the other it can last no longer 
than the lives of some of the workmen who were bred to the business 
in the time of its prosperity. When they are gone, the number of 
those who are afterwards educated to the trade will naturally suit 
itself to the effectual demand. The police must be as violent as that 
of Indostan or antient Egypt (where every man was bound by a 
principle of religion to follow the occupation of his father, and was 
supposed to commit the most horrid sacrilege if he changed it for 
another), which can in any particular employment, and for several 
generations together, sink either the wages of labour or the profits 
of stock below their natural rate. 

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

The natural price itself varies with the natural rate of each of its 
component parts, of wages, profit, and rent; and in every society 
this rate varies according to their circumstances, according to their 
riches or poverty, their advancing, stationary, or decHning condition. 
I shall, in the four following chapters, endeavour to explain, as fully 
and distinctly as 1 can, the causes of those different variations. 

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

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

Though pecuniary wages and profits are very different in the 
different employments of labour and stock; yet a certain proportion 
seems commonly to take place between both the (pecuniary wages in 
all the different employments of labour, and the pecuniary profits in 
all the different employments of stock. This proportion, it will 



NATURAL AND MARKET PRICE 65 

appear hereafter, depends partly upon the nature of the different em- 
ployments, and pardy upon the different laws and policy of the 
society in which they are carried on. But though in many respects 
dependent upon the laws and policy, this proportion seems to be 
little affected by the riches or poverty of that society; by its advanc- 
ing, stationary, or declining condition; but to remain the same or 
very nearly the same in all those different states. I shall, in the third 
place, endeavour to explain all the different circumstances which 
regulate this proportion. 

In the fourth and last place, I shall endeavor to show what are the 
circumstances which regulate the rent of land, and which either 
raise or lower the real price of all the different substances which it 
produces. 



CHAPTER VIII 

Of the Wages of Labour 

THE produce of labour constitutes the natural recompence or 
wages of labour. 
In that original state of things, which precedes both the 
appropriation of land and the accumulation of stock, the whole pro- 
duce of labour belongs to the labourer. He has neither landlord nor 
master to share with him. 

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

But though all things would have become cheaper in reality, in 
appearance many things might have become dearer than before, 
or have been exchanged for a greater quantity of other goods. Let 
us suppose, for example, that in the greater part of employments the 
productive pxiwers of labour had been improved to tenfold, or that a 
day's labour could produce ten times the quantity of work which it 
had done originally; but that in a particular employment they had 
been improved only to double, or that a day's labour could produce 
only twice the quantity of work which it had done before. In 
exchanging the produce of a day's labour in the greater part of 
employments, for that of a day's labour in this particular one, ten 
times the original quantity of work in them would purchase only 
twice the original quantity in it. Any particular quantity in it, 
therefore, a fxjund weight, for example, would apf)ear to be five 
times dearer than before. In reality, however, it would be twice as 
cheap. Though it required five times the quantity of other goods to 

66 



WAGES OF LABOUR 67 

purchase it, it would require only half the quantity of labour either 
to purchase or to produce it. The acquisition, therefore, would be 
twice as easy as before. 

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

As soon as land becomes private property, the landlord demands 
a share of almost all the produce which the labourer can either raise, 
or collect from it. His rent makes the first deduction from the pro- 
duce of the labour which is employed upon land. 

It seldom happens that the person who tills the ground has where- 
withal to maintain himself till he reaps the harvest. His mainten- 
ance is generally advanced to him from the stock of a master, the 
farmer who employs him, and who would have no interest to employ 
him, unless he was to share in the produce of his labour, or unless 
his stock was to be replaced to him with a profit. This profit makes 
a second deduction from the produce of the labour which is em- 
ployed upon land. 

The produce of almost all other labour is liable to the like deduc- 
tion of profit. In all arts and manufactures the greater part of the 
workmen stand in need of a master to advance them the materials 
of their work, and their wages and maintenance till it be compleated. 
He shares in the produce of their labour, or in the value which it 
adds to the materials upon which it is bestowed; and in this share 
consists his profit. 

It sometimes happens, indeed, that a single independent workman 
has stock sufficient both to purchase the materials of his work, and to 
maintain himself till it be compleated. He is both master and 
workman, and enjoys the whole produce of his own labour, or the 
whole value which it adds to the materials upon which it is bestowed. 
It includes what are usually two distinct revenues, belonging to two 
distinct persons, the profits of stock, and the wages of labour. 

Such cases, however, are not very frequent, and in every part of 



68 WEALTH OF NATIONS 

Europe, twenty workmen serve under a master for one that is 
independent; and the wages of labour are every where understood 
to be, what they usually are, when the labourer is one person, and 
the owner of the stock which employs him another. 

What are the common wages of labour, depends every where upon 
the contract usually made between those two parties, whose interests 
are by no means the same. The workmen desire to get as much, the 
masters to give as little as possible. The former are disposed to com- 
bine in order to raise, the latter in order to lower the wages of labour. 

It is not, however, difficult to foresee which of the two parties 
must, upon all ordinary occasions, have the advantage in the dispute, 
and force the other into a compliance with their terms. The masters, 
being fewer in number, can combine much more easily; and the 
law, besides, authorises, or at least does not prohibit their combina- 
tions, while it prohibits those of the workmen. We have no acts of 
parliament against combining to lower the price of work; but many 
against combining to raise it. In all such disputes the masters can 
hold out much longer. A landlord, a farmer, a master manufacturer, 
or merchant, though they did not employ a single workman, could 
generally live a year or two upon the stocks which they have already 
acquired. Many workmen could not subsist a week, few could sub- 
sist a month, and scarce any a year without employment. In the 
long-run the workman may be as necessary to his master as his 
master is to him; but the necessity is not so immediate. 

We rarely hear, it has been said, of the combinations of masters; 
though frequently of those of workmen. But whoever imagines, 
upon this account, that masters rarely combine, is as ignorant of the 
world as of the subject. Masters are always and every where in a sort 
of tacit, but constant and uniform combination, not to raise the 
wages of labour above their actual rate. To violate this combination 
is every where a most unpopular action, and a sort of reproach to a 
master among his neighbours and equals. We seldom, indeed, hear 
of this combination, because it is the usual, and one may say, the 
natural state of things which nobody ever hears of. Masters too 
sometimes enter into particular combinations to sink the wages of 
labour even below this rate. These are always conducted with the 
utmost silence and secrecy, till the moment of execution, and when 



WAGES OF LABOUR 69 

the workmen yield, as they sometimes do, without resistance, though 
severely felt by them, they are never heard of by other people. Such 
combinations, however, are frequently resisted by a contrary defen- 
sive combination of the workmen; who sometimes too, without any 
provocation of this kind, combine of their own accord to raise the 
price of their labour. Their usual pretences are, sometimes the 
high price of provisions; sometimes the great profit which their 
masters make by their work. But whether their combinations be 
offensive or defensive, they are always abundantly heard of. In order 
to bring the point to a sp)eedy decision, they have always recourse to 
the loudest clamour, and sometimes to the most shocking violence 
and outrage. They are desperate, and act with the folly and extrava- 
gance of desperate men, who must either starve, or frighten their 
masters into an immediate compliance with their demands. The 
masters upon these occasions are just as clamorous upwn the other 
side, and never cease to call aloud for the assistance of the civil magis- 
trate, and the rigorous execution of those laws which have been 
enacted with so much severity against the combinations of servants, 
labourers, and journeymen. The workmen, accordingly, very seldom 
derive any advantage from the violence of those tumultuous com- 
binations, which, partly from the interposition of the civil magistrate, 
partly from the superior steadiness of the masters, partly from the 
necessity which the greater part of the workmen are under of sub- 
mitting for the sake of present subsistence, generally end in nothing, 
but the punishment or ruin of the ringleaders. 

But though in disputes with their workmen, masters must gener- 
ally have the advantage, there is however a certain rate below which 
it seems impossible to reduce, for any considerable time, the ordinary 
wages even of the lowest species of labour. 

A man must always live by his work, and his wages must at least 
be sufficient to maintain him. They must even upon most occasions 
be somewhat more; otherwise it would be impossible for him to 
bring up a family, and the race of such workmen could not last be- 
yond the first generation. Mr. Cantillon seems, upon this account, 
to suppose that the lowest species of common labourers must every 
where earn at least double their own maintenance, in order that one 
with another they may be enabled to bring up two children; the 



70 WEALTH OF NATIONS 

labour of the wife, on account of her necessary attendance on the 
children, being supposed no more than sufficient to provide for her- 
self. But one-half the children born, it is computed, die before the 
age of manhood. The poorest labourers, therefore, according to this 
account, must, one with another, attempt to rear at least four chil- 
dren, in order that two may have an equal chance of living to that 
age. But the necessary maintenance of four children, it is supposed, 
may be nearly equal to that of one man. The labour of an able- 
bodied slave, the same author adds, is computed to be worth double 
his maintenance; and that of the meanest labourer, he thinks, can- 
not be worth less than that of an able-bodied slave. Thus far at least 
seems certain, that, in order to bring up a family, the labour of the 
husband and wife together must, even in the lowest species of com- 
mon labour, be able to earn something more than what is precisely 
necessary for their own maintenance; but in what proportion, 
whether in that above mentioned, or in any other, I shall not take 
upon me to determine. 

There are certain circumstances, however, which sometimes give 
the labourers an advantage, and enable them to raise their wages 
considerably above this rate; evidently the lowest which is consistent 
with common humanity. 

When in any country the demand for those who live by wages, 
labourers, journeymen, servants of every kind, is continually increas- 
ing; when every year furnishes employment for a greater number 
than had been employed the year before, the workmen have no 
occasion to combine in order to raise their wages. The scarcity of 
hands occasions a competition among masters, who bid against one 
another, in order to get workmen, and thus voluntarily break 
through the natural combination of masters not to raise wages. 

The demand for those who live by wages, it is evident, cannot in- 
crease but in proportion to the increase of the funds which are 
destined for the payment of wages. These funds are of two kinds; 
first, the revenue which is over and above what is necessary for the 
maintenance; and, secondly, the stock which is over and above what 
is necessary for the employment of their masters. 

When the landlord, annuitant, or monied man, has a greater 
revenue than what he judges sufficient to maintain his own family, 



WAGES OF LABOUR 7I 

he employs either the whole or a part of the surplus in maintaining 
one or more menial servants. Increase this surplus, and he will 
naturally increase the number of those servants. 

When an independent workman, such as a weaver or shoemaker, 
has got more stock than what is sufficient to purchase the materials 
of his own work, and to maintain himself till he can dispose of it, 
he naturally employs one or more journeymen with the surplus, in 
order to make a profit by their work. Increase this surplus, and he 
will naturally increase the number of his journeymen. 

The demand for those who live by wages, therefore, necessarily 
increases with the increase of the revenue and stock of every country, 
and cannot possibly increase without it. The increase of revenue and 
stock is the increase of national wealth. The demand for those who 
live by wages, therefore, naturally increases with the increase of 
national wealth, and cannot possibly increase without it. 

It is not the actual greatness of national wealth, but its continual 
increase, which occasions a rise in the wages of labour. It is not, 
accordingly, in the richest countries, but in the most thriving, or in 
those which are growing rich the fastest, that the wages of labour are 
highest. England is certainly, in the present times, a much richer 
country than any part of North America. The wages of labour, 
however, are much higher in North America than in any part 
of England. In the province of New York, common labourers 
earn three shillings and sixpence currency, equal to two shillings 
sterling, a day; ship carpenters, ten shillings and sixpence currency, 
with a pint of rum worth sixpence sterling, equal in all to six shill- 
ings and sixpence sterling; house carf)enters and bricklayers, eight 
shillings currency, equal to four shillings and sixpence sterling; 
journeymen taylors, five shillings currency, equal to about two shill- 
ings and tenpence sterling. These prices are all above the London 
price; and wages are said to be as high in the other colonies as in 
New York. The price of provisions is every where in North 
America much lower than in England. A dearth has never been 
known there. In the worst seasons, they have always had a suffici- 
ency for themselves, though less for exportation. If the money price 
of labour, therefore, be higher than it is any where in the mother 
country, its real price, the real command of the necessaries and con- 



72 WEALTH OF NATIONS 

veniencies of life which it conveys to the labourer, must be higher 
in a still greater proportion. 

But though North America is not yet so rich as England, it is 
much more thriving, and advancing with much greater rapidity 
to the further acquisition of riches. The most decisive mark of the 
prosperity of any country is the increase of the number of its 
inhabitants. In Great Britain, and most other European countries, 
they are not supposed to double in less than five hundred years. In 
the British colonies in North America, it has been found, that they 
double in twenty or five-and-twenty years. Nor in the present times 
is this increase principally owing to the continual importation of 
new inhabitants, but to the great multiplication of the species. Those 
who Uve to old age, it is said, frequently see there from fifty to a hun- 
dred, and sometimes many more, descendants from their own body. 
Labour is there so well rewarded that a numerous family of children, 
instead of being a burthen is a source of opulence and prosperity to 
the parents. The labour of each child, before it can leave their house, 
is computed to be worth a hundred pounds clear gain to them. A 
young widow with four or five young children, who, among the 
middling or inferior ranks of people in Europe, would have so little 
chance for a second husband, is there frequently courted as a sort of 
fortune. The value of children is the greatest of all encouragements 
to marriage. We cannot, therefore, wonder that the people in North 
America should generally marry very young. Notwithstanding the 
great increase occasioned by such early marriages, there is a continual 
complaint of the scarcity of hands in North America. The demand 
for labourers, the funds destined for maintaining them, increase, it 
seems, still faster than they can find labourers to employ. 

Though the wealth of a country should be very great, yet if it has 
been long stationary, we must not expect to find the wages of labour 
very high in it. The funds destined for the payment of wages, the 
revenue and stock of its inhabitants, may be of the greatest extent; 
but if they have continued for several centuries of the same, or very 
nearly of the same extent, the number of labourers employed every 
year could easily supply, and even more than supply, the number 
wanted the following year. There could seldom be any scarcity of 
hands, nor could the masters be obliged to bid against one another in 



WAGES OF LABOUR 73 

order to get them. The hands, on the contrary, would, in this case, 
naturally multiply beyond their employment. There would be a 
constant scarcity of employment, and the labourers would be obliged 
to bid against one another in order to get it. If in such a country 
the wages of labour had ever been more than sufficient to maintain 
the labourer, and to enable him to bring up a family, the competition 
of the labourers and interest of the masters would soon reduce them 
to this lowest rate which is consistent with common humanity. 
China has been long one of the richest, that is, one of the most fertile, 
best cultivated, most industrious, and most populous countries in the 
world. It seems, however, to have been long stationary. Marco Polo, 
who visited it more than five hundred years ago, describes its culti- 
vation, industry, and populousness, almost in the same terms in 
which they are described by travellers in the present times. It had 
perhaps, even long before his time, acquired that full complement of 
riches which the nature of its laws and institutions permits it to 
acquire. The accounts of all travellers, inconsistent in many other 
respects, agree in the low wages of labour, and in the difficulty which 
a labourer finds in bringing up a family in China. If by digging the 
ground a whole day he can get what will purchase a small quantity 
of rice in the evening, he is contented. The condition of artificers is, 
if possible, still worse. Instead of waiting indolently in their work- 
houses, for the calls of their customers, as in Europe, they are con- 
tinually running about the streets with the tools of their respective 
trades offering their service, and as it were begging employment. 
The poverty of the lower ranks of people in China far surpasses that 
of the most beggarly nations in Europe. In the neighbourhood of 
Canton many hundreds, it is commonly said, many thousand fam- 
ilies have no habitation on the land, but live constantly in little fish- 
ing boats upon the rivers and canals. The subsistence which they 
find there is so scanty that they are eager to fish up the nastiest 
garbage thrown overboard from any European ship. Any carrion, 
the carcase of a dead dog or cat, for example, though half putrid and 
stinking, is as welcome to them as the most wholesome food to the 
people of other countries. Marriage is encouraged in China, not by 
the profitableness of children, but by the liberty of destroying them. 
In all great towns several arc every night exposed in the street, or 



74 WEALTH OF NATIONS 

drowned like puppies in the water. The performance of this horrid 
office is even said to be the avowed business by which some people 
earn their subsistence. 

China, however, though it may perhaps stand still, does not seem 
to go backwards. Its towns are no-where deserted by their inhabit- 
ants. The lands which had once been cultivated are no-where neg- 
lected. The same or very nearly the same annual labour must there- 
fore continue to be performed, and the funds destined for maintain- 
ing it must not, consequently, be sensibly diminished. The lowest 
class of labourers, therefore, notwithstanding their scanty subsistence, 
must some way or another make shift to continue their race so far 
as to keep up their usual numbers. 

But it would be otherwise in a country where the funds destined 
for the maintenance of labour were sensibly decaying. Every year 
the demand for servants and labourers would, in all the different 
classes of employments, be less than it had been the year before. 
Many who had been bred in the superior classes, not being able to 
find employment in their own business, would be glad to seek it in 
the lowest. The lowest class being not only overstocked with its own 
workmen, but with the overflowings of all the other classes, the 
competition for employment would be so great in it, as to reduce the 
wages of labour to the most miserable and scanty subsistence of the 
labourer. Many would not be able to find employment even upon 
these hard terms, but would either starve, or be driven to seek a 
subsistence either by begging, or by the perpetration perhaps of the 
greatest enormities. Want, famine, and mortality would immedi- 
ately prevail in that class, and from thence extend themselves to all 
the superior classes, till the number of inhabitants in the country was 
reduced to what could easily be maintained by the revenue and 
stock which remained in it, and which had escaped either the tyranny 
or calamity which had destroyed the rest. This p)erhaps is nearly 
the present state of Bengal, and of some other of the English settle- 
ments in the East Indies. In a fertile country which had before been 
much depopulated, where subsistence, consequently, should not be 
very difficult, and where, notwithstanding, three or four hundred 
thousand people die of hunger in one year, we may be assured that 
the funds destined for the maintenance of the labouring poor are 



WAGES OF LABOUR 75 

fast decaying. The difference between the genius of the British con- 
stitution which protects and governs North America, and that of the 
mercantile company which oppresses and domineers in the East In- 
dies, cannot perhaps be better illustrated than by the different state 
of those countries. 

The liberal reward of labour, therefore, as it is the necessary effect, 
so it is the natural symptom of increasing national wealth. The 
scanty maintenance of the labouring poor, on the other hand, is the 
natural symptom that things are at a stand, and their starving con- 
dition that they are going fast backwards. 

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

First, in almost every part of Great Britain there is a distinction, 
even in the lowest sjjecies of labour, between summer and winter 
wages. Summer wages are always highest. But on account of the 
extraordinary exjience of fewel, the maintenance of a family is most 
expensive in winter. Wages, therefore, being highest when this ex- 
pence is lowest, it seems evident that they are not regulated by what is 
necessary for this expence; but by the quantity and supposed value 
of the work. A labourer, it may be said indeed, ought to save part 
of his summer wages in order to defray his winter expence; and 
that through the whole year they do not exceed what is necessary to 
maintain his family through the whole year. A slave, however, or 
one absolutely dependent on us for immediate subsistence, would not 
be treated in this manner. His daily subsistence would be propor- 
tioned to his daily necessities. 

Secondly, the wages of labour do not in Great Britain fluctuate 
with the price of provisions. These vary everywhere from year to 
year, frequently from month to month. But in many places the 
money price of labour remains uniformly the same sometimes for 
half a century together. If in these places, therefore, the labouring 



76 WEALTH OF NATIONS 

poor can maintain their families in dear years, they must be at their 
ease in times of moderate plenty, and in affluence in those of extra- 
ordinary cheapness. The high price of provisions during these ten 
years past has not in many parts of the kingdom been accompanied 
with any sensible rise in the money price of labour. It has, indeed, 
in some; owing probably more to the increase of the demand for 
labour than to that of the price of provisions. 

Thirdly, as the price of provisions varies more from year to year 
than the wages of labour, so on the other hand, the wages of labour 
vary more from place to place than the price of provisions. The 
prices of bread and butcher's meat are generally the same or very 
nearly the same through the greater part of the united kingdom. 
These and most other things which are sold by retail, the way in 
which the labouring poor buy all things, are generally fully as cheap 
or cheaper in great towns than in the remoter parts of the country, 
for reasons which I shall have occasion to explain hereafter. But the 
wages of labour in a great town and its neighbourhood are fre- 
quently a fourth or a fifth part, twenty or five-and-twenty per cent, 
higher than at a few miles distance. Eighteen pence a day may be 
reckoned the common price of labour in London and its neighbour- 
hood. At a few miles distance it falls to fourteen and fifteen pence. 
Ten p)ence may be reckoned its price in Edinburgh and its neigh- 
bourhood. At a few miles distance it falls to eight pence, the usual 
price of common labour through the greater part of the low country 
of Scotland, where it varies a good deal less than in England. Such 
a difference of prices, which it seems is not always sufficient to trans- 
port a man from one parish to another, would necessarily occasion 
so great a transportation of the most bulky commodities, not only 
from one parish to another, but from one end of the kingdom, almost 
from one end of the world to the other, as would soon reduce them 
more nearly to a level. After all that has been said of the levity and 
inconstancy of human nature, it appears evidently from exfjerience 
that a man is of all sorts of luggage the most difficult to be trans- 
ported. If the labouring poor, therefore, can maintain their families 
in those parts of the kingdom where the price of labour is lowest, 
they must be in affluence where it is highest. 

Fourthly, the variations in the price of labour not only do not 



WAGES OF LABOUR 77 

corres[x>nd either in place or time with those in the price of pro- 
visions, but they are frequently quite opposite. 

Grain, the food of the common people, is dearer in Scotland than 
in England, whence Scotland receives almost every year very large 
supplies. But English corn must be sold dearer in Scotland, the 
country to which it is brought, than in England, the country from 
which it comes; and in proportion to its quality it cannot be sold 
dearer in Scotland than the Scotch corn that comes to the same mar- 
ket in competition with it. The quaUty of grain depends chiefly 
upon the quantity of flour or meal which it yields at the mill, and 
in this respect English grain is so much superior to the Scotch, that, 
though often dearer in appearance, or in proportion to the measure 
of its bulk, it is generally cheaper in reality, or in proportion to its 
quality, or even to the measure of its weight. The price of labour, 
on the contrary, is dearer in England than in Scotland. If the labour- 
ing poor, therefore, can maintain their families in the one part of the 
united kingdom, they must be in affluence in the other. Oatmeal 
indeed supplies the common people in Scotland with the greatest 
and the best part of their food, which is in general much inferior 
to that of their neighbours of the same rank in England. This 
difference, however, in the mode of their subsistence is not the 
cause, but the effect, of the difference in their wages; though, by a 
strange misapprehension, I have frequently heard it represented as 
the cause. It is not because one man keeps a coach while his neigh- 
bour walks a-foot, that the one is rich and the other poor; but because 
the one is rich he keeps a coach, and because the other is poor he 
walks a-foot. 

During the course of the last century, taking one year with 
another, grain was dearer in both parts of the united kingdom than 
during that of the present. This is a matter of fact which cannot 
now admit of any reasonable doubt; and the proof of it is, if possible, 
still more decisive with regard to Scotland than with regard to Eng- 
land. It is in Scotland supported by the evidence of the public fiars, 
annual valuations made upon oath, according to the actual state 
of the markets, of all the different sorts of grain in every different 
county of Scotland. If such direct proof could require any collateral 
evidence to confirm it, I would observe that this has likewise been 



yS WEALTH OF NATIONS 

the case in France, and probably in most other parts of Europe. 
With regard to France there is the clearest proof. But though it is 
certain that in both parts of the united kingdom grain was some- 
what dearer in the last century than in the present, it is equally 
certain that labour was much cheaper. If the labouring poor, there- 
fore, could bring up their families then, they must be much more 
at their ease now. In the last century, the most usual day wages of 
common labour through the greater part of Scotland were sixpence 
in summer and fivepence in winter. Three shillings a week, the 
same price very nearly, still continues to be paid in some parts of 
the Highlands and Western Islands. Through the greater part of 
the low country the most usual wages of common labour are now 
eight-pence a day; ten-pence, sometimes a shilling about Edinburgh, 
in the counties which border upon England, probably on account of 
that neighbourhood, and in a few other places where there has lately 
been a considerable rise in the demand for labour, about Glasgow, 
Carron, Ayr-shire, &c. In England the improvements of agriculture, 
manufactures and commerce began much earlier than in Scotland. 
The demand for labour, and consequently its price, must necessarily 
have increased with those improvements. In the last century, ac- 
cordingly, as well as in the present, the wages of labour were higher 
in England than in Scotland, They have risen too considerably 
since that time, though, on account of the greater variety of wages 
paid there in different places, it is more difficult to ascertain how 
much. In 1614, the pay of a foot soldier was the same as in the 
present times, eight-pence a day. When it was first established it 
would naturally be regulated by the usual wages of common labour- 
ers, the rank of people from which foot soldiers are commonly 
drawn. Lord Chief Justice Hales, who wrote in the time of Charles 
11^ computes the necessary expence of a labourer's family, consisting 
of six persons, the father and mother, two children able to do some- 
thing, and two not able, at ten shillings a week, or twenty-six pounds 
a year. If they cannot earn this by their labour, they must make it 
up, he supposes, either by begging or stealing. He appears to have 
enquired very carefully into this subject. In 1688, Mr. Gregory King, 
whose skill in political arithmetic is so much extolled by Doctor 
Davenant, computed the ordinary income of labourers and out- 



WAGES OF LABOUR 79 

servants to be fifteen pounds a year to a family, which he supposed 
to consist, one with another, of three and a half persons. His calcu- 
lation, therefore, though different in appearance, corresponding very 
nearly at bottom with that of judge Hales. Both suppose the weekly 
expence of such families to be about twenty pence a head. Both the 
pecuniary income and expence of such families have increased con- 
siderably since that time through the greater part of the kingdom; 
in some places more, and in some less; though perhaps scarce any 
where so much as some exaggerated accounts of the present wages 
of labour have lately represented them to the public. The price of 
labour, it must be observed, cannot be ascertained very accurately 
any where, different prices being often paid at the same place and 
for the same sort of labour, not only according to the different abili- 
ties of the workmen, but according to the easiness or hardness of the 
masters. Where wages are not regulated by law, all that we can 
pretend to determine is what are the most usual; and experience 
seems to show that law can never regulate them properly, though it 
has often pretended to do so. 

The real recompence of labour, the real quantity of the necessaries 
and conveniencies of life which it can procure to the labourer, has, 
during the course of the present century, increased perhaps in a still 
greater proportion than its money price. Not only grain has become 
somewhat cheaper, but many other things, from which the indus- 
trious poor derive an agreeable and wholesome variety of food, have 
become a great deal cheaper. Potatoes, for example, do not at pres- 
ent, through the greater part of the kingdom, cost half the price 
which they used to do thirty or forty years ago. The same thing 
may be said of turnips, carrots, cabbages; things which were for- 
merly never raised but by the spade, but which are now commonly 
raised by the plough. All sort of garden stuff too has become cheaper. 
The greater part of apples and even of the onions consumed in 
Great Britain were in the last century imported from Flanders. The 
great improvements in the coarser manufactures of both linen and 
woolen cloth furnish the labourers with cheaper and better cloath- 
ing; and those in the manufactures of the coarser metals, with 
cheaper and better instruments of trade, as well as with many agree- 
able and convenient pieces of houshold furniture. Soap, salt, candles. 



8o WEALTH OF NATIONS 

leather, and fermented liquors, have, indeed, become a good deal 
dearer; chiefly from the taxes which have been laid upon them. 
The quantity of these, however, which the labouring poor are under 
any necessity of consuming, is so very small, that the increase in 
their price does not compensate the diminution in that of so many 
other things. The common complaint that luxury extends itself 
even to the lowest ranks of the people, and that the labouring poor 
will not now be contented with the same food, doathing and lodg- 
ing which satisfied them in former times, may convince us that it is 
not the money price of labour only, but its real recompence, which 
has augmented. 

Is this improvement in the circumstances of the lower ranks of 
the people to be regarded as an advantage or as an inconveniency 
to the society? The answer seems at first sight abundantly plain. 
Servants, labourers and workmen of different kinds, make up the 
far greater part of every great political society. But what improves 
the circumstances of the greater part can never be regarded as an 
inconveniency to the whole. No society can surely be flourishing 
and happy, of which the far greater part of the members are poor 
and miserable. It is but equity, besides, that they who feed, cloath 
and lodge the whole body of the people, should have such a share 
of the produce of their own labour as to be themselves tolerably well 
fed, doathed and lodged. 

Poverty, though it no doubt discourages, does not always prevent 
marriage. It seems even to be favourable to generation. A half- 
starved Highland woman frequently bears more than twenty chil- 
dren, while a pampered fine lady is often incapable of bearing any, 
and is generally exhausted by two or three. Barrenness, so frequent 
among women of fashion, is very rare among those of inferior sta- 
tion. Luxury in the fair sex, while it inflames perhaps the passion 
for enjoyment, seems always to weaken, and frequently to destroy 
altogether, the powers of generation. 

But poverty, though it does not prevent the generation, is extremely 
unfavourable to the rearing of children. The tender plant is pro- 
duced, but in so cold a soil, and so severe a climate, soon withers and 
dies. It is not uncommon, I have been frequently told, in the High- 
lands of Scotland for a mother who has borne twenty children not 



WAGES OF LABOUR 8 1 

to have two alive. Several officers of great experience have assured 
me, that so far from recruiting their regiment, they have never been 
able to supply it with drums and fifes from all the soldiers' children 
that were born in it. A greater number of fine children, however, 
is seldom seen any where than about a barrack of soldiers. Very 
few of them, it seems, arrive at the age of thirteen or fourteen. In 
some places one half the children born die before they are four 
years of age; in many places before they are seven; and in almost all 
places before they are nine or ten. This great mortality, however, 
will every where be found chiefly among the children of the com- 
mon people, who cannot afford to tend them with the same care as 
those of better station. Though their marriages are generally more 
fruitful than those of people of fashion, a smaller proportion of 
their children arrive at maturity. In foundling hospitals, and among 
the children brought up by parish charities, the mortality is still 
greater than among those of the common people. 

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

The liberal reward of labour, by enabling them to provide better 
for their children, and consequently to bring up a greater number, 
naturally tends to widen and extend those limits. It deserves to be 
remarked too, that it necessarily does this as nearly as possible in 
the proportion which the demand for labour requires. If this de- 
mand is continually increasing, the reward of labour must neces- 
sarily encourage in such a manner the marriage and multiplication 
of labourers, as may enable them to supply that continually increas- 
ing demand by a continually increasing population. If the reward 
should at any time be less than what was requisite for this purpose, 
the deficiency of hands would soon raise it; and if it should at any 
time be more, their excessive multiplication would soon lower it to 
this necessary rate. The market would be so much under-stocked 
with labour in the one case, and so much over-stocked in the other. 



82 WEALTH OF NATIONS 

as would soon force back its price to that proper rate which the 
circumstances of the society required. It is in this manner that 
the demand for men, like that for any other commodity, necessarily 
regulates the production of men; quickens it when it goes on too 
slowly, and stops it when it advances too fast. It is this demand 
which regulates and determines the state of propagation in all the 
different countries of the world, in North America, in Europe, and 
in China; which renders it rapidly progressive in the first, slow and 
gradual in the second, and altogether stationary in the last. 

The wear and tear of a slave, it has been said, is at the exp)ence 
of his master; but that of a free servant is at his own expxjnce. The 
wear and tear of the latter, however, is, in reality, as much at the 
expence of his master as that of the former. The wages paid to 
journeymen and servants of every kind must be such as may enable 
them, one with another, to continue the race of journeymen and 
servants, according as the increasing, diminishing, or stationary de- 
mand of the society may happen to require. But though the wear 
and tear of a free servant be equally at the expence of his master, 
it generally costs him much less than that of a slave. The fund 
destined for replacing or repairing, if I may say so, the wear and 
tear of the slave, is commonly managed by a negligent master or 
careless overseer. That destined for performing the same office with 
regard to the free man, is managed by the free man himself. The 
disorders which generally prevail in the economy of the rich, natu- 
rally introduce themselves into the management of the former: The 
strict frugality and parsimonious attention of the poor as naturally 
establish themselves in that of the latter. Under such different 
management, the same purpose must require very different degrees 
of expence to execute it. It appears, accordingly, from the experience 
of all ages and nations, I believe, that the work done by freemen 
comes cheaper in the end than that performed by slaves. It is found 
to do so even at Boston, New York, and Philadelphia, where the 
wages of common labour are so very high. 

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



WAGES OF LABOUR 83 

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

The liberal reward of labour, as it encourages the propagation, 
so it increases the industry of the common people. The wages of 
labour are the encouragement of industry, which, like every other 
human quality, improves in proportion to the encouragement it 
receives. A plentiful subsistence increases the bodily strength of the 
labourer, and the comfortable hope of bettering his condition, and of 
ending his days perhaps in ease and plenty, animates him to exert 
that strength to the utmost. Where wages are high, accordingly, 
we shall always find the workmen more active, diligent, and expe- 
ditious, than where they are low; in England, for example, than in 
Scodand; in the neighbourhood of great towns, than in remote 
country places. Some workmen, indeed, when they can earn in four 
days what will maintain them through the week, will be idle the 
other three. This, however, is by no means the case with the greater 
part. Workmen, on the contrary, when they are liberally paid by 
the piece, are very apt to over-work themselves, and to ruin their 
health and constitution in a few years. A carpenter in London, and 
in some other places, is not supposed to last in his utmost vigour 
above eight years. Something of the same kind happens in many 
other trades, in which the workmen are paid by the piece; as they 
generally are in manufactures, and even in country labour, wherever 
wages are higher than ordinary. Almost every class of artificers is 
subject to some peculiar infirmity occasioned by excessive application 
to their pecuHar species of work. Ramuzzini, an eminent Italian 
physician, has written a particular book concerning such disease. 
We do not reckon our soldiers the most industrious set of people 
among us. Yet when soldiers have been employed in some particular 
sorts of work, and liberally paid by the piece, their officers have £re- 



84 WEALTH OF NATIONS 

quently been obliged to stipulate with the undertaker, that they 
should not be allowed to earn above a certain sum every day, ac- 
cording to the rate at which they were paid. Till this stipulation 
was made, mutual emulation and the desire of greater gain, fre- 
quently prompted them to over-work themselves, and to hurt their 
health by excessive labour. Excessive application during four days 
of the week, is frequently the real cause of the idleness of the other 
three, so much and so loudly complained of. Great labour, either 
of mind or body, continued for several days together, is in most 
men naturally followed by a great desire of relaxation, which, if 
not restrained by force or by some strong necessity, is almost irre- 
sistible. It is the call of nature, which requires to be relieved by 
some indulgence, sometimes of ease only, but sometimes too of 
dissipation and diversion. If it is not complied with, the conse- 
quences are often dangerous, and sometimes fatal, and such as 
almost always, sooner or later, bring on the pecuHar infirmity of 
the trade. If masters would always listen to the dictates of reason 
and humanity, they have frequently occasion rather to moderate, 
than to animate the application of many of their workmen. It will 
be found, I believe, in every sort of trade, that the man who works 
so moderately, as to be able to work constantly, not only preserves 
his health the longest, but, in the course of the year, executes the 
greatest quantity of work. 

In cheap years, it is pretended, workmen are generally more idle, 
and in dear ones more industrious than ordinary. A plentiful sub- 
sistence therefore, it has been concluded, relaxes, and a scanty one 
quickens their industry. That a little more plenty than ordinary 
may render some workmen idle, cannot well be doubted; but that 
it should have this effect upon the greater part, or that men in 
general should work better when they are ill fed than when they 
are well fed, when they are disheartened than when they are in 
good spirits, when they are frequently sick than when they are 
generally in good health, seems not very probable. Years of dearth, 
it is to be observed, are generally among the common people years 
of sickness and mortality, which cannot fail to diminish the prod- 
uce of their industry. 

In years of plenty, servants frequently leave their masters and 



WAGES OF LABOUR 85 

trust their subsistence to what they can make by their own industry. 
But the same cheapness of provisions, by increasing the fund which 
is destined for the maintenance of servants, encourages masters, 
farmers esjaecially, to employ a greater number. Farmers upon such 
occasions expect more profit from their corn by maintaining a few 
more labouring servants, than by selling it at a low price in the 
market. The demand for servants increases, while the number of 
those who offer to supply that demand diminishes. The price of 
labour, therefore, frequently rises in cheap years. 

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

Masters of all sorts, therefore, frequently make better bargains 
with their servants in dear than in cheap years, and find them more 
humble and dependent in the former than in the latter. They 
naturally, therefore, commend the former as more favourable to 
industry. Landlords and farmers, besides, two of the largest classes 
of masters, have another reason for being pleased with dear years. 
The rents of the one and the profits of the other depend very much 
upon the price of provisions. Nothing can be more absurd, how- 
ever, than to imagine that men in general should work less when 
they work for themselves, than when they work for other people. 
A poor independent workman will generally be more industrious 
than even a journeyman who works by the piece. The one enjoys 
the whole produce of his own industry; the other shares it with 
his master. The one, in his separate indef)endent state, is less liable 
to the temptations of bad company, which in large manufactories 
so frequently ruin the morals of the other. The superiority of the 
independent workman over those servants who are hired by the 



86 WEALTH OF NATIONS 

month or by the year, and whose wages and maintenance are the 
same whether they do much or do Httle, is Ukely to be still greater. 
Cheap years tend to increase the proportion of independent work- 
men to journeymen and servants of all kinds, and dear years to 
diminish it. 

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

The manufacture of linen in Scotland, and that of coarse woollens 
in the west riding of Yorkshire, are growing manufactures, of which 
the produce is generally, though with some variations, increasing 
both in quantity and value. Upon examining, however, the accounts 
which have been published of their annual produce, I have not been 
able to observe that its variations have had any sensible connection 
with the dearness or cheapness of the seasons. In 1740, a year of 
great scarcity, both manufactures, indeed, appear to have declined 
very considerably. But in 1756, another year of great scarcity, the 
Scotch manufacture made more than ordinary advances. The York- 
shire manufacture, indeed, declined, and its produce did not rise 
to what it had been in 1755 till 1766, after the re[5eal of the American 
stamp act. In that and the. following year it greatly exceeded what 
it had ever been before, and it has continued to advance ever since. 

The produce of all great manufactures for distant sale must neces- 
sarily depend, not so much upon the dearness or cheapness of the 
seasons in the countries where they are carried on, as upon the cir- 



WAGES OF LABOUR 87 

cumstances which afTect the demand in the countries where they 
are consumed; upon peace or war, upon the prosperity or declension 
of other rival manufactures, and upon the good or bad humour of 
their principal customers. A great part of the extraordinary work, 
besides, which is probably done in cheap years, never enters the 
public registers of manufactures. The men servants who leave their 
masters become independent labourers. The women return to their 
parents, and commonly spin in order to make cloaths for themselves 
and their families. Even the independent workmen do not always 
work for public sale, but are employed by some of their neighbours 
in manufactures for family use. The produce of their labour, there- 
fore, frequently makes no figure in those public registers of which 
the records are sometimes published with so much parade, and from 
which our merchants and manufacturers would often vainly pretend 
to announce the prosperity or declension of the greatest empires. 

Though the variations in the price of labour, not only do not 
always correspond with those in the price of provisions, but are 
frequently quite opposite, we must not, upon this account, imagine 
that the price of provisions has no influence upon that of labour. 
The money price of labour is necessarily regulated by two circum- 
stances: the demand for labour, and the price of the necessaries and 
conveniencies of life. The demand for labour, according as it hap- 
pens to be increasing, stationary, or decUning, or to require an 
increasing, stationary, or declining population, determines the quan- 
tity of the necessaries and conveniencies of life which must be given 
to the labourer; and the money price of labour is determined by what 
is requisite for purchasing this quantity. Though the money price 
of labour, therefore, is sometimes high where the price of provisions 
is low, it would be still higher, the demand continuing the same, 
if the price of provisions was high. 

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

In a year of sudden and extraordinary plenty, there are funds in 
the hands o^ many of the employers of industry, sufficient to main- 
tain and employ a greater number of industrious people than had 



88 WEALTH OF NATIONS 

been employed the year before; and this extraordinary number can- 
not always be had. Those masters, therefore, who want more work- 
men, bid against one another, in order to get them, which some- 
times raises both the real and the money price of their labour. 

The contrary of this happens in a year of sudden and extraordinary 
scarcity. The funds destined for employing industry are less than 
they had been the year before. A considerable number of people 
are thrown out of employment, who bid against one another, in 
order to get it, which sometimes lowers both the real and the money 
price of labour. In 1740, a year of extraordinary scarcity, many 
people were willing to work for bare subsistence. In the succeeding 
years of plenty, it was more difficult to get labourers and servants. 

The scarcity of a dear year, by diminishing the demand for labour, 
tends to lower its price, as the high price of provisions tends to 
raise it. The plenty of a cheap year, on the contrary, by increasing 
the demand, tends to raise the price of labour, as the cheapness of 
provisions tends to lower it. In the ordinary variations of the price 
of provisions, those two opposite causes seem to counterbalance one 
another; which is probably in part the reason why the wages of 
labour are every-where so much more steady and permanent than 
the price of provisions. 

The increase in the wages of labour necessarily increases the price 
of many commodities, by increasing that part of it which resolves 
itself into wages, and so far tends to diminish their consumption 
both at home and abroad. The same cause, however, which raises 
the wages of labour, the increase of stock, tends to increase its pro- 
ductive powers, and to make a smaller quantity of labour produce 
a greater quantity of work. The owner of the stock which employs 
a great number of labourers, necessarily endeavours, for his own 
advantage, to make such a proper division and distribution of em- 
ployment, that they may be enabled to produce the greatest quantity 
of work possible. For the same reason, he endeavours to supply 
them with the best machinery which either he or they can think of. 
What takes place among the labourers in a particular workhouse, 
takes place, for the same reason, among those of a great society. The 
greater their number, the more they naturally divide themselves into 
different classes and subdivisions of employment. More heads are 



WAGES OF LABOtm 89 

occupied in inventing the most proper machinery for executing the 
work of each, and it is, therefore, more Ukely to be invented. There 
are many commodities, therefore, which, in consequence of these 
improvements, come to be produced by so much less labour than 
before, that the increase of its price is more than compensated by 
the diminution of its quantity. 



CHAPTER IX 
Of the Profits of Stock 

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

The increase of stock, which raises wages, tends to lower profit. 
When the stocks of many rich merchants are turned into the same 
trade, their mutual competition naturally tends to lower its profit; 
and when there is a like increase of stock in all the different trades 
carried on in the same society, the same competition must produce 
the same effect in them all. 

It is not easy, it has already been observed, to ascertain what are 
the average wages of labour even in a particular place, and at a par- 
ticular time. We can, even in this case, seldom determine more than 
what are the most usual wages. But even this can seldom be done 
with regard to the profits of stock. Profit is so very fluctuating, that 
the person who carries on a particular trade cannot always tell you 
himself what is the average of his annual profit. It is affected, not 
only by every variation of price in the commodities which he deals 
in, but by the good or bad fortune both of his rivals and of his cus- 
tomers, and by a thousand other accidents to which goods when car- 
ried either by sea or by land, or even when stored in a warehouse, 
are liable. It varies, therefore, not only from year to year, but from 
day to day, and almost from hour to hour. To ascertain what is the 
average profit of all the different trades carried on in a great king- 
dom, must be much more difficult; and to judge of what it may have 
been formerly, or in remote periods of time, with any degree of pre- 
cision, must be altogether impossible. 

But though it may be impossible to determine with any degree of 
precision, what are or were the average profits of stock, either in the 
present, or in ancient times, some notion may be formed of them 

90 



PROFITS OF STOCK 9I 

from the interest of money. It may be laid down as a maxim, that 
wherever a great deal can be made by the use of money, a great deal 
will commonly be given for the use of it; and that wherever little 
can be made by it, less will commonly be given for it. According, 
therefore, as the usual market rate of interest varies in any country, 
we may be assured that the ordinary profits of stock must vary with 
it, must sink as it sinks, and rise as it rises. The progress of interest, 
therefore, may lead us to form some notion of the progress of profit. 

By the 37th of Henry VIII. all interest above ten per cent, was 
declared unlawful. More, it seems, had sometimes been taken before 
that. In the reign of Edward VI. religious zeal prohibited all in- 
terest. This prohibition, however, like all others of the same kind, is 
said to have produced no effect, and probably rather increased than 
diminished the evil of usury. The statute of Henry VIII. was re- 
vived by the 13th of Elizabeth, cap. 8. and ten per cent, continued to 
be the legal rate of interest till the 21st of James I. when it was re- 
striaed to eight per cent. It was reduced to six per cent, soon after 
the restoration, and by the 12th of Queen Anne, to five per cent. All 
these different statutory regulations seem to have been made with 
great propriety. They seem to have followed and not to have gone 
before the market rate of interest, or the rate at which people of good 
credit usually borrowed. Since the time of Queen Anne, five per 
cent, seems to have been rather above than below the market rate. 
Before the late war, the government borrowed at three per cent.; 
and f)eople of good credit in the capital, and in many other parts of 
the kingdom, at three and a half, four, and four and a half per cent. 

Since the time of Henry VIII. the wealth and revenue of the coun- 
try have been continually advancing, and, in the course of their 
progress, their pace seems rather to have been gradually accelerated 
than retarded. They seem, not only to have been going on, but to 
have been going on faster and faster. The wages of labour have been 
continually increasing during the same period, and in the greater 
part of the different branches of trade and manufacture the profits 
of stock have been diminishing. 

It generally requires a greater stock to carry on any sort of trade 
in a great town than in a country village. The great stocks em- 
ployed in every branch of trade, and the number of rich competitors. 



92 WEALTH OF NATIONS 

generally reduce the rate of profit in the former below what it is in 
the latter. But the wages of labour are generally higher in a great 
town than in a country village. In a thriving town the people who 
have great stocks to employ, frequently cannot get the number of 
workmen they want, and therefore bid against one another in order 
to get as many as they can, which raises the wages of labour, and 
lowers the profits of stock. In the remote parts of the country there 
is frequently not stock sufficient to employ all the people, who 
therefore bid against one another in order to get employment, which 
lowers the wages of labour, and raises the profits of stock. 

In Scotland, though the legal rate of interest is the same as in Eng- 
land, the market rate is rather higher. People of the best credit there 
seldom borrow under five per cent. Even private bankers in Edin- 
burgh give four per cent, upon their promissory notes, of which pay- 
ment either in whole or in part may be demanded at pleasure. Pri- 
vate bankers in London give no interest for the money which is de- 
posited with them. There are few trades which cannot be carried on 
with a smaller stock in Scodand than in England. The common rate 
of profit, therefore, must be somewhat greater. The wages of labour, 
it has already been observed, are lower in Scodand than in England. 
The country too is not only much poorer, but the steps by which it 
advances to a better condition, for it is evidently advancing, seem 
to be much slower and more tardy. 

The legal rate of interest in France has not, during the course of 
the present century, been always regulated by the market rate. In 
1720 interest was reduced from the twentieth to the fiftieth penny, 
or from five to two per cent. In 1724 it was raised to the thirtieth 
penny, or to 3 1-3 per cent. In 1725 it was again raised to the twen- 
tieth penny, or to five per cent. In 1766, during the administration 
of Mr. Laverdy, it was reduced to the twenty-fifth penny, or to four 
per cent. The Abbe Terray raised it afterwards to the old rate of 
five per cent. The supposed purpose of many of those violent reduc- 
tions of interest was to prepare the way for reducing that of the pub- 
lic debts; a purpose which has sometimes been executed. France is 
perhaps in the present times not so rich a country as England; and 
though the legal rate of interest has in France frequently been lower 
than in England, the market rate has generally been higher; for 



PROFITS OF STOCK 93 

there, as in other countries, they have several very safe and easy 
methods of evading the law. The profits of trade, I have been assured 
by British merchants who had traded in both countries, are higher 
in France than in England; and it is no doubt upon this account 
that many British subjects chuse rather to employ their capitals in a 
country where trade is in disgrace, than in one where it is highly 
respected. The wages of labour are lower in France than in Eng- 
land. When you go from Scotland to England, the difference which 
you may remark between the dress and countenance of the common 
people in the one country and in the other, sufficiently indicates the 
difference in their condition. The contrast is still greater when you 
return from France. France, though no doubt a richer country than 
Scodand, seems not to be going forward so fast. It is a common and 
even a popular opinion in the country, that it is going backwards; 
an opinion which, I apprehend, is ill-founded even with regard to 
France, but which nobody can possibly entertain with regard to Scot- 
land, who sees the country now, and who saw it twenty or thirty 
years ago. 

The province of Holland, on the other hand, in proportion to the 
extent of its territory and the number of its people, is a richer coun- 
try than England. The government there borrow at two per cent., 
and private people of good credit at three. The wages of labour are 
said to be higher in Holland than in England, and the Dutch, it is 
well known, trade upon lower profits than any people in Europe. 
The trade of Holland, it has been pretended by some people, is de- 
caying, and it may perhaps be true that some particular branches of it 
are so. But these symptoms seem to indicate sufficiendy that there 
is no general decay. When profit diminishes, merchants are very 
apt to complain that trade decays; though the diminution of profit is 
the natural effect of its prosperity, or of a greater stock being em- 
ployed in it than before. During the late war the Dutch gained the 
whole carrying trade of France, of which they still retain a very 
large share. The great property which they possess both in the 
French and English funds, about forty millions, it is said, in the lat- 
ter (in which I suspect, however, there is a considerable exaggera- 
tion) ; the great sums which they lend to private people in countries 
where the rate of interest is higher than in their own, are circum- 



94 WEALTH OF NATIONS 

stances which no doubt demonstrate the redundancy of their stock, 
or that it has increased beyond what they can employ with tolerable 
profit in the proper business of their own country: but they do not 
demonstrate that that business has decreased. As the capital of a 
private man, though acquired by a particular trade, may increase 
beyond what he can employ in it, and yet that trade continue to in- 
crease too; so may likewise the capital of a great nation. 

In our North American and West Indian colonies, not only the 
wages of labour, but the interest of money, and consequently the 
profits of stock, are higher than in England. In the different colonies 
both the legal and the market rate of interest run from six to eight per 
cent. High wages of labour and high profits of stock, however, are 
things, {jerhaps, which scarce ever go together, except in the f)eculiar 
circumstances of new colonies. A new colony must always for some 
time be more understocked in proportion to the extent of its territory, 
and more under-peopled in proportion to the extent of its stock, than 
the greater part of other countries. They have more land than they 
have stock to cultivate. What they have, therefore, is applied to the 
cultivation only of what is most fertile and most favourably situated, 
the land near the sea shore, and along the banks of navigable rivers. 
Such land too is frequently purchased at a price below the value even 
of its natural produce. Stock employed in the purchase and improve- 
ment of such lands must yield a very large profit, and consequently 
afford to pay a very large interest. Its rapid accumulation in so 
profitable an employment enables the planter to increase the num- 
ber of his hands faster than he can find them in a new settlement. 
Those whom he can find, therefore, are very liberally rewarded. As 
the colony increases, the profits of stock gradually diminish. When 
the most fertile and best situated lands have been all occupied, less 
profit can be made by the cultivation of what is inferior both in soil 
and situation, and less interest can be afforded for the stock which 
is so employed. In the greater part of our colonies, accordingly, both 
the legal and the market rate of interest have been considerably re- 
duced during the course of the present century. As riches, improve- 
ment, and population have increased, interest has declined. The 
wages of labour do not sink with the profits of stock. The demand 
for labour increases with the increase of stock whatever be its profits; 



PROFITS OF STOCK 95 

and after these are diminished, stock may not only continue to 
increase, but to increase much faster than before. It is with industri- 
ous nations who are advancing in the acquisition of riches, as with 
industrious individuals. A great stock, though with small profits, 
generally increases faster than a small stock with great profits. 
Money, says the proverb, makes money. When you have got a litde, 
it is often easy to get more. The great difficulty is to get that little. 
The connection between the increase of stock and that of industry, or 
of the demand for useful labour, has pardy been explained already, 
but will be explained more fully hereafter in treating of the accu- 
mulation of stock. 

The acquisition of new territory, or of new branches of trade, may 
sometimes raise the profits of stock, and with them the interest of 
money, even in a country which is fast advancing in the acquisition 
of riches. The stock of the country not being sufficient for the whole 
accession of business, which such acquisitions present to the different 
people among whom it is divided, is applied to those particular 
branches only which afford the greatest profit. Part of what had 
before been employed in other trades, is necessarily withdrawn from 
them, and turned into some of the new and more profitable ones. 
In all those old trades, therefore, the comf)etition comes to be less 
than before. The market comes to be less fully supplied with many 
different sorts of goods. Their price necessarily rises more or less, 
and yields a greater profit to those who deal in them, who can, there- 
fore, afford to borrow at a higher interest. For some time after the 
conclusion of the late war, not only private people of the best credit, 
but some of the greatest companies in Lx)ndon, commonly borrowed 
at five per cent, who before that had not been used to pay more than 
four, and four and a half per cent. The great accession both of ter- 
ritory and trade, by our acquisitions in North America and the West 
Indies, will sufficiently account for this, without supposing any 
diminution in the capital stock of the society. So great an accession of 
new business to be carried on by the old stock, must necessarily have 
diminished the quantity employed in a great number of particular 
branches, in which the comp)etition being less, the profits must have 
been greater. I shall hereafter have occasion to mention the rea- 
sons which dispose me to believe that the capital stock of Great 



96 WEALTH OF NATIONS 

Britain was not diminished even by the enormous expence of the 
late war. 

The diminution of the capital stock of the society, or of the funds 
destined for the maintenance of industry, however, as it lowers the 
wages of labour, so it raises the profits of stock, and consequendy the 
interest of money. By the wages of labour being lowered, the owners 
of what stock remains in the society can bring their goods at less 
expence to market than before, and less stock being employed in sup- 
plying the market than before, they can sell them dearer. Their 
goods cost them less, and they get more for them. Their profits, there- 
fore, being augmented at both ends, can well afford a large interest. 
The great fortunes so suddenly and so easily acquired in Bengal and 
the other British settlements in the East Indies, may satisfy us that, 
as the wages of labour are very low, so the profits of stock are very 
high in those ruined countries. The interest of money is propor- 
tionably so. In Bengal, money is frequendy lent to the farmers at 
forty, fifty, and sixty per cent, and the succeeding crop is mortgaged 
for the payment. As the profits which can afford such an interest 
must eat up almost the whole rent of the landlord, so such enormous 
usury must in its turn eat up the greater part of those profits. Be- 
fore the fall of the Roman republic, a usury of the same kind seems 
to have been common in the provinces, under the ruinous administra- 
tion of their proconsuls. The virtuous Brutus lent money in Cyprus 
at eight-and-forty f)er cent, as we learn from the letters of Cicero. 

In a country which had acquired that full complement of riches 
which the nature of its soil and climate, and its situation with respect 
to other countries, allowed it to acquire; which could, therefore, 
advance no further, and which was not going backwards, both the 
wages of labour and the profits of stock would probably be very low. 
In a country fully peopled in proportion to what either its territory 
could maintain or its stock employ, the competition for employment 
would necessarily be so great as to reduce the wages of labour to what 
was barely sufficient to keep up the number of labourers, and, the 
country being already fully peopled, that number could never be 
augmented. In a country fully stocked in proportion to all the busi- 
ness it had to transact, as great a quantity of stock would be employed 
in every particular branch as the nature and extent of the trade 



PROFITS OF STOCK 97 

would admit. The competition, therefore, would every-where be as 
great, and consequently the ordinary profit as low as possible. 

But perhaps no country has ever yet arrived at this degree of opu- 
lence. China seems to have been long stationary, and had probably 
long ago acquired that full complement of riches which is consistent 
with the nature of its laws and institutions. But this complement 
may be much inferior to what, with other laws and institutions, the 
nature of its soil, climate, and situation might admit of. A country 
which neglects or despises foreign commerce, and which admits the 
vessels of foreign nations into one or two of its ports only, cannot 
transact the same quantity of business which it might do with differ- 
ent laws and institutions. In a country too, where, though the rich 
or the owners of large capitals enjoy a good deal of security, the poor 
or the owners of small capitals enjoy scarce any, but are liable, under 
the pretence of justice, to be pillaged and plundered at any time by 
the inferior mandarines, the quantity of stock employed in all the 
different branches of business transacted within it, can never be equal 
to what the nature and extent of that business might admit. In every 
different branch, the oppression of the poor must establish the mo- 
nopoly of the rich, who, by engrossing the whole trade to themselves, 
will be able to make very large profits. Twelve per cent, accordingly 
is said to be the common interest of money in China, and the ordi- 
nary profits of stock must be sufficient to afford this large interest. 

A defect in the law may sometimes raise the rate of interest con- 
siderably above what the condition of the country, as to wealth or 
poverty, would require. When the law does not enforce the per- 
formance of contracts, it puts all borrowers nearly upon the same 
footing with bankrupts or people of doubtful credit in better regu- 
lated countries. The uncertainty of recovering his money makes the 
lender exact the same usurious interest which is usually required 
from bankrupts. Among the barbarous nations who over-run the 
western provinces of the Roman empire, the performance of con- 
tracts was left for many ages to the faith of the contracting parties. 
The courts of justice of their kings seldom intermeddled in it. The 
high rate of interest which took place in those ancient times may 
perhaps be partly accounted for from this cause. 

When the law prohibits interest altogether, it does not prevent it. 



98 WEALTH OF NATIONS 

Many people must borrow, and nobody will lend without such a 
consideration for the use of their money as is suitable, not only to 
what can be made by the use of it, but to the difficulty and danger 
of evading the law. The high rate of interest among all Mahometan 
nations is accounted for by Mr. Montesquieu, not from their poverty, 
but pardy from this, and pardy from the difficulty of recovering the 
money. 

The lowest ordinary rate of profit must always be something 
more than what is sufficient to compjensate the occasional losses to 
which every employment of stock is exposed. It is this surplus only 
which is neat or clear profit. What is called gross profit comprehends 
frequently, not only this surplus, but what is retained for compen- 
sating such extraordinary losses. The interest which the borrower 
can afford to pay is in proportion to the clear profit only. 

The lowest ordinary rate of interest must, in the same manner, be 
something more than sufficient to compensate the occasional losses 
to which lending, even with tolerable prudence, is exposed. Were it 
not more, charity or friendship could be the only motives for lending. 

In a country which had acquired its full complement of riches, 
where in every particular branch of business there was the greatest 
quantity of stock that could be employed in it, as the ordinary rate 
of clear profit would be very small, so the usual market rate of inter- 
est which could be afforded out of it, would be so low as to render 
it impossible for any but the very wealthiest people to live upon the 
interest of their money. All people of small or middling fortunes 
would be obliged to superintend themselves the employment of their 
own stocks. It would be necessary that almost every man should be 
a man of business, or engage in some sort of trade. The province of 
Holland seems to be approaching near to this state. It is there un- 
fashionable not to be a man of business. Necessity makes it usual for 
almost every man to be so, and custom every where regulates fashion. 
As it is ridiculous not to dress, so is it, in some measure, not to be 
employed, like other p)eople. As a man of a civil profession seems 
awkward in a camp or a garrison, and is even in some danger of 
being despised there, so does an idle man among men of business. 

The highest ordinary rate of profit may be such as, in the price 
of the greater part of commodities, eats up the whole of what should 



PROFITS OF STOCK 99 

go to the rent of the land, and leaves only what is sufficient to pay 
the labour of preparing and bringing them to market, according to 
the lowest rate at which labour can any-where be paid, the bare sub- 
sistence of the labourer. The workman must always have been fed in 
some way or other while he was about the work; but the landlord 
may not always have been paid. The profits of the trade which the 
servants of the East India Company carry on in Bengal may not 
perhaps be very far from this rate. 

The proportion which the usual market rate of interest ought to 
bear to the ordinary rate of clear profit, necessarily varies as profit 
rises or falls. Double interest is in Great Britain reckoned, what the 
merchants call, a good, moderate, reasonable profit; terms which I 
apprehend mean no more than a common and usual profit. In a 
country where the ordinary rate of clear profit is eight or ten per 
cent., it may be reasonable that one half of it should go to interest, 
wherever business is carried on with borrowed money. The stock 
is at the risk of the borrower, who, as it were, insures it to the lender; 
and four or five p)er cent, may, in the greater part of trades, be both 
a sufficient profit upon the risk of this insurance, and a sufficient 
recompence for the trouble of employing the stock. But the propor- 
tion between interest and clear profit might not be the same in coun- 
tries where the ordinary rate of profit was either a good deal lower, 
or a good deal higher. If it were a good deal lower, one half of it 
perhaps could not be afforded for interest; and more might be 
afforded if it were a good deal higher. 

In countries which are fast advancing to riches, the low rate of 
profit may, in the price of many commodities, compensate the high 
wages of labour, and enable those countries to sell as cheap as their 
less thriving neighbours, among whom the wages of labour may be 
lower. 

In reality high profits tend much more to raise the price of work 
than high wages. If in the linen manufacture, for example, the wages 
of the different working people, the flax-dressers, the spinners, the 
weavers, &c. should, all of them, be advanced two pence a day; it 
would be necessary to heighten the price of a piece of linen only by 
a number of two pences equal to the number of p)eople that had 
been employed about it, multiplied by the number of days during 



lOO WEALTH OF NATIONS 

which they had been so employed. That part of the price of the 
commodity which resolved itself into wages would, through all the 
different stages of the manufacture, rise only in arithmetical pro- 
portion to this rise of wages. But if the profits of all the different 
employers of those working people should be raised five per cent, 
that part of the price of the commodity which resolved itself into 
profit, would, through all the different stages of the manufacture, rise 
in geometrical proportion to this rise of profit. The employer of the 
flax-dressers would in selling his flax require an additional five per 
cent, upon the whole value of the materials and wages would be 
advanced to his workmen. The employer of the spinners would re- 
quire an additional five per cent, both upon the advanced price of 
the flax and upon the wages of the spinners. And the employer of 
the weavers would require a like five per cent, both upon the ad- 
vanced price of the linen yarn and upon the wages of the weavers. 
In raising the price of commodities the rise of wages operates in the 
same manner as simple interest does in the accumulation of debt. 
The rise of profit operates like compound interest. Our merchants 
and master-manufacturers complain much of the bad effects of high 
wages in raising the price, and thereby lessening the sale of their 
goods both at home and abroad. They say nothing concerning the 
bad effects of high profits. They are silent with regard to the p)erni- 
cious effects of their own gains. They complain only of those of 
other people. 



CHAPTER X 

Of Wages and Profit in the Different Employments of 
Labour and Stock 

THE whole of the advantages and disadvantages of the dif- 
ferent employments of labour and stock must, in the same 
neighbourhood, be either perfectly equal or continually 
tending to equality. If in the same neighbourhood, there was any 
employment evidently either more or less advantageous than the rest, 
so many people would crowd into it in the one case, and so many 
would desert it in the other, that its advantages would soon return 
to the level of other employments. This at least would be the case 
in a society where things were left to follow their natural course, 
where there was perfect liberty, and where every man was perfecdy 
free both to chuse what occupation he thought proper, and to change 
it as often as he thought proper. Every man's interest would prompt 
him to seek the advantageous, and to shun the disadvantageous 
employment. 

Pecuniary wages and profit, indeed, are every-where in Europe 
extremely different according to the different employments of labour 
and stock. But this difference arises partly from certain circumstances 
in the employments themselves, which, either really, or at least in 
the imaginations of men, make up for a small pecuniary gain in some, 
and counterbalance a great one in others; and pardy from the policy 
of Europe, which no-where leaves things at perfect liberty. 

The particular consideration of those circumstances and of that 
policy will divide this chapter into two parts. 



102 WEALTH OF NATIONS 



PARTI 



Inequalities arising from the Nature of the Employments 
themselves 

The five following are the principal circumstances which, so far 
as I have been able to observe, make up for a small pecuniary gain 
in some employments, and counter-balance a great one in others; 
first, the agreeableness or disagreeableness of the employments them- 
selves; secondly, the easiness and cheapness, or the difficulty and ex- 
pence of learning them; thirdly, the constancy or inconstancy of 
employment in them; fourthly, the small or great trust which must 
be reposed in those who exercise them; and fifthly, the probability or 
improbability of success in them. 

First, The wages of labour vary with the ease or hardship, the 
cleanliness or dirtiness, the honourableness or dishonourableness of 
the employment. Thus in most places, take the year round, a jour- 
neyman taylor earns less than a journeyman weaver. His work is 
much easier. A journeyman weaver earns less than a journeyman 
smith. His work is not always easier, but it is much cleanlier. A 
journeyman blacksmith, though an artificer, seldom earns so much 
in twelve hours as a collier, who is only a labourer, does in eight. 
His work is not quite so dirty, is less dangerous, and is carried on in 
day-light, and above ground. Honour makes a great part of the 
reward of all honourable professions. In point of pecuniary gain, 
all things considered, they are generally under-recompensed, as I 
shall endeavour to show by and by. Disgrace has the contrary effea. 
The trade of the butcher is a brutal and an odious business; but it 
is in most places more profitable than the greater part of common 
trades. The most detestable of all employments, that of public exe- 
cutioner, is, in proportion to the quantity of work done, better paid 
than any common trade whatever. 

Hunting and fishing, the most important employments of man- 
kind in the rude state of society, become in its advanced state their 
most agreeable amusements, and they pursue for pleasure what they 
once followed from necessity. In the advanced state of society, there- 
fore, they are all very poor people who follow as a trade, what other 



NATURAL INEQUALITIES IO3 

people pursue as a pastime. Fishermen have been so since the time 
of Theocritus. A poacher is every-where a very poor man in Great 
Britain. In countries where the rigour of the law suffers no poachers, 
the Ucensed hunter is not in a much better condition. The natural 
taste for those employments makes more people follow them than can 
live comfortably by them, and the produce of their labour, in pro- 
jxjrtion to its quantity, comes always too cheap to market to afford 
anything but the most scanty subsistence to the labourers. 

Disagreeableness and disgrace afifect the profits of stock in the same 
manner as the wages of labour. The keeper of an inn or tavern, 
who is never master of his own house, and who is exposed to the bru- 
tality of every drunkard, exercises neither a very agreeable nor a very 
creditable business. But there is scarce any common trade in which 
a small stock yields so great a profit. 

Secondly, The wages of labour vary with the easiness and cheap- 
ness, or the difficulty and expence of learning the business. 

When any expensive machine is erected, the extraordinary work 
to be performed by it before it is worn out, it must be expected, will 
replace the capital laid out upon it, with at least the ordinary profits. 
A man educated at the expence of much labour and time to any of 
those employments which require extraordinary dexterity and skill, 
may be compared to one of those expensive machines. The work 
which he learns to perform, it must be expected, over and above the 
usual wages of common labour, will replace to him the whole ex- 
pence of his education, with at least the ordinary profits of an equally 
valuable capital. It must do this too in a reasonable time, regard 
being had to the very uncertain duration of human life, in the same 
manner as to the more certain duration of the machine. 

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

The policy of Europe considers the labour of all mechanics, arti- 
ficers, and manufacturers, as skilled labour; and that of all country 
labourers as common labour. It seems to suppose that of the former 
to be of a more nice and delicate nature than that of the latter. It 
is so perhaps in some cases; but in the greater part it is quite other- 
wise, as I shall endeavour to shew by and by. The laws and customs 
of Europe, therefore, in order to qualify any person for exercising 



104 WEALTH OF NATIONS 

the one species of labour, impose the necessity of an apprenticeship, 
though with different degrees of rigour in different places. They 
leave the other free and open to every body. During the continuance 
of the apprenticeship, the whole labour of the apprentice belongs to 
his master. In the mean time he must, in many cases, be maintained 
by his parents or relations, and in almost all cases must be doathed 
by them. Some money too is commonly given to the master for teach- 
ing him his trade. They who cannot give money, give time, or be- 
come bound for more than the usual number of years; a consid- 
eration which, though it is not always advantageous to the master, 
on account of the usual idleness of apprentices, is always disadvan- 
tageous to the apprentice. In country labour, on the contrary, the 
labourer, while he is employed about the easier, learns the more diffi- 
cult parts of his business, and his own labour maintains him through 
all the different stages of his employment. It is reasonable, therefore, 
that in Europe the wages of mechanics, artificers, and manufacturers, 
should be somewhat higher than those of common labourers. They 
are so accordingly, and their superior gains make them in most places 
be considered as a superior rank of people. This superiority, how- 
ever, is generally very small; the daily or weekly earnings of journey- 
men in the more common sorts of manufactures, such as those of 
plain linen and woollen cloth, computed at an average, are, in most 
places, very litde more than the day wages of common labourers. 
Their employment, indeed, is more steady and uniform, and the 
superiority of their earnings, taking the whole year together, may be 
somewhat greater. It seems evidently, however, to be no greater than 
what is sufficient to compensate the superior expence of their edu- 
cation. 

Education in the ingenious arts and in the liberal professions, is 
still more tedious and expensive. The pecuniary recompence, there- 
fore, of painters and sculptors, of lawyers and physicians, ought to be 
much more liberal: and it is so accordingly. 

The profits of stock seem to be very litde affected by the easiness 
or difficulty of learning the trade in which it is employed. All the 
different ways in which stock is commonly employed in great towns 
seem, in reality, to be almost equally easy and equally difficult to 



NATURAL INEQUALITIES IO5 

learn. One branch either of foreign or domestic trade, cannot well 
be a much more intricate business than another. 

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

Employment is much more constant in some trades than in others. 
In the greater part of manufactures, a journeyman may be pretty sure 
of employment almost every day in the year that he is able to work. 
A mason or bricklayer, on the contrary, can work neither in hard 
frost nor in foul weather, and his employment at all other times 
dep)ends upon the occasional calls of his customers. He is liable, in 
consequence, to be frequently without any. What he earns, there- 
fore, while he is employed, must not only maintain him while he 
is idle, but make him some compensation for those anxious and 
despwnding moments which the thought of so precarious a situation 
must sometimes occasion. Where the computed earnings of the 
greater part of manufacturers, accordingly, are nearly upon a level 
with the day wages of common labourers, those of masons and brick- 
layers are generally from one half more to double those wages. 
Where common labourers earn four and five shillings a week, ma- 
sons and bricklayers frequendy earn seven and eight; where the 
former earn six, the latter often earn nine and ten, and where the 
former earn nine and ten, as in London, the latter commonly earn 
fifteen and eighteen. No species of skilled labour, however, seems 
more easy to learn than that of masons and bricklayers. Chairmen 
in Lx)ndon, during the summer season, are said sometimes to be em- 
ployed as bricklayers. The high wages of those workmen, therefore, 
are not so much the recompence of their skill, as the compensation 
for the inconstancy of their employment. 

A house carpenter seems to exercise rather a nicer and more 
ingenious trade than a mason. In most places however, for it is not 
universally so, his day-wages are somewhat lower. His employment, 
though it depends much, does not depend so entirely upon the occa- 
sional calls of his customers; and it is not liable to be interrupted by 
the weather. 

When the trades which generally afford constant employment, 
happen in a particular place not to do so, the wages of the workmen 



I06 WEALTH OF NATIONS 

always rise a good deal above their ordinary proportion to those of 
common labour. In London almost all journeymen artificers are 
liable to be called upon and dismissed by their masters from day to 
day, and from week to week, in the same manner as day-labourers 
in other places. The lowest order of artificers, journeymen taylors, 
accordingly, earn there half a crown a day, though eighteen pence 
may be reckoned the wages of common labour. In small towns and 
country villages, the wages of journeymen taylors frequently scarce 
equal those of common labour; but in London they are often many 
weeks without employment, particularly during the summer. 

When the inconstancy of employment is combined with the hard- 
ship, disagreeableness, and dirtiness of the work, it sometimes raises 
the wages of the most common labour above those of the most skil- 
ful artificers. A collier working by the piece is supposed, at New- 
castle, to earn commonly about double, and in many parts of Scot- 
land about three times the wages of common labour. His high wages 
arise altogether from the hardship, disagreeableness, and dirtiness 
of his work. His employment may, upon most occasions, be as con- 
stant as he pleases. The coal-heavers in London exercise a trade 
which in hardship, dirtiness, and disagreeableness, almost equals that 
of colliers; and from the unavoidable irregularity in the arrivals of 
coal-ships, the employment of the greater part of them is necessarily 
very inconstant. If colliers, therefore, commonly earn double and 
triple the wages of common labour, it ought not to seem unreason- 
able that coal-heavers should sometimes earn four and five times 
those wages. In the enquiry made into their condition a few years 
ago, it was found that at the rate at which they were then paid, they 
could earn from six to ten shillings a day. Six shillings are about four 
tiroes the wages of common labour in London, and in every par- 
ticular trade, the lowest common earnings may always be considered 
as those of the far greater number. How extravagant soever those 
earnings may appear, if they were more than sufficient to compen- 
sate all the disagreeable circumstances of the business, there would 
soon be so great a number of competitors as, in a trade which has 
no exclusive privilege, would quickly reduce them to a lower rate. 

The constancy or inconstancy of employment cannot affect the 
ordinary profits of stock in any particular trade. Whether the stock 



NATURAL INEQUALITIES IO7 

is or is not constantly employed depends, not upon the trade, but 
the trader. 

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

The wages of goldsmiths and jewellers are every-where superior 
to those of many other workmen, not only of equal, but of much 
superior ingenuity; on account of the precious materials with which 
they are intrusted. 

We trust our health to the physician; our fortune and sometimes 
our life and reputation to the lawyer and attorney. Such confidence 
could not safely be repxjsed in people of a very mean or low condition. 
Their reward must be such, therefore, as may give them that rank 
in the society which so important a trust requires. The long time and 
the great exp)ence which must be laid out in their education, when 
combined with this circumstance, necessarily enhance still further 
the price of their labour. 

When a person employs only his own stock in trade, there is no 
trust; and the credit which he may get from other people, depends, 
not upon the nature of his trade, but upon their opinion of his for- 
tune, probity, and prudence. The different rates of profit, therefore, 
in the different branches of trade, cannot arise from the different 
degrees of trust repxjsed in the traders. 

Fifthly, The wages of labour in different employments vary 
according to the probability or improbability of success in them. 

The probability that any particular person shall ever be qualified 
for the employment to which he is educated, is very different in 
different occupations. In the greater part of mechanic trades, suc- 
cess is almost certain; but very uncertain in the liberal professions. 
Put your son apprentice to a shoemaker, there is litde doubt of his 
learning to make a pair of shoes: But send him to study law, it is 
at least twenty to one if ever he makes such proficiency as will enable 
him to live by the business. In a perfectly fair lottery, those who draw 
the pri2^s ought to gain all that is lost by those who draw the blanks. 
In a profession where twenty fail for one that succeeds, that one 
ought to gain all that should have been gained by the unsuccessful 
twenty. The counsellor at law who, perhaps, at near forty years of 
age, begins to make something by his profession, ought to receive the 



I08 WEALTH OF NATIONS 

retribution, not only of his own so tedious and expensive education, 
but of that of more than twenty others who are never likely to make 
any thing by it. How extravagant soever the fees of counsellors at 
law may sometimes appear, their real retribution is never equal to 
this. Compute in any particular place, what is likely to be annually 
gained, and what is likely to be annually spent, by all the different 
workmen in any common trade, such as that of shoemakers or 
weavers, and you will find that the former sum will generally exceed 
the latter. But make the same computation with regard to all the 
counsellors and students of law, in all the different inns of court, and 
you will find that their annual gains bear but a very small propor- 
tion to their annual expence, even though you rate the former as high, 
and the latter as low, as can well be done. The lottery of the law, 
therefore, is very far from being a perfectly fair lottery; and that, 
as well as many other liberal and honorable professions, is, in point 
of {jecuniary gain, evidently under-recomp)enced. 

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

To excel in any profession, in which but few arrive at mediocrity, 
is the most decisive mark of what is called genius or superior talents. 
The public admiration which attends upon such distinguished abil- 
ities, makes always a part of their reward; a greater or smaller in 
proportion as it is higher or lower in degree. It makes a considerable 
part of that reward in the profession of physic; a still greater perhaps 
in that of law; in poetry and philosophy it makes almost the whole. 

There are some very agreeable and beautiful talents of which the 
possession commands a certain sort of admiration; but of which the 
exercise for the sake of gain is considered, whether from reason or 
prejudice, as a sort of public prostitution. The pecuniary recompence, 
therefore, of those who exercise them in this manner, must be suffi- 
cient, not only to pay for the time, labour and expence of acquiring 
the talents, but for the discredit which attends the employment of 



NATURAL INEQUALITIES IO9 

them as a means of subsistence. The exorbitant rewards of players, 
opera-singers, opera-dancers, &c. are founded upon those two prin- 
ciples; the rarity and beauty of the talents, and the discredit of em- 
ploying them in this manner. It seems absurd at first sight that we 
should despise their persons, and yet reward their talents with the 
most profuse liberality. While we do the one, however, we must of 
necessity do the other. Should the public opinion or prejudice ever 
alter with regard to such occupations, their pecuniary recompence 
would quickly diminish. More people would apply to them, and the 
competition would quickly reduce the price of their labour. Such 
talents, though far from being common, are by no means so rare as 
is imagined. Many people possess them in great perfection, who 
disdain to make use of them; and many more are capable of acquir- 
ing them, if any thing could be made honourably by them. 

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

That the chance of gain is naturally over-valued, we may learn 
from the universal success of lotteries. The world neither ever saw, 
nor ever will see, a perfectly fair lottery; or one in which the whole 
gain compensated the whole loss; because the undertaker could make 
nothing by it. In the state lotteries the tickets are really not worth 
the price which is paid by the original subscribers, and yet commonly 
sell in the market for twenty, thirty, and sometimes forty per cent, 
advance. The vain hope of gaining some of the great prizes is the 
sole cause of this demand. The soberest people scarce look upon it 
as a folly to pay a small sum for the chance of gaining ten or twenty 
thousand pounds; though they know that even that small sum is 
perhaps twenty or thirty per cent, more than the chance is worth. 
In a lottery in which no prize exceeded twenty pounds, though in 
other respects it approached much nearer to a perfectly fair one than 



no WEALTH OF NATIONS 

the common state lotteries, there would not be the same demand for 
tickets. In order to have a better chance for some of the great prizes, 
some people purchase several tickets, and others, small shares in a 
still greater number. There is not, however, a more certain proposi- 
tion in mathematics, than that the more tickets you adventure upon, 
the more likely you are to be a loser. Adventure upon all the tickets 
in the lottery, and you lose for certain; and the greater the number 
of your tickets the nearer you approach to this certainty. 

That the chance of loss is frequently undervalued, and scarce ever 
valued more than it is worth, we may learn from the very moderate 
profit of insurers. In order to make insurance, either from fire or sea- 
risk, a trade at all, the common premium must be sufficient to com- 
pensate the common losses, to pay the expence of management, and 
to afford such a profit as might have been drawn from an equal 
capital employed in any common trade. The person who pays no 
more than this, evidently pays no more than the real value of the 
risk, or the lowest price at which he can reasonably expject to insure 
it. But though many people have made a little money by insurance, 
very few have made a great fortune; and from this consideration 
alone, it seems evident enough, that the ordinary balance of profit 
and loss is not more advantageous in this, than in other common 
trades by which so many people make fortunes. Moderate, however, 
as the premium of insurance commonly is, many people despise the 
risk too much to care to pay it. Taking the whole kingdom at an 
average, nineteen houses in twenty, or rather, perhaps, ninety-nine 
in a hundred, are not insured from fire. Sea-risk is more alarming 
to the greater part of people, and the prof)ortion of ships insured to 
those not insured is much greater. Many sail, however, at all seasons, 
and even in time of war, without any insurance. This may some- 
times jjerhaps be done without any imprudence. When a great com- 
pany, or even a great merchant, has twenty or thirty ships at sea, they 
may, as it were, insure one another. The premium saved upon them 
all, may more than compensate such losses as they are likely to meet 
with in the common course of chances. The neglect of insurance 
upon shipping, however, in the same manner as upon houses is, in 
most cases, the effect of no such nice calculation, but of mere thought- 
less rashness and presumptuous contempt of the risk. 



NATURAL INEQUALITIES III 

The contempt of risk and the presumptuous hope of success, are 
in no period of life more active than at the age at which young people 
chuse their professions. How little the fear of misfortune is then 
capable of balancing the hojje of good luck, appears still more evi- 
dently in the readiness of the common people to enlist as soldiers, or 
to go to sea, than in the eagerness of those of better fashion to enter 
into what are called the liberal professions. 

What a common soldier may lose is obvious enough. Without 
regarding the danger, however, young volunteers never enlist so 
readily as at the beginning of a new war; and though they have 
(carce any chance of preferment, they figure to themselves, in their 
youthful fancies, a thousand occasions of acquiring honour and dis- 
tinction which never occur. These romantic hopes make the whole 
price of their blood. Their pay is less than that of common laborers, 
and in actual service their fatigues are much greater. 

The lottery of the sea is not altogether so disadvantageous as that 
of the army. The son of a creditable labourer or artificer may fre- 
quently go to sea with his father's consent; but if he enlists as a 
soldier, it is always without it. Other people see some chance of his 
making something by the one trade; nobody but himself sees any 
of his making any thing by the other. The great admiral is less the 
object of public admiration than the great general, and the highest 
success in the sea service promises a less brilliant fortune and repu- 
tation than equal success in the land. The same difference runs 
through all the inferior degrees of preferment in both. By the rules 
of precedency a captain in the navy ranks with a colonel in the army : 
but he does not rank with him in the common estimation. As the 
great prizes in the lottery are less, the smaller ones must be more 
numerous. Common sailors, therefore, more frequently get some for- 
tune and preferment than common soldiers; and the hope of those 
prizes is what principally recommends the trade. Though their skill 
and dexterity are much superior to that of almost any artificer's, and 
though their whole life is one continual scene of hardship and 
danger, yet for all this dexterity and skill, for all those hardships and 
dangers, while they remain in the condition of common sailors, they 
receive scarce any other recompence but the pleasure of exercising 
the one and of surmounting the other. Their wages are not greater 



112 WEALTH OF NATIONS 

than those of common laborers at the port which regulates the rate of 
seamen's wages. As they are continually going from port to port, 
the monthly pay of those who sail irom aJJ the different ports ot Great 
Britain, is more nearly upon a level than that of any other workmen 
in those different places; and the rate of the port to and from which 
the greatest number sail, that is the port of London, regulates that 
of all the rest. At London the wages of the greater part of the differ- 
ent classes of workmen are about double those of the same classes at 
Edinburgh. But the sailors who sail from the port of London seldom 
earn above three or four shillings a month more than those who sail 
from the p)ort of Leith, and the difference is frequendy not so great. 
In time of peace, and in the merchant service, the London price is 
from a guinea to about seven-and-twenty shillings the calendar 
month. A common labourer in London, at the rate of nine or ten 
shillings a month, may earn in the calendar month from forty to 
five-and-forty shillings. The sailor, indeed, over and above his pay, 
is supplied with provisions. Their value, however, may not perhaps 
always exceed the difference between his pay and that of the common 
labourer; and though it sometimes should, the excess will not be clear 
gain to the sailor, because he cannot share it with his wife and 
family, whom he must maintain out of his wages at home. 

The dangers and hair-breadth escapes of a life of adventures, in- 
stead of disheartening young people, seem frequendy to recommend 
a trade to them. A tender mother, among the inferior ranks of 
people, is often afraid to send her son to school at a sea-port town, 
lest the sight of the ships and the conversation and adventures of the 
sailors should entice him to go to sea. The distant prospect of haz- 
ards, from which we can hope to extricate ourselves by courage and 
address, is not disagreeable to us, and does not raise the wages of 
labour in any employment. It is otherwise with those in which cour- 
age and address can be of no avail. In trades which are known to be 
very unwholesome, the wages of labour are always remarkably high. 
Unwholesomeness is a species of disagreeableness, and its effects upon 
the wages of labour are to be ranked under that general head. 

In all the different employments of stock, the ordinary rate of profit 
varies more or less with the certainty or uncertainty of the returns. 
These are in general less uncertain in the inland than in the foreign 



NATURAL INEQUALITIES II3 

trade, and in some branches of foreign trade than others; in the trade 
to North America, for example, than in that to Jamaica. The ordi- 
nary rate of profit always rises more or less with the risk. It does not, 
however, seem to rise in proportion to it, or so as to compensate it 
completely. Bankruptcies are most frequent in the most hazardous 
trades. The most hazardous of all trades, that of a smuggler, though 
when the adventure succeeds it is likewise the most profitable, is the 
infallible road to bankruptcy. The presumptuous hof)e of success 
seems to act here as upon all other occasions, and to entice so many 
adventurers into those hazardous trades, that their competition re- 
duces the profit below what is sufficient to compensate the risk. To 
compensate it completely, the common returns ought, over and above 
the ordinary profits of stock, not only to make up for all occasional 
losses, but to afford a surplus profit to the adventurers of the same 
nature with the profit of insurers. But if the common returns were 
sufficient for all this, bankruptcies would not be more frequent in 
these than in other trades. 

Of the five circumstances, therefore, which vary the wages of 
labour, two only affect the profits of stock; the agreeableness or dis- 
agreeableness of the business, and the risk or security with which it 
is attended. In point of agreeableness or disagreeableness, there is 
little or no difference in the far greater part of the different employ- 
ments of stock; but a great deal in those of labour; and the ordinary 
profit of stock, though it rises with the risk, does not always seem 
to rise in proportion to it. It should follow from all this, that, in the 
same society or neighborhood, the average and ordinary rates of 
profit in the different employments of stock should be more nearly 
up)on a level than the pecuniary wages of the different sorts of labour. 
They are so accordingly. The difference between the earnings of a 
common labourer and those of a well employed lawyer or physician, 
is evidently much greater than that between the ordinary profits in 
any two different branches of trade. The apparent difference, besides, 
in the profits of different trades, is generally a deception arising from 
our not always distinguishing what ought to be considered as wages, 
from what ought to be considered as profit. 

Apothecaries' profit is become a bye-word, denoting something 
uncommonly extravagant. This great apparent profit, however, is 



114 WEALTH OF NATIONS 

frequently no more than the reasonable wages of labour. The skill 
of an apothecary is a much nicer and more delicate matter than that 
of any artificer whatever; and the trust which is reposed in him is 
of much greater importance. He is the physician of the poor in all 
cases, and of the rich when the distress or danger is not very great. 
His reward, therefore, ought to be suitable to his skill and his trust, 
and it arises generally from the price at which he sells his drugs. But 
the whole drugs which the best employed apothecary, in a large mar- 
ket town, will sell in a year, may not perhaps cost him above thirty 
or forty pounds. Though he should sell them, therefore, for three or 
four hundred, or at a thousand per cent, profit, this may frequently 
be no more than the reasonable wages of his labour charged, in the 
only way in which he can charge them, upon the price of his drugs. 
The greater part of the apparent profit is real wages disguised in 
the garb of profit. 

In a small sea-port town, a little grocer will make forty or fifty 
per cent, upon a stock of a smgle hundred pounds, while a con- 
siderable wholesale merchant in the same place will scarce make eight 
or ten per cent, upon a stock of ten thousand. The trade of the grocer 
may be necessary for the conveniency of the inhabitants, and the 
narrowness of the market may not admit the employment of a larger 
capital in the business. The man, however, must not only live by 
his trade, but live by it suitably to the qualifications which it requires. 
Besides possessing a little capital, he must be able to read, write, and 
account, and must be a tolerable judge too of, perhaps, fifty or sixty 
different sorts of goods, their prices, qualities, and the markets where 
they are to be had cheapest. He must have all the knowledge, in 
short, that is necessary for a great merchant, which nothing hinders 
him from becoming but the want of sufficient capital. Thirty or forty 
fxjunds a year cannot be considered as too great a recompence for 
the labour of a person so accomplished. Deduct this from the seem- 
ingly great profits of his capital, and little more will remain, perhaps, 
than the ordinary profits of stock. The greater part of the apparent 
profit is, in this case too, real wages. 

The difference between the apparent profit of the retail and that 
of the wholesale trade, is much less in the capital than in small towns 
and country villages. Where ten thousand pounds can be employed 



NATURAL INEQUALITIES II5 

in the grocery trade, the wages of the grocer's labour make but a 
very trifling addition to the real profits of so great a stock. The ap- 
parent profits of the wealthy retailer, therefore, are there more nearly 
upon a level with those of the wholesale merchant. It is upon this 
account that goods sold by retail are generally as cheap and fre- 
quently much cheaper in the capital than in small towns and country 
villages. Grocery goods, for example, are generally much cheaper; 
bread and butcher's meat frequently as cheap. It costs no more to 
bring grocery goods to the great town than to the country village; 
but it costs a great deal more to bring corn and catde, as the greater 
part of them must be brought from a much greater distance. The 
prime cost of grocery goods, therefore, being the same in both places, 
they are cheapest where the least profit is charged upon them. The 
prime cost of bread and butcher's meat is greater in the great town 
than in the country village; and though the profit is less, therefore 
they are not always cheaper there, but often equally cheap. In such 
articles as bread and butcher's meat, the same cause, which dimin- 
ishes apparent profit, increases prime cost. The extent of the market, 
by giving employment to greater stocks, diminishes apparent profit; 
but by requiring supplies from a greater distance, it increases prime 
cost. This diminution of the one and increase of the other seem, in 
most cases, nearly to counter-balance one another; which is probably 
the reason that, though the prices of corn and cattle are commonly 
very different in different parts of the kingdom, those of bread and 
butcher's meat are generally very nearly the same through the greater 
part of it. 

Though the profits of stock both in the wholesale and retail trade 
are generally less in the capital than in small towns and country vil- 
lages, yet great fortunes are frequently acquired from small begin- 
nings in the former, and scarce ever in the latter. In small towns 
and country villages, on account of the narrowness of the market, 
trade cannot always be extended as stock extends. In such places, 
therefore, though the rate of a particular person's profits may be very 
high, the sum or amount of them can never be very great, nor conse- 
quently that of his annual accumulation. In great towns, on the con- 
trary, trade can be extended as stock increases, and the credit of a 
frugal and thriving man increases much faster than his stock. His 



Il6 WEALTH OF NATIONS 

trade is extended in proportion to the amount of both, and the sum 
or amount of his profits is in proportion to the extent of his trade, 
and his annual accumulation in proportion to the amount of his 
profits. It seldom happens, however, that great fortunes are made 
even in great towns by any one regular, established, and well-known 
branch of business, but in consequence of a long life of industry, fru- 
gality, and attention. Sudden fortunes, indeed, are sometimes made 
in such places by what is called the trade of speculation. The specu- 
lative merchant exercises no one regular, established, or well-known 
branch of business. He is a corn merchant this year, and a wine mer- 
chant the next, and a sugar, tobacco, or tea merchant the year after. 
He enters into every trade when he foresees that it is likely to be 
more than commonly profitable, and he quits it when he foresees 
that its profits are likely to return to the level of other trades. His 
profits and losses, therefore, can bear no regular proportion to those 
of any one established and well-known branch of business. A bold 
adventurer may sometimes acquire a considerable fortune by two 
or three successful speculations; but is just as likely to lose one by two 
or three unsuccessful ones. This trade can be carried on no where but 
in great towns. It is only in places of the most extensive commerce 
and correspondence that the intelligence requisite for it can be had. 

The five circumstances above mentioned, though they occasion 
considerable inequalities in the wages of labour and profits of stock, 
occasion none in the whole of the advantages and disadvantages, 
real or imaginary, of the different employments of either. The nature 
of those circumstances is such, that they make up for a small pecuni- 
ary gain in some, and counter-balance a great one in others. 

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

First, this equality can take place only in those employments which 
are well known, and have been long established in the neighbour- 
hood 



NATURAL INEQUALITIES II7 

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

The establishment of any new manufacture, of any new branch 
of commerce, or of any new practice in agriculture, is always a specu- 
lation, from which the projector promises himself extraordinary 
profits. These profits sometimes are very great, and sometimes, more 
frequendy, perhaps, they are quite otherwise; but in general they 
bear no regular proportion to those of other old trades in the neigh- 
bourhood. If the project succeeds, they are commonly at first very 
high. When the trade or practice becomes thoroughly established 
and well known, the competition reduces them to the level of other 
trades. 

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

The demand for almost every different species of labour is some- 
times greater and sometimes less than usual. In the one case the 
advantages of the employment rise above, in the other they fall below 
the common level. The demand for country labour is greater at 
hay-time and harvest, than during the greater part of the year; and 



Il8 WEALTH OF NATIONS 

wages rise with the demand. In time of war, when forty or fifty thou- 
sand sailors are forced from the merchant service into that of the 
king, the demand for sailors to merchant ships necessarily rises with 
their scarcity, and their wages upon such occasions commonly rise 
from a guinea and seven-and-twenty shillings, to forty shillings and 
three pounds a month. In a decaying manufacture, on the contrary, 
many workmen, rather than quit their old trade, are contented with 
smaller wages than would otherwise be suitable to the nature of 
their employment. 

The profits of stock vary with the price of the commodities in 
which it is employed. As the price of any commodity rises above the 
ordinary or average rate, the profits of at least some part of the stock 
that is employed in bringing it to market, rise above their projjer 
level, and as it falls they sink below it. All commodities are more or 
less liable to variations of price, but some are much more so than 
others. In all commodities which are produced by human industry, 
the quantity of industry annually employed is necessarily regulated 
by the annual demand, in such a manner that the average annual 
produce may, as nearly as possible, be equal to the average annual 
consumption. In some employments, it has already been observed, 
the same quantity of industry will always produce the same, or very 
nearly the same quantity of commodities. In the linen or woollen 
manufactures, for example, the same number of hands will annually 
work up very nearly the same quantity of linen and woollen cloth. 
The variations in the market price of such commodities, therefore, 
can arise only from some accidental variation in the demand. A pub- 
lic mourning raises the price of black cloth. But as the demand for 
most sorts of plain linen and woollen cloth is pretty uniform, so is 
likewise the price. But there are other employments in which the 
same quality of industry will not always produce the same quantity 
of commodities. The same quantity of industry, for example, will, 
in different years, produce very different quantities of corn, wine, 
hops, sugar, tobacco, &c. The price of such commodities, therefore, 
varies not only with the variations of demand, but with the much 
greater and more frequent variations of quantity, and is consequendy 
extremely fluctuating. But the profit of some of the dealers must 
necessarily fluctuate with the price of the commodities. The opera- 



NATURAL INEQUALITIES IIQ 

tions of the speculative merchant are principally employed about such 
commodities. He endeavours to buy them up when he foresees diat 
their price is likely to rise, and to sell them when it is likely to fall. 

Thirdly, This equality in the whole of the advantages and dis- 
advantages of the different employments of labour and stock, can 
take place only in such as are the sole or principal employments of 
those who occupy them. 

When a person derives his subsistence from one employment, 
which does not occupy the greater part of his time; in the intervals 
of his leisure he is often willing to work at another for less wages 
than would otherwise suit the nature of the employment. 

There still subsists in many parts of Scotland a set of people called 
Cotters or Cottagers, though they were more frequent some years 
ago than they are now. They are a sort of out-servants of the land- 
lords and farmers. The usual reward which they receive from their 
masters is a house, a small garden for pot herbs, as much grass as 
will feed a cow, and, perhaps, an acre or two of bad arable land. 
When their master has occasion for their labour, he gives them, be- 
sides, two pecks of oatmeal a week, worth about sixteen pence ster- 
ling. During a great part of the year he has little or no occasion for 
their labour, and the cultivation of their own little possession is not 
sufficient to occupy the time which is left at their own disposal. 
When such occupiers were more numerous than they are at present, 
they are said to have been willing to give their spare time for a very 
small recompence to any body, and to have wrought for less wages 
than other labourers. In ancient times they seem to have been com- 
mon all over Europe. In countries ill cultivated and worse inhabited, 
the greater part of landlords and farmers could not otherwise pro- 
vide themselves with the extraordinary number of hands, which 
country labour requires at certain seasons. The daily or weekly rec- 
ompence which such labourers occasionally received from their mas- 
ters, was evidendy not the whole price of their labour. Their small 
tenement made a considerable part of it. This daily or weekly recom- 
pence, however, seems to have been considered as the whole of it, 
by many writers who have collected the prices of labour and pro- 
visions in ancient times, and who have taken pleasure in represent- 
ing both as wonderfully low. 



120 WEALTH OF NATIONS 

The produce of such labour comes frequently cheaper to market 
than would otherwise be suitable to its nature. Stockings in many 
parts of Scotland are knit much cheaper than they can any-where be 
wrought upon the loom. They are the work of servants and labour- 
ers, who derive the principal part of their subsistence from some 
other employment. More than a thousand pair of Shetland stockings 
are annually imported into Leith, of which the price is from five 
pence to seven pence a pair. At Learwick, the small capital of the 
Shetland islands, ten pence a day, I have been assured, is a common 
price of common labour. In the same islands they knit worsted stock- 
ings to the value of a guinea a pair and upwards. 

The spinning of linen yarn is carried on in Scotland nearly in the 
same way as the knitting of stockings, by servants who are chiefly 
hired for other purposes. They earn but a very scanty subsistence, 
who endeavour to get their whole livelihood by either of those trades. 
In most parts of Scotland she is a good spinner who can earn twenty 
pence a week. 

In opulent countries the market is generally so extensive, that any 
one trade is sufficient to employ the whole labour and stock of those 
who occupy it. Instances of people's living by one employment, and 
at the same time deriving some little advantage from another, occur 
chiefly in f)oor countries. The following instance, however, of some- 
thing of the same kind is to be found in the capital of a very rich 
one. There is no city in Europe, I believe, in which house-rent is 
dearer than in London, and yet I know no capital in which a fur- 
nished apartment can be hired so cheap. Lodging is not only much 
cheaper in London than in Paris; it is much cheaper than in Edin- 
burgh of the same degree of goodness; and what may seem extraor- 
dinary, the dearness of house-rent is the cause of the cheapness of 
lodging. The dearness of house-rent in London arises, not only from 
those causes which render it dear in all great capitals, the dearness 
of labour, the dearness of all the materials of building, which must 
generally be brought from a great distance, and above all the dear- 
ness of ground-rent, every landlord acting the part of a monopolist, 
and frequently exacting a higher rent for a single acre of bad land 
in a town, than can be had for a hundred of the best in the country; 
but it arises in part from the peculiar manners and customs of the 



POLITICAL INEQUALITIES 121 

people which obUge every master of a family to hire a whole house 
from top to bottom. A dwelling-house in England means every 
thing that is contained under the same roof. In France, Scotland, 
and many other parts of Europe, it frequently means no more than 
a single story. A tradesman in London is obliged to hire a whole 
house in that part of the town where his customers live. His shop 
is upon the ground-floor, and he and his family sleep in the garret; 
and he endeavours to pay a part of his house-rent by letting the two 
middle stories to lodgers. He expects to maintain his family by his 
trade, and not by his lodgers. Whereas, at Paris and Edinburgh, the 
people who let lodgings have commonly no other means of sub- 
sistence; and the price of the lodging must pay, not only the rent of 
the house, but the whole expence of the family. 

PART II 

Inequalities occasioned by the Policy of Europe 

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

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

First, The Policy of Europe occasions a very important inequality 
in the whole of the advantages and disadvantages of the different em- 
ployments of labour and stock, by restraining the competition in 
some employments to a smaller number than might otherwise be 
disposed to enter into them. 

The exclusive privileges of corporations are the principal means 
it makes use of for this purpose. 



122 WEALTH OF NATIONS 

The exclusive privilege of an incorporated trade necessarily re- 
strains the competition, in the town where it is established, to those 
who are free of the trade. To have served an apprenticeship in the 
town under a master properly qualified, is commonly the necessary 
requisite for obtaining this freedom. The bye-laws of the corpora- 
tion regulate sometimes the number of apprentices which any master 
is allowed to have, and almost always the number of years which 
each apprentice is obliged to serve. The intention of both regulations 
is to restrain the competition to a much smaller number than might 
otherwise be disposed to enter into the trade. The limitation of the 
number of apprentices restrains it directly. A long term of appren- 
ticeship restrains it more indirectly, but as effectually, by increasing 
the expence of education. 

In Sheffield no master cutler can have more than one apprentice 
at a time, by a bye-law of the corporation. In Norfolk and Norwich 
no master weaver can have more than two apprentices, under pain 
of forfeiting five pounds a month to the king. No master hatter can 
have more than two apprentices any-where in England, or in the 
English plantations, under pain of forfeiting five pounds a month, 
half to the king, and half to him who shall sue in any court of record. 
Both these regulations, though they have been confirmed by a pub- 
lic law of the kingdom, are evidently dictated by the same corpora- 
tion spirit which enacted the bye-law of Sheffield. The silk weavers 
in London had scarce been incorporated a year when they enacted a 
bye-law restraining any master from having more than two appren- 
tices at a time. It required a particular act of parliament to rescind 
this bye-law. 

Seven years seem anciently to have been, all over Europe, the usual 
term established for the duration of apprenticeships in the greater 
part of incorporated trades. All such incorporations were anciently 
called universities; which indeed is the proper Latin name for any 
incorporation whatever. The university of smiths, the university of 
taylors, &c. are expressions which we commonly meet with in the 
old charters of ancient towns. When those particular incorporations 
which are now peculiarly called universities were first established, 
the term of years which it was necessary to study, in order to obtain 
the degree of master of arts, appears evidently to have been copied 



POLITICAL INEQUALITIES 123 

from the term of apprenticeship in common trades, of which the in- 
corporations were much more ancient. As to have wrought seven 
years under a master properly quaUHed, was necessary, in order to 
entitle any {jerson to become a master, and to have himself appren- 
tices in a common trade; so to have studied seven years under a 
master properly qualified, was necessary to entitle him to become a 
master, teacher, or doctor (words anciently synonimous) in the lib- 
eral arts, and to have scholars or apprentices (words likewise origi- 
nally synonimous) to study under him. 

By the 5th of Elizabeth, commonly called the Statute of Appren- 
ticeship, it was enacted, that no person should for the future exer- 
cise any trade, craft, or mastery at that time exercised in England, 
unless he had previously served to it an apprenticeship of seven years 
at least; and what before had been the bye-law of many particular 
corporations became in England the general and public law of all 
trades carried on in market towns. For though the words of the stat- 
ute are very general, and seem plainly to include the whole kingdom, 
by interpretation its operation has been limited to market towns, it 
having been held that in country villages a person may exercise sev- 
eral different trades, though he has not served a seven years' appren- 
ticeship to each, they being necessary for the conveniency of the 
inhabitants, and the number of people frequently not being sufficient 
to supply each with a particular set of hands. 

By a strict interpretation of the words, too, the operation of this 
statute has been limited to those trades which were established in Eng- 
land before the 5th of Elizabeth, and has never been extended to 
such as have been introduced since that time. This limitation has 
given occasion to several distinctions which, considered as rules of 
police, appear as foolish as can well be imagined. It has been ad- 
judged, for example, that a coach-maker can neither himself make 
nor employ journeymen to make his coach-wheels; but must buy 
them of a master wheel-wright; this latter trade having been exer- 
cised in England before the 5th of Elizabeth. But a wheel-wright, 
though he has never served an apprenticeship to a coach-maker, may 
either himself make or employ journeymen to make coaches; the 
trade of a coach-maker not being within the statute, because not 
exercised in England at the time when it was made. The manufac- 



124 WEALTH OF NATIONS 

tures of Manchester, Birmingham, and Wolverhampton, are many 
of them, upon this account, not within the statute; not having been 
exercised in England before the 5th of Elizabeth. 

In France, the duration of apprenticeships is different in different 
towns and in different trades. In Paris, five years is the term required 
in a great number; but before any person can be qualified to exer- 
cise the trade as a master, he must, in many of them, serve five years 
more as a journeyman. During this latter term he is called the com- 
panion of his master, and the term itself is called his companionship. 

In Scotland there is no general law which regulates universally 
the duration of apprenticeships. The term is different in different 
corpwrations. Where it is long, a part of it may generally be redeemed 
by paying a small fine. In most towns, too, a very small fine is suffi- 
cient to purchase the freedom of any corporation. The weavers of 
linen and hempen cloth, the principal manufactures of the country, 
as well as all other artificers subservient to them, wheel-makers, reel- 
makers, &c. may exercise their trades in any town corporate without 
paying any fine. In all towns corporate all persons are free to sell 
butcher's meat upon any lawful day of the week. Three years is in 
Scotland a common term of apprenticeship, even in some very nice 
trades; and in general I know of no country in Europe in which 
corporation laws are so little oppressive. 

The property which every man has in his own labour, as it is the 
original foundation of all other property, so it is the most sacred and 
inviolable. The patrimony of a poor man lies in the strength and 
dexterity of his hands; and to hinder him from employing this 
strength and dexterity in what manner he thinks proper without 
injury to his neighbour, is a plain violation of this most sacred prop- 
erty. It is a manifest encroachment upon the just liberty both of the 
workman, and of those who might be disposed to employ him. As 
it hinders the one from working at what he thinks proper, so it 
hinders the others from employing whom they think proper. To 
judge whether he is fit to be employed, may surely be trusted to 
the discretion of the employers whose interest it so much concerns. 
The affected anxiety of the law-giver lest they should employ an 
improper person, is evidently as impertinent as it is oppressive. 

The institution of long apprenticeships can give no security that 



POLITICAL INEQUALITIES I25 

insufficient workmanship shall not frequently be exposed to public 
sale. When this is done it is generally the effect of fraud, and not of 
inability, and the longest apprenticeship can give no security against 
fraud. Quite different regulations are necessary to prevent this abuse. 
The sterling mark upon plate, and the stamps upon linen and wool- 
len cloth, give the purchaser much greater security than any statute 
of apprenticeship. He generally looks at these, but never thinks it 
worth while to enquire whether the workmen had served a seven 
years' apprenticeship. 

The institution of long apprenticeships has no tendency to form 
young people to industry. A journeyman who works by the piece is 
likely to be industrious, because he derives a benefit from exery exer- 
tion of his industry. An apprentice is likely to be idle, and almost 
always is so, because he has no immediate interest to be otherwise. 
In the inferior employments, the sweets of labour consist altogether 
in the recompence of labour. They who are soonest in a condition 
to enjoy the sweets of it, are likely soonest to conceive a relish for 
it, and to acquire the early habit of industry. A young man naturally 
conceives an aversion to labour, when for a long time he receives no 
benefit from it. The boys who are put out apprentices from public 
charities are generally bound for more than the usual number of 
years, and they generally turn out very idle and worthless. 

Apprenticeships were altogether unknown to the ancients. The 
reciprocal duties of master and apprentice make a considerable article 
in every modern code. The Roman law is perfectly silent with regard 
to them. I know no Greek or Latin word (I might venture, I be- 
lieve, to assert that there is none) which expresses the idea we now 
annex to the word Apprentice, a servant bound to work at a particu- 
lar trade for the benefit of a master, during a term of years, upon 
condition that the master shall teach him that trade. 

Long apprenticeships are altogether unnecessary. The arts, which 
are much superior to common trades, such as those of making clocks 
and watches, contain no such mystery as to require a long course 
of instruction. The first invention of such beautiful machines, in- 
deed, and even that of some of the instruments employed in making 
them, must, no doubt, have been the work of deep thought and 
long time, and may jusdy be considered as among the happiest efforts 



126 WEALTH OF NATIONS 

of human ingenuity. But when both have been fairly invented and 
are well understood, to explain to any young man, in the completest 
manner, how to apply the instruments and how to construct the 
machines, cannot well require more than the lessons of a few weeks: 
perhaps those of a few days might be sufficient. In the common 
mechanic trades, those of a few days might certainly be sufficient. 
The dexterity of hand, indeed, even in common trades, cannot be 
acquired without much practice and exf)erience. But a young man 
would practise with much more diligence and attention, if from the 
beginning he wrought as a journeyman, being paid in proportion to 
the little work which he could execute, and paying in his turn for 
the materials which he might sometimes spoil through awkwardness 
and inexperience. His education would generally in this way be more 
effectual, and always less tedious and expensive. The master, indeed, 
would be a loser. He would lose all the wage of the apprentice, 
which he now saves, for seven years together. In the end, perhaps, 
the apprentice himself would be a loser. In a trade so easily learnt 
he would have more competitors, and his wages, when he came to be 
a complete workman, would be much less than at present. The same 
increase of competition would reduce the profits of the masters as 
well as the wages of the workmen. The trades, the crafts, the mys- 
teries, would all be losers. But the public would be a gainer, the work 
of all artificers coming in this way much cheaper to market. 

It is to prevent this reduction of price, and consequently of wages 
and profit, by restraining that free competition which would most 
certainly occasion it, that all corporations, and the greater part of 
corporation laws, have been established. In order to erect a corpora- 
tion, no other authority in ancient times was requisite in many parts 
of Europe, but that of the town corporate in which it was estab- 
lished. In England, indeed, a charter from the king was likewise 
necessary. But this prerogative of the crown seems to have been 
reserved rather for extorting money from the subject, than for the 
defence of the common liberty against such oppressive monopolies. 
Upon paying a fine to the king, the charter seems generally to have 
been readily granted; and when any particular class of artificers or 
traders thought prof)er to act as a corpxiration without a charter, 
such adulterine guilds, as they were called, were not always dis- 



POLITICAL INEQUALITIES 1 27 

franchisee! upon that account, but obUged to Bne annually to the 
king for permission to exercise their usurped privileges. The imme- 
diate inspection of all corporations, and of the bye-laws which they 
might think proper to enact for their own government, belonged 
to the town corporate in which they were established; and whatever 
discipline was exercised over them, proceeded commonly, not from 
the king, but from that greater incorporation of which those subor- 
dinate ones were only parts or members. 

The government of towns corporate was altogether in the hands 
of traders and artificers; and it was the manifest interest of every 
particular class of them, to prevent the market from being over- 
stocked, as they commonly express it, with their own particular 
species of industry; which is in reality to keep it always under- 
stocked. Each class was eager to establish regulations proper for 
this purpose, and, provided it was allowed to do so, was willing to 
consent that every other class should do the same. In consequence of 
such regulations, indeed, each class was obliged to buy the goods they 
had occasion for from every other within the town, somewhat dearer 
than they otherwise might have done. But in recompence, they were 
enabled to sell their own just as much dearer; so that so far it was as 
broad as long, as they say; and in the dealings of the different classes 
within the town with one another, none of them were losers by 
these regulations. But in their dealings with the country they were 
all great gainers; and in these latter dealings consists the whole trade 
which supports and enriches every town. 

Every town draws its whole subsistence, and all the materials of its 
industry, from the country. It pays for these chiefly in two ways: 
first, by sending back to the country a part of those materials wrought 
up and manufactured; in which case their price is augmented by the 
wages of the workmen, and the profits of their masters or immediate 
employers: secondly, by sending to it a part both of the rude and 
manufactured produce, either of other countries, or of distant parts 
of the same country, imported into the town; in which case too the 
original price of those goods is augmented by the wages of the 
carriers or sailors, and by the profits of the merchants who employ 
them. In what is gained upon the first of those two branches of com- 
merce, consists the advantage which the town makes by its manu- 



128 WEALTH OF NATIONS 

factures; in what is gained upon the second, the advantage of its 
inland and foreign trade. The wages of the workmen, and the 
profits of their different employers, make up the whole of what is 
gained upon both. Whatever regulations, therefore, tend to increase 
those wages and profits beyond what they otherwise would be, tend 
to enable the town to purchase, with a smaller quantity of its labour, 
the produce of a greater quantity of the labour of the country. They 
give the traders and artificers in the town an advantage over the 
landlords, farmers, and labourers in the country, and break down 
that natural equality which would otherwise take place in the com- 
merce which is carried on between them. The whole annual produce 
of the labour of the society is annually divided between those two 
different sets of people. By means of those regulations a greater 
share of it is given to the inhabitants of the town than would other- 
wise fall to them; and a less to those of the country. 

The price which the town really pays for the provisions and mate- 
rials annually imported into it, is the quantity of manufactures and 
other goods annually exported from it. The dearer the latter are 
sold, the cheaper the former are bought. The industry of the town 
becomes more, and that of the country less advantageous. 

That the industry which is carried on in towns is, everywhere in 
Europe, more advantageous than that which is carried on in the 
country, without entering into any very nice computations, we may 
satisfy ourselves by one very simple and obvious observation. In 
every country of Europe we find, at least, a hundred f)eople who have 
acquired great fortunes from small beginnings by trade and manu- 
factures, the industry which properly belongs to towns, for one who 
has done so by that which proj^rly belongs to the country, the raising 
of rude produce by the improvement and cultivation of land. Indus- 
try, therefore, must be better rewarded, the wages of labour and the 
profits of stock must evidently be greater in the one situation than 
in the other. But stock and labour naturally seek the most advan- 
tageous employment. They naturally, therefore, resort as much as 
they can to the town, and desert the country. 

The inhabitants of a town, being collected into one place, can 
easily combine together. The most insignificant trades carried on in 
towns have accordingly, in some place or other, been incorporated; 



POLITICAL INEQUALITIES I29 

and even where they have never been incorporated, yet the corpora- 
tion spirit, the jealousy of strangers, the aversion to take apprentices, 
or to communicate the secret of their trade, generally prevail in them, 
and often teach them, by voluntary associations and agreements, to 
prevent that free competition which they cannot prohibit by bye-laws. 
The trades which employ but a small number of hands, run most 
easily into such combinations. Half a dozen wool<ombers, perhaps, 
are necessary to keep a thousand spinners and weavers at work. By 
combining not to take apprentices they can not only engross the 
employment, but reduce the whole manufacture into a sort of slavery 
to themselves, and raise the price of their labour above what is due 
to the nature of their work. 

The inhabitants of the country, dispersed in distant places, cannot 
easily combine together. They have not only never been incorpo- 
rated, but the corporation spirit never has prevailed among them. No 
apprenticeship has ever been thought necessary to qualify for hus- 
bandry, the great trade of the country. After what are called the fine 
arts, and the liberal professions, however, there is perhaps no trade 
which requires so great a variety of knowledge and experience. The 
innumerable volumes which have been written upon it in all lan- 
guages, may satisfy us, that among the wisest and most learned na- 
tions, it has never been regarded as a matter very easily understood. 
And from all those volumes we shall in vain attempt to collect that 
knowledge of its various and complicated operations, which is com- 
monly possessed even by the common farmer; how contemptuously 
soever the very contemptible authors of some of them may some- 
times affect to speak of him. There is scarce any common mechanic 
trade, on the contrary, of which all the operations may not be as 
completely and distinctly explained in a pamphlet of a very few 
pages, as it is possible for words illustrated by figures to explain 
them. In the history of the arts, now publishing by the French acad- 
emy of sciences, several of them are actually explained in this man- 
ner. The direction of operations, besides, which must be varied with 
every change of the weather, as well as with many other accidents, 
requires much more judgment and discretion, than of those which 
are always the same or very nearly the same. 

Not only the art of the farmer, the general direction of the opera- 



130 WEALTH OF NATIONS 

tions of husbandry, but many inferior branches of country labour, 
require much more skill and experience than the greater part of 
mechanic trades. The man who works upon brass and iron, works 
with instruments and upon materials of which the temper is always 
the same, or very nearly the same. But the man who ploughs the 
ground with a team of horses or oxen, works with instruments of 
which the health, strength, and temper, are very different upon dif- 
ferent occasions. The condition of the materials which he works 
upon too is as variable as that of the instruments which he works 
with, and both require to be managed with much judgment and dis- 
cretion. The common ploughman, though generally regarded as the 
pattern of stupidity and ignorance, is seldom defective in this judg- 
ment and discretion. He is less accustomed, indeed, to social inter- 
course than the mechanic who lives in a town. His voice and lan- 
guage are more uncouth and more difficult to be understood by those 
who are not used to them. His understanding, however, being accus- 
tomed to consider a greater variety of objects, is generally much 
superior to that of the other, whose whole attention from morning 
till night is commonly occupied in performing one or two very simple 
operations. How much the lower ranks of people in the country are 
really supierior to those of the town, is well known to every man 
whom either business or curiosity has led to converse with both. In 
China and Indostan accordingly both the rank and the wages of 
country labourers are said to be superior to those of the greater part 
of artificers and manufacturers. They would probably be so every- 
where, if corporation laws and the corporation spirit did not pre- 
vent it. 

The superiority which the industry of the towns has every-where 
in Europ)e over that of the country, is not altogether owing to cor- 
porations and corporation laws. It is suppxjrted by many other regu- 
lations. The high duties upon foreign manufactures and upon all 
goods imported by alien merchants, all tend to the same purpose. 
Corporation laws enable the inhabitants of towns to raise their prices, 
without fearing to be under-sold by the free competition of their own 
countrymen. Those other regulations secure them equally against 
that of foreigners. The enhancement of price occasioned by both is 
every-where finally paid by the landlords, farmers, and labourers 



POLITICAL INEQUALITIES I3I 

of the country, who have seldom opposed the estabUshment of such 
monopolies. They have commonly neither inclination nor fitness to 
enter into combinations; and the clamour and sophistry of merchants 
and manufacturers easily persuade them that the private interest of 
a part, and of a subordinate part of the society, is the general interest 
of the whole. 

In Great Britain the superiority of the industry of the towns over 
that of the country, seems to have been greater formerly than in the 
present times. The wages of country labour approach nearer to those 
of manufacturing labour, and the profits of stock employed in agri- 
culture to those of trading and manufacturing stock, than they are 
said to have done in the last century, or in the beginning of the pres- 
ent. This change may be regarded as the necessary, though very late 
consequence of the extraordinary encouragement given to the indus- 
try of the towns. The stock accumulated in them comes in time to 
be so great, that it can no longer be employed with the ancient profit 
in that species of industry which is peculiar to them. That industry 
has its limits like every other; and the increase of stock, by increasing 
the competition, necessarily reduces the profit. The lowering of 
profit in the town forces out stock to the country, where, by creating 
a new demand for country labour, it necessarily raises its wages. It 
then spreads itself, if I may say so, over the face of the land, and by 
being employed in agriculture is in part restored to the country, at 
the expence of which, in a great measure, it had originally been accu- 
mulated in the town. That every-where in Europe the greatest im- 
provements of the country have been owing to such overflowings of 
the stock originally accumulated in the towns, I shall endeavour to 
show hereafter; and at the same time to demonstrate, that though 
some countries have by this course attained to a considerable degree 
of opulence, it is in itself necessarily slow, uncertain, liable to be dis- 
turbed and interrupted by innumerable accidents, and in every re- 
spect contrary to the order of nature and of reason. The interests, 
prejudices, laws and customs which have given occasion to it, I shall 
endeavour to explain as fully and distincdy as I can in the third and 
fourth books of this inquiry. 

People of the same trade seldom meet together, even for merri- 
ment and diversion, but the conversation ends in a conspiracy 



132 WEALTH OF NATIONS 

against the public, or in some contrivance to raise prices. It is impos- 
sible indeed to prevent such meetings, by any law which either could 
be executed, or would be consistent with liberty and justice. But 
though the law cannot hinder people of the same trade from some- 
times assembling together, it ought to do nothing to facilitate such 
assemblies; much less to render them necessary. 

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

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

An incorporation not only renders them necessary, but makes the 
act of the majority binding upon the whole. In a free trade an effec- 
tual combination cannot be established but by the unanimous consent 
of every single trader, and it cannot last longer than every single 
trader continues of the same mind. The majority of a corporation 
can enact a bye-law with proper penalties, which will limit the com- 
f)etition more effectually and more durably than any voluntary com- 
bination whatever. 

The pretence that corporations are necessary for the better gov- 
ernment of the trade, is without any foundation. The real and effec- 
tual discipline which is exercised over a workman is not that of his 
corporation, but that of his customers. It is the fear of losing their 
employment which restrains his frauds and corrects his negligence. 
An exclusive corporation necessarily weakens the force of this dis- 
cipline. A particular set of workmen must then be employed, let 
them behave well or ill. It is upon this account that in many large 
incorporated towns no tolerable workmen are to be found, even in 
some of the most necessary trades. If you would have your work 
tolerably executed, it must be done in the suburbs, where the work- 
men, having no exclusive privilege, have nothing but their character 
to depend upon, and you must then smuggle it into the town as well 
as you can. 



POLITICAL INEQUALITIES I33 

It is in this manner that the poHcy of Europe, by restraining the 
competition in some employments to a smaller number than would 
otherwise be disposed to enter into them, occasions a very important 
inequality in the whole of the advantages and disadvantages of the 
different employments of labour and stock. 

Secondly, The policy of Europe, by increasing the competition in 
some employments beyond what it naturally would be, occasions 
another inequality of an opposite kind in the whole of the advan- 
tages and disadvantages of the different employments of labour and 
stock. 

It has been considered as of so much importance that a proper 
number of young people should be educated for certain professions, 
that, sometimes the public, and sometimes the piety of private found- 
ers have established many pensions, scholarships, exhibitions, bur- 
saries, &c., for this purpose, which draw many more f)eople into those 
trades than could otherwise pretend to follow them. In all christian 
countries, I believe, the education of the greater part of churchmen 
is paid for in this manner. Very few of them are educated altogether 
at their own expence. The long, tedious, and expensive education, 
therefore, of those who are, will not always procure them a suitable 
reward, the church being crowded with people who, in order to get 
employment, are willing to accept of a much smaller recompence 
than what such an education would otherwise have entitled them to; 
and in this manner the competition of the poor takes away the re- 
ward of the rich. It would be indecent, no doubt, to compare either 
a curate or a chaplain with a journeyman in any common trade. 
The pay of a curate or chaplain, however, may very properly be con- 
sidered as of the same nature with the wages of a journeyman. They 
are, all three, paid for their work according to the contract which 
they may happen to make with their respective superiors. Till after 
the middle of the fourteenth century, five merks, containing about as 
much silver as ten pounds of our present money, was in England 
the usual pay of a curate or stipendiary parish priest, as we find it 
regulated by the decrees of several different national councils. At the 
same period four pence a day, containing the same quantity of silver 
as a shilling of our present money, was declared to be the pay of a 
master mason, and three pence a day, equal to nine pence of our 



134 WEALTH OF NATIONS 

present money, that o£ a journeyman mason. The wages of both 
these labourers, therefore, supposing them to have been constantly 
employed, were much superior to those of the curate. The wages of 
the master mason, supposing him to have been without employment 
one third of the year, would have fully equalled them. By the 12th 
of Queen Anne, c. 12, it is declared, "That whereas for want of 
sufficient maintenance and encouragement to curates, the cures have 
in several places been meanly supplied, the bishop is, therefore, em- 
fKjwered to appoint by writing under his hand and seal a sufficient 
certain stipend or allowance, not exceeding fifty and not less than 
twenty pounds a year." Forty pounds a year is reckoned at present 
very good pay for a curate, and notwithstanding this act of parlia- 
ment, there are many curacies under twenty pounds a year. There 
are journeymen shoemakers in London who can earn forty {XDunds 
a year, and there is scarce an industrious workman of any kind in 
that metrofxjlis who does not earn more than twenty. This last sum 
indeed does not exceed what is frequendy earned by common la- 
bourers in many country parishes. Whenever the law has attempted 
to regulate the wages of workmen, it has always been rather to lower 
them than to raise them. But the law has upon many occasions at- 
tempted to raise the wages of curates, and for the dignity of the 
church, to oblige the rectors of parishes to give them more than the 
wretched maintenance which they themselves might be willing to 
accept of. And in both cases the law seems to have been equally in- 
effectual, and has never either been able to raise the wages of curates, 
or to sink those of labourers to the degree that was intended : because 
it has never been able to hinder either the one from being willing to 
accept of less than the legal allowance, on account of the indigence 
of their situation and the multitude of their competitors; or the other 
from receiving more, on account of the contrary competition of those 
who expected to derive either profit or pleasure from employing 
them. 

The great benefices and other ecclesiastical dignities support the 
honour of the church, notwithstanding the mean circumstances of 
some of its inferior members. The resf)ect paid to the profession too 
makes some compensation even to them for the meanness of their 
pecuniary recompence. In England, and in all Roman Catholic 



POLITICAL INEQUALITIES I35 

countries, the lottery of the church is in reaHty much more advan- 
tageous than is necessary. The example of the churches of Scotland, 
of Geneva, and of several other protestant churches, may satisfy us, 
that in so creditable a profession, in which education is so easily 
procured, the hopes of much more moderate benefices will draw a 
sufficient number of learned, decent, and respectable men into holy 
orders. 

In professions in which there are no benefices, such as law and 
physic, if an equal prof)ortion of p)eople were educated at the public 
expence, the comp)etition would soon be so great, as to sink very 
much their pecuniary reward. It might then not be worth any man's 
while to educate his son to either of those professions at his own 
expence. They would be entirely abandoned to such as had been 
educated by those public charities, whose numbers and necessities 
would oblige them in general to content themselves with a very mis- 
erable recompence, to the entire degradation of the now respectable 
professions of law and physic. 

That unprosperous race of men commonly called men of letters, 
are pretty much in the situation which lawyers and physicians prob- 
ably would be in upon the foregoing supposition. In every part of 
Europe the greater part of them have been educated for the church, 
but have been hindered by different reasons from entering into holy 
orders. They have generally, therefore, been educated at the public 
expence, and their numbers are every-where so great as commonly 
to reduce the price of their labour to a very paultry recompence. 

Before the invention of the art of printing, the only employment 
by which a man of letters could make any thing by his talents, was 
that of a public or private teacher, or by communicating to other 
(jeople the curious and useful knowledge which he had acquired him- 
self: And this is still surely a more honourable, a more useful, and 
in general even a more profitable employment than that other of 
writing for a bookseller, to which the art of printing has given occa- 
sion. The time and study, the genius, knowledge, and application 
requisite to qualify an eminent teacher of the sciences, are at least 
equal to what is necessary for the greatest practitioners in law and 
physic. But the usual reward of the eminent teacher bears no pro- 
portion to that of the lawyer or physician; because the trade of the 



136 WEALTH OF NATIONS 

one is crowded with indigent people who have been brought up to it 
at the public expence; whereas those of the other two are incumbered 
with very few who have not been educated at their own. The usual 
recompence, however, of public and private teachers, small as it may 
appear, would undoubtedly be less than it is, if the competition of 
those yet more indigent men of letters who write for bread was not 
taken out of the market. Before the invention of the art of printing, 
a scholar and a beggar seem to have been terms very nearly synony- 
mous. The different governors of the universities before that time 
appear to have often granted licences to their scholars to beg. 

In ancient times, before any charities of this kind had been estab- 
lished for the education of indigent people to the learned profes- 
sions, the rewards of eminent teachers appear to have been much 
more considerable. Isocrates, in what is called his discourse against 
the sophists, reproaches the teachers of his own times with incon- 
sistency. "They make the most magnificent promises to their schol- 
ars, says he, and undertake to teach them to be wise, to be happy, and 
to be just, and in return for so important a service they stipulate 
the paultry reward of four or five minae. They who teach wisdom, 
continues he, ought certainly to be wise themselves; but if any man 
were to sell such a bargain for such a price, he would be convicted 
of the most evident folly." He certainly does not mean here to ex- 
aggerate the reward, and we may be assured that it was not less than 
he represents it. Four minae were equal to thirteen pounds six shill- 
ings and eight pence: five mina: to sixteen pounds thirteen shillings 
and four pence. Something not less than the largest of those two 
sums, therefore, must at that time have been usually paid to the 
most eminent teachers at Athens. Isocrates himself demanded ten 
minae, or thirty-three pounds six shillings and eight pence, from each 
scholar. When he taught at Athens, he is said to have had an hundred 
scholars. I understand this to be the number whom he taught at one 
time, or who attended what we would call one course of lectures, a 
number which will not appear extraordinary from so great a city to 
so famous a teacher, who taught too what was at that time the most 
fashionable of all sciences, rhetoric. He must have made, therefore, 
by each course of lectures, a thousand minac, or jjjj/. 6s. 8d. A 
thousand minae, accordingly, is said by Plutarch in another place, to 



POLITICAL INEQUALITIES I37 

have been his Didactron, or usual price of teaching. Many other 
eminent teachers in those times appear to have acquired great for- 
tunes. Gorgias made a present to the temple of Delphi of his own 
statue in solid gold. We must not, I presume, suppose that it was 
as large as the life. His way of living, as well as that of Hippias and 
Protagoras, two other eminent teachers of those times, is represented 
by Plato as splendid even to ostentation. Plato himself is said to 
have lived with a good deal of magnificence. Aristode, after having 
been tutor to Alexander, and most munificently rewarded, as it is 
universally agreed, both by him and his father Philip, thought it 
worth while, notwithstanding, to return to Athens, in order to re- 
sume the teaching of his school. Teachers of the sciences were prob- 
ably in those times less common than they came to be in an age or 
two afterwards, when the competition had probably somewhat re- 
duced both the price of their labour and the admiration for their 
persons. The most eminent of them, however, appear always to have 
enjoyed a degree of consideration much superior to any of the like 
profession in the present times. The Athenians sent Carneades the 
academic, and Diogenes the stoic, upon a solemn embassy to Rome; 
and though their city had then declined from its former grandeur, it 
was still an independent and considerable republic. Carneades too 
was a Babylonian by birth, and as there never was a people more 
jealous of admitting foreigners to public offices than the Athenians, 
their consideration for him must have been very great. 

This inequality is upon the whole, perhaps, rather advantageous 
than hurtful to the public. It may somewhat degrade the profession 
of a public teacher; but the cheapness of literary education is surely 
an advantage which gready over-balances this trifling inconveniency. 
The public too might derive still greater benefit from it, if the con- 
stitution of those schools and colleges, in which education is carried 
on, was more reasonable than it is at present through the greater part 
of Europe. 

Thirdly, The policy of Europe, by obstructing the free circulation 
of labour and stock both from employment to employment, and from 
place to place, occasions in some cases a very inconvenient inequality 
in the whole of the advantages and disadvantages of their different 
employments. 



138 WEALTH OF NATIONS 

The statute of apprenticeship obstructs the free circulation of la- 
bour from one employment to another, even in the same place. The 
exclusive privileges of corporations obstruct it from one place to 
another, even in the same employment. 

It frequently happens that while high wages are given to the work- 
men in one manufacture, those in another are obliged to content 
themselves with bare subsistence. The one is in an advancing state, 
and has, therefore, a continual demand for new hands: The other is 
in a declining state, and the super-abundance of hands is continu- 
ally increasing. Those two manufactures may sometimes be in the 
same town, and sometimes in the same neighbourhood, without be- 
ing able to lend the least assistance to one another. The statute of 
apprenticeship may oppose it in the one case, and both that and an 
exclusive corporation in the other. In many different manufactures, 
however, the operations are so much alike, that the workmen could 
easily change trades with one another, if those absurd laws did not 
hinder them. The arts of weaving plain linen and plain silk, for ex- 
ample, are almost entirely the same. That of weaving plain woollen 
is somewhat different; but the difference is so insignificant, that 
either a linen or a silk weaver might become a tolerable workman in 
a very few days. If any of those three capital manufactures, there- 
fore, were decaying, the workmen might find a resource in one of the 
other two which was in a more prosperous condition; and their 
wages would neither rise too high in the thriving, nor sink too low 
in the decaying manufacture. The linen manufacture indeed is, in 
England, by a particular statute, open to every body; but as it is not 
much cultivated through the greater part of the country, it can afford 
no general resource to the workmen of other decaying manufactures, 
who, wherever the statute of apprenticeship takes place, have no 
other choice but either to come upon the parish, or to work as com- 
mon labourers, for which, by their habits, they are much worse quali- 
fied than for any sort of manufacture that bears any resemblance 
to their own. They generally, therefore, chuse to come upon the 
parish. 

Whatever obstructs the free circulation of labour from one em- 
ployment to another, obstructs that of stock likewise; the quantity of 
stock which can be employed in any branch of business depending 



POLITICAL INEQUALITIES 139 

very much upon that of the labour which can be employed in it. 
Corporation laws, however, give less obstruction to the free circula- 
tion of stock from one place to another than to that of laboiu*. It is 
everywhere much easier for a wealthy merchant to obtain the privi- 
lege of trading in a town corporate, than for a poor artificer to obtain 
that of working in it. 

The obstruction which corporation laws give to the free circulation 
of labour is common, I believe, to every part of Europe. That which 
is given to it by the poor laws is, so far as I know, peculiar to Eng- 
land. It consists in the difficulty which a fxxjr man finds in obtain- 
ing a setdement, or even in being allowed to exercise his industry 
in any parish but that to which he belongs. It is the labour of arti- 
ficers and manufacturers only of which the free circulation is ob- 
structed by corporation laws. The difficulty of obtaining settlements 
obstructs even that of common labour. It may be worth while to 
give some account of the rise, progress, and present state of this dis- 
order, the greatest perhaps of any in the police of England. 

When by the destruction of monasteries the poor had been de- 
prived of the charity of those religious houses, after some other in- 
effectual attempts for their relief, it was enacted by the 43d of 
Elizabeth, c. 2. that every parish should be bound to provide for its 
own poor; and that overseers of the poor should be annually aj>- 
pointed, who, with the churchwardens, should raise, by a parish 
rate, competent sums for this purpose. 

By this statute the necessity of providing for their own poor was 
indispensably imposed upon every parish. Who were to be consid- 
ered as the poor of each parish, became, therefore, a question of some 
importance. This question, after some variation, was at last deter- 
mined by the 13th and 14th of Charles II. when it was enacted, that 
forty days undisturbed residence should gain any pjerson a setde- 
ment in any parish; but that within that time it should be lawful for 
two justices of the peace, upon complaint made by the churchwardens 
or overseers of the f)oor, to remove any new inhabitant to the parish 
where he was last legally settled; unless he either rented a tenement 
of ten pounds a year, or could give such security for the discharge of 
the parish where he was then living, as those justices should judge 
sufficient. 



140 WEALTH OF NATIONS 

Some frauds, it is said, were committed in consequence of this 
statute; parish officers sometimes bribing their own poor to go clan- 
destinely to another parish, and by keeping themselves concealed for 
forty days to gain a settlement there, to the discharge of that to which 
they properly belonged. It was enacted, therefore, by the i st of James 
II. that the forty days undisturbed residence of any person neces- 
sary to gain a settlement, should be accounted only from the time of 
his delivering notice in writing, of the place of his abode and the 
number of his family, to one of the churchwardens or overseers of the 
parish where he came to dwell. 

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

"After all," says Doctor Burn, "this kind of settlement, by con- 
tinuing forty days after publication of notice in writing, is very sel- 
dom obtained; and the design of the acts is not so much for gaining 
of settlements, as for the avoiding of them by persons coming into a 
parish clandestinely: for the giving of notice is only putting a force 
upon the parish to remove. But if a person's situation is such, that 
it is doubtful whether he is actually removeable or not, he shall by 
giving of notice compel the parish either to allow him a settlement 
uncontested, by suffering him to continue forty days; or, by removing 
him, to try the right." 

This statute, therefore, rendered it almost impracticable for a 
poor man to gain a new settlement in the old way, by forty days in- 
habitancy. But that it might not appear to preclude altogether the 
common people of one parish from ever establishing themselves with 
security in another, it appointed four other ways by which a settle- 
ment might be gained without any notice delivered or published. 
The first was, by being taxed to parish rates and paying them; the 
second by being elected into an annual parish office, and serving in 



POLITICAL INEQUALITIES I4I 

it a year; the third, by serving an apprenticeship in the parish; the 
fourth, by being hired into service there for a year, and continuing in 
the same service during the whole of it. 

Nobody can gain a settlement by either of the two first ways, 
but by the public deed of the whole parish, who are too well aware 
of the consequences to adopt any new-comer who has nothing but 
his labour to support him, either by taxing him to parish rates, or by 
electing him into a parish office. 

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

No independent workman, it is evident, whether labourer or 
artificer, is likely to gain any new settlement either by apprentice- 
ship or by service. When such a person, therefore, carried his indus- 
try to a new parish, he was liable to be removed, how healthy and 
industrious soever, at the caprice of any churchwarden or overseer, 
unless he either rented a tenement of ten pounds a year, a thing im- 
possible for one who has nothing but his labour to live by; or could 
give such security for the discharge of the parish as two justices of 
the peace should judge sufficient. What security they shall require, 
indeed, is left altogether to their discretion; but they cannot well 
require less than thirty pounds, it having been enacted, that the pur- 
chase even of a freehold estate of less than thirty pounds value, 
shall not gain any person a settlement, as not being sufficient for the 
discharge of the parish. But this is a security which scarce any man 
who lives by labour can give; and much greater security is fre- 
quently demanded. 



142 WEALTH OF NATIONS 

In order to restore in some measure that free circulation of labour 
which those different statutes had almost entirely taken away, the 
invention of certificates was fallen uf)on. By the 8th or 9th of 
William III. it was enacted, that if any person should bring a certifi- 
cate from the parish where he was at last legally settled, subscribed 
by the churchwardens and overseers of the poor, and allowed by 
two justices of the peace, that every other parish should be obliged 
to receive him; that he should not be removeable merely uf)on ac- 
count of his being likely to become chargeable, but only upon his 
becoming actually chargeable, and that then the parish which granted 
the certificate should be obliged to pay the expence both of his main- 
tenance and of his removal. And in order to give the most jjerfect 
security to the parish where such certificated man should come to 
reside, it was further enacted by the same statute, that he should 
gain no setdement there by any means whatever, except either by 
renting a tenement of ten pounds a year, or by serving upon his 
own account in an annual parish office for one whole year; and con- 
sequendy neither by notice, nor by service, nor by apprenticeship, 
nor by paying parish rates. By the 12th of Queen Anne too, stat. 1. 
c. 18. it was further enacted, that neither the servants nor appren- 
tices of such certificated man should gain any settlement in the 
parish where he resided under such certificate. 

How far this invention has restored that free circulation of labour 
which the preceding statutes had almost entirely taken away, we 
may learn from the following very judicious observation of Doctor 
Burn. "It is obvious," says he, "that there are divers good reasons 
for requiring certificates with persons coming to settle in any place; 
namely, that persons residing under them can gain no settlement, 
neither by apprenticeship, nor by service, nor by giving notice, nor 
by paying parish rates; that they can settle neither apprentices nor 
servants; that if they become chargeable, it is certainly known 
whither to remove them, and the parish shall be paid for the re- 
moval, and for their maintenance in the mean time; and that if they 
fall sick, and cannot be removed, the parish which gave the certifi- 
cate must maintain them: none of which can be without a cer- 
tificate. Which reasons will hold proportionably for parishes not 
granting certificates in ordinary cases; for it is far more than an 



POLITICAL INEQUALITIES I43 

equal chance, but that they will have the certificated persons again, 
and in a worse condition." The moral of this observation seems to 
be, that certificates ought always to be required by the parish where 
any p)oor man comes to reside, and that they ought very seldom to 
be granted by that which he proposes to leave. "There is somewhat 
of hardship in this matter of certificates," says the same very in- 
telligent Author, in his History of the Poor Laws, "by putting it in 
the power of a parish officer, to imprison a man as it were for life; 
however inconvenient it may be for him to continue at that place 
where he has had the misfortune to acquire what is called a setde- 
ment, or whatever advantage he may propose to himself by living 
elsewhere." 

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

The very unequal price of labour which we frequendy find in 
England in places at no great distance from one another, is prob- 
ably owing to the obstruction which the law of settlements gives 
to a poor man who would carry his industry from one parish to 
another without a certificate. A single man, indeed, who is healthy 
and industrious, may sometimes reside by sufferance without one; 
but a man with a wife and family who should attempt to do so, 
would in most parishes be sure of being removed, and if the single 
man should afterwards marry, he would generally be removed like- 
wise. The scarcity of hands in one parish, therefore, cannot always 
be relieved by their super-abundance in another, as it is constantly 
in Scotland, and, I believe, in all other countries where there is 
no difficulty of settlement. In such countries, though wages may 
sometimes rise a little in the neighbourhood of a great town, or 
wherever else there is an extraordinary demand for labour, and sink 
gradually as the distance from such places increases, till they fall 
back to the common rate of the country; yet we never meet with 
those sudden and unaccountable difTerences in the wages of neigh- 



144 WEALTH OF NATIONS 

bouring places which we sometimes find in England, where it is 
often more difficult for a poor man to pass the artificial boundary of 
a parish, than an arm of the sea or a ridge of high mountains, natu- 
ral boundaries which sometimes separate very distincdy different 
rates of wages in other countries. 

To remove a man who has committed no misdemeanour from 
the parish where he chuses to reside, is an evident violation of natu- 
ral liberty and justice. The common people of England, however, so 
jealous of their liberty, but like the common people of most other 
countries never righdy understanding wherein it consists, have now 
for more than a century together suffered themselves to be exposed 
to this oppression without a remedy. Though men of reflection 
too have sometimes complained of the law of settlements as a 
public grievance; yet it has never been the object of any general 
f)opular clamour, such as that against general warrants, an abusive 
practice undoubtedly, but such a one as was not likely to occa- 
sion any general oppression. There is scarce a poor man in Eng- 
land of forty years of age, I will venture to say, who has not in some 
part of his life felt himself most cruelly oppressed by this ill<ontrived 
law of setdements. 

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

Particular acts of parliament, however, still attempt sometimes 
to regulate wages in particular trades and in particular places. Thus 
the 8th of George III. prohibits under heavy penalties all master 
taylors in London, and five miles round it, from giving, and their 
workmen from accepting, more than two shillings and sevenpence 
halfpenny a day, except in the case of a general mourning. When- 
ever the legislature attempts to regulate the differences between 



POLITICAL INEQUALITIES I45 

masters and their workmen, its counsellors are always the masters. 
When the regulation, therefore, is in favour of the workmen, it is 
always just and equitable; but it is sometimes otherwise when in 
favour of the masters. Thus the law which obliges the masters in 
several different trades to pay their workmen in money and not in 
goods, is quite just and equitable. It imposes no real hardship upon 
the masters. It only obliges them to pay that value in money, which 
they pretended to pay, but did not always really pay, in goods. This 
law is in favour of the workmen; but the 8th of George III. is in 
favour of the masters. When masters combine together in order to 
reduce the wages of their workmen, they commonly enter into a 
private bond or agreement, not to give more than a certain wage 
under a certain penalty. Were the workmen to enter into a con- 
trary combination of the same kind, not to accept of a certain wage 
under a certain penalty, the law would punish them very severely; 
and if it dealt impartially, it would treat the masters in the same 
manner. But the 8th of George III. enforces by law that very regula- 
tion which masters sometimes attempt to establish by such com- 
binations. The complaint of the workmen, that it puts the ablest and 
most industrious upon the same footing with an ordinary workman, 
seems perfectly well founded. 

In ancient times too it was usual to attempt to regulate the profits 
of merchants and other dealers, by rating the price both of provisions 
and other goods. The assize of bread is, so far as I know, the only 
remnant of this ancient usage. Where there is an exclusive corpora- 
tion, it may perhaps be prof)er to regulate the price for the first 
necessary of life. But where there is none, the competition will regu- 
late it much better than any assize. The method of fixing the assize 
of bread established by the 31st of George II. could not be put in 
practice in Scodand, on account of a defect in the law; its execu- 
tion depending upon the office of clerk of the market, which does 
not exist there. This defect was not remedied till the 3d of George 
III. The want of an assize occasioned no sensible inconveniency, and 
the establishment of one in the few places where it has yet taken 
place, has produced no sensible advantage. In the greater part of the 
towns of Scotland, however, there is an incorporation of bakers who 
claim exclusive privileges, though they are not very stricdy guarded. 



146 WEALTH OF NATIONS 

The proportion between the different rates both of wages and 
profit in the different employments of labour and stock, seems not 
to be much affected, as has already been observed, by the riches or 
poverty, the advancing, stationary, or declining state of the society. 
Such revolutions in the public welfare, though they affect the general 
rates both of wages and profit, must in the end affect them equally 
in all different employments. The proportion between them, there- 
fore, must remain the same, and cannot well be altered, at least for 
any considerable time, by any such revolutions. 



CHAPTER XI 
Of the Rent of Land 

RENT, considered as the price paid for the use of land, is 
naturally the highest which the tenant can afford to pay 
>. in the actual circumstances of the land. In adjusting the 
terms of the lease, the landlord endeavours to leave him no greater 
share of the produce than what is sufficient to keep up the stock from 
which he furnishes the seed, pays the labour, and purchases and 
maintains the cattle and other instruments of husbandry, together 
with the ordinary profits of farming stock in the neighbourhood. 
This is evidendy the smallest share with which the tenant can con- 
tent himself without being a loser, and the landlord seldom means 
to leave him any more. Whatever part of the produce, or, what is 
the same thing, whatever part of its price, is over and above this 
share, he naturally endeavours to reserve to himself as the rent of 
his land, which is evidently the highest the tenant can afford to 
pay in the actual circumstances of the land. Sometimes, indeed, the 
liberality, more frequendy the ignorance of the landlord, makes him 
accept of somewhat less than this portion; and sometimes too, 
though more rarely, the ignorance of the tenant makes him under- 
take to pay somewhat more, or to content himself with somewhat 
less, than the ordinary profits of farming stock in the neighbour- 
hood. This portion, however, may still be considered as the natural 
rent of land, or the rent for which it is naturally meant that land 
should for the most part be let. 

The rent of land, it may be thought, is frequently no more than 
a reasonable profit or interest for the stock laid out by the landlord 
upon its improvement. This, no doubt, may be pardy the case upon 
some occasions; for it can scarce ever be more than partly the case. 
The landlord demands a rent even for unimproved land, and the 
supposed interest or profit upon the expence of improvement is 
generally an addition to this original rent. Those improvements, 

147 



148 WEALTH OF NATIONS 

besides, are not always made by the stock of the landlord, but some- 
times by that of the tenant. When the lease comes to be renewed, 
however, the landlord commonly demands the same augmentation 
of rent, as if they had been all made by his own. 

He sometimes demands rent for what is altogether incapable of 
human improvement. Kelp is a species of sea-weed, which, when 
burnt, yields an alkaline salt, useful for making glass, soap, and for 
several other purposes. It grows in several parts of Great Britain, 
particularly in Scotland, upon such rocks only as lie within the high 
water mark, which are twice every day covered with the sea, and 
of which the produce, therefore, was never augmented by human 
industry. The landlord, however, whose estate is bounded by a kelp 
shore of this kind, demands a rent for it as much as for his corn 
fields. 

The sea in the neighbourhood of the islands of Shetland is more 
than commonly abundant in fish, which makes a great part of the 
subsistence of their inhabitants. But in order to profit by the prod- 
uce of the water, they must have a habitation upon the neighbour- 
ing land. The rent of the landlord is in proportion, not to what 
the farmer can make by the land, but to what he can make both 
by the land and by the water. It is partly paid in sea-fish; and one 
of the very few instances in which rent makes a part of the price, 
of that commodity, is to be found in that country. 

The rent of land, therefore, considered as the price paid for the use 
of the land, is naturally a monopoly price. It is not at all propwr- 
tioned to what the landlord may have laid out upon the improve- 
ment of the land, or to what he can afford to take; but to what the 
farmer can afford to give. 

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

There are some parts of the produce of land for which the demand 



RENT OF LAND FROM HUMAN FOOD 1 49 

must always be such as to afTord a greater price than what is sufH- 
cient to bring them to market; and there are others for which it 
either may or may not be such as to afford this greater price. The 
former must always afford a rent to the landlord. The latter some- 
times may, and sometimes may not, according to different circum- 
stances. 

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

The particular consideration, first, of those parts of the produce 
of land which always afford some rent; secondly, of those which 
sometimes may and sometimes may not afford rent; and, thirdly, of 
the variations which, in the different periods of improvement, natu- 
rally take place, in the relative value of those two different sorts of 
rude produce, when compared both with one another and with 
manufactured commodities, will divide this chapter into three parts. 

PART I 
Of the Produce of Land which Always Affords Rent 

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



150 WEALTH OF NATIONS 

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

The most desert moors in Norway and Scodand produce some 
sort of pasture for cattle, of which the milk and the increase are 
always more than sufficient, not only to maintain all the labour nec- 
essary for tending them, and to pay the ordinary profit to the farmer 
or owner of the herd or flock; but to afford some small rent to the 
landlord. The rent increases in proportion to the goodness of the 
pasture. The same extent of ground not only maintains a greater 
number of catde, but as they are brought within a smaller compass, 
less labour becomes requisite to tend them, and to collect their prod- 
uce. The landlord gains both ways; by the increase of the produce, 
and by the diminution of the labour which must be maintained 
out of it. 

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

Good roads, canals, and navigable rivers, by diminishing the ex- 
pence of carriage, put the remote parts of the country more nearly 
upon a level with those in the neighbourhood of the town. They 
are upon that account the greatest of all improvements. They en- 
courage the cultivation of the remote, which must always be the most 



RENT OF LAND FROM HUMAN FOOD 151 

extensive circle of the country. They are advantageous to the town, 
by breaking down the monopoly of the country in its neighbour- 
hood. They are advantageous even to that part of the country. 
Though they introduce some rival commodities into the old mar- 
ket, they open many new markets to its produce. Monopoly, 
besides, is a great enemy to good management, which can never be 
universally established but in consequence of that free and universal 
competition which forces everybody to have recourse to it for the 
sake of self-defence. It is not more than fifty years ago, that some 
of the counties in the neighbourhood of London petitioned the par- 
liament against the extension of the turnpike roads into the remoter 
counties. Those remote counties, they pretended, from the cheap- 
ness of labour, would be able to sell their grass and corn cheap)er in 
the London market than themselves, and would thereby reduce 
their rents, and ruin their cultivation. Their rents, however, have 
risen, and their cultivation has been improved since that time. 

A corn field of moderate fertility produces a much greater quan- 
tity of food for man, than the best pasture of equal extent. Though 
its cultivation requires much more labour, yet the surplus which 
remains after replacing the seed and maintaining all that labour, 
is likewise much greater. If a f)ound of butcher's-meat, therefore, 
was never supposed to be worth more than a pound of bread, this 
greater surplus would every-where be of greater value, and consti- 
tute a greater fund both for the profit of the farmer and the rent of 
the landlord. It seems to have done so universally in the rude 
beginnings of agriculture. 

But the relative values of those two different species of food, 
bread, and butcher's-meat, are very different in the different periods 
of agriculture. In its rude beginnings, the unimproved wilds, which 
then occupy the far greater part of the country, are all abandoned to 
catde. There is more butcher's-meat than bread, and bread, therefore, 
is the food for which there is the greatest competition, and which 
consequently brings the greatest price. At Buenos Ayres, we are 
told by Ulloa, four reals, one-and-twenty pence half-penny sterling, 
was, forty or fifty years ago, the ordinary price of an ox, chosen from 
a herd of two or three hundred. He says nothing of the price of 
bread, probably because he found nothing remarkable about it. An 



152 WEALTH OF NATIONS 

OX there, he says, costs little more than the labour of catching him. 
But corn can no-where be raised without a great deal of labour, and 
in a country which lies upon the river Plate, at that time the direct 
road from Europe to the silver mines of Potosi, the money price of 
labour could not be very cheap. It is otherwise when cultivation 
is extended over the greater part of the country. There is then 
more bread than butcher's-meat. The competition changes its direc- 
tion, and the price of butcher's-meat becomes greater than the price 
of bread. 

By the extension besides of cultivation the unimproved wilds be- 
come insufficient to supply the demand for butcher's-meat. A great 
part of the cultivated lands must be employed in rearing and fatten- 
ing cattle, of which the price, therefore, must be sufficient to pay, 
not only the labour necessary for tending them, but the rent which 
the landlord and the profit which the farmer could have drawn from 
such land employed in tillage. The cattle bred upon the most uncul- 
tivated moors, when brought to the same market, are, in proportion 
to their weight or goodness, sold at the same price as those which 
are reared upon the most improved land. The proprietors of those 
moors profit by it, and raise the rent of their land in proportion to 
the price of their cattle. It is not more than a century ago that in 
many parts of the highlands of Scotland, butcher's-meat was as cheap 
or cheaper than even bread made of oat-meal. The union opened 
the market of England to the highland cattle. Their ordinary price 
is at present about three times greater than at the beginning of the 
century, and the rents of many highland estates have been tripled 
and quadrupled in the same time. In almost every part of Great 
Britain a pound of the best butcher's-meat is, in the present times, 
generally worth more than two pounds of the best white bread; and 
in plentiful years it is sometimes worth three or four pounds. 

It is thus that in the progress of improvement the rent and profit 
of unimproved pasture come to be regulated in some measure by 
the rent and profit of what is improved, and these again by the rent 
and profit of corn. Corn is an annual crop. Butcher's-meat, a crop 
which requires four or five years to grow. As an acre of land, there- 
fore, will produce a much smaller quantity of the one species of food 
than of the other, the inferiority of the quantity must be compen- 



RENT OF LAND FROM HUMAN FOOD 1 53 

sated by the superiority of the price. If it was more than compen- 
sated, more corn land would be turned into pasture; and if it was 
not compensated, part of what was in pasture would be brought back 
into corn. 

This equality, however, between the rent and profit of grass and 
those of corn; of the land of which the immediate produce is food 
for cattle, and of that of which the immediate produce is food for 
men; must be understood to take place only through the greater 
part of the improved lands of a great country. In some particular 
local situations it is quite otherwise, and the rent and profit of grass 
are much superior to what can be made by corn. 

Thus in the neighbourhood of a great town, the demand for milk 
and for forage to horses, frequently contribute, together with the 
high price of butcher's-meat, to raise the value of grass above what 
may be called its natural proportion to that of corn. This local ad- 
vantage, it is evident, cannot be communicated to the lands at a 
distance. 

Particular circumstances have sometimes rendered some countries 
so populous, that the whole territory, like the lands in the neigh- 
bourhood of a great town, has not been sufficient to produce both the 
grass and the corn necessary for the subsistence of their inhabitants. 
Their lands, therefore, have been principally employed in the pro- 
duction of grass, the more bulky commodity, and which cannot be 
so easily brought from a great distance; and corn, the food of the 
great body of the people, has been chiefly imported from foreign 
countries. Holland is at present in this situation, and a considerable 
part of ancient Italy seems to have been so during the prosperity 
of the Romans. To feed well, old Cato said, as we are told by 
Cicero, was the first and most profitable thing in the management 
of a private estate; to feed tolerably well, the second; and to feed 
ill, the third. To plough, he ranked only in the fourth place of 
profit and advantage. Tillage, indeed, in that part of ancient Italy 
which lay in the neighbourhood of Rome, must have been very 
much discouraged by the distributions of corn which were fre- 
quently made to the people, either gratuitously, or at a very low 
price. This corn was brought from the conquered provinces, of 
which several, instead of taxes, were obliged to furnish a tenth 



154 WEALTH OF NATIONS 

part of their produce at a stated price, about sixpence a peck, to 
the republic. The low price at which this corn was distributed to 
the people, must necessarily have sunk the price of what could be 
brought to the Roman market from Latium, or the ancient territory 
of Rome, and must have discouraged its cultivation in that country. 

In an open country too, of which the principal produce is corn, 
a well-enclosed piece of grass will frequently rent higher than any 
corn field in its neighbourhood. It is convenient for the main- 
tenance of the cattle employed in the cultivation of the corn, and 
its high rent is, in this case, not so properly paid from the value of 
its own produce, as from that of the corn lands which are cultivated 
by means of it. It is likely to fall, if ever the neighbouring lands are 
completely enclosed. The present high rent of enclosed land in 
Scotland seems owing to the scarcity of enclosure, and will probably 
last no longer than that scarcity. The advantage of enclosure is 
greater for pasture than for corn. It saves the labour of guarding the 
catde, which feed better too when they are not liable to be disturbed 
by their keeper or his dog. 

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

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

In the appendix to the Life of Prince Henry, Doctor Birch has 
given us an account of the prices of butcher's-meat as commonly paid 
by that prince. It is there said that the four quarters of an ox weigh- 
ing six hundred pounds usually cost him nine pounds ten shillings, or 
thereabouts; that is, thirty-one shillings and eight pence per hundred 



RENT OF LAND FROM HUMAN FOOD 1 55 

pounds weight. Prince Henry died on the 6th of November 1612, 
in the nineteenth year of his age. 

In March 1764, there was a parliamentary inquiry into the causes 
of the high price of provisions at that time. It was then, among other 
proof to the same purpose, given in evidence by a Virginia mer- 
chant, that in March 1763, he had victualled his ships for twenty- 
four or twenty-five shillings the hundred weight of beef, which he 
considered as the ordinary price; whereas, in that dear year, he had 
paid twenty-seven shillings for the same weight and sort. This high 
price in 1764 is, however, four shillings and eight pence cheaper than 
the ordinary price paid by prince Henry; and it is the best beef 
only, it must be observed, which is fit to be salted for those distant 
voyages. 

The price paid by prince Henry amounts to 3 4-^d. per pound 
weight of the whole carcase, coarse and choice pieces taken together; 
and at that rate the choice pieces could not have been sold by retail 
for less than ^Vid. or ^d. the pound. 

In the parliamentary inquiry in 1764, the witnesses stated the 
price of the choice pieces of the best beef to be to the consumer 4^. 
and /^y^d. the pound; and the coarse pieces in general to be from 
seven farthings to z'/z'^- and 2y^d.; and this they said was in general 
one half-penny dearer than the same sort of pieces had usually been 
sold in the month of March. But even this high price is still a good 
deal cheaper than what we can well suppose the ordinary retail price 
to have been in the time of prince Henry, 

During the twelve first years of the last century, the average price 
of the best wheat at the Windsor market was i/. i8j. 3 i-6d. the 
quarter of nine Winchester bushels. 

But in the twelve years preceding 1764, including that year, the 
average price of the same measure of the best wheat at the same 
market was 2/. is. ^Yid. 

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

In all great countries the greater part of the cultivated lands are 
employed in producing either food for men or food for cattle. The 



156 WEALTH OF NATIONS 

rent and profit of these regulate the rent and profit of all other cul- 
tivated land. If any particular produce afforded less, the land would 
soon be turned into corn or pasture; and if any afforded more, some 
part of the lands in corn and pasture would soon be turned to that 
produce. 

Those productions, indeed, which require either a greater origi- 
nal expence of improvement, or a greater annual expence of culti- 
vation, in order to fit the land for them, appear commonly to afford, 
the one a greater rent, the other a greater profit than corn or pas- 
ture. This supjeriority, however, will seldom be found to amount to 
more than a reasonable interest or compensation for this superior 
exfjence. 

In a hop garden, a fruit garden, a kitchen garden, both the rent 
of the landlord, and the profit of the farmer, are generally greater 
than in a corn or grass field. But to bring the ground into this con- 
dition requires more exf)ence. Hence a greater rent becomes due to 
the landlord. It requires too a more attentive and skilful manage- 
ment. Hence a greater profit becomes due to the farmer. The crop 
too, at least in the hop and fruit garden, is more precarious. Its 
price, therefore, besides compensating all occasional losses, must 
afford something like the profit of insurance. The circumstances of 
gardeners, generally mean, and always moderate, may satisfy us 
that their great ingenuity is not commonly over-recompenced. Their 
delightful art is practised by so many rich people for amusement, 
that little advantage is to be made by those who practise it for profit; 
because the persons who should naturally be their best customers, 
supply themselves with all their most precious productions. 

The advantage which the landlord derives from such improve- 
ments seems at no time to have been greater than what was sufficient 
to compensate the original exf)ence of making them. In the ancient 
husbandry, after the vineyard, a well-watered kitchen garden seems 
to have been the part of the farm which was supposed to yield the 
most valuable produce. But Democritus, who wrote upon husbandry 
about two thousand years ago, and who was regarded by the ancients 
as one of the fathers of art, thought they did not act wisely who 
enclosed a kitchen garden. The profit, he said, would not compensate 
the expence of a stone wall; and bricks (he meant, I suppose, bricks 



RENT OF LAND FROM HUMAN FOOD 1 57 

baked in the sun) mouldered with the rain, and the winter storm, 
and required continual repairs. Columella, who reports this judg- 
ment of Democritus, does not controvert it, but proposes a very frugal 
method of enclosing with a hedge of brambles and briars, which, he 
says, he had found by experience to be both a lasting and an impene- 
trable fence; but which, it seems, was not commonly known in the 
time of Democritus. Palladius adopts the opinion of Columella, 
which had before been recommended by Varro. In the judgment of 
those ancient improvers, the produce of a kitchen garden had, it 
seems, been little more than sufficient to pay the extraordinary culture 
and the expence of watering; for in countries so near the sun, it was 
thought proper, in those times as in the present, to have the com- 
mand of a stream of water, which could be conducted to every bed 
in the garden. Through the greater part of Europe, a kitchen garden 
is not at present supposed to deserve a better enclosure than that 
recommended by Columella. In Great Britain, and some other 
northern countries, the finer fruits cannot be brought to perfection 
but by the assistance of a wall. Their price, therefore, in such coun- 
tries, must be sufficient to pay the expence of building and maintain- 
ing what they cannot be had without. The fruit-wall frequently sur- 
rounds the kitchen garden, which thus enjoys the benefit of an 
enclosure which its own produce could seldom pay for. 

That the vineyard, when properly planted and brought to per- 
fection, was the most valuable part of the farm, seems to have been 
an undoubted maxim in the ancient agriculture, as it is in the modern 
through all the wine countries. But whether it was advantageous to 
plant a new vineyard, was a matter of dispute among the ancient 
Italian husbandmen, as we learn from Columella. He decides, like 
a true lover of all curious cultivation, in favour of the vineyard, and 
endeavours to show, by a comparison of the profit and expense, that 
it was a most advantageous improvement. Such comparisons, how- 
ever, between the profit and expense of new projects, are commonly 
very fallacious; and in nothing more so than in agriculture. Had 
the gain actually made by such plantations been commonly as great 
as he imagined it might have been, there could have been no dispute 
about it. The same point is frequently at this day a matter of con- 
troversy in the wine countries. Their writers on agriculture, indeed, 



158 WEALTH OF NATIONS 

the lovers and promoters of high cuhivation, seem generally dis- 
posed to decide with Columella in favour of the vineyard. In France 
the anxiety of the proprietors of the old vineyards to prevent the 
planting of any new ones, seems to favour their opinion, and to 
indicate a consciousness in those who must have the experience, that 
this species of cultivation is at present in that country more profitable 
than any other. It seems at the same time, however, to indicate 
another opinion, that this superior profit can last no longer than the 
laws which at present restrain the free cultivation of the vine. In 
1731, they obtained an order of council, prohibiting both the plant- 
ing of new vineyards, and the renewal of those old ones, of which 
the cultivation had been interrupted for two years, without a par- 
ticular permission from the king, to be granted only in consequence 
of an information from the intendant of the province, certifying that 
he had examined the land, and that it was incapable of any other 
culture. The pretence of this order was the scarcity of corn and 
pasture, and the super-abundance of wine. But had this super-abun- 
dance been real, it would, without any order of council, have effectu- 
ally prevented the plantation of new vineyards, by reducing the 
profits of this species of cultivation below their natural proportion 
to those of corn and pasture. With regard to the supposed scarcity 
of corn occasioned by the multiplication of vineyards, corn is no- 
where in France more carefully cultivated than in the wine prov- 
inces, where the land is fit for producing it; as in Burgundy, Gui- 
enne, and the Upper Languedoc. The numerous hands employed 
in the one species of cultivation necessarily encourage the other, by 
affording a ready market for its produce. To diminish the number 
of those who are capable of paying for it, is surely a most unpromis- 
ing expedient for encouraging the cultivation of corn. It is like 
the policy which would promote agriculture by discouraging manu- 
factures. 

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



RENT OF LAND FROM HUMAN FOOD 1 59 

It sometimes happens, indeed, that the quantity of land which can 
be fitted for some particular produce, is too small to supply the effec- 
tual demand. The whole produce can be disposed of to those who 
are willing to give somewhat more than what is sufficient to pay the 
whole rent, wages and profit necessary for raising and bringing it to 
market, according to their natural rates, or according to the rates at 
which they are paid in the greater part of other cultivated land. The 
surplus part of the price which remains after defraying the whole 
expence of improvement and cultivation may commonly, in this case, 
and in this case only, bear no regular proportion to the like surplus 
in corn or pasture, but may exceed it in almost any degree; and the 
greater part of this excess naturally goes to the rent of the landlord. 

The usual and natural proportion, for example, between the rent 
and profit of wine and those of corn and pasture, must be understood 
to take place only with regard to those vineyards which produce 
nothing but good common wine, such as can be raised almost any- 
where, upon any light, gravelly, or sandy soil, and which has nothing 
to recommend it but its strength and wholesomeness. It is with such 
vineyards only that the common land of the country can be brought 
into competition; for with those of a peculiar quality it is evident 
that it cannot. 

The vine is more affected by the difference of soils than any other 
fruit tree. From some it derives a flavour which no culture or man- 
agement can equal, it is supposed, upon any other. This flavour, 
real or imaginary, is sometimes peculiar to the produce of a few vine- 
yards; sometimes it extends through the greater part of a small dis- 
trict, and sometimes through a considerable part of a large province. 
The whole quantity of such wines that is brought to market falls 
short of the effectual demand, or the demand of those who would be 
willing to pay the whole rent, profit and wages necessary for prepar- 
ing and bringing them thither, according to the ordinary rate, or 
according to the rate at which they are paid in common vineyards. 
The whole quantity, therefore, can be disposed of to those who are 
willing to pay more, which necessarily raises the price above that of 
common wine. The difference is greater or less, according as the 
fashionableness and scarcity of the wine render the competition of 
the buyers more or less eager. Whatever it be, the greater part of it 



l6o WEALTH OF NATIONS 

goes to the rent of the landlord. For though such vineyards are in 
general more carefully cultivated than most others, the high price 
of the wine seems to be, not so much the effect, as the cause of this 
careful cultivation. In so valuable a produce the loss occasioned by 
negligence is so great as to force even the most careless to attention. 
A small part of this high price, therefore, is sufficient to pay the wages 
of the extraordinary labour bestowed upon their cultivation, and the 
profits of the extraordinary stock which puts that labour into motion. 
The sugar colonies possessed by the Eurof)ean nations in the West 
Indies, may be compared to those precious vineyards. Their whole 
produce falls short of the effectual demand of Europe, and can be 
disposed of to those who are willing to give more than what is suffi- 
cient to pay the whole rent, profit and wages necessary for preparing 
and bringing it to market, according to the rate at which they are 
commonly paid by any other produce. In Cochin-china the finest 
white sugar commonly sells for three piastres the quintal, about thir- 
teen shillings and sixp)ence of our money, as we are told by Mr. Poivre, 
a very careful observer of the agriculture of that country. What is 
there called the quintal weighs from a hundred and fifty to two 
hundred Paris pounds, or a hundred and seventy-five Paris pounds 
at a medium, which reduces the price of the hundred weight English 
to about eight shillings sterling, not a fourth part of what is com- 
monly paid for the brown or muskavada sugars imported from our 
colonies, and not a sixth part of what is paid for the finest white 
sugar. The greater part of the cultivated lands in Cochin<hina are 
employed in producing corn and rice, the food of the great body of 
the people. The respective prices of corn, rice, and sugar, are there 
probably in the natural proportion, or in that which naturally takes 
place in the different crops of the greater part of cultivated land, and 
which recompences the landlord and farmer, as nearly as can be com- 
puted, according to what is usually the original expence of improve- 
ment and the annual expence of cultivation. But in our sugar colonies 
the price of sugar bears no such proportion to that of the produce of 
a rice or corn field either in Europe or in America. It is commonly 
said, that a sugar planter expects that the rum and the molasses should 
defray the whole expence of his cultivation, and that his sugar should 
be all clear profit. If this be true, for I pretend not to affirm it, it is as 



RENT OF LAND FROM HUMAN FOOD l6l 

if a corn farmer expected to defray the expence of his cultivation with 
the chaff and the straw, and that the grain should be all clear profit. 
We see frequently societies of merchants in London and other trading 
towns, purchase waste lands in our sugar colonies, which they exjject 
to improve and cultivate with profit by means of factors and agents; 
notwithstanding the great distance and the uncertain returns, from 
the defective administration of justice in those countries. Nobody 
will attempt to improve and cultivate in the same manner the most 
fertile lands of Scotland, Ireland, or the corn provinces of North 
America, though from the more exact administration of justice in 
these countries, more regular returns might be expected. 

In Virginia and Maryland the cultivation of tobacco is preferred, 
as more profitable, to that of corn. Tobacco might be cultivated with 
advantage through the greater part of Europe; but in almost every 
part of Europe it has become a principal subject of taxation, and to 
collect a tax from every different farm in the country where this plant 
might happen to be cultivated, would be more difficult, it has been 
supposed, than to levy one upon its importation at the custom-house. 
The cultivation of tobacco has upon this account been most absurdly 
prohibited through the greater part of Europe, which necessarily gives 
a sort of monopoly to the countries where it is allowed; and as Vir- 
ginia and Maryland produce the greatest quantity of it, they share 
largely, though with some competitors, in the advantage of this mo- 
nof)oly. The cultivation of tobacco, however, seems not to be so 
advantageous as that of sugar. I have never even heard of any tobacco 
plantation that was improved and cultivated by the capital of mer- 
chants who resided in Great Britain, and our tobacco colonies send 
us home no such wealthy planters as we see frequently arrive from 
our sugar islands. Though from the preference given in those colo- 
nies to the cultivation of tobacco above that of corn, it would appear 
that the effectual demand of Europe for tobacco is not completely 
supplied, it probably is more nearly so than that for sugar: And 
though the present price of tobacco is probably more than sufficient 
to pay the whole rent, wages and profit necessary for preparing and 
bringing it to market, according to the rate at which they are com- 
monly paid in corn land; it must not be so much more as the present 
price of sugar. Our tobacco planters, accordingly, have shewn the 



l62 WEALTH OF NATIONS 

same fear of the super-abundance of tobacco, which the proprietors 
of the old vineyards in France have of the super-abundance of wine. 
By act of assembly they have restrained its cultivation to six thousand 
plants, supposed to yield a thousand weight of tobacco, for every 
negro between sixteen and sixty years of age. Such a negro, over and 
above this quantity of tobacco, can manage, they reckon, four acres 
of Indian corn. To prevent the market from being overstocked too, 
they have sometimes, in plentiful years, we are told by Dr. Douglas, 
(I suspect he has been ill informed) burnt a certain quantity of 
tobacco for every negro, in the same manner as the Dutch are said to 
do of spices. If such violent methods are necessary to keep up the 
present price of tobacco, the superior advantage of its culture over that 
of corn, if it still has any, will not probably be of long continuance. 

It is in this manner that the rent of the cultivated land, of which 
the produce is human food, regulates the rent of the greater part of 
other cultivated land. No particular produce can long afford less; be- 
cause the land would immediately be turned to another use: And if 
any particular produce commonly affords more, it is because the 
quantity of land which can be fitted for it is too small to supply the 
effectual demand. 

In Eurof)e corn is the principal produce of land which serves 
immediately for human food. Except in particular situations, there- 
fore, the rent of corn land regulates in Europe that of all other culti- 
vated land. Britain need envy neither the vineyards of France nor 
the olive plantations of Italy. Except in particular situations, the value 
of these is regulated by that of corn, in which the fertility of Britain 
is not much inferior to that of either of those two countries. 

If in any country the common and favorite vegetable food of the 
people should be drawn from a plant of which the most common 
land, with the same or nearly the same culture, produced a much 
greater quantity than the most fertile does of corn, the rent of the 
landlord, or the surplus quantity of food which would remain to him, 
after paying the labour and replacing the stock of the farmer together 
with its ordinary profits, would necessarily be much greater. What- 
ever was the rate at which labour was commonly maintained in that 
country, this greater surplus could always maintain a greater quantity 
of it, and consequently enable the landlord to purchase or command 



RENT OF LAND FROM HUMAN FOOD 163 

a greater quantity of it. The real value of his rent, his real power and 
authority, his command of the necessaries and conveniencies of life 
with which the labor of other people could supply him, would neces- 
sarily be much greater. 

A rice field produces a much greater quantity of food than the most 
fertile corn field. Two crops in the year from thirty to sixty bushels 
each, are said to be the ordinary produce of an acre. Though its 
cultivation, therefore, requires more labour, a much greater surplus 
remains after maintaining all that labour. In those rice countries, 
therefore, where rice is the common and favourite vegetable food of 
the people, and where the cultivators are chiefly maintained with it, 
a greater share of this greater surplus should belong to the landlord 
than in corn countries. In Carolina, where the planters, as in other 
British colonies, are generally both farmers and landlords, and where 
rent consequently is confounded with profit, the cultivation of rice 
is found to be more profitable than that of corn, though their fields 
produce only one crop in the year, and though, from the prevalence 
of the customs of Europe, rice is not there the common and favourite 
vegetable food of the people. 

A good rice field is a bog at all seasons, and at one season a bog 
covered with water. It is unfit either for corn, or pasture, or vineyard, 
or, indeed, for any other vegetable produce that is very useful to men: 
And the lands which are fit for those purposes, are not fit for rice. 
Even in the rice countries, therefore, the rent of rice lands cannot 
regulate the rent of the other cultivated land which can never be 
turned to that produce. 

The food produced by a field of potatoes is not inferior in quantity 
to that produced by a field of rice, and much superior to what is pro- 
duced by a field of wheat. Twelve thousand weight of potatoes from 
an acre of land is not a greater produce than two thousand weight of 
wheat. The food or solid nourishment, indeed, which can be drawn 
from each of those two plants, is not altogether in proportion to their 
weight, on account of the watery nature of potatoes. Allowing, how- 
ever, half the weight of this root to go to water, a very large allow- 
ance, such an acre of potatoes will still produce six thousand weight 
of solid nourishment, three times the quantity produced by the acre 
of wheat. An acre of potatoes is cultivated with less expence than an 



164 WEALTH OF NATIONS 

acre of wheat; the fallow, which generally precedes the sowing of 
wheat, more than compensating the hoeing and other extraordinary 
culture which is always given to potatoes. Should this root ever be- 
come in any part of Europe, like rice in some rice countries, the 
common and favourite vegetable food of the people, so as to occupy 
the same proportion of the land in tillage which wheat and other 
sorts of grain for human food do at present, the same quantity of 
cultivated land would maintain a much greater number of people, 
and the labourers being generally fed with potatoes, a greater surplus 
would remain after replacing all the stock and maintaining all the 
labour employed in cultivation. A greater share of this surplus too 
would belong to the landlord. Population would increase, and rents 
would rise much beyond what they are at present. 

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

In some parts of Lancashire it is pretended, I have been told, that 
bread of oatmeal is a heartier food for labouring people than wheaten 
bread, and I have frequently heard the same doctrine held in Scodand. 
I am, however, somewhat doubtful of the truth of it. The common 
people in Scotland, who are fed with oatmeal, are in general neither 
so strong nor so handsome as the same rank of people in England, 
who are fed with wheaten bread. They neither work so well, nor 
look so well; and as there is not the same difference between the 
people of fashion in the two countries, experience would seem to 
show, that the food of the common people in Scotland is not so suit- 
able to the human constitution as that of their neighbours of the same 
rank in England. But it seems to be otherwise with potatoes. The 
chairmen, porters, and coal-heavers in London, and those unfortunate 
women who live by prostitution, the strongest men and the most 
beautiful women perhaps in the British dominions, are said to be, 
the greater part of them, from the lowest rank of (jeople in Ireland, 
who are generally fed with this root. No food can afford a more 
decisive proof of its nourishing quality, or of its being peculiarly 
suitable to the health of the human constitution. 

It is difficult to preserve potatoes through the year, and impossible 



RENT OF LA^fD FROM HUMAN FOOD 1 65 

to Store them like corn, for two or three years together. The fear of 
not being able to sell them before they rot, discourages their cultiva- 
tion, and is, perhaps, the chief obstacle to their ever becoming in any 
great country, like bread, the principal vegetable food of all the differ- 
ent ranks of the people. 

PART II 
Of the Produce of Land which sometimes does and sometimes 

DOES NOT, afford ReNT 

Human food seems to be the only produce of land which always 
and necessarily affords some rent to the landlord. Other sorts of prod- 
uce sometimes may and sometimes may not, according to different 
circumstances. 

After food, cloathing and lodging are the two great wants of 
mankind. 

Land in its original rude state can afford the materials of cloathing 
and lodging to a much greater number of people than it can feed. 
In its improved state it can sometimes feed a greater number of peo- 
ple than it can supply with those materials; at least in the way in 
which they require them, and are willing to pay for them. In the 
one state, therefore, there is always a super-abundance of those ma- 
terials, which are frequently, upon that account, of little or no value. 
In the other there is often a scarcity, which necessarily augments their 
value. In the one state a great part of them is thrown away as useless, 
and the price of what is used is considered as equal only to the labour 
and expence of fitting it for use, and can, therefore, afford no rent to 
the landlord. In the other they are all made use of, and there is 
frequently a demand for more than can be had. Somebody is always 
willing to give more for every part of them than what is sufficient to 
pay the expence of bringing them to market. Their price, therefore, 
can always afford some rent to the landlord. 

The skins of the larger animals were the original materials of 
cloathing. Among nations of hunters and shepherds, therefore, whose 
food consists chiefly in the flesh of those animals, every man, by pro- 
viding himself with food, provides himself with the materials of 
more cloathing than he can wear. If there was no foreign commerce, 



l66 WEALTH OF NATIONS 

the greater part of them would be thrown away as things of no 
value. This was probably the case among the hunting nations of 
North America, before their country was discovered by the Euro- 
peans, with whom they now exchange their surplus peltry, for 
blankets, fire-arms, and brandy, which gives it some value. In the 
present commercial state of the known world, the most barbarous 
nations, I believe, among whom land property is established, have 
some foreign commerce of this kind, and find among their wealthier 
neighbours such a demand for all the materials of cloathing, which 
their land produces, and which can neither be wrought up nor con- 
sumed at home, as raises their price above what it costs to send them 
to those wealthier neighbours. It affords, therefore, some rent to the 
landlord. When the greater part of the highland cattle were con- 
sumed on their own hills, the exportation of their hides made the 
most considerable article of the commerce of that country, and what 
they were exchanged for afforded some addition to the rent of the 
highland estates. The wool of England, which in old times could 
neither be consumed nor wrought up at home, found a market in the 
then wealthier and more industrious country of Flanders, and its 
price afforded something to the rent of the land which produced it. 
In countries not better cultivated than England was then, or than 
the highlands of Scotland are now, and which had no foreign com- 
merce, the materials of cloathing would evidently be so super-abun- 
dant, that a great part of them would be thrown away as useless, and 
no part could afford any rent to the landlord. 

The materials of lodging cannot always be transported to so great 
a distance as those of cloathing, and do not so readily become an 
object of foreign commerce. When they are super-abundant in the 
country which produces them, it frequently happens, even in the 
present commercial state of the world, that they are of no value to 
the landlord. A good stone quarry in the neighbourhood of London 
would afford a considerable rent. In many parts of Scotland and 
Wales it affords none. Barren timber for building is of great value 
in a populous and well-cultivated country, and the land which pro- 
duces it affords a considerable rent. But in many parts of North 
America the landlord would be much obliged to any body who would 
carry away the greater part of his large trees. In some parts of the 



RENT OF LA^fD FROM MATERIALS 167 

highlands of Scotland the bark is the only part of the wood which, 
for want of roads and water-carriage, can be sent to market. The 
timber is left to rot upon the ground. When the materials of lodging 
are so suf)er-abundant, the part made use of is worth only the labour 
and expence of fitting it for that use. It affords no rent to the land- 
lord, who generally grants the use of it to whoever takes the trouble 
of asking it. The demand of wealthier nations, however, sometimes 
enables him to get a rent for it. The paving of the streets of London 
has enabled the owners of some barren rocks on the coast of Scotland 
to draw a rent from what never afforded any before. The woods of 
Norway and of the coasts of the Baltic, find a market in many parts 
of Great Britain which they could not find at home, and thereby 
afford some rent to their proprietors. 

Countries are populous, not in proportion to the number of people 
whom their produce can cloath and lodge, but in proportion to that of 
those whom it can feed. When food is provided, it is easy to find the 
necessary cloathing and lodging. But though these are at hand, it 
may often be difficult to find food. In some parts even of the British 
dominions, what is called A House may be built by one day's labour 
of one man. The simplest sf)ecies of cloathing, the skins of animals, 
require somewhat more labour to dress and prepare them for use. 
They do not, however, require a great deal. Among savages and 
barbarous nations, a hundredth or little more than a hundredth part 
of the labour of the whole year, will be sufficient to provide them 
with such cloathing and lodging as satisfy the greater part of the 
people. All the other ninety-nine parts are frequendy no more than 
enough to provide them with food. 

But when by the improvement and cultivation of land the labour 
of one family can provide food for two, the labour of half the society 
becomes sufficient to provide food for the whole. The other half, 
therefore, or at least the greater part of them, can be employed in 
providing other things, or in satisfying the other wants and fancies 
of mankind. Cloathing and lodging, houshold furniture, and what 
is called Equipage, are the principal objects of the greater part of 
those wants and fancies. The rich man consumes no more food than 
his p)oor neighbour. In quality it may be very different, and to select 
and prepare it may require more labour and art; but in quantity 



l68 WEALTH OF NATIONS 

it is very nearly the same. But compare the spacious palace and great 
wardrobe of the one, with the hovel and the few rags of the other, 
and you will be sensible that the difference between their cloathing, 
lodging, and houshold furniture, is almost as great in quantity as 
it is in quality. The desire of food is limited in every man by the 
narrow capacity of the human stomach; but the desire of the con- 
veniencies and ornaments of building, dress, equipage, and houshold 
furniture, seems to have no limit or certain boundary. Those, there- 
fore, who have the command of more food than they themselves can 
consume, are always willing to exchange the surplus, or, what is the 
same thing, the price of it, for gratifications of this other kind. What 
is over and above satisfying the limited desire, is given for the amuse- 
ment of those desires which cannot be satisfied, but seem to be alto- 
gether endless. The poor, in order to obtain food, exert themselves 
to gratify those fancies of the rich, and to obtain it more certainly, they 
vie with one another in the cheapness and perfection of their work. 
The number of workmen increases with the increasing quantity of 
food, or with the growing improvement and cultivation of the lands 
and as the nature of their business admits of the utmost subdivisions 
of labour, the quantity of materials which they can work up, increases 
in a much greater proportion than their numbers. Hence arises a 
demand for every sort of material which human invention can em- 
ploy, either usefully or ornamentally, in building, dress, equipage, or 
houshold furniture; for the fossils and minerals contained in the 
bowels of the earth, the precious metals, and the precious stones. 

Food is in this manner, not only the original source of rent, but 
every other part of the produce of land which afterwards affords rent, 
derives that part of its value from the improvement of the pwwers of 
labour in producing food by means of the improvement and cultiva- 
tion of land. 

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



RENT OF LAND FROM MATERIALS 1 69 

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

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

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

There are some of which the produce is barely sufficient to pay the 
labour, and replace, together with its ordinary profits, the stock em- 
ployed in working them. They afford some profit to the undertaker 
of the work, but no rent to the landlord. They can be wrought ad- 
vantageously by nobody but the landlord, who being himself under- 
taker of the work, gets the ordinary profit of the capital which he 
employs in it. Many coal-mines in Scotland are wrought in this 
manner, and can be wrought in no other. The landlord will allow 
nobody else to work them without paying some rent, and nobody 
can afford to pay any. 

Other coal-mines in the same country sufficiendy fertile, cannot be 
wrought on account of their situation. A quantity of mineral suffi- 
cient to defray the expence of working, could be brought from the 
mine by the ordinary, or even less than the ordinary quantity of 
labour: But in an inland country, thinly inhabited, and without either 
good roads or water<arriage, this quantity could not be sold. 

Coals are a less agreeable fewel than wood: they are said too to be 
less wholesome. The expence of coals, therefore, at the place where 
they are consumed, must generally be somewhat less than that of 
wood. 

The price of wood again varies with the state of agriculture, nearly 
in the same manner, and exactly for the same reason, as the price of 
catde. In its rude beginnings the greater part of every country is 
covered with wood, which is then a mere incumbrance of no value 
to the landlord, who would gladly give it to any body for the cutting. 
As agriculture advances, the woods are partly cleared by the progress 
of tillage, and pardy go to decay in consequence of the increased 



170 WEALTH OF NATIONS 

number of cattle. These, though they do not increase in the same pro- 
portion as corn, which is altogether the acquisition of human indus- 
try, yet multiply under the care and protection of men; who store 
up in the season of plenty what may maintain them in that of scarcity, 
who through the whole year furnish them with a greater quantity 
of food than uncultivated nature provides for them, and who by 
destroying and extirpating their enemies, secure them in the free 
enjoyment of all that she provides. Numerous herds of catde, when 
allowed to wander through the woods, though they do not destroy 
the old trees, hinder any young ones from coming up, so that in the 
course of a century or two the whole forest goes to ruin. The scarcity 
of wood then raises its price. It affords a good rent, and the landlord 
sometimes finds that he can scarce employ his best lands more advan- 
tageously than in growing barren timber, of which the greatness of 
the profit often compensates the lateness of the returns. This seems 
in the present times to be nearly the state of things in several parts 
of Great Britain, where the profit of planting is found to be equal to 
that of either corn or pasture. The advantage which the landlord 
derives from planting, can no-where exceed, at least for any consid- 
erable time, the rent which these could afford him; and in an inland 
country which is highly cultivated, it will frequendy not fall much 
short of this rent. Upon the sea-coast of a well-improved country, 
indeed, if coals can conveniently be had for fewel, it may sometimes 
be cheaper to bring barren timber for building from less cultivated 
foreign countries, than to raise it at home. In the new town of Edin- 
burgh, built within these few years, there is not, perhaps, a single 
stick of Scotch timber. 

Whatever may be the price of wood, if that of coals is such that 
the expence of a coal-fire is nearly equal to that of a wood one, we 
may be assured, that at that place, and in these circumstances, the 
price of coals is as high as it can be. It seems to be so in some of the 
inland parts of England, particularly in Oxfordshire, where it is 
usual, even in the fires of the common people, to mix coals and wood 
together, and where the difference in the expence of those two sorts 
of fewel cannot, therefore, be very great. 

Coals, in the coal countries, are every-where much below this 
highest price. If they were not, they could not bear the expence of a 



RENT OF LAND FROM MATERIALS I7I 

distant carriage, either by land or by water. A smalt quantity only 
could be sold, and the coal masters and coal proprietors find it more 
for their interest to sell a great quantity at a price somewhat above the 
lowest, than a small quantity at the highest. The most fertile coal- 
mine too, regulates the price of coals at all the other mines in its 
neighbourhood. Both the proprietor and the undertaker of the work 
find, the one that he can get a greater rent, the other that he can get 
a greater profit, by somewhat under-selling all their neighbours. 
Their neighbours are soon obliged to sell at the same price, though 
they cannot so well afford it, and though it always diminishes, and 
sometimes takes away altogether both their rent and their profit. 
Some works are abandoned altogether; others can afford no rent 
and can be wrought only by the proprietor. 

The lowest price at which coals can be sold for any considerable 
time, is, like that of all other commodities, the price which is barely 
sufficient to replace, together with its ordinary profits, the stock which 
must be employed in bringing them to market. At a coal-mine for 
which the landlord can get no rent, but which he must either work 
himself or let it alone altogether, the price of coals must generally be 
nearly about this price. 

Rent, even where coals afford one, has generally a smaller share 
in their price than in that of most other parts of the rude produce of 
land. The rent of an estate above ground, commonly amounts to 
what is supfxjsed to be a third of the gross produce; and it is gener- 
ally a rent certain and independent of the occasional variations in the 
crop. In coal-mines a fifth of the gross produce is a very great rent; 
a tenth the common rent, and it is seldom a rent certain, but depends 
upon the occasional variations in the produce. These are so great, 
that in a country where thirty years purchase is considered as a mod- 
erate price for the property for a landed estate, ten years purchase is 
regarded as a good price for that of a coal-mine. 

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



172 WEALTH OF NATIONS 

market is not confined to the countries in the neighbourhood of the 
mine, but extends to the whole world. The copper of Japan makes 
an article of commerce in Europe; the iron of Spain in that of Chili 
and Peru. The silver of Peru finds its way, not only to Europe, but 
from Europe to China. 

The price of coals in Westmorland or Shropshire can have litde 
effect on their price at Newcasde; and their price in the Lionnois can 
have none at all. The productions of such distant coal-mines can 
never be brought into com{5etition with one another. But the produc- 
tions of the most distant metallic mines frequently may, and in fact 
commonly are. The price, therefore, of the coarse, and still more 
that of the precious metals, at the most fertile mines in the world, 
must necessarily more or less affect their price at every other in it. 
The price of copf)er in Japan must have some influence upon its 
price at the copper mines in Europe. The price of silver in Peru, or 
the quantity either of labour or of other goods which it will purchase 
there, must have some influence on its price, not only at the silver 
mines of Europe, but at those of China. After the discovery of the 
mines of Peru, the silver mines of Europe were, the greater part of 
them, abandoned. The value of silver was so much reduced that their 
produce could no longer pay the expence of working them, or replace 
with a profit, the food, cloaths, lodging and other necessaries which 
were consumed in that operation. This was the case too with the 
mines of Cuba and St. Domingo, and even with the ancient mines 
of Peru, after the discovery of those of Potosi. 

The price of every metal at every mine, therefore, being regulated 
in some measure by its price at the most fertile mine in the world 
that is actually wrought, it can at the greater part of mines do very 
litde more than pay the expence of working, and can seldom afford 
a very high rent to the landlord. Rent, accordingly, seems at the 
greater part of mines to have but a small share in the price of the 
coarse, and a still smaller in that of the precious metals. Labour and 
profit make up the greater part of both. 

A sixth part of the gross produce may be reckoned the average rent 
of the tin mines of Cornwall, the most fertile that are known in the 
world, as we are told by the Rev. Mr. Borlace, vice-warden of the 
stannaries. Some, he says, afford more, and some do not afford so 



RENT OF LAND FROM MATERIALS 1 73 

much. A sixth part of the gross produce is the rent too of several 
very fertile lead mines in Scotland. 

In the silver mines of Peru, we are told by Frezier and Ulloa, the 
proprietor frequently exacts no other acknowledgment from the un- 
dertaker of the mine, but that he will grind the ore at his mill, paying 
him the ordinary multure or price of grinding. Till 1736, indeed, 
the tax of the king of Spain amounted to one-fifth of the standard 
silver, which till then might be considered as the real rent of the 
greater part of the silver mines of Peru, the richest which have been 
known in the world. If there had been no tax, this fifth would natur- 
ally have belonged to the landlord, and many mines might have been 
wrought which could not then be wrought, because they could not 
afford this tax. The tax of the duke of Cornwall upon tin is supposed 
to amount to more than five per cent, or one-twentieth part of the 
value; and whatever may be his proportion, it would naturally too 
belong to the proprietor of the mine, if tin was duty free. But if you 
add one-twentieth to one-sixth, you will find that the whole average 
rent of the tin mines of Cornwall, was to the whole average 
rent of the silver mines of Peru, as thirteen to twelve. But the silver 
mines of Peru are not now able to pay even this low rent, and the tax 
upon silver was, in 1736, reduced from one-fifth to one-tenth. Even 
this tax upon silver too gives more temptation to smuggling than 
the tax of one-twentieth upon tin; and smuggling must be much 
easier in the precious than in the bulky commodity. The tax of the 
king of Spain accordingly is said to be very ill paid, and that of the 
duke of Cornwall very well. Rent, therefore, it is probable, makes a 
greater part of the price of tin at the most fertile tin mines, than it does 
of silver at the most fertile silver mines in the world. After replacing 
the stock employed in working those different mines, together with 
its ordinary profits, the residue which remains to the proprietor, is 
greater it seems in the coarse, than in the precious metal. 

Neither are the profits of the undertakers of silver mines commonly 
very great in Peru. The same most resp)ectable and well informed 
authors acquaint us, that when any person undertakes to work a new 
mine in Peru, he is universally looked up)on as a man destined to 
bankruptcy and ruin, and is upon that account shunned and avoided 
by every body. Mining, it seems, is considered there in the same light 



174 WEALTH OF NATIONS 

as here, as a lottery, in which the prizes do not compensate the blanks, 
though the greatness of some tempts many adventurers to throw 
away their fortunes in such unprosperous projects. 

As the sovereign, however, derives a considerable part of his rev- 
enue from the produce of silver mines, the law in Peru gives every 
possible encouragement to the discovery and working of new ones. 
Whoever discovers a new mine, is entitled to measure off two hun- 
dred and forty-six feet in length, according to what he supposes to be 
the direction of the vein, and half as much in breadth. He becomes 
proprietor of this portion of the mine, and can work it without pay- 
ing any acknowledgment to the landlord. The interest of the duke 
of Cornwall has given occasion to a regulation nearly of the same 
kind in that ancient duchy. In waste and uninclosed lands any person 
who discovers a tin mine, may mark out its limits to a certain extent, 
which is called bounding a mine. The bounder becomes the real 
proprietor of the mine, and may either work it himself, or give it in 
lease to another, without the consent of the owner of the land, to 
whom, however, a very small acknowledgment must be paid upon 
working it. In both regulations the sacred rights of private property 
are sacrificed to the supposed interests of public revenue. 

The same encouragement is given in Peru to the discovery and 
working of new gold mines; and in gold the king's tax amounts only 
to a twentieth part of the standard metal. It was once a fifth, and 
afterwards a tenth, as in silver; but it was found that the work could 
not bear even the lowest of these two taxes. If it is rare, however, say 
the same authors, Frezier and UUoa, to find a person who has made 
his fortune by a silver, it is still much rarer to find one who has done 
so by a gold mine. This twentieth part seems to be the whole rent 
which is paid by the greater part of the gold mines in Chili and Peru. 
Gold too is much more liable to be smuggled than even silver; not 
only on account of the superior value of the metal in proportion to its 
bulk, but on account of the peculiar way in which nature prcxluces 
it. Silver is very seldom found virgin, but, Uke most other metals, is 
generally mineralized with some other body, from which it is im- 
possible to separate it in such quantities as will pay for the expence, 
but by a very laborious and tedious operation, which cannot well be 
carried on but in work-houses erected for the purpose, and therefore 



RENT OF LAND FROM MATERIALS 1 75 

exposed to the inspection of the king's officers. Gold, on the contrary, 
is ahnost always found virgin. It is sometimes found in pieces of 
some bulk; and even when mixed in small and almost insensible 
particles with sand, earth, and other extraneous bodies, it can be sep- 
arated from them by a very short and simple operation, which can 
be carried on in any private house by any body who is possessed of 
a small quantity of mercury. If the king's tax, therefore, is but ill 
paid upon silver, it is likely to be much worse paid upon gold; and 
rent must make a much smaller part of the price of gold, than even 
of that of silver. 

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

Their highest price, however, seems not to be necessarily deter- 
mined by any thing but the actual scarcity or plenty of those metals 
themselves. It is not determined by that of any other commodity, 
in the same manner as the price of coals is by that of wood, beyond 
which no scarcity can ever raise it. Increase the scarcity of gold to a 
certain degree, and the smallest bit of it may become more precious 
than a diamond, and exchange for a greater quantity of other goods. 

The demand for those metals arises partly from their utility, and 
pardy from their beauty. If you except iron, they are more useful, 
f)erhaps, than any other metal. As they are less liable to rust and 
impurity, they can more easily be kept clean; and the utensils either 
of the table or the kitchen are often upon that account more agree- 
able when made of them. A silver boiler is more cleanly than a lead, 
copper, or tin one; and the same quality would render a gold boiler 
still better than a silver one. Their principal merit, however, arises 
from their beauty, which renders them peculiarly fit for the orna- 
ments of dress and furniture. No paint or dye can give so splendid 
a colour as gilding. The merit of their beauty is greatly enhanced by 
their scarcity. With the greater part of rich people, the chief enjoy- 



176 WEALTH OF NATIONS 

ment of riches consists in the parade of riches, which in their eye 
is never so complete as when they apf)ear to possess those decisive 
marks of opulence which nobody can possess but themselves. In their 
eyes the merit of an object which is in any degree either useful or 
beautiful, is gready enhanced by its scarcity, or by the great labour 
which it requires to collect any considerable quantity of it, a labour 
which nobody can afford to pay but themselves. Such objects they 
are willing to purchase at a higher price than things much more 
beautiful and useful, but more common. These qualities of utility, 
beauty, and scarcity, are the original foundation of the high price of 
those metals, or of the great quantity of other goods for which they can 
every-where be exchanged. This value was antecedent to and inde- 
pendent of their being employed as coin, and was the quality which 
fitted them for that employment. That employment, however, by 
occasioning a new demand, and by diminishing the quantity which 
could be employed in any other way, may have afterwards contrib- 
uted to keep up or increase their value. 

The demand for the precious stones arises altogether from their 
beauty. They are of no use, but as ornaments; and the merit of their 
beauty is gready enhanced by their scarcity, or by the difficulty and 
expence of getting them from the mine. Wages and profit accord- 
ingly make up, upon most occasions, almost the whole of their high 
price. Rent comes in but for a very small share; frequently for no 
share; and the most fertile mines only afford any considerable rent. 
When Tavernier, a jeweller, visited the diamond mines of Golconda 
and Visiapour, he was informed that the sovereign of the country, 
for whose benefit they were wrought, had ordered all of them to be 
shut up, except those which yielded the largest and finest stones. The 
others, it seems, were to the proprietor not worth the working. 

As the price both of the precious metals and of the precious stones 
is regulated all over the world by their price at the most fertile mine 
in it, the rent which a mine of either can afford to its proprietor is 
in proportion, not to its absolute, but to what may be called its rela- 
tive fertility, or to its superiority over other mines of the same kind. 
If new mines were discovered as much superior to those of Potosi 
as they were superior to those of Europe, the value of silver might 
be so much degraded as to render even the mines of Potosi not worth 



RENT OF LAND FROM MATERIALS 1 77 

the working. Before the discovery of the Spanish West Indies, the 
most fertile mines in Europe may have afforded as great a rent to 
their proprietor as the richest mines in Peru do at present. Though 
the quantity of silver was much less, it might have exchanged for an 
equal quantity of other goods, and the proprietor's share might have 
enabled him to purchase or command an equal quantity either of 
labour or of commodities. The value both of the produce and of the 
rent, the real revenue which they afforded both to the public and 
to the proprietor, might have been the same. 

The most abundant mines either of the precious metals or of the 
precious stones could add little to the wealth of the world. A prod- 
uce of which the value is principally derived from its scarcity, is 
necessarily degraded by its abundance. A service of plate, and the 
other frivolous ornaments of dress and furniture, could be purchased 
for a smaller quantity of labour, or for a smaller quantity of com- 
modities; and in this would consist the sole advantage which the 
world could derive from that abundance. 

It is otherwise in estates above ground. The value both of their 
produce and of their rent is in proportion to their absolute, and not 
to their relative fertility. The land which produces a certain quantity 
of foods, doaths, and lodging, can always feed, cloath, and lodge a 
certain number of people; and whatever may be the proportion of 
the landlord, it will always give him a proportionable command of 
the labour of those people, and of the commodities with which that 
labour can supply him. The value of the most barren lands is not 
diminished by the neighbourhood of the most fertile. On the con- 
trary, it is generally increased by it. The great number of people 
maintained by the fertile lands afford a market to many parts of the 
produce of the barren, which they could never have found among 
those whom their own produce could maintain. 

Whatever increases the fertility of land in producing food, in- 
creases not only the value of the lands upon which the improvement 
is bestowed, but contributes likewise to increase that of many other 
lands, by creating a new demand for their produce. That abundance 
of food, of which, in consequence of the improvement of land, many 
people have the disposal beyond what they themselves can consume, 
is the great cause of the demand both for the precious metals and the 



178 WEALTH OF NATIONS 

precious stones, as well as for every other conveniency and orna- 
ment of dress, lodging, household furniture, and equipage. Food not 
only constitutes the principal part of the riches of the world, but it 
is the abundance of food which gives the principal part of their value 
to many other sorts of riches. The pwor inhabitants of Cuba and 
St. Domingo, when they were first discovered by the Spaniards, used 
to wear litde bits of gold as ornaments in their hair and other parts 
of their dress. They seemed to value them as we would do any little 
pebbles of somewhat more than ordinary beauty, and to consider 
them as just worth the picking up, but not worth the refusing to any- 
body who asked them. They gave them to their new guests at the 
first request, without seeming to think that they had made them 
any very valuable present. They were astonished to observe the rage 
of the Spaniards to obtain them; and had no notion that there could 
any-where be a country in which many people had the disposal of 
so great a superfluity of food, so scanty always among themselves, 
that for a very small quantity of those glittering baubles they would 
willingly give as much as might maintain a whole family for many 
years. Could they have been made to understand this, the passion 
of the Spaniards would not have surprised them. 

PART III 

Of the Variations in the Pkoportion between the respective 

Values of that Sort of Produce which always affords 

Rent, and of that which sometimes does and 

SOMETIMES does tJOT AFFORD ReNT 

The increasing abundance of food, in consequence of increasing 
improvement and cultivation, must necessarily increase the demand 
for every part of the produce of land which is not food, and which 
can be applied either to use or to ornament. In the whole progress 
of improvement, it might therefore be expected, there should be only 
one variation in the comparative values of those two different sorts 
of produce. The value of that sort which sometimes does and some- 
times does not afford rent, should constantly rise in proportion to 
that which always affords some rent. As art and industry advance, 
the materials of cloathing and lodging, the useful fossils and min- 



FOOD AND MATERIALS COMPARED I79 

erals of the earth, the precious metals and the precious stones should 
gradually come to be more and more in demand, should gradually 
exchange for a greater and a greater quantity of food, or in other 
words, should gradually become dearer and dearer. This accord- 
ingly has been the case with most of these things uf)on most occa- 
sions, and would have been the case with all of them upon all occa- 
sions, if particular accidents had not upon some occasions increased 
the supply of some of them in a still greater proportion than the 
demand. 

The value of a free-stone quarry, ror example, will necessarily in- 
crease with the increasing improvement and population of the coun- 
try round about it; especially if it should be the only one in the 
neighbourhood. But the value of a silver mine, even though there 
should not be another within a thousand miles of it, will not neces- 
sarily increase with the improvement of the country in which it is 
situated. The market for the produce of a free-stone quarry can 
seldom extend more than a few miles round about it, and the demand 
must generally be in proportion to the improvement and {xjpulation 
of that small district. But the market for the produce of a silver 
mine may extend over the whole known world. Unless the world 
in general, therefore, be advancing in improvement and population, 
the demand for silver might not be at all increased by the improve- 
ment even of a large country in the neighbourhood of the mine. 
Even though the world in general were improving, yet, if, in the 
course of its improvement, new mines should be discovered, much 
more fertile than any which had been known before, though the de- 
mand for silver would necessarily increase, yet the supply might 
increase in so much a greater proportion, that the real price of that 
metal might gradually fall; that is, any given quantity, a pound 
weight of it, for example, might gradually purchase or command a 
smaller and a smaller quantity of labour, or exchange for a smaller 
and a smaller quantity of corn, the principal part of the subsistence 
of the labourer. 

The great market for silver is the contunercial and civilized part 
of the world. 

If by the general progress of improvement the demand of this 
market should increase, while at the same time the supply did not 



l80 WEALTH OF NATIONS 

increase in the same proportion, the value of silver would gradually 
rise in proportion to that of corn. Any given quantity of silver would 
exchange for a greater and a greater quantity of corn; or, in other 
words, the average money price of corn would gradually become 
cheaper and cheaper. 

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

But if, on the other hand, the supply of the metal should increase 
nearly in the same proportion as the demand, it would continue to 
purchase or exchange for nearly the same quantity of corn, and the 
average money price of corn would, in spite of all improvements, 
continue very nearly the same. 

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

DIFFERENT EFFECTS OF THE PROGRESS OF IMPROVEMENT UPON 
THREE DIFFERENT SORTS OF RUDE PRODUCE 

These different sorts of rude produce may be divided into three 
classes. The first comprehends those which it is scarce in the power 
of human industry to multiply at all. The second, those which it can 
multiply in proportion to the demand. The third, those in which the 
efficacy of industry is either limited or uncertain. In the progress of 
wealth and improvement, the real price of the first may rise to any 
degree of extravagance, and seems not to be limited by any certain 
boundary. That of the second, though it may rise greatly, has, how- 
ever, a certain boundary beyond which it cannot well pass for any 
considerable time together. That of the third, though its natural 
tendency is to rise in the progress of improvement, yet in the same 



PRICE OF RARE BIRDS AND FISH l8l 

degree of improvement it may sometimes happen even to fall, some- 
times to continue the same, and sometimes to rise more or less, 
according as different accidents render the efforts of human industry, 
in multiplying this sort of rude produce, more or less successful. 



FIRST SORT 



The first sort of rude produce of which the price rises in the prog- 
ress of improvement, is that which it is scarce in the power of human 
industry to multiply at all. It consists in those things which nature 
produces only in certain quantities, and which being of a very [perish- 
able nature, it is impossible to accumulate together the produce of 
many different seasons. Such are the greater part of rare and singu- 
lar birds and fishes, many different sorts of game, almost all wild- 
fowl, all birds of passage in particular, as well as many other things. 
When wealth and the luxury which accompanies it increase, the de- 
mand for those is likely to increase with them, and no effort of 
human industry may be able to increase the supply much beyond 
what it was before this increase of the demand. The quantity of 
such commodities, therefore, remaining the same, or nearly the same, 
while the competition to purchase them is continually increasing, 
their price may rise to any degree of extravagance, and seems not to 
be limited by any certain boundary. If woodcocks should become so 
fashionable as to sell for twenty guineas a-piece, no effort of human 
industry could increase the number of those brought to market, much 
beyond what it is at present. The high price paid by the Romans, 
in the time of their greatest grandeur, for rare birds and fishes, may 
in this manner easily be accounted for. These prices were not the 
effects of the low value of silver in those times, but of the high value 
of such rarities and curiosities as human industry could not multiply 
at pleasure. The real value of silver was higher at Rome, for some 
lime before and after the fall of the republic, than it is through the 
great part of Europe at present. Three sestertii, equal to about six- 
pence sterling, was the price which the republic paid for the modius 
or peck of the tithe wheat of Sicily. This price, however, was prob- 
ably below the average market price, the obligation to deliver their 
wheat at this rate being considered as a tax upon the Sicilian farmers. 



l82 WEALTH OF NATIONS 

When the Romans, therefore, had occasion to order more corn than 
the tithe of wheat amounted to, they were bound by capitulation to 
fiay for the surplus at the rate of four sestertii, or eight-pence sterling, 
the peck; and this had probably been reckoned the moderate and 
reasonable, that is, the ordinary or average contract price of those 
times; it is equal to about one-and-twenty shillings the quarter. 
Eight-and-twenty shillings the quarter was, before the late years 
of scarcity, the ordinary contract price of English wheat, which in 
quality is inferior to the Sicilian, and generally sells for a lower price 
in the European market. The value of silver, therefore, in those 
ancient times, must have been to its value in the present, as three to 
four inversely; that is, three ounces of silver would then have pur- 
chased the same quantity of labour and commodities which four 
ounces will do at present. When we read in Pliny, therefore, that 
Seius bought a white nightingale, as a present for the empress Agrip- 
pina, at the price of six thousand sestertii, equal to about fifty pounds 
of our present money; and that Asinius Celer purchased a surmullet 
at the price of eight thousand sestertii, equal to about sixty-six pounds 
thirteen shillings and fourpence of our present money; the extrava- 
gance of those prices, how much soever it may surprise us, is apt, 
notwithstanding, to appear to us about one-third less than it really 
was. Their real price, the quantity of labour and subsistence which 
was given away for them, was about one-third more than their nomi- 
nal price is apt to express to us in the present times. Seius gave for 
the nightingale the command of a quantity of labour and subsistence 
equal to what 66 /. 13 s, 4//. would purchase in the present times, and 
Asinius Celer gave for the surmullet the command of a quantity 
equal to what 88/. lys. gd. Yi would purchase. What occasioned the 
extravagance of those high prices was, not so much the abundance 
of silver, as the abundance of labour and subsistence, of which those 
Romans had the disposal, beyond what was necessary for their own 
use. The quantity of silver, of which they had the disposal was a 
good deal less than what the command of the same quantity of 
labour and subsistence would have procured to them in the present 
times. 



PRICE OF CATTLE, ETC. 1 83 



SECOND SORT 



The second sort of rude produce of which the price rises in the 
progress of improvement, is that which human industry can multi- 
ply in proportion to the demand. It consists in those useful plants 
and animals, which, in uncultivated countries, natiu-e produces with 
such profuse abundance, that they are of litde or no value, and which, 
as cultivation advances, are therefore forced to give place to some 
more profitable produce. During a long period in the progress of 
improvement, the quantity of these is continually diminishing, 
while at the same time the demand for them is continually increas- 
ing. Their real value, therefore, the real quantity of labour which 
they will purchase or command, gradually rises, till at last it gets 
so high as to render them as profitable a produce as any thing else 
which human industry can raise upon the most fertile and best 
cultivated land. When it has got so high it cannot well go higher. 
If it did, more land and more industry would soon be employed to 
increase their quantity. 

When the price of cattle, for example, rises so high that it is as 
profitable to cultivate land in order to raise food for them, as in 
order to raise food for man, it cannot well go higher. If it did, more 
corn land would soon be turned into pasture. The extension of till- 
age, by diminishing the quantity of wild pasture, diminishes the 
quantity of butcher's-meat which the country naturally produces 
without labour or cultivation, and by increasing the number of those 
who have either corn, or, what comes to the same thing, the price 
of corn, to give in exchange for it, increases the demand. The price 
of butcher's-meat, therefore, and consequendy of cattle, must gradu- 
ally rise till it gets so high, that it becomes as profitable to employ 
the most fertile and best cultivated lands in raising food for them as 
in raising corn. But it must always be late in the progress of im- 
provement before tillage can be so far extended as to raise the price 
of cattle to this height; and till it has got to this height, if the country 
is advancing at all, their price must be continually rising. There are, 
perhaps, some parts of Europe in which the price of cattle has not 
yet got to this height. It had not got to this height in any part of 
Scodand before the union. Had the Scotch catde been always con- 



184 WEALTH OF NATIONS 

fined to the market of Scotland, in a country in which the quantity 
of land, which can be applied to no other purpose but the feeding of 
catde, is so great in proportion to what can be applied to other pur- 
poses, it is scarce possible, perhaps, that their price could ever have 
risen so high as to render it profitable to cultivate land for the sake 
of feeding them. In England, the price of cattle, it has already been 
observed, seems, in the neighbourhood of London, to have got to 
this height about the beginning of the last century; but it was much 
later probably before it got to it through the greater part of the 
remoter counties; in some of which, perhaps, it may scarce yet have 
got to it. Of all the different substances, however, which compose 
this second sort of rude produce, cattle is, perhaps, that of which the 
price, in the progress of improvement, first rises to this height. 

Till the price of cattle, indeed, has got to this height, it seems scarce 
possible that the greater part, even of those lands which are capable 
of the highest cultivation, can be completely cultivated. In all farms 
too distant from any town to carry manure from it, that is, in the 
far greater part of those of every extensive country, the quantity of 
well<ultivated land must be in proportion to the quantity of manure 
which the farm itself produces; and this again must be in proportion 
.0 the stock of cattle which are maintained upon it. The land is 
manured either by pasturing the cattle upon it, or by feeding them 
in the stable, and from thence carrying out their dung to it. But 
unless the price of the cattle be sufficient to pay both the rent and 
profit of cultivated land, the farmer cannot afford to pasture them 
upon it; and he can still less afford to feed them in the stable. It 
is with the produce of improved and cultivated land only, that 
cattle can be fed in the stable; because to collect the scanty and scat- 
tered produce of waste and unimproved lands would require too 
much labour and be too expensive. If the price of the cattle, therefore, 
is not sufficient to pay for the produce of improved and cultivated 
land, when they are allowed to pasture it, that price will be still less 
sufficient to pay for that produce when it must be collected with 
a good deal of additional labour, and brought into the stable to them. 
In these circumstances, therefore, no more cattle can, with profit, be 
fed in the stable than what are necessary for tillage. But these can 
never afford manure enough for keeping constandy in good condi- 



PRICE OF CATTLE, ETC. 1 85 

tion, all the lands which they are capable of cultivating. What they 
afford being insufficient for the whole farm, will naturally be reserved 
for the lands to which it can be most advantageously or conveniently 
applied; the most fertile, or those, perhaps, in the neighbourhood of 
the farm-yard. These, therefore, will be kept constantly in good con- 
dition and fit for tillage. The rest will, the greater part of them, be 
allowed to lie waste, producing scarce any thing but some miserable 
pasture, just sufficient to keep alive a few straggling, half-starved 
cattle; the farm, though much under-stocked in proportion to what 
would be necessary for its complete cultivation, being very frequendy 
overstocked in proportion to its actual produce. A portion of this 
waste land, however, after having been pastured in this wretched 
manner for six or seven years together, may be ploughed up, when 
it will yield, perhaps, a poor crop or two of bad oats, or of some other 
coarse grain, and then, being entirely exhausted, it must be rested and 
pastured again as before, and another portion ploughed up to be 
in the same manner exhausted and rested again in its turn. Such 
accordingly was the general system of management all over the low 
country of Scotland before the union. The lands which were kept 
constantly well manured and in good condition, seldom exceeded a 
third or a fourth part of the whole farm, and sometimes did not 
amount to a fifth or a sixth part of it. The rest were never manured, 
but a certain portion of them was in its turn, notwithstanding, regu- 
larly cultivated and exhausted. Under this system of management, it 
is evident, even that part of the lands of Scodand which is capable of 
good cultivation, could produce but litde in comparison of what it 
may be capable of producing. But how disadvantageous soever this 
system may appear, yet before the union the low price of catde seems 
to have rendered it almost unavoidable. If, notwithstanding a great 
rise in their price, it still continues to prevail through a considerable 
part of the country, it is owing, in many places, no doubt, to ignor- 
ance and attachment to old customs, but in most places to the un- 
avoidable obstructions which the natural course of things opposes 
to the immediate or speedy establishment of a better system: first, 
to the poverty of the tenants, to their not having yet had time to 
acquire a stock of cattle sufficient to cultivate their lands more com- 
pletely, the same rise of price which would render it advantageous 



1 86 WEALTH OF NATIONS 

for them to maintain a greater stock, rendering it more difficult for 
them to acquire it; and, secondly, to their not having yet had time 
to put their lands in condition to maintain this greater stock properly, 
supposing they were capable of acquiring it. The increase of stock 
and the improvement of land are two events which must go hand 
in hand, and of which the one can no-where much out-run the other. 
Without some increase of stock, there can be scarce any improve- 
ment of land, but there can be no considerable increase of stock but in 
consequence of a considerable improvement of land; because other- 
wise the land could not maintain it. These natural obstructions to 
the establishment of a better system, cannot be removed but by a 
long course of frugality and industry; and half a century or a cen- 
tury more, perhaps, must pass away before the old system, which is 
wearing out gradually, can be completely abolished through all the 
different parts of the country. Of all the commercial advantages, 
however, which Scotland has derived from the union with England, 
this rise in the price of cattle is, perhaps, the greatest. It has not only 
raised the value of all highland estates, but it has, perhaps, been the 
principal cause of the improvement of the low country. 

In all new colonies the great quantity of waste land, which can 
for many years be applied to no other purpose but the feeding of 
catde, soon renders them extremely abundant, and in every thing 
great cheapness is the necessary consequence of great abundance. 
Though all the cattle of the European colonies in America were 
originally carried from Europe, they soon multiplied so much there, 
and became of so little value, that even horses were allowed to run 
wild in the woods without any owner thinking it worth while to 
claim them. It must be a long time after the first establishment of 
such colonies, before it can become profitable to feed catde upon the 
produce of cultivated land. The same causes, therefore, the want of 
manure, and the disproportion between the stock employed in cul- 
tivation, and the land which it is destined to cultivate, are likely to 
introduce there a system of husbandry not unlike that which still 
continues to take place in so many parts of Scodand. Mr. Kalm, 
the Swedish traveller, when he gives an account of the husbandry of 
some of the English colonies in North America, as he found it in 
1749, observes, accordingly, that he can with difficulty discover there 



PRICE OF CATTLE, ETC. 1 87 

the character of the English nation, so well skilled in all the differ- 
ent branches of agriculture. They make scarce any manure for their 
corn fields, he says; but when one piece of ground has been exhausted 
by continual cropping, they clear and cultivate another piece of fresh 
land; and when that is exhausted, proceed to a third. Their cattle 
are allowed to wander through the woods and other uncultivated 
grounds, where they are half-starved; having long ago extirpated 
almost all the annual grasses by cropping them too early in the spring, 
before they had time to form their flowers, or to shed their seeds. 
The annual grasses were, it seems, the best natural grasses in that 
part of North America; and when the Europeans first settled there, 
they used to grow very thick, and to rise three or four feet high. A 
piece of ground which, when he wrote, could not maintain one cow, 
would in former times, he was assured, have maintained four, each 
of which would have given four times the quantity of milk that one 
was capable of giving. The poorness of the pasture had, in his 
opinion, occasioned the degradation of their cattle, which degener- 
ated sensibly from one generation to another. They were probably 
not unlike that stunted breed which was common all over Scodand 
thirty or forty years ago, and which is now so much mended through 
the greater part of the low country, not so much by a change of the 
breed, though that expedient has been employed in some places, as 
by a more plentiful method of feeding them. 

Though it is late, therefore, in the progress of improvement before 
cattle can bring such a price as to render it profitable to cultivate land 
for the sake of feeding them; yet of all the different parts which 
compose this second sort of rude produce, they are perhaps the first 
which bring this price; because till they bring it, it seems impossible 
that improvement can be brought near even to that degree of perfec- 
tion to which it has arrived in many parts of Europe. 

As cattle are among the first, so perhaps venison is among the last 
parts of this sort of rude produce which bring this price. The price of 
venison in Great Britain, how extravagant soever it may appear, is not 
near sufficient to compensate the expence of a deer park, as is well 
known to all those who have had any experience in the feeding of 
deer. If it was otherwise, the feeding of deer would soon become 
an article of common farming; in the same manner as the feeding 



1 88 WEALTH OF NATIONS 

of those small birds called Turdi was among the ancient Romans. 
Varro and Columella assure us that it was a most profitable article. 
The fattening of ortolans, birds of passage which arrive lean in the 
country, is said to be so in some parts of France. If venison continues 
in fashion, and the wealth and luxury of Great Britain increase as 
they have done for some time past, its price may very probably rise 
still higher than it is at present. 

Between that period in the progress of improvement which brings 
to its height the price of so necessary an article as cattle, and that 
which brings to it the price of such a suf)erfluity as venison, there is 
a very long interval, in the course of which many other sorts of rude 
produce gradually arrive at their highest price, some sooner and some 
later, according to different circumstances. 

Thus in every form the offals of the barn and stables will maintain 
a certain number of poultry. These, as they are fed with what would 
otherwise be lost, are a mere save-all; and as they cost the farmer 
scarce any thing, so he can afford to sell them for very little. Almost 
all that he gets is pure gain, and their price can scarce be so low as 
to discourage him from feeding this number. But in countries ill 
cultivated, and, therefore, but thinly inhabited, the poultry, which 
are thus raised without expence, are often fully sufficient to supply 
the whole demand. In this state of things, therefore, they are often 
as cheap as butcher's-meat, or any other sort of animal food. But the 
whole quantity of p)oultry, which the farm in this manner produces 
without expence, must always be much smaller than the whole quan- 
tity of butcher's-meat which is reared upon it; and in times of wealth 
and luxury what is rare, with only nearly equal merit, is always pre- 
ferred to what is common. As wealth and luxury increase, there- 
fore, in consequence of improvement and cultivation, the price of 
poultry gradually rises above that of butcher's-meat, till at last it gets 
so high that it becomes profitable to cultivate land for the sake of feed- 
ing them. When it has got to this height, it cannot well go higher. 
If it did, more land would soon be turned to this purpose. In several 
provinces of France, the feeding of poultry is considered as a very 
important article in rural economy, and sufficiently profitable to en- 
courage the farmer to raise a considerable quantity of Indian corn 
and buck-wheat for this purpose. A middling farmer will there 



PRICE OF CATTLE, ETC. 1 89 

sometimes have four hundred fowls in his yard. The feeding of 
poultry seems scarce yet to be generally considered as a matter of 
so much importance in England. They are certainly, however, dearer 
in England than in France, as England receives considerable supplies 
from France. In the progress of improvement, the period at which 
every particular sort of animal food is dearest, must naturally be that 
which immediately precedes the general practice of cultivating land 
for the sake of raising it. For some time before this practice becomes 
general, the scarcity must necessarily raise the price. After it has 
become general, new methods of feeding are commonly fallen upon, 
which enable the farmer to raise upxin the same quantity of ground 
a much greater quantity of that particular sort of animal food. The 
plenty not only obliges him to sell cheaper, but in consequence of these 
improvements he can afford to sell cheajjer; for if he could not afford 
it, the plenty would not be of long continuance. It has been probably 
in this manner that the introduction of clover, turnips, carrots, cab- 
bages, &c., has contributed to sink the common price of butcher's- 
meat in the London market somewhat below what it was about the 
beginning of the last century. 

The hog, that finds his food among ordure, and greedily devours 
many things rejected by every other useful animal, is, like poultry, 
originally kept as a save-all. As long as the number of such animals, 
which can thus be reared at little or no expence, is fully sufficient to 
supply the demand, this sort of butcher's-meat comes to market at a 
much lower price than any other. But when the demand rises 
beyond what this quantity can supply, when it becomes necessary to 
raise food on purpose for feeding and fattening hogs, in the same 
manner as for feeding and fattening other cattle, the price neces- 
sarily rises, and becomes proportionably either higher or lower than 
that of other butcher's-meat, according as the nature of the country, 
and the state of its agriculture, happen to render the feeding of hogs 
more or less expensive than that of other cattle. In France, according 
to Mr. Buffon, the price of pork is nearly equal to that of beef. In 
most parts of Great Britain it is at present somewhat higher. 

The great rise in the price of both hogs and poultry has in Great 
Britain been frequently imputed to the diminution of the number of 
cottagers and other small occupiers of land; an event which has in 



ipO WEALTH OF NATIONS 

every part of Europe been the immediate forerunner of improvement 
and better cultivation, but which at the same time may have con- 
tributed to raise the price of those articles, both somewhat sooner and 
somewhat faster than it would otherwise have risen. As the poorest 
family can often maintain a cat or a dog, without any expence, so 
the poorest occupiers of land can commonly maintain a few poultry, 
or a sow and a few pigs, at very little. The little offals of their own 
table, their whey, skimmed milk and butter-milk, supply those ani- 
mals with a part of their food, and they find the rest in the neighbour- 
ing fields without doing any sensible damage to any body. By dimin- 
ishing the number of those small occupiers, therefore, the quantity 
of this sort of provisions which is thus produced at little or no ex- 
pence, must certainly have been a good deal diminished, and their 
price must consequently have been raised both sooner and faster than 
it would otherwise have risen. Sooner or later, however, in the prog- 
ress of improvement, it must at any rate have risen to the utmost 
height to which it is capable of rising; or to the price which pays the 
labour and expence of cultivating the land which furnishes them 
with food as well as these are paid upon the greater part of other 
cultivated land. 

The business of the dairy, like the feeding of hogs and poultry, is 
originally carried on as a save-all. The cattle necessarily kept upon 
the farm, produce more milk than either the rearing of their own 
young, or the consumption of the farmer's family requires; and they 
produce most at one particular season. But of all the productions of 
land, milk is perhaps the most perishable. In the warm season, when 
it is most abundant, it will scarce keep four-and-twenty hours. The 
farmer, by making it into fresh butter, stores a small part of it for 
a week: by making it into salt butter, for a year: and by making it 
into cheese, he stores a much greater part of it for several years. Part 
of all these is reserved for the use of his own family. The rest goes to 
market, in order to find the best price which is to be had, and which 
can scarce be so low as to discourage him from sending thither what- 
ever is over and above the use of his own family. If it is very low, 
indeed, he will be likely to manage his dairy in a very slovenly 
and dirty manner, and will scarce perhaps think it worth while to 
have a particular room or building on purpose for it, but will suffer 



PRICE OF CATTLE, ETC. I9I 

the business to be carried on amidst the smoke, fihh, and nastiness 
of his own kitchen; as was the case of almost all the farmers dairies 
in Scotland thirty or forty years ago, and as is the case of many of 
them still. The same causes which gradually raise the price of 
butcher's-meat, the increase of the demand, and, in consequence of 
the improvement of the country, the diminution of the quantity 
which can be fed at litde or no expence, raise, in the same manner, 
that of the produce of the dairy, of which the price naturally con- 
nects with that of butcher's-meat, or with the expence of feeding 
cattle. The increase of price pays for more labour, care, and clean- 
liness. The dairy becomes more worthy of the farmer's attention, 
and the quality of its produce gradually improves. The price at last 
gets so high that it becomes worth while to employ some of the most 
fertile and best cultivated lands in feeding cattle merely for the pur- 
pose of the dairy; and when it has got to this height, it cannot well 
go higher. If it did, more land would soon be turned to this purpose. 
It seems to have got to this height through the greater part of Eng- 
land, where much good land is commonly employed in this manner. 
If you except the neighbourhood of a few considerable towns, jt 
seems not yet to have got to this height anywhere in Scodand, where 
common farmers seldom employ much good land in raising food for 
cattle merely for the purpose of the dairy. The price of the produce, 
though it has risen very considerably within these few years, is prob- 
ably still too low to admit of it. The inferiority of the quality, in- 
deed, compared with that of the produce of English dairies, is fully 
equal to that of the price. But this inferiority of quality is, perhaps, 
rather the effect of this lowness of price than the cause of it. Though 
the quality was much better, the greater part of what is brought to 
market could not, I apprehend, in the present circumstances of the 
country, be disposed of at a much better price; and the present price, 
it is probable, would not pay the expence of the land and labour 
necessary for producing a much better quality. Through the greater 
part of England, notwithstanding the superiority of price, the dairy 
is not reckoned a more profitable employment of land than the rais- 
ing of corn, or the fattening of cattle, the two great objects of agri- 
culture. Through the greater part of Scotland, therefore, it cannot 
yet be even so profitable. 



192 WEALTH OF NATIONS 

The lands of no country, it is evident, can ever be completely cul- 
tivated and improved, till once the price of every produce, which 
human industry is obliged to raise up)on them, has got so high as to 
pay for the expence of complete improvement and cultivation. In 
order to do this, the price of each particular produce must be suffi- 
cient, first, to pay the rent of good corn land, as it is that which regu- 
lates the rent of the greater part of other cultivated land; and sec- 
ondly, to pay the labour and expence of the farmer as well as they 
are commonly paid upon good corn-land; or, in other words, to re- 
place with the ordinary profits the stock which he employs about it. 
This rise in the price of each particular produce, must evidently be 
previous to the improvement and cultivation of the land which is 
destined for raising it. Gain is the end of all improvement, and 
nothing could deserve that name of which loss was to be the neces- 
sary consequence. But loss must be the necessary consequence of im- 
proving land for the sake of a produce of which the price could never 
bring back the expence. If the complete improvement and cultivation 
of the country be, as it most certainly is, the greatest of all public ad- 
vantages, this rise in the price of all those different sorts of rude 
produce, instead of being considered as a public calamity, ought to 
be regarded as the necessary forerunner and attendant of the greatest 
of all public advantages. 

This rise too in the nominal or money-price of all those different 
sorts of rude produce has been the effect, not of any degradation in 
the value of silver, but of a rise in their real price. They have become 
worth, not only a greater quantity of silver, but a greater quantity of 
labour and subsistence than before. As it costs a greater quantity of 
labour and subsistence to bring them to market, so when they are 
brought thither, they represent or are equivalent to a greater quantity. 

THIRD SORT 

The third and last sort of rude produce, of which the price natu- 
rally rises in the progress of improvement, is that in which the 
efficacy of human industry, in augmenting the quantity, is either 
limited or uncertain. Though the real price of this sort of rude 
produce, therefore, naturally tends to rise in the progress of improve- 



PRICE OF WOOL, HIDES, ETC. 1 93 

ment, yet, according as different accidents happen to render the efforts 
of human industry more or less successful in augmenting the quan- 
tity, it may happen sometimes even to fall, sometimes to continue 
the same in very different periods of improvement, and sometimes 
to rise more or less in the same f)eriod. 

There are some sorts of rude produce which nature has rendered a 
kind of appendages to other sorts; so that the quantity of the one 
which any country can afford, is necessarily limited by that of the 
other. The quantity of wool or of raw hides, for example, which 
any country can afford, is necessarily limited by the number of great 
and small cattle that are kept in it. The state of its improvement, 
and the nature of its agriculture, again necessarily determine this 
number. 

The same causes, which, in the progress of improvement, gradu- 
ally raise the price of butcher's-meat, should have the same effect, it 
may be thought, upon the prices of wool and raw hides, and raise 
them too nearly in the same proportion. It probably would be so, 
if in the rude beginnings of improvement the market for the latter 
commodities was confined within as narrow bounds as that for the 
former. But the extent of their respective markets is commonly 
extremely different. 

The market for butcher's-meat is almost every-where confined to 
the country which produces it. Ireland, and some part of British 
America indeed, carry on a considerable trade in salt provisions; but 
they are, I believe, the only countries in the commercial world which 
do so, or which export to other countries any considerable part of 
their butcher's-meat. 

The market for wool and raw hides, on the contrary, is in the 
rude beginnings of improvement very seldom confined to the coun- 
try which produces them. They can easily be transported to distant 
countries, wool without any preparation, and raw hides with very 
little: and as they are the materials of many manufactures, the indus- 
try of other countries may occasion a demand for them, though that 
of the country which produces them might not occasion any. 

In countries ill cultivated, and therefore but thinly inhabited, 
the price of the wool and the hide bears always a much greater pro- 
portion to that of the whole beast, than in countries where, improve- 



194 WEALTH OF NATIONS 

ment and population being further advanced, there is more demand 
for butcher's-meat. Mr. Hume observes, that in the Saxon times, 
the fleece was estimated at two-fifths of the value of the whole sheep, 
and that this was much above the proportion of its present estima- 
tion. In some provinces of Spain, I have been assured, the sheep is 
frequently killed merely for the sake of the fleece and the tallow. 
The carcase is often left to rot upon the ground, or to be devoured 
by beasts and birds of prey. If this sometimes happens even in Spain, 
it happens almost constantly in Chili, at Buenos Ayres, and in many 
other parts of Spanish America, where the horned catde are almost 
constantly killed merely for the sake of the hide and the tallow. This 
too used to happen almost constantly in Hispaniola, while it was 
infested by the Buccaneers, and before the settlement, improvement, 
and populousness of the French plantations (which now extend 
round the coast of almost the whole western half of the island) had 
given some value to the catde of the Spaniards, who still continue to 
possess, not only the eastern part of the coast, but the whole inland 
and mountainous part of the country. 

Though in the progress of improvement and population, the price 
of the whole beast necessarily rises, yet the price of the carcase is 
likely to be much more affected by this rise than that of the wool and 
the hide. The market for the carcase, being in the rude state of so- 
ciety confined always to the country which produces it, must neces- 
sarily be extended in propwrtion to the improvement and population 
of that country. But the market for the wool and the hides even of 
a barbarous country often extending to the whole commercial world, 
it can very seldom be enlarged in the same proportion. The state 
of the whole commercial world can seldom be much affected by the 
improvement of any particular country; and the market for such 
commodities may remain the same, or very nearly the same, after 
such improvements, as before. It should, however, in the natural 
course of things rather upon the whole be somewhat extended in 
consequence of them. If the manufactures, especially, of which those 
commodities are the materials, should ever come to flourish in the 
country, the market, though it might not be much enlarged, would 
at least be brought much nearer to the place of growth than before; 
and the price of those materials might at least be increased by what 



PRICE OF WOOL, HIDES, ETC. 1 95 

had usually been the expence of transporting them to distant coun- 
tries. Though it might not rise therefore in the same proportion as 
that of butcher's-meat, it ought naturally to rise somewhat, and it 
ought certainly not to fall. 

In England, however, notwithstanding the flourishing state of its 
woollen manufacture, the price of English wool has fallen very con- 
siderably since the time of Edward III. There are many authentic 
records which demonstrate that during the reign of that prince 
(towards the middle of the fourteenth century, or about 1339) what 
was reckoned the moderate and reasonable price of the tod or twenty- 
eight pounds of English wool was not less than ten shillings of the 
money of those times, containing, at the rate of twenty-pence the 
ounce, six ounces of silver Tower-weight, equal to about thirty shil- 
lings of our present money. In the present times, one-and-twenty 
shillings the tod may be reckoned a good price for very good English 
wool. The money-price of wool, therefore, in the time of Edward III, 
was to its money-price in the present times as ten to seven. The supe- 
riority of its real price was still greater. At the rate of six shillings 
and eight-pence the quarter, ten shillings was in those ancient times 
the price of twelve bushels of wheat. At the rate of twenty-eight 
shillings the quarter, one-and-twenty shillings is in the present time 
the price of six bushels only. The proportion between the real prices 
of ancient and modern times, therefore, is as twelve to six, or as two 
to one. In those ancient times a tod of wool would have purchased 
twice the quantity of subsistence which it will purchase at present; 
and consequently twice the quantity of labour, if the real recom- 
pence of labour had been the same in both periods. 

This degradation both in the real and nominal value of wool, 
could never have happened in consequence of the natural course of 
things. It has accordingly been the effect of violence and artifice: 
First, of the absolute prohibition of exporting wool from England; 
Secondly, of the permission of importing it from Spain duty free; 
Thirdly, of the prohibition of exporting it from Ireland to any other 
country but England. In consequence of these regulations, the mar- 
ket for English wool, instead of being somewhat extended in con- 
sequence of the improvement of England, has been confined to the 
home market, where the wool of several other countries is allowed 



196 WEALTH OF NATIONS 

to come into competition with it, and where that of Ireland is forced 
into competition with it. As the woollen manufactures too of Ire- 
land are fully as much discouraged as is consistent with justice and 
fair dealing, the Irish can work up but a small part of their own wool 
at home, and are, therefore, obliged to send a greater proportion of it 
to Great Britain, the only market they are allowed. 

I have not been able to find any such authentic records concern- 
ing the price of raw hides in ancient times. Wool was commonly 
paid as a subsidy to the king, and its valuation in that subsidy ascer- 
tains, at least in some degree, what was its ordinary price. But this 
seems not to have been the case with raw hides. Fleetwood, how- 
ever, from an account in 1425, between the prior of Burcester Ox- 
ford and one of his canons, gives us their price, at least as it was 
stated, upon that particular occasion; viz. five ox hides at twelve shil- 
lings; five cow hides at seven shillings and three pence; thirty-six 
sheep skins of two years old at nine shillings; sixteen calves skins 
at two shillings. In 1425, twelve shillings contained about the same 
quantity of silver as four-and-twenty shillings of our present money. 
An ox hide, therefore, was in this account valued at the same quan- 
tity of silver at 4s. 4-5ths of our present money. Its nominal price 
was a good deal lower than at present. But at the rate of six shillings 
and eight-pence the quarter, twelve shillings would in those times 
have purchased fourteen bushels and four-fifths of a bushel of wheat, 
which, at three and six-p)ence the bushel, would in the present times 
cost 5U. 4^. An ox hide, therefore, would in those times have pur- 
chased as much corn as ten shillings and three-pence would purchase 
at present. Its real value was equal to ten shillings and three-pence of 
our present money. In those ancient times, when the cattle were 
half starved during the greater part of the winter, we cannot sup- 
pose that they were of a very large size. An ox hide which weighs 
four stone of sixteen pounds averdupois, is not in the present times 
reckoned a bad one; and in those ancient times would probably have 
been reckoned a very good one. But at half a crown the stone, which 
at this moment (February 1773) I understand to be the common 
price, such a hide would at present cost only ten shillings. Though its 
nominal price, therefore, is higher in the present than it was in those 
ancient times, its real price, the real quantity of subsistence which 



PRICE OF WOOL, HIDES, ETC. 1 97 

it will purchase or command, is rather somewhat lower. The price 
of cow hides, as stated in the above account, is nearly in the com- 
mon proportion to that of ox hides. That of sheep skins is a good 
deal above it. They had probably been sold with the wool. That of 
calves skins, on the contrary, is greatly below it. In countries where 
the price of cattle is very low, the calves, which are not intended to 
be reared in order to keep up the stock, are generally killed very 
young; as was the case in Scotland twenty or thirty years ago. It 
saves the milk, which their price would not pay for. Their skins, 
therefore, are commonly good for little. 

The price of raw hides is a good deal lower at present than it was 
a few years ago; owing probably to the taking off the duty upon seal 
skins, and to the allowing, for a limited time, the importation of raw 
hides from Ireland and from the plantations duty free, which was 
done in 1769. Take the whole of the present century at an average, 
their real price has probably been somewhat higher than it was in 
those ancient times. The nature of the commodity renders it not 
quite so proper for being transported to distant markets as wool. It 
suffers more by keeping. A salted hide is reckoned inferior to a fresh 
one, and sells for a lower price. This circumstance must necessarily 
have some tendency to sink the price of raw hides produced in a 
country which does not manufacture them, but is obliged to export 
them; and comparatively to raise that of those produced in a country 
which does manufacture them. It must have some tendency to 
sink their price in a barbarous, and to raise it in an improved and 
manufacturing country. It must have had some tendency therefore 
to sink it in ancient, and to raise it in modern times. Our tanners 
besides have not been quite so successful as our clothiers, in con- 
vincing the wisdom of the nation, that the safety of the common- 
wealth depends upon the prosperity of their particular manufacture. 
They have accordingly been much less favoured. The exportation of 
raw hides has, indeed, been prohibited, and declared a nuisance: but 
their importation from foreign countries has been subjected to a 
duty; and though this duty has been taken off from those of Ireland 
and the plantations (fer the limited time of five years only), yet Ire- 
land has not been confined to the market of Great Britain for the 
sale of its surplus hides, or of those which are not manufactured at 



198 WEALTH OF NATIONS 

home. The hides of common cattle have but within these few years 
been put among the enumerated commodities which the plantations 
can send no- where but to the mother country; neither has the com- 
merce of Ireland been in this case oppressed hitherto, in order to 
support the manufactures of Great Britain. 

Whatever regulations tend to sink the price either of wool or of 
raw hides below what it naturally would be, must, in an improved 
and cultivated country, have some tendency to raise the price of 
butcher's-meat. The price both of the great and small cattle, which 
are fed on improved and cultivated land, must be sufficient to pay 
the rent which the landlord, and the profit which the farmer has 
reason to expect from improved and cultivated land. If it is not, they 
will soon cease to feed them. Whatever part of this price, therefore, 
is not paid by the wool and the hide, must be paid by the carcase. 
The less there is paid for the one, the more must be paid for the 
other. In what manner this price is to be divided upon the different 
parts of the beast, is indifferent to the landlords and farmers, pro- 
vided it is all paid to them. In an improved and cultivated country, 
therefore, their interest as landlords and farmers cannot be much 
affected by such regulations, though their interest as consumers may, 
by the rise in the price of provisions. It would be quite otherwise, 
however, in an unimproved and uncultivated country, where the 
greater part of the lands could be applied to no other purpose but 
the feeding of cattle, and where the wool and the hide made the 
principal part of the value of those cattle. Their interest as landlords 
and farmers would in this case be very deeply affected by such regu- 
lations, and their interest as consumers very little. The fall in the 
price of the wool and the hide, would not in this case raise the price 
of the carcase; because the greater part of the lands of the country 
being applicable to no other purpose but the feeding of catde, the 
same number would still continue to be fed. The same quantity of 
butcher's-meat would still come to market. The demand for it would 
be no greater than before. Its price, therefore, would be the same as 
before. The whole price of cattle would fall, and along with it both 
the rent and the profit of all those lands of which cattle was the prin- 
cipal produce, that is, of the greater part of the lands of the country. 
The perpetiud prohibition of the exportation of wool, which is com- 



PRICE OF WOOL, HIDES, ETC. 1 99 

monly, but very falsely, ascribed to Edward III, would, in the then 
circumstances of the country, have been the most destructive regula- 
tion which could well have been thought of. It would not only have 
reduced the actual value of the greater part of the lands of the king- 
dom, but by reducing the price of the most important species of small 
cattle, it would have retarded very much its subsequent improvement. 

The wool of Scotland fell very considerably in its price in conse- 
quence of the union with England, by which it was excluded from 
the great market of Europe, and confined to the narrow one of Great 
Britain. The value of the greater part of the lands in the southern 
counties of Scotland, which are chiefly a sheep country, would have 
been very deeply affected by this event, had not the rise in the price 
of butcher's-meat fully compensated the fall in the price of wool. 

As the efficacy of human industry, in increasing the quantity either 
of wool or of raw hides, is limited, so far as it depends upwn the 
produce of the country where it is exerted; so it is uncertain as far 
as it depends upon the produce of other countries. It so far depends, 
not so much upon the quantity which they produce, as upon that 
which they do not manufacture; and upon the restraints which they 
may or may not think proper to impose upon the exportation of this 
sort of rude produce. These circumstances, as they are altogether 
independent of domestic industry, so they necessarily render the 
eflftcacy of its efforts more or less uncertain. In multiplying this sort 
of rude produce, therefore, the efficacy of human industry is not only 
limited, but uncertain. 

In multiplying another very important sort of rude produce, the 
quantity of fish that is brought to market, it is likewise both limited 
and uncertain. It is limited by the local situation of the country, by 
the proximity or distance of its different provinces from the sea, by 
the number of its lakes and rivers, and by what may be called the 
fertility or barrenness of those seas, lakes and rivers, as to this sort 
of rude produce. As population increases, as the annual produce of 
the land and labour of the country grows greater and greater, there 
come to be more buyers of fish, and those buyers too have a greater 
quantity and variety of other goods, or, what is the same thing, the 
price of a greater quantity and variety of other goods, to buy with. 
But it will generally be impossible to supply the great and extended 



200 WEALTH OF NATIONS 

market without employing a quantity of labour greater than in pro- 
portion to what had been requisite for supplying the narrow and con- 
fined one. A market which, from requiring only one thousand, 
comes to require annually ten thousand ton of fish, can seldom be 
supplied without employing more than ten times the quantity of 
labour which had before been sufficient to supply it. The fish must 
generally be sought for at a greater distance, larger vessels must be 
employed, and more expensive machinery of every kind made use 
of. The real price of this commodity, therefore, naturally rises in the 
progress of improvement. It has accordingly done so, I believe, more 
or less in every country. 

Though the success of a particular day's fishing may be a very 
uncertain matter, yet, the local situation of the country being sup- 
posed, the general efficacy of industry in bringing a certain quantity 
of fish to market, taking the course of a year, or of several years 
together, it may perhaps be thought, is certain enough; and it, no 
doubt, is so. As it depends more, however, upon the local situation 
of the country, than upon the state of its wealth and industry; as 
upon this account it may in difTerent countries be the same in very 
different periods of improvement, and very difTerent in the same 
period; its connection with the state of improvement is uncertain, and 
it is of this sort of uncertainty that I am here speaking. 

In increasing the quantity of the different minerals and metals 
which are drawn from the bowels of the earth, that of the more 
precious ones particularly, the efficacy of human industry seems not 
to be limited, but to be altogether uncertain. 

The quantity of the precious metals which is to be found in any 
country is not limited by any thing in its local situation, such as the 
fertility or barrenness of its own mines. Those metals frequently 
abound in countries which possess no mines. Their quantity in every 
particular country seems to dejiend uf)on two different circum- 
stances; first, upon its power of purchasing, upon the state of its 
industry, up)on the annual produce of its land and labour, in con- 
sequence of which it can afford to employ a greater or a smaller 
quantity of labour and subsistence in bringing or purchasing such 
superfluities as gold and silver, either from its own mines or from 
those of other countries; and, secondly, upon the fertility or barren- 



PRICE OF WOOL, HIDES, ETC. 201 

ness of the mines which may happen at any particular time to supply 
the commercial world with those metals. The quantity of those 
metals in the countries most remote from the mines, must be more 
or less affected by this fertility or barrenness, on account of the easy 
and cheap transportation of those metals, of their small bulk and 
great value. Their quantity in China and Indostan must have been 
more or less affected by the abundance of the mines of America. 

So far as their quantity in any particular country depends upon 
the former of those two circumstances (the power of purchasing), 
their real price, like that of all other luxuries and superfluities, is 
likely to rise with the wealth and improvement of the country, and 
to fall with its poverty and depression. Countries which have a great 
quantity of labour and subsistence to spare, can afford to purchase 
any particular quantity of those metals at the expence of a greater 
quantity of labour and subsistence, than countries which have less 
to spare. 

So far as their quantity in any particular country depends upon 
the latter of those two circumstances (the fertility or barrenness of 
the mines which happen to supply the commercial world), their real 
price, the real quantity of labour and subsistence which they will 
purchase or exchange for, will, no doubt, sink more or less in propor- 
tion to the fertility, and rise in proportion to the barrenness, of those 
mines. 

The fertility or barrenness of the mines, however, which may 
happen at any particular time to supply the commercial world, is a 
circumstance which, it is evident, may have no sort of connection 
with the state of industry in a particular country. It seems even to 
have no very necessary connection with that of the world in general. 
As arts and commerce, indeed, gradually spread themselves over a 
greater and a greater part of the earth, the search for new mines, 
being extended over a wider surface, may have somewhat a better 
chance for being successful, than when confined within narrower 
bounds. The discovery of new mines, however, as the old ones come 
to be gradually exhausted, is a matter of the greatest uncertainty, 
and such as no human skill or industry can ensure. All indications, 
it is acknowledged, are doubtful, and the actual discovery and suc- 
cessful working of a new mine can alone ascertain the reality of 



202 WEALTH OF NATIONS 

its value, or even of its existence. In this search there seem to be no 
certain limits either to the possible success, or to the possible dis- 
appointment of human industry. In the course of a century or two, 
it is possible that new mines may be discovered more fertile than any 
that have ever yet been known; and it is just equally possible that 
the most fertile mine then known may be more barren than any that 
was wrought before the discovery of the mines of America. Whether 
the one or the other of those two events may happen to take place, 
is of very little importance to the real wealth and prosperity of the 
world, to the real value of the annual produce of the land and labour 
of mankind. Its nominal value, the quantity of gold and silver by 
which this annual produce could be expressed or represented, would, 
no doubt, be very different; but its real value, the real quantity of 
labour which it could purchase or command, would be precisely the 
same. A shilling might in the one case represent no more labour than 
a penny does at present; and a penny in the other might represent as 
much asa shilling does now. But in the one case he who had a shilling 
in his pocket, would be no richer than he who has a penny at present; 
and in the other he who had a penny would be just as rich as he who 
has a shilling now. The cheapness and abundance of gold and silver 
plate, would be the sole advantage which the world could derive from 
the one event, and the dearness and scarcity of those trifling super- 
fluities the only inconveniency it could suffer from the other. 

EFFECTS OF THE PROGRESS OF IMPROVEMENT UPON THE REAL 
PRICE OF MANUFACTURES 

It is the natural effect of improvement, however, to diminish 
gradually the real price of almost all manufactures. That of the 
manufacturing workmanship diminishes, perhaps, in all of them 
without exception. In consequence of better machinery, of greater 
dexterity, and of a more proper division and distribution of work, 
all of which are the natural effects of improvement, a much smaller 
quantity of labour becomes requisite for executing any particular 
piece of work; and though, in consequence of the flourishing circum- 
stances of the society, the real price of labour should rise very con- 
siderably, yet the great diminution of the quantity will generally 



RENT OF land: PRICE OF MANUFACTURES 203 

much more than compensate the greatest rise which can happen 
in the price. 

There are, indeed, a few manufactures, in which the necessary 
rise in the real price of the rude materials will more than compensate 
all the advantages which improvement can introduce into the execu- 
tion of the work. In carpenters and joiners work, and in the coarser 
sort of cabinet work, the necessary rise in the real price of barren 
timber, in consequence of the improvement of land, will more than 
compensate all the advantages which can be derived from the best 
machinery, the greatest dexterity, and the most proper division and 
distribution of work. 

But in all cases in which the real price of the rude materials either 
does not rise at all, or does not rise very much, that of the manu- 
factured commodity sinks very considerably. 

This diminution of price has, in the course of the present and pre- 
ceding century, been most remarkable in those manufactures of 
which the materials are the coarser metals. A better movement of a 
watch, than about the middle of the last century could have been 
bought for twenty pounds, may now perhaps be had for twenty shil- 
lings. In the work of cuders and locksmiths, in all the toys which are 
made of the coarser metals, and in all those goods which are com- 
monly known by the name of Birmingham and Sheffield ware, there 
has been, during the same period, a very great reduction of price, 
though not altogether so great as in watch-work. It has, however, 
been sufficient to astonish the workmen of every other part of Europe, 
who in many cases acknowledge that they can produce no work of 
equal goodness for double, or even for triple the price. There are 
perhaps no manufactures in which the division of labour can be 
carried further, or in which the machinery employed admits of a 
greater variety of improvements, than those of which the materials 
are the coarser metals. 

In the clothing manufacture there has, during the same period, 
been no such sensible reduction of price. The price of superfine cloth, 
I have been assured, on the contrary, has, within these five-and- 
twenty or thirty years, risen somewhat in proportion to its quality; 
owing, it was said, to a considerable rise in the price of the material, 
which consists altogether of Spanish wool. That of the Yorkshire 



204 WEALTH OF NATIONS 

cloth, which is made altogether of English wool, is said indeed, dur- 
ing the course of the present century, to have fallen a good deal in 
proportion to its quality. Quality, however, is so very disputable a 
matter, that I look upon all information of this kind as somewhat 
uncertain. In the clothing manufacture, the division of labour is 
nearly the same now as it was a century ago, and the machinery em- 
ployed is not very different. There may, however, have been some 
small improvement in both, which may have occasioned some reduc- 
tion of price. 

But the reduction will appear much more sensible and undeniable, 
if we compare the price of this manufacture in the present times 
with what it was in a much remoter period, towards the end of the 
fifteenth century, when the labour was probably much less sub- 
divided, and the machinery employed much more imperfect, than 
it is at present. 

In 1487, being the 4th of Henry VII. it was enacted, that "whoso- 
ever shall sell by retail a broad yard of the finest scarlet grained, or 
of other grained cloth of the finest making, above sixteen shillings, 
shall forfeit forty shillings for every yard so sold." Sixteen shillings, 
therefore, containing about the same quantity of silver as four-and- 
twenty shillings of our present money, was, at that time, reckoned not 
an unreasonable price for a yard of the finest cloth; and as this is a 
sumptuary law, such cloth, it is probable, had usually been sold 
somewhat dearer. A guinea may be reckoned the highest price in 
the present times. Even though the quality of the cloths, therefore, 
should be supposed equal, and that of the present times is most 
probably much superior, yet, even upon this supposition, the money 
price of the finest cloth appears to have been considerably reduced 
since the end of the fifteenth century. But its real price has been 
much more reduced. Six shillings and eight-pence was then, and long 
afterwards, reckoned the average price of a quarter of wheat. Six- 
teen shillings, therefore, was the price of two quarters and more 
than three bushels of wheat. Valuing a quarter of wheat in the pres- 
ent times at eight-and-twenty shillings, the real price of a yard of 
fine cloth must, in those times, have been equal to at least three 
f)ounds six shillings and sixpence of our present money. The man 
who bought it must have parted with the command of a quantity of 



RE^nr of land: price of manufactures 205 

labour and subsistence equal to what that sum would purchase in the 
present times. 

The reduction in the real price of the coarse manufacture, though 
considerable, has not been so great as in that of the fine. 

In 1463, being the 3d of Edward IV., it was enacted, that "no 
servant in husbandry, nor common labourer, nor servant to any 
artificer inhabiting out of a city or burgh, shall use or wear in their 
clothing any cloth above two shillings the broad yard." In the 3d 
of Edward IV. two shillings contained very nearly the same quantity 
of silver as four of our present money. But the Yorkshire cloth 
which is now sold at four shillings the yard, is probably much supe- 
rior to any that was then made for the wearing of the very poorest 
order of common servants. Even the money price of their clothing, 
therefore, may, in proportion to the quality, be somewhat cheaper in 
the present than it was in those ancient times. The real price is cer- 
tainly a good deal cheaper. Ten-pence was then reckoned what is 
called the moderate and reasonable price of a bushel of wheat. Two 
shillings, therefore, was the price of two bushels and near two pecks 
of wheat, which in the present times, at three shillings and six-pence 
the bushel, would be worth eight shillings and nine-pence. For a 
yard of this cloth the f)oor servant must have parted with the power 
of purchasing a quantity of subsistence equal to what eight shillings 
and nine-pence would purchase in the present times. This is a sump- 
tuary law too, restraining the luxury and extravagance of the poor. 
Their clothing, therefore, had commonly been much more expensive. 

The same order of people are, by the same law, prohibited from 
wearing hose, of which the price should exceed fourteen-pence the 
pair, equal to about eight-and-twenty pjence of our present money. 
But fourteen-pence was in those times the price of a bushel and near 
two pecks of wheat; which, in the present times, at three and sixpence 
the bushel, would cost five shillings and three-pence. We should in 
the present times consider this as a very high price for a pair of stock- 
ings to a servant of the poorest and lowest order. He must, how- 
ever, in those times have paid what was really equivalent to this 
price for them. 

In the time of Edward IV. the art of knitting stockings was 
probably not known in any part of Europe. Their hose were made of 



206 WEALTH OF NATIONS 

common cloth, which may have been one of the causes of their deaf- 
ness. The first person that wore stockings in England is said to have 
been Queen Elizabeth. She received them as a present from the 
Spanish ambassador. 

Both in the coarse and in the fine woollen manufacture, the ma- 
chinery employed was much more imperfect in those ancient, than 
it is in the present times. It fias since received three very capital im- 
provements, besides, probably, many smaller ones of which it may be 
difficult to ascertain either the number or the importance. The three 
capital improvements are: first. The exchange of the rock and spindle 
for the spinning-wheel, which, with the same quantity of labour, will 
perform more than double the quantity of work. Secondly, the use 
of several very ingenious machines which facilitate and abridge in 
a still greater proportion the winding of the worsted and woollen 
yarn, or the prop)er arrangement of the warp and woof before they 
are put into the loom; an operation which, previous to the inven- 
tions of those machines, must have been extremely tedious and 
troublesome. Thirdly, the employment of the fulling mill for thick- 
ening the cloth, instead of treading it in water. Neither wind nor 
water mills of any kind were known in England so early as the 
beginning of the sixteenth century, nor, so far as I know, in any 
other part of Europe north of the Alps. They had been introduced 
into Italy some time before. 

The consideration of these circumstances may, perhaps, in some 
measure explain to us why the real price both of the coarse and of 
the fine manufacture, was so much higher in those ancient than it 
is in the present times. It cost a greater quantity of labour to bring 
the goods to market. When they were brought thither, therefore, 
they must have purchased or exchanged for the price of a greater 
quantity. 

The coarse manufacture probably was, in those ancient times, 
carried on in England, in the same manner as it always has been in 
countries where arts and manufaaures are in their infancy. It was 
probably a houshold manufacture, in which every different part of 
the work was occasionally performed by all the different members of 
almost every private family; but so as to be their work only when 
they had nothing else to do, and not to be the principal business 



RENT OF land: CONCLUSION 20/ 

from which any of them derived the greater part of their subsistence. 
The work which is performed in this manner, it has already been 
observed, comes always much cheaper to market than that which is 
the principal or sole fund of the workman's subsistence. The fine 
manufacture, on the other hand, was not in those times carried on 
in England, but in the rich and commercial country of Flanders; 
and it was probably conducted then, in the same manner as now, 
by people who derived the whole, or the principal part of their sub- 
sistence from it. It was besides a foreign manufacture, and must 
have paid some duty, the ancient custom of tonnage and poundage at 
least, to the king. This duty, indeed, would not probably be very 
great. It was not then the policy of Europe to restrain, by high duties, 
the importation of foreign manufactures, but rather to encourage it, 
in order that merchants might be enabled to supply, at as easy a rate 
as possible, the great men with the conveniencies and luxuries which 
they wanted, and which the industry of their own country could not 
afford them. 

The consideration of these circumstances may perhaps in some 
measure explain to us why, in those ancient times, the real price of 
the coarse manufacture was, in proportion to that of the fine, so 
much lower than in the present times. 

CONCLUSION OF THE CHAPTER 

I shall conclude this very long chapter with observing that every 
improvement in the circumstances of the society tends either directly 
or indirecdy to raise the real rent of land, to increase the real wealth 
of the landlord, his power of purchasing the labour, or the produce 
of the labour of other people. 

The extension of improvement and cultivation tends to raise it 
directly. The landlord's share of the produce necessarily increases 
with the increase of the produce. 

That rise in the real price of those parts of the rude produce of 
land, which is first the effect of extended improvement and cultiva- 
tion, and afterwards the cause of their being still further extended, 
the rise in the price of cattle, for example, tends too to raise the 
rent of land direcdy, and in a still greater proportion. The real value 



208 WEALTH OF NATIONS 

of the landlord's share, his real command of the labour of other 
people, not only rises with the real value of the produce, but the 
proportion of his share to the whole produce rises with it. That 
produce, after the rise in its real price, requires no more labour to 
collect it than before. A smaller proportion of it will, therefore, be 
sufficient to replace, with the ordinary profit, the stock which employs 
that labour. A greater proportion of it must, consequently, belong 
to the landlord. 

All those improvements in the productive powers of labour, which 
tend directly to reduce the real price of manufactures, tend indirecdy 
to raise the real rent of land. The landlord exchanges that part of 
his rude produce, which is over and above his own consumption, or 
what comes to the same thing, the price of that part of it, for manu- 
factured produce. Whatever reduces the real price of the latter, raises 
that of the former. An equal quantity of the former becomes thereby 
equivalent to a greater quantity of the latter; and the landlord is 
enabled to purchase a greater quantity of the conveniencies, orna- 
ments, or luxuries, which he has occasion for. 

Every increase in the real wealth of the society, every increase in 
the quantity of useful labour employed within it, tends indirectly 
to raise the real rent of land. A certain proportion of this labour 
naturally goes to the land. A greater number of men and cattle are 
employed in its cultivation, the produce increases with the increase 
of the stock which is thus employed in raising it, and the rent 
increases with the produce. 

The contrary circumstances, the neglect of cultivation and im- 
provement, the fall in the real price of any part of the rude produce 
of land; the rise in the real price of manufactures from the decay of 
manufacturing art and industry, the declension of the real wealth 
of the society, all tend, on the other hand, to lower the real rent of 
land, to reduce the real wealth of the landlord, to diminish his power 
of purchasing either the labour, or the produce of the labour of 
other people. 

The whole annual produce of the land and labour of every coun- 
try, or what comes to the same thing, the whole price of that annual 
produce, naturally divides itself, it has already been observed, into 
three parts; the rent of land, the wages of labour, and the profits 



RENT OF land: CONCLUSION 209 

of Stock; and constitutes a revenue to three different orders of people; 
to those who Hve by rent, to those who Hve by wages, and to those 
who Hve by profit. These are the three great, original and constituent 
orders of every civilized society, from whose revenue that of every 
other order is ultimately derived. 

The interest of the first of those three great orders, it appears from 
what has been just now said, is stricdy and inseparably connected 
with the general interest of the society. Whatever either promotes or 
obstructs the one, necessarily promotes or obstructs the other. When 
the public deliberates concerning any regulation of commerce or 
police, the proprietor of land never can mislead it, with a view to pro- 
mote the interest of their own particular order; at least, if they have 
any tolerable knowledge of that interest. They are, indeed, too 
often defective in this tolerable knowledge. They are the only one of 
the three orders whose revenue costs them neither labour nor care, 
but comes to them, as it were, of its own accord, and independent 
of any plan or project of their own. That indolence, which is the 
natural effect of the ease and security of their situation, renders them 
too often, not only ignorant, but incapable of that application of mind 
which is necessary in order to foresee and understand the conse- 
quences of any public regulation. 

The interest of the second order, that of those who live by wages, 
is as strictly connected with the interest of the society as that of the 
first. The wages of the labourer, it has already been shewn, are never 
so high as when the demand for labour is continually rising, or when 
the quantity employed is every year increasing considerably. When 
this real wealth of the society becomes stationary, his wages are soon 
reduced to what is barely enough to enable him to bring up a family, 
or to continue the race of labourers. When the society declines, they 
fall even below this. The order of proprietors may, perhaps, gain 
more by the prosperity of the society, than that of labourers: but there 
is no order that suffers so cruelly from its decline. But though the 
interest of the labourer is strictly connected with that of the society, 
he is incapable either of comprehending that interest, or of under- 
standing its connexion with his own. His condition leaves him no 
time to receive the necessary information, and his education and 
habits are commonly such as to render him unfit to judge even 



2IO WEALTH OF NATIONS 

though he was fully informed. In the public deliberations, therefore, 
his voice is little heard and less regarded, except upon some particu- 
lar occasions, when his clamour is animated, set on, and supported 
by his employers, not for his, but their own particular purposes. 

His employers constitute the third order, that of those who live 
by profit. It is the stock that is employed for the sake of profit, which 
puts into motion the greater part of the useful labour of every society. 
The plans and projects of the employers of stock regulate and direct 
all the most important operations of labour, and profit is the end 
proposed by all those plans and projects. But the rate of profit does 
not, like rent and wages, rise with the prosperity, and fall with the 
declension, of the society. On the contrary, it is naturally low in 
rich, and high in poor countries, and it is always highest in the 
countries which are going fastest to ruin. The interest of this third 
order, therefore, has not the same connexion with the general inter- 
est of the society as that of the other two. Merchants and master 
manufacturers are, in this order, the two classes of people who com- 
monly employ the largest capitals, and who by their wealth draw 
to themselves the greatest share of the public consideration. As dur- 
ing their whole lives they are engaged in plans and projects, they 
have frequently more acuteness of understanding than the greater 
part of country gentlemen. As their thoughts, however, are com- 
monly exercised rather about the interest of their own particular 
branch of business, than about that of the society, their judgment, 
even when given with the greatest candour (which it has not been 
upon every occasion), is much more to be depended upxin with 
regard to the former of those two objects, than with regard to the 
latter. Their superiority over the country gentleman is, not so much 
in their knowledge of the public interest, as in their having a better 
knowledge of their own interest than he has of his. It is by this 
superior knowledge of their own interest that they have frequendy 
imposed upon his generosity, and f>ersuaded him to give up both his 
own interest and that of the public, from a very simple but honest 
conviction, that their interest, and not his, was the interest of the 
public. The interest of the dealers, however, in any particular branch 
of trade or manufacture, is always in some respects different from, 
and even opposite to, that of the public. To widen the market aad 



RENT OF land: CONCLUSION 211 

to narrow the competition, is always the interest of the dealers. To 
widen the market may frequently be agreeable enough to the interest 
of the public; but to narrow the competition must always be against 
it, and can serve only to enable the dealers, by raising their profits 
above what they naturally would be, to levy, for their own benefit, 
an absurd tax upon the rest of their fellow<itizens. The proposal 
of any new law or regulation of commerce which comes from this 
order, ought always to be listened to with great precaution, and ought 
never to be adopted till after having been long and carefully exam- 
ined, not only with the most scrupulous, but with the most suspi- 
cious attention. It comes from an order of men, whose interest is 
never exacdy the same with that of the public, who have generally an 
interest to deceive and even to oppress the public, and who accord- 
ingly have, upon many occasions, both deceived and oppressed it. 



BOOK II 
Op the Nature, Accumulation, and Employment of Stock 

introduction 

IN that rude state of society in which there is no division of 
labour, in which exchanges are seldom made, and in which 
every man provides every thing for himself, it is not necessary 
that any stock should be accumulated or stored up beforehand, in 
order to carry on the business of the society. Every man endeavours 
to supply by his own industry his own occasional wants as they occur. 
When he is hungry, he goes to the forest to hunt; when his coat is 
worn out, he clothes himself with the skin of the first large animal 
he kills: and when his hut begins to go to ruin, he repairs it, as well 
as he can, with the trees and the turf that are nearest it. 

But when the division of labour has once been thoroughly intro- 
duced, the produce of a man's own labour can supply but a very 
small part of his occasional wants. The far greater part of them are 
supplied by the produce of other men's labour, which he purchases 
with the produce, or, what is the same thing, with the price of the 
produce of his own. But this purchase cannot be made till such time 
as the produce of his own labour has not only been completed, but 
sold. A stock of goods of different kinds, therefore, must be stored 
up somewhere sufficient to maintain him, and to supply him with the 
materials and tools of his work, till such time, at least, as both these 
events can be brought about. A weaver cannot apply himself en- 
tirely to his {peculiar business, unless there is beforehand stored up 
somewhere, either in his own possession or in that of some other 
person, a stock sufficient to maintain him, and to supply him with the 
materials and tools of his work, till he has not only completed but 
sold his web. This accumulation must, evidently, be previous to his 
applying his industry for so long a time to such a peculiar business. 

As the accumulation of stock must, in the nature of things, be 



INTRODUCTION 2I3 

previous to the division of labour, so labour can be more and more 
subdivided in proportion only as stock is previously more and more 
accumulated. The quantity of materials which the same number of 
people can work up, increases in a great proportion as labour comes 
to be more and more subdivided; and as the operations of each 
workman are gradually reduced to a greater degree of simplicity, a 
variety of new machines come to be invented for facilitating and 
abridging those operations. As the division of labour advances, 
therefore, in order to give constant employment to an equal number 
of workmen, an equal stock of provisions, and a greater stock of 
materials and tools than what would have been necessary in a ruder 
state of things, must be accumulated beforehand. But the number 
of workmen in every branch of business generally increases with the 
division of labour in that branch, or rather it is the increase of their 
number which enables them to class and subdivide themselves in 
this manner. 

As the accumulation of stock is previously necessary for carrying 
on this great improvement in the productive powers of labour, so 
that accumulation naturally leads to this improvement. The person 
who employs his stock in maintaining labour, necessarily wishes to 
employ it in such a manner as to produce as great a quantity of work 
as possible. He endeavours, therefore, both to make among his work- 
men the most proper distribution of employment, and to furnish 
them with the best machines which he can either invent or afford to 
purchase. His abilities in both these respects are generally in propor- 
tion to the extent of his stock, or to the number of people whom it 
can employ. The quantity of industry, therefore, not only increases 
in every country with the increase of the stock which employs it, but, 
in consequence of that increase, the same quantity of industry pro- 
duces a much greater quantity of work. 

Such are in general the effects of the increase of stock upon indus- 
try and its productive powers. 

In the following book I have endeavoured to explain the nature of 
stock, the effects of its accumulation into capitals of different kinds, 
and the effects of the different employments of those capitals. This 
book is divided into five chapters. In the first chapter, I have en- 
deavoured to show what are the different parts or branches into 



214 WEALTH OF NATIONS 

which the stock, either of an individual, or of a great society, natu- 
rally divides itself. In the second, I have endeavoured to explain the 
nature and operation of money considered as a particular branch of 
the general stock of the society. The stock which is accumulated into 
a capital, may either be employed by the person to whom it belongs, 
or it may be lent to some other person. In the third and fourth 
chapters, I have endeavoured to examine the manner in which it 
operates in both these situations. The fifth and last chapter treats 
of the different effects which the different employments of capital 
immediately produce upon the quantity both of national industry, 
and of the annual produce of land and labour. 



CHAPTER I 
Of the Division of Stock 

WHEN the stock which a man possesses is no more than 
sufficient to maintain him for a few days or a few weeks, 
he seldom thinks of deriving any revenue from it. He con- 
sumes it as sparingly as he can, and endeavours by his labour to 
acquire something which may supply its place before it be consumed 
altogether. His revenue is, in this case, derived from his labour only. 
This is the state of the greater part of the labouring poor in all 
countries. 

But when he possesses stock sufficient to maintain him for months 
or years, he naturally endeavours to derive a revenue from the greater 
part of it; reserving only so much for his immediate consumption as 
may maintain him till this revenue begins to come in. His whole 
stock, therefore, is distinguished into two parts. That part which, he 
expects, is to afford him this revenue, is called his capital. The other 
is that which supplies his immediate consumption; and which con- 
sists either, first, in that portion of his whole stock which was origi- 
nally reserved for this purpose; or, secondly, in his revenue, from 
whatever source derived, as it gradually comes in; or, thirdly, in such 
things as had been purchased by either of these in former years, and 
which are not yet entirely consumed; such as a stock of clothes, house- 
hold furniture, and the like. In one, or other, or all of these three 
articles, consists the stock which men commonly reserve for their 
own immediate consumption. 

There are two different ways in which a capital may be employed 
so as to yield a revenue or profit to its employer. 

First, it may be employed in raising, manufacturing, or purchasing 
goods, and selling them again with a profit. The capital employed 
in this manner yields no revenue or profit to its employer, while it 
either remains in his fxjssession, or continues in the same shap)e. 
The goods of the merchant yield him no revenue or profit till he sells 

215 



2l6 WEALTH OF NATIONS 

them for money, and the money yields him as little till it is again ex- 
changed for goods. His capital is continually going from him in one 
shape, and returning to him in another, and it is only by means of 
such circulation, or successive exchanges, that it can yield him any 
profit. Such capitals, therefore, may very properly be called circu- 
lating capitals. 

Secondly, it may be employed in the improvement of land, in the 
purchase of useful machines and instruments of trade, or in such- 
like things as yield a revenue or profit without changing masters, 
or circulating any further. Such capitals, therefore, may very properly 
be called fixed capitals. 

Different occupations require very different proportions between 
the fixed and circulating capitals employed in them. 

The capital of a merchant, for example, is altogether a circulating 
capital. He has occasion for no machines or instruments of trade, 
unless his shop, or warehouse, be considered as such. 

Some part of the capital of every master artificer or manufacturer 
must be fixed in the instruments of his trade. This part, however, is 
very small in some, and very great in others. A master taylor re- 
quires no other instruments of trade but a parcel of needles. Those 
of the master shoemaker are a little, though but a very litde, more 
expensive. Those of the weaver rise a good deal above those of the 
shoemaker. The far greater part of the capital of all such master 
artificers, however, is circulated, either in the wages of their work- 
men, or in the price of their materials, and repaid with a profit by 
the price of the work. 

In other works a much greater fixed capital is required. In a great 
iron-work, for example, the furnace for melting the ore, the forge, the 
slitt-mill, are instruments of trade which cannot be erected without 
a very great expence. In coal-works, and mines of every kind, the 
machinery necessary both for drawing out the water and for other 
purp)oses, is frequently still more exf)ensive. 

That part of the capital of the farmer which is employed in the 
instruments of agriculture is a fixed; that which is employed in the 
wages and maintenance of his labouring servants, is a circulating 
capital. He makes a profit of the one by keeping it in his own pos- 
session, and of the other by parting with it. The price or value of 



DIVISION OF STOCK 21 7 

his labouring cattle is a fixed capital in the same manner as that 
of the instruments of husbandry: Their maintenance is a circulating 
capital in the same manner as that of the labouring servants. The 
farmer makes his profit by keeping the labouring cattle, and by part- 
ing with their maintenance. Both the price and the maintenance of 
the cattle which are bought in and fattened, not for labour, but for 
sale, are a circulating capital. The farmer makes his profit by part- 
ing with them. A flock of sheep or a herd of cattle that, in a breed- 
ing country, is bought in, neither for labour, nor for sale, but in order 
to make a profit by their wool, by their milk, and by their increase, 
is a fixed capital. The profit is made by keeping them. Their main- 
tenance is a circulating capital. The profit is made by parting with 
it; and it comes back with both its own profit, and the profit upon 
the whole price of the cattle, in the price of the wool, the milk, and 
the increase. The whole value of the seed too is properly a fixed 
capital. Though it goes backwards and forwards between the ground 
and the granary, it never changes masters, and therefore does not 
properly circulate. The farmer makes his profit, not by its sale, but 
by its increase. 

The general stock of any country or society is the same with that 
of all its inhabitants or members, and therefore naturally divides 
itself into the same three portions, each of which has a distinct func- 
tion or office. 

The First, is that portion which is reserved for immediate con- 
sumption, and of which the characteristic is, that it affords no reve- 
nue or profit. It consists in the stock of food, clothes, household 
furniture, &c., which have been purchased by their proper consumers, 
but which are not yet entirely consumed. The whole stock of mere 
dwelling-houses too subsisting at any one time in the country, make 
a part of this first portion. The stock that is laid out in a house, if 
it is to be the dwelling-house of the proprietor, ceases from that 
moment to serve in the function of a capital, or to afford any reve- 
nue to its owner. A dwelling-house, as such, contributes nothing to 
the revenue of its inhabitant; and though it is, no doubt, extremely 
useful to him, it is as his clothes and household furniture are use- 
ful to him, which, however, make a part of his expence, and not of 
his revenue. If it is to be let to a tenant for rent, as the house itself 



2l8 WEALTH OF NATIONS 

can produce nothing, the tenant must always pay the rent out of 
some other revenue which he derives either from labour, or stock, 
or land. Though a house, therefore, may yield a revenue to its pro- 
prietor, and thereby serve in the function of a capital to him, it can- 
not yield any to the public, nor serve in the function of a capital to it, 
and the revenue of the whole body of the people can never be in 
the smallest degree increased by it. Clothes, and household furniture, 
in the same manner, sometimes yield a revenue, and thereby serve 
in the function of a capital to particular persons. In countries where 
masquerades are common, it is a trade to let out masquerade dresses 
for a night. Upholsterers frequently let furniture by the month or 
by the year. Undertakers let the furniture of funerals by the day and 
by the week. Many people let furnished houses, and get a rent, not 
only for the use of the house, but for that of the furniture. The reve- 
nue, however, which is derived from such things, must always be 
ultimately drawn from some other source of revenue. Of all parts 
of the stock, either of an individual, or of a society, reserved for im- 
mediate consumption, what is laid out in houses is most slowly con- 
sumed. A stock of clothes may last several years: a stock of furniture 
half a century or a century: but a stock of houses, well built and proj> 
erly taken care of, may last many centuries. Though the period of 
their total consumption, however, is more distant, they are still as 
really a stock reserved for immediate consumption as either clothes 
or household furniture. 

The Second of the three portions into which the general stock of 
the society divides itself, is the fixed capital; of which the character- 
istic is, that it affords a revenue or profit without circulating or 
changing masters. It consists chiefly of the four following articles: 

First, of all useful machines and instruments of trade which facili- 
tate and abridge labour : 

Secondly, of all those profitable buildings which are the means of 
procuring a revenue, not only to their proprietor who lets them for 
a rent, but to the person who possesses them and pays that rent for 
them; such as shops, warehouses, workhouses, farmhouses, with all 
their necessary buildings, stables, granaries, &c. These are very differ- 
ent from mere dwelling houses. They are a sort of instruments of 
trade, and may be considered in the same light: 



DIVISION OF STOCK 219 

Thirdly, of the improvements of land, of what has been profitably 
laid out in clearing, draining, enclosing, manuring, and reducing it 
into the condition most proper for tillage and culture. An improved 
farm may very justly be regarded in the same light as those use- 
ful machines which facilitate and abridge labour, and by means of 
which, an equal circulating capital can afford a much greater revenue 
to its employer. An improved farm is equally advantageous and more 
durable than any of those machines, frequendy requiring no other 
repairs than the most profitable application of the farmer's capital 
employed in cultivating it: 

Fourthly, of the acquired and useful abilities of all the inhabitants 
or members of the society. The acquisition of such talents, by the 
maintenance of the acquirer during his education, study, or appren- 
ticeship, always costs a real expence, which is a capital fixed and 
realized, as it were, in his person. Those talents, as they make a part 
of his fortune, so do they likewise of that of the society to which he 
belongs. The improved dexterity of a workman may be considered in 
the same light as a machine or instrument of trade which faciUtates 
and abridges labour, and which, though it costs a certain expence, 
repays that expence with a profit. 

The Third and bst of the three portions into which the general 
stock of the society naturally divides itself, is the circulating capital; 
of which the characteristic is, that it affords a revenue only by circu- 
lating or changing masters. It is composed likewise of four parts: 

First, of the money by means of which all the other three are 
circulated and distributed to their proper consumers: 

Secondly, of the stock of provisions which are in the possession 
of the butcher, the grazier, the farmer, the corn-merchant, the 
brewer, &c. and from the sale of which they expect to derive a profit : 

Thirdly, of the materials, whether altogether rude, or more or less 
manufactured, of clothes, furniture and building, which are not yet 
made up into any of those three shapes,but which remain in the hands 
of the growers, the manufacturers, the mercers, and drapers, the 
timber-merchants, the carpenters and joiners, the brick-makers, &c. 

Fourthly, and lastly, of the work which is made up and completed, 
but which is still in the hands of the merchant or manufacturer, and 
not yet disposed of or distributed to the proper consumers; such as 



220 WEALTH OF NATIONS 

the finished work which we frequently find ready-made in the shops 
of the smith, the cabinet-maker, the goldsmith, the jeweller, the 
china-merchant, &c. The circulating capital consists in this manner, 
of the provisions, materials, and finished work of all kinds that 
are in the hands of their respective dealers, and of the money that is 
necessary for circulating and distributing them to those who are 
finally to use, or to consume them. 

Of these four parts three, provisions, materials, and finished work, 
are, either annually, or in a longer or shorter period, regularly with- 
drawn from it, and placed either in the fixed capital or in the stock 
reserved for immediate consumption. 

Every fixed capital is both originally derived from, and requires 
to be continually supported by a circulating capital. All useful 
machines and instruments of trade are originally derived from a cir- 
culating capital, which furnishes the materials of which they are 
made, and the maintenance of the workmen who make them. They 
require too a capital of the same kind to keep them in constant repair. 

No fixed capital can yield any revenue but by means of a circu- 
lating capital. The most useful machines and instruments of trade 
will produce nothing without the circulating capital which affords 
the materials they are employed upon, and the maintenance of the 
workmen who employ them. Land, however improved, will yield 
no revenue without a circulating capital, which maintains the labour- 
ers who cultivate and collect its produce. 

To maintain and augment the stock which may be reserved for 
immediate consumption, is the sole end and purpose both of the 
fixed and circulating capitals. It is this stock which feeds, clothes, 
and lodges the people. Their riches or poverty depends upon the 
abundant or sparing supplies which those two capitals can afford to 
the stock reserved for immediate consumption. 

So great a part of the circulating capital being continually with- 
drawn from it, in order to be placed in the other two branches of 
the general stock of the society; it must in its turn require continual 
supplies, without which it would soon cease to exist. These supplies 
are principally drawn from three sources, the produce of land, of 
mines, and of fisheries. These afford continual supplies of provisions 
and materials, of which part is afterwards wrought up into finished 



DIVISION OF STOCK 221 

work, and by which are replaced the provisions, materials, and fin- 
ished work continually withdrawn from the circulating capital. 
From mines too is drawn what is necessary for maintaining and 
augmenting that part of it which consists in money. For though, in 
the ordinary course of business, this part is not, like the other three, 
necessarily withdrawn from it, in order to be placed in the other two 
branches of the general stock of the society, it must, however, like 
all other things, be wasted and worn out at last, and sometimes too 
be either lost or sent abroad, and must, therefore, require continual, 
though, no doubt, much smaller supplies. 

Land, mines, and fisheries, require all both a fixed and a circu- 
lating capital to cultivate them: and their produce replaces with a 
profit, not only those capitals, but all the others in the society. Thus 
the farmer annually replaces to the manufacturer the provisions which 
he had consumed and the materials which he had wrought up the 
year before; and the manufacturer replaces to the farmer the finished 
work which he had wasted and worn out in the same time. This is 
the real exchange that is annually made between those two orders of 
people, though it seldom happens that the rude produce of the one 
and the manufactured produce of the other, are direcdy bartered 
for one another; because it seldom hapf)ens that the farmer sells his 
corn and his catde, his flax and his wool, to the very same person of 
whom he chuses to purchase the clothes, furniture, and instruments 
of trade which he wants. He sells, therefore, his rude produce for 
money, with which he can purchase, wherever it is to be had, the 
manufactured produce he has occasion for. Land even replaces, in 
part at least, the capitals with which fisheries and mines are culti- 
vated. It is the produce of land which draws the fish from the 
waters; and it is the produce of the surface of the earth which extracts 
the minerals from its bowels. 

The produce of land, mines, and fisheries, when their natural fer- 
tility is equal, is in proportion to the extent and proper application of 
the capitals employed about them. When the capitals are equal and 
equally well applied, it is in proportion to their natural fertility. 

In all countries where there is tolerable security, every man o£ 
common understanding will endeavour to employ whatever stock he 
can command, in procuring either present enjoyment or future profit. 



222 WEALTH OF NATIONS 

If it is employed in procuring present enjoyment, it is a stock reserved 
for immediate consumption. If it is employed in procuring future 
profit, it must procure this profit either by staying with him, or by 
going from him. In the one case it is a fixed, in the other it is a cir- 
culating capital. A man must be perfectly crazy who, where there is 
tolerable security, does not employ all the stock which he commands, 
whether it be his own or borrowed of other people, in some one or 
other of those three ways. 

In those unfortunate countries, indeed, where men are continually 
afraid of the violence of their superiors, they frequently bury and 
conceal a great part of their stock, in order to have it always at hand 
to carry with them to some place of safety, in case of their being 
threatened with any of these disasters to which they consider them- 
selves as at all times exposed. This is said to be a common practice 
in Turkey, in Indostan, and, I believe, in most other governments 
of Asia. It seems to have been a common practice among our ances- 
tors during the violence of the feudal government. Treasure-trove 
was in those times considered as no contemptible part of the revenue 
of the greatest sovereigns in Europe. It consisted in such treasure 
as was found concealed in the earth, and to which no particular 
fjerson could prove any right. This was regarded in those times as 
so important an object, that it was always considered as belonging 
to the sovereign, and neither to the finder nor to the proprietor of the 
land, unless the right to it had been conveyed to the latter by an 
express clause in his charter. It was put upon the same footing with 
gold and silver mines, which, without a special clause in the charter, 
were never supposed to be comprehended in the general grant of the 
lands, though mines of lead, copper, tin, and coal were, as things of 
smaller consequence. 



CHAPTER II 

Of Money Considered as a PARTicuu-iR Branch of the General 

Stock of the Society, or of the Expence of 

Maintaining the National Capital 

IT has been shewn in the First Book, that the price of the greater 
part of commodities resolves itself into three parts, of which 
one pays the wages of the labour, another the profits of the 
stock, and a third the rent of the land which had been employed in 
producing and bringing them to market: that there are, indeed, 
some commodities of which the price is made up of two of those 
parts only, the wages of labour, and the profits of stock: and a very 
few in which it consists altogether in one, the wages of labour: but 
that the price of every commodity necessarily resolves itself into some 
one, or other, or all of these three parts; every part of it which goes 
neither to rent nor to wages, being necessarily profit to somebody. 

Since this is the case, it has been observed, with regard to every 
particular commodity, taken separately; it must be so with regard to 
all the commodities which compose the whole annual produce of the 
land and labour of every country, taken complexly. The whole price 
or exchangeable value of that annual produce, must resolve itself 
into the same three parts, and be parcelled out among the different 
inhabitants of the country, either as the wages of their labour, the 
profits of their stock, or the rent of their land. 

But though the whole value of the annual produce of the land and 
labour of every country is thus divided among and constitutes a reve- 
nue to its different inhabitants; yet as in the rent of a private estate 
we distinguish between the gross rent and the neat rent, so may we 
likewise in the revenue of all the inhabitants of a great country. 

The gross rent of a private estate comprehends whatever is paid 
by the farmer; the neat rent, what remains free to the landlord, after 
deducting the expence of management, of repairs, and all other neces- 
sary charges; or what, without hurting his estate, he can afford to 

223 



224 WEALTH OF NATIONS 

place in his stock reserved for immediate consumption, or to spend 
upon his table, equipage, the ornaments of his house and furniture, 
his private enjoyments and amusements. His real wealth is in pro- 
portion, not to his gross, but to his neat rent. 

The gross revenue of all the inhabitants of a great country, com- 
prehends the whole annual produce of their land and labour; the 
neat revenue, what remains free to them after deducting the ex- 
pence of maintaining; first, their fixed; and, secondly, their circu- 
lating capital; or what, without encroaching upon their capital, they 
can place in their stock reserved for immediate consumption, or 
spend upon their subsistence, conveniencies, and amusements. Their 
real wealth too is in proportion, not to their gross, but to their neat 
revenue. 

The whole expence of maintaining the fixed capital, must evi- 
dently be excluded from the neat revenue of the society. Neither the 
materials necessary for supporting their useful machines and instru- 
ments of trade, their profitable buildings, &c. nor the product of the 
labour necessary for fashioning those materials into the proper form, 
can ever make any part of it. The price of that labour may indeed 
make a part of it; as the workmen so employed may place the whole 
value of their wages in their stock reserved for immediate consump)- 
tion. But in other sorts of labour, both the price and the produce 
go to this stock, the price to that of the workmen, the produce to that 
of other people, whose subsistence, conveniencies, and amusements, 
are augmented by the labour of those workmen. 

The intention of the fixed capital is to increase the productive 
powers of labour, or to enable the same number of labourers to per- 
form a much greater quantity of work. In a farm where all the neces- 
sary buildings, fences, drains, communications, &c. are in the most 
perfect good order, the same number of labourers and labouring 
cattle will raise a much greater produce, than in one of equal extent 
and equally good ground, but not furnished with equal conven- 
iencies. In manufactures the same number of hands, assisted with 
the best machinery, will work up a much greater quantity of goods 
than with more imperfect instruments of trade. The expence which 
is properly laid out upon a fixed capital of any kind, is always repaid 
with great profit, and increases the annual produce by a much greater 



MONEY 225 

value than that of the support which such improvements require. 
This support, however, still requires a certain portion of that prod- 
uce. A certain quantity of materials, and the labour of a certain 
number of ^workmen, both of which might have been immediately 
employed to augment the food, clothing and lodging, the subsistence 
and conveniencies of the society, are thus diverted to another employ- 
ment, highly advantageous indeed, but still different from this one. 
It is upon this account that all such improvements in mechanics, as 
enable the same number of workmen to perform an equal quantity 
of work with cheaper and simpler machinery than had been usual 
before, are always regarded as advantageous to every society. A 
certain quantity of materials, and the labour of a certain number of 
workmen, which had before been employed in supporting a more 
complex and expensive machinery, can afterwards be applied to 
augment the quantity of work which that or any other machinery 
is useful only for performing. The undertaker of some great manu- 
factory who employs a thousand a-year in the maintenance of his 
machinery, if he can reduce this expjence to five hundred, will natu- 
rally employ the other five hundred in purchasing an additional 
quantity of materials to be wrought up by an additional nimiber of 
workmen. The quantity of that work, therefore, which his machinery 
was useful only for performing, will naturally be augmented, and 
with it all the advantage and conveniency which the society can 
derive from that work. 

The exf)ence of maintaining the fixed capital in a great country, 
may very properly be compared to that of repairs in a private estate. 
The exp)ence of repairs may frequently be necessary for supporting 
the produce of the estate, and consequently both the gross and the 
neat rent of the landlord. When by a more proper direction, how- 
ever, it can be diminished without occasioning any diminution of 
produce, the gross rent remains at least the same as before, and the 
neat rent is necessarily augmented. 

But though the whole expence of maintaining the fixed capital is 
thus necessarily excluded from the neat revenue of the society, it is 
not the same case with that of maintaining the circulating capital. Of 
the four parts of which this latter capital is composed, money, pro- 
visions, materials, and finished work, the three last, it has already 



226 WEALTH OF NATIONS 

been observed, are regularly withdrawn from it, and placed either 
in the fixed capital of the society, or in their stock reserved for im- 
mediate consumption. Whatever portion of those consumable goods 
is not employed in maintaining the former, goes all to the latter, and 
makes a part of the neat revenue of the society. The maintenance of 
those three parts of the circulating capital, therefore, withdraws no 
portion of the annual produce from the neat revenue of the society, 
besides what is necessary for maintaining the fixed capital. 

The circulating capital of a society is in this respect different from 
that of an individual. That of an individual is totally excluded from 
making any part of his neat revenue, which must consist altogether 
in his profits. But though the circulating capital of every individual 
makes a part of that of the society to which he belongs, it is not upon 
that account totally excluded from making a part likewise of their 
neat revenue. Though the whole goods in a merchant's shop must 
by no means be placed in his own stock reserved for immediate con- 
sumption, they may in that of other people, who, from a revenue 
derived from other funds, may regularly replace their value to him, 
together with its profits, without occasioning any diminution either 
of his capital or of theirs. 

Money, therefore, is the only part of the circulating capital of a 
society, of which the maintenance can occasion any diminution in 
their neat revenue. 

The fixed capital, and that part of the circulating capital which 
consists in money, so far as they affect the revenue of the society, 
bear a very great resemblance to one another. 

First, as those machines and instruments of trade, &c., require a 
certain expence, first to erect them, and afterwards to support them, 
both which expences, though they make a part of the gross, are 
deductions from the neat revenue of the society; so the stock o£ 
money which circulates in any country must require a certain ex- 
pence, first to collect it, and afterwards to support it, both which 
expences, though they make a part of the gross, are, in the same 
manner, deductions from the neat revenue of the society. jA certain 
quantity of very valuable materials, gold and silver, and of very curi- 
ous labour, instead of augmenting the stock reserved for immediate 
consumption, the subsistence, conveniencies, and amusements of 



MONEY 227 

individuals, is employed in supporting that great but expensive 
instrument of commerce, by means of which every individual in the 
society has his subsistence, conveniencies, and amusements, regularly 
distributed ito him in their proper proportion. 

Secondly, as the machines and instruments of trade, &c. which 
compose the fixed capital either of an individual or of a society, make 
no part either of the gross or of the neat revenue of either; so 
money, by means of which the whole revenue of the society is regu- 
larly distributed among all its different members, makes itself no 
part of that revenue. The great wheel of circulation is altogether 
different from the goods which are circulated by means of it. The 
revenue of the society consists altogether in those goods, and not in 
the wheel which circulates them. In computing either the gross or 
the neat revenue of any society, we must always, from their whole 
annual circulation of money and goods, deduct the whole value of 
the money, of which not a single farthing can ever make any part 
of either. 

It is the ambiguity of language only which can make this propo- 
sition appear either doubtful or paradoxical. When projjerly ex- 
plained and understood, it is almost self-evident. 

When we talk of any particular sum of money, we sometimes 
mean nothing but the metal pieces of which it is composed; and 
sometimes we include in our meaning some obscure reference to 
the goods which can be had in exchange for it, or to the power of 
purchasing which the possession of it conveys. Thus when we say, 
that the circulating money of England has been computed at eighteen 
millions, we mean only to express the amount of the metal pieces, 
which some writers have computed, or rather have supposed to 
circulate in that country. But when we say that a man is worth 
fifty or a hundred pounds a-year, we mean commonly to express 
not only the amount of the metal pieces which are annually paid to 
him, but the value of the goods which he can annually purchase or 
consume. We mean commonly to ascertain what is or ought to be 
his way of living, or the quantity and quality of the necessaries 
and conveniencies of life in which he can with propriety indulge 
himself. 

When, by any particular sum of money, we mean not only to 



228 WEALTH OF NATIONS 

express the amount of the metal pieces of which it is composed, but 
to include in its signification some obscure reference to the goods 
which can be had in exchange for them, the wealth or revenue which 
it in this case denotes, is equal only to one of the two values which 
are thus intimated somewhat ambiguously by the same word, and 
to the latter more properly than to the former, to the money's worth 
more properly than to the money. 

Thus if a guinea be the weekly pension of a particular person, he 
can in the course of the week purchase with it a certain quantity of 
subsistence, conveniencies, and amusements. In prop)ortion as this 
quantity is great or small, so are his real riches, his real weekly reve- 
nue. His weekly revenue is certainly not equal both to the guinea, 
and to what can be purchased with it, but only to one or other of 
those two equal values; and to the latter more properly than to the 
former, to the guinea's worth rather than to the guinea. 

If the pension of such a person was paid to him, not in gold, but 
in a weekly bill for a guinea, his revenue surely would not so properly 
consist in the piece of paper, as in what he could get for it. A guinea 
may be considered as a bill for a certain quantity of necessaries and 
conveniencies upon all the tradesmen in the neighbourhood. The 
revenue of the person to whom it is paid, does not so properly consist 
in the piece of gold, as in what he can get for it, or in what he can 
exchange it for. If it could be exchanged for nothing, it would, like 
a bill upon a bankrupt, be of no more value than the most useless 
piece of paper. 

Though the weekly or yearly revenue of all the different inhabi- 
tants of any country, in the same manner, may be, and in reality fre- 
quently is paid to them in money, their real riches, however, the 
real weekly or yearly revenue of all of them taken together, must 
always be great or small in proportion to the quantity of consumable 
goods which they can all of them purchase with this money. The 
whole revenue of all of them taken together is evidently not equal 
to both the money and the consumable goods; but only to one or 
other of those two values, and to the latter more properly than to 
the former. ' 

Though we frequendy, therefore, express a person's revenue by 
the metal pieces which are annually paid to him, it is because the 
amount of those pieces regulates the extent of his power of pur- 



MONEY 229 

chasing, or the value of the goods which he can annually afford to 
consume. We still consider his revenue as consisting in this power 
of purchasing or consuming, and not in the pieces which convey it. 

But if thi^ is sufficiently evident even with regard to an individual, 
it is still more so with regard to a society. The amount of the metal 
pieces which are annually paid to an individual, is often precisely 
equal to his revenue, and is upon that account the shortest and best 
expression of its value. But the amount of the metal pieces which 
circulate in a society, can never be equal to the revenue of all its 
members. As the same guinea which pays the weekly pension of 
one man to-day, may pay that of another to-morrow, and that of a 
third the day thereafter, the amount of the metal pieces which annu- 
ally circulate in any country, must always be of much less value 
than the whole money pensions annually paid with them. But the 
power of purchasing, or the goods which can successively be bought 
with the whole of those money pensions as they are successively paid, 
must always be precisely of the same value with those pensions; as 
must likewise be the revenue of the different persons to whom they 
are paid. That revenue, therefore, cannot consist in those metal 
pieces, of which the amount is so much inferior to its value, but in 
the power of purchasing, in the goods which can successively be 
bought with them as they circulate from hand to hand. 

Money, therefore, the great wheel of circulation, the great instru- 
ment of commerce, like all other instruments of trade, though it 
makes a part and a very valuable part of the capital, makes no part 
of the revenue of the society to which it belongs; and though the 
metal pieces of which it is composed, in the course of their annual 
circulation, distribute to every man the revenue which properly 
belongs to him, they make themselves no part of that revenue. 

Thirdly, and lasdy, the machines and instruments of trade, &c. 
which compose the fixed capital, bear this further resemblance to 
that part of the circulating capital which consists in money; that as 
every saving in the expence of erecting and supporting those ma- 
chines, which does not diminish the productive powers of labour, 
is an improvement of the neat revenue of the society; so every saving 
in the expence of collecting and supporting that part of the circulat- 
ing capital which consists in money, is an improvement of exactly 
the same kind. 



230 WEALTH OF NATIONS 

It is sufficiently obvious, and it has partly too been explained 
already, in what manner every saving in the expence of supporting 
the fixed capital is an improvement of the neat revenue of the society. 
The whole capital of the undertaker of every work is necessarily 
divided between his fixed and his circulating capital. While his 
whole capital remains the same, the smaller the one part, the greater 
must necessarily be the other. It is the circulating capital which fur- 
nishes the materials and wages of labour, and puts industry into 
motion. Every saving, therefore, in the expence of maintaining the 
fixed capital, which does not diminish the productive {XJwers of 
labour, must increase the fund which puts industry into motion, 
and consequently the annual produce of land and labour, the real 
revenue of every society. 

The substitution of paper in the room of gold and silver money, 
replaces a very expensive instrument of commerce with one much 
less costly, and sometimes equally convenient. Circulation comes to 
be carried on by a new wheel, which it costs less both to erect and 
to maintain than the old one. But in what manner this operation 
is performed, and in what manner it tends to increase either the 
gross or the neat revenue of the society, is not altogether so obvious, 
and may therefore require some further explication. 

There are several different sorts of pap)er money; but the circu- 
lating notes of banks and bankers are the species which is best 
known, and which seems best adapted for this purpose. When the 
people of any particular country have such confidence in the fortune, 
probity, and prudence of a particular banker, as to believe that he 
is always ready to pay upon demand such of his promissory notes 
as are likely to be at any time presented to him; those notes come to 
have the same currency as gold and silver money, from the confidence 
that such money can at any time be had for them. 

A particular banker lends among his customers his own promis- 
sory notes, to the extent, we shall suppose, of a hundred thousand 
pounds. As those notes serve all the purposes of money, his debtors 
pay him the same interest as if he had lent them so much money. 
This interest is the source of his gain. Though some of ythose notes 
are continually coming back upon him for payment, part of them 
continue to circulate for months and years together. Though he has 



MONEY 231 

generally in circulation, therefore, notes to the extent of a hundred 
thousand pounds, twenty thousand pounds in gold and silver may, 
frequendy, be a sufficient provision for answering occasional de- 
mands. By this operation, therefore, twenty thousand pounds in 
gold and silver perform all the functions which a hundred thousand 
could otherwise have performed. The same exchanges may be made, 
the same quantity of consumable goods may be circulated and dis- 
tributed to their proper consumers, by means of his promissory notes, 
to the value of a hundred thousand pounds, as by an equal value o£ 
gold and silver money. Eighty thousand pounds of gold and silver, 
therefore, can, in this manner, be spared from the circulation of the 
country; and if different operations of the same kind should, at the 
same time, be carried on by many different banks and bankers, the 
whole circulation may thus be conducted with a fifth part only of 
the gold and silver which would otherwise have been requisite. 

Let us suppose, for example, that the whole circulating money o£ 
some particular country amounted, at a particular time, to one million 
sterling, that sum being then sufficient for circulating the whole 
annual produce of their land and labour. Let us suppose too, that 
some time thereafter, different banks and bankers issued promissory 
notes, payable to the bearer, to the extent of one million, reserving 
in their different coffers two hundred thousand pounds for answer- 
ing occasional demands. There would remain, therefore, in circula- 
tion, eight hundred thousand pounds in gold and silver, and a million 
of bank notes, or eighteen hundred thousand pounds of paper and 
money together. But the annual produce of the land and labour of 
the country had before required only one million to circulate and 
distribute it to its proper consumers, and that annual produce cannot 
be immediately augmented by those operations of banking. One 
million, therefore, will be sufficient to circulate it after them. The 
goods to be bought and sold being precisely the same as before, the 
same quantity of money will be sufficient for buying and selling 
them. The channel of circulation, if I may be allowed such an expres- 
sion, will remain precisely the same as before. One million we have 
supposed sufficient to fill that channel. Whatever, therefore, is 
poured into it beyond this sum, cannot run in it, but must overflow. 
One million eight hundred thousand pounds are poured into it. 



232 WEALTH OF NATIONS 

Eight hundred thousand pounds, therefore, must overflow, that sum 
being over and above what can be employed in the circulation of 
the country. But though this sum cannot be employed at home, it 
is too valuable to be allowed to lie idle. It will, therefore, be sent 
abroad, in order to seek that profitable employment which it cannot 
find at home. But the paper cannot go abroad; because at a distance 
from the banks which issue it, and from the country in which pay- 
ment of it can be exacted by law, it will not be received in common 
payments. Gold and silver, therefore, to the amount of eight hundred 
thousand pounds will be sent abroad, and the channel of home cir- 
culation will remain filled with a million of paper, instead of the 
million of those metals which filled it before. 

But though so great a quantity of gold and silver is thus sent 
abroad, we must not imagine that it is sent abroad for nothing, or 
that its proprietors make a present of it to foreign nations. They will 
exchange it for foreign goods of some kind or another, in order to 
supply the consumption either of some other foreign country, or 
of their own. 

If they employ it in purchasing goods in one foreign country in 
order to supply the consumption of another, or in what is called the 
carrying trade, whatever profit they make will be an addition to 
the neat revenue of their own country. It is like a new fund, created 
for carrying on a new trade; domestic business being now trans- 
acted by paper, and the gold and silver being converted into a fund 
for this new trade. 

If they employ it in purchasing foreign goods for home consump- 
tion, they may either, first, purchase such goods as are likely to be 
consumed by idle people who produce nothing, such as foreign wines, 
foreign silks, &c.; or, secondly, they may purchase an additional 
stock of materials, tools, and provisions, in order to maintain and 
employ an additional number of industrious people, who re-produce, 
with a profit, the value of their annual consumption. 

So far as it is employed in the first way, it promotes prodigality, 
increases expence and consumption without increasing production, 
or establishing any permanent fund for supporting that expence, and 
is in every respect hurtful to the society. 

So far as it is employed in the second way, it promotes industry; 



MONEY 233 

and though it increases the consumption of the society, it provides 
a permanent fund for supporting that consumption, the f)eople who 
consume re-producing, with a profit, the whole value of their annual 
consumption. The gross revenue of the society, the annual produce 
of their land and labour, is increased by the whole value which the 
labour of those workmen adds to the materials upon which they are 
employed; and their neat revenue by what remains of this value, after 
deducting what is necessary for supporting the tools and instruments 
of their trade. 

That the greater part of the gold and silver which, being forced 
abroad by those operations of banking, is employed in purchasing 
foreign goods for home consumption, is and must be employed in 
purchasing those of this second kind, seems not only probable but 
almost unavoidable. Though some particular men may sometimes in- 
crease their exf)ence very considerably though their revenue does not 
increase at all, we may be assured that no class or order of men ever 
does so; because, though the principles of common prudence do not 
always govern the conduct of every individual, they always influence 
that of the majority of every class or order. But the revenue of idle 
p)eople, considered as a class or order, cannot, in the smallest degree, 
be increased by those op)erations of banking. Their exp)ence in gen- 
eral, therefore, cannot be much increased by them, though that of a 
few individuals among them may, and in reality sometimes is. The 
demand of idle f)eople, therefore, for foreign goods, being the same, 
or very nearly the same, as before, a very small part of the money, 
which being forced abroad by those operations of banking, is em- 
ployed in purchasing foreign goods for home consumption, is likely 
to be employed in purchasing those for their use. The greater part 
of it will naturally be destined for the employment of industry, and 
not for the maintenance of idleness. 

When we compute the quantity of industry which the circulating 
capital of any society can employ, we must always have regard to 
those parts of it only, which consist in provisions, materials, and 
finished work: the other, which consists in money, and which serves 
only to circulate those three, must always be deducted. In order to 
put industry into motion, three things are requisite; materials to 
work upon, tools to work with, and the wages or recompence for the 



234 WEALTH OF NATIONS 

sake of which the work is done. Money is neither a material to work 
upon, nor a tool to work with; and though the wages of the work- 
man are commonly paid to him in money, his real revenue, like 
that of all other men, consists, not in the money, but in the money's 
worth; not in the metal pieces, but in what can be got for them. 

The quantity of industry which any capital can employ, must, 
evidently, be equal to the number of workmen whom it can supply 
with materials, tools, and a maintenance suitable to the nature of 
the work. Money may be requisite for purchasing the materials and 
tools of the work, as well as the maintenance of the workmen. But 
the quantity of industry which the whole capital can employ, is 
certainly not equal both to the money which purchases, and to the 
materials, tools, and maintenance, which are purchased with it; but 
only to one or other of those two values, and to the latter more 
properly than to the former. 

When paper is substituted in the room of gold and silver money, 
the quantity of the materials, tools, and maintenance, which the 
whole circulating capital can supply, may be increased by the whole 
value of gold and silver which used to be employed in purchasing 
them. The whole value of the great wheel of circulation and dis- 
tribution, is added to the goods which are circulated and distributed 
by means of it. The operation, in some measure, resembles that of 
the undertaker of some great work, who, in consequence of some 
improvement in mechanics, takes down his old machinery, and adds 
the difference between its price and that of the new to his circulating 
capital, to the fund from which he furnishes materials and wages 
to his workmen. 

What is the proportion which the circulating money of any country 
bears to the whole value of the annual produce circulated by means 
of it, it is, perhaps, impossible to determine. It has been computed 
by different authors at a fifth, at a tenth, at a twentieth, and at a 
thirtieth part of that value. But how small soever the proportion 
which the circulating money may bear to the whole value of the 
annual produce, as but a part, and frequently but a small part of that 
produce, is ever destined for the maintenance of industry, it must 
always bear a very considerable proportion to that part. When, there- 
fore, by the substitution of paper, the gold and silver necessary for 



MONEY 235 

circulation is reduced to, perhaps, a fifth part of the former quantity, 
if the value of only the greater part of the other four-fifths be added 
to the funds which are destined for the maintenance of industry, it 
must make a very considerable addition to the quantity of that indus- 
try and, consequently, to the value of the annual produce of land 
and labour. 

An operation of this kind has, within these five-and-twenty or 
thirty years, been performed in Scodand, by the erection of new 
banking companies in almost every considerable town, and even in 
some country villages. The effects of it have been precisely those 
above described. The business of the country is almost entirely 
carried on by means of the paper of those different banking com- 
panies, with which purchases and payments of all kinds are com- 
monly made. Silver very seldom appears except in the change of a 
twenty shillings bank note, and gold still seldomer. But though the 
conduct of all those different companies has not been unexception- 
able, and has accordingly required an act of parliament to regulate 
it; the country, notwithstanding, has evidently derived great benefit 
from their trade. I have heard it asserted, that the trade of the city 
of Glasgow, doubled in about fifteen years after the first erection 
of the banks there; and that the trade of Scotland has more than 
quadrupled since the first erection of the two public banks at Edin- 
burgh, of which the one, called The Bank of Scotland, was estab- 
lished by act of parliament in 1695; the other, called The Royal 
Bank, by royal charter in 1727. Whether the trade, either of Scot- 
land in general, or of the city of Glasgow in particular, has really 
increased in so great a proportion, during so short a period, I do not 
pretend to know. If either of them has increased in this proportion, 
it seems to be an effect too great to be accounted for by the sole 
operation of this cause. That the trade and industry of Scodand, 
however, have increased very considerably during this period, and 
that the banks have contributed a good deal to this increase, cannot 
be doubted. 

The value of the silver money which circulated in Scotland before 
the union, in 1707, and which, immediately after it, was brought into 
the bank of Scotland in order to be recoined, amounted to 411,117/. 
JOS. gd. sterling. No account has been got of the gold coin; but it 



236 WEALTH OF NATIONS 

appears from the ancient accounts of the mint of Scotland, that the 
value of the gold annually coined somewhat exceeded that of the 
silver. There were a good many people too upon this occasion, who, 
from a diffidence of repayment, did not bring their silver into the 
bank of Scotland: and there was, besides, some English coin, which 
was not called in. The whole value of the gold and silver, therefore, 
which circulated in Scotland before the union, cannot be estimated 
at less than a million sterling. It seems to have constituted almost 
the whole circulation of that country; for though the circulation of 
the bank of Scotland, which had then no rival, was considerable, it 
seems to have made but a very small part of the whole. In the pres- 
ent times the whole circulation of Scotland cannot be estimated at 
less than two millions, of which that part which consists in gold and 
silver, most probably, does not amount to half a million. But though 
the circulating gold and silver of Scotland have suffered so great a 
diminution during this period, its real riches and prosperity do not 
appear to have suffered any. Its agriculture, manufactures, and trade, 
on the contrary, the annual produce of its land and labour, have 
evidendy been augmented. 

It is chiefly by discounting bills of exchange, that is, by advancing 
money upon them before they are due, that the greater part of 
banks and bankers issue their promissory notes. They deduct always, 
upon whatever sum they advance, the legal interest till the bill shall 
become due. The payment of the bill, when it becomes due, replaces 
to the bank the value of what had been advanced, together with a 
clear profit of the interest. The banker who advances to the merchant 
whose bill he discounts, not gold and silver, but his own promissory 
notes, has the advantage of being able to discount to a greater amount 
by the whole value of his promissory notes, which he finds by expe- 
rience, are commonly in circulation. He is thereby enabled to make 
his clear gain of interest on so much a larger sum. 

The commerce of Scodand, which at present is not very great, was 
still more inconsiderable when the two first banking companies were 
established; and those companies would have had but litde trade, 
had they confined their business to the discounting of bills of ex- 
change. They invented, therefore, another method of issuing their 
promissory notes; by granting, what they called, cash accounts, that 



MONEY 237 

is by giving credit to the extent of a certain sum (two or three thou- 
sand pounds, for example), to any individual who could procure two 
p)ersons of undoubted credit and good landed estate to become surety 
for him, that whatever money should be advanced to him, within 
the sum for which the credit had been given, should be repaid upon 
demand, together with the legal interest. Credits of this kind are, I 
believe, commonly granted by banks and bankers in all different parts 
of the world. But the easy terms upon which the Scotch banking 
companies accept of re-payment are, so far as I know, peculiar to 
them, and have, perhaps, been the principal cause, both of the great 
trade of those companies, and of the benefit which the country has 
received from it. 

Whoever has a credit of this kind with one of those companies, 
and borrows a thousand pounds upon it, for example, may repay this 
sum piece-meal, by twenty and thirty pounds at a time, the company 
discounting a proportionable part of the interest of the great sum 
from the day on which each of those small sums is paid in, till the 
whole be in this manner repaid. All merchants, therefore, and almost 
all men of business, find it convenient to keep such cash accounts 
with them, and are thereby interested to promote the trade of those 
companies, by readily receiving their notes in all payments, and by 
encouraging all those with whom they have any influence to do the 
same. The banks, when their customers apply to them for money, 
generally advance it to them in their own promissory notes. These 
the merchants pay away to the manufacturers for goods, the manu- 
facturers to the farmers for materials and provisions, the farmers to 
their landlords for rent, the landlords repay them to the merchants 
for the conveniencies and luxuries with which they supply them, and 
the merchants again return them to the banks in order to balance 
their cash accounts, or to replace what they may have borrowed of 
them; and thus almost the whole money business of the country 
is transacted by means of them. Hence the great trade of those 
companies. 

By means of those cash accounts every merchant can, witliout 
imprudence, carry on a greater trade than he otherwise could do. If 
there are two merchants, one in London, and the other in Edinburgh, 
who employ equal stocks in the same branch of trade, the Edin- 



238 WEALTH OF NATIONS 

burgh merchant can, without imprudence, carry on a greater trade, 
and give employment to a greater number of people than the London 
merchant. The London merchant must always keep by him a con- 
siderable sum of money, either in his own coffers, or in those of his 
banker, who gives him no interest for it, in order to answer the 
demands continually coming upon him for payment of the goods 
which he purchases upon credit. Let the ordinary amount of this 
sum be supposed five hundred p)ounds. The value of the goods in his 
warehouse must always be less by five hundred pounds than it 
would have been, had he not been obliged to keep such a sum unem- 
ployed. Let us suppose that he generally disposes of his whole stock 
up)on hand, or of goods to the value of his whole stock upnan hand, 
once in the year. By being obliged to keep so great a sum unem- 
ployed, he must sell in a year five hundred pounds worth less goods 
than he might otherwise have done. His annual profits must be 
less by all that he could have made by the sale of five hundred 
pounds worth more goods; and the number of people employed in 
preparing his goods for the market, must be less by all those that five 
hundred pounds more stock could have employed. The merchant in 
Edinburgh, on the other hand, keeps no money unemployed for 
answering such occasional demands. When they actually come upon 
him, he satisfies them from his cash account with the bank, and 
gradually replaces the sum borrowed with the money or paper which 
comes in from the occasional sales of his goods. With the same stock, 
therefore, he can, without imprudence, have at all times in his ware- 
house a larger quantity of goods than the London merchant; and 
can thereby both make a greater profit himself, and give constant 
employment to a greater number of industrious people who prepare 
those goods for the market. Hence the great benefit which the 
country has derived from this trade. 

The facility of discounting bills of exchange, it may be thought, 
indeed, gives the English merchants a conveniency equivalent to the 
cash accounts of the Scotch merchants. But the Scotch merchants, 
it must be remembered, can discount their bills of exchange as easily 
as the English merchants; and have, besides, the additional con- 
veniency of their cash accounts. 

The whole paper money of every kind which can easily circulate 



MONEY 239 

in any country never can exceed the value of the gold and silver, 
of which it supplies the place, or which (the commerce being sup- 
posed the same) would circulate there, if there was no paper money. 
If twenty shilling notes, for example, are the lowest paper money 
current in Scotland, the whole of that currency which can easily cir- 
culate there cannot exceed the sum of gold and silver which would 
be necessary for transacting the annual exchange of twenty shillings 
value and upwards usually transacted within that country. Should 
the circulating paper at any time exceed that sum, as the excess could 
neither be sent abroad nor be employed in the circulation of the 
country, it must immediately return upon the banks to be exchanged 
for gold and silver. Many people would immediately perceive that 
they had more of this paper than was necessary for transacting their 
business at home, and as they could not send it abroad, they would 
immediately demand payment of it from the banks. When this 
superfluous paper was converted into gold and silver, they could 
easily find a use for it by sending it abroad; but they could find none 
while it remained in the shape of paper. There would immediately, 
therefore, be a run upon the banks to the whole extent of this super- 
fluous paper, and, if they shewed any diflSculty or backwardness in 
payment, to a much greater extent; the alarm, which this would 
occasion, necessarily increasing the run. 

Over and above the expences which are common to every branch 
of trade; such as the expence of house-rent, the wages of servants, 
clerks, accountants, &c.; the expences peculiar to a bank consist 
chiefly in two articles: First, in the expence of keeping at all times 
in its coffers, for answering the occasional demands of the holders 
of its notes, a large sum of money, of which it loses the interest: And, 
secondly, in the expence of replenishing those coffers as fast as they 
are emptied by answering such occasional demands. 

A banking company, which issues more paper than can be em- 
ployed in the circulation of the country, and of which the excess is 
continually returning upon them for payment, ought to increase the 
quantity of gold and silver, which they keep at all times in their 
coffers, not only in proportion to this excessive increase of their cir- 
culation, but in a much greater proportion; their notes returning 
upon them much faster than in proportion to the excess of their 



240 WEALTH OF NATIONS 

quantity. Such a company, therefore, ought to increase the first 
article of their expence, not only in proportion to this forced increase 
of their business, but in a much greater proportion. 

The coffers of such a company too, though they ought to be filled 
much fuller, yet must empty themselves much faster than if their 
business was confined within more reasonable bounds, and must 
require, not only a more violent, but a more constant and uninter- 
rupted exertion of expence in order to replenish them. The coin 
too, which is thus continually drawn in such large quantities from 
their coffers, cannot be employed in the circulation of the country. 
It comes in place of a paper which is over and above what can be 
employed in that circulation, and is therefore over and above what 
can be employed in it too. But as that coin will not be allowed to 
lie idle, it must, in one shaf)e or another, be sent abroad, in order to 
find that profitable employment which it cannot find at home; 
and this continual exp)ortation of gold and silver, by enhancing the 
difficulty, must necessarily enhance still further the expence of the 
bank, in finding new gold and silver in order to replenish those 
coffers, which empty themselves so very rapidly. Such a company, 
therefore, must, in proportion to this forced increase of their busi- 
ness, increase the second article of their expence still more than the 
first. 

Let us suppose that all the paper of a particular bank, which the 
circulation of the country can easily absorb and employ, amounts 
exactly to forty thousand pounds; and that for answering occasional 
demands, this bank is obliged to keep at all times in its coffers ten 
thousand pounds in gold and silver. Should this bank attempt to 
circulate forty-four thousand pounds, the four thousand pxiunds 
which are over and above what the circulation can easily absorb and 
employ, will return upon it almost as fast as they are issued. For an- 
swering occasional demands, therefore, this bank ought to keep at 
all times in its coffers, not eleven thousand pounds only, but four- 
teen thousand pounds. It will thus gain nothing by the interest of 
the four thousand pounds excessive circulation; and it will lose the 
whole expence of continually collecting four thousand pounds in 
gold and silver, which will be continually going out of its coffers 
as fast as they are brought into them. 



MONEY 241 

Had every particular banking company always understood and 
attended to its own particular interest, the circulation never could 
have been overstocked with paper money. But every particular 
banking company has not always understood or attended to its own 
particular interest, and the circulation has frequendy been over- 
stocked with paper money. 

By issuing too great a quantity of pajjer, of which the excess was 
continually returning, in order to be exchanged for gold and silver, 
the bank of England was for many years together obliged to coin 
gold to the extent of between eight hundred thousand pounds and 
a million a year; or at an average, about eight hundred and fifty 
thousand pounds. For this great coinage the bank (in consequence 
of the worn and degraded state into which the gold coin had fallen 
a few years ago) was frequently obliged to purchase gold bullion 
at the high price of four pounds an ounce, which it soon after issued 
in coin at 3/. lys. loVid. an ounce, losing in this manner between 
two and a half and three per cent, upon the coinage of so very large 
a sum. Though the bank therefore paid no seignorage, though the 
government was properly at the expence of the coinage, this liberal- 
ity of government did not prevent altogether the expence of the bank. 

The Scotch banks, in consequence of an excess of the same kind, 
were all obliged to employ constantly agents at London to collect 
money for them, at an exjjence which was seldom below one and 
a half or two per cent. This money was sent down by the waggon, 
and insured by the carriers at an additional expence of three quarters 
per cent, or fifteen shillings on the hundred pounds. Those agents 
were not always able to replenish the coffers of their employers so 
fast as they were emptied. In this case the resource of the banks 
was, to draw upon their correspondents in London bills of exchange 
to the extent of the sum which they wanted. When those corre- 
spondents afterwards drew upon them for the payment of this sum, 
together with the interest and a commission, some of those banks, 
from the distress into which their excessive circulation had thrown 
them, had sometimes no other means of satisfying this draught but 
by drawing a second set of bills either upon the same, or upon some 
other correspondents in London; and the same sum, or rather bills 
for the same siun, would in this manner make sometimes more than 



242 WEALTH OF NATIONS 

two or three journies: the debtor bank, paying always the interest 
and commission upon the whole accumulated sum. Even those 
Scotch banks which never distinguished themselves by their extreme 
imprudence, were sometimes obliged to employ this ruinous resource. 
The gold coin which was paid out either by the bank of England, 
or by the Scotch banks, in exchange for that part of their paper which 
was over and above what could be employed in the circulation of 
the country, being likewise over and above what could be employed 
in that circulation, was sometimes sent abroad in the shape of coin, 
sometimes melted down and sent abroad in the shape of bullion, and 
sometimes melted down and sold to the bank of England at the 
high price of four pounds an ounce. It was the newest, the heaviest, 
and the best pieces only which were carefully picked out of the 
whole coin, and either sent abroad or melted down. At home, and 
while they remained in the shape of coin, those heavy pieces were 
of no more value than the light: But they were of more value abroad, 
or when melted down into bullion, at home. The bank of Eng- 
land, notwithstanding their great annual coinage, found to their 
astonishment, that there was every year the same scarcity of coin 
as there had been the year before; and that notwithstanding the 
great quantity of good and new coin which was every year issued 
from the bank, the state of the coin, instead of growing better and 
better, became every year worse and worse. Every year they found 
themselves under the necessity of coining nearly the same quantity 
of gold as they had coined the year before, and from the continual 
rise in the price of gold bullion, in consequence of the continual 
wearing and clipping of the com, the expence of this great annual 
coinage became every year greater and greater. The bank of Eng- 
land, it is to be observed, by supplying its own coffers with coin, is 
indirectly obliged to supply the whole kingdom, into which coin is 
continually flowing from those coffers in a great variety of ways. 
Whatever coin therefore was wanted to support this excessive cir- 
culation both of Scotch and English paper money, whatever vacuities 
this excessive circulation occasioned in the necessary coin of the 
kingdom, the bank of England was obliged to supply them. The 
Scotch banks, no doubt, paid all of them very dearly for their own 
imprudence and inattention. But the bank of England paid very 



MONEY 243 

dearly, not only for its own imprudence, but for the much greater 
imprudence of almost all the Scotch banks. 

The over-trading of some bold projectors in both parts of the 
united kingdom, was the original cause of this excessive circulation 
of pap>er money. 

What a bank can with propriety advance to a merchant or under- 
taker of any kind, is not either the whole capital with which he 
trades, or even any considerable part of that capital; but that part 
of it only, which he would otherwise be obliged to keep by him 
unemployed, and in ready money for answering occasional demands. 
If the pap)er money which the bank advances never exceeds this 
value, it can never exceed the value of the gold and silver, which 
would necessarily circulate in the country if there was no paper 
money; it can never exceed the quantity which the circulation of 
the country can easily absorb and employ. 

When a bank discounts to a merchant a real bill of exchange 
drawn by a real creditor upon a real debtor, and which, as soon as 
it becomes due, is really paid by that debtor; it only advances to 
him a part of the value which he would otherwise be obliged to 
keep by him unemployed and in ready money for answering occa- 
sional demands. The payment of the bill, when it becomes due, 
replaces to the bank the value of what it had advanced, together 
with the interest. The coffers of the bank, so far as its dealings are 
confined to such customers, resemble a water pond, from which, 
though a stream is continually running out, yet another is con- 
tinually running in, fully equal to that which runs out; so that, 
without any further care or attention, the pond keeps always equally, 
or very near equally full. Little or no expence can ever be necessary 
for replenishing the coffers of such a bank. 

A merchant, without over-trading, may frequently have occasion 
for a sum of ready money, even when he has no bills to discount. 
When a bank, besides discounting his bills, advances him likewise 
upon such occasions, such sums upon his cash account, and accepts 
of a piece meal repayment as the money comes in from the occa- 
sional sale of his goods, upon the easy terms of the banking com- 
panies of Scotland; it dispenses him entirely from the necessity of 
keeping any part of his stock by him unemployed and in ready 



244 WEALTH OF NATIONS 

money for answering occasional demands. When such demands 
actually come upon him, he can answer them sufficiently from his 
cash account. The bank, however, in dealing with such customers, 
ought to observe with great attention, whether in the course of some 
short period (of four, five, six, or eight months, for example) the 
sum of the repayments which it commonly receives from them, is, 
or is not, fully equal to that of the advances which it commonly 
makes to them. If, within the course of such short periods, the sum 
of the repayments from certain customers is, upon most occasions, 
fully equal to that of the advances, it may safely continue to deal 
with such customers. Though the stream which is in this case con- 
tinually running out from its coffers may be very large, that which 
is continually running into them must be at least equally large; 
so that without any further care or attention those coffers are likely 
to be always equally or very nearly equally full; and scarce ever to 
require any extraordinary expence to replenish them. If, on the 
contrary, the sum of the repayments from certain other customers 
falls commonly very much short of the advances which it makes to 
them, it cannot with any safety continue to deal with such cus- 
tomers, at least if they continue to deal with it in this manner. The 
stream which is in this case continually running out from its cof- 
fers is necessarily much larger than that which is continually running 
in; so that, unless they are replenished by some great and continual 
effort of expence, those coffers must soon be exhausted altogether. 

The banking companies of Scotland, accordingly, were for a long 
time very careful to require frequent and regular repayments from 
all their customers, and did not care to deal with any person, what- 
ever might be his fortune or credit, who did not make, what they 
called, frequent and regular operations with them. By this atten- 
tion, besides saving almost entirely the extraordinary expence of re- 
plenishing their coffers, they gained two other very considerable 
advantages. 

First, by this attention they were enabled to make some tolerable 
judgment concerning the thriving or declining circumstances of 
their debtors, without being obliged to look out for any other evi- 
dence besides what their own books afforded them; men being for 
the most part either regular or irregular in their repayments, accord- 



MONEY 245 

ing as their circumstances are either thriving or declining. A private 
man who lends out his money to perhaps half a dozen or a dozen 
of debtors, may, either by himself or his agents, observe and enquire 
both constandy and carefully into the conduct and situation of each 
of them. But a banking company, which lends money to perhaps 
five hundred different people, and of which the attention is continu- 
ally occupied by objects of a very different kind, can have no regular 
information concerning the conduct and circumstances of the greater 
part of its debtors beyond what its own books afford it. In requiring 
frequent and regular repayments from all their customers, the bank- 
ing companies of Scotland had probably this advantage in view. 

Secondly, by this attention they secured themselves from the possi- 
bility of issuing more paf)er money than what the circulation of the 
country could easily absorb and employ. When they observed, that 
within moderate periods of time the repayments of a particular cus- 
tomer were upon most occasions fully equal to the advances which 
they had made to him, they might be assured that the paper money 
which they had advanced to him, had not at any time exceeded the 
quantity of gold and silver which he would otherwise have been 
obliged to keep by him for answering occasional demands; and that, 
consequently, the paf)er money, which they had circulated by this 
means, had not at any time exceeded the quantity of gold and silver 
which would have circulated in the country, had there been no paper 
money. The frequency, regularity and amounts of his repayments 
would sufficiently demonstrate that the amount of their advances 
had at no time exceeded that part of his capital which he would 
otherwise have been obliged to keep by him unemployed and in 
ready money for answering occasional demands; that is, for the 
purpose of keeping the rest of his capital in constant employment. 
It is this part of his capital only which, within moderate periods of 
time, is continually returning to every dealer in the shape of money, 
whether paper or coin, and continually going from him in the same 
shape. If the advances of the bank had commonly exceeded this 
part of his capital, the ordinary amount of his repayments could 
not, within moderate periods of time, have equalled the ordinary 
amount of its advances. The stream which, by means of his dealings, 
was continually running into the coffers of the bank, could not have 



246 WEALTH OF NATIONS 

been equal to the stream which, by means of the same deaHngs, was 
continually running out. The advances of the bank paper, by ex- 
ceeding the quantity of gold and silver which, had there been no 
such advances, he would have been obliged to keep by him for an- 
swering occasional demands, might soon come to exceed the whole 
quantity of gold and silver which (the commerce being supposed 
the same) would have circulated in the country had there been no 
paper money; and consequently to exceed the quantity which the 
circulation of the country could easily absorb and employ; and the 
excess of this paper money would immediately have returned upon 
the bank in order to be exchanged for gold and silver. This second 
advantage, though equally real, was not perhaps so well understood 
by all the different banking companies of Scotland as the first. 

When, partly by the conveniency of discounting bills, and partly 
by that of cash accounts, the creditable traders of any country can 
be dispensed from the necessity of keeping any part of their stock 
by them unemployed and in ready money for answering occasional 
demands, they can reasonably exfject no farther assistance from 
banks and bankers, who, when they have gone thus far, cannot, con- 
sistently with their own interest and safety, go farther. A bank 
cannot, consistently with its own interest, advance to a trader the 
whole or even the greater part of the circulating capital with which 
he trades; because, though that capital is continually returning to 
him in the shape of money, and going from him in the same shape, 
yet the whole of the returns is too distant from the whole of the out- 
goings, and the sum of his repayments could not equal the sum of 
its advances within such moderate periods of time as suit the con- 
veniency of a bank. Still less could a bank afford to advance him 
any considerable part of his fixed capital; of the capital which the 
undertaker of an iron forge, for example, employs in erecting his 
forge and dwelling-house, his work-houses and ware-houses, the 
dwelling-house of his workman, &c.; of the capital which the under- 
taker of a mine employs in sinking his shafts, in erecting engines 
for drawing out the water, in making roads and waggon-ways, &c.; 
of the capital which the person who undertakes to improve land 
employs in clearing, draining, enclosing, manuring and ploughing 
waste and uncultivated fields, in building farm-houses, with all their 



MONEY 247 

necessary appendages of stables, granaries, 8ic. The returns of the 
fixed capital are in almost all cases much slower than those of the 
circulating capital; and such exp)ences, even when laid out with the 
greatest prudence and judgment, very seldom return to the under- 
taker till after a period of many years, a period by far too distant to 
suit the conveniency of a bank. Traders and other undertakers may, 
no doubt, with great propriety, carry on a very considerable part of 
their projects with borrowed money. In justice to their creditors, 
however, their own capital ought, in this case, to be sufficient to en- 
sure, if I may say so, the capital of those creditors; or to render it 
extremely improbable that those creditors should incur any loss, even 
though the success of the project should fall very much short of the 
expectation of the projectors. Even with this precaution too, the 
money which is borrowed, and which it is meant should not be 
repaid till after a period of several years, ought not to be borrowed 
of a bank, but ought to be borrowed upon bond or mortgage, of 
such private people as propose to live upon the interest of their 
money, without taking the trouble themselves to employ the capital; 
and who are upon that account willing to lend that capital to such 
people of good credit as are likely to keep it for several years. A 
bank, indeed, which lends its money without the expence of stampt 
paper, or of attornies fees for drawing bonds and mortgages, and 
which accepts of repayment upon the easy terms of the banking 
companies of Scotland ; would, no doubt, be a very convenient credi- 
tor to such traders and undertakers. But such traders and under- 
takers would, surely, be most inconvenient debtors to such a bank. 



It is not by augmenting the capital of the country, but by ren- 
dering a greater part of that capital active and productive than 
would otherwise be so, that the most judicious ojjerations of banking 
can increase the industry of the country. That part of his capital 
which a dealer is obliged to keep by him unemployed, and in ready 
money for answering occasional demands, is so much dead stock, 
which, so long as it remains in this situation, produces nothing 
either to him or to his country. The judicious operations of bank- 
ing enable him to convert this dead stock into active and productive 



248 WEALTH OF NATIONS 

Stock; into materials to work upon, into tools to work with, and 
into provisions and subsistence to work for; into stock which pro- 
duces something both to himself and to his country. The gold and 
silver money which circulates in any country, and by means of which 
the produce of its land and labour is annually circulated and dis- 
tributed to the proper consumers, is, in the same manner as the 
ready money of the dealer, all dead stock. It is a very valuable part 
of the capital of the country, which produces nothing to the coun- 
try. The judicious operations of banking, by substituting paper in 
the room of a great part of this gold and silver, enables the country 
to convert a great part of this dead stock into active and productive 
stock; into stock which produces something to the country. The gold 
and silver money which circulates in any country may very properly 
be compared to a highway, which, while it circulates and carries to 
market all the grass and corn of the country, produces itself not a 
single pile of either. The judicious ojierations of banking, by pro- 
viding, if I may be allowed so violent a metaphor, a sort of waggon- 
way through the air: enable the country to convert, as it were, a 
great part of its highways into good pastures and corn-fields, and 
thereby to increase very considerably the annual produce of its land 
and labour. The commerce and industry of the country, however, it 
must be acknowledged, though they may be somewhat augmented, 
cannot be altogether so secure, when they are thus, as it were, sus- 
pended upon the Dardalian wings of paper money, as when they 
travel about upon the solid ground of gold and silver. Over and 
above the accidents to which they are exposed from the unskilful- 
ness of the conductors of this paper money, they are liable to several 
others, from which no prudence of will of those conductors can 
guard them. 

An unsuccessful war, for example, in which the enemy got pos- 
session of the capital, and consequently of that treasure which sup- 
ported the credit of the paper money, would occasion a much greater 
confusion in a country where the whole circulation was carried on 
by paper, than in one where the greater part of it was carried on by 
gold and silver. The usual instrument of commerce having lost its 
value, no exchanges could be made but either by barter or upon 
credit. All taxes having been usually paid in paper money, the 



MONEY 249 

prince would not have wherewithal either to pay his troops, or to fur- 
nish his magazines; and the state of the country would be much 
more irretrievable than if the greater part of its circulation had con- 
sisted in gold and silver. A prince, anxious to maintain his domin- 
ions at all times in the state in which he can most easily defend them, 
ought, upon this account, to guard, not only against that excessive 
multiplication of paper money which ruins the very banks which 
issue it; but even against that multiplication of it, which enables 
them to fill the greater part of the circulation of the country with it. 

The circulation of every country may be considered as divided into 
two different branches; the circulation of the dealers with one an- 
other, and the circulation between the dealers and the consumers. 
Though the same pieces of money, whether paper or metal, may be 
employed sometimes in the one circulation and sometimes in the 
other; yet as both are constantly going on at the same time, each re- 
quires a certain stock of money of one kind or another, to carry it on. 
The value of the goods circulated between the different dealers, never 
can exceed the value of those circulated between the dealers and the 
consumers; whatever is bought by the dealers, being ultimately des- 
tined to be sold to the consumers. The circulation between the 
dealers, as it is carried on by wholesale, requires generally a pretty 
large sum for every particular transaction. That between the dealers 
and the consumers, on the contrary, as it is generally carried on by 
retail, frequently requires but very small ones, a shilling, or even 
a halfpenny, being often sufficient. But small sums circulate much 
faster than large ones. A shilling changes masters more frequendy 
than a guinea, and a half{Tenny more frequently than a shilling. 
Though the annual purchases of all the consumers, therefore, are 
at least equal in value to those of all the dealers, they can generally be 
transacted with a much smaller quantity of money; the same pieces, 
by a more rapid circulation, serving as the instrument of many more 
purchases of the one kind than of the other. 

Pap)er money may be so regulated, as either to confine itself very 
much to the circulation between the different dealers, or to extend 
itself likewise to a great part of that between the dealers and the 
consumers. Where no bank notes are circulated under ten pounds 
value, as in London, paper money confines itself very much to the 



250 WEALTH OF NATIONS 

circulation between the dealers. When a ten pound bank note comes 
into the hands of a consumer, he is generally obliged to change it 
at the first shop where he has occasion to purchase five shillings 
worth of goods; so that it often returns into the hands of a dealer, 
before the consumer has spent the fortieth part of the money. Where 
bank notes are issued for so small sums as twenty shillings, as in 
Scotland, paper money extends itself to a considerable part of the 
circulation between dealers and consumers. Before the act of parlia- 
ment, which put a stop to the circulation of ten and five shilling 
notes, it filled a still greater part of that circulation. In the curren- 
cies of North America, paper was commonly issued for so small a 
sum as a shilling, and filled almost the whole of that circulation. 
In some paper currencies of Yorkshire, it was issued even for so 
small a sum as a sixpence. 

Where the issuing of bank notes for such very small sums is al- 
lowed and commonly practised, many mean people are both enabled 
and encouraged to become bankers. A person whose promissory 
note for five pounds, or even for twenty shillings, would be rejected 
by every body, will get it to be received without scruple when it is 
issued for so small a sum as a sixpence. But the frequent bank- 
ruptcies to which such beggarly bankers must be liable, may occasion 
a very considerable inconveniency, and sometimes even a very great 
calamity, to many poor people who had received their notes in pay- 
ment. 

It were better, perhaps, that no bank notes were issued in any 
part of the kingdom for a smaller sum than five pounds. Paper money 
would then, probably, confine itself, in every part of the kingdom, to 
the circulation between the different dealers, as much as it does at 
present in London, where no bank notes are issued under ten pounds 
value; five pounds being, in most parts of the kingdom, a sum which, 
though it will purchase, perhaps, litde more than half the quantity 
of goods, is as much considered, and is as seldom spent all at once, 
as ten pounds are amidst the profuse expence of London. 

Where paper money, it is to be observed, is pretty much confined 
to the circulation between dealers and dealers, as at London, there 
is always plenty of gold and silver. Where it extends itself to a con- 
siderable part of the circulation between dealers and consumers, 



MONEY 251 

as in Scotland, and still more in North America, it banishes gold 
and silver almost entirely from the country; almost all the ordinary 
transactions of its interior commerce being thus carried on by paper. 
The suppression of ten and five shilling bank notes, somewhat re- 
lieved the scarcity of gold and silver in Scotland; and the suppres- 
sion of twenty shilling notes, would probably relieve it still more. 
Those metals are said to have become more abundant in America, 
since the suppression of some of their papjer currencies. They are said, 
likewise, to have been more abundant before the institution of those 
currencies. 

Though paper money should be pretty much confined to the cir- 
culation between dealers and dealers, yet banks and bankers might 
still be able to give nearly the same assistance to the industry and 
commerce of the country, as they had done when paper money filled 
almost the whole circulation. The ready money which a dealer is 
obliged to keep by him, for answering occasional demands, is des- 
tined altogether for the circulation between himself and other deal- 
ers, of whom he buys goods. He has no occasion to keep any by him 
for the circulation between himself and the consumers, who are 
his customers, and who bring ready money to him, instead of taking 
any from him. Though no pap)er money, therefore, was allowed 
to be issued, for such sums as would confine it pretty much to the 
circulation between dealers and dealers; yet, partly by discounting 
real bills of exchange, and partly by lending upon cash accounts, 
banks and bankers, might still be able to relieve the greater part of 
those dealers from the necessity of keeping any considerable part of 
their stock by them, unemployed and in ready money, for answering 
occasional demands. They might still be able to give the utmost 
assistance which banks and bankers can, with propriety, give to 
traders of every kind. 

To restrain private people, it may be said, from receiving in pay- 
ment the promissory notes of a banker, for any sum whether great 
or small, when they themselves are willing to receive them; or, to 
restrain a banker from issuing such notes, when all his neighbours 
are willing to accept of them, is a manifest violation of that natural 
liberty which it is the proper business of law, not to infringe, but to 
support. Such regulations may, no doubt, be considered as in some 



252 WEALTH OF NATIONS 

respect a violation of natural liberty. But those exertions of the 
natural liberty of a few individuals, which might endanger the se- 
curity of the whole society, are, and ought to be, restrained by the 
laws of all governments; of the most free, as well as of the most 
despotical. The obligation of building party walls, in order to pre- 
vent the communication of fire, is a violation of natural liberty, 
exacdy of the same kind with the regulations of the banking trade 
which are here proposed. 

A paper money consisting in bank notes, issued by people of un- 
doubted credit, payable upon demand without any condition, and 
in fact always readily paid as soon as presented, is, in every respect, 
equal in value to gold and silver money; since gold and silver money 
can at any time be had for it. Whatever is either bought or sold for 
such paper, must necessarily be bought or sold as cheap as it could 
have been for gold and silver. 

The increase of paper money, it has been said, by augmenting the 
quantity, and consequently diminishing the value of the whole cur- 
rency, necessarily augments the money price of commodities. But 
as the quantity of gold and silver, which is taken from the currency, 
is always equal to the quantity of paper which is added to it, paper 
money does not necessarily increase the quantity of the whole cur- 
rency. From the beginning of the last century to the present time, 
provisions never were cheaper in Scotland than in 1759, though, 
from the circulation of ten and five shilling bank notes, there was 
then more paper money in the country than at present. The propor- 
tion between the prices of provisions in Scodand and that in Eng- 
land, is the same now as before the great multiplication of banking 
companies in Scodand. Corn is, upon most occasions, fully as cheap 
in England as in France; though there is a great deal of pa^^er money 
in England and scarce any in France. In 1751 and in 1752, when 
Mr. Hume published his Political Discourses, and soon after the 
great multiplication of paper money in Scotland, there was a very 
sensible rise in the price of provisions, owing, probably to the bad- 
ness of the seasons, and not to the multiplication of paper money. 

It would be otherwise, indeed, with a paper money consisting in 
promissory notes, of which the immediate payment depended, in 
any respect, either upon the good will of those who issued them; or 



MONEY 253 

upon a condition which the holder of the notes might not always 
have it in his power to fulfil; or of which the payment was not exi- 
gible till after a certain number of years, and which in the mean- 
time bore no interest. Such a paper money would, no doubt, fall 
more or less below the value of gold and silver, according as the 
difficulty or uncertainty of obtaining immediate payment was sup- 
posed to be greater or less; or according to the greater or less dis- 
tance of time at which payment was exigible. 

Some years ago the different banking companies of Scotland were 
in the praaice of inserting into their bank notes, what they called an 
Optional Clause, by which they promised payment to the bearer, 
either as soon as the note should be presented, or, in the option of the 
directors, six months after such presentment, together with the legal 
interest for the said six months. The directors of some of those banks 
sometimes took advantage of this optional clause, and sometimes 
threatened those who demanded gold and silver in exchange for a 
considerable number of their notes, that they would take advantage 
of it, unless such demanders would content themselves with a part 
of what they demanded. The promissory notes of those banking 
companies constituted at that time the far greater part of the cur- 
rency of Scotland, which this uncertainty of payment necessarily 
degraded below the value of gold and silver money. During the 
continuance of this abuse (which prevailed chiefly in 1762, 1763 and 
1764), while the exchange between London and Carlisle was at par, 
that between London and Dumfries would sometimes be four per 
cent, against Dumfries, though this town is not thirty miles distant 
from Carlisle. But at Carlisle, bills were paid in gold and silver; 
whereas at Dumfries they were paid in Scotch bank notes, and the 
uncertainty of getting those bank notes exchanged for gold and silver 
coin had thus degraded them four per cent, below the value of that 
coin. The same act of parliament which suppressed ten and five 
shilling bank notes, suppressed likewise this optional clause, and 
thereby restored the exchange between England and Scodand to its 
natural rate, or to what the course of trade and remittances might 
happen to make it. 

In the paper currencies of Yorkshire, the payment of so small a 
sum as a sixpence sometimes depended upon the condition that the 



254 WEALTH OF NATIONS 

holder of the note should bring the change of a guinea to the person 
who issued it; a condition, which the holders of such notes might 
frequently find it very difficult to fulfil, and which must have de- 
graded this currency below the value of gold and silver money. An 
act of parliament, accordingly, declared all such clauses unlawful, 
and suppressed, in the same manner as in Scotland, all promissory 
notes, payable to the bearer, under twenty shillings value. 

The paper currencies of North America consisted, not in bank 
notes payable to the bearer on demand, but in a government paper, 
of which the payment was not exigible till several years after it was 
issued: And though the colony governments paid no interest to the 
holders of this paper, they declared it to be, and in fact rendered it, 
a legal tender of payment for the full value for which it was issued. 
But allowing the colony security to be perfectly good, a hundred 
pounds payable fifteen years hence, for example, in a country where 
interest is at six per cent, is worth little more than forty pounds 
ready money. To oblige a creditor, therefore, to accept of this as 
full payment for a debt of a hundred pounds actually paid down 
in ready money, was an act of such violent injustice, as has scarce, 
perhaps, been attempted by the government of any other country 
which pretended to be free. It bears the evident marks of having 
originally been, what the honest and downright Doctor Douglas 
assures us it was, a scheme of fraudulent debtors to cheat their credi- 
tors. The government of Pensylvania, indeed, pretended, upon their 
first emission of paper money, in 1722, to render their paper of equal 
value with gold and silver, by enacting penalties against all those 
who made any difference in the price of their goods when they sold 
them for a colony paper, and when they sold them for gold and 
silver; a regulation equally tyrannical, but much less effectual than 
that which it was meant to support. A positive law may render a 
shilling a legal tender for a guinea; because it may direct the 
courts of justice to discharge the debtor who has made that tender. 
But no positive law can oblige a person who sells goods, and who is 
at liberty to sell or not to sell, as he pleases, to accept of a shilling as 
equivalent to a guinea in the price of them. Notwithstanding any 
regulation of this kind, it appeared by the course of exchange with 
Great Britain, that a hundred pounds sterling was occasionally con- 



MONEY 255 

sidered as equivalent, in some of the colonies, to a hundred and thirty 
pounds, and in others to so great a sum as eleven hundred pounds 
currency; this difference in the value arising from the difference in 
the quantity of paper emitted in the different colonies, and in the dis- 
tance and probability of the term of its final discharge and redemp- 
tion. 

No law, therefore, could be more equitable than the act of parlia- 
ment, so unjustly complained of in the colonies, which declared that 
no paper currency to be emitted there in time coming should be a 
legal tender of payment. 

Pensylvania was always more moderate in its emissions of paper 
money than any other of our colonies. Its paper currency accord- 
ingly is said never to have sunk below the value of the gold and 
silver which was current in the colony before the first emission of 
its paper money. Before that emission, the colony had raised the 
denomination of its coin, and had, by act of assembly, ordered five 
shillings sterling to pass in the colony for six and three-pence, and 
afterwards for six and eight-pence. A pound colony currency, there- 
fore, even when that currency was gold and silver, was more than 
thirty per cent, below the value of a pound sterling, and when that 
currency was turned into paper, it was seldom much more than 
thirty per cent, below that value. The pretence for raising the de- 
nomination of the coin was to prevent the exportation of gold and 
silver, by making equal quantities of those metals pass for greater 
sums in the colony than they did in the mother country. It was 
found, however, that the price of all goods from the mother country 
rose exactly in proportion as they raised the denomination of their 
coin, so that their gold and silver were exported as fast as ever. 

The paper of each colony being received in the payment of the 
provincial taxes, for the full value for which it had been issued, it 
necessarily derived from this use some additional value, over and 
above what it would have had, from the real or supposed distance of 
the term of its final discharge and redemption. This additional value 
was greater or less, according as the quantity of paper issued was 
more or less above what could be employed in the payment of the 
taxes of the particular colony which issued it. It was in all the 
colonies very much above what could be employed in this manner. 



256 WEALTH OF NATIONS 

A prince, who should enact that a certain proportion of his taxes 
should be paid in a paper money of a certain kind, might thereby 
give a certain value to this paper money; even though the term of 
its final discharge and redemption should depend altogether upon 
the will of the prince. If the bank which issued this paper was care- 
ful to keep the quantity of it always somewhat below what could 
easily be employed in this manner, the demand for it might be such 
as to make it even bear a premium, or sell for somewhat more in the 
market than the quantity of gold or silver currency for which it 
was issued. 

Some people account in this manner for what is called the Agio of 
the bank of Amsterdam, or for the superiority of bank money over 
current money, though this bank money, as they pretend, cannot be 
taken out of the bank at the will of the owner. The greater part of 
foreign bills of exchange must be paid in bank money, that is, by a 
transfer in the books of the bank; and the directors of the bank, they 
allege, are careful to keep the whole quantity of bank money always 
below what this use occasions a demand for. It is upon this account, 
they say, that bank money sells for a premium, or bears an agio of 
four or five per cent, above the same nominal sum of the gold and 
silver currency of the country. This account of the bank of Amster- 
dam, however, it will appear hereafter, is in a great measure chi- 
merical. 

A paper currency which falls below the value of gold and silver 
coin, does not thereby sink the value of those metals, or occasion 
equal quantities of them to exchange for a smaller quantity of goods 
of any other kind. The proportion between the value of gold and 
silver and that of goods of any other kind, depends in all cases, not 
upon the nature or quantity of any particular paper money, which 
may be current in any particular country, but upon the richness or 
poverty of the mines, which happen at any particular time to supply 
the great market of the commercial world with those metals. It 
depends upon the proportion between the quantity of labour which 
is necessary in order to bring a certain quantity of gold and silver 
to market, and that which is necessary in order to bring thither a 
certain quantity of any other sort of goods. 

If bankers are restrained from issuing any circulating bank notes, 



MONEY 257 

or notes payable to the bearer, for less than a certain sum; and if 
they are subjected to the obligation of an immediate and uncondi- 
tional payment of such bank notes as soon as presented, their trade 
may, with safety to the public, be rendered in all other respects per- 
fecdy free. The late multiplication of banking companies in both 
parts of the united kingdom, an event by which many people have 
been much alarmed, instead of diminishing, increases the security of 
the public. It obliges all of them to be more circumspect in their 
conduct, and, by not extending their currency beyond its due propor- 
tion to their cash, to guard themselves against those malicious runs, 
which the rivalship of so many competitors is always ready to bring 
upon them. It restrains the circulation of each particular company 
within a narrower circle, and reduces their circulating notes to a 
smaller number. By dividing the whole circulation into a greater 
number of parts, the failure of any one company, an accident which, 
in the course of things, must sometimes happen, becomes of less con- 
sequence to the public. This free competition too obliges all bankers 
to be more liberal in their dealings with their customers, lest their 
rivals should carry them away. In general, if any branch of trade, 
or any division of labour, be advantageous to the public, the freer 
and more general the competition, it will always be the more so. 



CHAPTER III 

Of the Accumulation of Capital, or of Productive and 
Unproductive Labour 

THERE is one sort of labour which adds to the value of the 
subject upon which it is bestowed: there is another which 
has no such effect. The former, as it produces a value, may 
be called productive; the latter, unproductive labour. Thus the 
labour of a manufacturer adds, generally, to the value of the mate- 
rials which he works upon, that of his own maintenance, and of his 
master's profit. The labour of a menial servant, on the contrary, 
adds to the value of nothing. Though the manufacturer has his 
wages advanced to him by his master, he, in reality, costs him no 
expense, the value of those wages being generally restored, together 
with a profit, in the improved value of the subject upon which his 
labour is bestowed. But the maintenance of a menial servant never 
is restored. A man grows rich by employing a multitude of manu- 
facturers: he grows poor, by maintaining a multitude of menial 
servants. The labour of the latter, however, has its value, and de- 
serves its reward as well as that of the former. But the labour of 
the manufacturer fixes and realizes itself in some particular subject 
or vendible commodity, which lasts for some time at least after that 
labour is past. It is, as it were, a certain quantity of labour stocked 
and stored up to be employed, if necessary, upon some other occa- 
sion. That subject, or what is the same thing, the price of that sub- 
ject, can afterwards, if necessary, put into motion a quantity of 
labour equal to that which had originally produced it. The labour 
of the menial servant, on the contrary, does not fix or realize itself 
in any particular subject or vendible commodity. His services gen- 
erally perish in the very instant of their performance, and seldom 
leave any trace or value behind them, for which an equal quantity 
of service could afterwards be procured. 

The labour of some of the most respectable orders in the society 

258 



ACCUMULATION OF CAPITAL 259 

is, like that of menial servants, unproductive of any value, and does 
not fix or realize itself in any permanent subject, or vendible com- 
modity, which endures after that labour is past and for which an 
equal quantity of labour could afterwards be procured. The sov- 
ereign, for example, with all the officers both of justice and war who 
serve under him, the whole army and navy, are unproductive la- 
bourers. They are the servants of the public, and are maintained 
by a part of the annual produce of the industry of other people. 
Their service, how honourable, how useful, or how necessary soever, 
produces nothing for which an equal quantity of service can after- 
wards be procured. The protection, security, and defence of the 
commonwealth, the effect of their labour this year, will not purchase 
its protection, security, and defence for the year to come. In the 
same class must be ranked, some both of the gravest and most im- 
portant, and some of the most frivolous professions: churchmen, 
lawyers, physicians, men of letters of all kinds; players, buffoons, 
musicians, opera-singers, opera-dancers, &c. The labour of the mean- 
est of these has a certain value, regulated by the very same principles 
which regulate that of every sort of labour; and that of the noblest 
and most useful, produces nothing which could afterwards purchase 
or procure an equal quantity of labour. Like the declamation of 
the actor, the harangue of the orator, or the tune of the musician, 
the work of all of them perishes in the very instant of its production. 
Both productive and unproductive labourers, and those who do 
not labour at all, are all equally maintained by the annual produce 
of the land and labour of the country. This produce, how great 
soever, can never be infinite, but must have certain limits. Accord- 
ing, therefore, as a smaller or greater proportion of it is in any one 
year employed in maintaining unproductive hands, the more in the 
one case and the less in the other will remain for the productive, 
and the next year's produce will be greater or smaller accordingly; 
the whole annual produce, if we except the spontaneous productions 
of the earth, being the effect of productive labour. Though the 
whole annual produce of the land and labour of every country, is, 
no doubt, ultimately destined for supplying the consumption of its 
inhabitants, and for procuring a revenue to them; yet when it first 
comes either from the ground, or from the hands of the productive 



26o WEALTH OF NATIONS 

labourers, it naturally divides itself into two parts. One of them, and 
frequendy the largest, is, in the first place, destined for replacing a 
capital, or for renewing the provisions, materials, and finished work, 
which had been withdrawn from a capital; the other for constitut- 
ing a revenue either to the owner of this capital, as the profit of 
his stock; or to some other jierson, as the rent of his land. Thus, of 
the produce of land, one part replaces the capital of the farmer; the 
other pays his profit and the rent of the landlord; and thus consti- 
tutes a revenue both to the owner of this capital, as the profits of his 
stock; and to some other person, as the rent of his land. Of the 
produce of a great manufactory, in the same manner, one part, and 
that always the largest, replaces the capital of the undertaker of the 
work; the other pays his profit, and thus constitutes a revenue to 
the owner of this capital. 

That part of the annual produce of the land and labour of any 
country which replaces a capital, never is immediately employed to 
maintain any but productive hands. It pays the wages of productive 
labour only. That which is immediately destined for constituting a 
revenue either as profit or as rent, may maintain indifferendy either 
productive or unproductive hands. 

Whatever part of his stock a man employs as a capital, he always 
expects is to be replaced to him with a profit. He employs it, there- 
fore, in maintaining productive hands only; and after having served 
in the function of a capital to him, it constitutes a revenue to them. 
Whenever he employs any part of it in maintaining unproductive 
hands of any kind, that part is, from that moment, withdrawn from 
his capital, and placed in his stock reserved for immediate con- 
sumption. 

Unproductive labourers, and those who do not labour at all, are 
all maintained by revenue; either, first, by that part of the annual 
produce which is originally destined for constituting a revenue to 
some particular persons, either as the rent of land or as the profits of 
jtock; or, secondly, by that part which, though originally destined 
for replacing a capital and for maintaining productive labourers 
only, yet when it comes into their hands, whatever part of it is over 
and above their necessary subsistence, may be employed in maintain- 
ing indifferently either productive or unproductive hands. Thus, not 



ACCUMULATION OF CAPITAL 26 1 

only the great landlord or the rich merchant, but even the common 
workman, if his wages are considerable, may maintain a menial 
servant; or he may sometimes go to a play or a puppet-show, and 
so contribute his share towards maintaining one set of unproductive 
labourers; or he may pay some taxes, and thus help to maintain 
another set, more honourable and useful, indeed, but equally un- 
productive. No part of the annual produce, however, which had 
been originally destined to replace a capital, is ever directed towards 
maintaining unproductive hands, till after it has put into motion 
its full complement of productive labour, or all that it could put into 
motion in the way in which it was employed. The workman must 
have earned his wages by work done, before he can employ any part 
of them in this manner. That part too is generally but a small one. 
It is his spare revenue only, of which productive labourers have sel- 
dom a great deal. They generally have some, however; and in the 
payment of taxes the greatness of their number may compensate, in 
some measure, the smallness of their contribution. The rent of land 
and the profits of stock are everywhere, therefore, the principal 
sources from which unproductive hands derive their subsistence. 
These are the two sorts of revenue of which the owners have gen- 
erally most to spare. They might both maintain indifferendy either 
productive or unproductive hands. They seem, however, to have 
some predilection for the latter. The expence of a great lord feeds 
generally more idle than industrious people. The rich merchant, 
though with his capital he maintains industrious jjeople only, yet 
by his expence, that is, by the employment of his revenue, he feeds 
commonly the very same sort as the great lord. 

The proportion, therefore, between the productive and unproduc- 
tive hands, depends very much in every country upon the proportion 
between that part of the annual produce, which, as soon as it comes 
either from the ground or from the hands of the productive la- 
bourers, is destined for replacing a capital, and that which is destined 
for constituting a revenue, either as rent, or as profit. This propor- 
tion is very different in rich from what it is in poor countries. 

Thus, at present, in the opulent countries of Europe, a very large, 
frequently the largest portion of the produce of the land, is destined 
for replacing the capital of the rich and independent farmer; the 



262 WEALTH OF NATIONS 

Other for paying his profits, and the rent o£ the landlord. But an- 
ciently, during the prevalency of the feudal government, a very 
small portion of the produce was sufficient to replace the capital em- 
ployed in cultivation. It consisted commonly in a few wretched cat- 
tle, maintained altogether by the spontaneous produce of unculti- 
vated land, and which might, therefore, be considered as a part of 
that spontaneous produce. It generally too belonged to the landlord, 
and was by him advanced to the occupiers of the land. All the rest 
of the produce properly belonged to him too, either as rent for his 
land, or as profit ufxin this paultry capital. The occupiers of land 
were generally bondmen, whose persons and effects were equally his 
property. Those who were not bondmen were tenants at will, and 
though the rent which they paid was often nominally little more than 
a quit-rent, it really amounted to the whole produce of the land. 
Their lord could at all times command their labour in fjeace, and 
their service in war. Though they lived at a distance from his house, 
they were equally dependent upon him as his retainers who lived 
in it. 

But the whole produce of the land undoubtedly belongs to him, 
who can dispose of the labour and service of all those whom it main- 
tains. In the present state of Europe, the share of the landlord seldom 
exceeds a third, sometimes not a fourth part of the whole produce 
of the land. The rent of land, however, in all the improved parts of 
the country, has been tripled and quadrupled since those ancient 
times; and this third or fourth part of the annual produce is, it 
seems, three or four times greater than the whole had been be- 
fore. In the progress of improvement, rent, though it increases 
in profMDrtion to the extent, diminishes in propwrtion to the produce 
of the land. 

In the opulent countries of Europe, great capitals are at present 
employed in trade and manufactures. In the ancient state, the litde 
trade that was stirring, and the few homely and coarse manufactures 
that were carried on, required but very small capitals. These, how- 
ever, must have yielded very large profits. The rate of interest was 
nowhere less than ten per cent, and their profits must have been 
sufficient to afford this great interest. At present the rate of interest, 
in the improved parts of Europe, is no-where higher than six per cent. 



ACCUMULATION OF CAPITAL 263 

and in some of the most improved it is so low as four, three, and 
two per cent. Though that part of the revenue of the inhabitants 
which is derived from the profits of stock is always much greater 
in rich than in poor countries, it is because the stock is much greater: 
in proportion to the stock the profits are generally much less. 

That part of the annual produce, therefore, which, as soon as it 
comes either from the ground, or from the hands of the productive 
labourers, is destined for replacing a capital, is not only much greater 
in rich than in poor countries, but bears a much greater proportion 
to that which is immediately destined for constituting a revenue 
either as rent or as profit. The funds destined for the maintenance of 
productive labour, are not only much greater in the former than in 
the latter, but bear a much greater proportion to those which, though 
they may be employed to maintain either productive or unproductive 
hands, have generally a predilection for the latter. 

The proportion between those different funds necessarily deter- 
mines in every country the general character of the inhabitants as to 
industry or idleness. We are more industrious than our forefathers; 
because in the present times the funds destined for the maintenance 
of industry, are much greater in proportion to those which are likely 
to be employed in the maintenance of idleness, than they were two 
or three centuries ago. Our ancestors were idle for want of a suffi- 
cient encouragement to industry. It is better, says the proverb, to 
play for nothing, than to work for nothing. In mercantile and man- 
ufacturing towns, where the inferior ranks of people are chiefly 
maintained by the employment of capital, they are in general in- 
dustrious, sober, and thriving; as in many English, and in most 
Dutch towns. In those towns which are principally supported by 
the constant or occasional residence of a court, and in which the 
inferior ranks of people are chiefly maintained by the spending of 
revenue, they are in general idle, dissolute, and poor; as at Rome, 
Versailles, Compiegne, and Fontainbleau. If you except Rouen and 
Bourdeaux, there is litde trade or industry in any of the parliament 
towns of France; and the inferior ranks of f)eople, being chiefly 
maintained by the expence of the members of the courts of justice, 
and of those who come to plead before them, are in general idle and 
poor. The great trade of Rouen and Bourdeaux seems to be alto- 



264 WEALTH OF NATIONS 

gether the effect of their situation. Rouen is necessarily the entre- 
pot of almost all the goods which are brought either from foreign 
countries, or from the maritime provinces of France, for the con- 
sumption of the great city of Paris. Bourdeaux is in the same man- 
ner the entrepot of the wines which grow upon the banks of the 
Garonne, and of the rivers which run into it, one of the richest wine 
countries in the world, and which seems to produce the wine fittest 
for exportation, or best suited to the taste of foreign nations. Such 
advantageous situations necessarily attract a great capital by the 
great employment which they afford it; and the employment of 
this capital is the cause of the industry of those two cities. In the 
other parliament towns of France, very little more capital seems to 
be employed than what is necessary for supplying their own con- 
sumption; that is, little more than the smallest capital which can be 
employed in them. The same thing may be said of Paris, Madrid, 
and Vienna. Of those three cities, Paris is by far the most industrious: 
but Paris itself is the principal market of all the manufactures estab- 
lished at Paris, and its own consumption is the principal object of 
all the trade which it carries on. London, Lisbon, and Copenhagen, 
are, perhaps, the only three cities in Europe, which are both the 
constant residence of a court, and can at the same time be considered 
as trading cities, or as cities which trade not only for their own con- 
sumption, but for that of other cities and countries. The situation of 
all the three is extremely advantageous, and naturally fits them to 
be the entrepots of a great part of the goods destined for the con- 
sumption of distant places. In a city where a great revenue is spent, 
to employ with advantage a capital for any other purpose than for 
supplying the consumption of that city, is probably more difficult 
than in one in which the inferior ranks of people have no other 
maintenance but what they derive from the employment of such a 
capital. The idleness of the greater part of the people who are main- 
tained by the expence of revenue, corrupts, it is probable, the indus- 
try of those who ought to be maintained by the employment of capi- 
tal, and renders it less advantageous to employ a capital there than 
in other places. There was little trade or industry in Edinburgh 
before the Union. When the Scotch parliament was no longer to be 
assembled in it, when it ceased to be the necessary residence of the 



ACCUMULATION OF CAPITAL 265 

principal nobility and gentry of Scotland, it became a city of some 
trade and industry. It still continues, however, to be the residence 
of the principal courts of justice in Scotland, of the boards of cus- 
toms and excise, &c. A considerable revenue, therefore, still con- 
tinues to be spent in it. In trade and industry it is much inferior 
to Glasgow, of which the inhabitants are chiefly maintained by the 
employment of capital. The inhabitants of a large village, it has 
sometimes been observed, after having made considerable progress 
in manufactures, have become idle and poor, in consequence of a 
great lord's having taken up his residence in their neighbourhood. 

The profxjrtion between capital and revenue, therefore, seems 
everywhere to regulate the proportion between industry and idle- 
ness. Wherever capital predominates, industry prevails; wherever 
revenue, idleness. Every increase or diminution of capital, there- 
fore, naturally tends to increase or diminish the real quantity of 
industry, the number of productive hands, and consequently, the 
exchangeable value of the annual produce of the land and labour of 
the country, the real wealth and revenue of all its inhabitants. 

Capitals are increased by parsimony, and diminished by prodigal- 
ity and misconduct. 

Whatever a person saves from his revenue he adds to his capital, 
and either employs it himself in maintaining an additional number 
of productive hands, or enables some other person to do so, by lend- 
ing it to him for an interest, that is, for a share of the profits. As the 
capital of an individual can be increased only by what he saves from 
his annual revenue or his annual gains, so the capital of a society, 
which is the same with that of all the individuals who compose it, 
can be increased only in the same manner. 

Parsimony, and not industry, is the immediate cause of the increase 
of capital. Industry, indeed, provides the subject which parsimony 
accumulates. But whatever industry might acquire, if parsimony 
did not save and store up, the capital would never be the greater. 

Parsimony, by increasing the fund which is destined for the main- 
tenance of productive hands, tends to increase the number of those 
hands whose labour adds to the value of the subject upon which it 
is bestowed. It tends therefore to increase the exchangeable value 
of the annual produce of the land and labour of the country. It puts 



266 WEALTH OF NATIONS 

into motion an additional quantity of industry, which gives an addi- 
tional value to the annual produce. 

What is annually saved is as regularly consumed as what is an- 
nually spent, and nearly in the same time too; but it is consumed by 
a different set of jjeople. That portion of his revenue which a rich 
man annually spends, is in most cases consumed by idle guests, and 
menial servants, who leave nothing behind them in return for their 
consumption. That portion which he annually saves, as for the 
sake of the profit it is immediately employed as a capital, is con- 
sumed in the same manner, and nearly in the same time too, but by 
a different set of people, by labourers, manufacturers, and artificers, 
who re-produce with a profit the value of their annual consumption. 
His revenue, we shall suppose, is paid him in money. Had he 
spent the whole, the food, clothing, and lodging, which the whole 
could have purchased, would have been distributed among the for- 
mer set of people. By saving a part of it, as that part is for the 
sake of the profit immediately employed as a capital either by him- 
self or by some other person, the food, clothing, and lodging, which 
may be purchased with it, are necessarily reserved for the latter. The 
consumption is the same, but the consumers are different. 

By what a frugal man annually saves, he not only affords main- 
tenance to an additional number of productive hands, for that or 
the ensuing year, but, like the founder of a public workhouse, he 
establishes as it were a f)erp)etual fund for the maintenance of an 
equal number in all times to come. The perpetual allotment and 
destination of this fund, indeed, is not always guarded by any {X)si- 
tive law, by any trust-right or deed of mortmain. It is always 
guarded, however, by a very p)owerful principle, the plain and evi- 
dent interest of every individual to whom any share of it shall ever 
belong. No part of it can ever afterwards be employed to main- 
tain any but productive hands, without an evident loss to the person 
who thus perverts it from its projjer destination. 

The prodigal perverts it in this manner. By not confining his 
expence within his income, he encroaches u|X>n his capital. Like 
him who perverts the revenues of some pious foundation to profane 
purposes, he pays the wages of idleness with those funds which the 
frugality of his forefathers had, as it were, consecrated to the main- 



ACCUMULATION OF CAPITAL 267 

tenance of industry. By diminishing the funds destined for the em- 
ployment of productive labour, he necessarily diminishes, so far as 
it depends upon him, the quantity of that labour which adds a 
value to the subject upon which it is bestowed, and, consequendy, 
the value of the annual produce of the land and labour of the whole 
country, the real wealth and revenue of its inhabitants. If the prodi- 
gality of some was not compensated by the frugality of others, 
the conduct of every prodigal, by feeding the idle with the bread 
of the industrious, tends not only to beggar himself, but to impov- 
erish his country. 

Though the expence of the prodigal should be altogether in home- 
made, and no part of it in foreign commodities, its effect upon the 
productive funds of the society would still be the same. Every year 
there would still be a certain quantity of food and clothing, which 
ought to have maintained productive, employed in maintaining un- 
productive hands. Every year, therefore, there would still be some 
diminution in what would otherwise have been the value of the 
annual produce of the land and labour of the country. 

This expence, it may be said indeed, not being in foreign goods, 
and not occasioning any exportation of gold and silver, the same 
quantity of money would remain in the country as before. But if 
the quantity of food and clothing, which were thus consumed by un- 
productive, had been distributed among productive hands, they 
would have re-produced, together with a profit, the full value of 
their consumption. The same quantity of money would in this case 
equally have remained in the country, and there would besides have 
been a reproduction of an equal value of consumable goods. There 
would have been two values instead of one. 

The same quantity of money, besides, cannot long remain in any 
country in which the value of the annual produce diminishes. The 
sole use of money is to circulate consumable goods. By means of 
it, provisions, materials, and finished work, are bought and sold, and 
distributed to their proper consumers. The quantity of money, there- 
fore, which can be annually employed in any country, must be de- 
termined by the value of the consumable goods annually circulated 
within it. These must consist either in the immediate produce of the 
land and labour of the country itself, or in something which had 



268 WEALTH OF NATIONS 

been purchased with some part of that produce. Their value, there- 
fore, must diminish as the value of that produce diminishes, and 
along with it the quantity of money which can be employed in cir- 
culating them. But the money which by this annual diminution 
of produce is annually thrown out of domestic circulation, will not 
be allowed to lie idle. The interest of whoever pxjssesses it, requires 
that it should be employed. But having no employment at home, 
it will, in spite of all laws and prohibitions, be sent abroad, and em- 
ployed in purchasing consumable goods which may be of some use 
at home. Its annual exportation will in this manner continue for 
some time to add something to the annual consumption of the coun- 
try beyond the value of its own annual produce. What in the days 
of its prosperity had been saved from that annual produce, and em- 
ployed in purchasing gold and silver, will contribute for some litde 
time to support its consumption in adversity. The exportation of 
gold and silver is, in this case, not the cause, but the effect of its 
declension, and may even, for some litde time, alleviate the misery of 
that declension. 

The quantity of money, on the contrary, must in every country 
naturally increase as the value of the annual produce increases. The 
value of the consumable goods annually circulated within the so- 
ciety being greater, will require a greater quantity of money to cir- 
culate them. A part of the increased produce, therefore, will naturally 
be employed in purchasing, wherever it is to be had, the additional 
quantity of gold and silver necessary for circulating the rest. The 
increase of those metals will in this case be the effect, not the 
cause, of the public prosperity. Gold and silver are purchased every- 
where in the same manner. The food, clothing, and lodging, the 
revenue and maintenance of all those whose labour or stock is em- 
ployed in bringing them from the mine to the market, is the price 
paid for them in Peru as well as in England. The country which 
has this price to pay, will never be long without the quantity of those 
metals which it has occasion for; and no country will ever long 
retain a quantity which it has no occasion for. 

Whatever, therefore, we may imagine the real wealth and revenue 
of a country to consist in, whether in the value of the annual produce 
of its land and labour, as plain reason seems to dictate; or in the 



ACCUMULATION OF CAPITAL 269 

quantity of the precious metals which circulate within it, as vulgar 
prejudices suppose; in either view of the matter, every prodigal ap)- 
pears to be a public enemy, and every frugal man a public benefactor. 

The effects of misconduct are often the same as those of prodi- 
gality. Every injudicious and unsuccessful project in agriculture, 
mines, fisheries, trade, or manufactures, tends in the same manner 
to diminish the funds destined for the maintenance of productive 
labour. In every such project, though the capital is consumed by 
productive hands only, yet, as by the injudicious manner in which 
they are employed, they do not reproduce the full value of their 
consumption, there must always be some diminution in what would 
otherwise have been the productive funds of the society. 

It can seldom happen, indeed, that the circumstances of a great 
nation can be much affected either by the prodigality or misconduct 
of individuals; the profusion or imprudence of some, being always 
more than compensated by the frugality and good conduct of others. 

With regard to profusion, the principle which prompts to expence, 
is the passion for present enjoyment; which, though sometimes vio- 
lent and very difficult to be restrained, is in general only momentary 
and occasional. But the principle which prompts to save, is the de- 
sire of bettering our condition, a desire which, though generally 
calm and dispassionate, comes with us from the womb, and never 
leaves us till we go into the grave. In the whole interval which 
separates those two moments, there is scarce perhaps a single instant 
in which any man is so perfectly and completely satisfied with his 
situation, as to be without any wish of alteration or improvement 
of any kind. An augmentation of fortune is the means by which the 
greater part of men propose and wish to better their condition. It is 
the means the most vulgar and the most obvious; and the most likely 
way of augmenting their fortune, is to save and accumulate some 
part of what they acquire, either regularly and annually, or upon 
some extraordinary occasions. Though the principle of expence, 
therefore, prevails in almost all men uf)on some occasions, and in 
some men upon almost all occasions, yet in the greater part of men, 
taking the whole course of their life at an average, the principle of 
frugality seems not only to predominate but to predominate very 
greatly. 



270 WEALTH OF NATIONS 

With regard to misconduct, the number of prudent and success- 
ful undertakings is every-where much greater than that of inju- 
dicious and unsuccessful ones. After all our complaints of the fre- 
quency of bankruptcies, the unhappy men who fall into this mis- 
fortune make but a very small part of the whole number engaged 
in trade, and all other sorts of business; not much more perhaps 
than one in a thousand. Bankruptcy is perhaps the greatest and most 
humiliating calamity which can befal an innocent man. The greater 
part of men, therefore, are sufficiently careful to avoid it. Some, 
indeed, do not avoid it; as some do not avoid the gallows. 

Great nations are never impoverished by private, though they 
sometimes are by public prodigality and misconduct. The whole, 
or almost the whole public revenue, is in most countries employed 
in maintaining unproductive hands. Such are the people who com- 
pose a numerous and splendid court, a great ecclesiastical establish- 
ment, great fleets and armies, who in time of peace produce nothing, 
and in time of war acquire nothing which can compensate the ex- 
pence of maintaining them, even while the war lasts. Such people, 
as they themselves produce nothing, are all maintained by the prod- 
uce of other men's labour. When multiplied, therefore, to an un- 
necessary number, they may in a particular year consimie so great a 
share of this produce, as not to leave a sufficiency for maintaining 
the productive labourers, who should reproduce it next year. The 
next year's produce, therefore, will be less than that of the fore- 
going, and if the same disorder should continue, that of the third 
year will be still less than that of the second. Those unproductive 
hands, who should be maintained by a part only of the spare revenue 
of the people, may consume so great a share of their whole revenue, 
and thereby oblige so great a number to encroach upon their capitals, 
upon the funds destined for the maintenance of productive labour, 
that all the frugality and good conduct of individuals may not be 
able to compensate the waste and degradation of produce occasioned 
by this violent and forced encroachment. 

This frugality and good conduct, however, is upon most occa- 
sions, it appears from experience, sufficient to compensate, not only 
the private prodigality and misconduct of individuals, but the public 
extravagance of government. The uniform, constant, and uninter- 



ACCUMULATION OF CAPITAL 2'Jl 

rupted effort of every man to better his condition, the principle from 
which the public and national, as well as private opulence is origi- 
nally derived, is frequently powerful enough to maintain the natural 
progress of things toward improvement, in spite both of the ex- 
travagance of government, and of the greatest errors of administra- 
tion. Like the unknown principle of animal life, it frequently re- 
stores health and vigour to the constitution, in spite, not only of the 
disease, but of the absurd prescriptions of the doctor. 

The annual produce of the land and labour of any nation can be 
increased in its value by no other means, but by increasing either the 
number of its productive labourers, or the productive pwwers of those 
labourers who had before been employed. The number of its pro- 
ductive labourers, it is evident, can never be much increased, but in 
consequence of an increase of capital, or of the funds destined for 
maintaining them. The productive powers of the same number of 
labourers cannot be increased, but in consequence either of some 
addition and improvement to those machines and instruments which 
facilitate and abridge labour; or of a more proper division and dis- 
tribution of employment. In either case an additional capital is 
almost always required. It is by means of an additional capital only, 
that the undertaker of any work can either provide his workmen 
with better machinery, or make a more proper distribution of em- 
ployment among them. When the work to be done consists of a 
number of parts, to keep every man constantly employed in one 
way, requires a much greater capital than where every man is oc- 
casionally employed in every different part of the work. When we 
compare, therefore, the state of a nation at two different periods, and 
find, that the annual produce of its land and labour is evidendy 
greater at the latter than at the former, that its lands are better cul- 
tivated, its manufactures more numerous and more flourishing, and 
its trade more extensive, we may be assured that its capital must 
have increased during the interval between those two periods, and 
that more must have been added to it by the good conduct of some, 
than had been taken from it either by the private misconduct of 
others, or by the public extravagance of government. But we shall 
find this to have been the case of almost all nations, in all tolerably 
quiet and peaceable times, even of those who have not enjoyed the 



272 WEALTH OF NATIONS 

most prudent and parsimonious governments. To form a right 
judgment of it, indeed, we must compare the state of the country at 
{periods somewhat distant from one another. The progress is fre- 
quently so gradual, that, at near periods, the improvement is not 
only not sensible, but from the declension either of certain branches 
of industry, or of certain districts of the country, things which some- 
times hapf)en though the country in general be in great prosperity, 
there frequently arises a suspicion, that the riches and industry of 
the whole are decaying. 

The annual produce of the land and labour of England, for ex- 
ample, is certainly much greater than it was, a little more than a 
century ago, at the restoration of Charles II. Though, at present, 
few people, I believe, doubt of this, yet during this period, five years 
have seldom passed away in which some book or pamphlet has not 
been published, written too with such abilities as to gain some au- 
thority with the public, and pretending to demonstrate that the 
wealth of the nation was fast declining, that the country was depopu- 
lated, agriculture neglected, manufactures decaying, and trade un- 
done. Nor have these publications been all party pamphlets, the 
wretched offspring of falsehood and venality. Many of them have 
been written by very candid and very intelligent people; who 
wrote nothing but what they believed, and for no other reason but 
because they believed it. 

The annual produce of the land and labour of England, again, 
was certainly much greater at the restoration than we can suppose 
it to have been about an hundred years before, at the accession of 
Elizabeth. At this period, too, we have all reason to believe, the 
country was much more advanced in improvement than it had been 
about a century before, towards the close of the dissensions between 
the houses of York and Lancaster. Even then it was probably in 
a better condition than it had been at the Norman conquest; and 
at the Norman conquest than during the confusion of the Saxon 
heptarchy. Even at this early period, it was certainly a more im- 
proved country than at the invasion of Julius Caesar, when its inhabit- 
ants were nearly in the same state with the savages in North 
America. 

In each of those periods, however, there was, not only much pri- 



ACCUMULATION OF CAPITAL 273 

vate and public profusion, many expensive and unnecessary wars, 
great perversion of the annual produce from maintaining produc- 
live to maintain unproductive hands; but sometimes, in the confu- 
sion of civil discord, such absolute waste and destruction of stock, 
as might be supposed, not only to retard, as it certainly did, the natu- 
ral accumulation of riches, but to have left the country, at the end 
of the period, poorer than at the beginning. Thus, in the happiest 
and most fortunate period of them all, that which has passed since 
the restoration, how many disorders and misfortunes have occurred, 
which, could they have been foreseen, not only the impoverishment, 
but the total ruin of the country would have been expected from 
them? The fire and the plague of London, the two Dutch wars, 
the disorders of the revolution, the war in Ireland, the four expensive 
French wars of 1688, 1702, 1742, and 1756, together with the two 
rebellions of 1715 and 1745. In the course of the four French wars, 
the nation has contracted more than a hundred and forty-five mil- 
lions of debt, over and above all the other extraordinary annual ex- 
pence which they occasioned, so that the whole cannot be computed 
at less than two hundred millions. So great a share of the annual 
produce of the land and labour of the country, has, since the revo- 
lution, been employed upon different occasions, in maintaining an 
extraordinary number of unproductive hands. But had not those 
wars given this particular direction to so large a capital, the greater 
part of it would naturally have been employed in maintaining pro- 
ductive hands, whose labour would have replaced, with a profit, the 
whole value of their consumption. The value of the annual produce 
of the land and labour of the country, would have been considerably 
increased by it every year, and every year's increase would have aug- 
mented still more that of the following year. More houses would 
have been built, more lands would have been improved, and those 
which had been improved before would have been better cultivated, 
more manufactures would have been established, and those which 
had been established before would have been more extended; and 
to what height the real wealth and revenue of the country might, 
by this time, have been raised, it is not perhaps very easy even to 
imagine. 

But though the profusion of government must, undoubtedly, have 



274 WEALTH OF NATIONS 

retarded the natural progress of England towards wealth and im- 
provement, it has not been able to stop it. The annual produce of 
its land and labour is, undoubtedly, much greater at present than 
it was either at the restoration or at the revolution. The capital, 
therefore, annually employed in cultivating this land, and in main- 
taining this labour, must likewise be much greater. In the midst of 
all the exactions of government, this capital has been silently and 
gradually accumulated by the private frugality and good conduct of 
individuals, by their universal, continual, and uninterrupted effort 
to better their own condition. It is this effort, protected by law and 
allowed by liberty to exert itself in the manner that is most advan- 
tageous, which has maintained the progress of England towards opu- 
lence and improvement in almost all former times, and which, it is 
to be hoped, will do so in all future times. England, however, as it 
has never been blessed with a very parsimonious government, so 
parsimony has at no time been the characteristical virtue of its in- 
habitants. It is the highest impertinence and presumption, therefore, 
in kings and ministers to pretend to watch over the economy of 
private people, and to restrain their expence, either by sumptuary 
laws, or by prohibiting the importation of foreign luxuries. They 
are themselves always, and without any exception, the greatest 
spendthrifts in the society. Let them look well after their own ex- 
pence, and they may safely trust private people with theirs. If their 
own extravagance does not ruin the state, that of their subjects never 
will. 

As frugality increases, and prodigality diminishes the public capi- 
tal, so the conduct of those whose expence just equals their revenue, 
without either accumulating or encroaching, neither increases nor 
diminishes it. Some modes of expence, however, seem to contribute 
more to the growth of public opulence than others. 

The revenue of an individual may be spent, either in things which 
are consumed immediately, and in which one day's exjjence can 
neither alleviate nor support that of another; or it may be spent in 
things more durable, which can therefore be accumulated, and in 
which every day's expence may, as he chuses, either alleviate or sup- 
port and heighten the effect of that of the following day. A man 
of fortune, for example, may either spend his revenue in a profuse 



ACCUMULATION OF CAPITAL 275 

and sumptuous table, and in maintaining a great number of menial 
servants, and a multitude of dogs and horses; or contenting himself 
with a frugal table and few attendants, he may lay out the greater 
part of it in adorning his house or his country villa, in useful or 
ornamental buildings, in useful or ornamental furniture, in collect- 
ing books, statues, pictures; or in things more frivolous, jewels, bau- 
bles, ingenious trinkets of different kinds; or, what is most trifling 
of all, in amassing a great wardrobe of fine clothes, like the favourite 
and minister of a great prince who died a few years ago. Were two 
men of equal fortune to spend their revenue, the one chiefly in the 
one way, the other in the other, the magnificence of the person whose 
expence had been chiefly in durable commodities, would be continu- 
ally increasing, every day's expence contributing something to sup- 
port and heighten the effect of that of the following day : that of the 
other, on the contrary, would be no greater at the end of the period 
than at the beginning. The former too would, at the end of the 
period, be the richer man of the two. He would have a stock of 
goods of some kind or other, which, though it might not be worth 
all that it cost, would always be worth something. No trace or ves- 
tige of the expence of the latter would remain, and the effects of ten 
or twenty years profusion would be as completely annihilated as if 
they had never existed. 

As the one mode of expence is more favourable than the other to 
the opulence of an individual, so is it likewise to that of a nation. 
The houses, the furniture, the clothing of the rich, in a litde time, 
become useful to the inferior and middling ranks of people. They 
are able to purchase them when their superiors grow weary of them, 
and the general accommodation of the whole people is thus gradu- 
ally improved, when this mode of expence becomes universal among 
men of fortune. In countries which have long been rich, you will 
frequendy find the inferior ranks of people in possession both of 
houses and furniture perfectly good and entire, but of which neither 
the one could have been built, nor the other have been made for their 
use. What was formerly a seat of the family of Seymour, is now an 
inn upon the Bath road. The marriage-bed of James the First of 
Great Britain, which his Queen brought with her from Denmark, 
as a present fit for a sovereign to make to a sovereign, was, a few 



276 WEALTH OF NATIONS 

years ago, the ornament of an ale-house at Dunfermline. In some 
ancient cities, which either have been long stationary, or have gone 
somewhat to decay, you will sometimes scarce find a single house 
which could have been built for its present inhabitants. If you go 
into those houses too, you will frequendy find many excellent, though 
antiquated pieces of furniture, which are still very fit for use, and 
which could as little have been made for them. Noble palaces, mag- 
nificent villas, great collections of books, statues, pictures, and other 
curiosities, are frequently both an ornament and an honour, not only 
to the neighbourhood, but to the whole country to which they belong. 
Versailles is an ornament and an honour to France, Stowe and 
Wilton to England. Italy still continues to command some sort of 
veneration by the number of monuments of this kind which it pos- 
sesses, though the wealth which produced them has decayed, and 
though the genius which planned them seems to be extinguished, 
perhaps, from not having the same employment. 

The expence too, which is laid out in durable commodities, is 
favourable, not only to accumulation, but to frugality. If a person 
should at any time exceed in it, he can easily reform without ex- 
posing himself to the censure of the public. To reduce very much 
the number of his servants, to reform his table from great profu- 
sion to great frugality, to lay down his equipage after he has once 
set it up, are changes which cannot escape the observation of his 
neighbours, and which are supposed to imply some acknowledg- 
ment of preceding bad conduct. Few, therefore, of those who have 
once been so unfortunate as to launch out too far into this sort of 
expence, have afterwards the courage to reform, till ruin and bank- 
ruptcy oblige them. But if a person has, at any time, been at too 
great an expence in building, in furniture, in books or pictures, no 
imprudence can be inferred from his changing his conduct. These 
are things in which further expence is frequently rendered unneces- 
sary by former expence; and when a person stops short, he appears 
to do so, not because he has exceeded his fortune, but because he 
has satisfied his fancy. 

The exf)ence, besides, that is laid out in durable commodities, gives 
maintenance, commonly, to a greater number of people, than that 
which is employed in the most profuse hospitality. Of two or three 



ACCUMULATION OF CAPITAL 277 

hundred weight of provisions, which may sometimes be served up 
at a great festival, one-half, perhaps, is thrown to the dunghill, and 
there is always a great deal wasted and abused. But if the expense 
of this entertainment had been employed in setting to work masons, 
carpenters, upholsterers, mechanics, &c. a quantity of provisions, of 
equal value, would have been distributed among a still greater num- 
ber of people, who would have bought them in penny-worths and 
fxjund weights, and not have lost or thrown away a single ounce 
of them. In the one way, besides, this expense maintains productive, 
in the other unproductive hands. In the one way, therefore, it in- 
creases, in the other, it does not increase, the exchangeable value of 
the annual produce of the land and labour of the country. 

I would not, however, by all this be understood to mean, that the 
one species of expence always betokens a more liberal or generous 
spirit than the other. When a man of fortune sf>ends his revenue 
chiefly in hospitality, he shares the greater part of it with his friends 
and companions; but when he employs it in purchasing such durable 
commodities, he often spends the whole upon his own person, and 
gives nothing to any body without an equivalent. The latter species 
of expence, therefore, especially when directed towards frivolous ob- 
jects, the little ornaments of dress and furniture, jewels, trinkets, 
gewgaws, frequently indicates, not only a trifling, but a base and 
selfish disposition. All that I mean is, that the one sort of expence, as 
it always occasions some accumulation of valuable commodities, as 
it is more favourable to private frugality, and, consequently, to the 
increase of the public capital, and as it maintains productive, rather 
than unproductive hands, conduces more than the other to the 
growth of public opulence. 



CHAPTER IV 
Of Stock Lent at Interest 

THE stock which is lent at interest is always considered as 
a capital by the lender. He expects that in due time it is 
to be restored to him, and that in the mean time the bor- 
rower is to pay him a certain annual rent for the use of it. The bor- 
rower may use it either as a capital, or as a stock reserved for 
immediate consumption. If he uses it as a capital, he employs it in 
the maintenance of productive labourers, who reproduce the value 
with a profit. He can, in this case, both restore the capital and pay 
the interest without alienating or encroaching upon any other source 
of revenue. If he uses it as a stock reserved for immediate consump- 
tion, he aas the part of a prodigal, and dissipates in the maintenance 
of the idle, what was destined for the support of the industrious. He 
can, in this case, neither restore the capital nor pay the interest, with- 
out either alienating or encroaching upon some other source of rev- 
enue, such as the property or the rent of land. 

The stock which is lent at interest is, no doubt, occasionally em- 
ployed in both these ways, but in the former much more frequently 
than in the latter. The man who borrows in order to spend will 
soon be ruined, and he who lends to him will generally have occa- 
sion to repent of his folly. To borrow or to lend for such a pur- 
jX)se, therefore, is in all cases, where gross usury is out of the ques- 
tion, contrary to the interest of both parties; and though it no doubt 
happens sometimes that people do both the one and the other; yet, 
from the regard that all men have for their own interest, we may be 
assured, that it cannot happen so very frequently as we are some- 
times apt to imagine. Ask any rich man of common prudence, to 
which of the two sorts of people he has lent the greater part of his 
stock, to those who, he thinks, will employ it profitably, or to those 
who will spend it idly, and he will laugh at you for profxjsing the 
question. Even among borrowers, therefore, not the people in the 

a78 



STOCK LENT AT INTEREST 279 

world most famous for frugality, the number of the frugal and 
industrious surpasses considerably that of the prodigal and idle. 

The only people to whom stock is commonly lent, without their 
being expected to make any very profitable use of it, are country gen- 
tlemen who borrow upon mortgage. Even they scarce ever borrow 
merely to spend. What they borrow, one may say, is commonly 
spent before they borrow it. They have generally consumed so great 
a quantity of goods, advanced to them upon credit by shopkeepers 
and tradesmen, that they find it necessary to borrow at interest in 
order to pay the debt. The capital borrowed replaces the capitals of 
those shopkeepers and tradesmen, which the country gentlemen 
could not have replaced from the rents of their estates. It is not 
properly borrowed in order to be spent, but in order to replace a 
capital which had been spent before. 

Almost all loans at interest are made in money, either of paper, 
or of gold and silver. But what the borrower really wants, and what 
the lender really supplies him with, is not the money, but the money's 
worth, or the goods which it can purchase. If he wants it as a stock 
for immediate consumption, it is those goods only which he can 
place in that stock. If he wants it as a capital for employing industry, 
it is from those goods only that the industrious can be furnished 
with the tools, materials, and maintenance, necessary for carrying 
on their work. By means of the loan, the lender, as it were, assigns 
to the borrower his right to a certain portion of the annual produce 
of the land and labour of the country, to be employed as the borrower 
pleases. 

The quantity of stock, therefore, or, as it is commonly expressed, 
of money which can be lent at interest in any country, is not regu- 
lated by the value of the money, whether paper or coin, which serves 
as the instrument of the different loans made in that country, but 
by the value of that part of the annual produce which, as soon as 
it comes either from the ground, or from the hands of the produc- 
tive labourers, is destined not only for replacing a capital, but such 
a capiul as the owner does not care to be at the trouble of employing 
himself. As such capitals are commonly lent out and paid back in 
money, they constitute what is called the monied interest. It is dis- 
tinct, not only from the landed, but from the trading and manufac- 



28o WEALTH OF NATIONS 

turing interests, as in these last the owners themselves employ their 
own capitals. Even in the monied interest, however, the money is, 
as it were, but the deed of assignment, which conveys from one hand 
to another those capitals which the owners do not care to employ 
themselves. Those capitals may be greater in almost any propor- 
tion, than the amount of the money which serves as the instrument 
of their conveyance; the same pieces of money successively serving 
for many different loans, as well as for many different purchases. 
A, for example, lends to W a thousand f)ounds, with which W im- 
mediately purchases of B a thousand pounds worth of goods. B 
having no occasion for the money himself, lends the identical pieces 
to X, with which X immediately purchases of C another thousand 
pounds worth of goods. C in the same manner, and for the same 
reason, lends them to Y, who again purchases goods with them of 
D. In this manner the same pieces, either of coin or of pap)er, may, 
in the course of a few days, serve as the instrument of three different 
loans, and of three different purchases, each of which is, in value, 
equal to the whole amount of those pieces. What the three monied 
men, A, B, and C, assign to the three borrowers, W, X, Y, is the 
power of making those purchases. In this power consist both the 
value and the use of the loans. The stock lent by the three monied 
men, is equal to the value of the goods which can be purchased with 
it, and is three times greater than that of the money with which the 
purchases are made. Those loans, however, may be all perfectly well 
secured, the goods purchased by the different debtors being so em- 
ployed, as, in due time, to bring back, with a profit, an equal value 
either of coin or of paper. And as the same pieces of money can thus 
serve as the instrument of different loans to three, or for the same 
reason, to thirty times their value, so they may likewise successively 
serve as the instrument of repayment. 

A capital lent at interest may, in this manner, be considered as 
an assignment from the lender to the borrower of a certain consid- 
erable portion of the annual produce; upon condition that the bor- 
rower in return shall, during the continuance of the loan, annually 
assign to the lender a smaller portion, called the interest; and at the 
end of it, a portion equally considerable with that which had origi- 
nally been assigned to him, called the repayment. Though money, 



STOCK LENT AT INTEREST 28 1 

either coin or paper, serves generally as the deed of assignment both 
to the smaller, and to the more considerable portion, it is itself 
altogether different from what is assigned by it. 

In proportion as that share of the annual produce which, as soon 
as it comes either from the ground, or from the hands of the produc- 
tive labourers, is destined for replacing a capital, increases in any 
country, what is called the monied interest naturally increases with 
it. The increase of those particular capitals from which the owners 
wish to derive a revenue, without being at the trouble of employing 
them themselves, naturally accompanies the general increase of capi- 
tals; or, in other words, as stock increases, the quantity of stock to be 
lent at interest grows gradually greater and greater. 

As the quantity of stock to be lent at interest increases, the inter- 
est, or the price which must be paid for the use of that stock, neces- 
sarily diminishes, not only from those general causes which make 
the market price of things commonly diminish as their quantity in- 
creases, but from other causes which are p>eculiar to this particular 
case. As capitals increase in any country, the profits which can be 
made by employing them necessarily diminish. It becomes gradu- 
ally more and more difficult to find within the country a profitable 
method of employing any new capital. There arises in consequence 
a competition between different capitals, the owner of one en- 
deavouring to get possession of that employment which is occupied 
by another. But upon most occasions he can hope to justle that 
other out of this employment, by no other means but by dealing 
upon more reasonable terms. He must not only sell what he deals 
in somewhat cheaper, but in order to get it to sell, he must some- 
times too buy it dearer. The demand for productive labour, by 
the increase of the funds which are destined for maintaining it, 
grows every day greater and greater. Labourers easily find employ- 
ment, but the owners of capitals find it difficult to get labourers to 
employ. Their competition raises the wages of labour, and sinks 
the profits of stock. But when the profits which can be made by 
the use of a capital are in this manner diminished, as it were, at 
both ends, the price which can be paid for the use of it, that is, the 
rate of interest, must necessarily be diminished with them. 

Mr. Locke, Mr. Law, and Mr. Montesquieu, as well as many 



282 WEALTH OF NATIONS 

other writers, seem to have imagined that the increase of the quan- 
tity of gold and silver, in consequence of the discovery of the 
Spanish West Indies, was the real cause of the lowering of the rate 
of interest through the greater part of Europe. Those metals, they 
say, having become of less value themselves, the use of any particu- 
lar portion of them necessarily became of less value too, and conse- 
quently the price which could be paid for it. This notion, which at 
first sight seems so plausible, has been so fully exposed by Mr. 
Hume, that it is perhaps, unnecessary to say any thing more about 
it. The following very short and plain argument, however, may 
serve to explain more distinctly the fallacy which seems to have 
misled those gentlemen. 

Before the discovery of the Spanish West Indies, ten per cent, 
seems to have been the common rate of interest through the greater 
part of Europe. It has since that time in different countries sunk 
to six, five, four, and three per cent. Let us suppose that in every 
particular country the value of silver has sunk precisely in the same 
proportion as the rate of interest; and that in those countries, for 
example, where interest has been reduced from ten to five per cent., 
the same quantity of silver can now purchase just half the quantity 
of goods which it could have purchased before. This supposition 
will not, I believe, be found any-where agreeable to the truth; but 
it is the most favourable to the opinion which we are going to exam- 
ine; and even upon this supposition it is utterly impossible that the 
lowering of the value of silver could have the smallest tendency to 
lower the rate of interest. If a hundred pounds are in those coun- 
tries now of no more value than fifty pounds were then, ten pounds 
must now be of no more value than five p>ounds were then. What- 
ever were the causes which lowered the value of the capital, the 
same must necessarily have lowered that of the interest, and exacdy 
in the same proportion. The proportion between the value of the 
capital and that of the interest, must have remained the same, 
though the rate had never been altered. By altering the rate, on 
the contrary, the proportion between those two values is necessarily 
altered. If a hundred pounds now are worth no more than fifty 
were then, five pounds now can be worth no more than two pounds 
ten shillings were then. By reducing the rate of interest, therefore. 



STOCK LENT AT INTEREST 283 

from ten to five per cent., we give for the use of a capital, which 
is supposed to be equal to one-half of its former value, an inter- 
est which is equal to one-fourth only of the value of the former 
interest. 

Any increase in the quantity of silver, while that of the commodi- 
ties circulated by means of it remained the same, could have no 
other effect than to diminish the value of that metal. The nominal 
value of all sorts of goods would be greater, but their real value 
would be precisely the same as before. They would be exchanged 
for a greater number of pieces of silver; but the quantity of labour 
which they could command, the number of people whom they 
could maintain and employ, would be precisely the same. The capi- 
tal of the country would be the same, though a greater number of 
pieces might be requisite for conveying any equal portion of it from 
one hand to another. The deeds of assignment, like the convey- 
ances of a verbose attorney, would be more cumbersome, but the 
thing assigned would be precisely the same as before, and could 
produce only the same effects. The funds for maintaining produc- 
tive labour being the same, the demand for it would be the same. 
Its price or wages, therefore, though nominally greater, would really 
be the same. They would be paid in a greater number of pieces of 
silver; but they would purchase only the same quantity of goods. 
The profits of stock would be the same both nominally and really. 
The wages of labour are commonly computed by the quantity of 
silver which is paid to the labourer. When that is increased, there- 
fore, his wages appear to be increased, though they may sometimes 
be no greater than before. But the profits of stock are not computed 
by the number of pieces of silver with which they are paid, but by 
the proportion which those pieces bear to the whole capital em- 
ployed. Thus in a particular country five shillings a week are said 
to be the common wages of labour, and ten per cent, the common 
profits of stock. But the whole capital of the country being the 
same as before, the competition between the different capitals of 
individuals into which it was divided would likewise be the same. 
They would all trade with the same advantages and disadvantages. 
The common proportion between capital and profit, therefore, would 
be the same, and consequendy the common interest of money; what 



284 WEALTH OF NATIONS 

can commonly be given for the use of money being necessarily regu- 
lated by what can commonly be made by the use of it. 

Any increase in the quantity of commodities annually circulated 
within the country, while that of the money which circulated them 
remained the same, would, on the contrary, produce many other 
important effects, besides that of raising the value of the money. The 
capital of the country, though it might nominally be the same, would 
really be augmented. It might continue to be expressed by the same 
quantity of money, but it would command a greater quantity of 
labour. The quantity of productive labour which it could maintain 
and employ would be increased, and consequently the demand for 
that labour. Its wages would naturally rise with the demand, and 
yet might appear to sink. They might be paid with a smaller quan- 
tity of money, but that smaller quantity might purchase a greater 
quantity of goods than a greater had done before. The profits of 
stock would be diminished both really and in appearance. The 
whole capital of the country being augmented, the comf>etition be- 
tween the different capitals of which it was composed, would natu- 
rally be augmented along with it. The owners of those particular 
capitals would be obliged to content themselves with a smaller pro- 
portion of the produce of that labour which their respective capitals 
employed. The interest of money, keeping pace always with the 
profits of stock, might, in this manner, be greatly diminished, though 
the value of money, or the quantity of goods which any particular 
sum could purchase, was greatly augmented. 

In some countries the interest of money has been prohibited by 
law. But as something can every-where be made by the use of 
money, something ought every-where to be paid for the use of it. 
This regulation, instead of preventing, has been found from experi- 
ence to increase the evil of usury; the debtor being obliged to pay, 
not only for the use of the money, but for the risk which his creditor 
runs by accepting a compensation for that use. He is obliged, if 
one may say so, to insure his creditor from the penalties of usury. 

In countries where interest is permitted, the law, in order to pre- 
vent the extortion of usury, generally fixes the highest rate which 
can be taken without incurring a penalty. This rate ought always to 
be somewhat above the lowest market price, or the price which is 



STCX)K LENT AT INTEREST 285 

commonly paid for the use of money by those who can give the most 
undoubted security. If this legal rate should be fixed below the lowest 
market rate, the effects of this fixation must be nearly the same as 
those of a total prohibition of interest. The creditor will not lend his 
money for less than the use of it is worth, and the debtor must pay 
him for the risk which he runs by accepting the full value of that 
use. If it is fixed precisely at the lowest market price, it ruins with 
honest people, who respect the laws of their country, the credit of 
all those who cannot give the very best security, and obliges them 
to have recourse to exorbitant usurers. In a country, such as Great 
Britain, where money is lent to government at three per cent, and to 
private people upon good security at four, and four and a half, the 
present legal rate, five per cent., is perhaps, as proper as any. 

The legal rate, it is to be observed, though it ought to be some- 
what above, ought not to be much above the lowest market rate. If 
the legal rate of interest in Great Britain, for example, was fixed so 
high as eight or ten per cent., the greater part of the money which 
was to be lent, would be lent to prodigals and projectors, who alone 
would be willing to give this high interest. Sober jjeople, who will 
give for the use of money no more than a part of what they are likely 
to make by the use of it, would not venture into the comjjetition, 
A great part of the capital of the country would thus be kept out 
of the hands which were most likely to make a profitable and ad- 
vantageous use of it, and thrown into those which were most likely 
to waste and destroy it. Where the legal rate of interest, on the 
contrary, is fixed but a very little above the lowest market rate, sober 
people are universally preferred, as borrowers, to prodigals and pro- 
jectors. The person who lends money gets nearly as much interest 
from the former as he dares to take from the latter, and his money 
is much safer in the hands of the one set of people, than in those 
of the other. A great part of the capital of the country is thus 
thrown into the hands in which it is mostly likely to be employed 
with advantage. 

No law can reduce the common rate of interest below the lowest 
ordinary market rate at the time when that law is made. Notwith- 
standing the edict of 1766, by which the French king attempted to 
reduce the rate of interest from five to four per cent., money 



286 WEALTH OF NATIONS 

continued to be lent in France at five per cent^ the law being evaded 
in several different ways. 

The ordinary market price of land, it is to be observed, depends 
every-where upon the ordinary market rate of interest. The person 
who has a capital from which he wishes to derive a revenue, without 
taking the trouble to employ it himself, deliberates whether he 
should buy land with it, or lend it out at interest. The superior 
security of land, together with some other advantages which almost 
every-where attend upon this species of property, will generally dis- 
pose him to content himself with a smaller revenue from land, than 
what he might have by lending out his money at interest. These 
advantages are sufficient to compensate a certain difference of rev- 
enue; but they will compensate a certain difference only; and if the 
rent of land should fall short of the interest of money by a greater 
difference, nobody would buy land, which would soon reduce its 
ordinary price. On the contrary, if the advantages should much 
more than compensate the difference, every body would buy land, 
which again would soon raise its ordinary price. When interest was 
at ten per cent., land was commonly sold for ten and twelve years 
purchase. As interest sunk to six, five and four per cent., the price 
of land rose to twenty, five and twenty, and thirty years purchase. 
The market rate of interest is higher in France than in England; and 
the common price of land is lower. In England it commonly sells at 
thirty; in France at twenty years purchase. 



CHAPTER V 
Of the Different Employment of Capitals 

THOUGH all capitals are destined for the maintenance of 
productive labour only, yet the quantity of that labour, 
which equal capitals are capable of putting into motion, 
varies extremely according to the diversity of their employment; as 
does likewise the value which that employment adds to the annual 
produce of the land and labour of the country. 

A capital may be employed in four different ways: either, first, 
in procuring the rude produce annually required for the use and 
consumption of the society; or, secondly, in manufacturing and pre- 
paring that rude, produce for immediate use and consumption; or, 
thirdly, in transporting either the rude or manufactured produce 
from the places where they abound to those where they are wanted; 
or, lastly, in dividing particular portions of either into such small 
parcels as suit the occasional demands of those who want them. In 
the first way are employed the capitals of all those who undertake 
the improvement or cultivation of lands, mines, or fisheries; in the 
second, those of all master manufacturers; in the third, those of all 
wholesale merchants; and in the fourth, those of all retailers. It is 
difficult to conceive that a capital should be employed in any way 
which may not be classed under some one or other of thoso four. 

Eiach of those four methods of employing a capital is essentially 
necessary either to the existence or extension of the other three, or to 
the general conveniency of the society. 

Unless a capital was employed in furnishing rude produce to a 
certain degree of abundance, neither manufactures nor trade of any 
kind could exist. 

Unless a capital was employed in manufacturing that part of the 
rude produce which requires a good deal of preparation before it 
can be fit for use and consumption, it either would never be 
produced, because there could be no demand for it; or if it was 

287 



288 WEALTH OF NATIONS 

produced spontaneously, it would be of no value in exchange, and 
could add nothing to the wealth of the society. 

Unless a capital was employed in transporting, either the rude or 
manufactured produce, from the places where it abounds to those 
where it is wanted, no more of either could be produced than was 
necessary for the consumption of the neighbourhood. The capital 
of the merchant exchanges the surplus produce of one place for that 
of another, and thus encourages the industry and increases the 
enjoyments of both. 

Unless a capital was employed in breaking and dividing certain 
portions either of the rude or manufactured produce, into such small 
parcels as suit the occasional demands of those who want them, 
every man would be obliged to purchase a greater quantity of the 
goods he wanted, than his immediate occasions required. If there 
was no such trade as a butcher, for example, every man would be 
obliged to purchase a whole ox or a whole sheep at a time. This 
would generally be inconvenient to the rich, and much more so to 
the p)Oor. If a poor workman was obliged to purchase a month's or 
six months' provisions at a time, a great part of the stock which he 
employs as a capital in the instruments of his trade, or in the furni- 
ture of his shop, and which yields him a revenue, he would be forced 
to place in that part of his stock which is reserved for immediate 
consumption, and which yields him no revenue. Nothing can be 
more convenient for such a person than to be able to purchase his 
subsistence from day to day, or even from hour to hour, as he 
wants it. He is thereby enabled to employ almost his whole stock 
as a capital. He is thus enabled to furnish work to a greater value, 
and the profit, which he makes by it in this way, much more than 
compensates the additional price which the profit of the retailer 
imjxjses upon the goods. The prejudices of some p)olitical writers 
against shopkeepers and tradesmen, are altogether without founda- 
tion. So far is it from being necessary, either to tax them, or to 
restrict their numbers, that they can never be multiplied so as to hurt 
the publick, though they may so as to hurt one another. The quan- 
tity of grocery goods, for example, which can be sold in a particular 
town, is limited by the demand of that town and its neighbourhood. 
The capital, therefore, which can be employed in the grocery trade 



EMPLOYMENT OF CAPITALS 289 

cannot exceed what is sufficient to purchase that quantity. If this 
capital is divided between two different grocers, their competition 
will tend to make both of them sell cheaper, than if it were in the 
hands of one only; and if it were divided among twenty, their com- 
petition would be just so much the greater, and the chance of their 
combining together, in order to raise the price, just so much the 
less. Their competition might perhaps ruin some of themselves; but 
to take care of this is the business of the pa/ties concerned, and it 
may safely be trusted to their discretion. It can never hurt either 
the consumer, or the producer; on the contrary, it must tend to make 
the retailers both sell cheaper and buy dearer, than if the whole trade 
was monopolized by one or two persons. Some of them, perhaps, 
may sometimes decoy a weak customer to buy what he has no occa- 
sion for. This evil, however, is of too little importance to deserve 
the publick attention, nor would it necessarily be prevented by re- 
stricting their numbers. It is not the multitude of ale-houses, to 
give the most suspicious example, that occasions a general disposi- 
tion to drunkenness among the common people; but that disposition 
arising from other causes necessarily gives employment to a multi- 
tude of ale-houses. 

The persons whose capitals are employed in any of those four 
ways are themselves productive labourers. Their labour, when prop- 
erly directed, fixes and realizes itself in the subject or vendible com- 
modity upon which it is bestowed, and generally adds to its price 
the value at least of their own maintenance and consumption. The 
profits of the farmer, of the manufacturer, of the merchant, and 
retailer, are all drawn from the price of the goods which the two 
first produce, and the two last buy and sell. Equal capitals, how- 
ever, employed in each of these four different ways, will imme- 
diately put into motion very different quantities of productive 
labour, and augment too in very different proportions the value of 
the annual produce of the land and labour of the society to which 
they belong. 

The capital of the retailer replaces, together with its profits, that 
of the merchant of whom he purchases goods, and thereby enables 
him to continue his business. The retailer himself is the only 
productive labourer whom it immediately employs. In his profits, 



290 WEALTH OF NATIONS 

consists the whole value which its employment adds to the annual 
produce of the land and labour of the society. 

The capital of the wholesale merchant replaces, together with their 
profits, the capitals of the farmers and manufacturers of whom he 
purchases the rude and manufactured produce which he deals in, 
and thereby enables them to continue their respective trades. It is 
by this service chiefly that he contributes indirectly to support the 
productive labour of the society, and to increase the value of its 
annual produce. His capital employs too the sailors and carriers 
who transport his goods from one place to another, and it augments 
the price of those goods by the value, not only of his profits, but of 
their wages. This is all the productive labour which it immedi- 
ately puts into motion, and all the value which it immediately adds 
to the annual produce. Its operation in both these respects is a good 
deal superior to that of the capital of the retailer. 

Part of the capital of the master manufacturer is employed as a 
fixed capital in the instruments of his trade, and replaces, together 
with its profits, that of some other artificer of whom he purchases 
them. Part of his circulating capital is employed in purchasing mate- 
rials, and replaces, with their profits, the capitals of the farmers and 
miners of whom he purchases them. But a great part of it is always, 
either annually, or in a much shorter period, distributed among the 
different workmen whom he employs. It augments the value of 
those materials by their wages, and by their masters profits upon 
the whole stock of wages, materials, and instruments of trade em- 
ployed in the business. It puts immediately into motion, therefore, 
a much greater quantity of productive labour, and adds a much 
greater value to the annual produce of the land and labour of the 
society, than an equal capital in the hands of any wholesale merchant. 

No equal capital puts into motion a greater quantity of produc- 
tive labour than that of the farmer. Not only his labouring servants, 
but his labouring catde, are productive labourers. In agriculture too 
nature labours along with man; and though her labour costs no 
expence, its produce has its value, as well as that of the most expen- 
sive workmen. The most important operations of agriculture seem 
intended, not so much to increase, though they do that too, as to 
direct the fertility of nature towards the production of the plants 



EMPLOYMENT OF CAPITALS 29I 

most profitable to man. A field overgrown with briars and brambles 
may frequently produce as great a quantity of vegetables as the best 
cultivated vineyard or corn field. Planting and tillage frequently 
regulate more than they animate the active fertility of nature; and 
after all their labour, a great part of the work always remains to be 
done by her. The labourers and labouring cattle, therefore, employed 
in agriculture, not only occasion, like the workmen in manufactures, 
the reproduction of a value equal to their own consumption, or to 
the capital which employs them, together with its owners profits; but 
of a much greater value. Over and above the capital of the farmer 
and all its profits, they regularly occasion the reproduction of the rent 
of the landlord. This rent may be considered as the produce of those 
powers of nature, the use of which the landlord lends to the farmer. 
It is greater or smaller according to the supposed extent of those 
powers, or in other words, according to the supposed natural or im- 
proved fertility of the land. It is the work of nature which remains 
after deducting or compensating every thing which can be regarded 
as the work of man. It is seldom less than a fourth, and frequendy 
more than a third of the whole produce. No equal quantity of pro- 
ductive labour employed in manufactures can ever occasion so great 
a reproduction. In them nature does nothing; man does all; and the 
reproduction must always be in proportion to the strength of the 
agents that occasion it. The capital employed in agriculture, there- 
fore, not only puts into motion a greater quantity of productive 
labour than any equal capital employed in manufactures, but in prc^ 
portion too to the quantity of productive labour which it employs, 
it adds a much greater value to the annual produce of the land and 
labour of the country, to the real wealth and revenue of its inhabi- 
tants. Of all the ways in which a capital can be employed, it is by 
far the most advantageous to the society. 

The capitals employed in the agriculture and in the retail trade of 
any society, must always reside within that society. Their employ- 
ment is confined almost to a precise spot, to the farm, and to the 
shop of the retailer. They must generally too, though there are some 
exceptions to this, belong to resident members of the society. 

The capital of a wholesale merchant, on the contrary, seems to 
have no fixed or necessary residence anywhere, but may wander 



292 WEALTH OF NATIONS 

about from place to place, according as it can either buy cheap or 
sell dear. 

The capital of the manufacturer must no doubt reside where the 
manufacture is carried on; but where this shall be is not always 
necessarily determined. It may frequendy be at a great distance 
both from the place where the materials grow, and from that where 
the complete manufacture is consumed. Lyons is very distant both 
from the places which afford the materials of its manufactures, and 
from those which consume them. The people of fashion of Sicily 
are doathed in silks made in other countries, from the materials 
which their own produces. Part of the wool of Spain is manufactured 
in Great Britain, and some part of that cloth is afterwards sent back 
to Spain. 

Whether the merchant whose capital exports the surplus produce 
of any society be a native or a foreigner, is of very litde importance. 
If he is a foreigner, the number of their productive labourers is 
necessarily less than if he had been a native by one man only; and 
the value of their annual produce, by the profits of that one man. 
The sailors or carriers whom he employs may still belong indiffer- 
endy either to his country, or to their country, or to some third 
country, in the same manner as if he had been a native. The capital 
of a foreigner gives a value to their surplus produce equally with 
that of a native, by exchanging it for something for which there is 
a demand at home. It as effectually replaces the capital of the person 
who produces that surplus, and as effectually enables him to continue 
his business; the service by which the capital of a wholesale merchant 
chiefly contributes to support the productive labour, and to augment 
the value of the annual produce of the society to which he belongs. 

It is of more consequence that the capital of the manufacturer 
should reside within the country. It necessarily puts into motion a 
greater quantity of productive labour, and adds a greater value to 
the annual produce of the land and labour of the society. It may, 
however, be very useful to the country, though it should not reside 
within it. The capitals of the British manufacturers who work up 
the flax and hemp annually imported from the coasts of the Baltiq 
are surely very useful to the countries which produce them. Those 
materials are a part of the surplus produce of those countries which. 



EMPLOYMENT OF CAPITALS 293 

unless it was annually exchanged for something which is in demand 
there, would be of no value, and would soon cease to be produced. 
The merchants who export it, replace the capitals of the f)eople who 
produce it, and thereby encourage them to continue the production; 
and the British manufacturers replace the capitals of those merchants. 

A particular country, in the same manner as a particular person, 
may frequently not have capital sufficient both to improve and culti- 
vate all its lands, to manufacture and prepare their whole rude 
produce for immediate use and consumption, and to transport the 
surplus part either of the rude or manufactured produce to those dis- 
tant markets where it can be exchanged for something for which 
there is a demand at home. The inhabitants of many different parts 
of Great Britain have not capital sufficient to improve and cultivate 
all their lands. The wool of the southern counties of Scodand is, a 
great part of it, after a long land carriage through very bad roads, 
manufactured in Yorkshire for want of a capital to manufacture it 
at home. There are many little manufacturing towns in Great Brit- 
ain, of which the inhabitants have not capital sufficient to transport 
the produce of their own industry to those distant markets where 
there is demand and consumption for it. If there are any merchants 
among them, they are prop)erly only the agents of wealthier mer- 
chants who reside in some of the greater commercial cities. 

When the capital of any country is not sufficient for all those three 
purposes, in proportion as a greater share of it is employed in agri- 
culture, the greater will be the quantity of productive labour which 
it puts into motion within the country; as will likewise be the value 
which its employment adds to the annual produce of the land and 
labour of the society. After agriculture, the capital employed in 
manufactures puts into motion the greatest quantity of productive 
labour, and adds the greatest value to the annual produce. That 
which is employed in the trade of exportation, has the least effect 
of any of the three. 

The country, indeed, which has not capital sufficient for all those 
three purposes, has not arrived at that degree of opulence for which 
it seems naturally destined. To attempt, however, prematurely and 
with an insufficient capital, to do all the three, is certainly not the 
shortest way for a society, no more than it would be for an individual, 



294 WEALTH OF NATIONS 

to acquire a sufficient one. The capital of all the individuals of a 
nation, has its limits in the same manner as that of a single indi- 
vidual, and is capable of executing only certain purpxjses. The capital 
of all the individuals of a nation is increased in the same manner 
as that of a single individual, by their continually accumulating and 
adding to it whatever they save out of their revenue. It is likely to 
increase the fastest, therefore, when it is employed in the way that 
affords the greatest revenue to all the inhabitants of the country, as 
they will thus be enabled to make the greatest savings. But the 
revenue of all the inhabitants of the country is necessarily in propor- 
tion to the value of the annual produce of their land and labour. 

It has been the principal cause of the rapid progress of our Ameri- 
can colonies towards wealth and greatness, that almost their whole 
capitals have hitherto been employed in agriculture. They have no 
manufactures, those household and coarser manufactures excepted 
which necessarily accompany the progress of agriculture, and which 
are the work of the women and children in every private family. 
The greater part both of the expwrtation and coasting trade of Amer- 
ica, is carried on by the capitals of merchants who reside in Great 
Britain. Even the stores and warehouses from which goods are 
retailed in some provinces, particularly in Virginia and Maryland, 
belong many of them to merchants who reside in the mother country, 
and afford one of the few instances of the retail trade of a society be- 
ing carried on by the capitals of those who are not resident members 
of it. Were the Americans, either by combination or by any other 
sort of violence, to stop the importation of European manufactures, 
and, by thus giving a monopoly to such of their own countrymen as 
could manufacture the like goods, divert any considerable part of 
their capital into this employment, they would retard instead of 
accelerating the further increase in the value of their annual produce, 
and would obstruct instead of promoting the progress of their coun- 
try towards real wealth and greatness. This would be still more the 
case, were they to attempt, in the same manner, to monopolize to 
themselves their whole exportation trade. 

The course of human prosperity, indeed, seems scarce ever to 
have been of so long continuance as to enable any great country to 
acquire capital sufficient for all those three purposes; unless, perhaps, 



EMPLOYMENT OF CAPITALS 295 

we give credit to the wonderful accounts of the wealth and cultiva- 
tion of China, of those of antient Egypt, and of the antient state of 
Indostan. Even those three countries, the wealthiest, according to all 
accounts, that ever were in the world, are chiefly renowned for their 
superiority in agriculture and manufactures. They do not appear to 
have been eminent for foreign trade. The antient Egyptians had a 
superstitious antipathy to the sea; a superstition nearly of the same 
kind prevails among the Indians; and the Chinese have never ex- 
celled in foreign commerce. The greater part of the surplus produce 
of all those three countries seems to have been always exported by 
foreigners, who gave in exchange for it something else for which they 
found a demand there, frequently gold and silver. 

It is thus that the same capital will in any country put into motion 
a greater or smaller quantity of productive labour, and add a greater 
or smaller value to the annual produce of its land and labour, accord- 
ing to the different proportions in which it is employed in agriculture, 
manufactures, and wholesale trade. The difference too is very great, 
according to the different sorts of wholesale trade in which any part 
of it is employed. 

All wholesale trade, all buying in order to sell again by wholesale, 
may be reduced to three different sorts. The home trade, the foreign 
trade of consumption, and the carrying trade. The home trade is 
employed in purchasing in one part of the same country, and selling 
in another, the produce of the industry of that country. It compre- 
hends both the inland and the coasting trade. The foreign trade of 
consumption is employed in purchasing foreign goods for home con- 
sumption. The carrying trade is employed in transacting the com- 
merce of foreign countries, or in carrying the surplus produce of 
one to another. 

The capital which is employed in purchasing in one part of the 
country in order to sell in another the produce of the industry of 
that country, generally replaces by every such operation two distinct 
capitals that had both been employed in the agriculture or manu- 
factures of that country, and thereby enables them to continue that 
employment. When it sends out from the residence of the merchant 
a certain value of commodities, it generally brings back in return at 
least an equal value of other commodities. When both are the prod- 



296 WEALTH OF NATIONS 

uce of domestick industry, it necessarily replaces by every such opera- 
tion two distinct capitals, which had both been employed in support- 
ing productive labour, and thereby enables them to continue that 
support. The capital which sends Scotch manufactures to London, 
and brings back English corn and manufactures to Edinburgh, neces- 
sarily replaces, by every such operation, two British capitals which 
had both been employed in the agriculture or manufactures of Great 
Britain. 

The capital employed in purchasing foreign goods for home- 
consumption, when this purchase is made with the produce of 
domestick industry, replaces too, by every such operation, two dis- 
tinct capitals; but one of them only is employed in supporting 
domestick industry. The capital which sends British goods to Portu- 
gal, and brings back Portuguese goods to Great Britain, replaces by 
every such of)eration only one British capital. The other is a Portu- 
guese one. Though the returns, therefore, of the foreign trade of 
consumption should be as quick as those of the home-trade, the 
capital employed in it will give but one-half the encouragement to 
the industry or productive labour of the country. 

But the returns of the foreign trade of consumption are very sel- 
dom so quick as those of the home-trade. The returns of the home- 
trade generally come in before the end of the year, and sometimes 
three or four times in the year. The returns of the foreign trade of 
consumption seldom come in before the end of the year, and some- 
times not till after two or three years. A capital, therefore, employed 
in the home-trade will sometimes make twelve operations, or be sent 
out and returned twelve times, before a capital employed in the for- 
eign trade of consumption has made one. If the capitals are equal, 
therefore, the one will give four and twenty times more encourage- 
ment and support to the industry of the country than the other. 

The foreign goods for home<onsumption may sometimes be pur- 
chased, not with the produce of domestick industry, but with some 
other foreign goods. These last, however, must have been purchased 
either immediately with the produce of domestick industry, or with 
something else that had been purchased with it; for the case of war 
and conquest excepted, foreign goods can never be acquired, but in 
exchange for something that had been produced at home, either im- 



EMPLOYMENT OF CAPITALS 297 

mediately, or after two or more different exchanges. The effects, 
therefore, of a capital employed in such a round-about foreign trade 
of consumption, are, in every resf)ect, the same as those of one em- 
ployed in the most direct trade of the same kind, except that the final 
returns are likely to be still more distant, as they must depend upon 
the returns of two or three distinct foreign trades. If the flax and 
hemp of Riga are purchased with the tobacco of Virginia, which had 
been purchased with British manufactures, the merchant must wait 
for the returns of two distinct foreign trades before he can employ 
the same capital in re-purchasing a like quantity of British manu- 
factures. If the tobacco of Virginia had been purchased, not with 
British manufactures, but with the sugar and rum of Jamaica which 
had been purchased with those manufactures, he must wait for the 
returns of three. If those two or three distinct foreign trades should 
happen to be carried on by two or three distinct merchants, of whom 
the second buys the goods imported by the first, and the third buys 
those imported by the second, in order to expxjrt them again, each 
merchant indeed will in this case receive the returns of his own capi- 
tal more quickly; but the final returns of the whole capital employed 
in the trade will be just as slow as ever. Whether the whole capital 
employed in such a round-about trade belong to one merchant or to 
three, can make no difference with regard to the country, though it 
may with regard to the particular merchants. Three times a greater 
capital must in both cases be employed, in order to exchange a cer- 
tain value of British manufactures for a certain quantity of flax and 
hemp, than would have been necessary, had the manufactures and 
the flax and hemp been directly exchanged for one another. The 
whole capital employed, therefore, in such a round-about foreign 
trade of consumption, will generally give less encouragement and 
support to the productive labour of the country, than an equal capital 
employed in a more direct trade of the same kind. 

Whatever be the foreign commodity with which the foreign goods 
for home-consumption are purchased, it can occasion no essential 
difference either in the nature of the trade, or in the encouragement 
and support which it can give to the productive labour of the coun- 
try from which it is carried on. If they are purchased with the gold 
of Brazil, for example, or with the silver of Peru, this gold and silver, 



298 WEALTH OF NATIONS 

like the tobacco of Virginia, must have been purchased with some- 
thing that either was the produce of the industry of the country, or 
that had been purchased with something else that was so. So far, 
therefore, as the productive labour of the country is concerned, the 
foreign trade of consumption which is carried on by means of gold 
and silver, has all the advantages and all the inconveniencies of any 
other equally round-about foreign trade of consumption, and will 
replace just as fast or just as slow the capital which is immediately 
employed in supporting that productive labour. It seems even to 
have one advantage over any other equally round-about foreign 
trade. The transportation of those metals from one place to another, 
on account of their small bulk and great value, is less expensive than 
that of almost any other foreign goods of equal value. Their freight 
is much less, and their insurance not greater; and no goods, besides, 
are less liable to suffer by the carriage. An equal quantity of foreign 
goods, therefore, may frequently be purchased with a smaller quan- 
tity of the produce of domestick industry, by the intervention of gold 
and silver, than by that of any other foreign goods. The demand of 
the country may frequendy, in this manner, be supplied more com- 
pletely and at a smaller expence than in any other. Whether, by the 
continual exportation of those metals, a trade of this kind is likely 
to impoverish the country from which it is carried on, in any other 
way, I shall have occasion to examine at great length hereafter. 

That part of the capital of any country which is employed in the 
carrying trade, is altogether withdrawn from supporting the pro- 
ductive labour of that particular country, to support that of some 
foreign countries. Though it may replace by every operation two dis- 
tinct capitals, yet neither of them belongs to that particular country. 
The capital of the Dutch merchant, which carries the corn of Poland 
to Portugal, and brings back the fruits and wines of Portugal to 
Poland, replaces by every such operation two capitals, neither of 
which had been employed in supporting the productive labour of 
Holland; but one of them in supporting that of Poland, and the 
other that of Portugal. The profits only return regularly to Holland, 
and constitute the whole addition which this trade necessarily makes 
to the annual produce of the land and labour of that country. When, 
indeed, the carrying trade of any particular country is carried on with 



EMPLOYMENT OF CAPITALS 299 

the ships and sailors of that country, that part of the capital employed 
in it which pays the freight, is distributed among, and puts into 
motion, a certain number of productive labourers of that country. 
Almost all nations that have had any considerable share of the carry- 
ing trade have, in fact, carried it on in this manner. The trade itself 
has probably derived its name from it, the people of such countries 
being the carriers to other countries. It does not, however, seem 
essential to the nature of the trade that it should be so. A Dutch 
merchant may, for example, employ his capital in transacting the 
commerce of Poland and Portugal, by carrying part of the surplus 
produce of the one to the other, not in Dutch, but in British bottoms. 
It may be presumed, that he actually does so upon some particular 
occasions. It is upon this account, however, that the carrying trade 
has been supposed jjeculiarly advantageous to such a country as Great 
Britain, of which the defence and security depend upon the number 
of its sailors and shipping. But the same capital may employ as many 
sailors and shipping, either in the foreign trade of consumption, or 
even in the home-trade, when carried on by coasting vessels, as it 
could in the carrying trade. The number of sailors and shipping 
which any particular capital can employ, does not depend upon the 
nature of the trade, but pardy upon the bulk of the goods in pro- 
portion to their value, and pardy upon the distance of the ports 
between which they are to be carried; chiefly upon the former of 
those two circumstances. The coal-trade from Newcasde to London, 
for example, employs more shipping than all the carrying trade of 
England, though the ports are at no great distance. To force, there- 
fore, by extraordinary encouragements, a larger share of the capital 
of any country into the carrying trade, than what would naturally 
go to it, will not always necessarily increase the shipping of that 
country. 

The capital, therefore, employed in the home-trade of any country 
will generally give encouragement and support to a greater quantity 
of productive labour in that country, and increase the value of its 
annual produce more than an equal capital employed in the foreign 
trade of consumption: and the capital employed in this latter trade 
has in both these respects a still greater advantage over an equal 
capital employed in the carrying trade. The riches, and so far as 



300 WEALTH OF NATIONS 

power depends upon riches, the power of every country, must always 
be in proportion to the value of its annual produce, the fund from 
which all taxes must ultimately be paid. But the great object of the 
political economy of every country, is to increase the riches and power 
of that country. It ought, therefore, to give no preference nor supe- 
rior encouragement to the foreign trade of consumption above the 
home-trade, nor to the carrying trade above either of the other two. 
It ought neither to force nor to allure into either of those two chan- 
nels, a greater share of the capital of the country than what would 
naturally flow into them of its own accord. 

Each of those different branches of trade, however, is not only 
advantageous, but necessary and unavoidable, when the course of 
things, without any constraint or violence, naturally introduces it. 

When the produce of any particular branch of industry exceeds 
what the demand of the country requires, the surplus must be sent 
abroad, and exchanged for something for which there is a demand 
at home. Without such exportation, a part of the productive labour 
of the country must cease, and the value of its annual produce dimin- 
ish. The land and labour of Great Britain produce generally more 
corn, woollens, and hard ware, than the demand of the home-market 
requires. The surplus part of them, therefore, must be sent abroad, 
and exchanged for something for which there is a demand at home. 
It is only by means of such exportation, that this surplus can acquire 
a value sufficient to comp)ensate the labour and exf)ence of producing 
it. The neighbourhood of the sea coast, and the banks of all navi- 
gable rivers are advantageous situations for industry, only because 
they facilitate the exportation and exchange of such surplus produce 
for something else which is more in demand there. 

When the foreign goods which are thus purchased with the sur- 
plus produce of domestic industry exceed the demand of the home- 
market, the surplus part of them must be sent abroad again, and 
exchanged for something more in demand at home. About ninety- 
six thousand hogsheads of tobacco are annually purchased in Virginia 
and Maryland, with a part of the surplus produce of British industry. 
But the demand of Great Britain does not require, perhaps, more 
than fourteen thousand. If the remaining eighty-two thousand, there- 
fore, could not be sent abroad and exchanged for something more in 



EMPLOYMENT OF CAPITALS 3OI 

demand at home, the importation of them must cease immediately, 
and with it the productive labour of all those inhabitants of Great 
Britain, who are at present employed in preparing the goods with 
which these eighty-two thousand hogsheads are annually purchased. 
Those goods, which are part of the produce of the land and labour 
of Great Britain, having no market at home, and being deprived of 
that which they had abroad, must cease to be produced. The most 
round-about foreign trade of consumption, therefore, may, upon 
some occasions, be as necessary for supporting the productive labour 
of the country, and the value of its annual produce, as the most direct. 
When the capital stock of any country is increased to such a degree, 
that it cannot be all employed in supplying the consumption, and 
supporting the productive labour of that particular country, the sur- 
plus part of it naturally disgorges itself into the carrying trade, and 
is employed in p)erforming the same offices to other countries. The 
carrying trade is the natural effect and symptom of great national 
wealth; but it does not seem to be the natural cause of it. Those 
statesmen who have been disposed to favour it with particular en- 
couragements, seem to have mistaken the effect and symptom for 
the cause. Holland, in proportion to the extent of the land and the 
number of its inhabitants, by far the richest country in Europe, has, 
accordingly, the greatest share of the carrying trade of Europe. Eng- 
land, perhaps the second richest country of Europe, is likewise sup- 
posed to have a considerable share of it; though what commonly 
passes for the carrying trade of England, will frequendy, perhaps, be 
found to be no more than a round-about foreign trade of consump- 
tion. Such are, in a great measure, the trades which carry the goods 
of the East and West Indies, and of America, to different European 
markets. Those goods are generally purchased either immediately 
with the produce of British industry, or with something else which 
has been purchased with that produce, and the final returns of those 
trades are generally used or consumed in Great Britain. The trade 
which is carried on in British bottoms between the different ports of 
the Mediterranean, and some trade of the same kind carried on by 
British merchants between the different pons of India, make, per- 
haps, the principal branches of what is properly the carrying trade 
of Great Britain. 



302 WEALTH OF NATIONS 

The extent of the home-trade and of the capital which can be em- 
ployed in it, is necessarily limited by the value of the surplus produce 
of all those distant places within the country which have occasion 
to exchange their respective productions with one another. That of 
the foreign trade of consumption, by the value of the surplus produce 
of the whole country and of what can be purchased with it. That of 
the carrying trade, by the value of the surplus produce of all the dif- 
ferent countries in the world. Its possible extent, therefore, is in a 
manner infinite in comparison of that of the other two, and is 
capable of absorbing the greatest capitals. 

The consideration of his own private profit, is the sole motive 
which determines the owner of any capital to employ it either in agri- 
culture, in manufactures, or in some particular branch of the whole- 
sale or retail trade. The different quantities of productive labour 
which it may put into motion, and the different values which it may 
add to the annual produce of the land and labour of the society, 
according as it is employed in one or other of those different ways, 
never enter into his thoughts. In countries, therefore, where agri- 
culture is the most profitable of all employments, and farming and 
improving the most direct roads to a splendid fortune, the capitals of 
individuals will naturally be employed in the manner most advan- 
tageous to the whole society. The profits of agriculture, however, 
seem to have no superiority over those of other employments in any 
part of Europe. Projectors, indeed, in every corner of it, have within 
these few years amused the public with most magnificent accounts 
of the profits to be made by the cultivation and improvement of land. 
Without entering into any particular discussion of their calculations, 
a very simple observation may satisfy us that the result of them must 
be false. We see every day the most splendid fortunes that have been 
acquired in the course of a single life by trade and manufactures, 
frequently from a very small capital, sometimes from no capital. A 
single instance of such a fortune acquired by agriculture in the same 
time, and from such a capital, has not, perhaps, occurred in Europe 
during the course of the present century. In all the great countries 
of Europe, however, much good land still remains uncultivated, and 
the greater part of what is cultivated, is far from being improved to 
the degree of which it is capable. Agriculture, therefore, is almost 



EMPLOYMENT OF CAPITALS 303 

every-where capable of absorbing a much greater capital than has ever 
yet been employed in it. What circumstances in the policy of Europe 
have given the trades which are carried on in towns so great an 
advantage over that which is carried on in the country, that private 
persons frequently find it more for their advantage to employ their 
capitals in the most distant carrying trades of Asia and America, than 
in the improvement and cultivation of the most fertile fields in their 
own neighbourhood, I shall endeavour to explain at full length in 
the two following books. 



BOOK III 

Of the Different Progress of Opulence in Different Nations 

CHAPTER I 
Of the Natural Progress of Opulence 

THE great commerce of every civilized society, is that carried 
on between the inhabitants of the town and those of the 
country. It consists in the exchange of rude for manufac- 
tured produce, either immediately, or by the intervention of money, 
or of some sort of paper which represents money. The country sup- 
plies the town with the means of subsistence, and the materials of 
manufacture. The town repays this supply by sending back a part 
of the manufactured produce to the inhabitants of the country. The 
town, in which there neither is nor can be any reproduction of sub- 
stances, may very properly be said to gain its whole wealth and sub- 
sistence from the country. We must not, however, upon this account, 
imagine that the gain of the town is the loss of the country. The 
gains of both are mutual and reciprocal, and the division of labour 
is in this, as in all other cases, advantageous to all the different per- 
sons employed in the various occupations into which it is subdivided. 
The inhabitants of the country purchase of the town a greater quan- 
tity of manufactured goods, with the produce of a much smaller 
quantity of their own labour, than they must have employed had they 
attempted to prepare them themselves. The town affords a market 
for the surplus produce of the country, or what is over and above 
the maintenance of the cultivators, and it is there that the inhabitants 
of the country exchange it for something else which is in demand 
among them. The greater the number and revenue of the inhabi- 
tants of the town, the more extensive is the market which it affords 
to those of the country; and the more extensive that market, it is 
always the more advantageous to a great number. The corn which 
grows within a mile of the town, sells there for the same price with 

304 



NATURAL PROGRESS OF OPULENCE 305 

that which comes from twenty miles distance. But the price of the 
latter must generally, not only pay the expence of raising and bring- 
ing it to market, but afford too the ordinary profits of agriculture 
to the farmer. The proprietors and cultivators of the country, there- 
fore, which lies in the neighbourhood of the town, over and above 
the ordinary profits of agriculture, gain, in the price of what they 
sell, the whole value of the carriage of the like produce that is 
brought from more distant parts, and they save, besides, the whole 
value of this carriage in the price of what they buy. Compare the 
cultivation of the lands in the neighbourhood of any considerable 
town, with that of those which lie at some distance from it, and you 
will easily satisfy yourself how much the country is benefited by the 
commerce of the town. Among all the absurd sfjeculations that have 
been propagated concerning the balance of trade, it has never been 
pretended that either the country loses by its commerce with the 
town, or the town by that with the country which maintains it. 

As subsistence is, in the nature of things, prior to conveniency and 
luxury, so the industry which procures the former, must necessarily 
be prior to that which ministers to the latter. The cultivation and 
improvement of the country, therefore, which affords subsistence, 
must, necessarily, be prior to the increase of the town, which fur- 
nishes only the means of conveniency and luxury. It is the surplus 
produce of the country only, or what is over and above the mainte- 
nance of the cultivators, that constitutes the subsistence of the town, 
which can therefore increase only with the increase of this surplus 
produce. The town, indeed, may not always derive its whole sub- 
sistence from the country in its neighbourhood, or even from the 
territory to which it belongs, but from very distant countries; and 
this, though it forms no exception from the general rule, has occa- 
sioned considerable variations in the progress of opulence in differ- 
ent ages and nations. 

That order of things which necessity imposes in general, though 
not in every particular country, is, in every particular country, pro- 
moted by the natural inclinations of man. If human institutions had 
never thwarted those natural inclinations, the towns could no-where 
have increased beyond what the improvement and cultivation of the 
territory in which they were situated could support; till such time. 



306 WEALTH OF NATIONS 

at least, as the whole of that territory was completely cultivated and 
improved. Upon equal, or nearly equal profits, most men will chuse 
to employ their capitals rather in the improvement and cultivation of 
land, than either in manufactures or in foreign trade. The man who 
employs his capital in land, has it more under his view and command, 
and his fortune is much less liable to accident, than that of the trader, 
who is obliged frequently to commit it, not only to the winds and the 
waves, but to the more uncertain elements of human folly and in- 
justice, by giving great credits in distant countries to men, with whose 
character and situation he can seldom be thoroughly acquainted. The 
capital of the landlord, on the contrary, which is fixed in the im- 
provement of his land, seems to be as well secured as the nature of 
human affairs can admit of. The beauty of the country besides, the 
pleasure of a country life, the tranquillity of mind which it promises, 
and wherever the injustice of human laws does not disturb it, the 
independency which it really affords, have charms that more or less 
attract every body; and as to cultivate the ground was the original 
destination of man, so in every stage of his existence he seems to 
retain a predilection for this primitive employment. 

Without the assistance of some artificers, indeed, the cultivation 
of land cannot be carried on, but with great inconveniency and con- 
tinual interruption. Smiths, carpenters, wheel-wrights, and plough- 
wrights, masons, and bricklayers, tanners, shoemakers, and taylors, 
are people, whose service the farmer has frequent occasion for. Such 
artificers too stand, occasionally, in need of the assistance of one an- 
other; and as their residence is not, like that of the farmer, necessarily 
tied down to a precise spot, they naturally settle in the neighbour- 
hood of one another, and thus form a small town or village. The 
butcher, the brewer, and the baker, soon join them, together with 
many other artificers and retailers, necessary or useful for supplying 
their occasional wants, and who contribute still further to augment 
the town. The inhabitants of the town and those of the country are 
mutually the servants of one another. The town is a continual fair 
or market, to which the inhabitants of the country resort, in order 
to exchange their rude for manufactured produce. It is this com- 
merce which supplies the inhabitants of the town both with the 
materials of their work, and the means of their subsistence. The 



NATURAL PROGRESS OF OPULENCE 307 

quantity of the finished work which they sell to the inhabitants of 
the country, necessarily regulates the quantity of the materials and 
provisions which they buy. Neither their employment nor sub- 
sistence, therefore, can augment, but in proportion to the augmen- 
tation of the demand from the country for finished work; and this 
demand can augment only in proportion to the extension of im- 
provement and cultivation. Had human institutions, therefore, never 
disturbed the natural course of things, the progressive wealth and 
increase of the towns would, in every political society, be conse- 
quential, and in proportion to the improvement and cultivation of 
the territory or country. 

In our North American colonies, where uncultivated land is still 
to be had upon easy terms, no manufactures for distant sale have 
ever yet been established in any of their towns. When an artificer 
has acquired a litde more stock than is necessary for carrying on 
his own business in supplying the neighbouring country, he does not, 
in North America, attempt to establish with it a manufacture for 
more distant sale, but employs it in the purchase and improvement 
of uncultivated land. From artificer he becomes planter, and neither 
the large wages nor the easy subsistence which that country affords 
to artificers, can bribe him rather to work for other f)eople than for 
himself. He feels that an artificer is the servant of his customers, 
from whom he derives his subsistence; but that a planter who culti- 
vates his own land, and derives his necessary subsistence from the 
labour of his own family, is really a master, and independent of 
all the world. 

In countries, on the contrary, where there is either no uncultivated 
land, or none that can be had upon easy terms, every artificer who has 
acquired more stock than he can employ in the occasional jobs of 
the neighbourhood, endeavours to prepare work for more distant sale. 
The smith erects some sort of iron, the weaver some sort of linen 
or woollen manufactory. Those different manufactures come, in 
process of time, to be gradually subdivided, and thereby improved 
and refined in a great variety of ways, which may easily be conceived, 
and which it is therefore unnecessary to explain any further. 

In seeking for employment to a capital, manufactures are, upon 
equal or nearly equal profits, naturally preferred to foreign com- 



308 WEALTH OF NATIONS 

merce, for the same reason that agriculture is naturally preferred to 
manufactures. As the capital of the landlord or farmer is more secure 
than that of the manufacturer, so the capital of the manufacturer, 
being at all times more within his view and command, is more 
secure than that of the foreign merchant. In every period, indeed, of 
every society, the surplus part both of the rude and manufactured 
produce, or that for which there is no demand at home, must be sent 
abroad in order to be exchanged for something for which there is 
some demand at home. But whether the capital, which carries this 
surplus produce abroad, be a foreign or a domestic one, is of very 
litde importance. If the society has not acquired sufficient capital 
both to cultivate all its lands, and to manufacture in the completes! 
manner the whole of its rude produce, there is even a considerable 
advantage that that rude produce should be exported by a foreign 
capital, in order that the whole stock of the society may be employed 
in more useful purposes. The wealth of ancient Egypt, that of China 
and Indostan, sufficiently demonstrate that a nation may attain a 
very high degree of opulence, though the greater part of its exporta- 
tion trade be carried on by foreigners. The progress of our North 
American and West Indian colonies would have been much less 
rapid, had no capital but what belonged to themselves been employed 
in exporting their surplus produce. 

According to the natural course of things, therefore, the greater 
part of the capital of every growing society is, first, directed to agri- 
culture, afterwards to manufactures, and last of all to foreign com- 
merce. This order of things is so very natural, that in every society 
that had any territory, it has always, I believe, been in some degree 
observed. Some of their lands must have been cultivated before any 
considerable towns could be established, and some sort of coarse 
industry of the manufacturing kind must have been carried on in 
those towns, before they could well think of employing themselves 
in foreign commerce. 

But though this natural order of things must have taken place in 
some degree in every such society, it has, in all the modern states of 
Europe, been, in many respects, entirely inverted. The foreign com- 
merce of some of their cities has introduced all their finer manu- 
factures, or such as were fit for distant sale; and manufactures and 



NATURAL PROGRESS OF OPULENCE 309 

foreign commerce together, have given birth to the principal im- 
provements of agricuhure. The manners and customs which the 
nature of their original government introduced, and which remained 
after that government was gready altered, necessarily forced them 
into this unnatural and retrograde order. 



BOOK IV 
Of Systems of Political CEconomy 

introduction 

POLITICAL (Economy, considered as a branch of the science 
of a statesman or legislator, proposes two distinct objects: first, 
to provide a plentiful revenue or subsistence for the people, 
or more properly to enable them to provide such a revenue or sub- 
sistence for themselves; and secondly, to supply the state or common- 
wealth with a revenue sufficient for the public services. It proposes 
to enrich both the |')eople and the sovereign. 

The difTerent progress of opulence in different ages and nations, 
has given occasion to two different systems of political (economy, 
with regard to enriching the people. The one may be called the sys- 
tem of commerce, the other that of agriculture. I shall endeavour 
to explain both as fully and distinctly as I can, and shall begin with 
the system of commerce. It is the modern system, and is best under- 
st(xxi in our own country and in our own times. 



310 



CHAPTER I 
Of 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 pur- 
chase. In consequence of its being the measure of value, we esti- 
mate 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. 
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 enquiry 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 setdement there, or if the country was worth 
the conquering. Piano Carpino, a monk sent ambassador from the 
king of France to one of the sons of the 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 enquiry 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 

3" 



312 WEALTH OF NATIONS 

Tartars, as among all other nations of shepherds, who are generally 
ignorant of the use of money, cattle are the instruments of commerce 
and the measures of value. Wealth, therefore, according to them, 
consisted in cattle, as according to the Spaniards it consisted in gold 
and silver. Of the two, the Tartar notion, perhaps, was the nearest 
to the truth. 

Mr. Locke remarks a distinction between money and other move- 
able goods. All other moveable goods, he says, are of so consumable 
a nature that the wealth which consists in them cannot be much de- 
(jended on, and a nation which abounds in them one year may, 
without any exportation, but merely by their own waste and ex- 
travagance, 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, there- 
fore, are, according to him, the most 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 
oeconomy. 

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 accumu- 
late gold and silver, that, when occasion requires, it may have where- 
withal to carry on foreign wars. 

In consequence of these 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 



PRINCIPLE OF THE MERCANTILE SYSTEM 313 

and Portugal, the proprietors o£ 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 pxjlicy 
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 parlia- 
ment, which forbid under heavy penalties the carrying gold or silver 
jorth of the /{ingdom. The like policy anciently took place both in 
France and England. 

When those countries became commercial, the merchants found 
this prohibition, upon many occasions, extremely inconvenient. They 
could frequendy buy more advantageously with gold and silver than 
with any other commodity, the foreign goods which they wanted, 
either to import into their own, or to carry to some other foreign 
country. They remonstrated, therefore, against this prohibition as 
hurtful to trade. 

They represented, first, that the exportation of gold and silver in 
order to purchase foreign goods, did not always diminish the quan- 
tity of those metals in the kingdom. That, on the contrary, it might 
frequently increase that 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 origi- 
nally 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 endeav- 
ours, we shall find the worth and plentiful increase of his actions." 

They represented, secondly, that this prohibition could not hinder 
the exportation of gold and silver, which, on account of the small- 
ness 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 



314 WEALTH OF NATIONS 

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 na- 
tions, 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 bal- 
ance, than it otherwise might have been; the merchant who pur- 
chased a bill upon the foreign country being obliged to pay the 
banker who sold it, not only for the natural risk, trouble and expence 
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 a 
hundred and five ounces of silver in England to purchase a bill for 
a hundred ounces of silver in Holland: that a hundred and five 
ounces of silver in England, therefore, would be worth only a hun- 
dred ounces of silver in Holland, and would purchase only a pro- 
portionable quantity of Dutch goods: but that a hundred ounces of 
silver in Holland, on the contrary, would be worth a hundred and 
five ounces in England, and would purchase a proportionable quan- 
tity 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 ex- 
change; that the one would draw so much less Dutch money to Eng- 
land, 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 re- 
quire a greater balance of gold and silver 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 



PRINCIPLE OF THE MERCANTILE SYSTEM 315 

their exportation, when private people found any advantage in ex- 
porting 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 prop)er 
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 upxin those countries. But though 
the risk arising from the prohibition might occasion some extraor- 
dinary expence to the bankers, it would not necessarily carry any 
more money out of the country. This expence 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 six-p)ence beyond the 
precise sum drawn for. The high price of exchange too would natu- 
rally dispose the merchants to endeavour to make their exports nearly 
balance their imports, in order that they might have this high ex- 
change to pay ufxjn as small a sum as pjossible. The high price of 
exchange, besides, must necessarily have op)erated as a tax, in raising 
the price of foreign goods, and thereby diminishing their consump>- 
tion. It would tend, therefore, not to increase, but to diminish, what 
they called, the unfavourable balance of trade, and consequendy 
the exportation of gold and silver. 

Such as they were, however, those arguments convinced the p)eople 
to whom they were addressed. They were addressed by merchants 
to parliaments, and to the councils of princes, to nobles, and to coun- 
try gendemen; by those who were supposed to understand trade, 
to those who were conscious to themselves that they knew nothing 
about the matter. That foreign trade enriched the country, expje- 
rience 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 pjerfectly in what manner it enriched 
themselves. It was their business to know it. But to know in what 



3l6 WEALTH OF NATIONS 

manner it enriched the country, was no part of their business. This 
subject never came into their consideration, but when they had occa- 
sion 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 there- 
fore 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 exporta- 
tion 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 fruit- 
less. The title of Mun's book, England's Treasure in Foreign Trade, 
became a fundamental maxim in the political occonomy, not of Eng- 
land 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 for- 
eign trade. It neither brought money into the country, it was said, 
nor carried any out of it. The country therefore could never become 
either richer or poorer by means of it, except so far as its prosperity or 
decay might indirectly influence the state of foreign trade. 

A country that has no mines of its own must undoubtedly draw 
its gold and silver from foreign countries, in the same manner as one 
that has no vineyards of its own must draw its wines. It does not 
seem necessary, however, that the attention of government should be 
more turned towards the one than towards the other object. A coun- 
try 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 



PRINCIPLE OF THE MERCANTILE SYSTEM 317 

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 free- 
dom of trade, without any attention of government, will always 
supply us with the wine which we have occasion for: and we may 
trust with equal security that it will always supply us with all the 
gold and silver which we can afford to purchase or to employ, either 
in circulating our commodities, or in other uses. 

The quantity of every commodity which human industry can 
either purchase or produce, naturally regulates itself in every country 
according to the effectual demand, or according to the demand of 
those who are willing to pay the whole rent, labour and profits which 
must be paid in order to prepare and bring it to market. But no com- 
modities 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 tuns 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 tun, a million of tuns of 
shipping, or a thousand ships of a thousand tuns each. The navy of 
England would not be sufficient. 

When the quantity of gold and silver imported into any country 
exceeds the effectual demand, no vigilance of government can pre- 
vent their exportation. All the sanguinary laws of Spain and Portu-. 
gal 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 neighbouring countries, the govern- 



3l8 WEALTH OF NATIONS 

ment 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 Lacedemon. All 
the sanguinary laws of the customs are not able to prevent the impor- 
tation of the teas of the Dutch and Gottenburgh East India com- 
panies; 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 consequendy just so many times more difficult 
to smuggle. 

It is partly owing to the easy transportation of gold and silver from 
the places where they abound to those where they are wanted, that 
the price of those metals does not fluctuate continually like that of 
the greater part of other commodities, which are hindered by their 
bulk from shifting their situation, when the market happens to be 
either over or 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, per- 
haps, that, during the course of the present and preceding century, 
they have been constandy, but gradually, sinking in their value, on 
account of the continual importations from the Spanish West Indies. 
But to make any sudden change in the price of gold and silver, so as 
to raise or lower at once, sensibly and remarkably, the money price 
of all other commodities, requires such a revolution in commerce as 
that occasioned by the discovery of America. 

If, notwithstanding all this, gold and silver should at any time fall 
short in a country which has wherewithal to purchase them, there 
are more expedients for supplying their place, than that of almost 
any other commodity. If the materials of manufacture are wanted, 
industry must stop. If provisions are wanted, the people must starve. 
But if money is wanted, barter will supply its place, though with a 
good deal of inconveniency. Buying and selling upon credit, and 
the different dealers compensating their credits with one another, 



PRINCIPLE OF THE MERCANTILE SYSTEM 319 

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 unneces- 
sarily employed, as when directed to watch over the preservation or 
increase of the quantity of money in any country. 

No complaint, however, is more common than that of a scarcity of 
money. Money, like wine, must always be scarce with those who 
have neither wherewithal to buy it, nor credit to borrow it. Those 
who have either, will seldom be in want either of the money, or of 
the wine which they have occasion for. This complaint, however, of 
the scarcity of money, is not always confined to improvident spend- 
thrifts. 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 expence 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 every body tells them that they 
have none to lend. Even such general complaints of the scarcity of 
money do not always prove that the usual number of gold and silver 
pieces are not circulating in the country, but that many people want 
those pieces who have 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 hop)es 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 difiiculty which such people find in 
borrowing, and which their creditors find in getting payment, that 
occasions the general complaint of the scarcity of money. 

It would be too ridiculous to go about seriously to prove, that 
wealth does not consist in money, or in gold and silver; but in what 



320 WEALTH OF NATIONS 

money purchases, and is valuable only for purchasing. Money, no 
doubt, makes always a part of the national capital; but it has already 
been shown that it generally makes but a small part, and always the 
most unprofitable part of it. 

It is not because wealth consists more essentially in money than in 
goods, that the merchant finds it generally more easy to buy goods 
with money, than to buy money with goods; but because money is 
the known and established instrument of commerce, for which 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 fre- 
quently 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 fre- 
quendy 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 incon- 
veniency, 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 con- 
sumable 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 



PRINCIPLE OF THE MERCANTILE SYSTEM 32 1 

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 fre- 
quently have done the whole, but the other can never have done 
more than the one-half of his business. It is not for its own sake 
that men desire money, but for the sake of what they can purchase 
with it. 

Consumable commodities, it is said, are soon destroyed; whereas 
gold and silver are of a more durable nature, and, were it not for 
this continual exportation, might be accumulated for ages together, 
to the incredible augmentation of the real wealth of the country. 
Nothing, therefore, it is pretended, can be more disadvantageous to 
any country, than the trade which consists in the exchange of such 
lasting for such perishable commodities. We do not, however, reckon 
that trade disadvantageous which consists in the exchange of the 
hard-ware of England for the wines of France; and yet hard-ware 
is a very durable commodity, and were it not for this continual ex- 
portation, might ttx) be accumulated for ages together, to the in- 
credible 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 cook- 
ing 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 coun- 
try 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 



322 WEALTH OF NATIONS 

quantity of coin requisite for circulating them : that the quantity of 
plate is regulated by the number and wealth of those private families 
who chuse to indulge themselves in that sort of magnificence: in- 
crease 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 expence of purchasing those unnecessary 
utensils would diminish instead of increasing either the quantity or 
goodness of the family provisions; so the expence 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 for them, 
increase the consumable commodities which are to be circulated, 
managed, and prepared by means of them, and you will infallibly in- 
crease 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. 

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

A nation may purchase the pay and provisions of an army in a 
distant country three different ways; by sending abroad either, first, 



PRINCIPLE OF THE MERCANTILE SYSTEM 323 

some part of its accumulated gold and silver; or secondly, some part 
of the annual produce of its manufactures; or last of all, some part 
of its annual rude produce. 

The gold and silver which can properly be considered as accumu- 
lated or stored up in any country, may be distinguished into three 
parts; first, the circulating money; secondly, the plate of private 
families; and last of all, the money which may have been collected 
by many years parsimony, and laid up in the treasury of the 
prince. 

It can seldom happen that much can be spared from the circu- 
lating 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 opjxirtunity of sending a greater 
quantity of it abroad. All this, however, could afford but a poor 
resource for maintaining a foreign war, of great expence and several 
years duration. 

The melting down the plate of private families, has upon every 
occasion been found a still more insignificant one. The French, in 
the beginning of the last war, did not derive so much advantage 
from this expedient as to compensate the loss of the fashion. 

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

The funds which maintained the foreign wars of the present cen- 
tury, the most expensive perhaps which history records, seem to have 



324 WEALTH OF NATIONS 

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 ninety 
millions, including not only the seventy-five millions of new debt that 
was contracted, but the additional two shillings in the pound land 
tax, and what was annually borrowed of the sinking fund. More 
than two-thirds of this expence 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 accumu- 
lated treasure. We never heard of any extraordinary quantity of 
plate being melted down. The circulating gold and silver of the coun- 
try had not been supposed to exceed eighteen millions. 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 thirty mil- 
lions. 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 govern- 
ment to watch over the preservation of money, since upon this sup- 
position 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 diffi- 
cult 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. 



PRINCIPLE OF THE MERCANTILE SYSTEM 325 

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 gov- 
ernment, or those who acted under them, contracted with a merchant 
for a remittance to some foreign country, he would naturally en- 
deavour to pay his foreign correspondent, upon whom he had 
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 coun- 
try, in which he could purchase a bill upon that country. The trans- 
portation 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 consequendy no profit. He naturally, therefore, exerts 
his invention to find out a way of paying his foreign debts, rather 
by the exportation of commodities than by that of gold and silver. 
The great quantity of British goods exported during the course of 
the late war, without bringing back any returns, is accordingly 
remarked by the author of The Present State of the Nation. 

Besides the three sorts of gold and silver above mentioned, there 
is in all great commercial countries a good deal of bullion alternately 
imported and exported for the purposes of foreign trade. This bul- 
lion, as it circulates among different commercial countries in the 
same manner as the national coin circulates in every particular coun- 
try, may be considered as the money of the great mercantile republic. 
The national coin receives its movement and direction from the com- 
modities circulated within the precincts of each particular country: 
the money of 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 



326 WEALTH OF NATIONS 

from what it usually follows in profound peace; that it should cir- 
culate more about the seat of the war, and be more employed in 
purchasing there, and in the neighbouring countries, the pay and pro- 
visions 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 re- 
sources which enabled us to carry on the war. It is natural indeed to 
suppose, that so great an annual expence must have been defrayed 
from a great annual produce. The exp)ence of 1761, for example, 
amounted to more than nineteen millions. 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 Portu- 
gal, according to the best accounts, does not commonly much exceed 
six millions sterling, which, in some years, would scarce have paid 
four months expence of the late war. 



The importation of gold and silver is not the principal, much less 
the sole benefit which a nation derives from its foreign trade. Be- 
tween 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 nar- 
rowness 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 powers, 
and to augment its annual produce to the utmost, and thereby to 
increase the real revenue and wealth of the society. These great and 



PRINCIPLE OF THE MERCANTILE SYSTEM 327 

important services foreign trade is continually occupied in perform- 
ing, 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 em- 
ployed 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. 

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 expence 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 had been its usual price, not only 
those who purchased it before can purchase three times their former 
quantity, but it is brought down to the level of a much greater num- 
ber 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 Ameri- 
can 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 open- 



328 WEALTH OF NATIONS 

ing 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 ofl 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 be- 
fore, 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 unfor- 
tunate 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 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 sev- 
eral 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 monopolized the 
East India trade to themselves for about a century, and it was only 
indirecdy 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 



PRINCIPLE OF THE MERCANTILE SYSTEM 329 

company. The English, French, Swedes, and Danes, have all fol- 
lowed their example, so that no great nation in 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 respec- 
tive 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 con- 
cerned 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 de- 
serve 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 every-where 
labours under. 

I thought it necessary, though at the hazard of being tedious, to 
examine at full length this popular notion that wealth consists in 
money, or in gold and silver. Money in common language, as I have 
already observed, frequently signifies wealth; and this ambiguity of 



330 WEALTH OF NATIONS 

expression has rendered this popular notion so famiUar 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 con- 
sumable goods seem to slip out of their memory, and the strain of 
their argument frequently supposes that all wealth consists in gold 
and silver, and that to multiply those metals is the great object of 
national industry and commerce. 

The two principles being established, however, that wealth con- 
sisted in gold and silver, and that those metals could be brought into 
a country which had no mines only by the balance of trade, or by 
exporting to a greater value than it imported; it necessarily became 
the great object of political ceconomy 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 domes- 
tic industry. Its two great engines for enriching the country, there- 
fore, were restraints upon importation, and encouragements to 
exportation. 

The restraints upon importation were of two kinds. 

First, Restraints uf>on the importation of such foreign goods for 
home consumption as could be produced at home, from whatever 
country they were imported. 

Secondly, Restraints upon the importation of goods of almost all 
kinds from those particular countries with which the balance of 
trade was supposed to be disadvantageous. 

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

Exportation was encouraged sometimes by drawbacks, sometimes 
by bounties, sometimes by advantageous treaties of commerce with 
foreign states, and sometimes by the establishment of colonies in 
distant countries. 

Drawbacks were given upon two different occasions. When the 
home manufacturers were subject to any duty or excise either the 



PRINCIPLE OF THE MERCANTILE SYSTEM 33 1 

whole or a part of it was frequently drawn back upon their exporta- 
tion; 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 some- 
times given back upon such exportation. 

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

By advantageous treaties of commerce, particular privileges were 
procured in some foreign state for the goods and merchants of the 
country, beyond what were granted to those of other countries. 

By the establishment of colonies in distant countries, not only par- 
ticular privileges, but a monopoly was frequently procured for the 
goods and merchants of the country which established them. 

The two sorts of restraints upon importation above-mentioned, 
together with these four encouragements to exportation, constitute 
the six 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 further notice of their 
supposed tendency to bring money into the country, I shall examine 
chiefly what are likely to be the effects of each of them upon the 
annual produce of its industry. According as they tend either to 
increase or diminish the value of this annual produce, they must 
evidendy tend either to increase or diminish the real wealth and 
revenue of the country. 



CHAPTER II 

Of Restraints Upon the Importation from Foreign Countries 
OF Such Goods as Can Be Produced at Home 

BY restraining, either by high duties, or by absolute prohibitions, 
the importation of such goods from foreign countries as can 
be produced at home, the monopoly of the home market is 
more or less secured to the domestic industry employed in producing 
them. Thus the prohibition of importing either live catde or salt 
provisions from foreign countries secures to the graziers of Great 
Britain the monopoly of the home market for butcher's meat. The 
high duties upon the importation of corn, which in times of moderate 
plenty amount to a prohibition, give a like advantage to the growers 
of that commodity. The prohibition of the importation of foreign 
woollens is equally favourable to the woollen manufacturers. The 
silk manufacture, though altogether employed upon foreign mate- 
rials, has lately obtained the same advantage. The linen manufacture 
has not yet obtained it, but is making great strides towards it. Many 
other sorts of manufacturers have, in the same manner, obtained in 
Great Britain, either altogether, or very nearly a monopoly against 
their countrymen. The variety of goods of which the importation 
into Great Britain is prohibited, either absolutely, or under certain 
circumstances, greatly exceeds what can easily be suspected by those 
who are not well acquainted with the laws of the customs. 

That this monopoly of the home-market frequently gives great 
encouragement to that particular species of industry which enjoys it, 
and frequently turns towards that employment a greater share of 
both the labour and stock of the society than would otherwise have 
gone to it, cannot be doubted. But whether it tends either to increase 
the general industry of the society, or to give it the most advan- 
tageous direction, is not, perhaps, altogether so evident. 

The general industry of the society never can exceed what the 
capital of the society can employ. As the number of workmen that 

332 



RESTRAINTS OF PARTICULAR IMPORTS 333 

can be kept in employment by any particular person must bear a 
certain proportion to his capital, so the number of those that can 
be continually employed by all the members of a great society, must 
bear a certain proportion to the whole capital of that society, and 
never can exceed that proportion. No regulation of commerce can 
increase the quantity of industry in any society beyond what its 
capital can maintain. It can only divert a part of it into a direction 
into which it might not otherwise have gone; and it is by no means 
certain that this artificial direction is likely to be more advantageous 
to the society than that into which it would have gone of its own 
accord. 

Every individual is continually exerting himself to find out the 
most advantageous employment for whatever capital he can com- 
mand. It is his own advantage, indeed, and not that of the society, 
which he has in view. But the study of his own advantage naturally, 
or rather necessarily leads him to prefer that employment which is 
most advantageous to the society. 

First, every individual endeavours to employ his capital as near 
home as he can, and consequently as much as he can in the support 
of domestic industry; provided always that he can thereby obtain 
the ordinary, or not a great deal less than the ordinary profits of stock. 

Thus, upon equal or nearly equal profits, every wholesale mer- 
chant naturally prefers the home-trade to the foreign trade of con- 
sumption, and the foreign trade of consumption to the carrying 
trade. In the home-trade his capital is never so long out of his sight 
as it frequently is in the foreign trade of consumption. He can 
know better the character and situation of the person whom he 
trusts, and if he should happen to be deceived, he knows better 
the laws of the country from which he must seek redress. In the 
carrying trade, the capital of the merchant is, as it were, divided be- 
tween two foreign countries, and no part of it is ever necessarily 
brought home, or placed under his own immediate view and com- 
mand. The capital which an Amsterdam merchant employs in 
carrying corn from Konnigsberg to Lisbon, and fruit and wine from 
Lisbon to Konnigsberg, must generally be the one-half of it at 
Konnigsberg and the other half at Lisbon. No part of it need ever 
come to Amsterdam. The natural residence of such a merchant 



334 WEALTH OF NATIONS 

should either be at Konnigsberg or Lisbon, and it can only be some 
very particular circumstances which can make him prefer the resi- 
dence of Amsterdam. The uneasiness, however, which he feels at 
being separated so far from his capital, generally determines him 
to bring part both of the Konnigsberg goods which he destines for 
the market of Lisbon, and of the Lisbon goods which he destines 
for that of Konnigsberg, to Amsterdam ; and though this necessarily 
subjects him to a double charge of loading and unloading, as well 
as to the payment of some duties and customs, yet for the sake of 
having some part of his capital always under his own view and com- 
mand, he willingly submits to this extraordinary charge; and it is 
in this manner that every country which has any considerable share 
of the carrying trade, becomes always the emporium, or general 
market, for the goods of all the different countries whose trade it 
carries on. The merchant, in order to save a second loading and 
unloading, endeavours always to sell in the home-market as much 
of the goods of all those different countries as he can, and thus, so 
far as he can, to convert his carrying trade into a foreign trade of 
consumption. A merchant, in the same manner, who is engaged in 
the foreign trade of consumption, when he collects goods for foreign 
markets, will always be glad, uf)on equal or nearly equal profits, to 
sell as great a part of them at home as he can. He saves himself 
the risk and trouble of exportation, when, so far as he can, he thus 
converts his foreign trade of consumption into a home-trade. Home 
is in this manner the center, if I may say so, round which the capi- 
tals of the inhabitants of every country are continually circulating, 
and towards which they are always tending, though by particular 
causes they may sometimes be driven off and repelled from it towards 
more distant employments. But a capital employed in the home- 
trade, it has already been shown, necessarily puts into motion a 
greater quantity of domestic industry, and gives revenue and em- 
ployment to a greater number of the inhabitants of the country, than 
an equal capital employed in the foreign trade of consumption: and 
one employed in the foreign trade of consumption has the same 
advantage over an equal capital employed in the carrying trade. 
Upon equal, or only nearly equal profits, therefore, every individual 
naturally inclines to employ his capital in the manner in which it 



RESTRAINTS OF PARTICULAR IMPORTS 335 

is likely to afFord the greatest support to domestic industry, and to 
give revenue and employment to the greatest number of people of 
his own country. 

Secondly, every individual who employs his capital in the support 
of domestic industry, necessarily endeavours so to direct that indus- 
try, that its produce may be of the greatest possible value. 

The produce of industry is what it adds to the subject or mate- 
rials upon which it is employed. In proportion as the value of this 
produce is great or small, so will likewise be the profits of the em- 
ployer. But it is only for the sake of profit that any man employs 
a capital in the support of industry; and he will always, therefore, 
endeavour to employ it in the support of that industry of which the 
produce is likely to be of the greatest value, or to exchange for the 
greatest quantity either of money or of other goods. 

But the annual revenue of every society is always precisely equal 
to the exchangeable value of the whole annual produce of its indus- 
try, or rather is precisely the same thing with that exchangeable 
value. As every individual, therefore, endeavours as much as he 
can both to employ his capital in the support of domestic industry, 
and so to direct that industry that its produce may be of the greatest 
value; every individual necessarily labours to render the annual rev- 
enue of the society as great as he can. He generally, indeed, neither 
intends to promote the public interest, nor knows how much he is 
promoting it. By preferring the support of domestic to that of for- 
eign industry, he intends only his own security; and by directing that 
industry in such a manner as its produce may be of the greatest 
value, he intends only his own gain, and he is in this, as in many 
other cases, led by an invisible hand to promote an end which was 
no part of his intention. Nor is it always the worse for the society 
that it was no part of it. By pursuing his own interest he frequently 
promotes that of the society more effectually than when he really in- 
tends to promote it. I have never known much good done by those 
who affected to trade for the public good. It is an affectation, indeed, 
not very common among merchants, and very few words need be 
employed in dissuading them from it. 

What is the species of domestic industry which his capital can 
employ, and of which the produce is likely to be of the greatest 



336 WEALTH OF NATIONS 

value, every individual, it is evident, can, in his local situation, judge 
much better than any statesman or lawgiver can do for him. The 
statesman, who should attempt to direct private people in what 
manner they ought to employ their capitals, would not only load him- 
self with a most unnecessary attention, but assume an authority which 
could safely be trusted, not only to no single person, but to no 
council or senate whatever, and which would no-where be so dan- 
gerous as in the hands of a man who had folly and presumption 
enough to fancy himself fit to exercise it. 

To give the monopoly of the home-market to the produce of 
domestic industry, in any particular art or manufacture, is in some 
measure to direct private people in what manner they ought to em- 
ploy their capitals, and must, in almost all cases, be either a useless 
or a hurtful regulation. If the produce of domestic can be brought 
there as cheap as that of foreign industry, the regulation is evi- 
dendy useless. If it cannot, it must generally be hurtful. It is the 
maxim of every prudent master of a family, never to attempt to 
make at home what it will cost him more to make than to buy. The 
taylor does not attempt to make his own shoes, but buys them of 
the shoemaker. The shoemaker does not attempt to make his own 
clothes, but employs a taylor. The farmer attempts to make neither 
the one nor the other, but employs those different artificers. All 
of them find it for their interest to employ their whole industry in 
a way in which they have some advantage over their neighbours, 
and to purchase with a part of its produce, or what is the same 
thing, with the price of a part of it, whatever else they have occa- 
sion for. 

What is prudence in the conduct of every private family, can 
scarce be folly in that of a great kingdom. If a foreign country can 
supply us with a commodity cheajjer than we ourselves can make 
it, better buy it of them with some part of the produce of our own 
industry, employed in a way in which we have some advantage. 
The general industry of the country, being always in proportion to 
the capital which employs it, will not thereby be diminished, no 
more than that of the above-mentioned artificers; but only left to 
find out the way in which it can be employed with the greatest ad- 
vantage. It is certainly not employed to the greatest advantage, when 



RESTRAINTS OF PARTICULAR IMPORTS 337 

it is thus directed towards an object which it can buy cheaper than 
it can make. The value of its annual produce is certainly more or 
less diminished, when it is thus turned away from producing com- 
modities evidently of more value than the commodity which it is 
directed to produce. According to the supposition, that commodity 
could be purchased from foreign countries cheaper than it can be 
made at home. It could, therefore, have been purchased with a 
part only of the commodities, or, what is the same thing, with a part 
only of the price of the commodities, which the industry employed 
by an equal capital would have produced at home, had it been left 
to follow its natural course. The industry of the country, there- 
fore, is thus turned away from a more, to a less advantageous em- 
ployment, and the exchangeable value of its annual produce, in- 
stead of being increased, according to the intention of the lawgiver, 
must necessarily be diminished by every such regulation. 

By means of such regulations, indeed, a particular manufacture 
may sometimes be acquired sooner than it could have been other- 
wise, and after a certain time may be made at home as cheap or 
cheaper than in the foreign country. But though the industry of the 
society may be thus carried with advantage into a particular chan- 
nel sooner than it could have been otherwise, it will by no means 
follow that the sum total, either of its industry, or of its revenue, 
can ever be augmented by any such regulation. The industry of 
the society can augment only in proportion as its capital augments, 
and its capital can augment only in proportion to what can be gradu- 
ally saved out of its revenue. But the immediate effect of every 
such regulation is to diminish its revenue, and what diminishes its 
revenue is certainly not very likely to augment its capital faster than 
it would have augmented of its own accord, had both capital and 
industry been left to find out their natural employments. 

Though for want of such regulations the society should never 
acquire the proposed manufacture, it would not, upon that account, 
necessarily be the poorer in any one period of its duration. In every 
period of its duration its whole capital and industry might still have 
been employed, though upon different objects, in the manner that 
was most advantageous at the time. In every period its revenue 
might have been the greatest which its capital could afford, and 



338 WEALTH OF NATIONS 

both capital and revenue might have been augmented with the great- 
est possible rapidity. 

The natural advantages which one country has over another in 
producing particular commodities are sometimes so great that it is 
acknowledged by all the world to be in vain to struggle with them. 
By means of glasses, hotbeds, and hotwalls, very good grapes can 
be raised in Scodand, and very good wine too can be made of them 
at about thirty times the expence for which at least equally good 
can be brought from foreign countries. Would it be a reasonable 
law to prohibit the importation of all foreign wines, merely to en- 
courage the making of claret and burgundy in Scotland? But if 
there would be a manifest absurdity in turning towards any employ- 
ment, thirty times more of the capital and industry of the country, 
than would be necessary to purchase from foreign countries an equal 
quantity of the commodities wanted, there must be an absurdity, 
though not altogether so glaring, yet exactly of the same kind, in 
turning towards any such employment a thirtieth, or even a three 
hundredth part more of either. Whether the advantages which one 
country has over another, be natural or acquired, is in this respect 
of no consequence. As long as the one country has those advantages, 
and the other wants them, it will always be more advantageous for 
the latter, rather to buy of the former than to make. It is an ac- 
quired advantage only, which one artificer has over his neighbour, 
who exercises another trade; and yet they both find it more advan- 
tageous to buy of one another, than to make what does not belong 
to their particular trades. 

Merchants and manufacturers are the fjeople who derive the great- 
est advantage from this monopoly of the home-market. The pro- 
hibition of the importation of foreign catde, and of salt provisions, 
together with the high duties upon foreign corn, which in times of 
moderate plenty amount to a prohibition, are not near so advan- 
tageous to the graziers and farmers of Great Britain, as other regula- 
tions of the same kind are to its merchants and manufacturers. 
Manufactures, those of the finer kind especially, are more easily 
transported from one country to another than corn or catde. It is in 
the fetching and carrying manufactures, accordingly, that foreign 
trade is chiefly employed. In manufactures, a very small advantage 



RESTRAINTS OF PARTICULAR IMPORTS 339 

will enable foreigners to undersell our own workmen, even in the 
home market. It will require a very great one to enable them to do 
so in the rude produce of the soil. If the free importation of foreign 
manufactures were permitted, several of the home manufactures 
would probably suffer, and some of them, perhaps, go to ruin alto- 
gether, and a considerable part of the stock and industry at present 
employed in them, would be forced to find out some other employ- 
ment. But the freest importation of the rude produce of the soil 
could have no such effect upon the agriculture of the country. 

If the importation of foreign cattle, for example, were made ever 
so free, so few could be imported, that the grazing trade of Great 
Britain could be litde affected by it. Live catde are, perhaps, the 
only commodity of which the transportation is more expensive by 
sea than by land. By land they carry themselves to market. By sea, 
not only the catde, but their food and water too, must be carried 
at no small expence and inconveniency. The short sea between Ire- 
land and Great Britain, indeed, renders the importation of Irish catde 
more easy. But though the free importation of them, which was 
lately permitted only for a limited time, were rendered perpetual, 
it could have no considerable effect upon the interest of the graziers 
of Great Britain. Those parts of Great Britain which border upon 
the Irish sea are all grazing countries. Irish cattle could never be 
imported for their use, but must be drove through those very ex- 
tensive countries, at no small expence and inconveniency, before 
they could arrive at their proper market. Fat catde could not be 
drove so far. Lean cattle, therefore, only could be imported, and 
such importation could interfere, not with the interest of the 
feeding or fattening countries, to which, by reducing the price of 
lean cattle, it would rather be advantageous, but with that of the 
breeding countries only. The small number of Irish cattle imported 
since their importation was permitted, together with the good price 
at which lean cattle still continue to sell, seem to demonstrate that 
even the breeding countries of Great Britain are never likely to be 
much affected by the free importation of Irish catde. The common 
people of Ireland, indeed, are said to have sometimes opposed with 
violence the exportation of their cattle. But if the exporters had 
found any great advantage in continuing the trade, they could easily, 



340 WEALTH OF NATIONS 

when the law was on their side, have conquered this mobbish 
opposition. 

Feeding and fattening countries, besides, must always be highly 
improved, whereas breeding countries are generally uncultivated. 
The high price of lean cattle, by augmenting the value of unculti- 
vated land, is like a bounty against improvement. To any country 
which was highly improved throughout, it would be more advan- 
tageous to import its lean cattle than to breed them. The province 
of Holland, accordingly, is said to follow this maxim at present. 
The mountains of Scotland, Wales and Northumberland, indeed, 
are countries not capable of much improvement, and seem destined 
by nature to be the breeding countries of Great Britain. The freest 
importation of foreign cattle could have no other effect than to hin- 
der those breeding countries from taking advantage of the increas- 
ing population and improvement of the rest of the kingdom from 
raising their price to an exorbitant height, and from laying a 
real tax upon all the more improved and cultivated parts of the 
country. 

The freest importation of salt provisions, in the same manner, 
could have as little effect upon the interests of the graziers of Great 
Britain as that of live cattle. Salt provisions are not only a very 
bulky commodity, but when compared with fresh meat, they are a 
commodity both of worse quality, and as they cost more labour and 
exf)ence, of higher price. They could never, therefore, come into 
competition with the fresh meat, though they might with the salt 
provisions of the country. They might be used for victualling ships 
for distant voyages, and such like uses, but could never make any 
considerable part of the food of the people. The small quantity of 
salt provisions imported from Ireland since their importation was 
rendered free, is an experimental proof that our graziers have noth- 
ing to apprehend from it. It does not appear that the price of 
butcher's-meat has ever been sensibly affected by it. 

Even the free importation of foreign corn could very litde affect 
the interest of the farmers of Great Britain. Corn is a much more 
bulky commodity than butcher's-meat. A f)ound of wheat at a penny 
is as dear as a pound of butcher's-meat at fourpence. The small 
quantity of foreign corn imported even in times of the greatest 



RESTRAINTS OF PARTICULAR IMPORTS 34 1 

scarcity, may satisfy our farmers that they can have nothing to fear 
from the freest importation. The average quantity imported one 
year with another, amounts only, according to the very well in- 
formed author of the tracts upon the corn trade, to twenty-three 
thousand seven hundred and twenty-eight quarters of all sorts of 
grain, and does not exceed the five hundredth and seventy-one part 
of the annual consumption. But as the bounty upon corn occasions 
a greater exportation in years of plenty, so it must of consequence 
occasion a greater importation in years of scarcity, than in the actual 
state of tillage would otherwise take place. By means of it, the plenty 
of one year does not comjjensate the scarcity of another, and as the 
average quantity exported is necessarily augmented by it, so must 
likewise, in the actual state of tillage, the average quantity imported. 
If there were no bounty, as less corn would be exported, so it is 
probable that, one year with another, less would be imported than 
at present. The corn merchants, the fetchers and carriers of corn 
between Great Britain and foreign countries, would have much less 
employment, and might suffer considerably; but the country gentle- 
men and farmers could suffer very litde. It is in the corn merchants 
accordingly, rather than in the country gentlemen and farmers, that 
I have observed the greatest anxiety for the renewal and continua- 
tion of the bounty. 

Country gendemen and farmers are, to their great honour, of all 
people, the least subject to the wretched spirit of monopoly. The 
undertaker of a great manufactory is sometimes alarmed if another 
work of the same kind is established within twenty miles of him. 
The Dutch undertaker of the woollen manufacture at Abbeville stip- 
ulated, that no work of the same kind should be established within 
thirty leagues of that city. Farmers and country gentlemen, on the 
contrary, are generally disposed rather to promote than to obstruct 
the cultivation and improvement of their neighbours' farms and es- 
tates. They have no secrets, such as those of the greater part of manu- 
facturers, but are generally rather fond of communicating to their 
neighbours, and of extending as far as possible any new practice 
which they have found to be advantageous. Pius Questus, says old 
Cato, stabilissimusque, minimeque invidiosus; minimeque male cog- 
itantes sunt, qui in eo studio occupati sunt. Country gentlemen and 



342 WEALTH OF NATIONS 

farmers, dispersed in different parts of the country, cannot so easily 
combine as merchants and manufacturers, who being collected into 
towns, and accustomed to that exclusive corporation spirit which pre- 
vails in them, naturally endeavour to obtain against all their country- 
men, the same exclusive privilege which they generally possess 
against the inhabitants of their respective towns. They accordingly 
seem to have been the original inventors of those restraints upon the 
importation of foreign goods, which secure to them the monopoly of 
the home-market. It was probably in imitation of them, and to put 
themselves ujxjn a level with those who, they found, were disposed 
to oppress them, that the country gentlemen and farmers of Great 
Britain so far forgot the generosity which is natural to their sta- 
tion, as to demand the exclusive privilege of supplying their country- 
men with corn and butcher's-meat. They did not perhaps take time 
to consider, how much less their interest could be affected by the 
freedom of trade, than that of the people whose example they fol- 
lowed. 

To prohibit by a f)erpetual law the importation of foreign corn 
and cattle, is in reality to enact, that the {xjpulation and industry of 
the country shall at no time exceed what the rude produce of its own 
soil can maintain. 

There seem, however, to be two cases in which it will generally 
be advantageous to lay some burden upon foreign, for the encourage- 
ment of domestic industry. 

The first, is, when some particular sort of industry is necessary for 
the defence of the country. The defence of Great Britain, for exam- 
ple, depends very much upon the number of its sailors and shipping. 
The act of navigation, therefore, very properly endeavours to give the 
sailors and shipping of Great Britain the monopoly of the trade of 
their own country, in some cases, by absolute prohibitions, and in 
others by heavy burdens upon the shipping of foreign countries. The 
following are the principal dispositions of this aa. 

First, all ships, of which the owners, masters, and three-fourths 
of the mariners are not British subjects, are prohibited, upon pain 
of forfeiting ship and cargo, from trading to the British settlements 
and plantations, or from being employed in the coasting trade of 
Great Britain. 



RESTRAINTS OF PARTICULAR IMPORTS 343 

Secondly, a great variety of the most bulky articles of importation 
can be brought into Great Britain only, either in such ships as are 
above described, or in ships of the country where those goods are 
produced, and of which the owners, masters, and three-fourths of 
the mariners, are of that particular country; and when imported even 
in ships of this latter kind, they are subject to double aliens duty. If 
imported in ships of any other country, the penalty is forfeiture of 
ship and goods. When this act was made, the Dutch were, what 
they still are, the great carriers of Europe, and by this regulation they 
were entirely excluded from being the carriers to Great Britain, or 
from importing to us the goods of any other European country. 

Thirdly, a great variety of the most bulky articles of importation 
are prohibited from being imported, even in British ships, from any 
country but that in which they are produced; under pain of forfeit- 
ing ship and cargo. This regulation too was probably intended 
against the Dutch. Holland was then, as now, the great emporium 
for all European goods, and by this regulation, British ships were 
hindered from loading in Holland the goods of any other European 
country. 

Fourthly, salt fish of all kinds, whale-fins, whale4x)ne, oil, and 
blubber, not caught by and cured on board British vessels, when im- 
ported into Great Britain, are subjected to double aliens duty. The 
Dutch, as they are still the principal, were then the only fishers in 
Europe that attempted to supply foreign nations with fish. By this 
regulation, a very heavy burden was laid upon their supplying Great 
Britain. 

When the act of navigation was made, though England and Hol- 
land were not actually at war, the most violent animosity subsisted 
between the two nations. It had begun during the government of the 
long parliament, which first framed this act, and it broke out soon 
after in the Dutch wars during that of the Protector and of Charles 
the Second. It is not impossible, therefore, that some of the regula- 
tions of this famous act may have proceeded from national animosity. 
They are as wise, however, as if they had all been dictated by the 
most deliberate wisdom. National animosity at that particular time 
aimed at the very same object which the most deliberate wisdom 
could have recommended, the diminution of the naval power of 



344 WEALTH OF NATIONS 

Holland, the only naval power which could endanger the security 

of England. 

The act of navigation is not favourable to foreign commerce, or 
to the growth of that opulence which can arise from it. The interest 
of a nation in its commercial relations to foreign nations is, like 
that of a merchant with regard to the different people with whom he 
deals, to buy as cheap and to sell as dear as possible. But it will be 
most likely to buy cheap, when by the most perfect freedom of 
trade it encourages all nations to bring to it the goods which it has 
occasion to purchase; and, for the same reason, it will be most likely 
to sell dear, when its markets are thus filled with the greatest num- 
ber of buyers. The act of navigation, it is true, lays no burden upon 
foreign ships that come to export the produce of British industry. 
Even the ancient aliens duty, which used to be paid on all goods 
exported as well as imported, has, by several subsequent acts, been 
taken off from the greater part of the articles of exportation. But 
if foreigners, either by prohibitions or high duties, are hindered from 
coming to sell, they cannot always afford to come to buy; because 
coming without a cargo, they must lose the freight from their own 
country to Great Britain. By diminishing the number of sellers, 
therefore, we necessarily diminish that of buyers, and are thus likely 
not only to buy foreign goods dearer, but to sell our own cheaper, 
than if there was a more perfect freedom of trade. As defence, how- 
ever, is of much more importance than opulence, the act of naviga- 
tion is, perhaps, the wisest of all the commercial regulations of 
England. 

The second case, in which it will generally be advantageous to lay 
some burden upon foreign for the encouragement of domestic in- 
dustry, is, when some tax is impKJsed at home uf)on the produce of 
the latter. In this case, it seems reasonable that an equal tax should 
be imposed upon the like produce of the former. This would not 
give the monopoly of the home market to domestic industry, nor 
turn towards a particular employment a greater share of the stock 
and labour of the country, than what would naturally go to it. It 
would only hinder any part of what would naturally go to it from 
being turned away by the tax, into a less natural direction, and 
would leave the competition between foreign and domestic industry, 



RESTRAINTS OF PARTICULAR IMPORTS 345 

after the tax, as nearly as possible upon the same footing as before it. 
In Great Britain, when any such tax is laid upon the produce of 
domestic industry, it is usual at the same time, in order to stop 
the clamorous complaints of our merchants and manufacturers, that 
they will be undersold at home, to lay a much heavier duty upon the 
importation of all foreign goods of the same kind. 

This second limitation of the freedom of trade according to some 
people should, upon some occasions, be extended much farther than 
to the precise foreign commodities which could come into competi- 
tion with those which had been taxed at home. When the neces- 
saries of life have been taxed in any country, it becomes proper, they 
pretend, to tax not only the like necessaries of life imported from 
other countries, but all sorts of foreign goods which can come into 
competition with any thing that is the produce of domestic indus- 
try. Subsistence, they say, becomes necessarily dearer in consequence 
of such taxes; and the price of labour must always rise with the 
price of the labourers subsistence. Every commodity, therefore, which 
is the produce of domestic industry, though not immediately taxed 
itself, becomes dearer in consequence of such taxes, because the la- 
bour which produces it becomes so. Such taxes, therefore, are really 
equivalent, they say, to a tax upon every particular commodity pro- 
duced at home. In order to put domestic upon the same footing 
with foreign industry, therefore, it becomes necessary, they think, 
to lay some duty upon every foreign commodity, equal to this en- 
hancement of the price of the home commodities with which it can 
come into competition. 

Whether taxes U(X)n the necessaries of life, such as those in Great 
Britain upon soap, salt, leather, candles, &c. necessarily raise the 
price of labour, and consequently that of all other commodities, I 
shall consider hereafter, when I come to treat of taxes. Supposing, 
however, in the mean time, that they have this effect, and they have 
it undoubtedly, this general enhancement of the price of all com- 
modities, in consequence of that of labour, is a case which differs in 
the two following respects from that of a particular commodity, of 
which the price was enhanced by a particular tax immediately 
imposed upon it. 

First, it might always be known with great exactness how far the 



346 WEALTH OF NATIONS 

price of such a commodity could be enhanced by such a tax: but 
how far the general enhancement of the price of labour might affect 
that of every different commodity about which labour was em- 
ployed, could never be known with any tolerable exactness. It 
would be impossible, therefore, to proportion with any tolerable 
exactness the tax upon every foreign, to this enhancement of the 
price of every home commodity. 

Secondly, taxes upon the necessaries of life have nearly the same 
effect upon the circumstances of the people as a poor soil and a bad 
climate. Provisions are thereby rendered dearer in the same manner 
as if it required extraordinary labour and expence to raise them. As 
in the natural scarcity arising from soil and climate, it would be 
absurd to direct the people in what manner they ought to employ 
their capitals and industry, so is it likewise in the artificial scarcity 
arising from such taxes. To be left to accommodate, as well as they 
could, their industry to their situation, and to find out those em- 
ployments in which, notwithstanding their unfavourable circum- 
stances, they might have some advantage either in the home or in 
the foreign market, is what in both cases would evidently be most for 
their advantage. To lay a new tax upon them, because they are al- 
ready overburdened with taxes, and because they already pay too 
dear for the necessaries of life, to make them likewise pay too dear 
for the greater part of other commodities, is certainly a most absurd 
way of making amends. 

Such taxes, when they have grown up to a certain height, are a 
curse equal to the barrenness of the earth and the inclemency of the 
heavens; and yet it is in the richest and most industrious countries 
that they have been most generally imposed. No other countries 
could support so great a disorder. As the strongest bodies only can 
live and enjoy health, under an unwholesome regimen; so the na- 
tions only, that in every sort of industry have the greatest natural 
and acquired advantages, can subsist and prosper under such taxes. 
Holland is the country in Europe in which they abound most, and 
which from peculiar circumstances continues to prosper, not by 
means of them, as has been most absurdly supposed, but in spite of 
them. 

As there are two cases in which it will generally be advantageous 



RESTRAINTS OF PARTICULAR IMPORTS 347 

to lay some burden upon foreign, for the encouragement of domestic 
industry; so there are two others in which it may sometimes be a 
matter of deUberation; in the one, how far it is proper to continue 
the free importation of certain foreign goods; and in the other, how 
far, or in what manner, it may be proper to restore that free impor- 
tation after it has been for some time interrupted. 

The case in which it may sometimes be a matter of deUberation 
how far it is proper to continue the free importation of certain for- 
eign goods, is, when some foreign nation restrains by high duties or 
prohibitions the importation of some of our manufactures into their 
country. Revenge in this case naturally dictates retaliation, and that 
we should impose the like duties and prohibitions upon the impor- 
tation of some or all of their manufactures into ours. Nations ac- 
cordingly seldom fail to retaliate in this manner. The French have 
been particularly forward to favour their own manufactures by re- 
straining the importation of such foreign goods as could come into 
competition with them. In this consisted a great part of the policy 
of Mr. Colbert, who, notwithstanding his great abilities, seems in 
this case to have been impKJsed upon by the sophistry of merchants 
and manufacturers, who are always demanding a monopoly against 
their countrymen. It is at present the opinion of the most intelligent 
men in France that his operations of this kind have not been bene- 
ficial to his country. That minister, by the tarif of 1667, imposed 
very high duties upon a great number of foreign manufactures. 
Upon his refusing to moderate them in favour of the Dutch, they 
in 1671 prohibited the importation of the wines, brandies and manu- 
factures of France. The war of 1672 seems to have been in part 
tKcasioned by this commercial dispute. The peace of Nimeguen put 
an end to it in 1678, by moderating some of those duties in favour 
of the Dutch, who in consequence took off their prohibition. It was 
about the same time that the French and English began mutually to 
oppress each other's industry, by the like duties and prohibitions, of 
which the French, however, seem to have set the first example. The 
spirit of hostility which has subsisted between the two nations ever 
since, has hitherto hindered them from being moderated on either 
side. In 1697 '^^ English prohibited the importation of bonelace, 
the manufacture of Flanders. The government of that country, at 



348 WEALTH OF NATIONS 

that time under the dominion of Spain, prohibited in return the im- 
portation of EngUsh woollens. In 1700, the prohibition of importing 
bonelace into England, was taken o(i upon condition that the im- 
portation of English woollens into Flanders should be put on the 
same footing as before. 

There may be good policy in retaliations of this kind, when there 
is a probability that they will procure the repeal of the high duties or 
prohibitions complained of. The recovery of a great foreign market 
will generally more than compensate the transitory inconveniency 
of paying dearer during a short time for some sorts of goods. To 
judge whether such retaliations are likely to produce such an effect, 
does not, perhaps, belong so much to the science of a legislator, 
whose deliberations ought to be governed by general principles 
which are always the same, as to the skill of that insidious and 
crafty animal, vulgarly called a statesman or politician, whose coun- 
cils are directed by the momentary fluctuations of affairs. When 
there is no probability that any such repeal can be procured, it seems 
a bad method of compensating the injury done to certain classes of 
our people, to do another injury ourselves, not only to those classes, 
but to almost all the other classes of them. When our neighbours 
prohibit some manufacture of ours, we generally prohibit, not only 
the same, for that alone would seldom affect them considerably, but 
some other manufacture of theirs. This may no doubt give encour- 
agement to some particular class of workmen among ourselves, and 
by excluding some of their rivals, may enable them to raise their price 
in the home-market. Those workmen, however, who suffered by 
our neighbours' prohibition will not be benefited by ours. On the 
contrary, they and almost all the other classes of our citizens will 
thereby be obliged to pay dearer than before for certain goods. Every 
such law, therefore, imposes a real tax upon the whole country, not 
in favour of that particular class of workmen who were injured by 
our neighbours' prohibition, but of some other class. 

The case in which it may sometimes be a matter of deliberation, 
how far, or in what manner, it is proper to restore the free importa- 
tion of foreign goods, after it has been for some time interrupted, 
is, when particular manufactures, by means of high duties or pro- 
hibitions upon all foreign goods which can come into competition 



RESTRAINTS OF PARTICULAR IMPORTS 349 

with them, have been so far extended as to employ a great muhitude 
of hands. Humanity may in this case require that the freedom of 
trade should be restored only by slow gradations, and with a good 
deal of reserve and circumspection. Were those high duties and pro- 
hibitions taken away all at once, cheaper foreign goods of the same 
kind might be poured so fast into the home market, as to deprive 
all at once many thousands of our people of their ordinary employ- 
ment and means of subsistence. The disorder which this would oc- 
casion might no doubt be very considerable. It would in all proba- 
bility, however, be much less than is commonly imagined, for the 
two following reasons: 

First, all those manufactures, of which any part is commonly 
exports to other European countries without a bounty, could be very 
litde affected by the freest importation of foreign goods. Such 
manufactures must be sold as cheap abroad as any other foreign 
goods of the same quality and kind, and consequently must be sold 
cheaper at home. They would still, therefore, keep possession of 
the home market, and though a capricious man of fashion might 
sometimes prefer foreign wares, merely because they were foreign, 
to cheaper and better goods of the same kind that were made at 
home, this folly could, from the nature of things, extend to so few, 
that it could make no sensible impression upon the general em- 
ployment of the people. But a great part of all the different branches 
of our woollen manufacture, of our tanned leather, and of our hard- 
ware, are annually exported to other European countries without any 
bounty, and these are the manufactures which employ the greatest 
number of hands. The silk, perhaps, is the manufacture which 
would suffer the most by this freedom of trade, and after it the 
linen, though the latter much less than the former. 

Secondly, though a great number of people should, by thus re- 
storing the freedom of trade, be thrown all at once out of their ordi- 
nary employment and common method of subsistence, it would by 
no means follow that they would thereby be deprived either of em- 
ployment or subsistence. By the reduction of the army and navy 
at the end of the late war, more than a hundred thousand soldiers 
and seamen, a number equal to what is employed in the greatest 
manufactures, were all at once thrown out of their ordinary employ- 



350 WEALTH OF NATIONS 

ment; but, though they no doubt suffered some inconveniency, they 
were not thereby deprived of all employment and subsistence. The 
greater part of the seamen, it is probable, gradually betook them- 
selves ta the merchant-service as they could find occasion, and in the 
meantime both they and the soldiers were absorbed in the great mass 
of the people, and employed in a great variety of occupations. Not 
only no great convulsion, but no sensible disorder arose from so great 
a change in the situation of more than a hundred thousand men, all 
accustomed to the use of arms, and many of them to rapine and 
plunder. The number of vagrants was scarce anywhere sensibly in- 
creased by it, even the wages of labour were not reduced by it in 
any occupation, so far as I have been able to learn, except in that 
of seamen in the merchant-service. But if we compare together the 
habits of a soldier and of any sort of manufacturer, we shall find 
that those of the latter do not tend so much to disqualify him from 
being employed in a new trade, as those of the former from being 
employed in any. The manufacturer has always been accustomed 
to look for his subsistence from his labour only: the soldier to expect 
it from his pay. Application and industry have been familiar to the 
one; idleness and dissipation to the other. But it is surely much 
easier to change the direction of industry from one sort of labour to 
another, than to turn idleness and dissipation to any. To the greater 
part of manufactures besides, it has already been observed, there 
are other collateral manufactures of so similar a nature, that a work- 
man can easily transfer his industry from one of them to another. 
The greater part of such workmen, too, are occasionally employed in 
country labour. The stock which employed them in a particular 
manufacture before, will still remain in the country to employ an 
equal number of people in some other way. The capital of the coun- 
try remaining the same, the demand for labour will likewise be the 
same, or very nearly the same, though it may be exerted in different 
places and for different occupations. Soldiers and seamen, indeed, 
when discharged from the king's service, are at liberty to exercise 
any trade, within any town or place of Great Britain or Ireland. Let 
the same natural liberty of exercising what species of industry they 
please, be restored to all his majesty's subjects, in the same man- 
ner as to soldiers and seamen; that is, break down the exclusive 



RESTRAINTS OF PARTICULAR IMPORTS 35 1 

privileges of corporations, and repeal the statute of apprenticeship, 
both which are real encroachments upon natural liberty, and add 
to these the repeal of the law of settlements, so that a poor work- 
man, when thrown out of employment either in one trade or in one 
place, may seek for it in another trade or in another place, without 
the fear either of a prosecution or of a removal, and neither the 
public nor the individuals will suffer much more from the occa- 
sional disbanding some particular classes of manufacturers, than 
from that of soldiers. Our manufacturers have no doubt great merit 
with their country, but they cannot have more than those who defend 
it with their blood, nor deserve to be treated with more delicacy. 

To expect, indeed, that the freedom of trade should ever be en- 
tirely restored in Great Britain, is as absurd as to expect that an 
Oceana or Utopia should ever be established in it. Not only the 
prejudices of the public, but what is much more unconquerable, the 
private interests of many individuals, irresistibly oppose it. Were 
the officers of the army to oppose with the same zeal and unanimity 
any reduction in the number of forces, with which master manufac- 
turers set themselves against every law that is likely to increase the 
number of their rivals in the home market; were the former to 
animate their soldiers, in the same manner as the latter enflame their 
workmen, to attack with violence and outrage the proposers of any 
such regulation; to attempt to reduce the army would be as dan- 
gerous as it has now become to attempt to diminish in any respect 
the monopoly which our manufacturers have obtained against us. 
This monopoly has so much increased the number of some particular 
tribes of them, that, like an overgrown standing army, they have be- 
come formidable to the government, and upon many occasions in- 
timidate the legislature. The member of parliament who supports 
every proposal for strengthening this monopoly, is sure to acquire 
not only the reputation of understanding trade, but great popularity 
and influence with an order of men whose numbers and wealth 
render them of great importance. If he opposes them, on the con- 
trary, and still more if he has authority enough to be able to thwart 
them, neither the most acknowledged probity, nor the highest rank, 
nor the greatest public services, can protect him from the most in- 
famous abuse and detraction, from personal insults, nor sometimes 



352 WEALTH OF NATIONS 

from real danger, arising from the insolent outrage of furious and 
disappointed monopolists. 

The undertaker of a great manufacture, who, by the home mar- 
kets being suddenly laid open to the competition of foreigners, 
should be obliged to abandon his trade, would no doubt suffer very 
considerably. That part of his capital which had usually been em- 
ployed in purchasing materials and in paying his workmen, might, 
without much difficulty, perhaps, find another employment. But 
that part of it which was fixed in workhouses, and in the instru- 
ments of trade, could scarce be disposed of without considerable 
loss. The equitable regard, therefore, to his interest requires that 
changes of this kind should never be introduced suddenly, but 
slowly, gradually, and after a very long warning. The legislature, 
were it possible that its deliberations could be always directed, not 
by the clamorous importunity of partial interests, but by an exten- 
sive view of the general good, ought upon this very account, per- 
haps, to be particularly careful neither to establish any new monopo- 
lies of this kind, nor to extend further those which are already 
established. Every such regulation introduces some degree of real 
disorder into the constitution of the state, which it will be difficult 
afterwards to cure without occasioning another disorder. 

How far it may be proper to impose taxes upon the importation 
of foreign goods, in order, not to prevent their importation, but to 
raise a revenue for government, I shall consider hereafter when I 
come to treat of taxes. Taxes imposed with a view to prevent, or 
even to diminish importation, are evidently as destructive of the 
revenue of the customs as of the freedom of trade. 



CHAPTER III 

Of the Extraordinary Restraints upon the Importation of Goods 

OF Almost All Kinds, from Those Countries with Which 

the Balance Is Supposed to Be Disadvantageous 

PART I 

Of the Unreasonableness of those Restraints even upon the 
Principles of the Commercial System 

TO lay extraordinary restraints upon the importation of 
goods of almost all kinds, from those particular countries 
with which the balance of trade is supposed to be disad- 
vantageous, is the second expedient by which the commercial system 
proposes to increase the quantity of gold and silver. Thus in Great 
Britain, Silesia lawns may be imported for home consumption, upon 
paying certain duties. But French cambrics and lawns are prohibited 
to be imported, except into the port of London, there to be ware- 
housed foi exportation. Higher duties are imposed uf)on the wines 
of France than upon those of Portugal, or indeed of any other coun- 
try. By what is called the impost 1692, a duty of five and twenty 
per cent., of the rate or value, was laid upon all French goods; 
while the goods of other nations were, the greater part of them, 
subjected to much lighter duties, seldom exceeding five per cent. 
The wine, brandy, salt and vinegar of France were indeed excepted; 
these commodities being subjected to other heavy duties, either by 
other laws, or by particular clauses of the same law. In 1696, a sec- 
ond duty of twenty-five per cent., the first not having been thought 
a sufficient discouragement, was imposed up>on all French goods, 
except brandy; together with a new duty of five and twenty pounds 
upon the ton of French wine, and another of fifteen pounds upon 
the ton of French vinegar. French goods have never been omitted 
in any of those general subsidies, or duties of five per cent., which 
have been imposed upon all, or the greater part of the goods enu- 

353 



354 WEALTH OF NATIONS 

merated in the book of rates. If we count the one-third and two- 
third subsidies as making a complete subsidy between them, there 
have been five of these general subsidies; so that before the com- 
mencement of the present war seventy-five per cent, may be consid- 
ered as the lowest duty to which the greater part of the goods of the 
grovrth, produce, or manufacture of France were liable. But upon 
the greater part of goods, those duties are equivalent to a prohibition. 
The French in their turn have, I believe, treated our goods and 
manufactures just as hardly; though I am not so well acquainted 
with the particular hardships which they have imposed upon them. 
Those mutual restraints have put an end to almost all fair commerce 
between the two nations, and smugglers are now the principal im- 
porters, either of British goods into France, or of French goods into 
Great Britain. The principles which I have been examining in the 
foregoing chapter took their origin from private interest and the 
spirit of monopoly; those which I am going to examine in this, 
from national prejudice and animosity. They are, accordingly, as 
might well be expected, still more unreasonable. They are so, even 
upon the principles of the commercial system. 

First, though it were certain that in the case of a free trade be- 
tween France and England, for example, the balance would be in 
favour of France, it would by no means follow that such a trade 
would be disadvantageous to England, or that the general balance 
of its whole trade would thereby be turned more against it. If the 
wines of France are better and cheaper than those of Portugal, or its 
linens than those of Germany, it would be more advantageous for 
Great Britain to purchase both the wine and the foreign linen 
which it had occasion for of France, than of Portugal and Germany. 
Though the value of the annual importations from France would 
thereby be greatly augmented, the value of the whole annual im- 
portations would be diminished, in proportion as the French goods 
of the same quality were cheaper than those of the other two coun- 
tries. This would be the case, even upon the supposition that the 
whole French goods imported were to be consumed in Great Britain. 

But, secondly, a great part of them might be re-exported to other 
countries, where, being sold with profit, they might bring back a 
return equal in value, perhaps, to the prime cost of the whole French 



ON IMPORTS FROM PARTICULAR COUNTRIES 355 

goods imported. What has frequendy been said of the East India 
trade might possibly be true of the French; that though the greater 
part of East India goods were bought with gold and silver, the re- 
exportation of a part of them to other countries, brought back more 
gold and silver to that which carried on the trade than the prime cost 
of the whole amounted to. One of the most important branches of 
the Dutch trade, at present, consists in the carriage of French goods 
to other European countries. Some part even of the French wine 
drank in Great Britain is clandestinely imported from Holland and 
Zealand. If there was either a free trade between France and Eng- 
land, or if French goods could be imported upon paying only the 
same duties as those of other European nations, to be drawn back 
upon exportation, England might have some share of a trade which 
is found so advantageous to Holland. 

Thirdly, and lastly, there is no certain criterion by which we can 
determine on which side what is called the balance between any two 
countries lies, or which of them exports to the greatest value. Na- 
tional prejudice and animosity, prompted always by the private in- 
terest of particular traders, are the principles which generally direct 
our judgment upon all questions concerning it. There are two cri- 
terions, however, which have frequendy been appealed to upon such 
occasions, the custom-house books and the course of exchange. The 
custom-house books, I think, it is now generally acknowledged, are 
a very uncertain criterion, on account of the inaccuracy of the valua- 
tion at which the greater part of goods are rated in them. The course 
of exchange is, perhaps, almost equally so. 

When the exchange between two places, such as London and 
Paris, is at par, it is said to be a sign that the debts due from Lon- 
don to Paris are compensated by those due from Paris to London. 
On the contrary, when a premium is paid at London for a bill upon 
Paris, it is said to be a sign that the debts due from London to Paris 
are not compensated by those due from Paris to London, but that 
a balance in money must be sent out from the latter place; for the 
risk, trouble, and expence of exporting which, the premium is both 
demanded and given. But the ordinary state of debt and credit be- 
tween those two cities must necessarily be regulated, it is said, by 
the ordinary course of their dealings with one another. When 



356 WEALTH OF NATIONS 

neither of them imports from the other to a greater amount than 
it exports to that other, the debts and credits of each may compen- 
sate one another. But when one of them imports from the other to 
a greater value than it exports to that other, the former necessarily 
becomes indebted to the latter in a greater sum than the latter be- 
comes indebted to it: the debts and credits of each do not comp)ensate 
one another, and money must be sent out from that place of which 
the debts over-balance the credits. The ordinary course of exchange, 
therefore, being an indication of the ordinary state of debt and credit 
between two places, must likewise be an indication of the ordinary 
course of their exports and imports, as these necessarily regulate that 
state. 

But though the ordinary course of exchange should be allowed 
to be a sufficient indication of the ordinary state of debt and credit 
between any two places, it would not from thence follow, that the 
balance of trade was in favour of that place which had the ordinary 
state of debt and credit in its favour. The ordinary state of debt 
and credit between any two places is not always entirely regulated 
by the ordinary course of their dealings with one another; but is 
often influenced by that of the dealings of either with many other 
places. If it is usual, for example, for the merchants of England to 
pay for the goods which they buy of Hamburgh, Dantzic, Riga, &c. 
by bills upon Holland, the ordinary state of debt and credit between 
England and Holland will not be regulated entirely by the ordi- 
nary course of the dealings of those two countries with one another, 
but will be influenced by that of the dealings of England with 
those other places. England may be obliged to send out every year 
money to Holland, though its annual exports to that country may 
exceed very much the annual value of its imports from thence; and 
though what is called the balance of trade may be very much in 
favour of England. 

In the way, besides, in which the par of exchange has hitherto 
been computed, the ordinary course of exchange can afford no suffi- 
cient indication that the ordinary state of debt and credit is in favour 
of that country which seems to have, or which is supposed to have, 
the ordinary course of exchange in its favour: or, in other words, the 
real exchange may be, and, in fact, often is so very different from 



ON IMPORTS FROM PARTICULAR COUNTRIES 357 

the computed one, that from the course of the latter, no certain con- 
clusion can, upon many occasions, be drawn concerning that of the 
former. 

When for a sum of money paid in England, containing, according 
to the standard of the English mint, a certain number of ounces of 
pure silver, you receive a bill for a sum of money to be paid in 
France, containing, according to the standard of the French mint, 
an equal number of ounces of pure silver, exchange is said to be 
at par between England and France. When you pay more, you are 
supposed to give a premium, and exchange is said to be against 
England, and in favour of France. When you pay less, you are su{>- 
posed to get a premium, and exchange is said to be against France, 
and in favour of England. 

But, first, we cannot always judge of the value of the current 
money of different countries by the standard of their respective 
mints. In some it is more, in others it is less worn, dipt, and other- 
wise degenerated from that standard. But the value of the current 
coin of every country, compared with that of any other country, is 
in proportion not to the quantity of pure silver which it ought to 
contain, but to that which it actually does contain. Before the 
reformation of the silver coin in King William's time, exchange 
between England and Holland, computed, in the usual manner, ac- 
cording to the standard of their respective mints, was five and twenty 
per cent, against England. But the value of the current coin of 
England, as we learn from Mr. Lowndes, was at that time rather 
more than five and twenty per cent, below its standard value. The 
real exchange, therefore, may even at that time have been in favour 
of England, notwithstanding the computed exchange was so much 
against it; a smaller number of ounces of pure silver, actually paid in 
England, may have purchased a bill for a greater number of ounces 
of pure silver to be paid in Holland, and the man who was sup- 
posed to give, may in reality have got the premium. The French 
coin was, before the late reformation of the English gold coin, 
much less worn than the English, and was, perhaps, two or three 
per cent, nearer its standard. If the computed exchange with France, 
therefore, was not more than two or three per cent, against England, 
the real exchange might have been in its favour. Since the reforma- 



358 WEALTH OF NATIONS 

tion of the gold coin, the exchange has been constantly in favour of 
England, and against France. 

Secondly, in some countries, the exf)ence of coinage is defrayed 
by the government; in others, it is defrayed by the private people 
who carry their bullion to the mint, and the government even de- 
rives some revenue from the coinage. In England, it is defrayed by 
the government, and if you carry a pound weight of standard silver 
to the mint, you get back sixty-two shillings, containing a pound 
weight of the like standard silver. In France, a duty of eight per 
cent, is deducted for the coinage, which not only defrays the ex- 
pence of it, but affords a small revenue to the government. In Eng- 
land, as the coinage costs nothing, the current coin can never be 
much more valuable than the quantity of bullion which it actually 
contains. In France, the workmanship, as you pay for it, adds to 
the value, in the same manner as to that of wrought plate. A sum 
of French money, therefore, containing a certain weight of pure 
silver, is more valuable than a sum of English money containing an 
equal weight of pure silver, and must require more bullion, or other 
commodities, to purchase it. Though the current coin of the two 
countries, therefore, were equally near the standards of their re- 
spective mints, a sum of English money could not well purchase a 
sum of French money, containing an equal number of ounces of 
pure silver, nor consequendy a bill upon France for such a sum. 
If for such a bill no more additional money was paid than what was 
sufficient to compensate the expence of the French coinage, the real 
exchange might be at par between the two countries, their debts and 
credits might mutually compensate one another, while the computed 
exchange was considerably in favour of France. If less than this was 
paid, the real exchange might be in favour of England, while the 
computed was in favour of France. 

Thirdly, and lasdy, in some places, as at Amsterdam, Hamburg, 
Venice, &c. foreign bills of exchange are paid in what they call bank 
money; while in others, as at London, Lisbon, Antwerp, Leghorn, 
&C., they are paid in the common currency of the country. What is 
called bank money is always of more value than the same nominal 
simi of common currency. A thousand guilders in the bank of Am- 
sterdam, for example, are of more value than a thousand guilders of 



ON IMPORTS FROM PARTICULAR COUNTRIES 359 

Amsterdam currency. The difference between them is called the agio 
of the bank, which, at Amsterdam, is generally about five per cent. 
Supposing the current money of two countries equally near to the 
standard of their respective mints, and that the one pays foreign 
bills in this common currency, while the other pays them in bank 
money, it is evident that the computed exchange may be in favour of 
that which pays in bank money, though the real exchange should be 
in favour of that which pays in current money; for the same reason 
that the computed exchange may be in favour of that which pays in 
better money, or in money nearer to its own standard, though the 
real exchange should be in favour of that which pays in worse. The 
computed exchange, before the late reformation of the gold coin, 
was generally against London, with Amsterdam, Hamburgh, Ven- 
ice, and, I believe, with all other places which pay in what is called 
bank money. It will by no means follow, however, that the real 
exchange was against it. Since the reformation of the gold coin, it 
has been in favour of London even with those places. The com- 
puted exchange has generally been in favour of London with Lis- 
bon, Antwerp, Leghorn, and, if you except France, I believe, with 
most other parts oi Europe that pay in common currency; and it is 
not improbable tliat the real exchange was so too. 

PART II 

Of the Unreasonableness of Those Extraordinary Restraints 
Upon Other Principles 

In the foregoing Part of this Chapter I have endeavoured to 
shew, even upon the principles of the commercial system, how un- 
necessary it is to lay extraordinary restraints upon the importation 
of goods from those countries with which the balance of trade is 
supposed to be disadvantageous. 

Nothing, however, can be more absurd than this whole doctrine 
of the balance of trade, upon which, not only these restraints, but 
almost all the other regulations of commerce are founded. When 
two places trade with one another, this doctrine supposes that, if the 
balance be even, neither of them either loses or gains; but if it leans 
in any degree to one side, that one of them loses, and the other gains 



360 WEALTH OF NATIONS 

in proportion to its declension from the exact equilibrium. Both 
suppositions are false. A trade which is forced by means of boun- 
ties and monopolies may be, and commonly is, disadvantageous to 
the country in whose favour it is meant to be established, as I shall 
endeavour to show hereafter. But that trade which, without force 
or constraint, is naturally and regularly carried on between any 
two places, is always advantageous, though not always equally so, 
to both. 

By advantage or gain, I understand, not the increase of the quan- 
tity of gold and silver, but that of the exchangeable value of the 
annual produce of the land and labour of the country, or the in- 
crease of the annual revenue of its inhabitants. 

If the balance be even, and if the trade between the two places con- 
sist altogether in the exchange of their native commodities, they 
will, upon most occasions, not only both gain, but they will gain 
equally, or very near equally: each will in this case afford a market 
for a part of the surplus produce of the other: each will replace a 
capital which had been employed in raising and preparing for the 
market this part of the surplus produce of the other, and which had 
been distributed among, and given revenue and maintenance to a 
certain number of its inhabitants. Some part of the inhabitants of 
each, therefore, will indirectly derive their revenue and maintenance 
from the other. As the commodities exchanged too are supposed to 
be of equal value, so the two capitals employed in the trade will, 
upon most occasions, be equal, or very nearly equal; and both being 
employed in raising the native commodities of the two countries, 
the revenue and maintenance which their distribution will afford 
to the inhabitants of each will be equal, or very nearly equal. This 
revenue and maintenance, thus mutually afforded, will be greater or 
smaller in proportion to the extent of their dealings. If these should 
annually amount to an hundred thousand pounds, for example, or to 
a million on each side, each of them would afford an annual rev- 
enue in the one case of an hundred thousand pounds, in the other, 
of a million, to the inhabitants of the other. 

If their trade should be of such a nature that one of them exported 
to the other nothing but native commodities, while the returns of 
that other consisted altogether in foreign goods; the balance, in this 



ON IMPORTS FROM PARTICULAR COUNTRIES 361 

case, would still be supposed even, commodities being paid for with 
commodities. They would, in this case too, both gain, but they would 
not gain equally; and the inhabitants of the country which expxjrted 
nothing but native commodities would derive the greatest revenue 
from the trade. If England, for example, should import from France 
nothing but the native commodities of that country, and, not having 
such commodities of its own as were in demand there, should an- 
nually repay them by sending thither a large quantity of foreign 
goods, tobacco, we shall suppose, and East India goods; this trade, 
though it would give some revenue to the inhabitants of both coun- 
tries, would give more to those of France than to those of England. 
The whole French capital annually employed in it would annually 
be distributed among the people of France. But that part of the 
English capital only which was employed in producing the English 
commodities with which those foreign goods were purchased, would 
be annually distributed among the people of England. The greater 
part of it would replace the capitals which had been employed in 
Virginia, Indostan, and China, and which had given revenue and 
maintenance to the inhabitants of those distant countries. If the capi- 
tals were equal, or nearly equal, therefore, this employment of the 
French capital would augment much more the revenue of the peo- 
ple of France, than that of the English capital would the revenue 
of the jjeople of England. France would in this case carry on a 
direct foreign trade of consumption with England; whereas Eng- 
land would carry on a round-about trade of the same kind with 
France. The different effects of a capital employed in the direct, 
and of one employed in the round-about foreign trade of consump- 
tion, have already been fully explained. 

There is not, probably, between any two countries, a trade which 
consists altogether in the exchange either of native commodities on 
both sides, or of native commodities on one side and of foreign 
goods on the other. Almost all countries exchange with one another 
partly native and partly foreign goods. That country, however, in 
whose cargoes there is the greatest proportion of native, and the least 
of foreign goods, will always be the principal gainer. 

If it was not with tobacco and East India goods, but with gold 
and silver, that England paid for the commodities annually imported 



362 WEALTH OF NATIONS 

from France, the balance, in this case, would be supposed uneven, 
commodities not being paid for with commodities, but with gold 
and silver. The trade, however, would, in this case, as in the fore- 
going, give some revenue to the inhabitants of both countries, but 
more to those of France than to those of England. It would give 
some revenue to those of England. The capital which had been em- 
ployed in producing the English goods that purchased this gold and 
silver, the capital which had been distributed among, and given 
revenue to, certain inhabitants of England, would thereby be re- 
placed, and enabled to continue that employment. The whole capital 
of England would no more be diminished by this exportation of gold 
and silver, than by the exportation of an equal value of any other 
goods. On the contrary, it would, in most cases, be augmented. No 
goods are sent abroad but those for which the demand is supposed 
to be greater abroad than at home, and of which the returns con- 
sequently, it is expected, will be of more value at home than the 
commodities exported. If the tobacco which, in England, is worth 
only a hundred thousand pounds, when sent to France will 
purchase wine which is, in England, worth a hundred and ten 
thousand pounds, the exchange will augment the capital of England 
by ten thousand pounds. If a hundred thousand pounds of English 
gold, in the same manner, purchase French wine, which, in Eng- 
land, is worth a hundred and ten thousand, this exchange will 
equally augment the capital of England by ten thousand pounds. As 
a merchant who has a hundred and ten thousand pounds worth of 
wine in his cellar, is a richer man than he who has only a hundred 
thousand pounds worth of tobacco in his warehouse, so is he likewise 
a richer man than he who has only a hundred thousand pounds 
worth of gold in his coffers. He can put into motion a greater 
quantity of industry, and give revenue, maintenance, and employ- 
ment, to a greater number of people than either of the other two. 
But the capital of the country is equal to the capitals of all its dif- 
ferent inhabitants, and the quantity of industry which can be an- 
nually maintained in it, is equal to what all those different capitals 
can maintain. Both the capital of the country, therefore, and the 
quantity of industry which can be annually maintained in it, must 
generally be augmented by this exchange. It would, indeed, be 



ON IMPORTS FROM PARTICULAR COUNTRIES 363 

more advantageous for England that it could purchase the wines of 
France with its own hard-ware and broad-cloth, than with either 
the tobacco of Virginia, or the gold and silver of Brazil and Peru. 
A direct foreign trade of consumption is always more advantageous 
than a round-about one. But a round-about foreign trade of con- 
sumption, which is carried on with gold and silver, does not seem to 
be less advantageous than any other equally round-about one. 
Neither is a country which has no mines, more likely to be exhausted 
of gold and silver by this annual exportation of those metals, than 
one which does not grow tobacco by the like annual exportation of 
that plant. As a country which has wherewithal to buy tobacco will 
never be long in want of it, so neither will one be long in want of 
gold and silver which has wherewithal to purchase those metals. 

It is a losing trade, it is said, which a workman carries on with 
the alehouse; and the trade which a manufacturing nation would 
naturally carry on with a wine country, may be considered as a 
trade of the same nature. I answer, that the trade with the alehouse 
is not necessarily a losing trade. In its own nature it is just as ad- 
vantageous as any other, though, perhaps, somewhat more liable to 
be abused. The employment of a brewer, and even that of a retailer 
of fermented liquors, are as necessary divisions of labour as any 
other. It will generally be more advantageous for a workman to 
buy of the brewer the quantity he has occasion for, than to brew it 
himself, and if he is a poor workman, it will generally be more ad- 
vantageous for him to buy it, by litde and little, of the retailer, 
than a large quantity of the brewer. He may no doubt buy too much 
of either, as he may of any other dealers in his neighbourhood, of 
the butcher, if he is a glutton, or of the draper, if he affects to be a 
beau among his companions. It is advantageous to the great body 
of workmen, notwithstanding, that all these trades should be free, 
though this freedom may be abused in all of them, and is more 
likely to be so, perhaps, in some than in others. Though individuals, 
besides, may sometimes ruin their fortunes by an excessive con- 
sumption of fermented liquors, there seems to be no risk that a 
nation should do so. Though in every country there are many peo- 
ple who spend upon such liquors more than they can afford, there 
are always many more who spend less. It deserves to be remarked 



364 WEALTH OF NATIONS 

too, that, if we consult experience, the cheapness of wine seems to 
be a cause, not of drunkenness, but of sobriety. The inhabitants of 
the wine countries are in general the soberest people in Europe; 
witness the Spaniards, the Italians, and the inhabitants of the south- 
ern provinces of France. People are seldom guilty of excess in what 
is their daily fare. Nobody affects the character of liberality and good 
fellowship, by being profuse of a liquor which is as cheap as small 
beer. On the contrary, in the countries which, either from excessive 
heat or cold, produce no grapes, and where wine consequendy is dear 
and a rarity, drunkenness is a common vice, as among the northern 
nations, and all those who live between the tropics, the negroes, for 
example, on the coast of Guinea. When a French regiment comes 
from some of the northern provinces of France, where wine is some- 
what dear, to be quartered in the southern, where it is very cheap, 
the soldiers, I have frequently heard it observed, are at first de- 
bauched by the cheapness and novelty of good wine; but after a few 
months residence, the greater part of them become as sober as the 
rest of the inhabitants. Were the duties upon foreign wines, and the 
excises upon malt, beer, and ale, to be taken away all at once, it 
might, in the same manner, occasion in Great Britain a pretty gen- 
eral and tem[K>rary drunkenness among the middling and inferior 
ranks of people, which would probably be soon followed by a per- 
manent and almost universal sobriety. At present drunkenness is 
by no means the vice of people of fashion, or of those who can 
easily afford the most expensive liquors. A gentleman drunk with 
ale, has scarce ever been seen among us. The restraints uf)on the 
wine trade in Great Britain, besides, do not so much seem calculated 
to hinder the pieople from going, if I may say so, to the alehouse, as 
from going where they can buy the best and cheapest liquor. They 
favour the wine trade of Portugal, and discourage that of France. 
The Portuguese, it is said, indeed, are better customers for our man- 
ufactures than the French, and should therefore be encouraged in 
preference to them. As they give us their custom, it is pretended, we 
should give them ours. The sneaking arts of underling tradesmen 
are thus erected into political maxims for the conduct of a great 
empire; for it is the most underling tradesmen only who make it a 
rule to employ chiefly their own customers. A great trader pur- 



ON IMPORTS FROM PARTICULAR COUNTRIES 365 

chases his goods always where they are cheapest and best, without 
regard to any little interest of this kind. 

By such maxims as these, however, nations have been taught that 
their interest consisted in beggaring all their neighbours. Each na- 
tion has been made to look with an invidious eye upon the prosper- 
ity of all the nations with which it trades, and to consider their 
gain as its own loss. Commerce, which ought naturally to be, 
among nations, as among individuals, a bond of union and friend- 
ship, has become the most fertile source of discord and animosity. 
The capricious ambition of kings and ministers has not, during the 
present and the preceding century, been more fatal to the repose of 
Europe, than the impertinent jealousy of merchants and manufac- 
turers. The violence and injustice of the rulers of mankind is an 
ancient evil, for which, I am afraid, the nature of human affairs can 
scarce admit of a remedy. But the mean rapacity, the monopolizing 
spirit of merchants and manufacturers, who neither are, nor ought 
to be, the rulers of mankind, though it cannot perhaps be corrected, 
may very easily be prevented from disturbing the tranquillity of any 
body but themselves. 

That it was the spirit of monopoly which originally both in- 
vented and propagated this doctrine, cannot be doubted; and they 
who first taught it were by no means such fools as they who believed 
it. In every country it always is and must be the interest of the great 
body of the people to buy whatever they want of those who sell it 
cheapest. The proposition is so very manifest, that it seems ridicu- 
lous to take any pains to prove it; nor could it ever have been called 
in question, had not the interested sophistry of merchants and manu- 
facturers confounded the common sense of mankind. Their interest 
is, in this respect, directly opposite to that of the great body of the 
people. As it is the interest of the freemen of a corporation to hinder 
the rest of the inhabitants from employing any workmen but them- 
selves, so it is the interest of the merchants and manufacturers of 
every country to secure to themselves the monopoly of the home 
market. Hence in Great Britain, and in most other European coun- 
tries, the extraordinary duties upon almost all goods imported by 
alien merchants. Hence the high duties and prohibitions ufxjn all 
those foreign manufactures which can come into competition with 



366 WEALTH OF NATIONS 

our own. Hence too the extraordinary restraints upon the importa- 
tion of almost all sorts of goods from those countries with which 
the balance of trade is supposed to be disadvantageous; that is, from 
those against whom national animosity happens to be most violently 
inflamed. 

The wealth of a neighbouring nation, however, though dangerous 
in war and politics, is certainly advantageous in trade. In a state of 
hostility it may enable our enemies to maintain fleets and armies 
superior to our own; but in a state of peace and commerce it must 
likewise enable them to exchange with us to a greater value, and to 
afford a better market, either for the immediate produce of our own 
industry, or for whatever is purchased with that produce. As a rich 
man is likely to be a better customer to the industrious people in 
his neighbourhood, than a poor, so is likewise a rich nation. A rich 
man, indeed, who is himself a manufacturer, is a very dangerous 
neighbour to all those who deal in the same way. All the rest of 
the neighbourhood, however, by far the greatest number, profit by 
the good market which his expence affords them. They even profit 
by his underselling the poorer workmen who deal in the same way 
with him. The manufacturers of a rich nation, in the same manner, 
may no doubt be very dangerous rivals to those of their neighbours. 
This very competition, however, is advantageous to the great body 
of the people, who profit greatly besides by the good market which 
the great expence of such a nation affords them in every other way. 
Private people who want to make a fortune, never think of retiring 
to the remote and poor provinces of the country, but resort either to 
the capital, or to some of the great commercial towns. They know, 
that, where little wealth circulates, there is little to be got, but that 
where a great deal is in motion, some shares of it may fall to them. 
The same maxims which would in this manner direct the common 
sense of one, or ten, or twenty individuals, should regulate the 
judgment of one, or ten, or twenty millions, and should make a 
whole nation regard the riches of its neighbours, as a probable cause 
and occasion for itself to acquire riches. A nation that would enrich 
itself by foreign trade, is certainly most likely to do so when its 
neighbours are all rich, industrious, and commercial nations. A 
great nation surrounded on all sides by wandering savages and poor 



ON IMPORTS FROM PARTICULAR COUNTRIES 367 

barbarians might, no doubt, acquire riches by the cultivation of its 
own lands, and by its own interior commerce, but not by foreign 
trade. It seems to have been in this manner that the ancient Egyp- 
tians and the modern Chinese acquired their great wealth. The an- 
cient Egyptians, it is said, neglected foreign commerce, and the 
modern Chinese, it is known, hold it in the utmost contempt, and 
scarce deign to afford it the decent protection of the laws. The 
modern maxims of foreign commerce, by aiming at the imp)overish- 
ment of all our neighbours, so far as they are capable of producing 
their intended effect, tend to render that very commerce insignificant 
and contemptible. 

It is in consequence of these maxims that the commerce between 
France and England has in both countries been subjected to so many 
discouragements and restraints. If those two countries, however, 
were to consider their real interest, without either mercantile jealousy 
or national animosity, the commerce of France might be more advan- 
tageous to Great Britain than that of any other country, and for the 
same reason that of Great Britain to France. France is the nearest 
neighbour to Great Britain. In the trade between the southern coast 
of England and the northern and north-western coasts of France, the 
returns might be expected, in the same manner as in the inland 
trade, four, five, or six times in the year. The capital, therefore, 
employed in this trade, could in each of the two countries keep in 
motion four, five, or six times the quantity of industry, and afford 
employment and subsistence to four, five, or six times the number of 
people, which an equal capital could do in the greater part of the 
other branches of foreign trade. Between the parts of France and 
Great Britain most remote from one another, the returns might be 
expected, at least, once in the year, and even this trade would so far 
be at least equally advantageous as the greater part of the other 
branches of our foreign European trade. It would be, at least, three 
times more advantageous, than the boasted trade with our North 
American colonies, in which the returns were seldom made in less 
than three years, frequently not in less than four or five years. 
France, besides, is supposed to contain twenty-four millions of in- 
habitants. Our North American colonies were never suppKDsed to 
contain more than three millions: And France is a much richer 



368 WEALTH OF NATIONS 

country than North America; though, on account of the more un- 
equal distribution of riches, there is much more poverty and beggary 
in the one country than in the other. France therefore could afford 
a market at least eight times more extensive, and, on account of the 
superior frequency of the returns, four and twenty times more ad- 
vantageous, than that which our North American colonies ever 
afforded. The trade of Great Britain would be just as advantageous 
to France, and, in proportion to the wealth, population and proximity 
of the respective countries, would have the same superiority over 
that which France carries on with her own colonies. Such is the 
very great difference between that trade which the wisdom of both 
nations has thought proper to discourage, and that which it has 
favoured the most. 

But the very same circumstances which would have rendered 
an open and free commerce between the two countries so advan- 
tageous to both, have occasioned the principal obstructions to that 
commerce. Being neighbours, they are necessarily enemies, and the 
wealth and p)ower of each becomes, upon that account, more for- 
midable to the other; and what would increase the advantage of 
national friendship, serves only to inflame the violence of national 
animosity. They are both rich and industrious nations; and the 
merchants and manufacturers of each, dread the competition of the 
skill and activity of those of the other. Mercantile jealousy is excited, 
and both inflames, and is itself inflamed, by the violence of national 
animosity: And the traders of both countries have announced, with 
all the passionate confidence of interested falsehood, the certain ruin 
of each, in consequence of that unfavourable balance of trade, which, 
they pretend, would be the infallible effect of an unrestrained com- 
merce with the other. 

There is no commercial country in Europe of which the approach- 
ing ruin has not frequently been foretold by the pretended doctors of 
this system, from an unfavourable balance of trade. After all the 
anxiety, however, which they have excited about this, after all the 
vain attempts of almost all trading nations to turn that balance in 
their own favour and against their neighbours, it does not appear 
that any one nation in Europe has been in any respect impoverished 
by this cause. Every town and country, on the contrary, in proper- 



ON IMPORTS FROM PARTICULAR COU>nrRIES 369 

tion as they have opened their ports to all nations, instead of being 
ruined by this free trade, as the principles of the commercial system 
would lead us to expect, have been enriched by it. Though there are 
in Europe, indeed, a few towns which in some respects deserve the 
name of free ports, there is no country which does so. Holland, 
perhaps, approaches the nearest to this character of any, though still 
very remote from it; and Holland, it is acknowledged, not only 
derives its whole wealth, but a great part of its necessary subsistence, 
from foreign trade. 

There is another balance, indeed, which has already been ex- 
plained, very different from the balance of trade, and which, accord- 
ing as it happens to be either favourable or unfavourable, necessarily 
occasions the prosperity or decay of every nation. This is the balance 
of the annual produce and consumption. If the exchangeable value 
of the annual produce, it has already been observed, exceeds that of 
the annual consumption, the capital of the society must annually in- 
crease in proportion to this excess. The society in this case lives 
within its revenue, and what is annually saved out of its revenue, 
is naturally added to its capital, and employed so as to increase still 
further the annual produce. If the exchangeable value of the annual 
produce, on the contrary, fall short of the annual consumption, the 
capital of the society must annually decay in proportion to this defi- 
ciency. The expence of the society in this case exceeds its revenue, 
and necessarily encroaches upon its capital. Its capital, therefore, 
must necessarily decay, and, together with it, the exchangeable value 
of the annual produce of its industry. 

This balance of produce and consumption is entirely different 
from what is called the balance of trade. It might take place in a 
nation which had no foreign trade, but which was entirely separated 
from all the world. It may take place in the whole globe of the 
earth, of which the wealth, population, and improvement may be 
either gradually increasing or gradually decaying. 

The balance of produce and consumption may be constantly in 
favour of a nation, though what is called the balance of trade be 
generally against it. A nation may import to a greater value than it 
exports for half a century, perhaps, together; the gold and silver 
which comes into it during all this time may be all immediately 



370 WEALTH OF NATIONS 

sent out of it; its circulating coin may gradually decay, different 
sorts of paper money being substituted in its place, and even the 
debts too which it contracts in the principal nations with whom it 
deals, may be gradually increasing; and yet its real wealth, the ex- 
changeable value of the annual produce of its lands and labour, may, 
during the same period, have been increasing in a much greater pro- 
portion. The state of our North American colonies, and of the trade 
which they carried on with Great Britain, before the commencement 
of the present disturbances, may serve as a proof that this is by no 
means an impossible supposition. 



CHAPTER IV 
Of Drawbacks 

MERCHANTS and manufacturers are not contented with 
the monopoly of the home market, but desire likewise the 
most extensive foreign sale for their goods. Their country 
has no jurisdiction in foreign nations, and therefore can seldom 
procure them any monopoly there. They are generally obliged, 
therefore, to content themselves with petitioning for certain encour- 
agements to exportation. 

Of these encouragements what are called Drawbacks seem to be 
the most reasonable. To allow the merchant to draw back uf)on 
exportation, either the whole or a part of whatever excise or inland 
duty is imposed upon domestic industry, can never occasion the 
exportation of a greater quantity of goods than what would have 
been exported had no duty been imposed. Such encouragements do 
not tend to turn towards any particular employment a greater share 
of the capital of the country, than what would go to that employ- 
ment of its own accord, but only to hinder the duty from driving 
away any part of that share to other employments. They tend not 
to overturn that balance which naturally establishes itself among all 
the various employments of the society; but to hinder it from being 
overturned by the duty. They tend not to destroy, but to preserve, 
what it is in most cases advantageous to preserve, the natural divi- 
sion and distribution of labour in the society. 

The same thing may be said of the drawbacks upon the re-expor- 
tation of foreign goods imported; which in Great Britain generally 
amount to by much the largest part of the duty upon importation. 

Drawbacks were, perhaps, originally granted for the encourage- 
ment of the carrying trade, which, as the freight of the ships is fre- 
quently paid by foreigners in money, was supposed to be peculiarly 
fitted for bringing gold and silver into the country. But though the 
carrying trade certainly deserves no peculiar encouragement, though 

371 



372 WEALTH OF NATIONS 

the motive of the institution was, perhaps, abundantly fooHsh, the 
institution itself seems reasonable enough. Such drawbacks cannot 
force into this trade a greater share of the capital of the country than 
what would have gone to it of its own accord, had there been no 
duties upon importation. They only prevent its being excluded alto- 
gether by those duties. The carrying trade, though it deserves no 
preference, ought not to be precluded, but to be left free like all 
other trades. It is a necessary resource for those capitals which cannot 
find employment either in the agriculture or in the manufactures 
of the country, either in its home trade or in its foreign trade of 
consumption. 

The revenue of the customs, instead of suffering, profits from such 
drawbacks, by that part of the duty which is retained. If the whole 
duties had been retained, the foreign goods upon which they are 
paid, could seldom have been exported, nor consequently imported, 
for want of a market. The duties, therefore, of which a part is 
retained, would never have been paid. 

These reasons seem sufficiently to justify drawbacks, and would 
justify them, though the whole duties, whether upon the produce of 
domestic industry, or upon foreign goods, were always drawn back 
upon exportation. The revenue of excise would in this case, indeed, 
suffer a little, and that of the customs a good deal more; but the 
natural balance of industry, the natural division and distribution of 
labour, which is always more or less disturbed by such duties, would 
be more nearly re-established by such a regulation. 

These reasons, however, will justify drawbacks only upon export- 
ing goods to those countries which are altogether foreign and inde- 
pendent, not to those in which our merchants and manufacturers 
enjoy a monopoly. A drawback, for example, upon the exportation 
of European goods to our American colonies, will not always occa- 
sion a greater exportation than what would have taken place without 
it. By means of the monopoly which our merchants and manufac- 
turers enjoy there, the same quantity might frequently, perhaps, be 
sent thither, though the whole duties were retained. The drawback, 
therefore, may frequently be pure loss to the revenue of excise and 
customs, without altering the state of the trade, or rendering it in 
any respect more extensive. How far such drawbacks can be justi- 



DRAWBACKS 373 

fied, as a proper encouragement to the industry of our colonies, or 
how far it is advantageous to the mother-country, that they should 
be exempted from taxes which are paid by all the rest of their fellow- 
subjects, will appear hereafter when I come to treat of colonies. 

Drawbacks, however, it must always be understood, are useful 
only in those cases in which the goods for the exportation of which 
they are given, are really exported to some foreign country; and 
not clandestinely re-imported into our own. That some draw- 
backs, particularly those upon tobacco, have frequently been abused 
in this manner, and have given occasion to many frauds equally 
hurtful both to the revenue and to the fair trader, is well known. 



CHAPTER V 
Of Bounties 

BOUNTIES upon exportation are, in Great Britain, frequently 
, petitioned for, and sometimes granted to the produce of par- 
ticular branches of domestic industry. By means of them our 
merchants and manufacturers, it is pretended, will be enabled to 
sell their goods as cheap or cheaper than their rivals in the foreign 
market. A greater quantity, it is said, will thus be exported, and the 
balance of trade consequently turned more in favour of our own 
country. We cannot give our workmen a monopoly in the foreign, 
as we have done in the home market. We cannot force foreigners to 
buy their goods, as we have done our own countrymen. The next 
best expedient, it has been thought, therefore, is to pay them for 
buying. It is in this manner that the mercantile system proposes to 
enrich the whole country, and to put money into all our pockets by 
means of the balance of trade. 

Bounties, it is allowed, ought to be given to those branches of trade 
only which cannot be carried on without them. But every branch 
of trade in which the merchant can sell his goods for a price which 
replaces to him, with the ordinary profits of stock, the whole capital 
employed in preparing and sending them to market, can be carried 
on without a bounty. Every such branch is evidently upon a level 
with all the other branches of trade which are carried on without 
bounties, and cannot therefore require one more than they. Those 
trades only require bounties in which the merchant is obliged to 
sell his goods for a price which does not replace to him his capital, 
together with the ordinary profit; or in which he is obliged to sell 
them for less than it really costs him to send them to market. The 
bounty is given in order to make up this loss, and to encourage him 
to continue, or perhaps to begin, a trade of which the expence is 
supposed to be greater than the returns, of which every operation 
eats up a part of the capital employed in it, and which is of such a 

374 



BOUNTIES 375 

nature, that, if all other trades resembled it, there would soon be 
no capital left in the country. 

The trades, it is to be observed, which are carried on by means 
of bounties, are the only ones which can be carried on between two 
nations for any considerable time together, in such a manner as 
that one of them shall always and regularly lose, or sell its goods for 
less than it really costs to send them to market. But if the bounty 
did not repay to the merchant what he would otherwise lose upon 
the price of his goods, his own interest would soon oblige him to 
employ his stock in another way, or to find out a trade in which the 
price of the goods would replace to him, with the ordinary profit, 
the capital employed in sending them to market. The effect of 
bounties, like that of all the other expedients of the mercantile sys- 
tem, can only be to force the trade of a country into a channel much 
less advantageous than that in which it would naturally run of its 
own accord. 

The ingenious and well-informed author of the tracts upon the 
corn-trade has shown very clearly, that since the bounty upon the 
exportation of corn was first established, the price of the corn ex- 
ported, valued moderately enough, has exceeded that of the corn im- 
ported, valued very high, by a much greater sum than the amount of 
the whole bounties which have been paid during that period. This, 
he imagines, ujxjn the true principles of the mercantile system, is a 
clear proof that this forced corn trade is beneficial to the nation; the 
value of the exportation exceeding that of the importation by a 
much greater sum than the whole extraordinary expence which the 
public has been at in order to get it exported. He does not consider 
that this extraordinary expence, or the bounty, is the smallest part 
of the expence which the exportation of corn really costs the society. 
The capital which the farmer employed in raising it, must likewise 
be taken into the account. Unless the price of the corn when sold 
in the foreign markets replaces, not only the bounty, but this capi- 
tal, together with the ordinary profits of stock, the society is a loser 
by the difference, or the national stock is so much diminished. But 
the very reason for which it has been thought necessary to grant a 
bounty, is the supposed insufficiency of the price to do this. 

The average price of corn, it has been said, has fallen considerably 



376 WEALTH OI NATIONS 

since the establishment of the bounty. That the average price of 
corn began to fall somewhat towards the end of the last century, 
and has continued to do so during the course of the sixty-four first 
years of the present, I have already endeavoured to show. But this 
event, supposing it to be as real as I believe it to be, must have hap- 
pened in spite of the bounty, and cannot possibly have happened in 
consequence of it. It has happened in France, as well as in England, 
though in France there was, not only no bounty, but, till 1764, the 
exportation of corn was subjected to a general prohibition. This 
gradual fall in the average price of grain, it is probable, therefore, 
is ultimately owing neither to the one regulation nor to the other, 
but to that gradual and insensible rise in the real value of silver, 
which, in the first book of this discourse, I have endeavoured to 
show has taken place in the general market of France, during the 
course of the present century. It seems to be altogether impossible 
that the bounty could ever contribute to lower the price of grain. 

In years of plenty, it has already been observed, the bounty, by 
occasioning an extraordinary exp>ortation, necessarily keeps up the 
price of corn in the home market above what it would naturally fall 
to. To do so was the avowed purpose of the institution. In years 
of scarcity, though the bounty is frequently suspended, yet the great 
exportation which it occasions in years of plenty, must frequently 
hinder more or less the plenty of one year from relieving the scarcity 
of another. Both in years of plenty, and in years of scarcity, there- 
fore, the bounty necessarily tends to raise the money price of corn 
somewhat higher than it otherwise would be in the home market. 

That, in the actual state of tillage, the bounty must necessarily have 
this tendency, will not, I apprehend, be disputed by any reasonable 
person. But it has been thought by many people that it tends to 
encourage tillage, and that in two different ways; first, by opening 
a more extensive foreign market to the corn of the farmer, it tends, 
they imagine, to increase the demand for, and consequently the 
production of that commodity; and secondly, by securing to him a 
better price than he could otherwise expect in the actual state of 
tillage, it tends, they suppose, to encourage tillage. This double 
encouragement must, they imagine, in a long period of years, occa- 
sion such an increase in the production of corn, as may lower its price 



BOUNTIES 377 

in the home market, much more than the bounty can raise it, in the 
actual state which tillage may, at the end of that period, happen to 
be in. 

I answer, that whatever extension of the foreign market can be 
occasioned by the bounty, must, in every particular year, be alto- 
gether at the expence of the home market; as every bushel of corn 
which is exported by means of the bounty, and which would not 
have been exported without the bounty, would have remained in 
the home market to increase the consumption, and to lower the 
price of that commodity. The corn bounty, it is to be observed, as 
well as every other bounty upon exportation, imposes two different 
taxes upon the people; first, the tax which they are obliged to con- 
tribute, in order to pay the bounty; and secondly, the tax which 
arises from the advanced price of the commodity in the home mar- 
ket, and which, as the whole body of the f)eople are purchasers of 
corn, must, in this particular commodity, be paid by the whole body 
of the people. In this particular commodity, therefore, this second 
tax is by much the heaviest of the two. Let us suppose that, taking 
one year with another, the bounty of five shillings upon the exporta- 
tion of the quarter of wheat, raises the price of that commodity in 
the home market only sixpence the bushel, or four shillings the 
quarter, higher than it otherways would have been in the actual 
state of the crop. Even upon this very moderate supposition, the 
great body of the people, over and above contributing the tax which 
pays the bounty of five shillings upon every quarter of wheat ex- 
ported, must pay another of four shillings upon every quarter which 
they themselves consume. But, according to the very well informed 
author of the tracts upon the corn-trade, the average proportion of 
the corn exported to that consumed at home, is not more than that 
of one to thirty-one. For every five shillings, therefore, which they 
contribute to the payment of the first tax, they must contribute six 
pounds four shillings to the payment of the second. So very heavy a 
tax upon the first necessary of life, must either reduce the subsistence 
of the labouring poor, or it must occasion some augmentation in 
their pecuniary wages, proportionable to that in the pecuniary price 
of their subsistence. So far as it operates in the one way, it must 
reduce the ability of the labouring poor to educate and bring up their 



378 WEALTH OF NATIONS 

children, and must, so far, tend to restrain the population of the 
country. So far as it operates in the other, it must reduce the ability 
of the employers of the poor, to employ so great a number as they 
otherwise might do, and must, so far, tend to restrain the industry 
of the country. The extraordinary exportation of corn, therefore, 
occasioned by the bounty, not only, in every particular year, dimin- 
ishes the home, just as much as it extends the foreign market and 
consumption, but, by restraining the population and industry of 
the country, its final tendency is to stunt and restrain the gradual ex- 
tension of the home market; and thereby, in the long run, rather to 
diminish, than to augment, the whole market and consumption of 
corn. 

This enhancement of the money price of corn, however, it has been 
thought, by rendering that commodity more profitable to the farmer, 
must necessarily encourage its production. 

1 answer, that this might be the case if the effect of the bounty was 
to raise the real price of corn, or to enable the farmer, with an equal 
quantity of it, to maintain a greater number of labourers in the same 
manner, whether liberal, moderate, or scanty, that other labourers 
are commonly maintained in his neighbourhood. But neither the 
bounty, it is evident, nor any other human institution, can have any 
such effect. It is not the real, but the nominal price of corn, which 
can in any considerable degree be affected by the bounty. And 
though the tax, which that institution imposes upon the whole body 
of the jjeople, may be very burdensome to those who pay it, it is of 
very little advantage to those who receive it. 

The real effect of the bounty is not so much to raise the real 

'alue of corn, as to degrade the real value of silver; or to make an 

equal quantity of it exchange for a smaller quantity, not only of 

corn, but of all other home-made commodities: for the money 

price of corn regulates that of all other home-made commodities. 

It regulates the money price of labour, which must always be 
such as to enable the labourer to purchase a quantity of corn suffi- 
cient to maintain him and his family either in the liberal, moderate, 
or scanty manner in which the advancing, stationary or declining 
circumstances of the society oblige his employers to maintain him. 

It regulates the money price of all the other parts of the rude 



BOUNTIES 379 

produce of land, which, in every period of improvement, must bear 
a certain proportion to that of corn, though this proportion is differ- 
ent in different periods. It regulates, for example, the money price 
of grass and hay, of butcher's meat, of horses, and the maintenance 
of horses, of land carriage consequently, or of the greater part of the 
inland commerce of the country. 

By regulating the money price of all the other parts of the rude 
produce of land, it regulates that of the materials of almost all manu- 
factures. By regulating the money price of labour, it regulates that 
of manufacturing art and industry. And by regulating both, it regu- 
lates that of the complete manufacture. The money price of labour, 
and of every thing that is the produce either of land or labour, must 
necessarily either rise or fall in proportion to the money price of 
corn. 

Though in consequence of the bounty, therefore, the farmer should 
be enabled to sell his corn for four shillings the bushel instead of 
three and sixpence, and to pay his landlord a money rent propor- 
tionable to this rise in the money price of his produce; yet if, in con- 
sequence of this rise in the price of corn, four shillings will pur- 
chase no more home-made goods of any other kind than three and 
sixpence would have done before, neither the circumstances of the 
farmer, nor those of the landlord, will be much mended by this 
change. The farmer will not be able to cultivate much better: the 
landlord will not be able to live much better. In the purchase of 
foreign commodities this enhancement in the price of corn may 
give them some little advantage. In that of home-made commodities 
it can give them none at all. And almost the whole expence of the 
farmer, and the far greater part even of that of the landlord, is in 
home-made commodities. 

That degradation in the value of silver which is the effect of the 
fertility of the mines, and which operates equally, or very near 
equally, through the greater part of the commercial world, is a 
matter of very little consequence to any particular country. The 
consequent rise of all money prices, though it does not make those 
who receive them really richer, does not make them really poorer. A 
service of plate becomes really cheaper, and every thing else remains 
precisely of the same real value as before. 



380 WEALTH OF NATIONS 

But that degradation in the value of silver which, being the effect 
either of the peculiar situation, or of the political institutions of a 
particular country, takes place only in that country, is a matter of 
very great consequence, which, far from tending to make any body 
really richer, tends to make every body really poorer. The rise in 
the money price of all commodities, which is in this case peculiar 
to that country, tends to discourage more or less every sort of indus- 
try which is carried on within it, and to enable foreign nations, by 
furnishing almost all sorts of goods for a smaller quantity of silver 
than its own workmen can afford to do, to undersell them, not only 
in the foreign, but even in the home market. 

It is the peculiar situation of Spain and Portugal as proprietors 
of the mines, to be the distributors of gold and silver to all the other 
countries of Europe. Those metals ought naturally, therefore, to be 
somewhat cheaper in Spain and Portugal than in any other part of 
Europe. The difference, however, should be no more than the 
amount of the freight and insurance; and, on account of the great 
value and small bulk of those metals, their freight is no great mat- 
ter, and their insurance is the same as that of any other goods of 
equal value. Spain and Portugal, therefore, could suffer very little 
from their peculiar situation, if they did not aggravate its disad- 
vantages by their f)olitical institutions. 

Spain by taxing, and Portugal by prohibiting the exportation of 
gold and silver, load that exportation with the expence of smuggling, 
and raise the value of those metals in other countries so much more 
above what it is in their own, by the whole amount of this expence. 
When you dam up a stream of water, as soon as the dam is full, as 
much water must run over the dam-head as if there was no dam 
at all. The prohibition of exportation cannot detain a greater quan- 
tity of gold and silver in Spain and Portugal than what they can 
afford to employ, than what the annual produce of their land and 
labour will allow them to employ, in coin, plate, gilding, and other 
ornaments of gold and silver. When they have got this quantity 
the dam is full, and the whole stream which flows in afterwards 
must run over. The annual exportation of gold and silver from 
Spain and Portugal accordingly is, by all accounts, notwithstanding 
these restraints, very near equal to the whole annual importation. As 



BOUNTIES 381 

the water, however, must always be deeper behind the dam-head 
than before it, so the quantity of gold and silver which these re- 
straints detain in Spain and Portugal must, in proportion to the 
annual produce of their land and labour, be greater than what is to 
be found in other countries. The higher and stronger the dam- 
head, the greater must be the difference in the depth of water 
behind and before it. The higher the tax, the higher the penalties 
with which the prohibition is guarded, the more vigilant and severe 
the police which looks after the execution of the law, the greater 
must be the difference in the proportion of gold and silver to the 
annual produce of the land and labour of Spain and Portugal, and 
to that of other countries. It is said accordingly to be very consider- 
able, and that you frequently find there a profusion of plate in 
houses, where there is nothing else which would, in other coun- 
tries, be thought suitable or correspondent to this sort of magnifi- 
cence. The cheapness of gold and silver, or what is the same thing, 
the dearness of all commodities, which is the necessary effect of this 
redundancy of the precious metals, discourages both the agriculture 
and manufactures of Spain and Portugal, and enables foreign na- 
tions to supply them with many sorts of rude, and with almost all 
sorts of manufactured produce, for a smaller quantity of gold and 
silver than what they themselves can either raise or make them for 
at home. The tax and prohibition operate in two different ways. 
They not only lower very much the value of the precious metals 
in Spain and Portugal, but by detaining there a certain quantity of 
those metals which would otherwise flow over other countries, 
they keep up their value in those other countries somewhat above 
what it otherwise would be, and thereby give those countries a 
double advantage in their commerce with Spain and Portugal. Open 
the flood-gates, and there will presently be less water above, and 
more below, the dam-head, and it will soon come to a level in both 
places. Remove the tax and the prohibition, and as the quantity 
of gold and silver will diminish considerably in Spain and Portugal, 
so it will increase somewhat in other countries, and the value of 
those metals, their proportion to the annual produce of land and 
labour, will soon come to a level, or very near to a level, in all. The 
loss which Spain and Portugal could sustain by this exfwrtation 



382 WEALTH OF NATIONS 

of their gold and silver would be altogether nominal and imagi- 
nary. The nominal value of their goods, and of the annual produce 
of their land and labour, would fall, and would be expressed or 
represented by a smaller quantity of silver than before: but theif 
real value would be the same as before, and would be sufficient to 
maintain, command, and employ, the same quantity of labour. As 
the nominal value of their goods would fall, the real value of what 
remained of their gold and silver would rise, and a smaller quan- 
tity of those metals would answer all the same purf)oses of com- 
merce and circulation which had employed a greater quantity be- 
fore. The gold and silver which would go abroad would not go 
abroad for nothing, but would bring back an equal value of goods 
of some kind or another. Those goods too would not be all matters 
of mere luxury and expence, to be consumed by idle people who 
produce nothing in return for their consumption. As the real wealth 
and revenue of idle people would not be augmented by this extraor- 
dinary exportation of gold and silver, so neither would their con- 
sumption be much augmented by it. Those goods would, probably, 
the greater part of them, and certainly some part of them, consist 
in materials, tools, and provisions, for the employment and mainte- 
nance of industrious people, who would reproduce, with a profit, 
the full value of their consumption. A part of the dead stock of 
the society would thus be turned into active st(Kk, and would put 
into motion a greater quantity of industry than had been employed 
before. The annual produce of their land and labour would imme- 
diately be augmented a little, and in a few years would, probably, 
be augmented a great deal; their industry being thus relieved from 
one of the most oppressive burdens which it at present labours under. 
The bounty upon the expwrtation of corn necessarily operates ex- 
actly in the same way as this absurd policy of Spain and Portugal. 
Whatever be the actual state of tillage, it renders our corn somewhat 
dearer in the home market than it otherwise would be in that state, 
and somewhat cheaper in the foreign; and as the average money 
price of corn regulates more or less that of all other commodities, 
it lowers the value of silver considerably in the one, and tends to 
raise it a little in the other. It enables foreigners, the Dutch in par- 
ticular, not only to eat our corn cheaper than they otherwise could 



BOUNTIES 383 

do, but sometimes to eat it cheaper than even our own people can 
do upon the same occasions; as we are assured by an excellent au- 
thority, that of Sir Matthew Decker. It hinders our own workmen 
from furnishing their goods for so small a quantity of silver as they 
otherwise might do; and enables the Dutch to furnish their's for 
a smaller. It tends to render our manufactures somewhat dearer in 
every market, and their's somewhat cheaper than they otherwise 
would be, and consequendy to give their industry a double advan- 
tage over our own. 

The bounty, as it raises in the home market, not so much the real, 
as the nominal price of our corn, as it augments, not the quantity 
of labour which a certain quantity of corn can maintain and employ, 
but only the quantity of silver which it will exchange for, it discour- 
ages our manufactures, without rendering any considerable service 
either to our farmers or country gentlemen. It puts, indeed, a little 
more money into the jxxkets of both, and it will perhaps be some- 
what difficult to persuade the greater part of them that this is not 
rendering them a very considerable service. But if this money sinks 
in its value, in the quantity of labour, provisions, and home-made 
commodities of all different kinds which it is capable of purchasing, 
as much as it rises in its quantity, the service will be little more than 
nominal and imaginary. 

There is, perhaps, but one set of men in the whole common- 
wealth to whom the bounty either was or could be essentially serv- 
iceable. These were the corn merchants, the exporters and importers 
of corn. In years of plenty the bounty necessarily occasioned a 
greater exportation than would otherwise have taken place; and 
by hindering the plenty of one year from relieving the scarcity of 
another, it occasioned in years of scarcity a greater importation than 
would otherwise have been necessary. It increased the business of 
the corn merchant in both; and in years of scarcity, it not only 
enabled him to import a greater quantity, but to sell it for a better 
price, and consequently with a greater profit than he could otherwise 
have made, if the plenty of one year had not been more or less 
hindered from relieving the scarcity of another. It is in this set of 
men, accordingly, that I have observed the greatest zeal for the con- 
tinuance or renewal of the bounty. 



384 WEALTH OF NATIONS 

Our country gentlemen, when they imposed the high duties upon 
the importation of foreign corn, which in times of moderate plenty 
amount to a prohibition, and when they established the bounty, seem 
to have imitated the conduct of our manufacturers. By the one 
institution, they secured to themselves the monopoly of the home 
market, and by the other they endeavoured to prevent that market 
from ever being overstocked with their commodity. By both they 
endeavoured to raise its real value, in the same manner as our 
manufacturers had, by the like institutions, raised the real value of 
many different sorts of manufactured goods. They did not perhaps 
attend to the great and essential difference which nature has estab- 
lished between corn and almost every other sort of goods. When, 
either by the monopoly of the home market, or by a bounty upon 
exportation, you enable our woollen or linen manufacturers to sell 
their goods for somewhat a better price than they otherwise could 
get for them, you raise, not only the nominal, but the real price of 
those goods. You render them equivalent to a greater quantity of 
labour and subsistence, you encrease not only the nominal, but the 
real profit, the real wealth and revenue of those manufacturers, and 
you enable them either to live better themselves, or to employ a 
greater quantity of labour in those particular manufactures. You 
really encourage those manufactures, and direct towards them a 
greater quantity of the industry of the country, than what would 
probably go to them of its own accord. But when by the like institu- 
tions you raise the nominal or money-price of corn, you do not raise 
its real value. You do not increase the real wealth, the real revenue 
either of our farmers or country gentlemen. You do not encourage 
the growth of corn, because you do not enable them to maintain 
and employ more labourers in raising it. The nature of things has 
stamped upon corn a real value which cannot be altered by merely 
altering its money price. No bounty upon exportation, no monopoly 
of the home market, can raise that value. The freest competition 
cannot lower it. Through the world in general that value is equal 
to the quantity of labour which it can maintain, and in every par- 
ticular place it is equal to the quantity of labour which it can main- 
tain in the way, whether liberal, moderate, or scanty, in which labour 
is commonly maintained in that place. Woollen or linen cloth are 



BOUNTIES 385 

not the regulating commodities by which the real value of all other 
commodities must be finally measured and determined; corn is. 
The real value of every other commodity is finally measured and 
determined by the proportion which its average money price bears 
to the average money price of corn. The real value of corn does not 
vary with those variations in its average money price, which some- 
times occur from one century to another. It is the real value of silver 
which varies with them. 

Bounties upon the exjjortation of any home-made commodity 
are liable, first, to that general objection which may be made to all 
the different expedients of the mercantile system; the objection of 
forcing some part of the industry of the country into a channel less 
advantageous than that in which it would run of its own accord: 
and, secondly, to the particular objection of forcing it, not only into 
a channel that is less advantageous, but into one that is actually dis- 
advantageous; the trade which cannot be carried on but by means of 
a bounty being necessarily a losing trade. The bounty upon the ex- 
portation of corn is liable to this further objection, that it can in no 
respect promote the raising of that particular commodity of which it 
was meant to encourage the production. When our country gentle- 
men, therefore, demanded the establishment of the bounty, though 
they acted in imitation of our merchants and manufacturers, they 
did not act with that complete comprehension of their own interest 
which commonly directs the conduct of those two other orders of 
people. They loaded the public revenue with a very considerable 
expence; they imposed a very heavy tax upon the whole body of the 
people; but they did not, in any sensible degree, increase the real 
value of their own commodity; and by lowering somewhat the real 
value of silver, they discouraged, in some degree, the general indus- 
try of the country, and, instead of advancing, retarded more or less 
the improvement of their own lands, which necessarily depends upon 
the general industry of the country. 

To encourage the production of any commodity, a bounty upon 
production, one should imagine, would have a more direct opera- 
tion, than one upon exportation. It would, besides, impose only one 
tax upon the people, that which they must contribute in order to pay 
the bounty. Instead of raising, it would tend to lower the price of 



386 WEALTH OF NATIONS 

the commodity in the home market; and thereby, instead of impos- 
ing a second tax upwn the people, it might at least in part, repay them 
for what they had contributed to the first. Bounties upon production, 
however, have been very rarely granted. The prejudices established 
by the commercial system have taught us to believe, that nominal 
wealth arises more immediately from exportation than from produc- 
tion. It has been more favoured accordingly, as the more immediate 
means of bringing money into the country. Bounties upon produc- 
tion, it has been said too, have been found by experience more liable 
to frauds than those upon exportation. How far this is true, I know 
not. That bounties upon exportation have been abused to many 
fraudulent purposes, is very well known. But it is not the interest 
of merchants and manufacturers, the great inventors of all these 
expedients, that the home market should be overstocked with their 
goods, an event which a bounty upon production might sometimes 
occasion. A bounty upon exportation, by enabling them to send 
abroad the surplus part, and to keep up the price of what remains in 
the home market, effectually prevents this. Of all the expedients of 
the mercantile system, accordingly, it is the one of which they are 
the fondest. I have known the different undertakers of some par- 
ticular works agree privately among themselves to give a bounty out 
of their own pockets upon the exportation of a certain proportion of 
the goods which they dealt in. This expedient succeeded so well, 
that it more than doubled the price of their goods in the home mar- 
ket, notwithstanding a very considerable increase in the produce. 
The operation of the bounty upon corn must have been wonderfully 
different, if it has lowered the money price of that commodity. 

Something like a bounty upon production, however, has been 
granted upon some particular occasions. The tonnage bounties given 
to the white-herring and whale-fisheries may, perhaps, be con- 
sidered as somewhat of this nature. They tend directly, it may be 
supposed, to render the goods cheaper in the home market than they 
otherwise would be. In other respects their effects, it must be 
acknowledged, are the same as those of bounties upon exportation. 
By means of them a part of the capital of the country is employed in 
bringing goods to market, of which the price docs not repay the cost, 
together with the ordinary profits of stock. 



BOUNTIES 387 

If any particular manufacture was necessary, indeed, for the de- 
fence of the society, it might not always be prudent to depend upon 
our neighbours for the supply; and if such manufacture could not 
otherwise be supported at home, it might not be unreasonable that 
all the other branches of industry should be taxed in order to support 
it. The bounties upon the exportation of British-made sail-cloth, and 
British-made gun-powder, may, perhaps, both be vindicated upon 
this principle. 

But though it can very seldom be reasonable to tax the industry 
of the great body of the people, in order to suppxjrt that of some par- 
ticular class of manufacturers; yet in the wantonness of great pros- 
perity, when the public enjoys a greater revenue than it knows well 
what to do with, to give such bounties to favourite manufacturers, 
may, perhaps, be as natural, as to incur any other idle expence. In 
public, as well as in private expences, great wealth may, perhaps, 
frequently be admitted as an apology for great folly. But there must 
surely be something more than ordinary absurdity, in continuing 
such profusion in times of general difficulty and distress. 

What is called a bounty is sometimes no more than a drawback, 
and consequently is not liable to the same objections as what is 
properly a bounty. The bounty, for example, upon refined sugar ex- 
ported, may be considered as a drawback of the duties upon the 
brown and muscovado sugars from which it is made. The bounty 
upon wrought silk exported, a drawback of the duties upon raw 
and thrown silk imported. The bounty upon gunpowder exported, a 
drawback of the duties upon brimstone and saltpetre imported. In 
the language of the customs those allowances only are called draw- 
backs, which are given upon goods exported in the same form in 
which they are imported. When that form has been so altered by 
manufacture of any kind, as to come under a new denomination, 
they are called bounties. 

Premiums given by the public to artists and manufacturers who 
excel in their particular occupations, are not liable to the same objec- 
tions as bounties. By encouraging extraordinary dexterity and in- 
genuity, they serve to keep up the emulation of the workmen actually 
employed in those respective occupations, and are not considerable 
enough to turn towards any one of them a greater share of the capital 



388 WEALTH OF NATIONS 

of the country than what would go to it of its own accord. Their 
tendency is not to overturn the natural balance of employments, but 
to render the work which is done in each as perfect and complete 
as possible. The expence of premiums, besides, is very trifling; that 
of bounties very great. The bounty upon corn alone has sometimes 
cost the public in one year more than three hundred thousand 
pounds. 

Bounties are sometimes called premiums, as drawbacks are some- 
times called bounties. But we must in all cases attend to the nature 
of the thing, without paying any regard to the word. 



CHAPTER VI 
Of Treaties of Commerce 

WHEN a nation binds itself by treaty either to permit the 
entry of certain goods from one foreign country which it 
prohibits from all others, or to exempt the goods of one 
country from duties to which it subjects those of all others, the coun- 
try, or at least the merchants and manufacturers of the country, whose 
commerce is so favoured, must necessarily derive great advantage 
from the treaty. Those merchants and manufacturers enjoy a sort 
of monopoly in the country which is so indulgent to them. That 
country becomes a market both more extensive and more advan- 
tageous for their goods; more extensive, because the goods of other 
nations being either excluded or subjected to heavier duties, it takes 
off a greater quantity of theirs: more advantageous, because the mer- 
chants of the favoured country, enjoying a sort of monopoly there, 
will often sell their goods for a better price than if exposed to the free 
competition of all other nations. 

Such treaties, however, though they may be advantageous to the 
merchants and manufacturers of the favoured, are necessarily dis- 
advantageous to those of the favouring country. A monopoly is 
thus granted against them to a foreign nation; and they must fre- 
quently buy the foreign goods they have occasion for, dearer than 
if the free competition of other nations was admitted. That part of 
its own produce with which such a nation purchases foreign goods, 
must consequently be sold cheaper, because when two things are ex- 
changed for one another, the cheapness of the one is a necessary 
consequence, or rather is the same thing with the dearness of the 
other. The exchangeable value of its annual produce, therefore, is 
likely to be diminished by every such treaty. This diminution, how- 
ever, can scarce amount to any positive loss, but only to a lessening 
of the gain which it might otherwise make. Though it sells its goods 
cheaper than it otherwise might do, it will not probably sell them 



390 WEALTH OF NATIONS 

for less than they cost; nor, as in the case of bounties, for a price 
which will not replace the capital employed in bringing them to mar- 
ket, together with the ordinary profits of stock. The trade could not 
go on long if it did. Even the favouring country, therefore, may still 
gain by the trade, though less than if there was a free competition. 
Some treaties of commerce, however, have been supposed advan- 
tageous upon principles very different from these; and a commercial 
country has sometimes granted a monopoly of this kind against 
itself to certain goods of a foreign nation, because it expected that in 
the whole commerce between them, it would annually sell more 
than it would buy, and that a balance in gold and silver would be 
annually returned to it. It is upon this principle that the treaty of 
commerce between England and Portugal, concluded in 1703, by 
Mr. Methuen, has been so much commended. The following is a 
literal translation of that treaty, which consists of three articles only. 



ART. I 



His sacred royal majesty of Portugal promises, both in his own 
name, and that of his successors, to admit, for ever hereafter, into 
Portugal, the woollen cloths, and the rest of the woollen manufactures 
of the British, as was accustomed, till they were prohibited by the 
law; nevertheless upon this condition: 



ART. II 



That is to say, that her sacred royal majesty of Great Britain shall, 
in her own name, and that of her successors, be obliged, for ever 
hereafter, to admit the wines of the growth of Portugal into Britain: 
so that at no time, whether there shall be peace or war between the 
kingdoms of Britain and France, any thing more shall be demanded 
for these wines by the name of custom or duty, or by whatsoever 
other title, directly or indirecdy, whether they shall be imported into 
Great Britain in pipes or hogsheads, or other casks, than what shall 
be demanded for the like quantity or measure of French wine, de- 
ducting or abating a third part of the custom or duty. But if at any 
time this deduction or abatement of customs, which is to be made as 
aforesaid, shall in any manner be attempted and prejudiced, it shall 
be just and lawful for his sacred royal majesty of Portugal, again to 



TREATIES OF COMMERCE 39I 

prohibit the woollen cloths, and the rest of the British woollen manu- 
factures. 



ART. HI 



The most excellent lords the plenipotentiaries promise and take 
upon themselves that their above-named masters shall ratify this 
treaty; and within the space of two months the ratifications shall be 
exchanged. 

By this treaty the crown of Portugal becomes bound to admit the 
English woollens upon the same footing as before the prohibition; 
that is, not to raise the duties which had been paid before that time. 
But it does not become bound to admit them upon any better 
terms than those of any other nation, of France or Holland for ex- 
ample. The crown of Great Britain, on the contrary, becomes bound 
to admit the wines of Portugal, upon paying only two-thirds of the 
duty, which is paid for those of France, the wines most likely to come 
into competition with them. So far this treaty, therefore, is evi- 
dently advantageous to Portugal, and disadvantageous to Great 
Britain. 

It has been celebrated, however, as a masterpiece of the commercial 
policy of England. Portugal receives annually from the Brazils a 
greater quantity of gold than can be employed in its domestic com- 
merce, whether in the shape of coin or of plate. The surplus is too 
valuable to be allowed to lie idle and locked up in coffers, and as it 
can find no advantageous market at home, it must, notwithstanding 
any prohibition, be sent abroad, and exchanged for something for 
which there is a more advantageous market at home. A large share 
of it comes annually to England, in return either for English goods, 
or for those of other European nations that receive their returns 
through England. Mr. Baretti was informed that the weekly packet- 
boat from Lisbon brings, one week with another, more than fifty 
thousand pounds in gold to England. The sum had probably been 
exaggerated. It would amount to more than two millions six hun- 
dred thousand pounds a year, which is more than the Brazils are 
supposed to afford. 

Our merchants were some years ago out of humour with the crown 
of Portugal. Some privileges which had been granted them, not by 



392 WEALTH OF NATIONS 

treaty, but by the free grace of that crown, at the soHcitation, indeed, 
it is probable, and in return for much greater favours, defence and 
protection, from the crown of Great Britain, had been either in- 
fringed or revoked. The people, therefore, usually most interested in 
celebrating the Portugal trade, were then rather disposed to repre- 
sent it as less advantageous than it had commonly been imagined. 
The far greater part, almost the whole, they pretended, of this 
annual importation of gold, was not on account of Great Britain, 
but of other European nations; the fruits and wines of Portugal annu- 
ally imported into Great Britain nearly compensating the value of 
the British goods sent thither. 

Let us suppose, however, that the whole was on account of Great 
Britain, and that it amounted to a still greater sum than Mr. Baretti 
seems to imagine: this trade would not, upon that account, be more 
advantageous than any other in which, for the same value sent out, 
we received an equal value of consumable goods in return. 

It is but a very small part of this importation which, it can be 
supposed, is employed as an annual addition either to the plate or 
to the coin of the kingdom. The rest must all be sent abroad and 
exchanged for consumable goods of some kind or other. But if 
those consumable goods were purchased directly with the produce 
of English industry, it would be more for the advantage of England, 
than first to purchase with that produce the gold of Portugal, and 
afterwards to purchase with that gold those consumable goods. A 
direct foreign trade of consumption is always more advantageous 
than a round-about one; and to bring the same value of foreign goods 
to the home market, requires a much smaller capital in the one way 
than in the other. If a smaller share of its industry, therefore, had 
been employed in producing goods fit for the Portugal market, and a 
greater in producing those fit for the other markets, where those 
consumable goods for which there is a demand in Great Britain are 
to be had, it would have been more for the advantage of England. 
To procure both the gold, which it wants for its own use, and the 
consumable goods, would, in this way, employ a much smaller capital 
than at present. There would be a spare capital, therefore, to be 
employed for other purposes, in exciting an additional quantity of 
industry, and in raising a greater annual produce. 



TREATIES OF COMMERCE 393 

Though Britain were entirely excluded from the Portugal trade, 
it could find very little difficulty in procuring all the annual sup- 
plies of gold which it wants, either for the pur(X)ses of plate, or of 
coin, or of foreign trade. Gold, like every other commodity, is always 
somewhere or another to be got for its value by those who have that 
value to give for it. 

The annual surplus of gold in Portugal, besides, would still be 
sent abroad, and though not carried away by Great Britain, would 
be carried away by some other nation, which would be glad to sell 
it again for its price, in the same manner as Great Britain does at 
present. In buying gold of Portugal, indeed, we buy it at the first 
hand; whereas, in buying it of any other nation, except Spain, we 
should buy it at the second, and might pay somewhat dearer. This 
difference, however, would surely be too insignificant to deserve the 
public attention. 

Almost all our gold, it is said, comes from Portugal. With other 
nations the balance of trade is either against us, or not much in our 
favour. But we should remember, that the more gold we import 
from one country, the less we must necessarily import from all others. 
The effectual demand for gold, like that for every other commodity, 
is in every country limited to a certain quantity. If nine-tenths of 
this quantity are imported from one country, there remains a tenth 
only to be imported from all others. The more gold besides that is 
annually imported from some particular countries, over and above 
what is requisite for plate and for coin, the more must necessarily 
be exported to some others; and the more that most insignificant 
object of modern policy, the balance of trade, apf)ears to be in our 
favour with some particular countries, the more it must necessarily 
appear to be against us with many others. 

It was upon this silly notion, however, that England could not sub- 
sist without the Portugal trade, that, towards the end of the late war, 
France and Spain, without pretending either offence or provocation, 
required the king of Portugal to exclude all British ships from his 
ports, and for the security of this exclusion, to receive into them 
French or Spanish garrisons. Had the king of Portugal submitted to 
those ignominious terms which his brother-in-law the king of Spain 
proposed to him, Britain would have been freed from a much greater 



394 WEALTH OF NATIONS 

inconveniency than the loss of the Portugal trade, the burden of sup- 
porting a very weak ally, so unprovided of every thing for his own 
defence, that the whole power of England, had it been directed to 
that single purpose, could scarce perhaps have defended him for 
another campaign. 

The loss of the Portugal trade would, no doubt, have occasioned 
a considerable embarrassment to the merchants at that time engaged 
in it, who might not, perhaps, have found out, for a year or two, any 
other equally advantageous method of employing their capitals; and 
in this would probably have consisted all the inconveniency which 
England could have suffered from this notable piece of commercial 
policy. 

The great annual importation of gold and silver is neither for the 
purpose of plate nor of coin, but of foreign trade. A round-about 
foreign trade of consumption can be carried on more advantageously 
by means of these metals than of almost any other goods. As they 
are the universal instruments of commerce, they are more readily 
received in return for all commodities than any other goods; and 
on account of their small bulk and great value, it costs less to trans- 
port them backward and forward from one place to another than 
almost any other sort of merchandize, and they lose less of their 
value by being so transported. Of all the commodities, therefore, 
which are bought in one foreign country, for no other purpose but 
to be sold or exchanged again for some other goods in another, there 
are none so convenient as gold and silver. In facilitating all the differ- 
ent round-about foreign trades of consumption which are carried on 
in Great Britain, consists the principal advantage of the Portugal 
trade; and though it is not a capital advantage, it is, no doidit, a 
considerable one. 



CHAPTER VII 
Of Colonies 

PART I 
Of the Motives for Establishing new Colonies 

THE interest which occasioned the first settlement of the 
different European colonies in America and the West Indies, 
was not ahogether so plain and distinct as that which 
directed the establishment of those of ancient Greece and Rome. 

All the different states of ancient Greece possessed, each of them, 
but a very small territory, and when the people in any one of them 
multiplied beyond what that territory could easily maintain, a part 
of them were sent in quest of a new habitation in some remote and 
distant part of the world; the warlike neighbours who surrounded 
them on all sides, rendering it difficult for any of them to enlarge very 
much its territory at home. The colonies of the Dorians resorted 
chiefly to Italy and Sicily, which, in the times preceding the founda- 
tion of Rome, were inhabited by barbarous and uncivilized nations: 
those of the lonians and Eolians, the two other great tribes of the 
Greeks, to Asia Minor and the islands of the Egean Sea, of which 
the inhabitants seem at that time to have been pretty much in the 
same state as those of Sicily and Italy. The mother city, though she 
considered the colony as a child, at all times entitled to great favour 
and assistance, and owing in return much gratitude and resjject, yet 
considered it as an emancipated child, over whom she pretended 
to claim no direct authority or jurisdiction. The colony settled its 
own form of government, enacted its own laws, elected its own 
magistrates, and made peace or war with its neighbours as an inde- 
pendent state, which had no occasion to wait for the approbation or 
consent of the mother city. Nothing can be more plain and distinct 
than the interest which directed every such establishment. 
Rome, like most of the other ancient republics, was originally 

395 



396 WEALTH OF NATIONS 

founded upon an Agrarian law, which divided the public territory in 
a certain proportion among the different citizens who composed the 
state. The course of human affairs, by marriage, by succession, 
and by alienation, necessarily deranged this original division, and 
frequently threw the lands, which had been allotted for the mainte- 
nance of many different families into the possession of a single per- 
son. To remedy this disorder, for such it was supposed to be, a law 
was made, restricting the quantity of land which any citizen could 
possess to five hundred jugera, about three hundred and fifty Eng- 
lish acres. This law, however, though we read of its having been 
executed upon one or two occasions, was either neglected or evaded, 
and the inequality of fortunes went on continually increasing. The 
greater part of the citizens had no land, and without it the manners 
and customs of those times rendered it difficult for a freeman to 
maintain his independency. In the present times, though a poor man 
has no land of his own, if he has a little stock, he may either farm 
the lands of another, or he may carry on some little retail trade; 
and if he has no stock, he may find employment either as a country 
labourer, or as an artificer. But, among the ancient Romans, the lands 
of the rich were all cultivated by slaves, who wrought under an over- 
seer, who was likewise a slave; so that a poor freeman had litde 
chance of being employed either as a farmer or as a labourer. All 
trades and manufactures too, even the retail trade, were carried on 
by the slaves of the rich for the benefit of their masters, whose wealth, 
authority, and protection made it difficult for a poor freeman to 
maintain the competition against them. The citizens, therefore, who 
had no land, had scarce any other means of subsistence but the 
bounties of the candidates at the annual elections. The tribunes, 
when they had a mind to animate the people against the rich and 
the great, put them in mind of the ancient division of lands, and 
represented that law which restricted this sort of private property 
as the fundamental law of the republic. The people became clamor- 
ous to get land, and the rich and the great, we may believe, were 
perfectly determined not to give them any part of theirs. To satisfy 
them in some measure, therefore, they frequently proposed to send 
out a new colony. But conquering Rome was, even u[X)n such occa- 
sions, under no necessity of turning out her citizens to seek their 



MOTIVES FOR ESTABLISHING COLONIES 397 

fortune, if one may say so, through the wide world, without knowing 
where they were to settle. She assigned them lands generally in the 
conquered provinces of Italy, where, being within the dominions of 
the republic, they could never form any independent state; but were 
at best but a sort of corporation, which, though it had the power of 
enacting bye-laws for its own government, was at all times subject 
to the correction, Jurisdiction, and legislative authority of the mother 
city. The sending out a colony of this kind, not only gave some 
satisfaction to the f>eople, but often established a sort of garrison too 
in a newly conquered province, of which the obedience might other- 
wise have been doubtful. A Roman colony, therefore, whether we 
consider the nature of the establishment itself, or the motives for 
making it, was altogether different from a Greek one. The words 
accordingly, which in the original languages denote those different 
establishments, have very different meanings. The Latin word 
(Colonia) signifies simply a plantation. The Greek word (Airoixii), 
on the contrary, signifies a separation of dwelling, a departure 
from home, a going out of the house. But, though the Roman 
colonies were in many respects different from the Greek ones, the 
interest which prompted to establish them was equally plain and 
distinct. Both institutions derived their origin either from irresistible 
necessity, or from clear and evident utility. 

The establishment of the European colonies in America and the 
West Indies arose from no necessity: and though the utility which 
has resulted from them has been very great, it is not altogether so 
clear and evident. It was not understood at their first establishment, 
and was not the motive either of that establishment or of the dis- 
coveries which gave occasion to it; and the nature, extent, and 
limits of that utility are not, perhaps, well understood at this day. 

The Venetians, during the fourteenth and fifteenth centuries, 
carried on a very advantageous commerce in spiceries, and other 
East India goods, which they distributed among the other nations of 
Europe. They purchased them chiefly in Egypt, at that time under 
the dominion of the Mammeluks, the enemies of the Turks, of whom 
the Venetians were the enemies; and this union of interest, assisted 
by the money of Venice, formed such a connection as gave the 
Venetians almost a monopoly of the trade. 



398 WEALTH OF NATIONS 

The great profits of the Venetians tempted the avidity of the Por- 
tuguese. They had been endeavouring, during the course of the 
fifteenth century, to find out by sea a way to the countries from which 
the Moors brought them ivory and gold dust across the Desart. They 
discovered the Madeiras, the Canaries, the Azores, the Cape de Verd 
islands, the coast of Guinea, that of Loango, Congo, Angola, and 
Benguela, and finally, the Cape of Good Hope. They had long 
wished to share in the profitable traffic of the Venetians, and this 
last discovery opened to them a probable prospect of doing so. In 
1497, Vasco de Gama sailed from the port of Lisbon with a fleet of 
four ships, and, after a navigation of eleven months, arrived upon 
the coast of Indostan, and thus completed a course of discoveries 
which had been pursued with great steadiness, and with very little 
interruption, for near a century together. 

Some years before this, while the expectations of Europ)e were in 
suspense about the projects of the Portuguese, of which the success 
appeared yet to be doubtful, a Genoese pilot formed the yet more 
daring project of sailing to the East Indies by the West. The situa- 
tion of those countries was at that time very imperfecdy known in 
Europe. The few Europ)ean travellers who had been there had 
magnified the distance; perhaps through simplicity and ignorance, 
what was really very great, appearing almost infinite to those who 
could not measure it; or, perhaps, in order to increase somewhat 
more the marvellous of their own adventures in visiting regions so 
immensely remote from Europe. The longer the way was by the 
East, Columbus very justly concluded, the shorter it would be by 
the West. He proposed, therefore, to take that way, as both the 
shortest and the surest, and he had the good fortune to convince 
Isabella of Castile of the probability of his project. He sailed from 
the p)ort of Palos in August, 1492, near five years before the expe- 
dition of Vasco de Gama set out from Portugal, and, after a voyage 
of between two and three months, discovered first some of the small 
Bahama or Lucayan islands, and afterwards the great island of 
St. Domingo. 

But the countries which Columbus discovered, either in this or 
in any of his subsequent voyages, had no resemblance to those which 
he had gone in quest of. Instead of the wealth, cultivation and popu- 



MOTIVES FOR ESTABLISHING COLONIES 399 

lousness of China and Indostan, he found, in St. Domingo, and in 
all the other parts of the new world which he ever visited, nothing 
but a country quite covered with wood, uncultivated, and inhabited 
only by some tribes of naked and miserable savages. He was not very 
willing, however, to believe that they were not the same with some 
of the countries described by Marco Polo, the first European who had 
visited, or at least had left behind him any description of China or 
the East Indies; and a very slight resemblance, such as that which 
he found between the name of Cibao, a mountain in St. Domingo, 
and that of Cipango, mentioned by Marco Polo, was frequently suffi- 
cient to make him return to this favourite prepossession, though con- 
trary to the clearest evidence. In his letters to Ferdinand and Isabella 
he called the countries which he had discovered, the Indies. He en- 
tertained no doubt but that they were the extremity of those which 
had been described by Marco Polo, and that they were not very 
distant from the Ganges, or from the countries which had been con- 
quered by Alexander. Even when at last convinced that they were 
different, he still flattered himself that those rich countries were at 
no great distance, and in a subsequent voyage, accordingly, went in 
quest of them along the coast of Terra Firma, and towards the 
isthmus of Darien. 

In consequence of this mistake of Columbus, the name of the 
Indies has stuck to those unfortunate countries ever since; and when 
it was at last clearly discovered that the new were altogether differ- 
ent from the old Indies, the former were called the West, in contra- 
distinction to tlie latter, which were called the East Indies. 

It was of importance to Columbus, however, that the countries 
which he had discovered, whatever they were, should be represented 
to the court of Spain as of very great consequence; and, in what con- 
stitutes the real riches of every country, the animal and vegetable 
productions of the soil, there was at that time nothing which could 
well justify such a representation of them. 

The Cori, something between a rat and a rabbit, and supposed by 
Mr. Buffon to be the same with the Aperea of Brazil, was the largest 
viviparous quadruped in St. Domingo. This species seems never 
to have been very numerous, and the dogs and cats of the Spaniards 
are said to have long ago almost entirely extirpated it, as well as 



400 WEALTH OF NATIONS 

some other tribes of a still smaller size. These, however, together 
with a pretty large lizard, called the Ivana or Iguana, constituted 
the principal part of the animal food which the land afforded. 

The vegetable food of the inhabitants, though from their want 
of industry not very abundant, was not altogether so scanty. It con- 
sisted in Indian corn, yams, potatoes, bananas, &c. plants which were 
then altogether unknown in Europe, and which have never since 
been very much esteemed in it, or supposed to yield a sustenance 
equal to what is drawn from the common sorts of grain and pulse, 
which have been cultivated in this part of the world time out of 
mind. 

The cotton plant indeed afforded the material of a very important 
manufacture, and was at that time to Europeans undoubtedly the 
most valuable of all the vegetable productions of those islands. But 
though in the end of the fifteenth century the muslins and other 
cotton goods of the East Indies were much esteemed in every part 
of Europe, the cotton manufacture itself was not cultivated in any 
part of it. Even this production, therefore, could not at that time 
appear in the eyes of Europeans to be of very great consequence. 

Finding nothing either in the animals or vegetables of the newly 
discovered countries, which could justify a very advantageous repre- 
sentation of them, Columbus turned his view towards their minerals; 
and in the richness of the production of this third kingdom, he flat- 
tered himself, he had found a full compensation for the insignificancy 
of those of the other two. The little bits of gold with which the 
inhabitants ornamented their dress, and which, he was informed, 
they frequently found in the rivulets and torrents that fell from 
the mountains, were sufficient to satisfy him that those mountains 
abounded with the richest gold mines. St. Domingo, therefore, was 
represented as a country abounding with gold, and, upon that account 
(according to the prejudices not only of the present times, but of 
those times), an inexhaustible source of real wealth to the crown and 
kingdom of Spain. When Columbus, upon his return from his first 
voyage, was introduced with a sort of triumphal honours to the 
sovereigns of Castile and Arragon, the principal productions of the 
countries which he had discovered were carried in solemn proces- 
sion before him. The only valuable part of them consisted in some 



MOTIVES FOR ESTABLISHING COLONIES 4OI 

little fillets, bracelets, and other ornaments of gold, and in some bales 
of cotton. The rest were mere objects of vulgar wonder and curi- 
osity; some reeds of an extraordinary size, some birds of a very 
beautiful plumage, and some stuffed skins of the huge alligator and 
manati; all of which were preceded by six or seven of the wretched 
natives, whose singular colour and appearance added greatly to the 
novelty of the shew. 

In consequence of the representations of Columbus, the council of 
Castile determined to take possession of countries of which the in- 
habitants were plainly incapable of defending themselves. The pious 
purpose of converting them to Christianity sanctified the injustice 
of the project. But the hope of finding treasures of gold there, was 
the sole motive which prompted to undertake it; and to give this 
motive the greater weight, it was proposed by Columbus that the 
half of all the gold and silver that should be found there should 
belong to the crown. This proposal was approved of by the council. 

As long as the whole or the far greater part of the gold, which the 
first adventurers imported into Europe, was got by so very easy a 
method as the plundering of the defenceless natives, it was not per- 
haps very difficult to pay even this heavy tax. But when the natives 
were once fairly stript of all that they had, which, in St. Domingo, 
and in all the other countries discovered by Columbus, was done 
completely in six or eight years, and when in order to find more 
it had become necessary to dig for it in the mines, there was no 
longer any jxjssibility of paying this tax. The rigorous exaction of 
it, accordingly, first occasioned, it is said, the total abandoning of the 
mines of St. Domingo, which have never been wrought since. It 
was soon reduced therefore to a third; then to a fifth; afterwards to 
a tenth; and at last to a twentieth part of the gross produce of the 
gold mines. The tax upon silver continued for a long time to be a 
fifth of the gross produce. It was reduced to a tenth only in the 
course of the present century. But the first adventurers do not appear 
to have been much interested about silver. Nothing less precious than 
gold seemed worthy of their attention. 

All the other enterprises of the Spaniards in the new world, sub- 
sequent to those of Columbus, seem to have been prompted by the 
same motive. It was the sacred thirst of gold that carried Oieda, 



402 WEALTH OF NATIONS 

Nicuessa, and Vasco Nugnes de Balboa, to the isthmus of Darien, 
that carried Cortez to Mexico, and Almagro and Pizzarro to ChiH 
and Peru. When those adventurers arrived upon any unknown 
coast, their first enquiry was always if there was any gold to be found 
there; and according to the information which they received con- 
cerning this particular, they determined either to quit the country 
or to settle in it. 

Of all those expensive and uncertain projects, however, which 
bring bankruptcy upon the greater part of the people who engage in 
them, there is none perhaps more perfectly ruinous than the search 
after new silver and gold mines. It is jjerhaps the most disadvan- 
tageous lottery in the world, or the one in which the gain of those 
who draw the prizes bears the least proportion to the loss of those 
who draw the blanks; for though the prizes are few and the blanks 
many, the common price of a ticket is the whole fortune of a very 
rich man. Projects of mining, instead of replacing the capital em- 
ployed in them, together with the ordinary profits of stock, com- 
monly absorb both capital and profit. They are the projects, therefore, 
to which of all others a prudent law-giver, who desired to increase 
the capital of his nation, would least chuse to give any extraordinary 
encouragement, or to turn towards them a greater share of that 
capital than what would go to them of its own accord. Such in 
reality is the absurd confidence which almost all men have in their 
own good fortune, that wherever there is the least probability of 
success, too great a share of it is apt to go to them of its own accord. 

But though the judgment of sober reason and exf)erience concern- 
ing such projects has always been extremely unfavourable, that of 
human avidity has commonly been quite otherwise. The same pas- 
sion which has suggested to so many people the absurd idea of the 
philosopher's stone, has suggested to others the equally absurd one 
of immense rich mines of gold and silver. They did not consider that 
the value of those metals has, in all ages and nations, arisen chiefly 
from their scarcity, and that their scarcity has arisen from the very 
small quantities of them which nature has any where deposited in 
one place, from the hard and intractable substances with which she 
has almost every where surrounded those small quantities, and con- 
sequendy from the labour and expence which are every where neces- 



MOTIVES FOR ESTABLISHING COLONIES 4O3 

sary in order to penetrate to and get at them. They flattered them- 
selves that veins of those metals might in many places be found as 
large and as abundant as those which are commonly found of lead, 
or copper, or tin, or iron. The dream of Sir Walter Raleigh concern- 
ing the golden city and country of Eldorado, may satisfy us, that 
even wise men are not always exempt from such strange delusions. 
More than a hundred years after the death of that great man, the 
Jesuit Gumila was still convinced of the reality of that wonderful 
country, and expressed with great warmth, and I dare to say, with 
great sincerity, how happy he should be to carry the light of the 
gospel to a people who could so well reward the pious labours of their 
missionary. 

In the countries first discovered by the Spaniards, no gold or silver 
mines are at present known which are supposed to be worth the 
working. The quantities of those metals which the first adventurers 
are said to have found there, had probably been very much magni- 
fied, as well as the fertility of the mines which were wrought im- 
mediately after the first discovery. What those adventurers were 
reported to have found, however, was sufficient to inflame the avidity 
of all their countrymen. Every Spaniard who sailed to America 
expected to find an Eldorado. Fortune too did upon this what she 
has done up)on very few other occasions. She realized in some 
measure the extravagant hof)es of her votaries, and in the discovery 
and conquest of Mexico and Peru (of which the one happened about 
thirty, the other about forty years after the first expedition of Colum- 
bus), she presented them with something not very unlike that pro- 
fusion of the precious metals which they sought for. 

A project of commerce to the East Indies, therefore, gave occasion 
to the first discovery of the West. A project of conquest gave occasion 
to all the establishments of the Spaniards in those newly discovered 
countries. The motive which excited them to this conquest was 
a project of gold and silver mines; and a course of accidents, which 
no human wisdom could foresee, rendered this project much more 
successful than the undertakers had any reasonable grounds for 
expecting. 

The first adventurers of all the other nations of Eurofje, who at- 
tempted to make setdements in America, were animated by the like 



404 WEALTH OF NATIONS 

chimerical views; but they were not equally successful. It was more 
than a hundred years after the first settlement of the Brazils, before 
any silver, gold, or diamond mines were discovered there. In the 
English, French, Dutch, and Danish colonies, none have ever yet 
been discovered; at least none that are at present supposed to be 
worth the working. The first English settlers in North America, 
however, offered a fifth of all the gold and silver which should be 
found there to the king, as a motive for granting them their patents. 
In the patents to Sir Walter Raleigh, to the London and Plymouth 
companies, to the council of Plymouth, &c. this fifth was accordingly 
reserved to the crown. To the expectation of finding gold and silver 
mines, those first settlers too joined that of discovering a north-west 
passage to the East Indies. They have hitherto been disappointed in 
both. 



CHAPTER VIII 

Conclusion of the Mercantile System 

THOUGH the encouragement of exportation, and the dis- 
couragement of impwrtation, are the two great engines by 
which the mercantile system proposes to enrich every coun- 
try, yet with regard to some particular commodities, it seems to fol- 
low an opposite plan: to discourage exportation and to encourage 
importation. Its ultimate object, however, it pretends, is always the 
same, to enrich the country by an advantageous balance of trade. 
It discourages the exportation of the materials of manufacture, and 
of the instruments of trade, in order to give our own workmen an 
advantage, and to enable them to undersell those of other nations 
in all foreign markets; and by restraining, in this manner, the ex- 
portation of a few commodities, of no great price, it proposes to 
occasion a much greater and more valuable exportation of others. It 
encourages the importation of the materials of manufacture, in order 
that our own people may be enabled to work them up more cheaply, 
and thereby prevent a greater and more valuable importation of the 
manufactured commodities. I do not observe, at least in our Statute 
Book, any encouragement given to the importation of the instru- 
ments of trade. When manufactures have advanced to a certain 
pitch of greatness, the fabrication of the instruments of trade becomes 
itself the object of a great number of very important manufactures. 
To give any particular encouragement to the importation of such 
instruments, would interfere too much with the interest of those 
manufactures. Such importation, therefore, instead of being encour- 
aged, has frequently been prohibited. Thus the importation of wool 
cards, except from Ireland, or when brought in as wreck or prize 
goods, was prohibited by the 3d of Edward IV., which prohibition 
was renewed by the 39th of Elizabeth, and has been continued and 
rendered f)erpetual by subsequent laws. 
The importation of the materials of manufacture has sometimes 

405 



406 WEALTH OF NATIONS 

been encouraged by an exemption from the duties to which other 
goods are subject, and sometimes by bounties. 

The importation of sheep's wool from several different countries, 
of cotton wool from all countries, of undressed flax, of the greater 
part of dying drugs, of the greater part of undressed hides from 
Ireland or the British colonies, of seal skins from the British Green- 
land fishery, of pig and bar iron from the British colonies, as well as 
of several other materials of manufacture, has been encouraged by an 
exemption from all duties, if properly entered at the custom-house. 
The private interest of our merchants and manufacturers may, per- 
haps, have extorted from the legislature these exemptions, as well 
as the greater part of our other commercial regulations. They are, 
however, perfectly just and reasonable, and if, consistendy with the 
necessities of the state, they could be extended to all the other mate- 
rials of manufacture, the public would certainly be a gainer. 

The avidity of our great manufacturers, however, has in some 
cases extended these exemptions a good deal beyond what can justly 
be considered as the rude materials of their work. By the 24 Geo. 
II. chap. 46, a small duty of only one penny the pound was imposed 
upon the importation of foreign brown linen yarn, instead of much 
higher duties to which it had been subjected before, viz. of sixpence 
the pound upon sail yarn, of one shilling the pound upon all French 
and Dutch yarn, and of two pounds thirteen shillings and four- 
pence upon the hundred weight of all spruce or Muscovia yarn. 
But our manufacturers were not long satisfied with this reduction. 
By the 29th of the same king, chap. 15, the same law which gave a 
bounty upon the exportation of British and Irish linen of which the 
price did not exceed eighteen pence the yard, even this small duty 
upon the importation of brown linen yarn was taken away. In the 
different operations, however, which are necessary for the prepara- 
tion of linen yarn, a good deal more industry is employed, than in 
the subsequent operation of preparing linen cloth from linen yarn. 
To say nothing of the industry of the flax-growers and flax-dressers, 
three or four spinners, at least, are necessary, in order to keep one 
weaver in constant employment; and more than four-fifths of the 
whole quantity of labour, necessary for the preparation of linen 
cloth, is employed in that of linen yarn; but our spinners are poor 



CONCLUSION OF MERCANTILE SYSTEM 407 

people, women commonly, scattered about in all different parts of 
the country, without support or protection. It is not by the sale of 
their work, but by that of the complete work of the weavers, that 
our great master manufacturers make their profits. As it is their in- 
terest to sell the complete manufacture as dear, so is it to buy the 
materials as cheap as possible. By extorting from the legislature 
bounties upon the exportation of their own linen, high duties upon 
the importation of all foreign linen, and a total prohibition of the 
home consumption of some sorts of French linen, they endeavour to 
sell their own goods as dear as possible. By encouraging the impor- 
tation of foreign linen yarn, and thereby bringing it into competition 
with that which is made by our own people, they endeavour to buy 
the work of the poor spinners as cheap as possible. They are as 
intent to keep down the wages of their own weavers, as the earn- 
ings of the poor spinners, and it is by no means for the benefit 
of the workman, that they endeavour either to raise the price of the 
complete work, or to lower that of the rude materials. It is the indus- 
try which is carried on for the benefit of the rich and the powerful, 
that is principally encouraged by our mercantile system. That which 
is carried on for the benefit of the poor and the indigent, is too often, 
either neglected, or oppressed. 

Both the bounty upon the exportation of linen, and the exemp- 
tion from duty upon the importation of foreign yarn, which were 
granted only for fifteen years, but continued by two different pro- 
longations, expire with the end of the session of parliament which 
shall immediately follow the 24th of June 1786. 

The encouragement given to the importation of the materials of 
manufacture by bounties, has been principally confined to such as 
were imported from our American plantations. 

The first bounties of this kind were those granted, about the begin- 
ning of the present century, upon the importation of naval stores 
from America. Under this denomination were comprehended timber 
fit for masts, yards, and bowsprits; hemp; tar, pitch, and turpentine. 
The bounty, however, of one pound the ton upon masting-timber, 
and that of six pounds the ton upon hemp, were extended to such as 
should be imp)orted into England from Scotland. Both these boun- 
ties continued without any variation, at the same rate, till they were 



408 WEALTH OF NATIONS 

severally allowed to expire; that upon hemp on the ist of January 
1741, and that upon masting-timber at the end of the session of 
parliament immediately following the 24th June 1781. 

The bounties upon the importation of tar, pitch, and turpentine 
underwent, during their continuance, several alterations. Origi- 
nally that U{X)n tar was four pounds the ton; that upon pitch the 
same; and that U{X)n turpjentine, three pounds the ton. The bounty 
of four p)ounds the ton upon tar was afterwards confined to such as 
had been prepared in a particular manner; that upon other good, 
clean, and merchantable tar was reduced to two p)ounds four shillings 
the ton. The bounty upon pitch was likewise reduced to one pound; 
and that upon turpentine to one pound ten shillings the ton. 

The second bounty upon the importation of any of the materials 
of manufacture, according to the order of time, was that granted by 
the 21 Geo. II. chap. 30. up)on the importation of indigo from the Brit- 
ish plantations. When the plantation indigo was worth three-fourths 
of the price of the best French indigo, it was by this act entitled to 
a bounty of sixpence the pxjund. This bounty, which, like most 
others, was granted only for a limited time, was continued by several 
prolongations, but was reduced to four pence the px)und. It was 
allowed to expire with the end of the session of parliament which 
followed the 25th March 1781. 

The third bounty of this kind was that granted (much about the 
time that we were beginning sometimes to court and sometimes to 
quarrel with our American colonies) by the 4 Geo. III. chap. 26. 
up)on the importation of hemp, or undressed flax, from the British 
plantations. This bounty was granted for twenty-one years, from 
the 24th June 1764, to the 24th June 1785. For the first seven years 
it was to be at the rate of eight pounds the ton, for the second at 
six pounds, and for the third at four pounds. It was not extended 
to Scotland, of which the climate (although hemp is sometimes 
raised there, in small quantities and of an inferior quality) is not 
very fit for that produce. Such a bounty upon the importation of 
Scotch flax into England would have been too great a discourage- 
ment to the native produce of the southern part of the united 
kingdom. 

The fourth bounty of this kind, was that granted by the 5 Geo. III. 



CONCLUSION OF MERCANTILE SYSTEM 409 

chap. 45. upon the importation of wood from America. It was 
granted for nine years, from the ist January 1766, to the ist January 
1775. During the first three years, it was to be for every hundred and 
twenty good deals, at the rate of one pound; and for every load 
containing fifty cubic feet of other squared timber at the rate of 
twelve shillings. For the second three years, it was for deals to be 
at the rate of fifteen shillings, and for other squared timber, at the 
rate of eight shillings; and for the third three years, it was for deals, 
to be at the rate of ten shillings, and for other squared timber, at 
the rate of five shillings. 

The fifth bounty of this kind, was that granted by the 9 Geo. III. 
chap. 38. upon the impwrtation of raw silk from the British planta- 
tions. It was granted for twenty-one years, from the ist January 
1770, to the 1st January 1791. For the first seven years it was to be 
at the rate of twenty-five pounds for every hundred pounds value; 
for the second, at twenty pounds; and for the third at fifteen pounds. 
The management of the silk-worm, and the preparation of silk, re- 
quires so much hand labour; and labour is so very dear in America, 
that even this great bounty, I have been informed, was not likely to 
produce any considerable effect. 

The sixth bounty of this kind, was that granted by 11 Geo. III. 
chap. 50. for the importation of pipe, hogshead, and barrel staves 
and heading from the British plantations. It was granted for nine 
years, from ist January 1772, to the ist January 1781. For the first 
three years, it was for a certain quantity of each, to be at the rate of 
six pounds; for the second three years, at four pounds; and for the 
third three years, at two pounds. 

The seventh and last bounty of this kind, was that granted by the 
19 Geo. III. chap. 37. upon the importation of hemp from Ireland. 
It was granted in the same manner as that for the importation of 
hemp and undressed flax from America, for twenty-one years, from 
the 24th June 1779, to the 24th June 1800. This term is divided, like- 
wise, into three periods of seven years each; and in each of those 
periods, the rate of the Irish bounty is the same with that of the 
American. It does not, however, like the American bounty, extend 
to the importation of undressed flax. It would have been too great a 
discouragement to the cultivation of that plant in Great Britain. 



410 WEALTH OF NATIONS 

When this last bounty was granted, the British and Irish legislatures 
were not in much better humour with one another, than the British 
and American had been before. But this boon to Ireland, it is to be 
hoped, has been granted under more fortunate auspices, than all 
those to America. 

The same commodities upon which we thus gave bounties, when 
imported from America, were subjected to considerable duties when 
imported from any other country. The interest of our American 
colonies was regarded as the same with that of the mother country. 
Their wealth was considered as our wealth. Whatever money was 
sent out to them, it was said, came all back to us by the balance of 
trade, and we could never become a farthing the poorer, by any 
exf)ence which we could lay out upon them. They were our own in 
every respect, and it was an expence laid out upon the improvement 
of our own property, and for the profitable employment of our 
own people. It is unnecessary, I apprehend, at present to say any 
thing further, in order to expose the folly of a system, which fatal 
experience has now sufficiently exposed. Had our American colonies 
really been a part of Great Britain, those bounties might have been 
considered as bounties ufX)n production, and would still have been 
liable to all the objections to which such bounties are liable, but to 
no other. 

The exportation of the materials of manufacture is sometimes dis- 
couraged by absolute prohibitions, and sometimes by high duties. 

Our woollen manufacturers have been more successful than any 
other class of workmen, in jjersuading the legislature that the pros- 
perity of the nation depended upon the success and extension of 
their particular business. They have not only obtained a monopoly 
against the consumers by an absolute prohibition of importing 
woollen cloths from any foreign country; but they have likewise 
obtained another monopoly against the sheep farmers and growers 
of wool, by a similar prohibition of the exportation of live sheep and 
wool. The severity of many of the laws which have been enacted for 
the security of the revenue is very justly complained of, as imposing 
heavy [penalties up)on actions which, antecedent to the statutes that 
declared them to be crimes, had always been understood to be inno- 
cent. But the cruellest of our revenue laws, I will venture to affirm. 



CONCLUSION OF MERCANTILE SYSTEM 4 II 

are mild and gende, in comparison of some of those which die 
clamour of our merchants and manufacturers have extorted from 
the legislature, for the support of their own absurd and oppressive 
monopolies. Like the laws of Draco, these laws may be said to be 
all written in blood. 

By the 8th of Elizabeth, chap. 3. the exporter of sheep, lambs or 
rams, was for the first offence to forfeit all his goods for ever, to 
suffer a year's imprisonment, and then to have his left hand cut off 
in a market town upon a market day, to be there nailed up; and for 
the second offence to be adjudged a felon, and to suffer death ac- 
cordingly. To prevent the breed of our sheep from being propagated 
in foreign countries, seems to have been the object of this law. By 
the 13th and 14th of Charles II. chap. 18. the exportation of wool 
was made felony, and the exporter subjected to the same penalties 
and forfeitures as a felon. 

For the honour of the national humanity, it is to be hoped that 
neither of these statutes were ever executed. The first of them, how- 
ever, so far as I know, has never been directly repealed, and Serjeant 
Hawkins seems to consider it as still in force. It may however, per- 
haps, be considered as virtually repealed by the 12th of Charles II. 
chap. 32. sect. 3. which, without expressly taking away the f)enalties 
imposed by former statutes, imposes a new penalty, viz. That of 
twenty shillings for every sheep exported, or attempted to be ex- 
ported, together with the forfeiture of the sheep and of the owner's 
share of the ship. The second of them was expressly repealed by the 
7th and 8th of William III. chap. 28. sect, 4. By which it is declared 
that, "Whereas the statute of the 13th and 14th of King Charles II. 
made against the exportation of wool, among other things in the said 
act mentioned, doth enact the same to be deemed felony; by the 
severity of which penalty the prosecution of offenders hath not been 
so effectually put in execution : Be it, therefore, enacted by the author- 
ity foresaid, that so much of the said act, which relates to the making 
the said offence felony, be repealed and made void." 

The penalties, however, which are either imposed by this milder 
statute, or which, though imposed by former statutes, are not repealed 
by this one, are still sufficiently severe. Besides the forfeiture of the 
goods, the exporter incurs the penalty of three shillings for every 



412 WEALTH OF NATIONS 

pound weight of wool either exported or attempted to be exported, 
that is about four or five times the value. Any merchant or other 
person convicted of this offence is disabled from requiring any debt 
or account belonging to him from any factor or other person. Let 
his fortune be what it will, whether he is, or is not able to pay those 
heavy penalties, the law means to ruin him completely. But as the 
morals of the great body of the people are not yet so corrupt as those 
of the contrivers of this statute, I have not heard that any advantage 
has ever been taken of this clause. If the person convicted of this 
offence is not able to pay the penalties within three months after 
judgment, he is to be transported for seven years, and if he returns 
before the expiration of that term, he is liable to the pains of felony, 
without benefit of clergy. The owner of the ship knowing this 
offence forfeits all his interest in the ship and furniture. The master 
and mariners knowing this offence forfeit all their goods and chattels, 
and suffer three months imprisonment. By a subsequent statute the 
master suffers six months imprisonment. 

In order to prevent exportation, the whole inland commerce of 
wool is laid under very burdensome and oppressive restrictions. It 
cannot be packed in any box, barrel, cask, case, chest, or any other 
package, but only in packs of leather or pack-cloth, on which must be 
marked on the outside the words wool or yarn, in large letters not 
less than three inches long, on pain of forfeiting the same and the 
package, and three shillings for every pound weight, to be paid by 
the owner or packer. It cannot be loaden on any horse or cart, or 
carried by land within five miles of the coast, but between sun-rising 
and sun-setting, on pain of forfeiting the same, the horses and car- 
riages. The hundred next adjoining to the sea coast, out of or 
through which the wool is carried or exported, forfeits twenty 
pounds, if the wool is under the value of ten pounds; and if of 
greater value, then treble that value, together with treble costs, to be 
sued for within the year. The execution to be against any two of 
the inhabitants, whom the sessions must reimburse, by an assess- 
ment on the other inhabitants, as in the cases of robbery. And if any 
person compounds with the hundred for less than this penalty, he 
is to be imprisoned for five years; and any other person may prose- 
cute. These regulations take place through the whole kingdom. 



CONCLUSION OF MERCANTILE SYSTEM 413 

But in the particular counties of Kent and Sussex the restrictions 
are still more troublesome. Every owner of wool within ten miles 
of the sea<oast must give an account in writing, three days after 
shearing, to the next officer of the customs, of the number of his 
fleeces, and of the places where they are lodged. And before he re- 
moves any part of them he must give the like notice of the number 
and weight of the fleeces, and of the name and abode of the person 
to whom they are sold, and of the place to which it is intended they 
should be carried. No person within fifteen miles of the sea, in the 
said counties, can buy any wool, before he enters into bond to the 
king, that no part of the wool which he shall so buy shall be sold 
by him to any other person within fifteen miles of the sea. If any 
wool is found carrying towards the sea-side in the said counties, 
unless it has been entered and security given as aforesaid, it is for- 
feited, and the offender also forfeits three shillings for every pound 
weight. If any person lays any wool, not entered as aforesaid, within 
fifteen miles of the sea, it must be seized and forfeited; and if, after 
such seizure, any person shall claim the same, he must give security 
to the Exchequer, that if he is cast upon trial he shall pay treble 
costs, besides all other penalties. 

When such restrictions are imposed upon the inland trade, the 
coasting trade, we may believe, cannot be left very free. Every owner 
of wool who carrieth or causeth to be carried any wool to any port or 
place on the sea-coast, in order to be from thence transported by sea 
to any other place or port on the coast, must first cause an entry 
thereof to be made at the port from whence it is intended to be con- 
veyed, containing the weight, marks, and number of the packages 
before he brings the same within five miles of that port; on pain of 
forfeiting the same, and also the horses, carts, and other carriages; 
and also of suffering and forfeiting, as by the other laws in force 
against the exportation of wool. This law, however, (i Will. III. 
chap. 32.) is so very indulgent as to declare, that "this shall not hinder 
"any person from carrying his wool home from the place of shear- 
"ing, though it be within five miles of the sea, provided that in ten 
"days after shearing, and before he remove the wool, he do under his 
"hand certify to the next officer of the customs, the true number of 
"fleeces, and where it is housed; and do not remove the same, with- 



414 WEALTH OF NATIONS 

"out certifying to such officer, under his hand, his intention so to do, 
"three days before." Bond must be given that the wool to be carried 
coast-ways is to be landed at the particular port for which it is 
entered outwards; and if any part of it is landed without the pres- 
ence of an officer, not only the forfeiture of the wool is incurred as 
in other goods, but the usual additional penalty of three shillings for 
every pound weight is likewise incurred. 

Our woollen manufacturers, in order to justify their demand of 
such extraordinary restrictions and regulations, confidently asserted, 
that English wool was of a p)eculiar quality, superior to that of any 
other country; that the wool of other countries could not, without 
some mixture of it, be wrought up into any tolerable manufacture; 
that fine cloth could not be made without it; that England, there- 
fore, if the exportation of it could be totally prevented, could monopo- 
lize to herself almost the whole woollen trade of the world; and thus, 
having no rivals, could sell at what price she pleased, and in a short 
time acquire the most incredible degree of wealth by the most ad- 
vantageous balance of trade. This doctrine, like most other doctrines 
which are confidently asserted by any considerable number of people, 
was, and still continues to be, most implicitly believed by a much 
greater number; by almost all those who are either unacquainted 
with the woollen trade, or who have not made particular enquiries. 
It is, however, so perfectly false, that English wool is in any respect 
necessary for the making of fine cloth, that it is altogether unfit for 
it. Fine cloth is made altogether of Spanish wool. English wool can- 
not be even so mixed with Spanish wool as to enter into the compo- 
sition without spoiling and degrading, in some degree, the fabric 
of the cloth. 

It has been shown in the foregoing part of this work, that the 
effect of these regulations has been to depress the price of English 
wool, not only below what it naturally would be in the present times, 
but very much below what it actually was in the time of Edward 
III. The price of Scots wool, when in consequence of the union it 
became subject to the same regulations, is said to have fallen about 
one half. It is observed by the very accurate and intelligent author 
of the Memoirs of Wool, the Reverend Mr. John Smith, that the 
price of the best English wool in England is generally below what 



CONCLUSION OF MERCANTILE SYSTEM 415 

wool of a very inferior quality commonly sells for in the market of 
Amsterdam. To depress the price of this commodity below what 
may be called its natural and propier price, was the avowed purpwse 
of those regulations; and there seems to be no doubt of their having 
produced the effect that was exp)ected from them. 

This reduction of price, it may perhaps be thought, by discourag- 
ing the growing of wool, must have reduced very much the annual 
produce of that commodity, though not below what it formerly was, 
yet below what, in the present state of things, it probably would have 
been, had it, in consequence of an open and free market, been allowed 
to rise to the natural and proper price. I am, however, disposed to 
believe, that the quantity of the annual produce cannot have been 
much, though it may perhaps have been a little, affected by these 
regulations. The growing of wool is not the chief purp)ose for which 
the sheep farmer employs his industry and stock. He expects his 
profit, not so much from the price of the fleece, as from that of the 
carcase; and the average or ordinary price of the latter, must even, in 
many cases, make up to him whatever deficiency there may be in 
the average or ordinary price of the former. It has been observed in 
the foregoing part of this work, that "Whatever regulations tend to 
"sink the price, either of wool or raw hides, below what it naturally 
"would be, must, in an improved and cultivated country, have some 
"tendency to raise the price of butchers meat. The price both of the 
"great and small cattle which are fed on improved and cultivated 
"land, must be sufficient to pay the rent which the landlord, and the 
"profit which the farmer has reason to expect from improved and 
"cultivated land. If it is not, they will soon cease to feed them. 
"Whatever part of this price, therefore, is not paid by the wool and 
"the hide, must be paid by the carcase. The less there is paid for the 
"one, the more must be paid for the other. In what manner this 
"price is to be divided up)on the different parts of the beast, is indif- 
"ferent to the landlords and farmers, provided it is all paid to them. 
"In an improved and cultivated country, therefore, their interest as 
"landlords and farmers cannot be much affected by such regulations, 
"though their interest as consumers may, by the rise in the price of 
"provisions." According to this reasoning, therefore, this degrada- 
tion in the price of wool is not likely, in an improved and cultivated 



4l6 WEALTH OF NATIONS 

country, to occasion any diminution in the annual produce of that 
commodity; except so far as by raising the price of mutton, it may 
somewhat diminish the demand for, and consequently the produc- 
tion of, that particular species of butchers meat. Its effect, however, 
even in this way, it is probable, is not very considerable. 

But though its effect upon the quantity of the annual produce may 
not have been very considerable, its effect upon the quality, it may 
perhaps be thought, must necessarily have been very great. The 
degradation in the quality of English wool, if not below what it was 
in former times, yet below what it naturally would have been in the 
present state of improvement and cultivation, must have been, it 
may perhaps be supposed, very nearly in proportion to the degrada- 
tion of price. As the quality depends upon the breed, upon the pas- 
ture, and upon the management and cleanliness of the sheep, during 
the whole progress of the growth of the fleece, the attention to these 
circumstances, it may naturally enough be imagined, can never be 
greater than in proportion to the recompence which the price of the 
fleece is likely to make for the labour and expence which that atten- 
tion requires. It happens, however, that the goodness of the fleece 
depends, in a great measure, upon the health, growth, and bulk of the 
animal; the same attention which is necessary for the improvement of 
the carcase, is, in some respects, sufficient for that of the fleece. Not- 
withstanding the degradation of price, English wool is said to have 
been improved considerably during the course even of the present 
century. The improvement might perhaps have been greater if the 
price had been better; but the lowness of price, though it may have 
obstructed, yet certainly it has not altogether prevented that improve- 
ment. 

The violence of these regulations, therefore, seems to have affected 
neither the quantity nor the quality of the annual produce of wool 
so much as it might have been expected to do (though I think it 
probable that it may have affected the latter a good deal more than 
the former) ; and the interest of the growers of wool, though it must 
have been hurt in some degree, seems, upon the whole, to have been 
much less hurt than could well have been imagined. 

These considerations, however, will not justify the absolute pro- 



CONCLUSION OF MERCANTILE SYSTEM 417 

hibition of the exportation of wool. But they will fully justify the 
imposition of a considerable tax upon that exportation. 

To hurt in any degree the interest of any one order of citizens, 
for no other purpose but to promote that of some other, is evidently 
contrary to that justice and equality of treatment which the sovereign 
owes to all the different orders of his subjects. But the prohibition 
certainly hurts, in some degree, the interest of the growers of wool, 
for no other purpose but to promote that of the manufacturers. 

Every different order of citizens is bound to contribute to the 
support of the sovereign or commonwealth. A tax of five, or even 
of ten shillings upon the exportation of every tod of wool, would 
produce a very considerable revenue to the sovereign. It would hurt 
the interest of the growers somewhat less than the prohibition, be- 
cause it would not probably lower the price of wool quite so much. 
It would afford a sufficient advantage to the manufacturer, because, 
though he might not buy his wool altogether so cheap as under the 
prohibition, he would still buy it, at least, five or ten shillings cheaper 
than any foreign manufacturer could buy it, besides saving the freight 
and insurance, which the other would be obliged to pay. It is scarce 
possible to devise a tax which could produce any considerable reve- 
nue to the sovereign, and at the same time occasion so little incon- 
veniency to any body. 

The prohibition, notwithstanding all the penalties which guard 
it, does not prevent the exportation of wool. It is exported, it is well 
known, in great quantities. The great difference between the price 
in the home and that in the foreign market, presents such a tempta- 
tion to smuggling, that all the rigour of the law cannot prevent it. 
This illegal exportation is advantageous to nobody but the smuggler. 
A legal exportation subject to a tax, by affording a revenue to the 
sovereign, and thereby saving the imposition of some other, per- 
haps, more burdensome and inconvenient taxes, might prove advan- 
tageous to all the different subjects of the state. 

The exportation of fuller's earth, or fuller's clay, supposed to be 
necessary for preparing and cleansing the woollen manufactures, 
has been subjected to nearly the same penalties as the exportation of 
wool. Even tobacco-pipe clay, though acknowledged to be different 



41 8 WEALTH OF NATIONS 

from fuller's clay, yet, on account of their resemblance, and because 
fuller's clay might sometimes be exported as tobacco-pipe clay, has 
been laid under the same prohibitions and penalties. 

By the 13th and 14th of Charles II. chap. 7. the exportation, not 
only of raw hides, but of tanned leather, except in the shape of boots, 
shoes, or slippers, was prohibited; and the law gave a monopoly to 
our boot-makers and shoe-makers, not only against our graziers, 
but against our tanners. By subsequent statutes, our tanners have 
got themselves exempted from this monopoly, upon paying a small 
tax of only one shilling on the hundred weight of tanned leather, 
weighing one hundred and twelve pounds. They have obtained like- 
wise the drawback of two-thirds of the excise duties imposed upon 
their commodity, even when exported without further manufacture. 
All manufactures of leather may be exported duty free; and the 
exporter is besides entitled to the drawback of the whole duties of 
excise. Our graziers still continue subject to the old monopoly. 
Graziers separated from one another, and dispersed through all the 
different corners of the country, cannot, without great difficulty, com- 
bine together for the purpose either of imposing monopolies upon 
their fellow-citizens, or of exempting themselves from such as may 
have been imposed upon them by other people. Manufacturers of 
all kinds, collected together in numerous bodies in all great cities, 
easily can. Even the horns of cattle are prohibited to be exported; 
and the two insignificant trades of the homer and comb-maker enjoy, 
in this respect, a monopoly against the graziers. 

Restraints, either by prohibitions or by taxes, upon the exportation 
of goods which are partially, but not completely manufactured, are 
not peculiar to the manufacture of leather. As long as any thing 
remains to be done, in order to fit any commodity for immediate 
use and consumption, our manufacturers think that they themselves 
ought to have the doing of it. Woollen yarn and worsted are pro- 
hibited to be exported under the same penalties as wool. Even while 
cloths are subject to a duty upon exportation, and our dyers have 
so far obtained a monopoly against our clothiers. Our clothiers would 
probably have been able to defend themselves against it, but it hap- 
pens that the greater part of our principal clothiers are themselves 
likewise dyers. Watch-cases, clock-cases, and dial-plates for clocks 



CONCLUSION OF MERCANTILE SYSTEM 419 

and watches have been prohibited to be exported. Our dock-makers 
and watch-makers are, it seems, unwilUng that the price of this sort 
of workmanship should be raised upon them by the competition of 
foreigners. 

By some old statutes of Edward III., Henry VIII., and Edward 
VU the exportation of all metals was prohibited. Lead and tin were 
alone excepted; probably on account of the great abundance of those 
metals; in the exportation of which, a considerable part of the trade 
of the kingdom in those days consisted. For the encouragement of 
the mining trade, the 5th of William and Mary, chap. 17, exempted 
from this prohibition, iron, copper, and mundic metal made from 
British ore. The exportation of all sorts of copper bars, foreign as 
well as British, was afterwards permitted by the 9th and loth of 
William III., chap. 26. The exportation of unmanufactured brass, 
of what is called gun-metal, bell-metal, and shroff-metal, still con- 
tinues to be prohibited. Brass manufactures of all sorts may be 
exported duty free. 

The exportation of the materials of manufacture, where it is not 
altogether prohibited, is in many cases subjected to considerable 
duties. 

By the 8th George I., chap. 15, the exportation of all goods, the 
produce or manufacture of Great Britain, upon which any duties 
had been imposed by former statutes, was rendered duty free. The 
following goods, however, were excepted: Alum, lead, lead ore, tin, 
tanned leather, copperas, coals, wool cards, white woollen cloths, 
lapis calaminaris, skins of all sorts, glue, coney hair or wool, hares 
wool, hair of all sorts, horses, and litharge of lead. If you except 
horses, all these are either materials of manufacture, or incomplete 
manufactures (which may be considered as materials for still further 
manufacture), or instruments of trade. This statute leaves them sub- 
ject to all the old duties which had ever been imposed upon them, the 
old subsidy and one per cent, outwards. 

By the same statute a great number of foreign drugs for dyers 
use, are exempted from all duties upon importation. Each of them, 
however, is afterwards subjected to a certain duty, not indeed a very 
heavy one, upon exportation. Our dyers, it seems, while they thought 
it for their interest to encourage the importation of those drugs, by 



420 WEALTH OF NATIONS 

an exemption from all duties, thought it likewise for their interest 
to throw some small discouragement upon their exportation. The 
avidity, however, which suggested this notable piece of mercantile 
ingenuity, most probably disappointed itself of its object. It neces- 
sarily taught the importers to be more careful than they might 
otherwise have been, that their importation should not exceed what 
was necessary for the supply of the home market. The home mar- 
ket was at all times likely to be more scantily supplied; the com- 
modities were at all times likely to be somewhat dearer there than 
they would have been, had the exportation been rendered as free as 
the importation. 

By the above-mentioned statute, gum senega, or gum arabic, being 
among the enumerated dying drugs, might be imported duty free. 
They were subjected, indeed, to a small poundage duty, amounting 
only to three pence in the hundred weight upon their re-exportation. 
France enjoyed, at that time, an exclusive trade to the country most 
productive of those drugs, that which lies in the neighbourhood of 
the Senegal; and the British market could not be easily supplied by 
the immediate importation of them from the place of growth. By 
the 25th Geo. II. therefore, gum senega was allowed to be imported 
(contrary to the general dispositions of the act of navigation), from 
any part of Europe. As the law, however, did not mean to encour- 
age this species of trade, so contrary to the general principles of the 
mercantile policy of England, it imposed a duty of ten shillings the 
hundred weight upon such importation, and no part of this duty was 
to be afterwards drawn back upon its exportation. The successful 
war which began in 1755 gave Great Britain the same exclusive trade 
to those countries which France had enjoyed before. Our manufac- 
turers, as soon as the p)eace was made, endeavoured to avail them- 
selves of this advantage, and to establish a monopoly in their own 
favour, both against the growers, and against the importers of this 
commodity. By the 5th Geo. III. therefore, chap. 37. the exportation 
of gum senega from his majesty's dominions in Africa was confined 
to Great Britain, and was subjected to all the same restrictions, regu- 
lations, forfeitures, and penalties, as that of the enumerated com- 
modities of the British colonies in America and the West Indies. 
Its importation, indeed, was subjected to a small duty of six-pence the 



CONCLUSION OF MERCANTILE SYSTEM 42 1 

hundred weight, but its re-exportation was subjected to the enor- 
mous duty of one pound ten shillings the hundred weight. It was 
the intention of our manufacturers that the whole produce of those 
countries should be imported into Great Britain, and in order that 
they themselves might be enabled to buy it at their own price, that 
no part of it should be exported again, but at such an expence as 
would sufliciendy discourage that exportation. Their avidity, how- 
ever, upon this, as well as upon many other occasions, disappointed it- 
self of its object. This enormous duty presented such a temptation 
to smuggling, that great quantities of this commodity were clan- 
destinely exported, probably to all the manufacturing countries of • 
Europe, but particularly to Holland, not only from Great Britain but 
from Africa. Upon this account, by the 14 Geo. III. chap. 10. this 
duty upon exportation was reduced to five shillings the hundred 
weight. 

In the book of rates, according to which the old subsidy was levied, 
beaver skins were estimated at six shillings and eight-pence a-piece, 
and the different subsidies and imposts, which before the year 1722 
had been laid upon their importation, amounted to one-fifth part 
of the rate, or to sixteen-pence upon each skin; all of which, except 
half the old subsidy, amounting only to two-pence, was drawn back 
upon exportation. This duty up)on the importation of so impwrtant 
a material of manufacture had been thought too high, and, in the 
year 1722, the rate was reduced to two shillings and six-pence, which 
reduced the duty upon importation to six-pence, and of this only one 
half was to be drawn back upon exportation. The same successful 
war put the country most productive of beaver under the dominion 
of Great Britain, and beaver skins being among the enumerated com- 
modities, their exportation from America was consequently confined 
to the market of Great Britain. Our manufacturers soon bethought 
themselves of the advantage which they might make of this cir- 
cumstance, and in the year 1764, the duty upon the importation of 
beaver-skin was reduced to one penny, but the duty upon exporta- 
tion was raised to seven-pence each skin, without any drawback of 
the duty upon importation. By the same law, a duty of eighteen 
pence the pound was imposed upon the exportation of beaver-wool 
or wombs, without making any alteration in the duty upon the 



422 WEALTH OF NATIONS 

importation of that commodity, which when imported by British and 
in British shipping, amounted at that time to between four-pence 
and five-p)ence the piece. 

Coals may be considered both as a material of manufacture and 
as an instrument of trade. Heavy duties, accordingly, have been 
imposed upon their exportation, amounting at present (1783) to 
more than five shillings the ton, or to more than fifteen shillings the 
chaldron, Newcastle measure; which is in most cases more than the 
original value of the commodity at the coal pit, or even at the ship- 
ping port for exportation. 

The exportation, however, of the instruments of trade, properly 
so called, is commonly restrained, not by high duties, but by abso- 
lute prohibitions. Thus by the 7th and 8th of William III. chap. 20. 
sect. 8. the exportation of frames or engines for knitting gloves or 
stockings is prohibited under the penalty, not only of the forfeiture 
of such frames or engines, so exported, or attempted to be exported, 
but of forty pounds, one half to the king, the other to the person 
who shall inform or sue for the same. In the same manner by the 
14th Geo. III. chap. 71, the exportation to foreign parts, of any utensils 
made use of in the cotton, linen, woollen and silk manufactures, is 
prohibited under the penalty, not only of the forfeiture of such 
utensils, but of two hundred pounds, to be paid by the person who 
shall offend in this manner, and likewise of two hundred pounds to 
be paid by the master of the ship who shall knowingly suffer such 
utensils to be loaded on board his ship. 

When such heavy penalties were imposed upon the exportation of 
the dead instruments of trade, it could not well be expected that the 
living instrument, the artificer, should be allowed to go free. Ac- 
cordingly, by the 5 Geo. I. chap. 27. the person who shall be con- 
victed of enticing any artificer of, or in any of the manufactures of 
Great Britain, to go into any foreign parts, in order to practise or 
teach his trade, is liable for the first offence to be fined in any sum 
not exceeding one hundred pounds, and to three months imprison- 
ment, and until the fine shall be paid; and for the second offence, 
to be fined in any sum at the discretion of the court, and to imprison- 
ment for twelve months, and until the fine shall be paid. By the 23 
Geo. II. chap. 13. this penalty is increased for the first offence to five 



CONCLUSION OF MERCANTILE SYSTEM 423 

hundred pounds for every artificer so enticed, and to twelve months 
imprisonment, and until the fine shall be paid; and for the second 
offence, to one thousand pounds, and to two years imprisonment, 
and until the fine shall be paid. 

By the former of those two statutes, upon proof that any person 
has been enticing any artificer, or that any artificer has promised or 
contracted to go into foreign parts for the purposes aforesaid, such 
artificer may be obliged to give security at the discretion of the court, 
that he shall not go beyond the seas, and may be committed to prison 
until he give such security. 

If any artificer has gone beyond the seas, and is exercising or teach- 
ing his trade in any foreign country, upon warning being given to 
him by any of his majesty's ministers or consuls abroad, or by one 
of his majesty's secretaries of state for the time being, if he does 
not, within six months after such warning, return into this realm, 
and from thenceforth abide and inhabit continually within the same, 
he is from thenceforth declared incapable of taking any legacy de- 
vised to him within this kingdom, or of being executor or adminis- 
trator to any person, or of taking any lands within this kingdom by 
descent, device, or purchase. He likewise forfeits to the king, all his 
lands, goods and chattels, is declared an alien in every respect, and is 
put out of the king's protection. 

It is unnecessary, I imagine, to observe, how contrary such regula- 
tions are to the boasted liberty of the subject, of which we affect to 
be so very jealous; but which, in this case, is so plainly sacrificed to 
the futile interests of our merchants and manufacturers. 

The laudable motive of all these regulations, is to extend our own 
manufactures, not by their own improvement, but by the depression 
of those of all our neighbours, and by putting an end, as much as 
possible, to the troublesome competition of such odious and dis- 
agreeable rivals. Our master manufacturers think it reasonable, that 
they themselves should have the monopoly of the ingenuity of all 
their countrymen. Though by restraining, in some trades, the num- 
ber of apprentices which can be employed at one time, and by impos- 
ing the necessity of a long apprenticeship in all trades, they endeav- 
our, all of them, to confine the knowledge of their respective employ- 
ments to as small a number as possible; they are unwilling, however, 



424 WEALTH OF NATIONS 

that any part of this small number should go abroad to instruct 
foreigners. 

Consumption is the sole end and purpose of all production; and 
the interest of the producer ought to be attended to, only so far as 
it may be necessary for promoting that of the consumer. The maxim 
is so perfectly self-evident, that it would be absurd to attempt to prove 
it. But in the mercantile system, the interest of the consumer is 
almost constantly sacrificed to that of the producer; and it seems to 
consider production, and not consumption, as the ultimate end and 
object of all industry and commerce. 

In the restraints upon the importation of all foreign commodities 
which can come into competition with those of our own growth, or 
manufacture, the interest of the home<onsumer is evidently sacri- 
ficed to that of the producer. It is altogether for the benefit of the 
latter, that the former is obliged to pay that enhancement of price 
which this monopoly almost always occasions. 

It is altogether for the benefit of the producer that bounties are 
granted upon the exportation of some of his productions. The home- 
consumer is obliged to pay, first, the tax which is necessary for pay- 
ing the bounty, and secondly, the still greater tax which necessarily 
arises from the enhancement of the price of the commodity in the 
home market. 

By the famous treaty of commerce with Portugal, the consumer 
is prevented by high duties from purchasing of a neighbouring 
country, a commodity which our own climate does not produce, but 
is obliged to purchase it of a distant country, though it is acknowl- 
edged, that the commodity of the distant country is of a worse 
quality than that of the near one. The home-consumer is obliged to 
submit to this inconveniency, in order that the producer may import 
into the distant country some of his productions uf)on more ad- 
vantageous terms than he would otherwise have been allowed to do. 
The consumer, too, is obliged to pay, whatever enhancement in the 
price of those very productions, this forced exportation may occasion 
in the home market. 

But in the system of laws which has been established for the man- 
agement of our American and West Indian colonies, the interest 
of the home-consumer has been sacrificed to that of the producer 



CONCLUSION OF MERCANTILE SYSTEM 425 

with a more extravagant profusion than in all our other commercial 
regulations. A great empire has been established for the sole pur- 
pose of raising up a nation of customers who should be obliged to 
buy from the shops of our different producers, all the goods with 
which these could supply them. For the sake of that litde enhance- 
ment of price which this monopoly might afford our producers, 
the home-consumers have been burdened with the whole expence of 
maintaining and defending that empire. For this purpose, and for 
this purpose only, in the two last wars, more than two hundred 
millions have been spent, and a new debt of more than a hundred 
and seventy millions has been contracted over and above all that 
had been expended for the same purpose in former wars. The in- 
terest of this debt alone is not only greater than the whole extraordi- 
nary profit, which, it ever could be pretended, was made by the 
monopoly of the colony trade, but than the whole value of that 
trade, or than the whole value of the goods, which at an average 
have been annually exported to the colonies. 

It cannot be very difficult to determine who have been the con- 
trivers of this whole mercantile system; not the consumers, we may 
believe, whose interest has been entirely neglected; but the producers, 
whose interest has been so carefully attended to; and among this 
latter class our merchants and manufacturers have been by far the 
principal architects. In the mercantile regulations, which have been 
taken notice of in this chapter, the interest of our manufacturers has 
been most peculiarly attended to; and the interest, not so much of 
the consumers, as that of some other sets of producers, has been 
sacrificed to it. 



CHAPTER IX 

Of the Agricultural Systems, or of the Systems of Political 
(Economy, Which Represents the Produce of Land as Either 
THE Sole or the Principal Source of the Revenue and Wealth 
of Every Country 

THE agricultural systems of political ccconomy will not 
require so long an explanation as that which I have 
thought it necessary to bestow upon the mercantile or 
commercial system. 

That system which represents the produce of land as the sole 
source of the revenue and wealth of every country has, so far as I 
know, never been adopted by any nation, and it at present exists 
only in the sp)eculation of a few men of great learning and ingenuity 
in France. It would not, surely, be worth while to examine at 
great length the errors of a system which never has done, and prob- 
ably never will do any harm in any part of the world. I shall en- 
deavour to explain, however, as distincdy as I can, the great outlines 
of this very ingenious system. 

Mr. Colbert, the famous minister of Lewis XIV., was a man of 
probity, of great industry and knowledge of detail; of great ex- 
perience and acuteness in the examination of public accounts, and 
of abilities, in short, every way fitted for introducing method and 
good order into the collection and expenditure of the public revenue. 
That minister had unfortunately embraced all the prejudices of the 
mercantile system, in its nature and essence a system of restraint 
and regulation, and such as could scarce fail to be agreeable to a 
laborious and plodding man of business, who had been accustomed 
to regulate the different departments of public offices, and to estab- 
lish the necessary checks and controls for confining each to its 
proper sphere. The industry and commerce of a great country he 
endeavoured to regulate upon the same model as the departments 
of a public office; and instead of allowing every man to pursue his 

426 



AGRICULTURAL SYSTEMS 427 

own interest his own way, upon the liberal plan of equality, liberty, 
and justice, he bestowed upon certain branches of industry extraor- 
dinary privileges, which he laid others under as extraordinary re- 
straints. He was not only disfxjsed, like other Eurof)ean ministers^ 
to encourage more the industry of the towns than that of the country; 
but, in order to support the industry of the towns, he was willing 
even to depress and keep down that of the country. In order to 
render provisions cheap to the inhabitants of the towns, and thereby 
to encourage manufactures and foreign commerce, he prohibited 
altogether the exportation of corn, and thus excluded the inhabitants 
of the country from every foreign market for by far the most im- 
portant part of the produce of their industry. This prohibition, joined 
to the restraints imposed by the ancient provincial laws of France 
uf)on the transf)ortation of corn from one province to another, and 
to the arbitrary and degrading taxes which are levied upon the cidti- 
vators in almost all the provinces, discouraged and kept down the 
agriculture of that country very much below the state to which it 
would naturally have risen in so very fertile a soil and so very 
happy a climate. This state of discouragement and depression was 
felt more or less in every different part of the country, and many 
different inquiries were set on foot concerning the causes of it. One 
of those causes appeared to be the preference given, by the institu- 
tions of Mr. Colbert, to the industry of the towns above that of the 
country. 

If the rod be bent too much one way, says the proverb, in order 
to make it straight you must bend it as much the other. The French 
philosophers, who have proposed the system which represents agri- 
culture as the sole source of the revenue and wealth of every coun- 
try, seem to have adopted this proverbial maxim; and as in the plan 
of Mr. Colbert the industry of the towns was certainly over-valued 
in comparison with that of the country; so in their system it seems 
to be as certainly undervalued. 

The different orders of people who have ever been supposed to 
contribute in any respect towards the annual produce of the land 
and labour of the country, they divide into three classes. The first 
is the class of the proprietors of land. The second is the class of 
the cultivators, of farmers and country labourers, whom they honour 



428 WEALTH OF NATIONS 

with the peculiar appellation of the productive class. The third is 
the class of artificers, manufacturers and merchants, whom they 
endeavour to degrade by the humiliating appellation of the barren 
or unproductive class. 

The class of proprietors contributes to the annual produce by the 
exp)ence which they may occasionally lay out uf)on the improvement 
of the land, upon the buildings, drains, enclosures and other ameli- 
orations, which they may either make or maintain upon it, and by 
means of which the cultivators are enabled, with the same capital, to 
raise a greater produce, and consequently to pay a greater rent. This 
advanced rent may be considered as the interest or profit due to the 
proprietor upwn the expence or capital which he thus employs in the 
improvement of his land. Such expences are in this system called 
ground expences (depenses foncieres). 

The cultivators or farmers contribute to the annual produce by 
what are in this system called the original and annual expwnces 
(defenses primitives et depenses annuellcs) which they lay out up)on 
the cultivation of the land. The original expences consist in the in- 
struments of husbandry, in the stock of cattle, in the seed, and in 
the maintenance of the farmer's family, servants and cattle, during 
at least a great part of the first year of his occupancy, or till he can 
receive some return from the land. The annual exf)ences consist 
in the seed, in the wear and tear of the instruments of husbandry, and 
in the annual maintenance of the farmer's servants and cattle, and 
of his family too, so far as any part of them can be considered as 
servants employed in cultivation. That part of the produce of the 
land which remains to him after paying the rent, ought to be suffi- 
cient, first, to replace to him within a reasonable time, at least during 
the term of his occupancy, the whole of his original expences, to- 
gether with the ordinary profits of stock; and, secondly, to replace to 
him annually the whole of his annual exf)ences, together likewise 
with the ordinary profits of stock. Those two sorts of expences are 
two capitals which the farmer employs in cultivation; and unless 
they are regularly restored to him, together with a reasonable profit, 
he cannot carry on his employment upon a level with other em- 
ployments; but, from a regard to his own interest, must desert it 
as soon as possible, and seek some other. That part of the produce 



AGRICULTURAL SYSTEMS 429 

of the land which is thus necessary for enabling the farmer to con- 
tinue his business, ought to be considered as a fund sacred to culti- 
vation, which if the landlord violates, he necessarily reduces the 
produce of his own land, and in a few years not only disables the 
farmer from paying this racked rent, but from paying the reason- 
able rent which he might otherwise have got for his land. The rent 
which properly belongs to the landlord, is no more than the neat 
produce which remains after paying in the completest manner all 
the necessary expences which must be previously laid out in order to 
raise the gross, or the whole produce. It is because the labour of 
the cultivators, over and above paying completely all those neces- 
sary expences, affords a neat produce of this kind, that this class 
of people are in this system peculiarly distinguished by the 
honourable apjjellation of the productive class. Their original 
and annual expences are for the same reason called, in this sys- 
tem, productive expences, because, over and above replacing their 
own value, they occasion the annual reproduction of this neat 
produce. 

The ground expences, as they are called, or what the landlord 
lays out upon the improvement of his land, are in this system too 
honoured with the appellation of productive expences. Till the whole 
of those expences, together with the ordinary profits of stock, have 
been completely repaid to him by the advanced rent which he gets 
from his land, that advanced rent ought to be regarded as sacred and 
inviolable, both by the church and by the king; ought to be subject 
neither to tithe nor to taxation. If it is otherwise, by discouraging the 
improvement of land, the church discourages the future increase of 
her own tithes, and the king the future increase of his own taxes. 
As in a well-ordered state of things, therefore, those ground ex- 
pences, over and above reproducing in the completest manner their 
own value, occasion likewise after a certain time a reproduction of a 
neat produce, they are in this system considered as productive 
expences. 

The ground expences of the landlord, however, together with the 
original and the annual expences of the farmer, are the only three 
sorts of expences which in this system are considered as produc- 
tive. All other expences and all other orders of people, even those 



430 WEALTH OF NATIONS 

who in the common apprehensions of men are regarded as the 
most productive, are in this account of things represented as alto- 
gether barren and unproductive. 

Artificers and manufacturers, in particular, whose industry, in the 
common apprehensions of men, increases so much the value of the 
rude produce of land, are in this system represented as a class of 
people altogether barren and unproductive. Their labour, it is said, 
replaces only the stock which employs them, together with its ordi- 
nary profits. That stock consists in the materials, tools, and wages, 
advanced to them by their employer; and is the fund destined for 
their employment and maintenance. Its profits are the fund destined 
for the maintenance of their employer. Their employer, as he ad- 
vances to them the stock of materials, tools and wages necessary for 
their employment, so he advances to himself what is necessary for his 
own maintenance, and this maintenance he generally proportions to 
the profit which he expects to make by the price of their work. Un- 
less its price repays to him the maintenance which he advances to 
himself, as well as the materials, tools and wages which he advances 
to his workmen, it evidendy does not repay to him the whole ex- 
pence which he lays out upon it. The profits of manufacturing stock, 
therefore, are not, like the rent of land, a neat produce which re- 
mains after completely repaying the whole expence which must be 
laid out in order to obtain them. The stock of the farmer yields him 
a profit as well as that of the master manufacturer; and it yields a 
rent likewise to another person, which that of the master manufac- 
turer does not. The expence, therefore, laid out in employing and 
maintaining artificers and manufacturers, does no more than con- 
tinue, if one may say so, the existence of its own value, and does not 
produce any new value. It is therefore altogether a barren and un- 
productive expence. The expence, on the contrary, laid out in em- 
ploying farmers and country labourers, over and above continuing 
the existence of its own value, produces a new value, the rent of 
the landlord. It is therefore a productive expence. 

Mercantile stock is equally barren and unproductive with manu- 
facturing stock. It only continues the existence of its own value, 
without producing any new value. Its profits are only the repayment 
of the maintenance which its employer advances to himself during 



AGRICULTURAL SYSTEMS 431 

the time that he employs it, or till he receives the returns of it. 
They are only the repayment of a part of the expence which must 
be laid out in employing it. 

The labour of artificers and manufacturers never adds any thing 
to the value of the whole annual amount of the rude produce of 
the land. It adds indeed greatly to the value of some particular 
parts of it. But the consumption which in the mean time it occa- 
sions of other parts, is precisely equal to the value which it adds to 
those parts; so that the value of the whole amount is not, at any one 
moment of time, in the least augmented by it. The person who 
works the lace of a pair of fine ruffles, for example, will sometimes 
raise the value of perhaps a pennyworth of flax to thirty pounds 
sterling. But though at first sight he appears thereby to multiply 
the value of a part of the rude produce about seven thousand and 
two hundred times, he in reality adds nothing to the value of the 
whole annual amount of the rude produce. The working of that 
lace costs him perhaps two years' labour. The thirty pounds which 
he gets for it when it is finished, is no more than the repayment 
of the subsistence which he advances to himself during the two years 
that he is employed about it. The value which, by every day's, 
month's, or year's labour, he adds to the flax, does no more than 
replace the value of his own consumption during that day, month, 
or year. At no moment of time, therefore, does he add any thing 
to the value of the whole annual amount of the rude produce of the 
land: the portion of that produce which he is continually consum- 
ing, being always equal to the value which he is continually pro- 
ducing. The extreme poverty of the greater part of the persons em- 
ployed in this expensive, though trifling manufacture, may satisfy 
us that the price of their work does not in ordinary cases exceed 
the value of their subsistence. It is otherwise with the work of farm- 
ers and country labourers. The rent of the landlord is a value, 
which, in ordinary cases, it is continually producing, over and above 
replacing, in the most complete manner, the whole consumption, 
the whole expence laid out upon the employment and maintenance 
both of the workmen and of their employer. 

Artificers, manufacturers and merchants, can augment the revenue 
and wealth of their society, by parsimony only; or, as it is expressed 



432 WEALTH OF NATIONS 

in this system, by privation, that is, by depriving themselves o£ a 
part of the funds destined for their own subsistence. They annu- 
ally reproduce nothing but those funds. Unless, therefore, they an- 
nually save some part of them, unless they annually deprive them- 
selves of the enjoyment of some part of them, the revenue and wealth 
of their society can never be in the smallest degree augmented by 
means of their industry. Farmers and country labourers, on the con- 
trary, may enjoy completely the whole funds destined for their own 
subsistence, and yet augment at the same time the revenue and 
wealth of their society. Over and above what is destined for their 
own subsistence, their industry annually affords a neat produce, of 
which the augmentation necessarily augments the revenue and 
wealth of their society. Nations, therefore, which, like France or 
England, consist in a great measure of proprietors and cultivators, 
can be enriched by industry and enjoyment. Nations, on the con- 
trary, which, like Holland and Hamburgh, are composed chiefly of 
merchants, artificers and manufacturers, can grow rich only through 
parsimony and privation. As the interest of nations so differently 
circumstanced, is very different, so is likewise the common character 
of the people. In those of the former kind, liberality, frankness, and 
good fellowship, naturally make a part of that common character. 
In the latter, narrowness, meanness, and a selfish disposition, averse 
to all social pleasure and enjoyment. 

The unproductive class, that of merchants, artificers and manufac- 
turers, is maintained and employed altogether at the expence of the 
two other classes, of that of proprietors, and of that of cultivators. 
They furnish it both with the materials of its work and with the 
fund of its subsistence, with the corn and catde which it consumes 
while it is employed about that work. The proprietors and culti- 
vators finally pav both the wages of all the workmen of the unpro- 
ductive class, and the profits of all their employers. Those workmen 
and their employers are properly the servants of the proprietors and 
cultivators. They are only servants who work without doors, as 
menial servants work within. Both the one and the other, however, 
are equally maintained at the expence of the same masters. The 
labour of both is equally unproductive. It adds nothing to the value 
of the sum total of the rude produce of the land. Instead of increas- 



AGRICULTURAL SYSTEMS 433 

ing the value of that sum total, it is a charge and expence which must 
be paid out of it. 

The unproductive class, however, is not only useful, but greatly 
useful to the other two classes. By means of the industry of mer- 
chants, artificers and manufacturers, the proprietors and cultivators 
can purchase both the foreign goods and the manufactured produce 
of their own country which they have occasion for, with the produce 
of a much smaller quantity of their own labour, than what they 
would be obliged to employ, if they were to attempt, in an awkward 
and unskilful manner, either to import the one, or to make the other 
for their own use. By means of the unproductive class, the cultiva- 
tors are delivered from many cares which would otherwise distract 
their attention from the cultivation of land. The superiority of prod- 
uce, which, in consequence of this undivided attention, they are en- 
abled to raise, is fully sufficient to pay the whole expence which the 
maintenance and employment of the unproductive class costs either 
the proprietors, or themselves. The industry of merchants, artificers 
and manufacturers, though in its own nature altogether unproduc- 
tive, yet contributes in this manner indirectly to increase the produce 
of the land. It increases the productive powers of productive labour, 
by leaving it at liberty to confine itself to its proper employment, 
the cultivation of land; and the plough goes frequently the easier 
and the better by means of the labour of the man whose business is 
most remote from the plough. 

It can never be the interest of the proprietors and cultivators to 
restrain or to discourage in any respect the industry of merchants, 
artificers and manufacturers. The greater the liberty which this un- 
productive class enjoys, the greater will be the competition in all 
the different trades which compose it, and the cheaper will the other 
two classes be supplied, both with foreign goods and with the manu- 
factured produce of their own country. 

It can never be the interest of the unproductive class to oppress 
the other two classes. It is the surplus produce of the land, or what 
remains after deducting the maintenance, first, of the cultivators, 
and afterwards, of the proprietors, that maintains and employs the 
unproductive class. The greater this surplus, the greater must like- 
wise be the maintenance and employment of that class. The estab- 



434 WEALTH OF NATIONS 

lishment of perfect justice, of perfect liberty, and of perfect equality, 
is the very simple secret which most effectually secures the highest 
degree of prosperity to all the three classes. 

The merchants, artificers and manufacturers of those mercantile 
states which, like Holland and Hamburgh, consist chiefly of this 
unproductive class, are in the same manner maintained and em- 
ployed altogether at the expence of the proprietors and cultivators 
of land. The only difference is, that those proprietors and cultivators 
are, the greater part of them, placed at a most inconvenient distance 
from the merchants, artificers and manufacturers whom they supply 
with the materials of their work and the fund of their subsistence, 
are the inhabitants of other countries, and the subjects of other gov- 
ernments. 

Such mercantile states, however, are not only useful, but greatly 
useful to the inhabitants of those other countries. They fill up, in 
some measure, a very important void, and supply the place of the 
merchants, artificers and manufacturers, whom the inhabitants of 
those countries ought to find at home, but whom, from some defect 
in their policy, they do not find at home. 

It can never be the interest of those landed nations, if I may call 
them so, to discourage or distress the industry of such mercan- 
tile states, by imposing high duties upon their trade, or upon the 
commodities which they furnish. Such duties, by rendering those 
commodities dearer, could serve only to sink the real value of the 
surplus produce of their own land, with which, or, what comes to 
the same thing, with the price of which, those commodities are 
purchased. 

Such duties could serve only to discourage the increase of that 
surplus produce, and consequently the improvement and cultivation 
of their own land. The most effectual expedient, on the contrary, 
for raising the value of that surplus produce, for encouraging its in- 
crease, and consequendy the improvement and cultivation of their 
own land, would be to allow the most perfect freedom to the trade 
of all such mercantile nations. 

This perfect freedom of trade would even be the most effectual 
expedient for supplying them, in due time, with all the artificers, 
manufacturers and merchants, whom they wanted at home, and for 



AGRICULTURAL SYSTEMS 435 

filling up in the properest and most advantageous manner that very 
important void which they felt there. 

The continual increase of the surplus produce of their land, would, 
in due time, create a greater capital than what could be employed 
with the ordinary rate of profit in the improvement and cultivation 
of land; and the surplus part of it would naurally turn itself to the 
employment of artificers and manufacturers at home. But those 
artificers and manufacturers, finding at home both the materials of 
their work and the fund of their subsistence, might immediately, 
even with much less art and skill, be able to work as cheap as the 
like artificers and manufacturers of such mercantile states, who had 
both to bring from a great distance. Even though, from want of 
art and skill, they might not for some time be able to work as cheap, 
yet, finding a market at home, they might be able to sell their work 
there as cheap as that of the artificers and manufacturers of such mer- 
cantile states, which could not be brought to that market but from so 
great a distance; and as their art and skill improved, they would 
soon be able to sell it cheaper. The artificers and manufacturers of 
such mercantile states, therefore, would immediately be rivalled in 
the market of those landed nations, and soon after undersold and 
jusded out of it altogether. The cheapness of the manufactures of 
those landed nations, in consequence of the gradual improvements 
of art and skill, would, in due time, extend their sale beyond the 
home market, and carry them to many foreign markets, from which 
they would in the same manner gradually jusde out many of the 
manufactures of such mercantile nations. 

This continual increase both of the rude and manufactured prod- 
uce of those landed nations would in due time create a greater capi- 
tal than could, with the ordinary rate of profit, be employed either in 
agriculture or in manufactures. The surplus of this capital would 
naturally turn itself to foreign trade, and be employed in exporting, 
to foreign countries, such parts of the rude and manufactured prod- 
uce of its own country, as exceeded the demand of the home mar- 
ket. In the exportation of the produce of their own country, the 
merchants of a landed nation would have an advantage of the same 
kind over those of mercantile nations, which its artificers and manu- 
facturers had over the artificers and manufacturers of such nations; 



436 WEALTH OF NATIONS 

the advantage of finding at home that cargo, and those stores and 
provisions, which the others were obUged to seek for at a distance. 
With inferior art and skill in navigation, therefore, they would be 
able to sell that cargo as cheap in foreign markets as the merchants 
of such mercantile nations; and with equal art and skill they would 
be able to sell it cheaper. They would soon, therefore, rival those 
mercantile nations in this branch of foreign trade, and in due time 
would justle them out of it altogether. 

According to this liberal and generous system, therefore, the most 
advantageous method in which a landed nation can raise up artifi- 
cers, manufacturers and merchants of its own, is to grant the most 
perfect freedom of trade to the artificers, manufacturers and mer- 
chants of all other nations. It thereby raises the value of the surplus 
produce of its own land, of which the continual increase gradually 
establishes a fund, which in due time necessarily raises up all the 
artificers, manufacturers and merchants whom it has occasion for. 

When a landed nation, on the contrary, oppresses either by high 
duties or by prohibitions the trade of foreign nations, it necessarily 
hurts its own interest in two different ways. First, by raising the 
price of all foreign goods and of all sorts of manufactures, it neces- 
sarily sinks the real value of the surplus produce of its own land, 
with which, or, what comes to the same thing, with the price of 
which, it purchases those foreign goods and manufactures. Sec- 
ondly, by giving a sort of monopoly of the home market to its own 
merchants, artificers and manufacturers, it raises the rate of mer- 
cantile and manufacturing profit in proportion to that of agricultural 
profit, and consequently either draws from agriculture a part of the 
capital which had before been employed in it, or hinders from going 
to it a part of what would otherwise have gone to it. This policy, 
therefore, discourages agriculture in two different ways; first, by sink- 
ing the real value of its produce, and thereby lowering the rate of its 
profit; and, secondly, by raising the rate of profit in all other employ- 
ments. Agriculture is rendered less advantageous, and trade and 
manufactures more advantageous than they otherwise would be; and 
every man is tempted by his own interest to turn, as much as he can, 
both his capital and his industry from the former to the latter em- 
ployments. 



AGRICULTURAL SYSTEMS 437 

Though, by this oppressive policy, a landed nation should be able 
to raise up artificers, manufacturers and merchants of its own, some- 
what sooner than it could do by the freedom of trade; a matter, 
however, which is not a little doubtful; yet it would raise them up, 
if one may say so, prematurely, and before it was perfectly ripe for 
them. By raising up too hastily one sjjecies of industry, it would 
depress another more valuable species of industry. By raising up too 
hastily a species of industry which only replaces the stock which 
employs it, together with the ordinary profit, it would depress a 
species of industry which, over and above replacing that stock with 
its profit, affords likewise a neat produce, a free rent to the land- 
lord. It would depress productive labour, by encouraging too hastily 
that labour which is altogether barren and unproductive. 

In what manner, according to this system, the sum total of the 
annual produce of the land is distributed among the three classes 
above mentioned, and in what manner the labour of the unproduc- 
tive class does no more than replace the value of its own consump- 
tion, without increasing in any respect the value of that sum total, 
is represented by Mr. Quesnai, the very ingenious and profound 
author of this system, in some arithmetical formularies. The first of 
these formularies, which by way of eminence he p)eculiarly distin- 
guishes by the name of the Economical Table, represents the manner 
in which he supposes this distribution takes place, in a state of the 
most perfect liberty, and therefore of the highest prosperity; in a 
state where the annual produce is such as to afford the greatest 
fKJSsible neat produce, and where each class enjoys its proper share 
of the whole annual produce. Some subsequent formularies repre- 
sent the manner, in which, he supposes, this distribution is made in 
different states of restraint and regulation; in which, either the class 
of proprietors, or the barren and unproductive class, is more favoured 
than the class of cultivators, and in which, either the one or the other 
encroaches more or less uf)on the share which ought properly to 
belong to this productive class. Every such encroachment, every 
violation of that natural distribution, which the most perfect liberty 
would establish, must, according to this system, necessarily degrade 
more or less, from one year to another, the value and sum total of the 
annual produce, and must necessarily occasion a gradual declension 



438 WEALTH OF NATIONS 

in the real wealth and revenue of the society; a declension of which 
the progress must be quicker or slower, according to the degree of 
this encroachment, according as that natural distribution, which the 
most perfect liberty would establish, is more or less violated. Those 
subsequent formularies represent the different degrees of declension, 
which, according to this system, correspond to the different degrees 
in which this natural distribution of things is violated. 

Some speculative physicians seem to have imagined that the 
health of the human body could be preserved only by a certain pre- 
cise regimen of diet and exercise, of which every, the smallest, vio- 
lation necessarily occasioned some degree of disease or disorder pro- 
portioned to the degree of the violation. Experience, however, would 
seem to show, that the human body frequently preserves, to all ap- 
pearance at least, the most perfect state of health under a vast variety 
of different regimens; even under some which are generally believed 
to be very far from being perfectly wholesome. But the healthful 
state of the human body, it would seem, contains in itself some un- 
known principle of preservation, capable either of preventing or of 
correcting, in many respects, the bad effects even of a very faulty 
regimen. Mr. Quesnai, who was himself a physician, and a very 
speculative physician, seems to have entertained a notion of the 
same kind concerning the political body, and to have imagined that 
it would thrive and prosper only under a certain precise regimen, the 
exact regimen of perfect liberty and perfect justice. He seems not 
to have considered that in the pxjlitical body, the natural effort which 
every man is continually making to better his own condition, is a 
principle of preservation capable of preventing and correcting, in 
many respects, the bad effects of a political oeconomy, in some degree 
both partial and oppressive. Such a political oeconomy, though it 
no doubt retards more or less, is not always capable of stopping alto- 
gether the natural progress of a nation towards wealth and pros- 
perity, and still less of making it go backwards. If a nation could 
not prosper without the enjoyment of perfect liberty and perfect jus- 
tice, there is not in the world a nation which could ever have pros- 
pered. In the political body, however, the wisdom of nature has 
fortunately made ample provision for remedying many of the bad 



AGRICULTURAL SYSTEMS 439 

effects of the folly and injustice of man; in the same manner as it 
has done in the natural body, for remedying those of his sloth and 
intemperance. 

The capital error of this system, however, seems to lie in its rep- 
resenting the class of artificers, manufacturers and merchants, as 
altogether barren and unproductive. The following observations 
may serve to show the impropriety of this representation. 

First, this class, it is acknowledged, reproduces annually the value 
of its own annual consumption, and continues, at least, the existence 
of the stock or capital which maintains and employs it. But upon 
this account alone the denomination of barren or unproductive 
should seem to be very improperly applied to it. We should not call 
a marriage barren or unproductive, though it produced only a son 
and a daughter, to replace the father and mother, and though it 
did not increase the number of the human sf)ecies, but only contin- 
ued it as it was before. Farmers and country labourers, indeed, over 
and above the stock which maintains and employs them, reproduce 
annually a neat produce, a free rent to the landlord. As a marriage 
which affords three children is certainly more productive than one 
which affords only two; so the labour of farmers and country la- 
bourers is certainly more productive than that of merchants, artifi- 
cers and manufacturers. The suf>erior produce of the one class, how- 
ever, does not render the other barren or unproductive. 

Secondly, it seems, upon this account, altogether improper to con- 
sider artificers, manufacturers and merchants, in the same light as 
menial servants. The labour of menial servants does not continue 
the existence of the fund which maintains and employs them. Their 
maintenance and employment is altogether at the expence of their 
masters, and the work which they perform is not of a nature to 
repay that expence. That work consists in services which perish 
generally in the very instant of their performance, and does not fix 
or realize itself in any vendible commodity which can replace the 
value of their wages and maintenance. The labour, on the con- 
trary, of artificers, manufacturers and merchants, naturally does fix 
and realize itself in some such vendible commodity. It is upon this 
account that, in the chapter in which I treat of productive and un- 



440 WEALTH OF NATIONS 

productive labour, I have classed artificers, manufacturers and mer- 
chants, among the productive labourers, and menial servants among 
the barren or unproductive. 

Thirdly, it seems, upon every supposition, improper to say, that 
the labour of artificers, manufacturers and merchants, does not in- 
crease the real revenue of the society. Though we should suppose, 
for example, as it seems to be supposed in this system, that the value 
of the daily, monthly, and yearly consumption of this class was ex- 
actly equal to that of its daily, monthly, and yearly production; yet 
it would not from thence follow that its labour added nothing to the 
real revenue, to the real value of the annual produce of the land and 
labour of the society. An artificer, for example, who in the first six 
months after harvest, executes ten pounds worth of work, though he 
should in the same time consume ten pounds worth of corn and 
other necessaries, yet really adds the value of ten px)unds to the 
annual produce of the land and labour of the society. While he has 
been consuming a half yearly revenue of ten pounds worth of corn 
and other necessaries, he has produced an equal value of work capa- 
ble of purchasing, either to himself or to some other person, an equal 
half yearly revenue. The value, therefore, of what has been con- 
sumed and produced during these six months is equal, not to ten, 
but to twenty pounds. It is possible, indeed, that no more than ten 
pounds worth of this value, may ever have existed at any one mo- 
ment of time. But if the ten p)ounds worth of corn and other neces- 
saries, which were consumed by the artificer, had been consumed 
by a soldier or by a menial servant, the value of that part of the an- 
nual produce which existed at the end of the six months, would have 
been ten f)ounds less than it actually is in consequence of the labour 
of the artificer. Though the value of what the artificer produces, 
therefore, should not at any one moment of time be supposed greater 
than the value he consumes, yet at every moment of time the actually 
existing value of goods in the market is, in consequence of what he 
produces, greater than it otherwise would be. 

When the patrons of this system assert, that the consumption of 
artificers, manufacturers and merchants, is equal to the value of 
what they produce, they probably mean no more than that their 
revenue, or the fund destined for their consumption, is equal to it. 



AGRICULTURAL SYSTEMS 44 1 

But if they had expressed themselves more accurately, and only as- 
serted, that the revenue of this class was equal to the value of what 
they produced, it might readily have occurred to the reader, that 
what would naturally be saved out of this revenue, must necessarily 
increase more or less, the real wealth of the society. In order, there- 
fore, to make out something like an argument, it was necessary that 
they should express themselves as they have done; and this argu- 
ment, even supposing things actually were as it seems to presume 
them to be, turns out to be a very inconclusive one. 

Fourthly, farmers and country labourers can no more augment, 
without parsimony, the real revenue, the annual produce of the land 
and labour of their society, than artificers, manufacturers and mer- 
chants. The annual produce of the land and labour of any society 
can be augmented only in two ways; either, first, by some improve- 
ment in the productive powers of the useful labour actually main- 
tained within it; or, secondly, by some increase in the quantity of 
that labour. 

The improvement in the productive powers of useful labour de- 
pend, first, upon the improvement in the ability of the workman; 
and, secondly, upon that of the machinery with which he works. But 
the labour of artificers and manufacturers, as it is capable of being 
more subdivided, and the labour of each workman reduced to a 
greater simplicity of operation, than that of farmers and country 
labourers, so it is likewise capable of both these sorts of improvement 
in a much higher degree. In this respect, therefore, the class of cul- 
tivators can have no sort of advantage over that of artificers and 
manufacturers. 

The increase in the quantity of useful labour actually employed 
within any society, must depend altogether upon the increase of the 
capital which employs it; and the increase of that capital again must 
be exactly equal to the amount of the savings from the revenue, 
either of the particular persons who manage and direct the employ- 
ment of that capital, or of some other persons who lend it to them. 
If merchants, artificers and manufacturers are, as this system seems 
to suppose, naturally more inclined to parsimony and saving than 
proprietors and cultivators, they are, so far, more likely to augment 
the quantity of useful labour employed within their society, and 



442 WEALTH OF NATIONS 

consequently to increase its real revenue, the annual produce o£ its 
land and labour. 

Fifthly and lastly, though the revenue of the inhabitants of every 
country was supposed to consist altogether, as this system seems to 
suppose, in the quantity of subsistence which their industry could 
procure to them; yet, even upon this supposition, the revenue of a 
trading and manufacturing country must, other things being equal, 
always be much greater than that of one without trade or manufac- 
tures. By means of trade and manufactures, a greater quantity of 
subsistence can be annually imported into a particular country than 
what its own lands, in the actual state of their cultivation, could 
afford. The inhabitants of a town, though they frequently possess no 
lands of their own, yet draw to themselves by their industry such a 
quantity of the rude produce of the lands of other people as supplies 
them, not only with the materials of their work, but with the fund 
of their subsistence. What a town always is with regard to the coun- 
try in its neighbourhood, one independent state or country may fre- 
quently be with regard to other independent states or countries. It 
is thus that Holland draws a great part of its subsistence from other 
countries; live cattle from Holstein and Jutland, and corn from al- 
most all the different countries of Europe. A small quantity of 
manufactured produce purchases a great quantity of rude produce. 
A trading and manufacturing country, therefore, naturally purchases 
with a small part of its manufactured produce a great part of the 
rude produce of other countries; while, on the contrary, a country 
without trade and manufactures is generally obliged to purchase, at 
the expense of a great part of its rude produce, a very small part of 
the manufactured produce of other countries. The one exports what 
can subsist and accommodate but a very few, and imports the sub- 
sistence and accommodation of a great number. The other exports 
the accommodation and subsistence of a great number, and imports 
that of a very few only. The inhabitants of the one must always 
enjoy a much greater quantity of subsistence than what their own 
lands, in the actual state of their cultivation, could afford. The in- 
habitants of the other must always enjoy a much smaller quantity. 

This system, however, with all its imperfections, is, perhaps, the 
nearest approximation to the truth that has yet been published upon 



AGRICULTURAL SYSTEMS 443 

the subject of political occonomy, and is upon that account well 
worth the consideration of every man who wishes to examine with 
attention the principles of that very important science. Though in 
representing the labour which is employed upon land as the only 
productive labour, the notions which it inculcates are perhaps too 
narrow and confined; yet in representing the wealth of nations as 
consisting, not in the unconsumable riches of money, but in the con- 
sumable goods annually reproduced by the labour of the society; 
and in representing perfect liberty as the only effectual expedient for 
rendering this annual reproduction the greatest [xjssible, its doc- 
trine seems to be in every respect as just as it is generous and liberal. 
Its followers are very numerous; and as men are fond of paradoxes