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A
THE HARVARD CLASSICS
EDITED BY CHARLES W ELIOT LLD

AN INQUIRY INTO THE NATURE

AND CAUSES OF THE

WEALTH OF NATIONS
BY ADAM SMITH
EDITED BY C J BULLOCK PH D
Professor of Economics, Harvard University

WITH INTRODUCTION AND NOTES

VOLUME i0

P F COLLIER & SON

NEW YORK
Copyright, i909
BY P. F. COLLIER & Sou

Designed, Printzd, and Bound at

'Ghz dlolllzr ynss, _Erin york
Vduo\

CONTENTS

BOOK I
PAGE
Of the Causes of Improvement in the productive Power of
Labour, and of the Order according to which its Prod
uce is naturally distributed among the different Ranks
of the People g
chap.
II.
I. Of the
the Division
Principleof Which
Labour Gives Occasion to the Division of, g

Labour ig
III. That the Division of Labour is Limited by the Extent of the
Market 24
IV. Of the Origin and Use of Money 29
V. Of the Real and Nominal Price of Commodities, or of Their
Price in Labour, and Their Price in Money 36
VI. Of the Component Parts of the Price of Commodities ... 50
VII. Of the Natural and Market Price of Commodities .... 58
VIII. Of the bages of Labour 68
IX. Of the Profits of Stock 93
X. Of Wages and Profit in the Different Employments of Labour
and Stock i05
XL Of the Rent of Land i53

BOOK II

Of the Nature, Accumulation, and Employment of Stock 22i

chap.
I. Of the Division of Stock 224
II. Of Money Considered as a Particular Branch of the General
Stock of the Society, or of the Expence of Maintaining
the National Capital 233
A—HC X 1
2 CONTENTS
PAGE
III. Of the Accumulation of Capital, or of Productive and Unpro
ductive Labour 270
IV. Of Stock Lent at Interest 29i
V. Of the Different Employment of Capitals 30i

BOOK III

Of the Different Progress of Opulence in Different

Nations 3i9
CHAP.
I. Of the Natural Progress of Opulence 3i9

BOOK IV

Of Systems of Political (Economy 325

CHAP.
I. Of the Principle of the Commercial or Mercantile System . . 326
II. Of Restraints
Such GoodsUpon
as Can
the Importation
Be Producedfrom
at Home
Foreign Countries of 348

III. Of the
of
Balance
Almost
Extraordinary
Is All
Supposed
Kinds,
Restraints
to
from
Be Those
Disadvantageous
upon the
Countries
Importation
with which
of Goods
the 370

IV. Of Drawbacks 389

V. Of Bounties 392
VI. Of Treaties of Commerce 407
VII. Of Colonies 4i4
VIII. Conclusion of the Mercantile System 424
IX. Of the Agricultural Systems, or of the Systems of Political
(Economy, Which Represent the Produce of Land as Either
the Sole or the Principal Source of the Revenue and Wealth
of Every Country 446

BOOK V

Of the Revenue of the Sovereign or Commonwealth . . 468

CHAP.
I. Of the Expences of the Sovereign or Commonwealth . . . 468
III.
II. Of the
Public
Sources
Debtsof the General or Public Revenue of the Society 489
574
INTRODUCTORY NOTE
Adam Smith, political economist and moral philosopher, was
born 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 four
teen he was sent to the University of Glasgow, where he came
under the influence of Francis Hutcheson, and in i74o 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 i75i became professor
of logic, and in i752 of moral philosophy, at Glasgow. The
reputation won by his lectures was increased by the publication,
in i759, 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 i766,
he lived chiefly in Kirkcaldy and London, working upon his
" Wealth of Nations," which was finally published in i776. It
met with immediate success, and in a few years had taken an
authoritative place with both philosophers and men of affairs.
In the following year Smith was appointed a Commissioner of
Customs, and took a house in Edinburgh, where he lived quietly
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 specula
tion, criticism, and the amassing of new facts and fresh experi
ence, the work still stands as the best all-round statement 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
2
4 INTRODUCTORY NOTE
statement of the doctrine of natural liberty. Smith believed that
"man's self-interest is God's providence," and held that if govern
ment abstained from interfering with free competition, industrial
problems would work themselves out and the practical maximum
of efficiency would be reached. This same doctrine 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 num
ber of digressions and illustrations which the progress of knowl
edge 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 readable-
ness 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 political economy.
INTRODUCTION
AND PLAN OF THE WORK

The annual labour of every nation is the fund which originally

supplies 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 sup
plied 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 judg
ment 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 territory of any par
ticular 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 upon 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 neces
saries 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 frequently 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
5
6 INTRODUCTION
perish with hunger, or to be devoured by wild beasts. Among
civilized and thriving nations, on the contrary, though a great
number of people do not labour at all, many of whom consume
the produce of ten times, frequently of a hundred times more
labour than the greater part of those who work; yet the produce
of the whole labour of the society is so great, that all are often
abundantly supplied, and a workman, even of the lowest and
poorest order, if 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 judg
ment with which labour is applied in any nation, the abundance
or scantiness of its annual supply must depend, during the con
tinuance 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 judg
ment, 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 prod
uce. The policy of some nations has given extraordinary en
couragement to the industry of the country; that of others to
the industry of towns. Scarce any nation has dealt equally andi
impartially with every sort of industry. Since the downfal oft
the Roman empire, the policy of Europe has been more favourable
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.
INTRODUCTION 7
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 ceconomy; of which some
magnify the importance of that industry 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 explain, as fully and distinctly as I can, those different
theories, and the principal effects which they have produced in
different
To explain
ages in
and
what
nations.
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 con
sumption, is the object of these Four first Books. The Fifth and
last Book treats of the revenue of the sovereign, or common
wealth. In this book I have endeavoured to show; first. what
are the necessary expences of the sovereign, or commonwealth;
which of those expences ought to be defrayed by the general
contribution of the whole society; and which of them, by that
of some particular part only, or of some particular members of it :
secondly, what are the different methods in which the whole soci
ety may be made to contribute towards defraying the expences
incumbent on the whole society, and what are the principal
advantages and inconveniencies 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
OP 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
judgment with which it is any where directed, or ap
plied,
The seem
effects
to of
have
the been
division
the of
effects
labour,
of in
thethe
division
generalofbusiness
labour.

of society, will be more easily understood, by considering in

what manner it operates in some particular manufactures.
It is commonly supposed to be carried furthest in some very
trifling ones; not perhaps that it really is carried further in
them than in others of more importance : but in those trifling
manufactures which are destined to supply the small wants of
but a small number of people, the whole number of workmen
must necessarily be small; and those employed in every dif
ferent 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 different branch of the work em
ploys so great a number of workmen, that it is impossible to
collect them all into the same workhouse. We can seldom see
9
10 WEALTH OF NATIONS
more, at one time, than those employed in one single 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 manu
facture; 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 probably given occa
sion), 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 eight
een distinct operations, which, in some manufactories, are all
performed by distinct hands, though in others the same man
will sometimes perform two or three of them. I have seen
a small manufactory of this kind where ten men only were
employed, and where some of them consequently performed
two or three distinct operations. But though they were very
poor, and 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, making 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 hav
DIVISION OF LABOUR 11
ing been educated to this peculiar business, they certainly
could not each of them have made twenty, perhaps not one
pin in a day ; that is, certainly, not the two hundred and forti
eth, perhaps not the four thousand eight hundredth part of
what they are at present capable of performing, in conse
quence of a proper division and combination 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 separation
of different trades and employments from one another, seems
to have taken place, in consequence of this advantage. This
separation 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 im
proved society, the farmer is generally nothing but a farmer;
the manufacturer, nothing but a manufacturer. The labour
too which is necessary to produce any one complete manu
facture, is almost always divided among a great number of
hands. How many different trades are employed in each
branch of the linen and woollen manufactures, 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 separa
tion 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
constantly employed in any one of them. This impossibility
12 WEALTH OF NATIONS
of making so complete and entire a separation of all the dif
ferent 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 im
provement in manufactures. The most opulent nations, in
deed, generally excel all their neighbours in agriculture as
well as in manufactures ; but they are commonly more distin
guished by their superiority in the latter than in the former.
Their lands are in general better cultivated, and having
more labour and expence bestowed upon them, produce more
in proportion to the extent and natural fertility of the
ground. But this superiority of produce is seldom much
more than in proportion to the superiority of labour and
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 Po
land, in the same degree of goodness, is as cheap as that of
France, notwithstanding the superior opulence and improve
ment 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 opu
lence and improvement, France is perhaps inferior to Eng
land. The corn-lands of England, however, are better culti
vated than those of France, and the corn-lands of France
are said to be much better cultivated than those of Poland.
But though the poor country, notwithstanding the inferiority
of its cultivation, can, in some measure, rival the rich in the
cheapness and goodness of its corn, it can pretend to no such
competition in its manufactures; at least if those 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 importation 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
DIVISION OF LABOUR 13
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 dif
ferent circumstances; first, to the increase of dexterity in
every particular workman; secondly, to the saving of the
time which is commonly lost in passing from one species
of work to another; and lastly, to the invention of a great
number 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
necessarily increases the quantity of the work he can per
form; and the division 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 in
creases very much the dexterity of the workman. A com
mon 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 as
sured, 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 busi
ness has not been that of a nailer, can seldom with his ut
most diligence make more than eight hundred 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 occa
sion, 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 sim
ple, 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
14 WEALTH OF NATIONS

manufactures are performed, exceeds what the human hand

could, by those who had never seen them, be supposed ca
pable of acquiring.
Secondly, the advantage which is gained by saving the
time commonly lost in passing from one sort of work to
another, is much greater than we should at first view be apt
to imagine it. It is impossible 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 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 com
monly 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 trifies 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, therefore, that the invention of all
those machines by which labour is so much facilitated and
abridged, seems to have been originally owing to the divi
sion 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 ob
ject, than when it is dissipated among a great variety of
things. But in consequence of the division of labour, the
DIVISION OF LABOUR IS
whole of every man's attention comes naturally to be di
rected 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 improvement. A great part of the machines made
use of in those manufactures in which labour is most sub
divided, were originally the inventions of common workmen,
who, being each of them employed in some very simple oper
ation, naturally turned their thoughts towards finding out
easier and readier methods of performing it Whoever has
been much accustomed to visit such manufactures, must fre
quently have been shewn very pretty machines, which were
the inventions of such workmen, in order to facilitate and
quicken their own particular part of the work. In the first
fire-engines, 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 peculiar trade; and some by
that of those who are called philosophers or men of specu
lation, whose trade it is not to do any thing, but to observe
every thing; and who, upon 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 becomes, like every other employment, the princi
pal or sole trade and occupation of a particular class of
16 WEALTH OF NATIONS
citizens. Like every other employment too, it is subdivided
into a great number of different branches, each of which
affords occupation to a peculiar tribe or class of philoso
phers; 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 considerably 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 opu
lence which extends itself to the lowest ranks of the people.
Every workman has a great quantity of his own work to
dispose of beyond what he himself has occasion for; and
every other workman being exactly in the same situation,
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 ac
commodate 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 pro
curing him this accommodation, exceeds all computation.
The
labourer,
woollen
as coarse
coat, for
and example,
rough as which
it maycovers
appear,theis day-
the

produce of the joint labour of a great multitude of work

comber
men. Theor carder,
shepherd,
the the
dyer,sorter
the scribbler,
of the wool,
the spinner,
the wool-
the

weaver, the fuller, the dresser, with many others, must all
join their different arts in order to complete even this homely
production. How many merchants and carriers, besides,
must have been employed in transporting the materials from
some of those workmen to others who often live in a very
distant part of the country ! how much commerce and navi
makers,
gation inrope-makers,
particular, how
must many
have been
ship-builders,
employed sailors,
in ordersail-
to
DIVISION OF LABOUR 17
bring together the different drugs made use of by the dyer,
which often come from the remotest corners of the world !
What a variety of labour too is necessary in order to pro
duce 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,
house,
the burner
the of
brick-maker,
the charcoalthe
to brick-layer,
be made use the
of inworkmen
the smelting-
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 which he wears next his skin, the shoes
which cover his feet, the bed which he lies 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 car
riage, 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 preparing 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 inven
tion, 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 pro
ducing those different conveniences ; if we examine, I say,
all these things, and consider what a variety of labour is
employed about each of them, we shall be sensible that
without the assistance and co-operation of many thousands,
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 ac
commodated. Compared, indeed, with the more extrava
18 WEALTH OF NATIONS
gant 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 advan
tages are derived, is not originally the effect of any
human wisdom, which foresees and intends that gen
eral opulence to which it gives occasion. It is the neces
sary, though very slow and gradual, consequence of a certain
propensity in human nature which has in view no such ex
tensive utility; the propensity to truck, barter, and exchange
one thing for another.
Whether this propensity be one of those original princi
ples in human nature, of which no further account can be
given; or whether, as seems more probable, it be the neces
sary consequence of the faculties of reason and speech, it
belongs not to our present subject to enquire. 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 en
deavours 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 persuasion but to
gain the favour of those whose service it requires. A puppy
fawns upon its dam, and a spaniel endeavours by a thousand
19

r
20 WEALTH OF NATIONS
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 them to act according to his incli
nations, 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 friendship of a few persons. In almost every other race
of animals each individual, 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 benevolence 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 advantage to do for him what he requires of them.
Whoever offers to another a bargain of any kind, proposes
to do this: Give me that which I want, and you shall have
this which you want, is the meaning of every such offer;
and it is in this manner that we obtain from one another the
far greater part of those good offices which we stand in
need of.
It is not from the benevolence of the butcher, the
brewer, or the baker, that we expect our dinner, but from
their regard to their own interest. We address ourselves,
not to their humanity but to their self-love, and never talk
to them of our own necessities but of their advantages. No
body but a beggar chuses to depend chiefly upon the benev
olence of his fellow-citizens. Even a beggar does not de
pend upon it entirely. The charity of well-disposed people,
indeed, supplies 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
ORIGIN OF DIVISION OF LABOUR 21
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 oc
casion.
As it is by treaty, by barter, and by purchase, that we
obtain from one another the greater part of those mutual
good offices which we stand in need of, so it is this same
trucking disposition which originally gives occasion to the
division of labour. In a tribe of hunters or shepherds a
particular person makes bows and arrows, for example,
with more readiness and dexterity than any other. He fre
quently exchanges them for cattle or for venison with his
companions; and he finds at last that he can in this manner
get more cattle and venison, than if he himself went to the
field to catch them. From a regard to his own interest,
therefore, the making of bows and arrows grows to be his
chief business, and he becomes a sort of armourer. Another
excels in making the frames and covers of their little 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-carpenter. In the same manner a third be
comes 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 prod
uce of other men's labour as he may have occasion for,
encourages every man to apply himself to a particular occu
pation and to cultivate and bring to perfection whatever
talent or genius he may possess 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 dif
ferent 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 char
acters, between a philosopher and a common street porter,
22 WEALTH OF NATIONS
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 ex
istence, they were, perhaps, very much alike, and neither
their parents nor playfellows could perceive 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 scarce any resemblance. But without the
disposition to truck, barter, and exchange, every man must
have procured to himself every necessary and conveniency
of life which 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 animals acknowledged to be all of
the same species, derive from nature a much more remark
able distinction of genius, than what, antecedent to custom
and education, appears to take place among men. By nature
a philosopher is not in genius and disposition half so different
from a street porter, as a mastiff is from a greyhound, or a
greyhound from a spaniel, or this last from a shepherd's
dog. Those different tribes of animals, however, though all
of the same species, are of scarce any use to one another.
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, can
not be brought into a common stock, and do not in the
least contribute to the better accommodation and conven
iency of the species. Each animal is still obliged to sup
port and defend itself, separately and independently, 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
ORIGIN OF DIVISION OF LABOUR 23
use to one another; the different produces of their respec
tive talents, by the general disposition to truck, barter, and
exchange, being brought, as it were, into a common stock,
where every man may purchase whatever part of the prod-
ace 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

Za the division of labour, so the extent of this division
-*- -*- must always 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 encourage
ment to dedicate himself entirely to one employment, for
want of the power to exchange all that surplus part of the
produce of his own labour, which is over and above his own
consumption, for such parts of the produce of other men's
labour as he has occasion for.
There are some sorts of industry, even of the lowest kind,
which can be carried on no where but in a great town. A
porter, for example, 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 occupation. 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 car
penter, 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 populous countries, 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 an
other as to be employed about the same sort of materials.
A country carpenter deals in every sort of work that is made
24
LIMIT OF DIVISION OF LABOUR 25
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 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 im
possible there should be such a trade as even that of a nailer
in the remote and inland parts of the Highlands of Scotland.
Such a workman at the rate of a thousand 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 impossible to dispose of one thousand, that is,
of one day's work in the year.
As by means of water-carriage a more extensive market
is opened to every sort of industry than what land-carriage
alone can afford it, so it is upon the sea-coast, and along the
banks of navigable rivers, that industry of every kind natu
rally begins to subdivide and improve itself, and it is fre
quently not till a long time after that those improvements
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 London 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. Upon two hundred tons
of goods, therefore, carried by the cheapest land-carriage
from London to Edinburgh, there must be charged the main
tenance 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
36 WEALTH OF NATIONS
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 considerable in proportion
to their weight, they could carry on but a small part of that
commerce which at present subsists between them, and con
sequently could give but a small part of that encourage
ment which they at present mutually afford to each other's
industry. There could be little or no commerce of any kind
between the distant parts of the world. What goods could
bear the expence of land-carriage between London and Cal
cutta? Or if there were any so precious as to be able to
support this expence, with what safety could they be trans
ported through the territories of so many barbarous na
tions? Those two cities, however, at present carry on a
very considerable commerce with each other, and by mu
tually affording a market, give a good deal of encouragement
to each other's industry.
Since such, therefore, are the advantages of water-car
riage, 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 ex
tending themselves into the inland parts of the country. 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 constantly followed either the
sea-coast or the banks of the navigable rivers, and have
scarce any where extended themselves to any considerable
distance from both.
The nations that, according to the best authenticated his
tory, appear 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
LIMIT OF DIVISION OF LABOUR 27
no tides, nor consequently any waves except such as are
caused by the wind only, was, by the smoothness of its sur
face, as well as by the multitude of its islands, and the prox
imity 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 from the imperfection of the art of ship-building,
to abandon themselves 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 Phenicians 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 manufactures were cultivated and improved to any con
siderable degree. Upper 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 com
munication by water-carriage, 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 pres
ent. The extent and easiness of this inland navigation was
probably one of the principal causes of the early improve
ment of Egypt.
The improvements in agriculture and manufactures seem
likewise 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
28 WEALTH OF NATIONS
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 Egyp
tians, 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 antient Scythia, the modern Tartary and
Siberia, seem in all ages of the world to have been in the
same barbarous and uncivilized state in which we find them
at present. The sea of Tartary is the frozen ocean which
admits of no navigation, and though some of the greatest
rivers in the world run through that country, they are at too
great a distance from one another to carry commerce and
communication through the greater part of it. There are in
Africa none of those great inlets, such as the Baltic and
Adriatic seas in Europe, the Mediterranean and Euxine seas
in both Europe and Asia, and the gulphs of Arabia, Persia,
India, Bengal, and Siam, in Asia, to carry maritime com
merce into the interior parts of that great continent: and
the great rivers of Africa are at too great a distance from
one another to give occasion to any considerable inland navi
gation. The commerce besides which any nation can carry
on by means of a 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 power of the
nations who possess that other territory to obstruct the com
munication between the upper country and the sea. The
navigation 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 of 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 thor
oughly established, it is but a very small part of
a man's wants which the produce of his own
labour can supply. He supplies 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 consumption, for
such parts of the produce of other men's labour as he has
occasion for. Every man thus lives by exchanging, or be
comes 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 him
self 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 productions of their respec
tive trades, and the butcher is already provided 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 period of society, after the first estab
lishment of the division of labour, must naturally have en-
29
30 WEALTH OF NATIONS
deavoured 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
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 succes
sively both thought of and employed for this purpose. In
the rude ages of society, cattle are said to have been the
common instrument of commerce; and, tkough they mast
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 instrument of commerce and exchanges in Abys
sinia; a species of shells in some parts of the coast of India;
dried cod at Newfoundland; tobacco 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
Scotland 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
determined by irresistible reasons to give the preference, for
this employment, 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 durable
commodities possess, and which more than any other quality
renders them fit to be the instruments of commerce and cir
culation. 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 bay 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,
ORIGIN AND USE OF MONEY 31
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 occa
sion for.
Different metals have been made use of by different na
tions 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 Timseus,
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 whatever they had occasion for.
These rude bars, therefore, performed at this time the func
tion 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 accu
rate 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 little consequence,
less accuracy 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 assay
ing is still more difficult, still more tedious, and, unless a part
of the metal is fairly melted in the crucible, with proper dis
solvents, 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, people must always have been liable to the gross
est 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

^
32 WEALTH OF NATIONS
and cheapest materials, which had, however, in their out
ward appearance, been made to resemble those metals. To
prevent 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 improvement, to affix a pub
lic stamp upon certain quantities of such particular metals,
as were in those countries commonly made use of to pur
chase 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
current metals, seem in many cases to have been intended
to ascertain, what it was both most difficult and most im
portant 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 upon 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 exchequer, 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,
ORIGIN: AND USE OF MONEY 33
therefore, were received by tale as at present, without the
trouble of weighing.
The denominations of those coins seem originally to have
expressed 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 divided in the same manner as our
Troyes pound, 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 weight,
of silver of a known fineness. The Tower pound seems to
have been something more than the Roman pound, and some
thing less than the Troyes pound. This last was not intro
duced into the mint of England till the i8th of Henry VIII.
The French Iivre contained 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 esteemed.
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 ster
ling. English, French, and Scots pennies too, contained all
of them originally a real pennyweight of silver, the twen
tieth 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 shil
lings 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 pen
nies, and it is not improbable that it may have been as varia
ble among them as among their neighbours, the antient
Franks. From the time of Charlemagne among the French.
34 WEALTH OF NATIONS
and from that of William the Conquerer 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 in
justice of princes and sovereign states, abusing the confi
dence of their subjects, have by degrees diminished the real
quantity of metal, which had been originally contained in
their coins. The Roman As, in the latter ages of the Re
public, 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 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 sovereign states which performed
them were enabled, in appearance, to pay their debts and to
fulfil their engagements with a smaller quantity of silver
than would otherwise have been requisite. It was indeed
in appearance only; for their creditors were really defrauded
of a part of what was due to them. All other debtors in the
state were allowed the same privilege, and might pay with
the same nominal sum of the new and debased coin what
ever they had borrowed in the old. Such operations,
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 for
tunes 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 inter
vention of which goods of all kinds are bought and sold, or
exchanged for one another.
What are the rules which men naturally observe in ex
changing 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 par
ticular object, and sometimes the power of purchasing other
ORIGIN AND USE OF MONEY 35

goods which the possession of that object conveys. The

one may be called “value in use ;” the other, “value in ex
change.” The things which have the greatest value in use
have frequently little or no value in exchange; and on the
contrary, those which have the greatest value in exchange
have frequently little 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 frequently be had in ex
change for it.
In order to investigate the principles which regulate the
exchangeable value of commodities, I shall endeavour to
shew,
First, what is the real measure of this exchangeable value;
or, wherein consists the real price of all commodities.
Secondly, what are the different parts of which this real
price is composed or made up.
And, lastly, what are the different circumstances which
sometimes raise some or all of these different parts of price
above, and sometimes sink them below their natural or or
dinary 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 natu
ral price.
I shall endeavour to explain, as fully and distinctly as I
can, those three subjects in the three following chapters, for
which I must very earnestly entreat both the patience and
attention of the reader: his patience in order to examine a
detail which may perhaps in some places appear unneces
sarily tedious; and his attention in order to understand what
may, perhaps, after the fullest explication which I am capa
ble 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, con
veniences, and amusements of human life. 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 la
bour 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 pos
sesses 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 com
mand. Labour, therefore, is the real measure of the ex
changeable 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 trou
ble 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 impose upon other
people. What is bought with money or with goods is pur
chased 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 originally purchased;
36
REAL AND NOMINAL PRICE 37
and its value, to those who possess it, and who want to ex
change it for some new productions, is precisely equal to the
quantity of labour which it can enable them to purchase or
command.
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 fortune may, perhaps, afford him the
means of acquiring both, but the mere possession of that
fortune does not necessarily convey to him either. The
power which that possession immediately and directly con
veys 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, pre
cisely 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 df other men's labour, which it en
ables 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 ex
changeable 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 proportion. 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 busi
ness; 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 or
dinary and obvious employment. But it is not easy to find
any accurate measure either of hardship or ingenuity. In
exchanging indeed the different productions of different
sorts of labour for one 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 carrying on the business of common
life.
38 WEALTH OF NATIONS
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 ex
changeable 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 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 com
mon instrument of commerce, every particular commodity
is more frequently exchanged for money than for any other
commodity. The butcher seldom carries his beef or his mat
ton to the baker, or the brewer, in order to exchange them
for bread or for beer; but he carries them to the market,
where he exchanges them for money, and afterwards ex
changes that money for bread and for beer. The quantity
of money which he gets for them regulates, too, the quan
tity of bread and beer which he can afterwards purchase.
It is more natural and obvious to him, therefore, to estimate
their value by the quantity of money, the commodity for
which he immediately exchanges them, than by that of bread
and beer, the commodities for which he can exchange them
only by the intervention of another commodity; and rather
to say that his butcher's meat is worth threepence or four-
pence 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 frequently estimated by the quantity of money, than by
the quantity either of labour or of any other commodity
which can be had in exchange for it.
Gold and silver, however, like every other commodity,
vary in their value, are sometimes cheaper and sometimes
dearer, sometimes of easier and sometimes of more difficult
purchase. The quantity of labour which any particular quan
tity of them can purchase or command, or the quantity of
other goods which it will exchange for, depends always upon
the fertility or barrenness of the mines which happen to be
known about the time when such exchanges are made. The
REAL AND NOMINAL PRICE 39
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 com
mand less labour; and this revolution 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 quantity,
such as the natural foot, fathom, or handful, which is con
tinually varying in its own quantity, can never be an accu
rate measure of the quantity of other things ; so a com
modity which is itself continually varying in its own value,
can never be an accurate measure of the value of other com
modities. 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 re
turn 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 diffi
cult to come at, or which costs much labour to acquire; and
that cheap which is to be had easily, or with very little la
bour. Labour alone, therefore, never varying in its own
value, is alone the ultimate and real standard by which the
value of all commodities can at all times and places be esti
mated 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 sometimes to be of greater and sometimes of
smaller value. He purchases them sometimes with a greater
and sometimes with a smaller quantity 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.
40 WEALTH OF NATIONS
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 neces
saries 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
commodities and labour, is not a matter of mere speculation,
but may sometimes be of considerable use in practice. The
same real price is always of the same value; but on account
of the 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 reservation of a
perpetual rent, if it is intended that this rent should always
be of the same value, it is of importance to the family in
whose favour it is reserved, that it should not consist in a
particular sum of money. Its value would in this case be
liable to variations of two different kinds; first, to those
which arise from the different quantities of gold and silver
which are contained at different times in coin of the same
denomination; and, secondly, to those which arise from the
different values of equal quantities of gold and silver at
different times.
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 supposed, though I apprehend without any cer
tain proof, is still going on gradually, and is likely to con
tinue to do so for a long time. Upon this supposition, there
fore, such variations are more likely to diminish, than to
augment the value of a money rent, even though it should
be stipulated to be paid, not in such a quantity of coined
REAL AND NOMINAL PRICE 41
money of such a denomination (in so many pounds sterling,
for example), but in so many ounces either of pure silver,
or of silver of a certain standard.
The rents which have been reserved in corn have pre
served 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 i 8th of Elizabeth it was en
acted, 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 Black-
stone, commonly near double of what arises from the other
two-thirds. The old money rents of colleges must, accord
ing to this account, have sunk almost to a fourth part of
their antient value; or are worth little 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
tery nearly the same quantity of pure silver. This degrada
tion, 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 Scotland, some antient rents, originally
of considerable value, have in this manner been reduced
almost to nothing.
Equal quantities of labour will at distant times be pur
chased more nearly with equal quantities of corn, the sub
sistence of the labourer, than with equal quantities of gold
and silver, or perhaps of any other commodity. Equal quan
tities 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
42 WEALTH OF NATIONS
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 exactly. The subsist
ence 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 subsistence which it can purchase at that time.
A rent therefore reserved in corn is liable only to the vari
ations in the quantity of labour which a certain quantity of
corn can purchase. But a rent reserved in any other com
modity is liable, not only to the variations in the quantity 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 accommo
dated, not to the temporary or occasional, but to the average
or ordinary price of that necessary of life. The average or
ordinary price of corn again is regulated, as I shall likewise
endeavour to show hereafter, by the value of silver, by the
richness or barrenness of the mines which supply the market
with that metal, or by the quantity of labour which must be
employed, and consequently of corn which must be con
sumed, 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 cen
tury together. 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 con
REAL AND NOMINAL PRICE 43
tinues, in other respects, in the same or nearly in the same
condition. In the mean time the temporary and occasional
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 commodities ; the money price
of labour, and along with it that of most other things, con
tinuing the same during all these fluctuations.
Labour, therefore, it appears evidently, is the only uni
versal, as well as the only accurate measure of value, or the
only standard by which we can compare the values of dif
ferent commodities at all times and at all places. We can
not estimate, it is allowed, the real value of different com
modities from century to century by the quantities of silver
which were given for them. We cannot estimate it from
year to year by the quantities of corn. By the quantities of
labour we can, with the greatest accuracy, estimate it both
from century to century and from year to year. From cen
tury to century, corn is a better measure than silver, be
cause, 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 perpetual rents, or even in let
ting very long leases, it may be of use to distinguish be
tween 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, therefore, money is the exact
measure of the real exchangeable value of all commodities.
It is so, however, at the same time and place only.
44 WEALTH OF NATIONS
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 differ
ence 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 quan
tity both of labour and of the necessaries and conveniencies
of life, than an ounce at London. A commodity, therefore,
which sells for half an ounce of silver at Canton may there
be really dearer, of more real importance to the man who
possesses it there, than a commodity which sells for an
ounce at London is to the man who possesses it at London.
If a London merchant, however, can buy at Canton for half
an ounce of silver, a commodity which he can afterwards
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 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 command 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 always give him the command of double the quantity of
all these, which half an ounce could have done there, and
this is precisely what he wants.
As it is the nominal or money 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 com
modity at different 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
REAL AND NOMINAL PRICE 45
labour at distant 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 frequently taken notice of
by historians and other writers. We must generally, there
fore, content ourselves with them, not as being always ex
actly 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 convenient to coin several different metals into money;
gold for larger payments, silver for purchases of moderate
value, and copper, or some other coarse metal, for those of
still smaller consideration. They have always, however,
considered one of those metals as more peculiarly the meas
ure 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 have done when they had no other money, they have
generally continued 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 re
public. 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 copper. At Rome,
one who owed a great deal of money, was said to have a
great deal of other people'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 settlements, 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.;
46 WEALTH OF NATIONS
but there was little gold coined till the time of Edward IIL
nor any copper till that of James I. 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 com
puted in silver : and when we mean to express the amount of
a person's fortune, we seldom mention the number of guineas,
but the number of pounds sterling which we suppose would
be given for it.
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 ten
der for a long time after it was coined into money. The
proportion between the values of gold and silver money was
not fixed by any public law or proclamation; but was left
to be settled by the market. If a debtor offered payment in
gold, the creditor might either reject such payment alto
gether, 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 distinction 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 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 regulated 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
proportion, this distinction becomes, or at least seems to be
come, something more than nominal again. If the regulated
value of a guinea, for example, was either reduced to twenty,
REAL AND NOMINAL PRICE 47
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 appear 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 sil
ver 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 ac
counts, and of expressing the amount of all great and small
sums rather in silver than in gold money. One of Mr. Drum-
mond's notes for five-and-twenty or fifty guineas would, after
twenty
an alteration
or fiftyofguineas
this kind,
in the
be same
still payable
manner with
as before.
five-and-
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 more 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 keep
ing accounts, and of expressing promissory notes and other
obligations for money in this manner, should ever become
general, gold, and not silver, would be considered as the
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 regu
lates the value of the whole coin. Twelve copper pence con
tain half a pound, avoirdupois, of copper, of not the best
quality, which, before it is coined, is seldom worth seven-
pence 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
48 WEALTH OF NATIONS
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 de
faced shillings, however, were considered as equivalent to a
guinea, which perhaps, indeed, was worn and defaced 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 mar
ket, however, one-and-twenty shillings of this degraded sil
ver coin are still considered as worth a guinea of this excel
lent 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 various accidents by sea and by
land, the continual waste of them in gilding and plating, in
lace and embroidery, in the wear and tear of coin, and in
that of plate ; require, in all countries which possess no mines
of their own, a continual importation, in order to repair this
loss and this waste. The merchant importers, like all other
merchants, we may believe, endeavour, as well as they can,
to suit their occasional importations to what, they judge, is
likely to be the immediate demand. With all their attention,
however, they sometimes over-do the business, and some
times 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
REAL AND NOMINAL PRICE 49
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, renders 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 constancy and steadiness
in the cause.
The money of any particular country is, at any particular
time and place, more or less an accurate measure of value
according as the current coin is more or less exactly agree
able 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 example, forty-four guineas and
a half contained exactly a pound weight of standard gold, or
eleven ounces of fine gold and one ounce of alloy, the gold
coin of England would be as accurate a measure of the actual
value of goods at any particular time and place as the nature
of the thing would admit. But if, by rubbing and wearing,
forty-four guineas and a half generally contain less than a
pound weight of standard gold; the diminution, however,
being greater in some pieces than in others; the measure of
value comes to be liable to the same sort of uncertainty to
which all other weights and measures are commonly ex
posed. 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 sil
ver which the coin ought to contain, but to that which, upon
an average, it is found by experience it actually does contain.
By the money-price of goods, it is to be observed, I under
stand 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 proportion 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 ot 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 conse
quence of long application, and the superior value of their
produce may frequently be no more than a reasonable com
pensation for the time and labour which must be spent in
acquiring them. In the advanced state of society, allow
ances of this kind, for superior hardship and superior skill,
are commonly made in the wages of labour; and something
of the same kind must probably have taken place in its
earliest and rudest period.
In this state of things, the whole produce of labour belongs
50
COMPONENT PARTS OF PRICE SI
to the labourer; and the quantity of labour commonly em
ployed in acquiring or producing any commodity, is the only
circumstance which can regulate the quantity of labour
which it ought commonly to purchase, command, or exchange
for.
As soon as stock has accumulated in the hands of particu
lar persons, some of them will naturally employ it in setting
to work industrious people, whom they will supply with
materials and subsistence, in order to make a profit by the
sale of their work, or by what their labour adds to the value
of the materials. In exchanging the complete manufacture
either for money, for labour, or for other goods, over and
above what may be sufficient to pay the price of the ma
terials, 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 inspection and direction. They are, however,
altogether different, are regulated by quite different prin
ciples, 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 th",
stock employed, and are greater or smaller in proportion to
the extent of this stock. Let us suppose, for example, that ir
some particular place, where the common annual profits of
manufacturing stock are ten per cent. there are two differeni
ployed
manufactures,
at the rate
in each
of fifteen
of which
pounds
twenty
a year
workmen
each, orareat ent
the

expence of three hundred a year in each manufactory. Let

52 WEALTH OF NATIONS
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 profit of about one hundred pounds
only ; while that of the other will expect about seven hun
dred 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 proportion 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 ex
pects that his profits should bear a regular proportion to his
capital. In the price of commodities, therefore, the profits
of stock constitute 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 commodity, the only circum
stance which can regulate the quantity which it ought com
monly to purchase, command, or exchange for. An addi
tional quantity, it is evident, must be due for the profits of
the stock which advanced the wages and furnished the ma
terials of that labour.
As soon as the land of any country has all become private
property, 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
COMPONENT PARTS OF PRICE S3
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 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 re
solves itself into some one or other, or all of those three
parts; and in every improved 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
cattle, and other instruments of husbandry. But it must
be considered that the price of any instrument of husbandry,
such as a labouring horse, is itself made up of the same three
parts; the rent of the land upon 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, there
fore, 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
54 WEALTH OF NATIONS
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 respective employers.
As any particular commodity comes to be more manufac
tured, 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 subse
quent profit is greater than the foregoing; because the capi
tal 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 number, in which it consists altogether in the
wages of labour. In the price of sea-fish, for example, one
part pays the labour of the fishermen, 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
little variegated stones commonly known by the name of
Scotch Pebbles. The price which is paid to them by the
COMPONENT PARTS OF PRICE 55
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 com
modity, taken separately, resolves itself into some one or
other, or all of those three parts ; so that of all the commodi
ties 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 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 dis
tributed among some of its different members. Wages,
profit, and rent, are the three original sources of all revenue
as well as of all exchangeable value. All other revenue is
ultimately derived from some one or other of these.
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 em
ploys 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 compensa
tion 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 bor
rower, 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 borrower
is a spendthrift, who contracts a second debt in order
56 WEALTH OF NATIONS
to pay the interest of the first. The revenue which proceeds
altogether from land, is called rent, and belongs to the land
lord. The revenue of the farmer is derived partly from his
labour, and partly from his stock. To him, land is only the
instrument which enables him to earn the wages of this
labour, and to make the profits of this stock. All taxes, and
all the revenue which is founded upon them, all salaries,
pensions, and annuities of every kind, are ultimately derived
from some one or other of those three original sources of
revenue, and are paid either 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 persons, they are readily distinguished; but when
they belong to the same they are sometimes confounded
with one another, at least in common language.
A gentleman who farms a part of his own estate, after
paying the expense of cultivation, should gain both the rent
of the landlord and the profit of the farmer. He is apt to
denominate, however, his whole gain, profit, and thus con
founds 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
general 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, there
fore, should not only replace to them their stock employed
in cultivation, together with its ordinary 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 evidently 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
COMPONENT PARTS OF PRICE 57
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 char
acters, 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, how
ever, 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 contributing largely to that of the far greater
part of them, so the annual produce of its labour will always
be sufficient to purchase or command a much greater quan
tity of labour than what was employed in raising, preparing,
and bringing that produce to market. If the society were
annually to employ all the labour which it can annually pur
chase, 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 industrious. The idle every where con
sume a great part of it; and according to the different pro
portions in which it is annually divided between 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 dif
ferent employment of labour and stock. This rate is
naturally regulated, 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 hereafter, partly by the general circumstances
of the society or neighbourhood in which the land is situ
ated, 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 commonly 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 rais
ing, 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 mar
ket ; 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 neigh
bourhood, he is evidently a loser by the trade; since by em
ploying his stock in some other way he might have made
that profit. His profit, besides, is his revenue, the proper
58
NATURAL AND MARKET PRICE 59
fund of his subsistence. As, while he is preparing and
bringing the goods to market, he advances to his workmen
their wages, or their subsistence; so he advances to himself,
in the same manner, his own subsistence, which is generally
suitable to the profit which he may reasonably expect from
the sale of his goods. Unless they yield him this profit,
therefore, they do not repay him what they may very prop
erly 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 per- ,
feet 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 exactly the same with its natural price.
The' market price of every particular commodity is regu
lated by the proportion between the quantity which is ac
tually 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 effectual de
mand; since it may be sufficient to effectuate the bringing of
the commodity to market. It is different from the absolute
demand. A very poor 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 com
modity 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, can
not 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 to
60 WEALTH OF NATIONS
animate more or less the eagerness of the competition.
Among competitors of equal wealth and luxury the same de
ficiency will generally occasion a more or less eager com
petition, according as the acquisition of the commodity hap
pens to be of more or less importance to them. Hence the
exorbitant price of the necessaries of life during the block
ade of a town or in a famine.
When the quantity brought to market exceeds the effectual
demand, 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 commodities; in the importation of or
anges, 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 competition 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 nat
urally 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
component parts of its price must be paid below their nat
ural rate. If it is rent, the interest of the landlords will
immediately prompt them to withdraw a part of their land;
NATURAL AND MARKET PRICE 61
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
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 mar
ket. 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. Different 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
62 WEALTH OP NATIONS
woollen cloth. It is only the average produce of the one
species of industry which can be suited in any respect to the
effectual demand ; and as its actual produce is frequently
much greater and frequently much less than its average prod
uce, the quantity of the commodities brought to market will
sometimes exceed a good deal, and sometimes fall short a
good deal, of the effectual demand. Even though that de
mand 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 quantities 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 vari
ations in the quantity of what is brought to market in order
to supply that demand.
The occasional and temporary fluctuations in the market
price of any commodity fall chiefly upon those parts of its
price which resolve themselves into wages and profit. That
part which resolves itself into rent is less affected by them.
A rent certain in money is not in the least affected by them
either in its rate or in its value. A rent which consists
either in a certain proportion or in a certain quantity of the
rude produce, is no doubt affected in its yearly value by all
the occasional and temporary 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
NATURAL AND MARKET PRICE 63

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 occa
sions), and augments the profits of the merchants who pos
sess any considerable quantity of it. It has no 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 sinks 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 com
modity is in this manner continually gravitating, if one may
say so, towards the natural price, yet sometimes particular
accidents, sometimes natural causes, and sometimes particu
lar 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 market 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 he 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, how
ever, it must be acknowledged, can seldom be long kept; and

4'
64 WEALTH OF NATIONS
the extraordinary profit can last very little longer than they
are kept.
Secrets in manufactures are capable of being longer kept
than secrets in trade. A dyer who has found the means of
producing a particular colour with materials which cost only
half the price of those commonly made use of, may, with
good management, enjoy the advantage of his discovery as
long as he lives, and even leave it as a legacy to his pos
terity. His extraordinary gains arise from the high price
which is paid for his private labour. They properly consist
in the high wages of that labour. But as they are repeated
upon every part of his stock, and as their 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 opera
tion may sometimes 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 producing 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 nat
ural rates. Such commodities may continue for whole cen
turies 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 singular and esteemed
productions, like the rent of some vineyards in France of a
peculiarly happy soil and situation, bears no regular propor
tion to the rent of other equally fertile and equally well-cul
tivated land in its neighbourhood. The wages of the labour
and the profits of the stock employed in bringing such com
modities to market, on the contrary, are seldom out of their
natural proportion to those of the other employments of
labour and stock in their neighbourhood.
Such enhancements of the market price are evidently the
NATURAL AND MARKET PRICE 65
effect of natural causes which may hinder the effectual de
mand from ever being fully supplied, and which may con
tinue, therefore, to operate for ever.
A monopoly granted either to an individual or to a trad
ing company has the same effect as a secret in trade or
manufactures. The monopolists, by keeping the market con
stantly under-stocked, by never fully supplying the effectual
demand, sell their commodities 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 occasion indeed, but for any consid
erable 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 appren
ticeship, and all those laws which restrain, in particular em
ployments, 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 particular com
modities 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 persons 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
66 WEALTH OF NATIONS

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 employment, so in the other
they exclude him from many employments. The effect of
such regulations, however, is not near so durable in sinking
the workman's wages below, as in raising them above, their
natural rate. Their operation in 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 re
ligion to follow the occupation of his father, and was sup
posed 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 pres
ent concerning the deviations, whether occasional or per
manent, 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 circum
stances, according to their riches or poverty, their advanc
ing, stationary, or declining condition. I shall, in the four
following chapters, endeavour to explain, as fully and dis
tinctly as I can, the causes of those different variations.
First, I shall endeavour to explain what are the circum
stances 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.
NATURAL AND MARKET PRICE 67

Secondly, I shall endeavour to shew what are the circum

stances 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 appear hereafter, depends
partly upon the nature of the different employments, and
partly upon the different laws and policy of the society in
which they are carried on. But though in many respects
dependent upon the laws and policy, this proportion seems to
be little affected by the riches or poverty of that society; by
its advancing, stationary, or declining condition; but to re
main 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 recom-

pence or wages of labour.
In that original state of things, which precedes both
the appropriation of land and the accumulation of stock, the
whole produce 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
augmented 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 likewise with the
produce of a smaller quantity.
But though all things would have become cheaper in reality,
in appearance many things might have become dearer than
before, or have been exchanged for a greater quantity of
other goods. Let us suppose, for example, that in the greater
part of employments the productive powers of labour had
been improved to tenfold, or that a day's labour could pro
duce ten times the quantity of work which it had done orig
inally; but that in a particular employment they had been
improved only to double, or that a day's labour could pro
duce 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 pound weight,
68
WAGES OF LABOUR 69

for example, would appear to be five times dearer than be

fore. In reality, however, it would be twice as cheap.
Though it required five times the quantity of other goods
to purchase it, it would require only half the quantity of
labour either to purchase or to produce it. The acquisi
tion, therefore, would be twice as easy as before.
But this original state of things, in which the labourer en
joyed 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 produce of the labour which is em
ployed upon land.
It seldom happens that the person who tills the ground has
wherewithal to maintain himself till he reaps the harvest.
His maintenance 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 re
placed to him with a profit. This profit makes a second de
duction from the produce of the labour which is employed
upon land.
The produce of almost all other labour is liable to the like
deduction 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 main
tenance 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
70 WEALTH OP NATIONS
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 per
sons, the profits of stock, and the wages of labour.
Such cases, however, are not very frequent, and in every
part of Europe, twenty workmen serve under a master for
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 combine in order
to raise, the latter in order to lower the wages of labour.
It is not, however, difficult to foresee which of the two
parties must, upon all ordinary occasions, have the advantage
in the dispute, and force the other into a compliance with
their terms. The masters, being fewer in number, can com
bine much more easily; and the law, besides, authorises, or
at least does not prohibit their combinations, while it pro
hibits 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 mas
ters can hold out much longer. A landlord, a farmer, a
master manufacturer, or merchant, though they did not em
ploy 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 subsist 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 who
ever imagines, upon this account, that masters rarely com
bine, 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
WAGES OF LABOUR 71
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 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
defensive 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 pre
tences are, sometimes the high price of provisions ; some
times the great profit which their masters make by their
work. But whether their combinations be offensive or de
fensive, they are always abundantly heard of. In order to
bring the point to a speedy decision, they have always re
course to the loudest clamour, and sometimes to the most
shocking violence and outrage. They are desperate, and act
with the folly and extravagance of desperate men, who
must either starve, or frighten their masters into an imme
diate compliance with their demands. The masters upon
these occasions are just as clamorous upon the other side,
and never cease to call aloud for the assistance of the civil
magistrate, and the rigorous execution of those laws which
have been enacted with so much severity against the combi
nations of servants, labourers, and journeymen. The work
men, accordingly, very seldom derive any advantage from
the violence of those tumultuous combinations, which, partly
from the interposition of the civil magistrate, partly from
the superior steadiness of the masters, partly from the
necessity which the greater part of the workmen are
under of submitting for the sake of present subsistence,
generally end in nothing, but the punishment or ruin of
the ringleaders.
But though in disputes with their workmen, masters must
generally have the advantage, there is however a certain
rate below which it seems impossible to reduce, for any con
72 WEALTH OF NATIONS
siderable 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 im
possible for him to bring up a family, and the race of such
workmen could not last beyond 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 labour of
the wife, on account of her necessary attendance on the
children, being supposed no more than sufficient to provide
for herself. 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 children, in order that two may
have an equal chance of living to that age.. But the neces
sary 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, cannot 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 common labour, be able to
earn something more than what is precisely necessary for
their own maintenance; but in what proportion, whether in
that above mentioned, or in any other, I shall not take upon
me to determine.
There are certain circumstances, however, which some
times 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 increasing; when every year furnishes employ
ment 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
WAGES OF LABOUR 73
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 increase 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, 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 shoe
maker, 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 in
crease the number of his journeymen.
The demand for those who live by wages, therefore, neces
sarily 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 Eng
land. In the province of New York, common labourers earn
three shillings and sixpence currency, equal to two shillings
74 WEALTH OF NATIONS
sterling, a day; ship carpenters, ten shillings and sixpence
currency, with a pint of rum worth sixpence sterling, equal
in all to six shillings and sixpence sterling; house carpenters
and bricklayers, eight shillings currency, equal to four shill
ings and sixpence sterling; journeymen taylors, five shillings
currency, equal to about two shillings and tenpence sterling.
These prices are all above the London price; and wages are
said to be as high in the other 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
sufficiency 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 com
mand of the necessaries and conveniencies 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 de
cisive 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 colo
nies 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 importa
tion of new inhabitants, but to the great multiplication of the
species. Those who live to old age, it is said, frequently
see there from fifty to a hundred, 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 chil
dren, 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 mar
WAGES OF LABOUR 75
riage. We cannot, therefore, wonder that the people in
North America should generally marry very young. Not
withstanding 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 ex
tent, 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 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 labour
ers 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 hu
manity. 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 cultivation,
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 insti
tutions 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
76 WEALTH OF NATIONS

of rice in the evening, he is contented. The condition of

artificers is, if possible, still worse. Instead of waiting indo
lently in their work-houses, for the calls of their customers,
as in Europe, they are continually running about the streets
with the tools of their respective trades offering their 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
families have no habitation on the land, but live constantly
in little fishing boats upon the rivers and canals. The sub
sistence 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 peo
ple 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 are every
night exposed in the street, or 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 inhabitants. The lands which had once been cultivated
are no-where neglected. The same or very nearly the same
annual labour must therefore continue to be performed, and
the funds destined for maintaining it must not, consequently,
be sensibly diminished. The lowest class of labourers, there
fore, 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 decay
ing. 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.
WAGES OF LABOUR 77

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 enor
mities. Want, famine, and mortality would immediately pre
vail 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 perhaps is nearly the present state of Bengal,
and of some other of the English settlements 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 fast decaying. The difference between
the genius of the British constitution which protects and
governs North America, and that of the mercantile company
which oppresses and domineers in the East Indies, cannot
perhaps be better illustrated than by the different state of
those countries.
The liberal reward of labour, therefore, as it is the neces
sary effect, so it is the natural symptom of increasing na
tional 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 condition 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 upon which it is possible to do this. There
are many plain symptoms that the wages of labour are no
78 WEALTH OF NATIONS

where 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 dis
tinction, even in the lowest species of labour, between sum
mer and winter wages. Summer wages are always highest.
But on account of the extraordinary expence of fewel, the
maintenance of a family is most expensive in winter. Wages,
therefore, being highest when this expence is lowest, it
seems evident that they are not regulated by what is neces
sary 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 proportioned to his
daily necessities.
Secondly, the wages of labour do not in Great Britain
fluctuate with the price of provisions. These vary every
where from year to year, frequently from month to month.
But in many places the money price of labour remains uni
formly the same sometimes for half a century together. If
in these places, therefore, the labouring 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
extraordinary cheapness. The high price of provisions dur
ing these ten years past has not in many parts of the king
dom 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 labour
ing poor buy all things, are generally fully as cheap or
WAGES OF LABOUR 79

cheaper in great towns than in the remoter parts of the coun

try, for reasons which I shall have occasion to explain here
after. But the wages of labour in a great town and its
neighbourhood are frequently a fourth or a fifth part, twenty
or five-and-twenty per cent. higher than at a few miles dis
tance. Eighteen pence a day may be reckoned the common
price of labour in London and its neighbourhood. At a few
miles distance it falls to fourteen and fifteen pence. Ten
pence 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 transport a man from one
parish to another, would necessarily occasion so great a
transportation of the most bulky commodities, not only from
one parish to 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 ap
pears evidently from experience that a man is of all sorts of
luggage the most difficult to be transported. 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 correspond either in place or time with those in the price
of provisions, but they are frequently quite opposite.
Grain, the food of the common people, is dearer in Scot
land 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 pro
portion to its quality it cannot be sold dearer in Scotland
than the Scotch corn that comes to the same market in com
petition with it. The quality of grain depends chiefly upon
the quantity of flour or meal which it yields at the mill, and
in this respect English grain is so much superior to the
Scotch, that, though often dearer in appearance, or in pro
portion to the measure of its bulk, it is generally cheaper in
80 WEALTH OF NATIONS
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 labouring poor, there
fore, 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 neighbour 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 king
dom 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 England. It is in Scotland
supported by the evidence of the public fiars, annual valua
tions 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 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 somewhat dearer in the
last century than in the present, it is equally certain that
labour was much cheaper. If the labouring poor, therefore,
could bring up their families then, they must be much more
at their ease now. In the last century, the most usual day
wages of common labour through the greater part of Scot
land were sixpence in summer and fivepence in winter.
Three shillings a week, the same price very nearly, still con
tinues to be paid in some parts of the Highlands and West
ern Islands. Through the greater part of the low country
WAGES OF LABOUR 81
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 ac
count 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 com
merce 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 i6i4, 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 labourers, the rank
of people from which foot soldiers are commonly drawn.
Lord Chief Justice Hales, who wrote in the time of Charles
II., computes the necessary expence of a labourer's family,
consisting of six persons, the father and mother, two chil
dren able to do something, 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 i688, Mr. Gregory King,
whose skill in political arithmetic is so much extolled by
Doctor Davenant, computed the ordinary income of labour
ers and out-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 calculation, 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 pecu
niary income and expence of such families have increased
considerably since that time through the greater part of the
kingdom ; in some places more, and in some less ; though per
haps scarce any where so much as some exaggerated accounts
of the present wages of labour have lately represented them
82 WEALTH OF NATIONS
to the public. The price of labour, it must be observed, can
not 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 abilities 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 cen
tury, 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 industrious poor de
rive an agreeable and wholesome variety of food, have be
come a great deal cheaper. Potatoes, for example, do not
at present, 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, cab
bages; things which were formerly 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 cloathing; and those in the manufactures of the
coarser metals, with cheaper and better instruments of trade,
as well as with many agreeable and convenient pieces of
houshold furniture. Soap, salt, candles, leather, and fer
mented 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, cloathing and lodging which satisfied them in
WAGES OF LABOUR 83
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, cloathed and lodged.
Poverty, though it no doubt discourages, does not always
prevent marriage. It seems even to be favourable to genera
tion. A half-starved Highland woman frequently bears more
than twenty children, 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 station. 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 produced, 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 Highlands of Scotland for a
mother who has borne twenty children not to have two alive.
Several officers of great experience have assured me, that so
far from recruiting their regiment, they have never been
able to supply it with drums and fifes from all the soldiers'
children that were born in it. A greater number of 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
84 WEALTH OF NATIONS

before they are nine or ten. This great mortality, however,

will every where be found chiefly among the children of the
common people, who cannot afford to tend them with the
same care as those of better station. Though their mar
riages are generally more fruitful than those of people of
fashion, a smaller proportion of their children arrive at ma
turity. 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 propor
tion to the means of their subsistence, and no species can
ever multiply beyond it. But in civilized 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 species; 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 demand is continually
increasing, the reward of labour must necessarily encourage
in such a manner the marriage and multiplication of labour
ers, as may enable them to supply that continually increasing
demand by a continually increasing population. If the re
ward 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 multi
plication 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, as would
soon force back its price to that proper rate which the cir
cumstances 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
WAGES OF LABOUR 85

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 ex-
pence of his master ; but that of a free servant is at his own
expence. 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 an
other, to continue the race of journeymen and servants, ac
cording as the increasing, diminishing, or stationary demand
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 gen
erally prevail in the economy of the rich, naturally 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 dif
ferent management, the same purpose must require very
different degrees of expence to execute it. It appears, accord
ingly, 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 increasing wealth, so it is the cause of increasing popula
tion. To complain of it, is to lament over the necessary
effect and cause of the greatest public prosperity.
It deserves to be remarked, perhaps, that it is in the pro
gressive state, while the society is advancing to the further
acquisition, rather than when it has acquired its full comple
ment 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
86 WEALTH OF NATIONS
miserable in the declining state. The progressive state is in
reality the cheerful and the hearty state to all the different
orders of the society. The stationary is dull ; the declining
melancholy.
The liberal reward of labour, as it encourages the propa
gation, 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 propor
tion to the encouragement it receives. A plentiful subsistence
increases the bodily strength of the labourer, and the com
fortable 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
expeditious, than where they are low; in England, for
example, than in Scotland; in the neighbourhood of great
towns, than in remote country places. Some workmen, in
deed, 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 work
men are paid by the piece ; as they generally are in manufac
tures, 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 peculiar 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 sol
diers have been employed in some particular sorts of work,
and liberally paid by the piece, their officers have frequently
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 stipu
lation was made, mutual emulation and the desire of greater
WAGES OF LABOUR 87
gain, frequently prompted them to over-work themselves,
and to hurt their health by excessive labour. Excessive ap
plication 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 re
strained by force or by some strong necessity, is almost
irresistible. It is the call of nature, which requires to be re
lieved by some indulgence, sometimes of ease only, but some
times too of dissipation and diversion. If it is not complied
with, the consequences are often dangerous, and sometimes
fatal, and such as almost always, sooner or later, bring on
the peculiar infirmity of the trade. If masters would always
listen to the dictates of reason and humanity, they have fre
quently occasion rather to moderate, than to animate the ap
plication 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 pre
serves 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 subsistence therefore, it has been concluded, re
laxes, 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 com
mon people years of sickness and mortality, which cannot
fail to diminish the produce of their industry.
In years of plenty, servants frequently leave their masters
and trust their subsistence to what they can make by their
own industry. But the same cheapness of provisions, by in
creasing the fund which is destined for the maintenance of
servants, encourages masters, farmers especially, to employ
88 WEALTH OF NATIONS
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 num
ber 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 sub
sistence make all such people eager to return to service. But
the high price of provisions, by diminishing the funds des
tined for the maintenance of servants, disposes masters
rather to diminish than to increase the number of those they
have. In dear years too, poor independent workmen fre
quently 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 bar
gains 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, however,
than to imagine that men in general should work less when
they work for themselves, than when they work for other
people. A poor independent workman will generally be more
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
independent 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 month or
by the year, and whose wages and maintenance are the same
WAGES OF LABOUR 89
Whether they do much or do little, is likely to be still greater.
Cheap years tend to increase the proportion of independent
workmen 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 dif
ferent 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 appears 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 manu
factures, 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 dear-
ness or cheapness of the seasons. In i740, a year of great
scarcity, both manufactures, indeed, appear to have declined
very considerably. But in i756, another year of great
scarcity, the Scotch manufacture made more than ordinary
advances. The Yorkshire manufacture, indeed, declined,
and its produce did not rise to what it had been in i755 till
i766, after the repeal 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 necessarily depend, not so much upon the dearness or
cheapness of the seasons in the countries where they are
carried on, as upon the circumstances which affect the de
90 WEALTH OF NATIONS
mand 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 manu
factures 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 ac
count, imagine that the price of provisions has no influence
upon that of labour. The money price of labour is neces
sarily regulated by two circumstances : the demand for labour,
and the price of the necessaries and conveniencies of life.
The demand for labour, according as it happens to be in
creasing, stationary, or declining, or to require an increasing,
stationary, or declining population, determines the quantity
of the necessaries and conveniencies of life which must be
given to the labourer; and the money price of labour is de
termined 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 pro
visions 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 of many of the employers of industry,
WAGES OP LABOUR 91
sufficient to maintain and employ a greater number of indus
trious people than had been employed the year before; and
this extraordinary number cannot always be had. Those
masters, therefore, who want more workmen, bid against one
another, in order to get them, which sometimes raises both
the real and 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 employ
ment, who bid against one another, in order to get it, which
sometimes lowers both the real and the money price of
labour. In i74o, 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 labour
ers and servants.
The scarcity of a dear year, by diminishing the demand
for labour, tends to lower its price, as the high price of pro
visions 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 in
crease of stock, tends to increase its productive powers, and
to make a smaller quantity of labour produce a greater quan
tity 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 employment, that they may be enabled to produce the
greatest quantity of work possible. For the same reason, he
endeavours to supply them with the best machinery which
either he or they can think of. What takes place among
92 WEALTH OF NATIONS
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 occupied in inventing the most proper machinery
for executing the work of each, and it is, therefore, more
likely to be invented. There are many commodities, there
fore, 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 diminu
tion 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
2ame 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 particular 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 customers, and by a thousand other accidents to
which goods when carried either by sea or by land, or even
when stored in a warehouse, are liable. It varies, therefore,
not only from year to year, but from day to day, and almost
from hour to hour. To ascertain what is the average profit
of all the different trades carried on in a great kingdom,
must be much more difficult; and to judge of what it may
have been formerly, or in remote periods of time, with any
degree of precision, must be altogether impossible.
But though it may be impossible to determine with any de-
93
94 WEALTH OF NATIONS
gree of precision, what are or were the average profits of
stock, either in the present, or in ancient times, some notion
may be formed of them from the interest of money. It may
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 interest. 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 revived by the i3th
of Elizabeth, cap. 8. and ten per cent. continued to be the
legal rate of interest till the 2ist of James I. when it was
restricted to eight per cent. It was reduced to six per cent.
soon after the restoration, and by the i2th 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 people of good credit in the capital, and
in many other parts of the kingdom, at three and a half,
four, and four and a half per cent.
Since the time of Henry VIII, the wealth and revenue of
the country have been continually advancing, and, in the
course of their progress, their pace seems rather to have
been gradually 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 in
creasing during the same period, and in the greater part of
PROFITS OF STOCK 95
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 employed in every branch of trade, and the number
of rich competitors, 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 England, the market rate is rather higher. People of
the best credit there seldom borrow under five per cent.
Even private bankers in Edinburgh give four per cent. upon
their promissory notes, of which payment either in whole or
in part may be demanded at pleasure. Private bankers in
London give no interest for the money which is deposited
with them. There are few trades which cannot be carried
on with a smaller stock in Scotland than in England. The
common rate of profit, therefore, must be somewhat greater.
The wages of labour, it has already been observed, are lower
in Scotland than in England. The country too is not only
much poorer, but the steps by which it advances to a better
condition, for it is evidently advancing, seem to be much
slower and more tardy.
The legal rate of interest in France has not, during the
course of the present century, been always regulated by the
market rate. In i72o interest was reduced from the twentieth
to the fiftieth penny, or from five to two per cent. In i724
it was raised to the thirtieth penny, or to 3 i-3 per cent. In
i725 it was again raised to the twentieth penny, or to five
per cent. In i766, during the administration of Mr. Laverdy,
it was reduced to the twenty-fifth penny, or to four per cent.
96 WEALTH OF NATIONS
The Abbe Terray raised it afterwards to the old rate of five
per cent. The supposed purpose of many of those violent
reductions of interest was to prepare the way for reducing
that of the public 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 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 em
ploy 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 England. When you go
from Scotland to England, the difference which you may re
mark between the dress and countenance of the common
people in the one country and in the other, sufficiently indi
cates the difference in their condition. The contrast is still
greater when you return from France. France, though no
doubt a richer country than Scotland, seems not to be going
forward so fast. It 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 country than England. The government there bor
row 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 Hol
land, it has been pretended by some people, is decaying, and
it may perhaps be true that some particular branches of it
are so. But these symptoms seem to indicate sufficiently that
there is no general decay. When profit diminishes, mer
chants are very apt to complain that trade decays; though
PROFITS OF STOCK 97
the diminution of profit is the natural effect of its prosperity,
or of a greater stock being employed in it than before. Dur
ing 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 latter
(in which I suspect, however, there is a considerable exag
geration) ; the great sums which they lend to private people
in countries where the rate of interest is higher than in their
own, are circumstances which no doubt demonstrate the re
dundancy of 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 conse
quently 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, per
haps, which scarce ever go together, except in the peculiar
circumstances of new colonies. A new colony must always
for some time be more under-stocked 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 cul
tivate. What they have, therefore, is applied to the cultiva
tion only of what is most fertile and most favourably situ
ated, 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 improvement 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 number of
his hands faster than he can find them in a new settlement.
Those whom he can find, therefore, are very liberally re-
d—hc x

f
88 WEALTH OF NATIONS
warded. As the colony increases, the profits of stock gradu
ally diminish. When the most fertile and best situated lands
have been all occupied, less profit can be made by the culti
vation 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
reduced during the course of the present century. As riches,
improvement, 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; and after these are dimin
ished, stock may not only continue to increase, but to increase
much faster than before. It is with industrious nations who
are advancing in the acquisition of riches, as with industrious
individuals. A great stock, though with small profits, gen
erally increases faster than a small stock with great profits.
Money, says the proverb, makes money. When you have got
a little, 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 partly been explained already, but will be ex
plained more fully hereafter in treating of the accumulation
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 busi
ness, 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 with
drawn from them, and turned into some of the new and more
profitable ones. In all those old trades, therefore, the com
petition 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, therefore,
afford to borrow at a higher interest. For some time after
PROFITS OF STOCK 99
the conclusion of the late war, not only private people of
the best credit, but some of the greatest companies in Lon
don, 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 territory and trade,
by our acquisitions in North America and the West Indies,
will sufficiently account for. this, without supposing any
diminution in the capital stock of the society. So great an
accession of new business to be carried on by the old stock,
must necessarily have diminished the quantity employed in a
great number of particular branches, in which the compe
tition being less, the profits must have been greater. I shall
hereafter have occasion to mention the reasons which dis
pose me to believe that the capital stock of Great 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 consequently 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 supplying the
market than before, they can sell them dearer. Their goods
cost them less, and they get more for them. Their profits,
therefore, being augmented at both ends, can well afford a
large interest. The great fortunes so suddenly and so easily '
acquired in Bengal and the other British settlements in the
East Indies, may satisfy us that, as the wages of labour are
very low, so the profits of stock are very high in those ruined
countries. The interest of money is proportionably so. In
Bengal, money is frequently 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. Before the fall of the Roman republic,
a usury of the same kind seems to have been com
mon in the provinces, under the ruinous administration
of their proconsuls. The virtuous Brutus lent money in
100 WEALTH OF NATIONS
Cyprus at eight-and-forty per 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 situ
ation 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 employ
ment 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 business it had to transact,
as great a quantity of stock would be employed in every par
ticular branch as the nature and extent of the trade 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 opulence. 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 institu
tions. But this complement may be much inferior to what,
with other laws and institutions, the nature of its soil, cli
mate, and situation might admit of. A country which neg
lects 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 different 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
ihe poor must establish the monopoly of the rich, who, by
PROFITS OF STOCK 101
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
ordinary profits of stock must be sufficient to afford this
large interest.
A defect in the law may sometimes raise the rate of in
terest considerably above what the condition of the country,
as to wealth or poverty, would require. When the law does
not enforce the performance of contracts, it puts all bor
rowers nearly upon the same footing with bankrupts or
people of doubtful credit in better regulated 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
contracts was left for many ages to the faith of the con
tracting 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 pre
vent it. 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 partly
from this, and partly from the difficulty of recovering the
money.
The lowest ordinary rate of profit must always be some
thing more than what is sufficient to compensate the occa
sional losses to which every employment of stock is ex
posed. 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 compensating 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
102 WEALTH OF NATIONS
prudence, is exposed. Were it not more, charity or friend-
, ship 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 interest 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 unfashionable 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 people. 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 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 subsistence 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;
PROFITS OF STOCK 103
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 per 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 proportion between interest and
clear profit might not be the same in countries where the
ordinary rate of profit was either a good deal lower, or a
good deal higher. If it were a good deal lower, one half of
it perhaps could not be afforded for interest; and more might
be afforded if it were a good deal higher.
In countries which are fast advancing to riches, the low
rate of profit may, in the price of many commodities, com
pensate 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 ex
dressers,
ample, thethewages
spinners,
of the
the different
weavers, working
&c. should,
people,
all of the
them,
flax-
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 people that had been employed about
it, multiplied by the number of days during which they had
been so employed. That part of the price of the commodity
which resolved itself into wages would, through all the dif
ferent stages of the manufacture, rise only in arithmetical
proportion 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 require
an additional five per cent. both upon the advanced price of
the flax and upon the wages of the spinners. And the em
ployer of the weavers would require a like five per cent. both
104 WEALTH OF NATIONS
upon the advanced 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-manufac
turers 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
pernicious 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

HE whole of the advantages and disadvantages of the

different employments of labour and stock must, in the
same neighbourhood, be either perfectly equal or con
tinually tending to equality. If in the same neighbourhood,
there was any employment evidently either more or less ad
vantageous 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 perfectly
free both to chase what occupation he thought proper, and to
change it as often as he thought proper. Every man’s inter
est would prompt him to seek the advantageous, and to shun
the disadvantageous employment.
Pecuniary wages and profit, indeed, are every-where in
Europe extremely different according to the different employ
ments 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 counter
balance a great one in others; and partly 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.

105
106 WEALTH OF NATIONS

PART I
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 disagree-
ableness of the employments themselves; secondly, the easi
ness and cheapness, or the difficulty and expence 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 prob
ability or improbability of success in them.
First, The wages of labour vary with the ease or hardship,
the cleanliness or dirtiness, the honourableness or dishonour
ableness of the employment. Thus in most places, take the
year round, a journeyman taylor earns less than a journey
man 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 gen
erally under-recompensed, as I shall endeavour to show by
and by. Disgrace has the contrary effect. 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 executioner, is, in proportion to the quantity of work
done, better paid than any common trade whatever.
Hunting and fishing, the most important employments of
mankind 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, therefore, they are all very poor
people who follow as a trade, what other people pursue as a
NATURAL INEQUALITIES 107
pastime. Fishermen have been so since the time of The
ocritus. A poacher is every-where a very poor man in Great
Britain. In countries where the rigour of the law suffers
no poachers, the licensed hunter is not in a much better con
dition. The natural taste for those employments makes more
people follow them than can live comfortably by them, and
the produce of their labour, in proportion to its quantity,
comes always too cheap to market to afford anything but the
most scanty subsistence to the labourers.
Disagreeableness and disgrace affect the profits of stock in
the same manner as the wages of labour. The keeper of an
inn or tavern, who is never master of his own house, and
who is exposed to the brutality 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
cheapness, 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
expence of his education, with at least the ordinary profits of
an equally valuable capital. It must do this too in a reason
able time, regard being had to the very uncertain duration of
human life, in the same manner as to the more certain dura
tion of the machine.
The difference between the wages of skilled labour and
those of common labour, is founded upon this principle.
The policy of Europe considers the labour of all mechanics,
artificers, and manufacturers, as skilled labour; and that of
all 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

r
108 WEALTH OF NATIONS
in the greater part it is quite otherwise, as I shall endeavour
to shew by and by. The laws and customs of Europe, there
fore, in order to qualify any person for exercising 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 cloathed by them. Some money
too is commonly given to the master for teaching him his
trade. They who cannot give money, give time, or become
bound for more than the usual number of years ; a considera
tion which, though it is not always advantageous to the
master, on account of the usual idleness of apprentices, is
always disadvantageous to the apprentice. In country labour,
on the contrary, the labourer, while he is employed about the
easier, learns the more difficult parts of his business, and his
own labour maintains him through all the 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, however, is generally very small; the daily or
weekly earnings of journeymen in the more common sorts
of manufactures, such as those of plain linen and woollen
cloth, computed at an average, are, in most places, very little
more than the day wages of common labourers. Their em
ployment, indeed, is more steady and uniform, and the su
periority 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 su
perior expence of their education.
Education in the ingenious arts and in the liberal profes
sions, is still more tedious and expensive. The pecuniary
recompence, therefore, 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 little affected by the
NATURAL INEQUALITIES 109
easiness or difficulty of learning the trade in which it is em
ployed. 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 learn. One branch either of
foreign or domestic trade, cannot well be a much more intri
cate 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 journey
man 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 depends upon
the occasional calls of his customers. He is liable, in conse
quence, 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 desponding 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 la
bourers, those of masons and bricklayers are generally from
one half more to double those wages. Where common
labourers earn four and five shillings a week, masons and
bricklayers frequently 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, how
ever, seems more easy to learn than that of masons and
bricklayers. Chairmen in London, during the summer season,
are said sometimes to be employed as bricklayers. The high
wages of those workmen, therefore, are not so much the
recompence of their skill, as the compensation for the incon
stancy 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 occasional
110 WEALTH OF NATIONS
calls of his customers; and it is not liable to be interrupted
by the weather.
When the trades which generally afford constant employ
ment, happen in a particular place not to do so, the wages
of the workmen 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 dis
missed 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, accord
ingly, 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, par
ticularly during the summer.
When the inconstancy of employment is combined with the
hardship, disagreeableness, and dirtiness of the work, it some
times raises the wages of the most common labour above
those of the most skilful artificers. A collier working by the
piece is supposed, at Newcastle, to earn commonly about
double, and in many parts of Scotland 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 unreasonable
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 af the rate at which they
were then paid, they could earn from six to ten shillings a
day. Six shillings are about four times the wages of com
mon labour in London, and in every particular trade, the
lowest common earnings may always be considered as those
of the far greater number. How extravagant soever those
NATURAL INEQUALITIES HI
earnings may appear, if they were more than sufficient to
compensate 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 effect
the ordinary profits of stock in any particular trade. Whether
the stock 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 reposed 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
expense 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 fortune, probity, and prudence. The
different rates of profit, therefore, in the different branches
of trade, cannot arise from the different degrees of trust re
posed 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, success is almost certain; but very uncer
tain in the liberal professions. Put your son apprentice to a
shoemaker, there is little doubt of his learning to make a
112 WEALTH OF NATIONS
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 prizes ought to gain all that is lost by those who
draw the blanks. In a profession where twenty fail for one
that succeeds, that one ought to gain all that should have
been gained by the unsuccessful twenty. The counsellor at
law who, perhaps, at near forty years of age, begins to make
something by his profession, ought to receive the retribution,
not only of his 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 retri
bution 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 proportion 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 pecuniary
gain, evidently under-recompenced.
Those professions keep their level, however, with other
occupations and, notwithstanding these discouragements, all
the most generous and liberal spirits are eager to crowd into
them. Two different causes contribute to recommend them.
First, the desire of the reputation which attends, upon su
perior 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 abilities, makes always a part of
their reward; a greater or smaller in proportion as it is
NATURAL INEQUALITIES 113

higher or lower in degree. It makes a considerable part of

that reward in the profession of physic; a still greater per
haps 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 prosti
tution. The pecuniary recompence, therefore, of those who
exercise them in this manner, must be sufficient, not only to
pay for the time, labour and expence of acquiring the talents,
but for the discredit which attends the employment of them
as a means of subsistence. The exorbitant rewards of play
ers, opera-singers, opera-dancers, &c. are founded upon those
two principles; the rarity and beauty of the talents, and the
discredit of employing 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 acquiring 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 pre
sumption 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
114 WEALTH OF NATIONS '

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 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 proposition 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 in
surance, either from fire or sea-risk, a trade at all, the com
mon premium must be sufficient to compensate the common
losses, to pay the expence of management, and to afford such
a profit as might have been drawn from an equal capital em
ployed 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 expect
to insure it. But though many people have made a little
money by insurance, very few have made a great fortune;
and from this consideration alone, it seems evident enough,
that the ordinary balance of profit and loss is not more ad
vantageous 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
NATURAL INEQUALITIES US
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 pro
portion 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 sometimes perhaps be done
without any imprudence. When a great company, 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 thoughtless rashness and
presumptuous contempt of the risk.
The contempt of risk and the presumptuous hope of suc
cess, are in no period of life more active than at the age at
which young people chase their professions. How little the
fear of misfortune is then capable of balancing the hope
of good luck, appears still more evidently in the readiness
of the common people to enlist as soldiers, or to go to sea,
than in the eagerness of those of better fashion to enter into
what are called the liberal professions.
What a common soldier may lose is obvious enough. With
out regarding the danger, however, young volunteers never
enlist so readily as at the beginning of a new war ; and though
they have scarce any chance of preferment, they figure to
themselves, in their youthful fancies, a thousand occasions
of acquiring honour and distinction which never occur. These
romantic hopes make the whole price of their blood. Their
pay is less than that of common laborers, and in actual serv
ice 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 frequently 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
116 WEALTH OF NATIONS
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 fortune and pre
ferment 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 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 from all the
different ports of Great Britain, is more nearly upon a level
than that of any other workmen in those different places;
and the rate of the port to and from which the greatest
number sail, that is the port, of London, regulates that of
all the rest. At London the wages of the greater part of
the different classes of workmen are about double those of
the same classes at Edinburgh. But the sailors who sail from
the port of London seldom earn above three or four shil
lings a month more than those who sail from the port of
Leith, and the difference is frequently not so great. In time
of peace, and in the merchant service, the London price is
from a guinea to about seven-and-twenty shillings the cal
endar 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
NATURAL INEQUALITIES 117
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 adven
tures, instead of disheartening young people, seem frequently
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 hazards, 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 courage and address can be of no avail. In
trades which are known to be very unwholesome, the wages
of labour are always remarkably high. 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 un
certainty of the returns. These are in general less uncertain
in the inland than in the foreign trade, and in some branches
of foreign trade than others; in the trade to North America,
for example, than in that to Jamaica. The ordinary rate of
profit always rises more or less with the risk. It does not,
however, seem to rise in proportion to it, or so as to com
pensate 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 bank
ruptcy. The presumptuous hope of success seems to act here
as upon all other occasions, and to entice so many adven
turers into those hazardous trades, that their competition
reduces 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.
118 WEALTH OF NATIONS
Of the five circumstances, therefore, which vary the wages
of labour, two only affect the profits of stock; the agree-
ableness or disagreeableness 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 employments of stock; but a
great deal in those of labour; and the ordinary profit of
stock, though it rises with the risk, does not always seem
to rise in proportion to it. It should follow from all this,
that, in the same society or neighborhood, the average and
ordinary rates of profit in the different employments of stock
should be more nearly upon 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 evi
dently much greater than that between the ordinary profits
in any two different branches of trade. The apparent dif
ference, besides, in the profits of different trades, is generally
a deception arising from our not always distinguishing what
ought to be considered as wages, from what ought to be con
sidered as profit.
Apothecaries' profit is become a bye-word, denoting some
thing uncommonly extravagant. This great apparent profit,
however, is 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 em
ployed apothecary, in a large market 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.
NATURAL INEQUALITIES 119
In a small sea-port town, a little grocer will make forty
or fifty per cent. upon a stock of a single hundred pounds,
while a considerable 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 cap
ital 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 pounds a year cannot be considered as too great a
recompence for the labour of a person so accomplished. De
duct this from the seemingly 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 thou
sand pounds can be employed 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 apparent 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
frequently much cheaper in the capital than in small towns
and country villages. Grocery goods, for example, are gen
erally 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 cattle, 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
120 WEALTH OF NATIONS
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 diminishes
apparent profit, increases prime cost. The extent of the
market, by giving employment to greater stocks, diminishes
apparent profit ; but by requiring supplies from a greater dis
tance, 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 re
tail trade are generally less in the capital than in small towns
and country villages, yet great fortunes are frequently ac
quired from small beginnings 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 ex
tended 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 contrary, trade can be extended as stock increases, and
the credit of a frugal and thriving man increases much faster
than his stock. His 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 accumu
lation 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 in
dustry, frugality, and attention. Sudden fortunes, indeed,
are sometimes made in such places by what is called the
trade of speculation. The speculative merchant exercises
no one regular, established, or well-known branch of business.
He is a corn merchant this year, and a wine merchant the
next, and a sugar, tobacco, or tea merchant the year after.
NATURAL INEQUALITIES 121
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 intel
ligence requisite for it can be had.
The five circumstances above mentioned, though they occa
sion 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 em
ployments of either. The nature of those circumstances is
such, that they make up for a small pecuniary 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 estab
lished 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 employments of
those who occupy them.
First, this equality can take place only in those employ
ments which are well known, and have been long established
in the neighbourhood.
Where all other circumstances are equal, wages are gen
erally 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 consid
erable 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 con
tinually changing, and seldom last long enough to be con
122 WEALTH OP NATIONS
sidered as old established manufactures. Those, on the con
trary, 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 to
gether. The wages of labour, therefore, are likely to be
higher in manufactures of the former, than in those of
the latter kind. Birmingham deals chiefly in manu
factures of the former kind ; Sheffield in those of the latter ;
and the wages of labour in those two different places, are
said to be suitable to this difference in the nature of their
manufactures.
The establishment of any new manufacture, of any new
branch of commerce, or of any new practice in agriculture,
is always a speculation, from which the projector promises
himself extraordinary profits. These profits sometimes are
very great, and sometimes, more frequently, perhaps, they
are quite otherwise ; but in general they bear no regular
proportion to those of other old trades in the neighbourhood.
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
disadvantages 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 sometimes 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 wages rise with the
demand. In time of war, when forty or fifty thousand sailors
are forced from the merchant service into that of the king,
the demand for sailors to merchant ships 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, rathel than
quit their old trade, are contented with smaller wages than
NATURAL INEQUALITIES 123
would otherwise be suitable to the nature of their employ
ment.
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 proper 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 reg
ulated 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 quan
tity 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 public 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 com
modities. 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 commodi
ties, therefore, varies not only with the variations of demand,
but with the much greater and more frequent variations of
quantity, and is consequently extremely fluctuating. But the
profit of some of the dealers must necessarily fluctuate with
the price of the commodities. The operations of the specu
lative merchant are principally employed about such com
modities. He endeavours to buy them up when he foresees
that their price is likely to rise, and to sell them when it is
likely to fall.
Thirdly, This equality in the whole of the advantages and
disadvantages of the different employments of labour and
124 WEALTH OF NATIONS
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 employ
ment, which does not occupy the greater part of his time; in
the intervals of his leisure he is often willing to work at an
other 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 landlords 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,
besides, two pecks of oatmeal a week, worth about sixteen
pence sterling. During a great part of the year he has little
or no occasion for their labour, and the cultivation of their
own little possession 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 common all over Europe. In countries ill cultivated
and worse inhabited, the greater part of landlords and
farmers could not otherwise provide themselves with the
extraordinary number of hands, which country labour re
quires at certain seasons. The daily or weekly recompence
which such labourers occasionally received . from their
masters, was evidently not the whole price of their labour.
Their small tenement made a considerable part of it. This
daily or weekly recompence, however, seems to have been
considered as the whole of it, by many writers who have
collected the prices of labour and provisions in ancient times,
and who have taken pleasure in representing both as wonder
fully low.
The produce of such labour comes frequently cheaper to
market than would otherwise be suitable to its nature. Stock
ings in many parts of Scotland are knit much cheaper than
NATURAL INEQUALITIES 125
they can any-where be wrought upon the loom. They are
the work of servants and labourers, who derive the principal
part of their subsistence from some other employment. More
than a thousand pair of Shetland stockings are annually im
ported 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 stockings to the value of a guinea a pair and
upwards.
The spinning of linen yarn is carried on in Scotland nearly
in the same way as the knitting of stockings, by servants who
are chiefly hired for other purposes. They earn but a very
scanty subsistence, who endeavour to get their whole liveli
hood 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 poor
countries. The following instance, however, of something
of the same kind is to be found in the capital of a very rich
one.
rent isThere
dearer
is no
than
cityin inLondon,
Europe,and
I believe,
yet I know
in which
no capital
house-

in which a furnished apartment can be hired so cheap. Lodg

ing is not only much cheaper in London than in Paris ; it is
much cheaper than in Edinburgh of the same degree of good
ness; and what may seem extraordinary, 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 dearness of ground-rent, every landlord acting the
part of a monopolist, and frequently exacting a higher rent
for a single acre of bad land in a town, than can be had
for a hundred of the best in the country; but it arises in
part from the peculiar manners and customs of the people
which oblige every master of a family to hire a whole house
126 WEALTH OF NATIONS
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 Edin
burgh, the people who let lodgings have commonly no other
means of subsistence; and the price of the lodging must
pay, not only the rent of the house, but the whole expence
of the family.

PART II
Inequalities Occasioned By The Policy of Europe
Such are the inequalities in the whole of the advantages
and disadvantages of the different employments of labour
and stock, which the defect of any of the three requisites
above-mentioned must occasion, even where there is the most
perfect liberty. But 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
restraining the competition in some employments to a smaller
number than would otherwise be disposed to enter into them;
secondly, by increasing it in others beyond what it naturally
would be; and, thirdly, by obstructing the free circulation of
labour and stock, both from employment to employment and
from place to place.
First, The Policy of Europe occasions a very important
inequality in the whole of the advantages and disadvantages
of the different employments of labour and stock, by restrain
ing the competition in some employments to a smaller num
ber 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.
The exclusive privilege of an incorporated trade neces
POLITICAL INEQUALITIES 127
sarily restrains the competition, in the town where it is
established, to those who are free of the trade. To have
served an apprenticeship in the town under a master properly
qualified, is commonly the necessary requisite for obtaining
this freedom. The bye-laws of the corporation regulate
sometimes the number of apprentices which any master is
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 apprenticeship restrains
it more indirectly, but as effectually, by increasing the ex-
pence of education.
In Sheffield no master cutler can have more than one ap
prentice 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 public law of the kingdom, are evidently
dictated by the same corporation 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
apprentices at a time. It required a particular act of par
liament to rescind this bye-law.
Seven years seem anciently to have been, all over Europe,
the usual term established for the duration of apprentice
ships in the greater part of incorporated trades. All
such incorporations were anciently called universities; which
indeed is the proper Latin name for any incorporation what
ever. 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 incorpora
tions which are now peculiarly called universities were first
established, the term of years which it was necessary to
128 WEALTH OF NATIONS

study, in order to obtain the degree of master of arts, ap

pears evidently to have been copied from the term of ap
prenticeship in common trades, of which the incorporations
were much more ancient. As to have wrought seven years
under a master properly qualified, was necessary, in order
to entitle any person to become a master, and to have him
self apprentices in a common trade; so to have studied seven
years under a master properly qualified, was necessary to
entitle him to become a master, teacher, or doctor (words
anciently synonimous) in the liberal arts, and to have schol
ars or apprentices (words likewise originally synonimous)
to study under him.
By the 5th of Elizabeth, commonly called the Statute
of Apprenticeship, it was enacted, that no person should
for the future exercise 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 cor
porations, became in England the general and public law of
all trades carried on in market towns. For though the words
of the statute 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 several different trades,
though he has not served a seven years' apprenticeship to
each, they being necessary for the conveniency of the inhabi
tants, 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 England before the 5th of Elizabeth, and has
never been extended to such as have been introduced since
that time. This limitation has given occasion to several dis
tinctions which, considered as rules of police, appear as fool
ish as can well be imagined. It has been adjudged, for ex
ample, 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
exercised in England before the 5th of Elizabeth. But a
wheel-wright, though he has never served an apprenticeship
POLITICAL INEQUALITIES 129
to a coach-maker, may either himself make or employ jour
neymen 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 manufactures of Man
chester, 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 per
son can be qualified to exercise the trade as a master, he
must, in many of them, serve five years more as a journey
man. During this latter term he is called the companion of
his master, and the term itself is called his companionship.
In Scotland there is no general law which regulates uni
versally the duration of apprenticeships. The term is dif
ferent in different corporations. 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 sufficient to purchase the free
dom 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 appren
ticeship, 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 property. It is a mani
fest encroachment upon the just liberty both of the work
man, 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

'
130 WEALTH OF NATIONS
proper. To judge whether he is fit to be employed, may
surely be trusted to the discretion of the employers whose
interest it go much concerns. The affected anxiety of the
law-giver lest they should employ an improper person, is evi
dently as impertinent as it is oppressive.
The institution of long apprenticeships can give no secur
ity that insufficient workmanship shall not frequently be ex
posed to public sale. When this is done it is generally the
effect of fraud, and not of inability ; and the longest appren
ticeship 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 woollen
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 every exertion of his industry. An apprentice
is likely to be idle, and almost always is so, because he has
no immediate interest to be otherwise. In the inferior em
ployments, 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 con
siderable 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 believe, to assert that there
is none) which expresses the idea we now annex to the word
Apprentice, a servant bound to work at a particular trade for
the benefit of a master, during a term of years, upon condi
tion that the master shall teach him that trade.
POLITICAL INEQUALITIES 131
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 inven
tion of such beautiful machines, indeed, 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 justly be considered as among the happiest efforts
of human ingenuity. But when both have been fairly in
vented 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 experience. 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 some
times 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 appren
tice, 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 com
petition 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 estab
lished. In order to erect a corporation, no other authority in
132 WEALTH OF NATIONS
ancient times was requisite in many parts of Europe, but that
of the town corporate in which it was established. In Eng
land, indeed, a charter from the king was likewise necessary.
But this prerogative of the crown seems to have been re
served 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 proper to act
as a corporation without a charter, such adulterine guilds,
as they were called, were not always disfranchised upon that
account, but obliged to fine annually to the king for permis
sion to exercise their usurped privileges. The immediate in
spection of all corporations, and of the bye-laws which they
might think proper to enact for their own government, be
longed 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 incor
poration of which those subordinate 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 in
terest of every particular class of them, to prevent the mar
ket 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 ma
POLITICAL INEQUALITIES 133
terials 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 em
ployers : 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 aug
mented 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 commerce, con
sists the advantage which the town makes by its manufac
tures ; 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, there
fore, tend to increase those wages and profits beyond what
they otherwise would be, tend to enable the town to pur
chase, 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 commerce 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 otherwise fall to
them ; and a less to those of the country.
The price which the town really pays for the provisions
and materials annually imported into it, is the quantity of
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, every
where in Europe, more advantageous than that which is car
ried on in the country, without entering into any very nice
computations, we may satisfy ourselves by one very simple
134 WEALTH OF NATIONS
and obvious observation. In every country of Europe we
find, at least, a hundred people who have acquired great for
tunes from small beginnings by trade and manufactures, the
industry which properly belongs to towns, for one who has
done so by that which properly belongs to the country, the
raising of rude produce by the improvement and cultivation
of land. Industry, 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 advantageous 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 ; and even where they have never been in
corporated, yet the corporation spirit, the jealousy of
strangers, the aversion to take apprentices, or to communi
cate 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-combers, perhaps, are necessary to keep a thou
sand 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 incorporated, but the corporation spirit never has pre
vailed among them. No apprenticeship has ever been
thought necessary to qualify for husbandry, 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 languages, may satisfy us, that among the wisest and
most learned nations, it has never been regarded as a matter
POLITICAL INEQUALITIES 135
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 commonly 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 pam
phlet of a very few pages, as it is possible for words illus
trated by figures to explain them. In the history of the
arts, now publishing by the French academy of sciences,
several of them are actually explained in this manner. The
direction of operations, besides, which must be varied with
every change of the weather, as well as with many other
accidents, requires much more judgment and discretion, than
of those which are always the same or very nearly the same.
Not only the art of the farmer, the general direction of
the operations 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 ma
terials 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 different occasions. The condition of the materials
which he works upon too is as variable as that of the in*
struments which he works with, and both require to be man
aged with much judgment and discretion. The common plough
man, though generally regarded as the pattern of stupidity
and ignorance, is seldom defective in this judgment and dis
cretion. He is less accustomed, indeed, to social intercourse
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 accustomed to consider a greater variety of
objects, is generally much superior to that of the other, whose
whole attention from morning till night is commonly occu
pied in performing one or two very simple operations. How
much the lower ranks of people in the country are really
136 WEALTH OF NATIONS
superior 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 prevent it.
The superiority which the industry of the towns has every
where in Europe over that of the country, is not altogether
owing to corporations and corporation laws. It is sup
ported by many other regulations. 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, with
out 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 of the country, who have
seldom opposed the establishment 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 in
terest 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 agriculture to those of
trading and manufacturing stock, than they are said to have
done in the last century, or in the beginning of the present.
This change may be regarded as the necessary, though very
late consequence of the extraordinary encouragement given
to the industry 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
POLITICAL INEQUALITIES 137
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 agricul
ture is in part restored to the country, at the expence of
which, in a great measure, it had originally been accumu
lated in the town. That every-where in Europe the great
est improvements 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 disturbed and
interrupted by innumerable accidents, and in every respect
contrary to the order of nature and of reason. The inter
ests, prejudices, laws and customs which have given occa
sion to it, I shall endeavour to explain as fully and distinctly
as I can in the third and fourth books of this inquiry.
People of the same trade seldom meet together, even for
merriment and diversion, but the conversation ends in a con
spiracy against the public, or in some contrivance to raise
prices. It is impossible indeed to prevent such meetings, by
any law which either could be executed, or would be con
sistent with liberty and justice. But though the law cannot
hinder people of the same trade from sometimes assembling
together, it ought to do nothing to facilitate such assemblies ;
much less to render them necessary.
A regulation which obliges all those of the same trade in a
particular 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 an
other, 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
themselves 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 effectual combination cannot be established
138 WEALTH OF NATIONS
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 competition
more effectually and more durably than any voluntary com
bination whatever.
The pretence that corporations are necessary for the better
government of the trade, is without any foundation. The
real and effectual discipline which is exercised over a work
man is not that of his corporation, but that of his cus
tomers. It is the fear of losing their employment which
restrains his frauds and corrects his negligence. An exclu
sive corporation necessarily weakens the force of this dis
cipline. A particular set of workmen must then be em
ployed, let them behave well or ill. It is upon this account
that in many large incorporated towns no tolerable work
men 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 workmen, 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.
It is in this manner that the policy of Europe, by restrain
ing the competition in some employments to a smaller num
ber 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 com
petition in some employments beyond what it naturally would
be, occasions another inequality of an opposite kind in the
whole of the advantages and disadvantages of the different
employments of labour and stock.
It has been considered as of so much importance that a
proper number of young people should be educated for cer
tain professions, that, sometimes the public, and sometimes
the piety of private founders have established many pen
sions, scholarships, exhibitions, bursaries, &c., for this pur
pose, which draw many more people into those trades than
could otherwise pretend to follow them. In all christian
POLITICAL INEQUALITIES 139
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 reward of the rich. It Would be indecent, no doubt, to
compare either a curate or a chaplain with a journeyman
in any common trade. The pay of a curate or chaplain, how
ever, may very properly be considered 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 ttiay
happen to make with their respective superiors. Till after
the middle of the fourteenth century, five merks, containing
about fts 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
present money, that of 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 mainte
nance and encouragement to curates, the cures have in
several places been meanly supplied, the bishop is, there
fore, empowered to appoint by writing under his hand and
seal a sufficient certain stipend or allowance, not exceeding
fifty and not less than twenty pounds a year." Forty
pounds a year is reckoned at present very good pay for a
curate, and notwithstanding this act of parliament, there are
many curacies under twenty pounds a year. There are jour
neymen shoemakers in London who can earn forty pounds s
140 WEALTH OF NATIONS
year, and there is scarce an industrious workman of any kind
in that metropolis who does not earn more than twenty.
This last sum indeed does not exceed what is frequently
earned by common labourers 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 attempted
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 ineffectual, 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 sup
port the honour of the church, notwithstanding the mean
circumstances of some of its inferior members. The respect
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 countries, the lottery of
the church is in reality much more advantageous than is
necessary. The example of the churches of Scotland, of
Geneva, and of several other protestant churches, may sat
isfy us, that in so creditable a profession, in which educa
tion 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 proportion of people were edu
cated at the public expence, the competition 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
POLITICAL INEQUALITIES 141
those public charities, whose numbers and necessities would
oblige them in general to content themselves with a very
miserable 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 probably would be in upon the foregoing suppo
sition. 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 ex-
pence, and their numbers are every-where so great as com
monly to reduce the price of their labour to a very paultry
recompence.
Before the invention of the art of printing, the only em
ployment 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 people the curious and useful knowl
edge which he had acquired himself: 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 occasion.
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 prac
titioners in law and physic. But the usual reward of the
eminent teacher bears no proportion to that of the lawyer or
physician; because the trade of the one is crowded with in
digent 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
synonymous. The different governors of the universities
before that time appear to have often granted licences to
their scholars to beg.
142 WEALTH OF NATIONS
In ancient times, before any charities of this kind had been
established for the education of indigent people to the learned
professions, 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 inconsistency. "They make the most
magnificent promises to their scholars, says he, and under
take 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 minse. They who teach wis
dom, 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 cer
tainly does not mean here to exaggerate the reward, and we
may be assured that it was not less than he represents it.
Four minse were equal to thirteen pounds six shillings and
eight pence : five minse 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. Isoc
rates himself demanded ten minse, 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 minse, or 3,333t. 6s. 8d. A thousand minse, accord
ingly, is said by Plutarch in another place, to 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, sup
pose 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. Aristotle, after having been
POLITICAL INEQUALITIES 143
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 resume
ences were the
probably
teaching
in of
those
his times
school.lessTeachers
common ofthan
the they
sci-"

came to be in an age or two afterwards, when the compe

tition had probably somewhat reduced both the price of their
labour and the admiration for their persons. The most emi
nent of them, however, appear always to have enjoyed a
degree of consideration much superior to any of the like pro
fession in the present times. The Athenians sent Carneades
the academic, and Diogenes the stoic, upon a solemn em
bassy to Rome ; and though their city had then declined from
its former grandeur, it was still an independent and con
siderable republic. Carneades too was a Babylonian by
birth, and as there never was a people more jealous of ad
mitting foreigners to public offices than the Athenians, their
consideration for him must have been very great.
This inequality is upon the whole, perhaps, rather advan
tageous than hurtful to the public. It may somewhat de
grade the profession of a public teacher; but the cheapness
of literary education is surely an advantage which greatly
over-balances this trifling inconveniency. The public too
might derive still greater benefit from it, if the constitution
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 cir
culation of labour and stock both from employment to em
ployment, 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.
The statute of apprenticeship obstructs the free circula
tion of labour from one employment to another, even in the
same place. The exclusive privileges of corporations ob
struct it from one place to another, even in the same em
ployment.
It frequently happens that while high wages are given to
the workmen in one manufacture, those in another are
obliged to content themselves with bare subsistence. The
144 WEALTH OF NATIONS
one is ifi 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 continually increasing.
Those two manufactures may sometimes be in the same town,
and sometimes in the same neighbourhood, without being
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 example, are almost
entirely the same. That of weaving plain woollen is some
what 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, therefore, 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 manu
facture. 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 common labourers, for which, by their
habits, they are much worse qualified than for any sort of
manufacture that bears any resemblance to their own. They
generally, therefore, chuse to come upon the parish.
Whatever obstructs the free circulation of labour from one
employment to another, obstructs that of stock likewise; the
quantity of stock which can be employed in any branch of
business depending very much upon that of the labour which
can be employed in it. Corporation laws, however, give less
obstruction to the free circulation of stock from one place to
another than to that of labour. It is everywhere much
easier for a wealthy merchant to obtain the privilege of trad
ing in a town corporate, than for a poor artificer to obtain
that of working in it.
POLITICAL INEQUALITIES 145
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 England. It consists in the diffi
culty which a poor man finds in obtaining a settlement, or
even in being allowed to exercisehis industry in any parish but
that to which he belongs. It is the labour of artificers and
manufacturers only of which the free circulation is obstructed
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 disorder, the greatest perhaps of any in the police
of England.
When by the destruction of monasteries the poor had been
deprived of the charity of those religious houses, after some
other ineffectual attempts for their relief, it was enacted by
the 43d of Elizabeth, c. 2. that every parish should be bound
to provide for its own poor; and that overseers of the poor
should be annually appointed, who, with the 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 considered as the poor of each parish, became,
therefore, a question of some importance. This question,
after some variation, was at last determined by the i3th and
i4th of Charles II. when it was enacted, that forty days un
disturbed residence should gain any person a settlement in
any parish; but that within that time it should be lawful for
two justices of the peace, upon complaint made by the church
wardens or overseers of the poor, to remove any new in
habitant to the parish where he was last legally settled; un
less 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.
Some frauds, it is said, were committed in consequence of
this statute ; parish officers sometimes bribing their own poor
to go clandestinely to another parish, and by keeping them
selves concealed for forty days to gain a settlement there, to
146 WEALTH OF NATIONS
the discharge of that to which they properly belonged. It
was enacted, therefore, by the ist of James II. that the forty
days undisturbed residence of any person necessary 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 conse
quence 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 en
acted by the 3d of William III. that the forty days residence
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
continuing forty days after publication of notice in writing,
is very seldom 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 hot, 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 inhabitancy. But that it might not appear to pre
clude altogether the common people of one parish from ever
establishing themselves with security in another, it appointed
four other ways by which a settlement might be gained with
out 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 serv
ing in it a year; the third, by serving an apprenticeship in
the parish ; the fourth, by being hired into service there for a
POLITICAL INEQUALITIES 147
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 tax
ingNohim
married
to parish
manrates,
can or
well
by gain
electing
any him
settlement
into a parish
in either
office.
of

the two last ways. An apprentice is scarce ever married;

and it is expressly enacted, that no married servant shall
gain any settlement by being hired for a year. The prin
cipal 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 will
ing to be so hired, because, as every last settlement dis
charges all the foregoing, they might thereby lose their
original settlement in the places of their nativity, the habita
tion of their parents and relations.
No independent workman, it is evident, whether labourer
or artificer, is likely to gain any new settlement either by
apprenticeship or by service. When such a person, there
fore, carried his industry 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 impossible
for one who has nothing but his labour to live by; or could
give such security for the discharge of the parish as two
justices of the peace should judge sufficient. What security
they shall require, indeed, is left altogether to their discre
tion; but they cannot well require less than thirty pounds,
it having been enacted, that the purchase 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
frequently demanded.
148 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 upon.
By the 8th or 9th of William III. it was enacted, that if any
person should bring a certificate 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 re
ceive him ; that he should not be removeable merely upon
account 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 maintenance and of his removal.
And in order to give the most perfect 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
settlement there by any means whatever, except either by
renting a tenement of ten pounds a year, or by serving upon
his own account in an annual parish office for one whole
year; and consequently neither by notice, nor by service, nor
by apprenticeship, nor by paying parish rates. By the i2th
of Queen Anne too, stat. 1. c. i8. it was further enacted,
that neither the servants nor apprentices of such certificated
man should gain any settlement in the parish where he
resided under such certificate.
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 appren
tices nor servants ; that if they become chargeable, it is cer
tainly known whither to remove them, and the parish shall
be paid for the removal, and for their maintenance in the
moved,
mean time;
the parish
and that
whichif they
gave fall
the certificate
sick, and must
cannotmaintain
be re

them: none of which can be without a certificate. Which

POLITICAL INEQUALITIES 149
reasons will hold proportionably for parishes not granting
certificates in ordinary cases; for it is far more than an
equal chance, but that they will have the certificated persons
again, and in a worse condition." The moral of this . ob
servation seems to be, that certificates ought always to be
required by the parish where any poor man comes to reside,
and that they ought very seldom to be granted by that which
he proposes to leave. "There is somewhat of hardship in
this matter of certificates," says the same very intelligent
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 settlement, 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 churchwardens 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 frequently find
in England in places at no great distance from one another,
is probably owing to the obstruction which the law of settle
ments 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 after
wards marry, he would generally be removed likewise. The
scarcity of hands in one parish, therefore, cannot always be
relieved by their super-abundance in another, as it is con
stantly 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 neighbour
hood of a great town, or wherever else there is an extra
ordinary demand for labour, and sink gradually as the dis
ISO Wealth of nations
tance from such places increases, till they fall back to the
common rate of the country; yet we never meet with those
sudden and unaccountable differences in the wages of neigh
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, natural boundaries which sometimes sep
arate very distinctly different rates of wages in other
countries.
To remove a nian who has committed no misdemeanour
from the parish where he chuses to reside, is an evident
violation of natural liberty and justice. The common people
of England, however, so jealous of their liberty, but like the
common people of most other countries never rightly under
standing wherein it consists, have now for more than a cen
tury together suffered themselves to be exposed to this op
pression 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 popular clamour, such as that against general war
rants, an abusive practice undoubtedly, but such a one as
was not likely to occasion any general oppression. There
is scarce a poor man in England of forty years of age, 1 will
venture to say, who has not in some part of his life felt him
self most cruelly oppressed by this ill-contrived law of settle
ments.
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 dis
use. "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 some
times to regulate wages in particular trades and in particu
lar places. Thus the 8th of George III. prohibits under
POLITICAL INEQUALITIES 1S1
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. Whenever the
legislature attempts to regulate the differences between mas
ters and their workmen, its counsellors are always the mas
ters. 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 pre
tended 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 com
monly 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 contrary combination of the
same kind, not to accept of a certain wage under a certain
penalty, the law would punish them very severely; and if it
dealt impartially, it would treat the masters in the same man
ner. But the 8th of George III. enforces by law that very
regulation which masters sometimes attempt to establish by
such combinations. 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 corporation, it may per
haps be proper to regulate the price for the first necessary of
life. But where there is none, the competition will regulate
it much better than any assize. The method of fixing the
assize of bread established by the 3ist of George II. could
not be put in practice in Scotland, on account of a defect in
the law; its execution depending upon the office of clerk of
the market, which does not exist there. This defect was not
152 WEALTH OF NATIONS
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 strictly guarded.
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 de
clining 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, therefore, 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
1 pay in the actual circumstances of the land. In ad
justing the terms of the lease, the landlord endeavours to
leave him no greater share of the produce than what is suffi
cient 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 evi
dently the smallest share with which the tenant can content
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 frequently
the ignorance of the landlord, makes him accept of some
what less than this portion; and sometimes too, though more
rarely, the ignorance of the tenant makes him undertake to
pay somewhat more, or to content himself with somewhat
less, than the ordinary profits of farming stock in the neigh
bourhood. 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
partly 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
' 153
154 WEALTH OF NATIONS
upon the expence of improvement is generally an addition
to this original rent. Those improvements, 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 inca
pable of human improvement. Kelp is a species of sea-weed,
which, when burnt, yields an alkaline salt, useful for making
gjass, soap, and for several other purposes. It grows in sev
eral 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 prod
uce, 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 produce of the water, they must have a habi
tation upon the neighbouring 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 proportioned to what the landlord may have
laid out upon the improvement 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
RENT OF LAND FROM HUMAN BLOOD 1SS
to the landlord. Whether the price is, or is not more, de
pends upon the demand.
There are some parts of the produce of land for which
the demand must always be such as to afford a greater price
than what is sufficient to bring them to market; and there
are others for which it either may or may not be such as to
afford this greater price. The former must always afford
a rent to the landlord. The latter sometimes may, and some
times may not, according to different circumstances.
Rent, it is to be observed, therefore, enters into the com
position 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, naturally take place, in the relative
value of those two different sorts of rude produce, when
compared both with one another and with manufactured com
modities, will divide this chapter into three parts.

PART I
Or 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 some
thing ia 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 ceconomical man
156 WEALTH OF NATIONS
ner, on account of the high wages which are sometimes given
to labour. But it can always purchase such a quantity of
labour as it can maintain, according to the rate at which that
sort of labour is commonly maintained in the neighbourhood.
But land, in almost any situation, produces a greater quan
tity 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 em
ployed that labour, together with its profits. Something,
therefore, always remains for a rent to the landlord.
The most desert moors in Norway and Scotland produce
some sort of pasture for cattle, of which the milk and the
increase are always more than sufficient, not only to main
tain all the labour necessary for tending them, and to pay
the ordinary profit to the farmer or owner of the herd or
flock; but to afford some small rent to the landlord. The
rent increases in proportion to the goodness of the pasture.
The same extent of ground not only maintains a greater
number of cattle, but as they are brought within a smaller
compass, less labour becomes requisite to tend them, and to
collect their produce. 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, what
ever 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 re
mote 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 expence of carriage, put the remote parts of the country
RENT OF LAND FROM HUMAN BLOOD 157
more nearly upon a level with those in the neighbourhood of
the town. They are upon that account the greatest of all
improvements. They encourage the cultivation of the re
mote, which must always be the most extensive circle of the
country. They are advantageous to the town, by breaking
down the monopoly of the country in its neighbourhood.
They are advantageous even to that part of the country.
Though they introduce some rival commodities into the old
market, they open many new markets to its produce. Mo
nopoly, besides, is a great enemy to good management, which
can never be universally established but in consequence of
that free and universal competition which forces 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 parliament against
the extension of the turnpike roads into the remoter counties.
Those remote counties, they pretended, from the cheapness
of labour, would be able to sell their grass and corn cheaper
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
quantity of food for man, than the best pasture of equal ex
tent. Though its cultivation requires much more labour, yet
the surplus which remains after replacing the seed and main
taining all that labour, is likewise much greater. If a pound
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 constitute 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 cattle. There is more
butcher's-meat than bread, and bread, therefore, is the food
for which there is the greatest competition, and which con-
158 WEALTH OF NATIONS

sequently 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 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 direction, and the price
of butcher’s-meat becomes greater than the price of bread.
By the extension besides of cultivation the unimproved
wilds become insufficient to supply the demand for butcher’s
meat. A great part of the cultivated lands must be employed
in rearing and fattening cattle, of which the price, therefore,
must be Sufficient to pay, not only the labour necessary for
tending them, but the rent which the landlord and the profit
which the farmer could have drawn from such land em
ployed in tillage. The cattle bred upon the most uncultivated
moors, when brought to the same market, are, in proportion
to their weight or goodness, sold at the same price as those
which are reared upon the most improved land. The pro
prietors 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
RENT OF LAND FROM HUMAN BLOOD J59
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, therefore, will produce
a much smaller quantity of the one species of food than of
the other, the inferiority of the quantity must be compen
sated by the superiority of the price. If it was more than
compensated, more corn land would be turned into pasture;
and if it was not compensated, part of what was in pasture
would be brought back; into corn.
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 imme
diate 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, to
gether with the high price of butcher's-meat, to raise the
value of grass above what may be called its natural propor
tion to that of corn. This local advantage, 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 neighbourhood of a great town, has not been sufficient
to produce both the grass and the corn necessary for the
subsistence pf their inhabitants. Their lands, therefore,
have been principally employed in the production of grass,
the more bulky commodity, and which cannot be so easily
brought from a great distance; and corn, the food of the
treat body of the people, has been chiefly imported from
oreign countries. Holland is at present in this situation,
and a considerable part of ancient Italy seems to have been
sp during the prosperity of the Romans. To feed well, old
Cato S3J4, 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
160 WEALTH OF NATIONS
plough, he ranked only in the fourth place of profit and ad
vantage. 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 prov
inces, of which several, instead of taxes, were obliged to
furnish a tenth 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 con
venient for the maintenance 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 com
pletely 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 cattle, 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 vege
table 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, cab
bages, and the other expedients which have been fallen upon
to make an equal quantity of land feed a greater number of
cattle than when in natural grass, should somewhat reduce, it
might be expected, 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
RENT OF LAND FROM HUMAN BLOOD 161
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 weighing six hundred pounds usually cost
him
one nine
shillings
pounds
andten
eight
shillings,
pence or
perthereabouts
hundred pounds
; that is,weight.
thirty-

Prince Henry died on the 6th of November i6i2, in the nine

teenth year of his age.
In March i764, 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 evi
dence by a Virginia merchant, that in March i763, 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 i764 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 4Sd. per
pound weight of the whole carcase, coarse and choice pieces
taken together; and at that rate the choice pieces could not
have
In the
beenparliamentary
sold by retail inquiry
for less in
than
i764,
4yid.
theorwitnesses
5^. the pound.
stated

the price of the choice pieces of the best beef to be to the

consumer qd. and 4%d. the pound; and the coarse pieces in
general to be from seven farthings to 2l/2d. and 2}%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 aver
age price of the best wheat at the Windsor market was,
1l. But
18s.in3 the
i-6rf.twelve
the quarter
years preceding
of nine Winchester
i764, including
bushels.
that year,
162 WEALTH OF NATIONS
the average price of the same measure of the best wheat at
the same market was 2l. 1s. gyid.
In the twelve first years of the last century, therefore,
wheat appears to have been a good deal cheaper, and
butcher's-meat a good deal dearer, than in the twelve years
preceding i764, 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 rent and profit of these regulate the rent and
profit of all other cultivated land. If any particular produce
afforded less, the land would soon be turned into corn or
pasture; and if any afforded more, some part of the lands
in corn and pasture would soon be turned to that produce.
Those productions, indeed, which require either a greater
original expence of improvement, or a greater annual ex-
pence of cultivation, 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 pasture. This superiority, how
ever, will seldom be found to amount to more than a reason
able interest or compensation for this superior expence.
In a hop garden, a fruit garden, a kitchen garden, both the
rent of the landlord, and the profit of the farmer, are gen
erally greater than in a corn or grass field. But to bring the
ground into this condition requires more expence. Hence a
greater rent becomes due to the landlord. It requires too a
more attentive and skilful management. 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 circum
stances 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 per
sons who should naturally be their best customers, supply
themselves with all their most precious productions.
The advantage which the landlord derives from such im
provements seems at no time to have been greater than what
was sufficient to compensate the original expence of making
RENT OF LAND FROM HUMAN BLOOD 163
watered
them. Inkitchen
the ancient
gardenhusbandry,
seems to after
have the
beenvineyard,
the part aofwell-
the

farm which was supposed to yield the most valuable produce.

sand
But Democritus,
years ago, and
whowho
wrote
wasupon
regarded
husbandry
by the about
ancients
twoasthou-
one '

of the fathers of art, thought they did not act wisely who en
closed a kitchen garden. The profit, he said, would not com
pensate the expence of a stone wall; and bricks (he meant,
I suppose, bricks baked in the sun) mouldered with the rain,
and the winter storm, and required continual repairs. Colu
mella, who reports this judgment 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 suffi
cient 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 command
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 en
closure 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 countries, must be suffi
cient to pay the expence of building and maintaining 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,
i That the vineyard, when properly planted and brought to
perfection, 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
164 WEALTH OF NATIONS
of all curious cultivation, In favour of the vineyard, and en
deavours to show, by a comparison of the profit and expense,
that it was a most advantageous improvement. Such com
parisons, however, 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 controversy
in the wine countries. Their writers on agriculture, indeed,
the lovers and promoters of high cultivation, seem generally
disposed 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 i73i, they obtained an order of council, prohibiting
both the planting of new vineyards,' and the renewal of those
old ones, of which the cultivation had been interrupted for
two years, without a particular 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
effectually prevented the plantation of new vineyards, by re
ducing the profits of this species of cultivation below their
natural proportion to those of corn and pasture. With re-
' gard to the supposed scarcity of corn occasioned by the mul
tiplication of vineyards, corn is nowhere in France more
carefully cultivated than in the wine provinces, where the
land is fit for producing it ; as in Burgundy, Guienne, 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
RENT OF LAND FROM HUMAN BLOOD 16S
the number of those who are capable of paying for it, is
surely a most unpromising expedient for encouraging the cul
tivation of corn. It is like the policy which would promote
agriculture by discouraging manufactures.
The rent and profit of those productions, therefore, which
require either a greater original annual expence of improve
ment 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 com
pensate such extraordinary expence, are in reality regulated
by the rent and profit of those common crops.
It sometimes happens, indeed, that the quantity of land
which can be fitted for some particular produce, is too small
to supply the effectual 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 com
monly, 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 vine
yards 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 management can equal, it is supposed, upon
any other. This flavour, real or imaginary, is sometimes
peculiar to the produce of a few vineyards; sometimes it
166 WEALTH OF NATIONS
extends through the greater part of a small district, 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 preparing 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, there
fore, can be disposed of to those who are willing to pay
more, which necessarily raises the price above that of com
mon wine. The difference is greater or less, according as
the fashionableness and scarcity of the wine render the com-
' petition of the buyers more or less eager. Whatever it be,
the greater part of it 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 occa
sioned by negligence is so great as to force even the most
careless to attention. A small part of this high price, there
fore, is sufficient to pay the wages of the extraordinary labour
bestowed upon their cultivation, and the profits of the
extraordinary
The sugar colonies
stock which
possessed
puts that
by the
labour
European
into motion.
nations in

the West Indies, may be compared to those precious vine

yards. Their whole produce falls short of the effectual de
mand of Europe, and can be disposed of to those who are
, willing to give more than what is sufficient to pay the whole
rent, profit and wages necessary for preparing and bringing
it to market, according to the rate at which they are com
monly paid by any other produce. In Cochin-china the finest
white sugar commonly sells for three piastres the quintal,
about thirteen shillings and sixpence of our money, as we are
told by Mr. Poivre, a very careful observer of the agricul
ture 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
RENT OF LAND FROM HUMAN BLOOD 167
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-china are employed in producing corn and
rice, the food of the great body of the people. The respec
tive 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 computed, according to what is usually the original
expence of improvement and the annual expence of cultiva
tion. 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 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 fre
quently societies of merchants in London and other trading
towns, purchase waste lands in our sugar colonies, which
they expect to improve and cultivate with profit by means of
factors and agents; notwithstanding 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 thrs plant might
happen to be cultivated, would be more difficult, it has been
supposed, than to levy one upon its importation at the cus
tom-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
168 WEALTH OF NATIONS
countries where it is allowed; and as Virginia and Maryland
produce the greatest quantity of it, they share largely, though
with some competitors, in the advantage of this monopoly.
The cultivation of tobacco, however, seems not to be so ad
vantageous as that of sugar. I have never even heard of any
tobacco plantation that was improved and cultivated by the
capital of merchants 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 colonies to the cultivation
of tobacco above that of corn, it would appear that the ef
fectual demand of Europe for tobacco is not completely sup
plied, 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 commonly paid in corn land; it must
not be so much more as the present price of sugar. Our
tobacco planters, accordingly, have shewn the 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 to
bacco, 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 neces
sary to keep up the present price of tobacco, the superior ad
vantage 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; because the land would immediately be
turned to another use: And if any particular produce com
monly affords more, it is because the quantity of land which
RENT OF LAND FROM HUMAN BLOOD 169
can be fitted for it is too small to supply the effectual
demand.
In Europe corn is the principal produce of land which
serves immediately for human food. Except in particular
situations, therefore, the rent of corn land regulates in
Europe that of all other cultivated 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. Whatever 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 pur
chase or command a greater quantity of it. The real value of his
rent, his real power and authority, his command of the neces
saries and conveniencies of life with which the labor of other
people could supply him, would necessarily be much greater.
A rice field produces a much greater quantity of food than
the most fertile corn field. Two crops in the year from thirty
to sixty 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 con
founded 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
170 WEALTH OF NATIONS
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 prod
uce that is very useful to men: And the lands which are tit
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 su
perior to what is produced by a field of wheat. Twelve thou
sand 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. Allow
ing, however, half the weight of this root to go to water, a
very large allowance, such an acre of potatoes will still pro
duce six thousand weight of solid nourishment, three times
the quantity produced by the acre of wheat. An acre of po
tatoes is cultivated with less expence than an 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 become 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 sur
plus 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
RENT OP LAND FROM MATERIALS 171
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 Scotland. 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 be
tween 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 suitable 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
people 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 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 cultivation, and is, perhaps, the chief
obstacle to their ever becoming in any great country, like
bread, the principal vegetable food of all the different ranks
of the people.
PART II
Of the Produce of Land Which Sometimes Does And Sometimes
Does Not, Afford Rent
Human food seems to be the only produce of land
which always and necessarily affords some rent to
the landlord. Other sorts of produce sometimes may and
sometimes may not, according to different circumstances.
172 WEALTH OF NATIONS
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 people than it can supply with those ma
terials; 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 materials, 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 de
mand for more than can be had. Somebody is always will
ing to give more for every part of them than what is suffi
cient 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 providing himself with food, pro
vides himself with the materials of more cloathing than he
can wear. If there was no foreign commerce, the greater
part of them would be thrown away as things of no value.
This was probably the case among the hunting nations of
North America, before their country was discovered by the
Europeans, 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 consumed
at home, as raises their price above what it costs to send
them to those wealthier neighbours. It affords, therefore,
some rent to the landlord. When the greater part of the
RENT OF LAND FROM MATERIALS 173
highland cattle were consumed on their own hills, the expor
tation 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 es
tates. The wool of England, which in old times could
neither be consumed nor wrought up at home, found a mar
ket 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 commerce, the materials
of cloathing would evidently be so super-abundant, 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
produces it affords a considerable rent. But in many parts
of North America the landlord would be much obliged to any
body who would carry away the greater part of his large
trees. In some parts of the 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 super-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 landlord, 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
174 WEALTH OF NATIONS
market in many parts of Great Britain which they could not
find at home, and thereby afford some rent to their pro
prietors.
Countries are populous, not in proportion to the number of
people whom their produce can cloath and lodge, but in pro
portion to that of those whom it can feed. When food is
provided, it is easy to find the necessary cloathing and lodg
ing. 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 species 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 frequently no more than enough
to provide them with food.
But when by the improvement and cultivation of land the
labour of one family can provide food for two, the labour of
half 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. Cloath
ing 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 poor neighbour. In quality it may be very
different, and to select and prepare it may require more
labour and art; but in quantity it is very nearly the same.
But compare the spacious palace and great wardrobe of the
one, with the hovel and the few rags of the other, and you
will be sensible that the difference between their cloathing,
lodging, and houshold furniture, is almost as great in quan
tity 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 conveniences and ornaments of building, dress,
equipage, and houshold furniture, seems to have no limit or
certain boundary. Those, therefore, who have the command
RENT OF LAND FROM MATERIALS 175
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
amusement of those desires which cannot be satisfied, but
seem to be altogether endless. The poor, in order to obtain
food, exert themselves to gratify those fancies of the rich,
and to obtain it more certainly, 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 ut
most 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 employ, either use
fully or ornamentally, in building, dress, equipage, or hous-
hold 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 after
wards affords rent, derives that part of its value from the
improvement of the powers of labour in producing food by
means of the improvement and cultivation of land.
Those other parts of the produce of land, however, which
afterwards afford rent, do not afford it always. Even in im
proved and cultivated countries, the demand for them is not
always such as to afford a greater price than what is suffi
cient to pay the labour, and replace, together with its ordi
nary profits, the stock which must be employed in bringing
them to market. Whether it is or is not such, depends upon
different circumstances.
Whether a coal-mine, for example, can afford any rent, de
pends 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.
176 WEALTH OF NATIONS
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 employed in working them. They afford
some profit to the undertaker of the work, but no rent to the
landlord. They can be wrought advantageously by nobody
but the landlord, who being himself undertaker 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 sufficiently fertile,
cannot be wrought on account of their situation. A quantity
of mineral sufficient 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
carriage,
inhabited,
this quantity
and without
could not
either
be sold.
good roads or water-

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 agricul
ture, nearly in the same manner, and exactly for the same
reason, as the price of cattle. In its rude beginnings the
greater part of every country is covered with wood, which is
then a mere incumbrance of no value to the landlord, who
would gladly give it to any body for the cutting. As agricul
ture advances, the woods are partly cleared by the progress
of tillage, and partly go to decay in consequence of the in
creased number of cattle. These, though they do not in
crease in the same proportion as corn, which is altogther
the acquisition of human industry, 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
RENT OF LAND FROM MATERIALS 177
by destroying and extirpating their enemies, secure them in
the free enjoyment of all that she provides. Numerous herds
of cattle, 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 great
ness of the profit often compensates the lateness of the re
turns. 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 considerable
time, the rent which these could afford him ; and in an inland
country which is highly cultivated, it will frequently not fall
much short of this rent Upon the sea-coast of a well-
improved country, indeed, if coals can conveniently be had
for fewel, it may sometimes be cheaper to bring barren tim
ber for building from less cultivated foreign countries, than
to raise it at home. In the new town of Edinburgh, 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 distant carriage, either by land or by
water. A small 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
178 WEALTH OF NATIONS
mine too, regulates the price of coals at all the other mines
in its neighbourhood. Both the proprietor and the under
taker 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 consid
erable time, is, like that of all other commodities, the price
which is barely sufficient to replace, together with its ordi
nary 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 supposed to be a third of the
gross produce; and it is generally a rent certain and inde
pendent 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 moderate 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 de
pends 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 market is not
confined to the countries in the neighbourhood of the mine,
but extends to the whole world. The copper of Japan makes
RENT OF LAND FROM MATERIALS 179
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 little effect on their price at Newcastle; and their price
in the Lionnois can have none at all. The productions of such
distant coal-mines can never be brought into competition
with one another. But the productions of the most distant
metallic mines frequently may, and in fact commonly are.
The price, therefore, of the coarse, and still more that of the
precious metals, at the most fertile mines in the world, must
necessarily more or less affect their price at every other in it.
The price of copper 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 little more than pay the ex-
pence 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, af
ford more, and some do not afford so much. A sixth part
180 WEALTH OF NATIONS
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 acknowl
edgment from the undertaker of the mine, but that he will
grind the ore at his mill, paying him the ordinary multure or
price of grinding. Till i736, 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 naturally 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
i736, 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
( and
commonly
undertakes
well informed
very
to work
great
authors
a in
new
Peru.
acquaint
mine The
inus,Peru,
same
that he
when
most
is universally
respectable
any person
RENT OF LAND FROM MATERIALS 181
looked upon 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 as
here, as a lottery, in which the prizes do not compensate the
blanks, though the greatness of some tempts many adven
turers to throw away their fortunes in such unprosperous
projects.
As the sovereign, however, derives a considerable part of
his revenue 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 hundred 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 pro
prietor of this portion of the mine, and can work it without
paying 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 in
terests 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 Ulloa, 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
182 WEALTH OF NATIONS
account of the peculiar way in which nature produces it.
Silver is very seldom found virgin, but, like most other
metals, is generally mineralized with some other body, from
which it is impossible 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 exposed to the
inspection of the king's officers. Gold, on the contrary, is
almost 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 separated 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 con
sumed in bringing them from the mine to the market, deter
mine it. It must at least be sufficient to replace that stock,
with the ordinary profits.
Their highest price, however, seems not to be necessarily
determined 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 partly from their beauty. If you except iron,
they are more useful, perhaps, than any other metal. As
they are less liable to rust and impurity, they can more easily
RENT OF LAND FROM MATERIALS 183
be kept clean; and the utensils either of the table or the
kitchen are often upon that account more agreeable 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 ornaments of dress and furniture.
No paint or dye can give so splendid a colour as gilding.
The merit of their beauty is greatly enhanced by their
scarcity. With the greater part of rich people, the chief
enjoyment of riches consists in the parade of riches, which in
their eye is never so complete as when they appear to pos
sess 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 greatly
enhanced by its scarcity, or by the great labour which it re
quires to collect any considerable quantity of it, a labour
which nobody can afford to pay but themselves Such ob
jects 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 orig
inal 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 in
dependent of their being employed as coin, and was the
quality which fitted them for that employment. That em
ployment, however, by occasioning a new demand, and by
diminishing the quantity which could be employed in any
other way, may have afterwards contributed 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 greatly enhanced by their scar
city, or by the difficulty and expence of getting them from
the mine. Wages and profit accordingly 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
184 WEALTH OF NATIONS
of the country, for whose benefit they were wrought, had1
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 relative 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 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 sil
ver 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 quan
tity 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 presious stones could add little to the wealth of the
world. A produce 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 quan
tity of labour, or for a smaller quantity of commodities; 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, cloaths, 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
RENT OF LAND FROM MATERIALS 185

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 contrary, it is generally increased by it.
The great number of people maintained by the fertile lands
afford a market to many parts of the produce of the barren,
which they could never have found among those whom their
own produce could maintain.
Whatever increases the fertility of land in producing food,
increases not only the value of the lands upon which the im
provement 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 conse
quence 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 precious stones, as well as for every other conveniency
and ornament 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 poor inhabitants of Cuba and St. Domingo,
when they were first discovered by the Spaniards, used to
wear little 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 anybody 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.
188 WEALTH OF NATIONS

PART III
Of the Variations In The Proportion Between The Respective
Values Of That Sort of Produce Which Always Affords
Rent, And Of That Which Sometimes Does And
Sometimes Does Not 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 im
provement, 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 sometimes 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 minerals of the
earth, the precious metals and the precious stones should
gradually come to be more and more in demand, should
gradually exchange for a greater and a greater quantity of
food, or in other words, should gradually become dearer and
dearer. This accordingly has been the case with most of
these things upon most occasions, and would have been the
case with all of them upon all occasions, if particular acci
dents had not upon some occasions increased the supply of
some of them in a still greater proportion than the demand.
The value of a free-stone quarry, for example, will neces
sarily increase with the increasing improvement and popu
lation of the country round about it; especially if it should
be the only one in the neighbourhood. But the value of a
silver mine, even though there should not be another within
a thousand miles of it, will not necessarily 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 de
mand must generally be, in proportion to the improvement
and population of that small district. But the market for
the produce of a silver mine may extend over the whole
known world. Unless the world in general, therefore, be
FOOD AND MATERIALS COMPARED 187
advancing in improvement and population, the demand for
silver might not be at all increased by the improvement 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 dis
covered, much more fertile than any which had been known
before, though the demand for silver would necessarily in
crease, 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 commercial 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 sup
ply did not increase in the same proportion, the value of
silver would gradually rise in proportion to that of corn.
Any given quantity of silver would exchange for a greater
and a greater quantity of corn ; or, in other words, the aver
age 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 proportion
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
188 WEALTH OF NATIONS
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 sec
ond, 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 im
provement, 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, however, 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 im
provement, yet in the same degree of improvement it may
sometimes happen even to fall, sometimes to continue the
same, and sometimes to rise more or less, according as dif
ferent accidents render the efforts of human industry, in
multiplying this sort of rude produce, more or less suc
cessful.
FIRST SORT

The first sort of rude produce of which the price rises in

the progress 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 quanti
ties, and which being of a very perishable nature, it is im
possible to accumulate together the produce of many differ
ent seasons. Such are the greater part of rare and singular
birds and fishes, many different sorts of game, almost all
wild-fowl, all birds of passage in particular, as well as many
other things. When wealth and the luxury which accom
panies it increase, the demand for those is likely to increase
with them, and no effort of human industry may be able to
PRICE OF RARE BIRDS AND FISH 189
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 man
ner 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 time before and after the fall of
the republic, than it is through the great part of Europe at
present. Three sestertii, equal to about sixpence sterling,
was the price which the republic paid for the modius or peck
of the tithe wheat of Sicily. This price, however, was prob
ably below the average market price, the obligation to de
liver their wheat at this rate being considered as a tax upon
the Sicilian farmers. When the Romans, therefore, had oc
casion to order more corn than the tithe of wheat amounted
to, they were bound by capitulation to pay for the surplus
at the rate of four sestertii, or eight-pence sterling, the peck ;
and this had probably been reckoned the moderate and rea
sonable, 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 mar
ket. 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 Agrippina, at the price of six thousand ses-
190 WEALTH OF NATIONS

tertii, 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, nothwithstanding, 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 nominal 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 66l. 13s. 4d. would purchase in the present times, and
Asinius Celer gave for the surmullet the command of a quan
tity equal to what 88l. i7s. 9d. % would purchase. What
occasioned the extravaganee 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.
SECOND soR'r

The second sort of rude produce of which the price rises

in the progress of improvement, is that which human industry
can multiply in proportion to the demand. It consists in
those useful plants and animals, which, in uncultivated coun
tries, nature produces with such profuse abundance, that
they are of little or no value, and which, as cultivation ad
vances, 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 diminish
ing, while at the same time the demand for them is con
tinually increasing. Their real value, therefore, the real
quantity of labour which they will purchase or command,
gradually rises, till at last it gets so high as to render them
as profitable a produce as any thing else which human in
dustry can raise upon the most fertile and best cultivated
land. When it has got so high it cannot well go higher. If
PRICE OF CATTLE, ETC. 191
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 tillage, by diminishing the quan
meat
tity ofwhich
wild the
pasture,
country
diminishes
naturallythe
produces
quantitywithout
of butcher's-
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 consequently of
cattle, must gradually rise till it gets so high, that it becomes
as profitable to employ the most fertile and best cultivated
lands in raising food for them as in raising corn. But it
must always be late in the progress of improvement 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 Scotland before the union. Had
the Scotch cattle been always confined to the market of Scot
land, in a country in which the quantity of land, which can
be applied to no other purpose but the feeding of cattle, is so
great in proportion to what can be applied to other purposes,
it is scarce possible, perhaps, that their price could ever have
risen so high as to render it profitable to cultivate land for
the sake of feeding them. In England, the price of cattle,
it has already been observed, seems, in the neighbourhood of
London, to have 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
192 WEALTH OF NATIONS
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 ofland
cultivated every
must
extensive
be in proportion
country, theto quantity
the quantity
of well-
of

manure which the farm itself produces ; and this again must
be in proportion to 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 culti
vated 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 scattered 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 al
lowed 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 constantly in good condition, all the lands which
they are capable of cultivating. What they afford being
insufficient for the whole farm, will naturally be reserved for
the lands to which it can be most advantageously or con
veniently applied ; the most fertile, or those, perhaps, in the
neighbourhood of the farm-yard. These, therefore, will be
kept constantly in good condition 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
frequently overstocked in proportion to its actual produce.
A portion of this waste land, however, after having been
PRICE OF CATTLE, ETC. 193
pastured in this wretched manner for six or seven years to
gether, 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 manage
ment 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 cer
tain portion of them was in its turn, notwithstanding, regu
larly cultivated and exhausted. Under this system of man
agement, it is evident, even that part of the lands of Scot
land which is capable of good cultivation, could produce but
little 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 cattle seems to have ren
dered it almost unavoidable. If, notwithstanding a great
rise in their price, it still continues to prevail through a con
siderable part of the country, it is owing, in many places, no
doubt, to ignorance and attachment to old customs, but in
most places to the unavoidable obstructions which the nat
ural 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 completely,
the same rise of price which would render it advantageous
for them to maintain a greater stock, rendering it more diffi
cult 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 ac
quiring 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. With
out 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 otherwise the land could not maintain it.
194 WEALTH OF NATIONS
These natural obstructions to the establishment of a better
system, cannot be removed but by a long course of frugality
and industry ; and half a century or a century more, perhaps,
must pass away before the old system, which is wearing out
gradually, can be completely abolished through all the dif
ferent parts of the country. Of all the commercial advan
tages, 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 cattle, soon renders them extremely abundant,
and in every thing great cheapness is the necessary conse
quence 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 establish
ment of such colonies, before it can become profitable to feed
cattle upon the produce of cultivated land. The same causes,
therefore, the want of manure, and the disproportion between
the stock employed in cultivation, 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 Scotland. 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 i749, observes, accordingly, that he can with difficulty
discover there the character of the English nation, so well
skilled in all the different branches of agriculture. They
make scarce any manure for their corn fields, he says; but
when one piece of ground has been exhausted by continual
cropping, they clear and cultivate another piece of fresh
land; aud when that is exhausted, proceed to a third. Their
cattle are allowed to w?nder through the woods and other
uncultivated grounds, where they are half-starved; having
long ago extirpated almost all the annual grasses by crop*
PRICE OF CATTLE, ETC. 195
ping 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 as
sured, have maintained four, each of which would have given
four times the quantity of milk that one was capable of giv
ing. The poorness of the pasture had, in his opinion, occa
sioned the degradation of their cattle, which degenerated
sensibly from one generation to another. They were prob
ably not unlike that stunted breed which was common all
over Scotland thirty or forty years ago, and which is now
so much mended through the greater part of the low coun
try, not so much by a change of the breed, though that ex
pedient has been employed in some places, as by a more
plentiful method of feeding them. t
Though it is late, therefore, in the progress of improve
ment 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 thjs
price; because till they bring it, it seems impossible that im
provement can be brought near even to that degree of per
fection 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 extrava
gant soever it may appear, is not near sufficient to compen
sate 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 feed
ing 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
196 WEALTH OF NATIONS
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 super
fluity 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 culti
vated, 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 poultry, which
the farm in this manner produces without expence, must
always
meat which
be much
is reared
smallerupon
than it;
the and
whole
in quantity
times ofofwealth
butcher's-
and

luxury what is rare, with only nearly equal merit, is always

preferred to what is common. As wealth and luxury in
crease, therefore, in consequence of improvement and culti
vation, 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 feeding 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 con
sidered as a very important article in rural economy, and
sufficiently profitable to encourage the farmer to raise a con
siderable quantity of Indian corn and buck-wheat for this
purpose. A middling farmer will there 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
PRICE OF CATTLE, ETC. 197
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 rais
ing 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 upon the same quan
tity 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 cheaper ; for if he could not afford it, the plenty
would not be of long continuance. It has been probably in
this manner that the introduction of clover, turnips, carrots,
cabbages, &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 necessarily 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 every part of Europe been the
immediate forerunner of improvement and better cultivation,
198 WEALTH OF NATIONS
but which at the same time may have contributed to raise
the price of those articles, both somewhat sooner and some
what faster than it would otherwise have risen. As the
poorest family can often maintain a cat or a dog, without
any expense, 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 animals with a
part of their food, and they find the rest in the neighbouring
fields without doing any sensible damage to any body. By
diminishing the number of those small occupiers, therefore,
the quantity of this sort of provisions which is thus pro
duced at little or no expence, must certainly have been a
good deal diminished, and their price must consequently have
been raised both sooner and faster than it would otherwise
have risen. Sooner or later, however, in the progress of
improvement, it must at any rate have risen to the utmost
height to which it is capable of rising; or to the price which
pays the labour and 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 moat 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
whatever 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
PRICE OF CATTLE, ETC. 199
on purpose for it, but will suffer the business to be carried
on amidst the smoke, filth, 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 conse
quence of the improvement of the country, the diminution of
the quantity which can be fed at little or no expence, raise,
in the same manner, that of the produce of the dairy, of which
the price naturally connects with that of butcher's-meat, or
with the expence of feeding cattle. The increase of price
pays for more labour, care, and cleanliness. The dairy be
comes 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 tc employ some of the most
fertile and best cultivated lands in feeding cattle merely for
the purpose of the dairy; and when it has got to this height,
it cannot well go 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 England, where much good land
is commonly employed in this manner. If you except the
neighbourhood of a few considerable towns, it seems not yet
to have got to this height anywhere in Scotland, where com
mon 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 probably still too low to admit of it. The
inferiority of the quality, indeed, 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 circum
stances of the country, be disposed of at a much better price ;
and the present price, it is probable, would not pay the ex-
pence of the land and labour necessary for producing a much
better quality. Through the greater part of England, not
withstanding the superiority of price, the dairy is not reck
oned a more profitable employment of land than the raising of
corn, or the fattening of cattle, the two great objects of
200 WEALTH OF NATIONS
agriculture. Through the greater part of Scotland, there
fore, it cannot yet be even so profitable.
The lands of no country, it is evident, can ever be com
pletely cultivated and improved, till once the price of every
produce, which human industry is obliged to raise upon them,
has got so high as to pay for the expence of complete im
provement and cultivation. In order to do this, the price of
each particular produce must be sufficient, first, to pay the
rent of good corn land, as it is that which regulates the rent
of the greater part of other cultivated land ; and secondly, to
pay the labour and expence of the farmer as well as they are
commonly paid upon good corn-land; or, in other words, to
replace with the ordinary profits the stock which he employs
about it. This rise in the price of each particular produce,
must evidently be previous to the improvement and cultiva
tion 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 necessary consequence. But loss
must be the necessary consequence of improving 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 advantages, this rise in the price of all those different
sorts of rude produce, instead of being considered as a pub
lic 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 thosa
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
naturally rises in the progress of improvement, is that in
which the efficacy of human industry, in augmenting the
PRICE OF WOOL, HIDES, ETC. 201
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 improvement, yet, according as
different accidents happen to render the efforts of human
industry more or less successful in augmenting the quantity,
it may happen sometimes even to fall, sometimes to continue
the same in very different periods of improvement, and some
times to rise more or less in the same period.
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 neces
sarily 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,
gradually 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 im
provement the market for the latter commodities was con
fined 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 con
fined 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 country which produces them. They can easily be trans
ported to distant countries, wool without any preparation,
and raw hides with very little : and as they are the materials
of many manufactures, the industry of other countries may
occasion a demand for them, though that of the country
which produces them might not occasion any.
202 WEALTH OF NATIONS
In countries ill cultivated, and therefore but thinly in
habited, the price of the wool and the hide bears always a
much greater proportion to that of the whole beast, than in
countries where, improvement and population being further
advanced, there is more demand for butcher's-meat. Mr.
Hume observes, that in the Saxon times, the fleece was esti
mated at two-fifths of the value of the whole sheep, and that
this was much above the proportion of its present estimation.
In some provinces of Spain, I have been 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 Amer
ica, where the horned cattle 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, im
provement, and populousness of the French plantations
(which now extend round the coast of almost the whole west
ern half of the island) had given some value to the cattle of
the Spaniards, who still continue to possess, not only the
eastern part of the coast, but the whole inland and mountain
ous 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 car
case, being in the rude state of society confined always to the
country which produces it, must necessarily be extended in
proportion to the improvement and population of that country.
But the market for the wool and the hides even of a bar
barous 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
PRICE OF WOOL, HIDES, ETC. 203
(hem. If the manufactures, especially, of which those com
modities are the materials, should ever come to flourish in
the country, the market, though it might not be much en
larged, would at least be brought much nearer to the place of
growth than before; and the price of those materials might
at least be increased by what had usually been the expence
of transporting them to distant countries. Though it might
not rise therefore in the 6ame proportion as that of butcher's-
meat, it ought naturally to rise somewhat, and it ought cer
tainly not to fall.
In England, however, notwithstanding the flourishing state
of its woollen manufacture, the price of English wool has
fallen very considerably 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 four
teenth century, or about i339) what was reckoned the mod
erate 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 shillings 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 superiority 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 pro
portion 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
recompence of labour had been the same in both periods.
This degradation both in the real and nominal value of
wool, could never have happened in consequence of the nat
ural course of things. It has accordingly been the effect of
violence and artifice: First, of the absolute prohibition of
204 WEALTH OF NATIONS

exporting wool from England; Secondly, of the permission

of importing it from Spain duty free; Thirdly, of the pro
hibition 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
consequence of the improvement of England, has been con
fined to the home market, where the wool of several other
countries is allowed to come into competition with it, and
where that of Ireland is forced into competition with it.
As the woollen manufactures too of Ireland are fully as much
discouraged as is consistent with justice and fair dealing, the
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
concerning the price of raw hides in ancient times. Wool
was commonly paid as a subsidy to the king, and its valuation
in that subsidy ascertains, at least in some degree, what was
its ordinary price. But this seems not to have been the case
with raw hides. Fleetwood, however, from an account in
i425, between the prior of Burcester Oxford 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 shillings;
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 squantity of silver as four-and-twenty shil
lings of our present money. An ox hide, therefore, was in
this account valued at the same quantity 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-pence the bushel, would in
the present times cost 5i.9. 4d. An ox hide, therefore, would
in those times have purchased 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
PRICE OF WOOL, HIDES, ETC. 205
suppose 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 i773) 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 sub
sistence which it will purchase or command, is rather some
what lower. The price of cow hides, as stated in the above
account, is nearly in the common proportion to that of ox
hides. That of sheep skins is a good deal above it. They
had probably been sold with the wool. That of calves skins,
on the contrary, is greatly below it. In countries where the
price of cattle is very low, the calves, which are not in
tended to be reared in order to keep up the stock, are gen
erally 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 i769.
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 reck
oned 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 ten
dency 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
206 WEALTH OF NATIONS
in modern times. Our tanners besides have. not been quite
so successful as our clothiers, in convincing the wisdom of
the nation, that the safety of the commonwealth depends
upon the prosperity of their particular manufacture. 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 (for the limited
time of five years only), yet Ireland has not been confined
to the market of Great Britain for the sale of its surplus
hides, or of those which are not manufactured at home. The
hides of common cattle have but within these few years
been put among the enumerated commodities which the
plantations can send no-where but to the mother country;
neither has the commerce of Ireland been in this case op
pressed 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 culti
vated land, must be sufficient to pay the rent which the land
lord, 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, there
fore, is not paid by the wool and the hide, must be paid by
the carcase. The less there is paid for the one, th? 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, provided it is all paid to them.
In an improved and cultivated country, therefore, their in
terest 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 other
wise, 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
PRICE OF WOOL, HIDES, ETC. 207
cattle. Their interest as landlords and farmers would in this
case be very deeply affected by such regulations, and their
interest as consumers very little. The fall in the price of
the wool and the hide, would not in this case raise the price
of the carcase ; because the greater part of the lands of the
country being applicable to no other purpose but the feeding
of cattle, 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 perpetual prohibition of the exportation of
wool, which is commonly, but very falsely, ascribed to Ed
ward III. would, in the then circumstances of the country,
have been the most destructive regulation 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 kingdom,
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
consequence of the union with England, by which it was ex
cluded 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 Ihe price of wool.
As the efficacy of human industry, in increasing the quan
tity either of wool or of raw hides, is limited, so far as it
depends upon the produce of the country where it is ex
erted; 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 alto
gether independent of domestic industry, so they necessarily
208 WEALTH OF NATIONS
render the efficacy of its efforts more or less uncertain. In
multiplying this sort of rude produce, therefore, the efficacy
of human industry is not only limited, but uncertain.
In multiplying another very important sort of rude prod
uce, 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 prod
uce 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 mar
ket without employing a quantity of labour greater than in
proportion to what had been requisite for supplying the nar
row and confined 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 suf
ficient 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 supposed, 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 ac
count it may in different countries be the same in very dif
ferent periods of improvement, and very different in the same
period ; its connection with the state of improvement is uncer
PRICE OF WOOL, HIDES, ETC. 209
tain, 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 howels of the earth, that
of the more precious ones particularly, the efficacy of human
industry seems not to be limited, but to be altogether un
certain.
The quantity of the precious metals which is to be found
in any country is not limited by any thing in its local situ
ation, 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 depend upon two different circumstances ; first, upon its
power of purchasing, upon the state of its industry, upon
the annual produce of its land and labour, in consequence 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 fer
tility or barrenness 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 de
pends 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 particu
lar 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
210 WEALTH OF NATIONS
barrenness of the mines which happen to supply the com
mercial 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 proportion 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 connec
tion with that of the world in general. As arts and com
merce, 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 in
dustry can ensure. All indications, it is acknowledged, are
doubtful, and the actual discovery and successful working
of a new mine can alone ascertain the reality of 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
disappointment of human industry. In the course of a cen
tury 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 ex
pressed 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 shil
ling might in the one case represent no more labour than a
penny does at present ; and a penny in the other might repre
sent as much as a shilling does now. But in the one case he
RENT OF LAND » PRICE OF MANUFACTURES 211
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
superfluities 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 dimin

ish 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 ma
chinery, 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 circumstances of
the society, the real price of labour should rise very consid
erably, yet the great diminution of the quantity will generally
much more than compensate the greatest rise which can hap
pen in the price.
There are, indeed, a few manufactures, in which the nec
essary rise in the real price of the rude materials will more
than compensate all the advantages which improvement can
introduce into the execution 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 conse
quence of the improvement of land, will more than compen
sate all the advantages which can be derived from the best
machinery, the greatest dexterity, and the most proper divi
sion and distribution of work.
But in all cases in which the real price of the rude mate
rials either does not rise at all, or does not rise very much,
that of the manufactured commodity sinks very considerably.
This diminution of price has, in the course of the present
and preceding century, been most remarkable in those manu
212 WEALTH OF NATIONS
factures of which the materials are the coarser metals. A
better movement of a watch, than about the middle of the
last century could have been bought for twenty pounds, may
now perhaps be had for twenty shillings. In the work of
cutlers and locksmiths, in all the toys which are made of the
coarser metals, and in all those goods which are commonly
known by the name of Birmingham and Sheffield ware, 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 manufac
tures 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 con
siderable rise in the price of the material, which consists
altogether of Spanish wool. That of the Yorkshire cloth,
which is made altogether of English wool, is said indeed,
during 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 manu
facture, the division of labour is nearly the same now as it
was a century ago, and the machinery employed is not very
different. There may, however, have been some small im
provement in both, which may have occasioned some reduc
tion of price.
But the reduction will appear much more sensible and un
deniable, 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 subdivided, and the machinery em
ployed much more imperfect, than it is at present.
RENT OF LAND: PRICE OF MANUFACTURES 213
In i487, being the 4th of Henry VII. it was enacted, that
"whosoever 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, con
taining about the same quantity of silver as four-and-twenty
shillings of our present money, was, at that time, reckoned
not an unreasonable price for a yard of the finest cloth ; and
as this is a sumptuary law, such cloth, it is probable, had
usually been sold somewhat dearer. A guinea may be reck
oned 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. Sixteen shillings, therefore, was the price of two
quarters and more than three bushels of wheat. Valuing a
quarter of wheat in the present 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 pounds six shillings
and sixpence of our present money. The man who bought
it must have parted with the command of a quantity of
labour and subsistence equal to what that sum would pur
chase 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 i463, 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 con
tained 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 superior to any
that was then made for the wearing of the very poorest order
of common servants. Even the money price of their cloth
214 WEALTH OF NATIONS
ing, therefore, may, in proportion to the quality, be some
what cheaper in the present than it was in those ancient
times.
pence was
The then
real price
reckoned
is certainly
what isa called
good deal
the cheaper.
moderate Ten-
and

reasonable price of a bushel of wheat. Two shillings, there

fore, was the price of two bushels and near two pecks of
wheat, which In the present times, at three shillings and six
pence.
pence the
Forbushel,
a yardwould
of thisbecloth
worththeeight
poor shillings
servant must
and nine-
have

parted with the power of purchasing a quantity of sub

sistence equal to what eight shillings and nine-pence would
purchase in the present times. This is a sumptuary law too,
restraining the luxury and extravagance of the poor. Their
clothing, therefore, had commonly been much more ex
pensive.
The same order of people are, by the same law, prohibited
from wearing hose, of which the price should exceed four-
teen-pence the pair, equal to about eight-and-twenty pence 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,
however, 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 common cloth, which may have been one of
the causes of their dearness. 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 machinery employed was much more imperfect in those
ancient, than it is in the present times. It has since received
three very capital improvements, besides, probably, many
smaller ones of which it may be difficult to ascertain either
the number or the importance. The three capital improve
ments are: first, The exchange of the rock and spindle for
the spinning-wheel, which, with the same quantity of labour,
RENT OF LAND: PRICE OF MANUFACTURES 215
will perform more than double the quantity of work. Sec
ondly, the use of several very ingenious machines which
facilitate and abridge in a still greater proportion the wind
ing of the worsted and woollen yarn, or the proper arrange
ment of the warp and woof before they are put into the
loom; an operation which, previous to the inventions of
those machines, must have been extremely tedious and
troublesome. Thirdly, the employment of the fulling mill
for thickening the cloth, instead of treading it in water.
Neither wind nor water mills of any kind were known in
England so early as the beginning of the sixteenth century,
nor, so far as I know, in any other part of Europe north of
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
The coarse
or exchanged
manufacture
for probably
the price was,
of a in
greater
thosequantity.
ancient

times, carried on in England, in the same manner as it al

ways has been in countries where arts and manufactures 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 pri
vate family; but so as to be their work only when they had
nothing else to do, and not to be the principal business from
which any of them derived the greater part of their sub
sistence. 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
subsistence from it. It was besides a foreign manufacture,
and must have paid some duty, the ancient custom of ton
216 WEALTH OF NATIONS
nage 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 for
eign 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 indirectly to raise the real rent of land, to
increase the real wealth of the landlord, his power of pur
chasing 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 neces
sarily increases with the increase of the produce.
That rise in the real price of those parts of the rude prod
uce of land, which is first the effect of extended improvement
and cultivation, and afterwards the cause of their being still
further extended, the rise m the price of cattle, for example,
tends too to raise the rent of land directly, and in a still
greater proportion. The real value of the landlord's share,
his real command of the labour of other people, not only
rises with the real value of the produce, but the proportion
of his share to the whole produce rises with it. That prod
uce, 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 manu
RENT OF LAND: CONCLUSION 217
factures, tend indirectly to raise the real rent of land. The
landlord exchanges that part of his rude produce, which is
over and above his own consumption, or what comes to the
same thing, the price of that part of it, for manufactured
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 lat
ter; and the landlord is enabled to purchase a greater quan
tity of the conveniencies, ornaments, or luxuries, which he
has occasion for.
Every increase in the real wealth of the society, every in
crease in the quantity of useful labour employed within it,
tends indirectly to raise the real rent of land. A certain pro
portion 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
improvement, the fall in the real price of any part of the
rude produce of land; the rise in the real price of manufac
tures 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
country, 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 of stock ; and constitutes a revenue
to three different orders of people ; to those who live by rent,
to those who live by wages, and to those who live by profit.
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 ap
pears from what has been just now said, is strictly and in
separably connected with the general interest of the society.
218 WEALTH OF NATIONS
Whatever either promotes or obstructs the one, necessarily
promotes or obstructs the other. When the public deliber
ates 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 ap
plication of mind which is necessary in order to foresee and
understand the consequences 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 al
ready been shewn, are never so high as when the demand
for labour is continually rising, or when the quantity em
ployed 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 pros
perity 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 understanding 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 though he was
fully informed. In the public deliberations, therefore, his
voice is little heard and less regarded, except upon some par
ticular occasions, when his clamour is animated, set on, and
supported by his employers, not for his, but their own par
ticular purposes.
His employers constitute the third order, that of those who
RENT OP LAND: CONCLUSION 219
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 im
portant operations of labour, and profit is the end proposed
by all those plans and projects. But the rate of profit does
hot, 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 interest of the society as
that of the other two. Merchants and master manufacturers
are, in this order, the two classes of people who commonly
employ the largest capitals, and who by their wealth draw
to themselves the greatest share of the public consideration.
As during their whole lives they are engaged in plans and
projects, they have frequently more acuteness of understand
ing than the greater part of country gentlemen. As their
thoughts, however, are commonly exercised rather about
the interest of their own particular branch of business, than
about that of 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 upon 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 frequently imposed upon his generosity, and
persuaded 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 and 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
220 RENT OF LAND: CONCLUSION
to enable the dealers, by raising their profits above what they
naturally would be, to levy, for their own benefit, an ab
surd tax upon the rest of their fellow-citizens. The proposal
of any new law or regulation of commerce which comes from
this order, ought always to be listened to with great precau
tion, and ought never to be adopted till after having been long
and carefully examined, not only with the most scrupulous,
but with the most suspicious attention. It comes from an
order of men, whose interest is never exactly the same with
that of the public, who have generally an interest to deceive
and even to oppress the public, and who accordingly have,
upon many occasions, both deceived and oppressed it.
BOOK II

Of 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 so
ciety. 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 thaj are nearest it.
But when the division of labour has once been thoroughly
introduced, 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 prod
uce 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 entirely 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
221
222 WEALTH OF NATIONS
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 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 ad
vances, 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 accu
mulated 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 im
provement. The person who employs his stock in maintain
ing 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 workmen
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 proportion to the extent of his stock, or to the
number of people whom it can employ. The quantity of in
dustry, therefore, not only increases in every country with
the increase of the stock which employs it, but, in conse
quence 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 industry and its productive powers.
INTRODUCTION 223
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 employ
ments of those capitals. This book is divided into five chap
ters. In the first chapter, I have endeavoured to show what
are the different parts or branches into which the stock,
either of an individual, or of a great society, naturally
divides itself. In the second, I have endeavoured to 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 en
deavoured 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 na
tional 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 rev
enue from it. He consumes 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 rev
enue 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 distin
guished 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
consists either, first, in that portion of his whole stock which
was originally 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 con
sumed; such as a stock of clothes, household furniture, and
the like. In one, or other, or all of these three articles, con
sists 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
224
DIVISION OF STOCK 225
its employer, while it either remains in his possession, or
continues in the same shape. The goods of the merchant
yield him no revenue or profit till he sells them for money,
and the money yields him as little till it is again exchanged
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 circulating capitals.
Secondly, it may be employed in the improvement of
land, in the purchase of useful machines and instruments
of trade, or in such-like things as yield a revenue or profit
without changing masters, or circulating any further. Such
capitals, therefore, may very properly be called fixed
capitals.
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 con
sidered as such.
Some part of the capital of every master artificer or manu
facturer 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 requires no other instruments of
trade but a parcel of needles. Those of the master shoe
maker are a little, though but a very little, more expensive.
Those of the weaver rise a good deal above those of the
shoemaker. The far greater part of the capital of all such
master artificers, however, is circulated, either in the wages
of their workmen, or in the price of their materials, and re
paid 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 neces
sary both for drawing out the water and for other purposes,
is frequently still more expensive.
That part of the capital of the farmer which is employed
h—hc x
226 WEALTH OF NATIONS
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 possession, and of the other by
parting with it. The price or value of 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 parting 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 parting with them. A flock of
sheep or a herd of cattle that, in a breeding 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 in
crease, is a fixed capital. The profit is made by keeping
them. Their maintenance 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 function or office.
The First, is that portion which is reserved for immediate
consumption, and of which the characteristic is, that it af
fords no revenue 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
DIVISION OP STOCK 227
revenue to its owner. A dwelling-house, as such, contributes
nothing to the revenue of its inhabitant; and though it is, no
doubt, extremely useful to him, it is as his clothes and house
hold furniture are useful 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 can produce noth
ing, 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
proprietor, and thereby serve in the function of a capital to
him, it cannot yield any to the public, nor serve in the func
tion 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 fur
nished houses, and get a rent, not only for the use of the
house, but for that of the furniture. The revenue, 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 immediate consumption, what is laid out in houses is
most slowly consumed. 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 properly taken care of, may
last many centuries. Though the period of their total con
sumption, 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 charactertistic 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 facilitate and abridge labour :
228 WEALTH OF NATIONS
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 different from mere
dwelling houses. They are a sort of instruments of trade,
and may be considered in the same light:
Thirdly, of the improvements of land, of what has been
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 useful machines which facilitate
and abridge labour, and by means of which, an equal circa
lating capital can afford a much greater revenue to its em
ployer. An improved farm is equally advantageous and more
durable than any of those machines, frequently 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 apprenticeship, always costs a real ex-
pence, 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 facilitates and abridges labour, and which,
though it costs a certain expence, repays that expence with
a profit.
The Third and last of the three portions into which the
general stock of the society naturally divides itself, is the cir
culating capital ; of which the characteristic is, that it affords
a revenue only by circulating 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 pos
session of the butcher, the grazier, the farmer, the corn
DIVISION OF STOCK 229
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 build
ing, 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-mer
chants, 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 the finished work which we fre-
quendy find ready-made in the shops of the smith, the
cabinet-maker, the goldsmith, the jeweller, the china-mer
chant, &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 fin
ished work, are, either annually, or in a longer or shorter
period, regularly withdrawn from it, and placed either in the
fixed capital or in the stock reserved for immediate con
sumption.
Every fixed capital is both originally derived from, and
requires to be continually supported by a circulating capital.
All useful machines and instruments of trade are originally
derived from a circulating capital, which furnishes the ma
terials 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
circulating capital. The most Useful machines and instru
ments 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 labourers who culti
vate and collect its produce.
To maintain and augment the stock which may be reserved
230 WEALTH OF NATIONS
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 pov
erty depends upon the abundant or sparing supplies which
those two capitals can afford to the stock reserved for im
mediate consumption.
So great a part of the circulating capital being continually
withdrawn 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 work,
and by which are replaced the provisions, materials, and
finished 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
circulating capital to cultivate them: and their produce re
places 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 directly bartered for one another; because it sel
dom happens that the farmer sells his corn and his cattle,
his flax and his wool, to the very same person of whom he
chuses to purchase the clothes, furniture, and instruments of
DIVISION OF STOCK 231
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 fish
eries and mines are cultivated. 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 nat
ural fertility 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 of common understanding will endeavour to employ
whatever stock he can command, in procuring either present
enjoyment or future profit. If it is employed in procuring
present enjoyment, it is a stock reserved for immediate con
sumption. 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 circulating 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 themselves as at
all times exposed. This is said to be a common practice in
Turkey, in Indostan, and, I believe, in most other govern
ments of Asia. It seems to have been a common practice
among our ancestors during the violence of the feudal gov
ernment. Treasure-trove was in those times considered as
no contemptible part of the revenue of the greatest sover
eigns in Europe. It consisted in such treasure as was found
concealed in the earth, and to which no particular person
232 WEALTH OF NATIONS
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 Particular 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, an
other 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
iso with regard to all the commodities which compose the
whole annual produce of the land and labour of every coun
try, 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 revenue 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
233
234 WEALTH OF NATIONS
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 necessary charges; or what, without
hurting his estate, he can afford to place in his stock re
served 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 proportion, not to his gross, but to his neat rent.
The gross revenue of all the inhabitants of a great coun
try, comprehends the whole annual produce of their land
and labour ; the neat revenue, what remains free to them after
deducting the expence of maintaining; first, their fixed; and,
secondly, their circulating capital ; or what, without en
croaching 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
evidently be excluded from the neat revenue of the society.
Neither the materials necessary for supporting their useful
machines and instruments 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
consumption. But in other sorts of labour, both the price
and the produce go to this stock, the price to that of the
workmen, the produce to that of other people, whose sub
sistence, conveniencies, and amusements, are augmented by
the labour of those workmen.
The intention of the fixed capital is to increase the pro
ductive powers of labour, or to enable the same number of
labourers to perform a much greater quantity of work. In a
' farm where all the necessary buildings, fences, drains, com
munications, &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 conveni
MONEY 23S
encies. In manufactures the same number of hands, assisted
with the best machinery, will work up a much greater quan
tity 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 value than that of
the support which such improvements require. This sup
port, however, still requires a certain portion of that produce.
A certain quantity of materials, and the labour of a certain
number of workmen, both of which might have been imme
diately employed to augment the food, clothing and lodging,
the subsistence and conveniencies of the society, are thus
diverted to another employment, 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 so
ciety. A certain quantity of materials, and the labour of a
certain number of workmen, which had before been em
ployed in supporting a more complex and expensive ma
chinery, 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 manufac
tory who employs a thousand a-year in the maintenance of
his machinery, if he can reduce this expence to five hundred,
will naturally employ the other five hundred in purchasing
an additional quantity of materials to be wrought up by
an additional number 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 expence of maintaining the fixed capital in a great
country, may very properly be compared to that of repairs
in a private estate. The expense of repairs may frequently
be necessary for supporting the produce of the estate, and
consequently both the gross and the neat rent of the land
lord. When by a more proper direction, however, it can be
diminished without occasioning any diminution of produce,
236 WEALTH OF NATIONS
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, provisions, materials, and
finished work, the three last, it has already been observed,
are regularly withdrawn from it, and placed either in the
fixed capital of the society, or in their stock reserved for
immediate consumption. Whatever portion of those con
sumable 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, be
sides what is necessary for maintaining the fixed capital.
The circulating capital of a society is in this respect dif
ferent 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 ac
count totally excluded from making a part likewise of their
neat revenue. Though the whole goods in a merchant's shop
must by no means be placed in his own stock reserved for
immediate consumption, they may in that of other people,
who, from a revenue derived from other funds, may regu
larly replace their value to him, together with its profits,
without occasioning any diminution either of his capital or
of theirs.
Money, therefore, is the only part of the circulating capi
tal 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 First,
the society,
as those
bear
machines
a very and
great
instruments
resemblance
of totrade,
one another.
&c., re

quire a certain expence, first to erect them, and afterwards

to support them, both which expences, though they make a
MONEY 237
part of the gross, are deductions from the neat revenue of
the society; so the stock of money which circulates in any
country must require a certain expence, 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. A certain quantity
of very valuable materials, gold and silver, and of very
curious labour, instead of augmenting the stock reserved for
immediate consumption, the subsistence, conveniencies, and
amusements of 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 to 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 regularly 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
proposition appear either doubtful or paradoxical. When
properly explained and understood, it is almost self-evident.
When we talk of any particular sum of money, we some
times mean nothing but the metal pieces of which it is com
posed; and sometimes we include in our meaning some ob
scure 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
238 WEALTH OF NATIONS
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 express the amount of the metal pieces of which it is com
posed, but to include in its signification some obscure refer
ence 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 some
what 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 amuse
ments. In proportion as this quantity is great or small, so
are his real riches, his real weekly revenue. His weekly
revenue is certainly not equal both to the guinea, and to what
can be purchased with it, but only to one or other of those
two equal values; and to the latter more properly than to 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 noth
ing, 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
inhabitants of any country, in the same manner, may be,
and in reality frequently is paid to them in money, their
MONEY 239

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 rev
enue 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 prop
erly than to the former.
Though we frequently, therefore, express a person’s rev
enue 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 purchasing, or the value of the goods which he
can annually afford to consume. We still consider his rev
enue as consisting in this power of purchasing or consuming,
and not in the pieces which convey it.
But if this is sufficiently evident even with regard to an
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 pen
sion of one man to-day, may pay that of another to-morrow,
and that of a third the day thereafter, the amount of the
metal pieces which annually circulate in any country, must
always be of much less value than the whole money pen
sions annually paid with them. But the power of pur
chasing, 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
instrument of commerce, like all other instruments of trade,
though it makes a part and a very valuable part of the capi
240 WEALTH OF NATIONS
tal, makes no part of the revenue of the society to which it
belongs; and though the metal pieces of which it is com
posed, in the course of their annual circulation, distribute to
every man the revenue which properly belongs to him, they
make
Thirdly,
themselves
and lastly,
no part
the machines
of that revenue.
and instruments of trade,

&c. which compose the fixed capital, bear this further resem
blance to that part of the circulating capital which consists
in money; that as every saving in the expence of erecting
and supporting those machines, 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 circulating capital
which consists in money, is an improvement of exactly the
same kind.
It is sufficiently obvious, and it has partly too been ex
plained 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 furnishes
the materials and wages of labour, and puts industry into
motion. Every saving, therefore, in the expence of main
taining the fixed capital, which does not diminish the pro*
ductive powers 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 rev
enue of the society, is not altogether so obvious, and may
therefore require some further explication.
There are several different sorts of paper money; but the
circulating notes of banks and bankers are the species which
MONEY 241
is best known, and which seems best adapted for this purpose.
When the people of any particular country have such con
fidence 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
promissory notes, to the extent, we shall suppose, of a hun
dred 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 those notes are continually
coming back upon him for payment, part of them continue
to circulate for months and years together. Though he has
generally in circulation, therefore, notes to the extent of a
hundred thousand pounds, twenty thousand pounds in gold
and silver may, frequently, be a sufficient provision for
answering occasional demands. By this operation, therefore,
twenty thousand pounds in gold and silver perform all the
functions which a hundred thousand coild 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 promis
sory notes, to the value of a hundred thousand pounds, as by
an equal value of 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
the gold andmay silver
thus bewhich
conducted
wouldwith
otherwise
a fifth part
haveonly
been
of ,

requisite.
Let us suppose, for example, that the whole circulating
money of some particular country amounted, at a particular
time, to one million sterling, that sum being then sufficient
for circulating the whole annual produce of their land and
labour. Let us suppose too, that some time thereafter, dif
ferent banks and bankers issued promissory notes, payable
242 WEALTH OF NATIONS
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
circulation, eight hundred thousand pounds in gold and
silver, and a million of bank notes, or eighteen hundred thou
sand 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 cannoi be imme
diately augmented by those operations of banking. One mil
lion, 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 expression, will remain precisely the
same as before. One million we have supposed sufficient to
fill that channel. Whatever, therefore, is poured into it be
yond this sum, cannot run in it, but must overflow. One
million eight hundred thousand pounds are poured into it.
Eight hundred thousand pounds, therefore, must overflow,
that sum being over and above what can be employed in the
circulation of 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 profit
able 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 payment
of it can be exacted by law, it will not be received in com
mon payments. Gold and silver, therefore, to the amount of
eight hundred thousand pounds will be sent abroad, and the
channel of home circulation will remain filled with a million
of paper, instead of 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 fcr
nothing, or that its proprietors make a present of it to for
eign 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 coun
MONEY 243
try 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 transacted 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
consumption, they may either, first, purchase such goods as
are likely to be consumed by idle people who produce noth
ing, 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 addi
tional 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 prodi
gality, increases expence and consumption without increasing
production, or establishing any permanent fund for support
ing that expence, and is in every respect hurtful to the
society.
So far as it is employed in the second way, it promotes
industry; and though it increases the consumption of the so
ciety, it provides a permanent fund for supporting that con
sumption, the people 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 increase their expence 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
244 WEALTH OF NATIONS
not always govern the conduct of every individual, they al
ways influence that of the majority of every class or order.
But the revenue of idle people, considered as a class or order,
cannot, in the smallest degree, be increased by those opera
tions of banking. Their expence in general, therefore, cannot
be much increased by them, though that of a few indi
viduals among them may, and in reality sometimes is. The
demand of idle people, 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 opera
tions of banking, is employed 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 cir
culating capital of any society can employ, we must always
have regard to those parts of it only, which consist in pro
visions, materials, and finished work : the other, which con
sists 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
sake of which the work is done. Money is neither a ma
terial to work upon, nor a tool to work with ; and though the
wages of the workman are commonly paid to him in money,
his real revenue, like that of all other men, consists, not in
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 suit
able 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 in
dustry which the whole capital can employ, is certainly not
equal both to the money which purchases, and to the ma
terials, 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.
MONEY 24S
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 in
creased 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 distribution, is added to the
goods which are circulated and distributed by means of it.
The operation, in some measure, resembles that of the under
taker of some great work, who, in consequence of some im
provement 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 cir
culated 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 prod
uce, is ever destined for the maintenance of industry, it
must always bear a very considerable proportion to that part.
When, therefore, by the substitution of paper, the gold and
silver necessary for circulation is reduced to, perhaps, a fifth
part of the former quantity, if the value of only the greater
part of the other four-fifths be added to the funds which are
destined for the maintenance of industry, it must make a
very considerable addition to the quantity of that industry,
and, consequently, to the value of the annual produce of land
and labour.
An operation of this kind has, within these five-and-twenty
or thirty years, been performed in Scotland, by the erection
of new banking companies in almost every considerable town,
and even in 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 companies, with which purchases
and payments of all kinds are commonly made. Silver very
seldom appears except in the change of a twenty shillings
246 WEALTH OF NATIONS

bank note, and gold still seldomer. But though the conduct
of all those different companies has not been unexceptionable,
and has accordingly required an act of parliament to regu
late it; the country, notwithstanding, has evidently derived
great benefit from their trade. I have heard it asserted, that
the trade of the city of 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 Edinburgh, of which the
one, called The Bank of Scotland, was established by act of
parliament in i695; the other, called The Royal Bank, by
royal charter in i727. 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 in
creased 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 Scotland, 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 Scot
land before the union, in i707, and which, immediately after
it, was brought into the bank of Scotland in order to be re
coined, amounted to 41 1,117l. 10s. 9d, sterling. No account
has been got of the gold coin; but it 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 Scot
land, which had then no rival, was considerable, it seems
to have made but a very small part of the whole. In the
present 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
MONEY 247
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
evidently 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 ad
vance, 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 experience, are com
monly in circulation. He is thereby enabled to make his
clear gain of interest on so much a larger sum.
The commerce of Scotland, which at present is not very
great, was still more inconsiderable when the two first bank
ing companies were established; and those companies would
have had but little trade, had they confined their business to
the discounting of bills of exchange. They invented, there
fore, another method of issuing their promissory notes; by
granting, what they called, cash accounts, that is by giving
credit to the extent of a certain sum (two or three thousand
pounds, for example), to any individual who could procure
two persons of undoubted credit and good landed estate to
become surety for him, that whatever money should be ad
vanced 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.
248 WEALTH OF NATIONS
Whoever has a credit of this kind with one of those com
panies, 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 man
ner 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 pay
ments, and by encouraging all those with whom they have
any influence to do the same. The banks, when their cus
tomers apply to them for money, generally advance it to
them in their own promissory notes. These the merchants
pay away to the manufacturers for goods, the manufacturers
to the farmers for materials and provisions, the farmers to
their landlords for rent, the landlords repay them to the
merchants for the 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 trans
acted by means of them. Hence the great trade of those
companies.
By means of those cash accounts every merchant can, with
out 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 Edinburgh merchant can, without
imprudence, carry on a greater trade, and give employment
to a greater number of people than the London merchant.
The London merchant must always keep by him a consid
erable 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 pay
ment of the goods which he purchases upon credit. Let the
ordinary amount of this sum be supposed five hundred
pounds. The value of the goods in his warehouse must
always be less by five hundred pounds than it would have
been, had he not been obliged to keep such a sum unemployed.
MONEY 249
Let us suppose that he generally disposes of his whole stock
upon hand, or of goods to the value of his whole stock upon
hand, once in the year. By being obliged to keep so great
a sum unemployed, he must sell in a year five hundred pounds
worth less goods than he might otherwise have done. 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 Edin
burgh, 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 warehouse a larger quan
tity of goods than the London merchant; and can thereby
both make a greater profit himself, and give constant em
ployment 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 dis
count their bills of exchange as easily as the English mer
chants ; and have, besides, the additional conveniency of their
cash accounts.
The whole paper money of every kind which can easily
circulate in any country never can exceed the value of the
gold and silver, of which it supplies the place, or which (the
commerce being supposed 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 circulate 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
250 WEALTH OF NATIONS i

that sum, as the excess could neither be sent abroad nor be

employed in the circulation of the country, it must immedi
ately 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 difficulty or backward
ness 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 ex-
pence 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
employed 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 circulation, but in a much greater
proportion; their notes returning upon them much faster
than in proportion to the excess of their quantity. Such a
company, therefore, ought to increase the first article of
their 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 uninterrupted exertion of expence in
MONEY 251
order to replenish them. The coin too, which is thus con
tinually 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 shape or another,
be sent abroad, in order to find that profitable employment
which it cannot find at home; and this continual exportation
of gold and silver, by enhancing the difficulty, must neces
sarily enhance still further the expence of the bank, in find
ing 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
business, 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 pounds which are over
and above what the circulation can easily absorb and em
ploy, will return upon it almost as fast as they are issued.
For answering occasional demands, therefore, this bank
ought to keep at all times in its coffers, not eleven thousand
pounds only, but fourteen 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.
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 under
stood or attended to its own particular interest, and
the circulation has frequently been overstocked with paper
money.
252 WEALTH OF NATIONS
By issuing too great a quantity of paper, 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 3l. 17s. loyid. 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 liberality 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 expence 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 fif
teen 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 correspondents 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 sum, would in this manner
make sometimes more than 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.
MONEY 253

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 em
ployed 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 England,
notwithstanding their great annual coinage, found to their
astonishment, that there was every year the same scarcity
of coin as there had been the year before; and that notwith
standing 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 neces
sity 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 wear
ing and clipping of the coin, the expence of this great annual
coinage became every year greater and greater. The bank
of England, it is to be observed, by supplying its own coffers
with coin, 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 circulation both of Scotch and
English paper money, whatever vacuities this excessive circu
lation occasioned in the necessary coin of the kingdom, the
bank of England was obliged to supply them. The Scotch
banks, no doubt, paid all of them very dearly for their own
imprudence and inattention. But the bank of England paid
very dearly, not only for its own imprudence, but for the
much greater imprudence of almost all the Scotch banks.
The over-trading of some bold projectors in both parts
|
254 WEALTH OF NATIONS
of the united kingdom, was the original cause of this ex
cessive circulation of paper money.
What a bank can with propriety advance to a merchant
or undertaker 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 paper 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 circula
tion of the country can easily absorb and employ.
When a bank discounts to a merchant a real bill of ex
change 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 occasional 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 an
other is continually 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 cof
fers 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 occasional sale of his goods,
upon the easy terms of the banking companies of Scotland;
it dispenses him entirely from the necessity of keeping any
part of his stock by him unemployed and in ready money
for answering occasional demands. When such demands
actually come upon him, he can answer them sufficiently from
MONEY 2S5
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 re
payments 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 continually 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 extraor
dinary 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
customers, at least if they continue to deal with it in this
manner. The stream which is in this case continually run
ning out from its coffers is necessarily much larger than that
which is continually running in ; so that, unless they are re
plenished 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 re
payments from all their customers, and did not care to deal
with any person, whatever might be his fortune or credit,
who did not make, what they called, frequent and regular
operations with them. By this attention, besides saving
almost entirely the extraordinary expence of replenishing
their coffers, they gained two other very considerable ad
vantages.
First, by this attention they were enabled to make some
tolerable judgment concerning the thriving or declining cir
cumstances of their debtors, without being obliged to look
out for any other evidence besides what their own books
afforded them; men being for the most part either regular
or irregular in their repayments, according as their circum
256 WEALTH OF NATIONS
stances 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 constantly 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 continually occupied by objects of
a very different kind, can have no regular information con
cerning the conduct and circumstances of the greater part of
its debtors beyond what its own books afford it. In requir
ing frequent and regular repayments from all their custom
ers, the banking companies of Scotland had probably this
advantage in view.
Secondly, by this attention they secured themselves from
the possibility of issuing more paper 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 customer 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 de
mands; and that, consequently, the paper money, which they
had circulated by this means, had not at any time exceeded
the quantity of gold and silver which would have circu
lated 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 unem
ployed and in ready money for answering occasional de
mands; 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 repay
ments could not, within moderate periods of time, have
MONEY 257
equalled the ordinary amount of its advances. The stream
which, by means of his dealings, was continually running
into the coffers of the bank, could not have been equal to
the stream which, by means of the same dealings, was con
tinually running out. The advances of the bank paper, by
exceeding the quantity of gold and silver which, had there
been no such advances, he would have been obliged to keep
by him for answering occasional demands, might soon come
to exceed the whole quantity of gold and silver which (the
commerce being supposed the same) would have circulated
in the country had there been no paper money; and conse
quently 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 ex
pect no farther assistance from banks and bankers, who,
when they have gone thus far, cannot, consistently with
their own interest and safety, go farther. A bank cannot,
consistently with its own interest, advance to a trader the
whole or even the greater part of the circulating capital
with which he trades; because, though that capital is con
tinually 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 outgoings, and the sum
of his repayments could not equal the sum of its advances
within such moderate periods of time as suit the conveniency
of a bank. Still less could a bank afford to advance him any
considerable part of 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 undertaker of a mine employs in sink
258 WEALTH OF NATIONS
ing 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 clear
ing, draining, enclosing, manuring and ploughing waste and
uncultivated fields, in building farm-houses, with all their
necessary appendages of stables, granaries, &c. The returns
of the fixed capital are in almost all cases much slower than
those of the circulating capital; and such expenses, even
when laid out with the greatest prudence and judgment, very
seldom return to the undertaker till after a period of many
years, a period by far too distant to suit the conveniency of a
bank. Traders and other undertakers may, no doubt, with
great propriety, carry on a very considerable part of their
projects with borrowed money. In justice to their creditors,
however, their own capital ought, in this case, to be sufficient
to ensure, 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 sev
eral years. A bank, indeed, which lends its money without
the expence of stampt paper, or of attornies fees for draw
ing 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 creditor to such
traders and undertakers. But such traders and undertakers
would, surely, be most inconvenient debtors to such a bank.
********
It is not by augmenting the capital of the country, but by
rendering a greater part of that capital active and productive
than would otherwise be so, that the most judicious opera
tions of banking can increase the industry of the country.
That part of his capital which a dealer is obliged to keep
MONEY 259
by him unemployed, and in ready money for answering occa
sional 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 banking enable
him to convert this dead stock into active and productive
stock; into materials to work upon, into tools to work with,
and into provisions and subsistence to work for; into stock
which produces something both to himself and to his coun
try. 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 distributed 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 cap
ital of the country, which produces nothing to the country.
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 some
thing to the country. The gold and silver money which cir
culates 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 operations 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 acknowl
edged, though they may be somewhat augmented, cannot be
altogether so secure, when they are thus, as it were, sus
pended upon the Daedalian 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 unskilfulness of the conductors of this paper
money, they are liable to several others, from which no pru
dence of will of those conductors can guard them.
An unsuccessful war, for example, in which the enemy got
possession of the capital, and consequently of that treasure
which supported the credit of the paper money, would occa-
260 WEALTH OF NATIONS

sion 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 ex
changes could be made but either by barter or upon credit.
All taxes having been usually paid in paper money, the prince
would not have wherewithal either to pay his troops, or to
furnish his magazines; and the state of the country would
be much more irretrievable than if the greater part of its
circulation had consisted in gold and silver. A prince, anx
ious to maintain his dominions at all times in the state in
which he can most easily defend them, ought, upon this ac
count, to guard, not only against that excessive multiplica
tion of paper money which ruins the very banks which issue
it; but even against that multiplication of it, which enables
them to Ell 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 another, 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 requires
a certain stock of money of one kind or another, to carry
it on. The value of the goods circulated between the differ
ent dealers, never can exceed the value of those circulated
between the dealers and the consumers; whatever is bought
by the dealers, being ultimately destined 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 deal
ers 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 frequently than a guinea, and a half
penny 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
MONEY 261
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.
Paper money may be so regulated, as either to confine
itself very much to the circulation between the different deal
ers, or to extend itself likewise to a great part of that be
tween 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 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 forti
eth 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 be
tween dealers and consumers. , Before the act of parliament,
which put a stop to the circulation of ten and five shilling
notes, it filled a still greater part of that circulation. In the
currencies 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 allowed 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 bankruptcies to which such
beggarly bankers must be liable, may occasion a very con
siderable inconveniency, and sometimes even a very great
calamity, to many poor people who had received their notes
in payment.
It were better, perhaps, that no bank notes were issued
in any part of the kindom for a smaller sum than five pounds.
Paper money would then, probably, confine itself, in every
part of the kindom, to the circulation between the different
dealers, as much as it does at present in London, where no
282 WEALTH OF NATIONS
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, little 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 considerable part of the circulation be
tween dealers and consumers, 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 sup
pression of ten and five shilling bank notes, somewhat re
lieved the scarcity of gold and silver in Scotland; and the
suppression 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
paper 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
circulation between dealers and dealers, yet banks and bank
ers 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 destined altogether for the
circulation between himself and other dealers, 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 paper 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
MONEY 263
occasional demands. They might still be able to give the
utmost assistance which banks and bankers can, with pro
priety, give to traders of every kind.
To restrain private people, it may be said, from receiving
in payment 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 respect
a violation of natural liberty. But those exertions of the
natural liberty of a few individuals, which might endanger
the security of the whole society, are, and ought to be, re
strained by the laws of all governments ; of the most free, as
well as of the most despotical. The obligation of build
ing party walls, in order to prevent the communication
of fire, is a violation of natural liberty, exactly of the same
kind with the regulations of the banking trade which are
here proposed.
A paper money consisting in bank notes, issued by people
of undoubted credit, payable upon demand without any con
dition, 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 neces
sarily 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 aug
menting the quantity, and consequently diminishing the value
of the whole currency, necessarily augments the money price
of commodities. But as the quantity of gold and silver, which
is taken from the currency, is always equal to the quantity
of paper which is added to it, paper money does not neces
sarily increase the quantity of the whole currency. From the
beginning of the last century to the present time, provisions
never were cheaper in Scotland than in i759, though, from
the circulation of ten and five shilling bank notes, there was
then more paper money in the country than at present. The
proportion between the prices of provisions in Scotland and
264 WEALTH OF NATIONS
that in England, is the same now as before the great multi
plication of banking companies in Scotland. Corn is, upon
most occasions, fully as cheap in England as in France;
though there is a great deal of paper money in England and
scarce any in France. In i75i and in i752, 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 badness of the seasons, and not to the multiplication of
paper money.
It would be otherwise, indeed, with a paper money con
sisting in promissory notes, of which the immediate payment
depended, in any respect, either upon the good will of those
who issued them ; or 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 exigible till after a certain num
ber of years, and which in the meantime 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 un
certainty of obtaining immediate payment was supposed 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 Scot
land were in the practice of inserting into their bank notes,
what they called an Optional Clause, by which they prom
ised 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 some
times threatened those who demanded gold and silver in ex
change 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 currency of Scotland,
which this uncertainty of payment necessarily degraded be
low the value of gold and silver money. During the con
tinuance of this abuse (which prevailed chiefly in 1762, 1763
and i764), while the exchange between London and Carlisle
MONEY 265
was at par, that between London and Dumfries would some
times 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 Scot
land 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 con
dition that the holder of the note should bring the change
of a guinea to the person who issued it; a condition, which
the holders of such notes might frequently find it very difficult
to fulfil, and which must have degraded this currency below
the value of gold and silver money. An act of parlia
ment, 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 gov
ernment 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
266 WEALTH OF NATIONS
was, a scheme of fraudulent debtors to cheat their creditors,
The government of Pensylvania, indeed, pretended, upon
their first emission of paper money, in i722, to render their
paper of equal value with gold and silver, by enacting pen
alties 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
r. hundred pounds sterling was occasionally considered 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 differ
ent colonies, and in the distance and probability of the term
of its final discharge and redemption.
No law, therefore, could be more equitable than the act of
parliament, 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 accordingly 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
MONEY 267
pretence for raising the denomination 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, how
ever, 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 ad
ditional 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.
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 careful 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
288 WEALTH OF NATIONS
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 Amsterdam,
however, it will appear hereafter, is in a great measure
chimerical.
A paper currency which falls below the value of gold and
silver coin, does not thereby sink the value of those metals,
or occasion equal quantities of them to exchange for a
smaller quantity of goods of any other kind. The proportion
between the value of gold and silver and that of goods of any
other kind, depends in all cases, not upon the nature or quan
tity 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, or notes payable to the bearer, for less than a certain
sum ; and if they are subjected to the obligation of an imme
diate and unconditional payment of such bank notes as soon
as presented, their trade may, with safety to the public, be
rendered in all other respects perfectly free. The late multi
plication 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
proportion 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 circu
lation 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
consequence to the public. This free competition too obliges
MONEY 269
all bankers to be more liberal in their dealings with their
customers, lest their rivals should carry them away. In gen
eral, 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 an
other which has no such effect. The former, as it
produces a value, may be called productive ; the latter, un
productive labour. Thus the labour of a manufacturer adds,
generally, to the value of the materials 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 ad
vanced 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 manufacturers : he grows poor,
by maintaining a multitude of menial servants. The labour of
the latter, however, has its value, and deserves its reward
as well as that of the former. But the labour of the manu
facturer 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 occasion. That subject, or what is the
same thing, the price of that subject, 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 ser
vices generally perish in the very instant of their perform
ance, and seldom leave any trace or value behind them,
270
ACCUMULATION OF CAPITAL 271
for which an equal quantity of service could afterwards be
procured.
The labour of some of the most respectable orders in the
society is, like that of menial servants, unproductive of any
value, and does not fix or realize itself in any permanent
subject, or vendible commodity, which endures after that
labour is past and for which an equal quantity of labour
could afterwards be procured. The sovereign, for ex
ample, with all the officers both of justice and war who
serve under him, the whole army and navy, are unproductive
labourers. 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 afterwards be procured. The
protection, security, and defence of the commonwealth, the
effect of their labour this year, will not purchase its pro
tection, security, and defence for the year to come. In the
same class must be ranked, some both of the gravest and
most important, and some of the most frivolous professions:
churchmen, lawyers, physicians, men of letters of all kinds;
players, buffoons, musicians, opera-singers, opera-dancers,
&c. The labour of the meanest 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 pro
cure 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 Both
its production.
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. According, therefore, as a smaller or
I greater proportion of it is in any one year employed in main
taining 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 pro
272 WEALTH OF NATIONS
ductions 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 sup
plying 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 labourers, it
naturally divides itself into two parts. One of them, and
frequently 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 capi
tal ; the other for constituting a revenue either to the owner
of this capital, as the profit of his stock; or to some other
person, 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 con
stitutes 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 imme
diately destined for constituting a revenue either as profit or
as rent, may maintain indifferently either productive or un
productive 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, therefore, 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 consumption.
Unproductive labourers, and those who do not labour at
all, are all maintained by revenue; either, first, by that part
of the annual produce which is originally destined for con
ACCUMULATION OF CAPITAL 273
stituting a revenue to some particular persons, either as the
rent of land or as the profits of stock; or, secondly, by that
part which, though orginally 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 maintaining
indifferently either productive or unproductive hands. Thus,
not 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 main
taining one set of unproductive labourers ; or he may pay
some taxes, and thus help to maintain another set, more hon
ourable and useful, indeed, but equally unproductive. No
part of the annual produce, however, which had been ori
ginally 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 em
ployed. 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 seldom a
great deal. They generally have some, however; and in the
payment of taxes the greatness of their number may com
pensate, 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 generally most to
spare. They might both maintain indifferently either pro
ductive or unproductive hands. They seem, however, to
have some predilection for the latter. The expence of a
The
great rich
lord merchant,
feeds generally
though
morewith
idlehis
than
capital
industrious
he maintains
people. (

industrious people 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 un
productive hands, depends very much in every country upon
214 WEALTH OF NATIONS

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 labourers, is destined for re
placing a capital, and that which is destined for constituting
a revenue, either as rent, or as profit. This proportion is
very different in rich from what it is in poor countries.
Thus, at present, in the opulent countries of Europe, a
very large, frequently the largest portion of the produce of
the land, is destined for replacing the capital of the rich and
independent farmer; the other for paying his profits, and the
rent of the landlord. But anciently, during the prevalency
of the feudal government, a very small portion of the prod
uce was sufficient to replace the capital employed in culti
vation. It consisted commonly in a few wretched cattle,
maintained altogether by the spontaneous produce of un
cultivated 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
upon this paultry capital. The occupiers of land were gen
erally 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 nomi
nally little more than a quit-rent, it really amounted to the
whole produce of the land. Their lord could at all times com
mand their labour in peace, 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 maintains. 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 before.
In the progress of improvement, rent, though it increases
ACCUMULATION OF CAPITAL 275
in proportion to the extent, diminishes in proportion 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 little trade that was stirring, and the few homely
and coarse manufactures that were carried on, required but
very small capitals. These, however, 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. 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 coun
tries, 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
determines in every country the general character of the
inhabitants as to industry or idleness. We are more indus
trious 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 em
ployed in the maintenance of idleness, than they were two or
three centuries ago. Our ancestors were idle for want of a
sufficient encouragement to industry. It is better, says the
proverb, to play for nothing, than to work for nothing. In
mercantile and manufacturing towns, where the inferior
276 WEALTH OF NATIONS
ranks of people are chiefly maintained by the employment of
capital, they are in general industrious, 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 little trade or industry
in any of the parliament towns of France; and the inferior
ranks of people, 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 altogether
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 consumption of the great city of Paris. Bourdeaux
is in the same manner 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 advan
tageous situations necessarily attract a great capital by the
great employment which they afford it; and the employ
ment 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 consumption; 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
established 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 consumption,
but for that of other cities and countries. The situation of
ACCUMULATION OF CAPITAL 277
all the three is extremely advantageous, and naturally fits
them to be the entrepots of a great part of the goods destined
for the consumption of distant places. 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 industry of those who ought to be maintained by the
employment of capital, 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 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 customs and excise, &c. A considerable
revenue, therefore, still continues 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 neigh
bourhood.
The proportion between capital and revenue, therefore,
seems everywhere to regulate the proportion between in
dustry and idleness. Wherever capital predominates, indus
try prevails; wherever revenue, idleness. Every increase or
diminution of capital, therefore, naturally tends to increase
or diminish the real quantity of industry, the number of pro
ductive 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
prodigality and misconduct.
Whatever a person saves from his revenue he adds to his
278 WEALTH OF NATIONS
capital, and either employs it himself in maintaining an addi
tional number of productive hands, or enables some other
person to do so, by lending it to him for an interest, that is,
for a share of the profits. As the capital of an individual
can be increased only by what he saves from his annual
revenue or his annual gains, so the capital of a society, which
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 sub
ject 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 maintenance 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 into motion an addi
tional quantity of industry, which gives an additional value to
the annual produce.
What is annually saved is as regularly consumed as what
is annually spent, and nearly in the same time too; but it is
consumed by a different set of people. 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 consumed in the
same manner, and nearly in the same time too, but by a
different set of people, by labourers, manufacturers, and arti
ficers, 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 former set of people. By saving
a part of it, as that part is for the sake of the profit imme
diately employed as a capital either by himself or by some
other person, the food, clothing, and lodging, which may be
purchased with it, are necessarily reserved for the latter.
ACCUMULATION OF CAPITAL 279
The consumption is the same, but the consumers are
different.
By what a frugal man annually saves, he not only affords
maintenance 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 perpetual 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 positive law, by any trust-right
or deed of mortmain. It is always guarded, however, by a
very powerful principle, the plain and evident interest of
every individual to whom any share of it shall ever belong.
No part of it can ever afterwards be employed to maintain
any but productive hands, without an evident loss to the
person who thus perverts it from its proper destination.
The prodigal perverts it in this manner. By not confining
his expence within his income, he encroaches upon his capi
tal. Like him who perverts the revenues of some pious foun
dation 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 maintenance of industry. By
diminishing the funds destined for the employment of pro
ductive 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, consequently, the
value of the annual produce of the land and labour of the
whole country, the real wealth and revenue of its inhabi
tants. If the prodigality 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 impoverish 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 main
tained productive, employed in maintaining unproductive
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.
280 WEALTH OF NATIONS
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 unproductive, had been dis
tributed among productive hands, they would have re-pro
duced, together with a profit, the full value of their con
sumption. The same quantity of money would in this case
equally have remained in the country, and there would be
sides have been a reproduction of an equal value of con
sumable 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 consum
able goods. By means of it, provisions, materials, and
finished work, are bought and sold, and distributed to their
proper consumers. The quantity of money, therefore, which
can be annually employed in any country, must be determined
by the value of the consumable goods annually circulated
within it. These must consist either in the immediate prod
uce of the land and labour of the country itself, or in some
thing which had been purchased with some part of that prod
uce. Their value, therefore, must diminish as the value of
that produce diminishes, and along with it the quantity of
money which can be employed in circulating them. But the
money which by this annual diminution of produce is an
nually thrown out of domestic circulation, will not be al
lowed to lie idle. The interest of whoever possesses it,
requires that it should be employed. But having no employ
ment at home, it will, in spite of all laws and prohibitions,
be sent abroad, and employed in purchasing consumable
goods which may be of some use at home. Its annual ex
portation will in this manner continue for some time to add
something to the annual consumption of the country beyond
the value of its own annual produce. What in the days of
its prosperity had been saved from that annual produce, and
employed in purchasing gold and silver, will contribute for
some little time to support its consumption in adversity. The
exportation of gold and silver is, in this case, not the cause,
ACCUMULATION OF CAPITAL 281
but the effect of its declension, and may even, for some little
time, alleviate the misery of that declension.
The quantity of money, on the contrary, must in every
country naturally increase as the value of the annual produce
increases. The value of the consumable goods annually cir
culated within the society being greater, will require a
greater quantity of money to circulate them. A part of the
increased produce, therefore, will naturally be employed in
purchasing, wherever it 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 pur
chased every-where in the same manner. The food, cloth
ing, and lodging, the revenue and maintenance of all those
whose labour or stock is employed 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 quantity of the precious metals
which circulate within it, as vulgar prejudices suppose ; in
either view of the matter, every prodigal appears to be a
public enemy, and every frugal man a public benefactor.
The effects of misconduct are often the same as those of
prodigality. Every injudicious and unsuccessful project in
agriculture, mines, fisheries, trade, or manufactures, tends in
the same manner to diminish the funds destined for the main
tenance 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
282 WEALTH OF NATIONS
of some, being always more than compensated by the fru
gality and good conduct of others.
With regard to profusion, the principle which prompts to
expence, is the passion for present enjoyment; which, though
sometimes violent and very difficult to be restrained, is in
general only momentary and occasional. But the principle
which prompts to save, is the desire of bettering our con
dition, a desire which, though generally calm and dispas
sionate, 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 satis
fied with his situation, as to be without any wish of altera
tion or improvement of any kind. An augmentation of for
tune 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 aug
menting 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 upon 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 With
predominate
regard but
to misconduct,
to predominate
the very
number
gready.
of prudent and

successful undertakings is every-where much greater than

that of injudicious and unsuccessful ones. After all our
complaints of the frequency of bankruptcies, the unhappy
men who fall into this misfortune 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
ACCUMULATION OF CAPITAL 283
countries employed in maintaining unproductive hands.
Such are the people who compose a numerous and splendid
court, a great eccleciastical establishment, great fleets and
armies, who in time of peace produce nothing, and in time of
war acquire nothing which can compensate the expence of
maintaining them, even while the war lasts. Such people,
as they themselves produce nothing, are all maintained by
the produce of other men's labour. When multiplied, there
fore, to an unnecessary number, they may in a particular
year consume 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 foregoing, 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 main
tenance 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
occasions, it appears from experience, sufficient to compen
sate, not only the private prodigality and misconduct of
individuals, but the public extravagance of government. The
uniform, constant, and uninterrupted effort of every man
to better his condition, the principle from which the public
and national, as well as private opulence is originally de
rived, is frequently powerful enough to maintain the natural
progress of things toward improvement, in spite both of the
extravagance of government, and of the greatest errors of
administration. Like the unknown principle of animal life,
it frequently restores health and vigour to the constitution,
in spite, not only of the disease, but of the absurd prescrip
tions 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 in
creasing either the number of its productive labourers, or
284 - WEALTH OF NATIONS
the productive powers of those labourers who had before
been employed. The number of its productive labourers, it
is evident, can never be much increased, but in consequence
of an increase of capital, or of the funds destined for main
taining 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 distribution of employment. In
either case an additional capital is almost always required.
It is by means of an additional capital only, that the under
taker of any work can either provide his workmen with
better machinery, or make a more proper distribution of
employment among them. When the work to be done con
sists of a number of parts, to keep every man constantly
employed in one way, requires a much greater capital than
where every man is occasionally 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 evidently greater at the
latter than at the former, that its lands are better cultivated,
its manufactures more numerous and more flourishing, and
its trade more extensive, we may be assured that its capital
must have increased during the interval between those two
periods, and that more must have been added to it by the
good conduct of some, than had been taken from it either
by the private misconduct of others, or by the public extrava
gance 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
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 frequently so gradual, that, at near periods,
the improvement is not only not sensible, but from the de
clension either of certain branches of industry, or of certain
districts of the country, things which sometimes happen
though the country in general be in great prosperity, there
frequently arises a suspicion, that the riches and industry of
the whole are decaying.
ACCUMULATION OF CAPITAL 285
The annual produce of the land and labour of England,
for example, 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, writ
ten too with such abilities as to gain some authority with
the public, and pretending to demonstrate that the wealth
of the nation was fast declining, that the country was de
populated, agriculture neglected, manufactures decaying, and
trade undone. 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 be
lieved, 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 be
fore, 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 con
quest, and at the Norman conquest, than during the con
fusion of the Saxon Heptarchy. Even at this early period,
it was certainly a more improved country than at the invasion
of Julius Caesar, when its inhabitants were nearly in the
same state with the savages in North America.
In each of those periods, however, there was, not only
much private and public profusion, many expensive and
unnecessary wars, great perversion of the annual produce
from maintaining productive to maintain unproductive
hands; but sometimes, in the confusion of civil discord, such
absolute waste and destruction of stock, as might be sup
posed, not only to retard, as it certainly did, the natural accu
mulation 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
286 WEALTH OF NATIONS
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 dis
orders of the revolution, the war in Ireland, the four ex
pensive French wars of 1688, 1702, 1742, and i756, together
with the two rebellions of i7i5 and i745. In the course of
the four French wars, the nation has contracted more than
a hundred and forty-five millions of debt, over and above all
the other extraordinary annual expence which they occa
sioned, so that the whole cannot be computed at less than
two hundred millions. So great a share of the annual prod
uce of the land and labour of the country, has, since the
revolution, been employee! upon different occasions, in main
taining an extraordinary number of unproductive hands.
But had not those wars given this particular direction to so
large a capital, the greater part of it would naturally have
been employed in maintaining productive hands, whose
labour would have replaced, with a profit, the whole value of
their 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 augmented 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 be
fore 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, undoubt
edly, have retarded the natural progress of England towards
wealth and improvement, 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 em
ployed in cultivating this land, and in maintaining 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
ACCUMULATION OF CAPITAL 287
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 advantageous, which has main
tained the progress of England towards opulence and im
provement 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 govern
ment, so parsimony has at no time been the characteristical
virtue of its inhabitants. It is the highest impertinence and
presumption, therefore, in kings and ministers to pretend
to watch over the economy of private people, and to restrain
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 expence,
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 pub
lic capital, so the conduct of those whose expence just equals
their revenue, without either accumulating or encroaching,
neither increases nor diminishes it. Some modes of ex-
pence, 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 expence can neither alleviate nor support that of an
other; 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 support and heighten
the effect of that of the following day. A man of fortune,
for example, may either spend his revenue in a profuse 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 collecting books, statues,
pictures; or in things more frivolous, jewels, baubles, in
288 WEALTH OF NATIONS
genious 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 continually
increasing, every day's expence contributing something to
support and heighten the effect of that of the following day :
that of the other, on the contrary, would be no greater at
the end of the period than at the beginning. 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 vestige 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 little time, become useful to the inferior and
middling ranks of people. They are able to purchase them
when their superiors grow weary of them, and the general
accommodation of the whole people is thus gradually im
proved, when this mode of expence becomes universal among
men of fortune. In countries which have long been rich,
you will frequently find the inferior ranks of people in pos
session both of houses and furniture perfectly good and en
tire, but of which neither the one could have been built, nor
the other have been made for their use. What was for
merly 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 Den
mark, as a present fit for a sovereign to make to a sovereign,
was, a few years ago, the ornament of an ale-house at Dun
fermline. 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
ACCUMULATION OF CAPITAL 288
too, you will frequently find many excellent, though anti
quated pieces of furniture, which are still very fit for use,
and which could as little have been made for them. Noble
palaces, magnificent villas, great collections of books, statues,
pictures, and other curiosities, are frequently both an orna
ment 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 possesses, 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 em
ployment.
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 exposing himself to the censure of the public. To
reduce very much the number of his servants, to reform his
table from great profusion 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 acknowledgment of preceding
bad conduct. Few, therefore, of those who have once been
so unfortunate as to launch out too far into this sort of ex-
pence, have afterwards the courage to reform, till ruin and
bankruptcy 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 unnecessary by former ex-
pence; 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 expence, besides, that is laid out in durable commodi
ties, gives maintenance, commonly, to a greater number of
people, than that which is employed in the most profuse
hospitality. Of two or three hundred weight of provisions,
half,
whichperhaps,
may sometimes
is thrownbetoserved
the dunghill,
up at a and
great
there
festival,
is always
one-

J —HC X
290 WEALTH OF NATIONS
a great deal wasted and abused. But if the expence of this
entertainment had been employed in setting to work masons,
carpenters, upholsterers, mechanics, &c. a quantity of pro
visions, of equal value, would have been distributed among a
still greater number of people, who would have bought them
in penny-worths and pound weights, and not have lost or
thrown away a single ounce of them. In the one way, be
sides, this expence maintains productive, in the other unpro
ductive hands. In the one way, therefore, it increases, in
the other, it does not increase, the exchangeable value of
the annual produce of the land and labour of the country.
I would not, however, by all this be understood to mean,
that the one species of expence always betokens a more
liberal or generous spirit than the other. When a man of
fortune spends 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 objects, 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 pro
ductive, 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 borrower is to pay him a certain annual rent for
the use of it. The borrower 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 pro
ductive 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 consumption, he acts the part of a prodigal, and
dissipates in the maintenance of the idle, what was destined
for the support of the industrious. He can, in this case,
neither restore the capital nor pay the interest, without either
alienating or encroaching upon some other source of revenue,
such as the property or the rent of land.
The stock which is lent at interest is, no doubt, occasion
ally employed 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 occasion to repent of his folly. To
borrow or to lend for such a purpose, therefore, is in all
cases, where gross usury is out of the question, contrary to
the interest of both parties; and though it no doubt happens
sometimes that people do both the one and the other; yet,
from the regard that all men have for their own interest, we
may be assured, that it cannot happen so very frequently as
we are sometimes apt to imagine. Ask any rich man of
common prudence, to which of the two sorts of people he has
lent the greater part of his stock, to those who, he thinks,
291
292 WEALTH OF NATIONS
will employ it profitably, or to those who will spend it idly,
and he will laugh at you for proposing the question. Even
among borrowers, therefore, not the people in the world
most famous for frugality, the number of the frugal and in
dustrious 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 gentlemen who borrow upon mortgage. Even
they scarce ever borrow merely to spend. What they bar
row, 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 trades
men, 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 consump
tion, 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 carry
ing 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 regulated 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 productive labourers,
STOCK LENT AT INTEREST 293
is destined not only for replacing a capital, but such a capital
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 in
terest. It is distinct, not only from the landed, but from the
trading and manufacturing interests, as in these last the
owners themselves employ their own capitals. Even in the
monied 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 them
selves. Those capitals may be greater in almost any pro
portion, 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 pounds, with which W immediately 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 paper, may, in the course of a few days, serve as
the instrument of three different loans, and of three
different purchases, each of which is, in value, equal
to the whole amount of those pieces. What the three
monied men, A, B, and C, assign to the three bor
rowers, 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 pur
chases are made. Those loans, however, may be all per
fectly well secured, the goods purchased by the different
debtors being so employed, 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 in
strument 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.
294 WEALTH OF NATIONS
A capital lent at interest may, in this manner, be consid
ered as an assignment from the lender to the borrower of a
certain considerable portion of the annual produce; upon
condition that the borrower in return shall, during the con
tinuance 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 originally been
assigned to him, called the repayment. Though money,
either coin or paper, serves generally as the deed of assign
ment both to the smaller, and to the more considerable por
tion, it is itself altogether different from what is assigned
by it.
In proportion as that share of the annual produce which,
as soon as it comes either from the ground, or from the
hands of the productive labourers, is destined for replacing
a capital, increases 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
capitals ; 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 interest, or the price which must be paid for the use of
that stock, necessarily diminishes, not only from those gen
eral causes which make the market price. of things commonly
diminish as their quantity increases, but from other causes
which are peculiar to this particular case. As capitals in
crease in any country, the profits which can be made by
employing them necessarily diminish. It becomes gradually
more and more difficult to find within the country a profitable
method of employing any new capital. There arises in con
sequence a competition between different capitals, the owner
of one endeavouring 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 sometimes too buy it dearer.
STOCK LENT AT INTEREST 295
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 employment, 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 dimin
ished, 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 other writers, seem to have imagined that the increase
of the quantity of gold and silver, in consequence of the dis
covery 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 particular portion of them
necessarily became of less value too, and consequently the
price which could be paid for it. This notion, which at first
sight seems so plausible, has been so fully exposed by 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 differ
ent countries sunk to six, five, four, and three per cent. Let
us suppose that in every particular country the value of sil
ver 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 sup
position 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 examine ; 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 in
terest. If a hundred pounds are in those countries now of
296 WEALTH OF NATIONS
no more value than fifty pounds were then, ten pounds must
now be of no more value than five pounds 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 exactly 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, 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 in
terest 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
commodities 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 capital 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 conveyances of a verbose attorney, would be more cum
bersome, but the thing assigned would be precisely the same
as before, and could produce only the same effects. The
funds for maintaining productive labour being the same, the
demand for it would be the same. Its price or wages, there
fore, 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, therefore, his wages appear to be increased,
STOCK LENT AT INTEREST 297
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 propor
tion which those pieces bear to the whole capital employed.
Thus in a particular country five shillings a week are said
to be the common wages of labour, and ten per cent. the com
mon profits of stock. But the whole capital of the country
being the same as before, the competition between the dif
ferent 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 be
tween capital and profit, therefore, would be the same, and
consequently the common interest of money; what can
commonly be given for the use of money being necessa
rily regulated by what can commonly be made by the use
of it.
Any increase in the quantity of commodities annually cir
culated 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 de
mand for that labour. Its wages would naturally rise with
the demand, and yet might appear to sink. They might be
paid with a smaller quantity of money, but that smaller quan
tity might purchase a greater quantity of goods than a greater
had done before. The profits of stock would be diminished
both really and in appearance. The whole capital of the
country being augmented, the competition between the dif
ferent capitals of which it was composed, would naturally
be augmented along with it. The owners of those particular
capitals would be obliged to content themselves with a smaller
proportion of the produce of that labour which their respec
tive 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 quan
298 WEALTH OF NATIONS
tity of goods which any particular sum could purchase, was
greatly augmented.
In some countries the interest of money has been pro
hibited 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 prevent
ing, has been found from experience 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 prevent 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 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 ac
cepting 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
somewhat above, ought not to be much above the lowest mar
ket 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 people, who will give for the
use of money no more than a part of what they they are likely
STOCK LENT AT INTEREST 290
to make by the use of it, would not venture into the competi
tion. A great part of the capital of the country would thus be
kept out of the hands which were most likely to make a profit
able and advantageous use of it, and thrown into those which
were most likely to waste and destroy it. 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 projectors. 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 most likely to be
employed with advantage.
No law can reduce the common rate of interest below thi.
lowest ordinary market rate at the time when that law is
made. Notwithstanding the edict of i766, by which the
French king attempted to reduce the rate of interest from
five to four per cent., money continued to be lent in France
at five per cent., the law being evaded in several different
ways.
The ordinary market price of land, it is to be observed,
depends every-where upon the ordinary market rate of in
terest. 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, to
gether with some other advantages which almost every-where
attend upon this species of property, will generally dispose
him to content himself with a smaller revenue from land,
than what he might have by lending out his money at in
terest. These advantages are sufficient to compensate a cer
tain difference of revenue ; 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 com
pensate 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
300 WEALTH OF NATIONS
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 in
terest 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 preparing that rude produce for immedi
ate 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 those four.
Each 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
301
302 WEALTH OF NATIONS
of the rude produce which requires a good deal of prepara
tion 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 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 pur
chase 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 pur
chase a whole ox or a whole sheep at a time. This would
generally be inconvenient to the rich, and much more so to
the poor. 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 furniture 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 con
venient 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 imposes upon the goods. The
prejudices of some political writers against shopkeepers and
tradesmen, are altogether without foundation. So far is it
from being necessary, either to tax them, or to restrict their
EMPLOYMENT OF CAPITALS 303
numbers, that they can never be multiplied so as to hurt the
publick, though they may so as to hurt one another. The
quantity of grocery goods, for example, which can be sold
in a particular town, is limited by the demand of that town
and its neighbourhood. The capital, therefore, which can
be employed in the grocery trade cannot exceed what is suf
ficient 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 busi
ness of the parties 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 occasion for. This evil, however, is of too
little importance to deserve the publick attention, nor would
it necessarily be prevented by restricting their numbers. It
is not the multitude of ale-houses, to give the most suspicious
example, that occasions a general disposition to drunkenness
among the common people ; but that disposition arising from
other causes necessarily gives employment to a multitude of
ale-houses.
The persons whose capitals are employed in any of those
four ways are themselves productive labourers. Their
labour, when properly directed, fixes and realizes itself in
the subject or vendible commodity upon which it is be
stowed, 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,
however, employed in each of these four different ways, will
immediately put into motion very different quantities of pro
ductive labour, and augment too in very different proportions
304 WEALTH OF NATIONS
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 re
tailer himself is the only productive labourer whom it im
mediately employs. In his profits, 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 manufac
turers of whom he purchases the rude and manufactured
produce which he deals in, and thereby enables them to con
tinue 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 prod
uce. His capital employs too the sailors and carriers who
transport his goods from one place to another, and it aug
ments 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 immediately puts into motion, and all the value
which it immediately adds to the annual produce. Its opera
tion 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 re
places, together with its profits, that of some other artificer
of whom he purchases them. Part of his circulating capital
is employed in purchasing materials, and replaces, with their
profits, the capitals of the 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 instru
ments of trade employed in the business. It puts immediately
into motion, therefore, a much greater quantity of produc
tive 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.
EMPLOYMENT OF CAPITALS 305
No equal capital puts into motion a greater quantity of
productive labour than that of the farmer. Not only his
labouring servants, but his labouring cattle, 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 expensive work
men. 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 most profitable to man. A field overgrown with
briars and brambles may frequently produce as great a quan
tity 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, em
ployed 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, to
gether 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 sup
posed extent of those powers, or in other words, according
to the supposed natural or improved fertility of the land. It
is the work of nature which remains after deducting or com
pensating every thing which can be regarded as the work of
man. It is seldom less than a fourth, and frequently more
than a third of the whole produce. No equal quantity of
productive labour employed in manufactures can ever occa
sion so great a reproduction. In them nature does nothing;
man does all; and the reproduction must always be in pro
portion to the strength of the agents that occasion it. The
capital employed in agriculture, therefore, not only puts into
motion a greater quantity of productive labour than any equal
capital employed in manufactures, but in proportion too to
the quantity of productive labour which it employs, it adds a
much greater value to the annual produce of the land and
306 WEALTH OF NATIONS
labour of the country, to the real wealth and revenue of its
inhabitants. Of all the ways in which a capital can be em
ployed, 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 employment 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 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 alway necessarily determined. It may frequently
be at a great distance both from the place where the ma
terials 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 cloathed in silks made in other countries, from the ma
terials 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
little 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 car
riers whom he employs may still belong indifferently 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 con
EMPLOYMENT OF CAPITALS 307
tributes 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 manufac
turer 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 Baltic, are surely
very useful to the countries which produce them. Those
materials are a part of the surplus produce of those coun
tries which, 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 people 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 cultivate all its lands, to manufacture and pre
pare their whole rude produce for immediate use and con
sumption, and to transport the surplus part either of the
rude or manufactured produce to those distant markets where
it can be exchanged for something for which there is a de
mand at home. The inhabitants of many different parts of
Great Britain have not capital sufficient to improve and cul
tivate all their lands. The wool of the southern counties of
Scotland is, a great part of it, after a long land carriage
through very bad roads, manufactured in Yorkshire, for want
of a capital to manufacture it at home. There are many little
manufacturing towns in Great Britain, of which the inhabit
ants 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 properly only the agents of wealthier
merchants who reside in some of the greater commercial
cities.
When the capital of any country is not sufficient for all
308 WEALTH OF NATIONS
those three purposes, in proportion as a greater share of it
is employed in agriculture, 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 so
ciety. After agriculture, the capital employed in manufac
tures 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, 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 purposes.
The capital of all the individuals of a nation is increased
in the same manner as that of a single individual, by their
continually 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 neces
sarily in proportion to the value of the annual produce of
their land and labour.
It has been the principal cause of the rapid progress of
our American colonies towards wealth and greatness, that
almost their whole capitals have hitherto been employed in
agriculture. They have no manufactures, those houshold
and coarser manufactures excepted which necessarily accom
pany the progress of agriculture, and which are the work
of the women and children in every private family. The
greater part both of the exportation and coasting trade of
America, is carried on by the capitals of merchants who re
side in Great Britain. Even the stores and warehouses from
which goods are retailed in some provinces, particularly in
EMPLOYMENT OF CAPITALS 309
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 being 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 manu
factures, 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 in
crease in the value of their annual produce, and would ob
struct instead of promoting the progress of their country
towards real wealth and greatness. This would be still more
the case, were they to attempt, in the same manner, to mo
nopolize 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, we give credit to the wonderful
accounts of the wealth and cultivation of China, of those of
antient Egypt, and of the antient state of Indostan. Even
those three countries, the wealthiest, according to all ac
counts, 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 excelled 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, according to the different proportions in
which it is employed in agriculture, manufactures, and
wholesale trade. The difference too is very great, according
to the different sorts of wholesale trade in which any part
of it is employed.
310 WEALTH OF NATIONS
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 carry
ing 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 comprehends
both the inland and the coasting trade. The foreign trade
of consumption is employed in purchasing foreign goods for
home consumption. The carrying trade is employed in trans
acting the commerce 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 manufactures 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 produce of domestick industry, it necessarily replaces by
every such operation two distinct capitals, which had both
been employed in supporting 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, necessarily
replaces, by every such operation, two British capitals which
had both been employed in the agriculture or manufactures
of Great Britain.
The capital employed in purchasing foreign goods for
home-consumption, when this purchase is made with the
produce of domestick industry, replaces too, by every such
operation, two distinct capitals; but one of them only is em
ployed in supporting domestick industry. The capital which
sends British goods to Portugal, and brings back Portuguese
goods to Great Britain, replaces by every such operation
only one British capital. The other is a Portuguese one.
Though the returns, therefore, of the foreign trade of
consumption should be as quick as those of the home-
trade, the capital employed in it will give but one-half the
EMPLOYMENT OF CAPITALS 311
encouragement to the industry or productive labour of the
country.
But the returns of the foreign trade of consumption are
very seldom so quick as those of the home-trade. The re
turns 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 sometimes 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 foreign trade of consumption has made one. If the
capitals are equal, therefore, the one will give four and
twenty times more encouragement and support to the indus
try of the country than the other.
The foreign goods for home-consumption may sometimes
be purchased, not with the produce of domestick industry,
but with some other foreign goods. These last, however,
must have been purchased either immediately with the prod
uce 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 ex
change for something that had been produced at home, either
immediately, 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 respect,
the same as those of one employed in the most direct trade
of the same kind, except that the final returns are likely to
be still more distant, as they must depend upon the returns
of two or three distinct foreign trades. 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 be
fore he can employ the same capital in re-purchasing a like
quantity of British manufactures. If the tobacco of Vir
ginia had been purchased, not with British manufactures, but
with the sugar and rum of Jamaica which had been pur
chased with those manufactures, he must wait for the re
turns of three. If those two or three distinct foreign trades
should happen to be carried on by two or three distinct mer
312 WEALTH OF NATIONS
chants, of whom the second buys the goods imported by the
first, and the third buys those imported by the second, in
order to export them again, each merchant indeed will in
this case receive the returns of his own capital more quickly ;
but the final returns of the whole capital employed in the
trade will be just as slow as ever. Whether the whole capi
tal employed in such a round-about trade belong to one mer
chant or to three, can make no difference with regard to the
country, though it may with regard to the particular mer
chants. Three times a greater capital must in both cases
be employed, in order to exchange a certain value of British
manufactures for a certain quantity of flax and hemp, than
would have been 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 for
eign goods for home-consumption are purchased, it can oc
casion no essential difference either in the nature of the
trade, or in the encouragement and support which it can give
to the productive labour of the country from which it is
carried on. If they are purchased with the gold of Brazil,
for example, or with the silver of Peru, this gold and silver,
like the tobacco of Virginia, must have been purchased with
something 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
EMPLOYMENT OF CAPITALS 313
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 quantity of the produce of domestick indus
try, by the intervention of gold and silver, than by that of
any other foreign goods. The demand of the country may
frequently, in this manner, be supplied more completely 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 support
ing the productive labour of that particular country, to sup
port that of some foreign countries. Though it may replace
by every operation two distinct capitals, yet neither of
them belongs to that particular country. The capital of the
Dutch merchant, which carries the corn of Poland to Portu
gal, 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 re
turn 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
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 labour
ers of that country. Almost all nations that have had any
considerable share of the carrying trade have, in fact, car
ried it on in this manner. The trade itself has probably de
rived 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 carry
314 WEALTH OF NATIONS
ing 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 peculiarly 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 for
eign 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 par
ticular capital can employ, does not depend upon the nature
of the trade, but partly upon the bulk of the goods in pro
portion to their value, and partly 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
Newcastle to London, for example, employs more shipping
than all the carrying trade of England, though the ports are
at no great distance. To force, therefore, by extraordinary
encouragements, a larger share of the capital of any country
into the carrying trade, than what would naturally go to it,
will not always necessarily increase 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 re
spects a still greater advantage over an equal capital em
ployed in the carrying trade. The riches, and so far as
power depends upon riches, the power of every country, must
always be in proportion to the value of its annual produce,
the fund from which all taxes must ultimately be paid. 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 superior encour
agement 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
EMPLOYMENT OF CAPITALS 315
either of those two channels, 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, natu
rally 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 exporta
tion, a part of the productive labour of the country must
cease, and the value of its annual produce diminish. 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 ex
portation, that this surplus can acquire a value sufficient to
compensate the labour and expence 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 de
mand there.
When the foreign goods which are thus purchased with
the surplus 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 de
mand of Great Britain does not require, perhaps, more than
fourteen thousand. If the remaining eighty-two thousand,
therefore, could not be sent abroad and exchanged for some
thing more in demand at home, the importation of them
must cease immediately, and with it the productive labour of
all those inhabitants of Great Britain, who are at present
employed in preparing the goods with which these eighty-
two thousand hogsheads are annually purchased. Those
316 WEALTH OF NATIONS
goods, which are part of the produce of the land and labour
of Great Britain, having no market at home, and being de
prived of that which they had abroad, must cease to be
produced. The most round-about foreign trade of consump
tion, 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 con
sumption, and supporting the productive labour of that par
ticular country, the surplus part of it naturally disgorges
itself into the carrying trade, and is employed in performing
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 particu
lar encouragements, 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. England, perhaps
the second richest country of Europe, is likewise supposed
to have a considerable share of it; though what commonly
passes for the carrying trade of England, will frequently,
perhaps, be found to be no more than a round-about foreign
trade of consumption. 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
had 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 be
tween the different ports of India, make, perhaps, the prin
cipal branches of what is properly the carrying trade of
Great Britain.
The extent of the home-trade and of the capital which can
be employed in it, is necessarily limited by the value of the
EMPLOYMENT OF CAPITALS 317
surplus produce of all those distant places within the country
which have occasion to exchange their respective produc
tions with one another. That of the foreign trade of con
sumption, 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
different countries in the world. Its possible extent, there
fore, is in a manner infinite in comparison of that of the
other two, and is capable of absorbing the greatest capitals.
The consideration of his own private profit, is the sole
motive which determines the owner of any capital to employ
it either in agriculture, in manufactures, or in some particular
branch of the wholesale or retail trade. The different quan
tities 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 farm
ing and improving the most direct roads to a splendid for
tune, the capitals of individuals will naturally be employed
in the manner most advantageous 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 cen
tury. 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
318 EMPLOYMENT OF CAPITALS
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 manufactured produce, either immediately, or by
the intervention of money, or of some sort of paper which
represents money. The country supplies the town with the
means of subsistence, and the materials of manufactured
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 reproduc
tion of substances, may very properly be said to gain its
whole wealth and subsistence from the country. We must
not, however, upon this account, imagine that the gain of 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 quantity of manufactured goods, with the
produce of a much smaller quantity of their own labour,
than they must have employed had they attempted to pre
pare them themselves. 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 inhabitants of the town, the more ex-
319
320 WEALTH OF NATIONS
tensive is the market which it affords to those of the coun
try; 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 that which comes from twenty miles distance.
But the price of the latter must generally, not only pay the
expence of raising and bringing it to market, but afford too
the ordinary profits of agriculture to the farmer. The pro
prietors and cultivators of the country, therefore, 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, be
sides, the whole value of this carriage in the price of what
they buy. Compare the cultivation of the lands in the neigh
bourhood of any considerable town, with that of those which
lie at some distance from it, and you will easily satisfy your
self how much the country is benefited by the commerce of
the town. Among all the absurd speculations that have been
propagated concerning the balance of trade, it has never
been pretended that either the country loses by its com
merce with the town, or the town by that with the country
which maintains it.
As subsistence is, in the nature of things, prior to con-
veniency 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 furnishes 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 subsistence from the country in its neigh
bourhood, 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 occasioned considerable
variations in the progress of opulence in different ages and
nations.
NATURAL PROGRESS OF OPULENCE 321
That order of things which necessity imposes in general,
though not in every particular country, is, in every particu
lar country, promoted by the natural inclinations of man. If
human institutions had never thwarted those natural incli
nations, 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, 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 im
provement and cultivation of land, than either in manufac
tures 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 injustice, by giving great credits in dis
tant 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 improvement
of his land, seems to be as well secured as the nature of
human affairs can admit of. The beauty of the country be
sides, 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 predilec
tion for this primitive employment.
Without the assistance of some artificers, indeed, the cul
tivation of land cannot be carried on, but with great incon-
veniency and continual 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 another;
and as their residence is not, like that of the farmer, neces
sarily tied down to a precise spot, they naturally settle in
the neighbourhood of one another, and thus form a small
town or village. The butcher, the brewer, and the baker,
322 WEALTH OP NATIONS
soon join them, together with many other artificers and re
tailers, 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 con
tinual fair or market, to which the inhabitants of the coun
try resort, in order to exchange their rude for manufactured
produce. It is this commerce which supplies the inhabitants
of the town both with the materials of their work, and the
means of their subsistence. The quantity of the finished
work which they sell to the inhabitants of the country, nec
essarily regulates the quantity of the materials and pro
visions which they buy. Neither their employment nor
subsistence, therefore, can augment, but in proportion to the
augmentation of the demand from the country for finished
work; and this demand can augment only in proportion to
the extension of improvement 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 consequential, and in
proportion to the improvement and cultivation of the terri
tory or country.
In our North American colonies, where uncultivated land
is still to be had upon easy terms, no manufactures for dis
tant sale have ever yet been established in any of their
towns. When an artificer has acquired a little more stock
than is necessary for carrying on his own business in sup
plying 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 im
provement 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 people than for himself. He feels that an
artificer is the servant of his customers, from whom he de
rives his subsistence; but that a planter who cultivates 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 un
NATURAL PROGRESS OF OPULENCE 323
cultivated 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, endeav
ours 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 commerce, 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 manufac
turer, 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 capi
tal, which carries this surplus produce abroad, be a foreign
or a domestic one, is of very little importance. If the society
has not acquired sufficient capital both to cultivate all its
lands, and to manufacture in the completest manner the
whole of its rude produce, there is even a considerable ad
vantage that that rude produce should be exported by a for
eign 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 exportation 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 em
ployed 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 agriculture, afterwards to manufactures, and last
324 WEALTH OF NATIONS
of all to foreign commerce. This order of things is so very
natural, that in every society that had any territory, it has
always, I believe, been in some degree observed. Some of
their lands must have been cultivated before any consider
able towns could be established, and some sort of coarse in
dustry 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 commerce of some of their cities has
introduced all their finer manufactures, or such as were fit
for distant sale; and manufactures and foreign commerce
together, have given birth to the principal improvements of
agriculture. The manners and customs which the nature of
their original government introduced, and which remained
after that government was greatly altered, necessarily forced
them into this unnatural and retrograde order.
BOOK IV

Of Systems
INTRODUCTION
of Political (Economy

POLITICAL ceconomy, considered as a branch of the

science of a statesman or legislator, proposes two
distinct objects : first, to provide a plentiful revenue or
subsistence for the people, or more properly to enable them
to provide such a revenue or subsistence for themselves; and
secondly, to supply the state or commonwealth with a rev
enue sufficient for the public services. It proposes to enrich
both the people and the sovereign.
The different progress of opulence in different ages and
nations, has given occasion to two different systems of po
litical ceconomy, with regard to enriching the people. The
one may be called the system 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 com
merce. It is the modern system, and is best understood in
our own country and in our own times.

325
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 com
merce, and as the measure of value. In consequence of its
being the instrument of commerce, when we have money we
can more readily obtain whatever else we have occasion for,
than by means of any other commodity. The great affair,
we always find, is to get money. When that is obtained,
there is no difficulty in making any subsequent purchase. In
consequence of its being the measure of value, we estimate
that of all other commodities by the quantity of money which
they will exchange for. We say of a rich man that he is
worth a great deal, and of a poor man that he is worth very
little money. A frugal man, or a man eager to be rich, is
said to love money ; and a careless, a generous, or a profuse
man, is said to be indifferent about it. To grow rich is to
get money; and wealth and money, in short, are, in common
language,
A rich country,
considered
in the
as insame
every
manner
respectas synonymous.
a rich man, is sup

posed 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 ar
rived upon any unknown coast, used to be, if there was any
gold or silver to be found in the neighbourhood? By the
information which they received, they judged whether it
was worth while to make a settlement there, or if the coun
try 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 fre-
326
PRINCIPLE OF THE MERCANTILE SYSTEM 327
quently 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 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
moveable goods. All other moveable goods, he says, are of
so consumable a nature that the wealth which consists in
them cannot be much depended on, and a nation which
abounds in them one year may, without any exportation, but
merely by their own waste and extravagance, be in great
want of them the next. Money, on the contrary, is a steady
friend, which, though it may travel about from hand to
hand, yet if it can be kept from going out of the country,
is not very liable to be wasted and consumed. Gold and
silver, therefore, are, according to him, the 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 Others
the great
admit
object
thatof ifits apolitical
nation ceconomy.
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 main
tain fleets and armies in distant countries. This, they say,
cannot be done, but by sending abroad money to pay them
with; and a nation cannot send much money abroad, unless
it has a good deal at home. Every such nation, therefore,
must endeavour in time of peace to accumulate gold and
328 WEALTH OF NATIONS
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 and Portugal, the proprietors of
the principal mines which supply Europe with those metals,
have either prohibited their exportation under the severest
penalties, or subjected it to a considerable duty. The like
prohibition seems anciently to have made a part of the policy
of most other European nations. It is even to be found,
where we should least of all expect to find it, in some old
Scotch acts of parliament, which forbid under heavy penal
ties the carrying gold or silver forth of the kingdom. The
like policy anciently took place both in France and England.
When those countries became commercial, the merchants
found this prohibition, upon many occasions, extremely in
convenient. They could frequently buy more advantageously
with gold and silver than with any other commodity, the
foreign goods which they wanted, either to import into their
own, or to carry to some other foreign country. They re
monstrated, therefore, against this prohibition as hurtful to
trade.
They represented, first, that the exportation of gold and
silver in order to purchase foreign goods, did not always
diminish the quantity of those metals in the kingdom. That,
on the contrary, it might frequently increase 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 originally
sent out to purchase them. Mr. Mun compares this opera
tion of foreign trade to the seed-time and harvest of agricul
ture. "If we only behold," says he, "the actions of the hus
bandman in the seed-time, when he casteth away much good
corn into the ground, we shall account him rather a mad
man than a husbandman. But when we consider his labours
in the harvest, which is the end of his endeavours, we shall
find the worth and plentiful increase of his actions."
They represented, secondly, that this prohibition could not
PRINCIPLE OF THE MERCANTILE SYSTEM 329
hinder the exportation of gold and silver, which, on account
of the smallness of their bulk in proportion to their value,
could easily be smuggled abroad. That this exportation
could only be prevented by a proper attention to, what they
called, the balance of trade. That when the country ex
ported to a greater value than it imported, a balance became
due to it from foreign nations, which was necessarily paid
to it in gold and silver, and thereby increased the quantity
of those metals in the kingdom. But that when it imported
to a greater value than it exported, a contrary balance be
came due to foreign nations, which was necessarily paid to
them in the same manner, and thereby diminished that quan
tity. That in this case to prohibit the exportation of those
metals could not prevent it, but only by making it more
dangerous, render it more expensive. That the exchange
was thereby turned more against the country which owed
the balance, than it otherwise might have been ; the merchant
who purchased a bill upon the foreign country being obliged
to pay the banker who sold it, not only for the natural risk,
trouble and 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 Eng
land 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 hundred ounces
of silver in Holland, and would purchase only a proportion
able quantity of Dutch goods: but that a hundred ounces
of silver in Holland, on the contrary, would be worth a hun
dred and five ounces in England, and would purchase a
proportionable quantity of English goods: that the English
goods which were sold to Holland would be sold so much
cheaper; and the Dutch goods which were sold to England,
so much dearer, by the difference of the exchange; that the
one would draw so much less Dutch money to England, and
330 WEALTH OF NATIONS
the other so much more English money to Holland, as this
difference amounted to : and that the balance of trade, there
fore, would necessarily be so much more against England,
and would require a greater balance of gold and silver to
be Those
exported
arguments
to Holland.
were partly solid and partly sophistical.

They were solid so far as they asserted that the exportation

of gold and silver in trade might frequently be advantageous
to the country. They were solid too, in asserting that no
prohibition could prevent their exportation, when private
people found any advantage in exporting them. But they
were sophistical in supposing, that either to preserve or to
augment the quantity of those metals required more the at
tention of government, than to preserve or to augment the
quantity of any other useful commodities, which the freedom
of trade, without any such attention, never fails to supply
in the proper quantity. They were sophistical too, perhaps,
in asserting that the high price of exchange necessarily in
creased, 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 disad
vantageous to the merchants who had any money to pay in
foreign countries. They paid so much dearer for the bills
which their bankers granted them upon those countries. But
though the risk arising from the prohibition might occasion
some extraordinary 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-pence beyond the precise sum
drawn for. The high price of exchange too would naturally
dispose the merchants to endeavour to make their exports
nearly balance their imports, in order that they might have
this high exchange to pay upon as small a sum as possible.
The high price of exchange, besides, must necessarily have
operated as a tax, in raising the price of foreign goods, and
thereby diminishing their consumption. It would tend, there
fore, not to increase, but to diminish, what they called, the
unfavourable balance of trade, and consequently the expor
tation of gold and silver.
PRINCIPLE OF THE MERCANTILE SYSTEM 331
Such as they were, however, those arguments convinced
the people to whom they were addressed. They were ad*
dressed by merchants to parliaments, and to the councils of
princes, to nobles, and to country gentlemen; by those who
were supposed to understand trade, to those who were con
scious to themselves that they knew nothing about the mat
ter. That foreign trade enriched the country, experience
demonstrated to the nobles and country gentlemen, as well
as to the merchants; but how, or in what manner, none of
them well knew. The merchants knew perfectly in what
manner it enriched themselves. It was their business to
know it. But to know in what manner it enriched the coun
try, was no part of their business. This subject never came
into their consideration, but when they had occasion to apply
to their country for some change in the laws relating to for
eign 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 bring
ing so much as it otherwise would do. Those arguments
therefore produced the wished-for effect. The prohibition
of exporting gold and silver was in France and England
confined to the coin of those respective countries. The ex
portation 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 govern
ment 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 fruitless. The title of
Mun's book, England's Treasure in Foreign Trade, became
a fundamental maxim in the political ceconomy, 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
332 WEALTH OF NATIONS
the greatest employment to the people of the country, was
considered as subsidiary only to foreign trade. It neither
brought money into the country, it was said, nor carried
any out of it. The country therefore could never become
either richer or poorer by means of it, except so far as its
prosperity or decay might indirectly influence the state of
foreign trade.
A country that has no mines of its own must undoubtedly
draw its gold and silver from foreign countries, in the same
manner as one that has no vineyards of its own must draw
its wines. It does not seem necessary, however, that the
attention of government should be more turned towards the
one than towards the other object. A country that has
wherewithal to buy wine, will always get the wine which it
has occasion for; and a country that has wherewithal to buy
gold and silver, will never be in want of those metals. They
are to be bought for a certain price like all other commodi
ties, and as they are the price of all other commodities, so all
other commodities are the price of those metals. We trust
with perfect security that the freedom of trade, without any
attention of government, will always supply us with the wine
which we have occasion for: and we may trust with equal
security that it will always supply us with all the gold and
silver which we can afford to purchase or to employ, either
in circulating our commodities, or in other uses.
The quantity of every commodity which human industry
can either purchase or produce, naturally regulates itself in
every country according to the effectual demand, or accord
ing to the demand of those who are willing to pay the whole
rent, labour and profits which must be paid in order to pre
pare and bring it to market. But no commodities regulate
themselves more easily or more exactly according to this
effectual demand than gold and silver; because, on account
of the small bulk and great value of those metals, no com
modities 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
PRINCIPLE OF THE MERCANTILE SYSTEM 333
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 gov
ernment can prevent their exportation. All the sanguinary
laws of Spain and Portugal are not able to keep their gold
and silver at home. The continual importations from Peru
and Brazil exceed the effectual demand of those countries,
and sink the price of those metals there below that in the
neighbouring countries. If, on the contrary, in any particu
lar country their quantity fell short of the effectual demand,
so as to raise their price above that of neighbouring coun
tries, the government would have no occasion to take any
pains to import them. If it were even to take pains to pie-
vent 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 pre
vent the importation of the teas of the Dutch and Gotten-
burgh East India companies; because somewhat cheaper
than those of the British company. A pound of tea, how
ever, is about a hundred times the bulk of one of the highest
prices, sixteen shillings, that is commonly paid for it in
silver, and more than two thousand times the bulk of the
same price in gold, and consequently just so many times
more difficult to smuggle.
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
334 WEALTH OF NATIONS
to which it is liable are generally slow, gradual, and uni
form. In Europe, for example, it is supposed, without much
foundation, perhaps, that, during the course of the present
and preceding century, they have been constantly, but gradu
ally, sinking in their value, on account of the continual im
portations 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 com
merce 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 pur
chase them, there are more expedients for supplying their
place, than that of almost any other commodity. If the ma
terials of manufacture are wanted, industry must stop. If
provisions are wanted, the people must starve. But if money
is wanted, barter will supply its place, though with a good
deal of inconveniency. Buying and selling upon credit, and
the different dealers compensating their credits with one
another, once a month or once a year, will supply it with less
inconveniency. A well-regulated paper money will supply
it, not only without any inconveniency, but, in some cases,
with some advantages. Upon every account, therefore, the
attention of government never was so unnecessarily em
ployed, 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 spendthrifts.
It is sometimes general through a whole mercantile town,
and the country in its neighbourhood. Over-trading is the
common cause of it. Sober men, whose projects have been
disproportioned to their capitals, are as likely to have neither
wherewithal to buy money, nor credit to borrow it, as prodi
gals whose expence has been disproportioned to their rev
enue. Before their projects can be brought to bear, their
PRINCIPLE OF THE MERCANTILE SYSTEM 335
stock is gone, and their credit with it. They run about every
where 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 hopes that
the returns will come in before the demand for payment.
The demand comes before the returns, and they have nothing
at hand, with which they can either purchase money, or give
solid security for borrowing. It is not any scarcity of gold
and silver, but the difficulty which such people find in bor
rowing, 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 money purchases, and is valuable only for pur
chasing. Money, no doubt, makes always a part of the na
tional 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 in
strument of commerce, for which every thing is readily
given in exchange, but which is not always with equal readi
ness to be got in exchange for every thing. The greater part
of goods besides are more perishable than money, and he may
frequently sustain a much greater loss by keeping them.
When his goods are upon hand too, he is more liable to such
demands for money as he may not be able to answer, than
when he has got their price in his coffers. Over and above
all this, his profit arises more directly from selling than from
336 WEALTH OF NATIONS
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 capi
tal of a merchant frequently consists in perishable goods
destined for purchasing money. But it is but a very small
part of the annual produce of the land and labour of a coun
try which can ever be destined for purchasing gold and silver
from their neighbours. The far greater part is circulated
and consumed among themselves; and even of the surplus
which is sent abroad, the greater part is generally destined
for the purchase of other foreign goods. Though gold and
silver, therefore, could not be had in exchange for the goods
destined to purchase them, the nation would not be ruined.
It might, indeed, suffer some loss and inconveniency, and
be forced upon some of those expedients which are necessary
for supplying the place of money. The annual produce of its
land and labour, however, would be the same, or very nearly
the same, as usual, because the same, or very nearly the
same consumable capital would be employed in maintaining
it. And though goods do not always draw money so readily
as money draws goods, in the long-run they draw it more
necessarily than even it draws them. Goods can serve many
other purposes besides purchasing money, but money can
serve no other purpose besides purchasing goods. Money,
therefore, necessarily runs after goods, but goods do not al
ways or necessarily run after money. The man who buys,
does not always mean to sell again, but frequently to use or
to consume; whereas he who sells, always means to buy
again. The one may frequently have done the whole, but
the other can never have done more than the one-half of his
business. It is not for its own sake that men desire money,
but for the sake of what they can purchase with it.
Consumable commodities, it is said, are soon destroyed;
whereas gold and silver are of a more durable nature, and,
were it not for this continual exportation, might be accumu
lated for ages together, to the incredible augmentation of the
real wealth of the country. Nothing, therefore, it is pre
PRINCIPLE OF THE MERCANTILE SYSTEM 337
tended, cin 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 exportation, might too be accumulated for
ages together, to the incredible augmentation of the pots and
pans of the country. But it readily occurs that the number
of such utensils is in every country necessarily limited by
the use which there is for them; that it would be absurd to
have more pots and pans than were necessary for cooking
the victuals usually consumed there ; and that if the quantity
of victuals were to increase, the number of pots and pans
would readily increase along with it, a part of the increased
quantity of victuals being employed in purchasing them, or
in maintaining an additional number of workmen whose busi
ness it was to make them. It should as readily occur that
the quantity of gold and silver is in every country limited
by the use which there is for those metals; that their use
consists in circulating commodities as coin, and in affording
a species of household furniture as plate; that the quantity
of coin in every country is regulated by the value of the com
modities which are to be circulated by it : increase that value,
and immediately a part of it will be sent abroad to purchase
wherever it is to be had, the additional quantity of coin
requisite for circulating them: that the quantity of plate is
regulated by the number and wealth of those private families
who chuse to indulge themselves in that sort of magnifi
cence : increase the number and wealth of such families, and
a part of this increased wealth will most probably be em
ployed in purchasing, wherever it is to be found, an addi
tional 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
338 WEALTH OF NATIONS
the expense of purchasing an unnecessary quantity of gold
and silver must, in every country, as necessarily diminish the
wealth which feeds, clothes, and lodges, which maintains and
employs the people. Gold and silver, whether in the shape
of coin or of plate, are utensils, it must be remembered, as
much as the furniture of the kitchen. Increase the use for
them, increase the consumable commodities which are to be
circulated, managed, and prepared by means of them, and
you will infallibly increase the quantity; but if you attempt,
by extraordinary means, to increase the quantity, you will
as infallibly diminish the use and even the quantity too,
which in those metals can never be greater than what the use
requires. Were they ever to be accumulated beyond this
quantity, their transportation is so easy, and the loss which
attends their lying idle and unemployed so great, that no law
could prevent their being immediately sent out of the country.
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, some part of its accumulated gold and silver ; or
secondly, some part of the annual produce of its manufac
tures ; or last of all, some part of its annual rude produce.
The gold and silver which can properly be considered as
accumulated or stored up in any country, may be distin
guished into three parts ; first, the circulating money ; Sec
ondly, the plate of private families ; and last of all, the money
which may have been collected by many years parsimony,
and laid up in the treasury of the prince.
It can seldom happen that much can be spared from the
circulating money of the country; because in that there can
seldom be much redundancy. The value of goods annually
bought and sold in any country requires a certain quantity
PRINCIPLE OF THE MERCANTILE SYSTEM 339
of money to circulate and distribute them to their proper
consumers, and can give employment to no more. The chan
nel 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 main
tained abroad, fewer are maintained at home. Fewer goods
are circulated there, and less money becomes necessary to
circulate them. An extraordinary quantity of paper money,
of some sort or other too, such as exchequer notes, navy
bills, and bank bills in England, is generally issued upon such
occasions, and by supplying the place of circulating gold and
silver, gives an opportunity of sending a greater quantity of
it abroad. All this, however, could afford but a poor re
source 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 pres
ent century, the most expensive perhaps which history re
cords, seem to have had little dependency upon the exporta
tion 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 con
tracted, but the additional two shillings in the pound land
tax, and what was annually borrowed of the sinking f^nd.
More than two-thirds of this expence were laid out in dis
tant countries ; in Germany, Portugal, America, in the ports
of the Mediterranean, in the East and West Indies. The
kings of England had no accumulated treasure. We lever
heard of any extraordinary quantity of plate being melted
340 WEALTH OF NATIONS
down. The circulating gold and silver of the country 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 re
member to have either seen or heard of, that, gold and silver
together, it amounted to thirty millions. Had the war been
carried on, by means of our money, the whole of it must,
even according to this computation, have been sent out and
returned again at least twice, in a period of between six and
seven years. Should this be supposed, it would afford the
most decisive argument to demonstrate how unnecessary it
is for government to watch over the preservation of money,
since upon this supposition the whole money of the country
must have gone from it and returned to it again, two differ
ent times in so short a period, without any body's knowing
any thing of the matter. The channel of circulation, how
ever, never appeared more empty than usual during any part
of this period. Few people wanted money who had where
withal to pay for it. The profits of foreign trade, indeed,
were greater than usual during the whole war; but especially
towards the end of it. This occasioned, what it always
occasions, a general over-trading in all the ports of Great
Britain ; and this again occasioned the usual complaint of
the scarcity of money, which always follows over-trading.
Many people wanted it, who had neither wherewithal to buy
it, nor credit to borrow it; and because the debtors found it
difficult to borrow, the creditors found it difficult to get pay
ment. Gold and silver, however, were generally to be had
for their value, by those who had that value to give for them.
The enormous expense of the late war, therefore, must
have been chiefly defrayed, not by the exportation of gold
and silver, but by that of British commodities of some kind
or other. When the government, or those who acted under
them, contracted with a merchant for a remittance to some
foreign country, he would naturally endeavour 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
PRINCIPLE OF THE MERCANTILE SYSTEM 341
other country, in which he could purchase a bill upon that
country. The transportation of commodities, when properly
suited to the market, is always attended with a considerable
profit; whereas that of gold and silver is scarce ever at
tended 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 re
turns. But when they are sent abroad merely to pay a debt,
he gets no returns, and consequently no profit. He nat
urally, therefore, exerts his invention to find out a way of
paying his foreign debts, rather by the exportation of com
modities than by that of gold and silver. The great quan
tity of British goods exported during the course of the late
war, without bringing back any returns, is accordingly re
marked 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 bul
lion alternately imported and exported for the purposes of
foreign trade. This bullion, as it circulates among different
commercial countries in the same manner as the national
coin circulates in every particular country, may be consid
ered as the money of the great mercantile republic. The
national coin receives its movement and direction from the
commodities circulated within the precincts of each particu
lar country : the money of the mercantile republic, from those
circulated between different countries. Both are employed
in facilitating exchanges, the one between different indi
viduals 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 sup
pose that a movement and direction should be impressed upon
it, different from what it usually follows in profound peace;
that it should circulate more about the seat of the war, and
be more employed in purchasing there, and in the neighbour
ing countries, the pay and provisions of the different armies.
But whatever part of this money of the mercantile republic,
Great Britain may have annually employed in this manner,
it must have been annually purchased, either with British
commodities, or with something else that had been purchased
342 WEALTH OF NATIONS
with them; which still brings us back to commodities, to the
annual produce of the land and labour of the country, as the
ultimate resources which enabled us to carry on the war.
It is natural indeed to suppose, that so great an annual ex-
pence must have been defrayed from a great annual produce.
The expence of i76i, 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 Por
tugal, according to the best accounts, does not commonly
would
much scarce
exceed have
six paid
millions
four sterling,
months expence
which, in
of the
somelateyears,
war.

********
The importation of gold and silver is not the principal,
much less the sole benefit which a nation derives from its
foreign trade. Between whatever places foreign trade is
rarried on, they all of them derive two distinct benefits from
Jt. It carries out that surplus part of the produce of their
And and labour for which there is no demand among them,
and brings back in return for it something else for which
there is a demand. It gives a value to their superfluities, by
exchanging them for something else, which may satisfy a
part of their wants, and increase their enjoyments. By
means of it, the narrowness of the home market does not
hinder the division of labour in any particular branch of art
or manufacture from being carried to the highest perfection.
By opening a more extensive market for whatever part of
the produce of their labour may exceed the home consump
tion, 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 important services foreign trade is continually
occupied in performing, to all the different countries between
which it is carried on. They all derive great benefit from it,
though that in which the merchant resides generally derives
the greatest, as he is generally more employed in supplying
the wants, and carrying out the superfluities of his own,
than of any other particular country. To import the gold
and silver which may be wanted, into the countries which
PRINCIPLE OF THE MERCANTILE SYSTEM 343
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 abun
dance 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 an
nually purchase about three times the quantity of plate
which it could have purchased at that time. But when a
commodity comes to be sold for a third part of what had
been its usual price, not only those who purchased it
before can purchase three times their former quantity, but
it is brought down to the level of a much greater number of
purchasers, perhaps to more than ten, perhaps to more than
twenty times the former number. So that there may be in
Europe at present not only more than three times, but more
than twenty or thirty times the quantity of plate which would
have been in it, even in its present state of improvement,
had the discovery of the American mines never been made.
So far Europe has, no doubt, gained a real conveniency,
though surely a very trifling one. The cheapness of gold and
silver renders those metals rather less fit for the purposes of
money than they were before. In order to make the same
purchases, we must load ourselves with a greater quantity of
them, and carry about a shilling in our pocket where a groat
would have done before. It is difficult to say which is most
trifling, this inconveniency, or the opposite conveniency.
Neither the one nor the other could have made any very essen
tial change in the state of Europe. The discovery of America,
however, certainly made a most essential one. By opening
a new and inexhaustible market to all the commodities of
Europe, it gave occasion to new divisions of labour and im
provements of art, which, in the narrow circle of the ancient
commerce, could never have taken place for want of a market
to take off the greater part of their produce. The pro
344 "WEALTH OF NATIONS
ductive powers of labour were improved, and its produce
increased in all the different countries of Europe, and to
gether with it the real revenue and wealth of the inhabitants.
The commodities of Europe were almost all new to America,
and many of those of America were new to Europe. A new
set of exchanges, therefore, began to take place which had
never been thought of before, and which should naturally
have proved as advantageous to the new, as it certainly did
to the old continent. The savage injustice of the Europeans
rendered an event, which ought to have been beneficial to
all, ruinous and destructive to several of those unfortunate
countries.
The discovery of a passage to the East Indies, by the Cape
of Good Hope, which happened much about the same time,
opened, perhaps, a still more extensive range to foreign
commerce than even that of America, notwithstanding the
greater distance. There were but two nations in America,
in any respect superior to 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 manu
factures than either Mexico or Peru, even though we should
credit, what plainly deserves no credit, the exaggerated ac
counts 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 indirectly and through them, that
the other nations of Europe could either send out or receive
any goods from that country. When the Dutch, in the be
ginning of the last century, began to encroach upon them,
they vested their whole East India commerce in an exclusive
company. The English, French, Swedes, and Danes, have all
followed their example, so that no great nation in Europe
has ever yet had the benefit of a free commerce to the East
PRINCIPLE OF THE MERCANTILE SYSTEM 345
Indies. No other reason need be assigned why it has never
been so advantageous as the trade to America, which, be
tween almost every nation of Europe and its own colonies,
is free to all its subjects. The exclusive privileges of those
East India companies, their great riches, the great favour
and protection which these have procured them from their
respective governments, have excited much envy against
them. This envy has frequently represented their trade as
altogether pernicious, on account of the great quantities of
silver, which it every year exports from the countries from
which it is carried on. The parties concerned have replied,
that their trade, by this continual exportation of silver, might,
indeed, tend to impoverish Europe in general, but not the
particular country from which it was carried on; because, by
the exportation of a part of the returns to other European
countries, it annually brought home a much greater quantity
of that metal than it carried out. Both the objection and
the reply are founded in the popular notion which I have
been just now examining. It is, therefore, unnecessary to
say any thing further about either. By the annual exporta
tion of silver to the East Indies, plate is probably somewhat
dearer in Europe than it otherwise might have been ; and
coined silver probably purchases a larger quantity both of
labour and commodities. The former of these two effects is
a very small loss, the latter a very small advantage ; both too
insignificant to deserve any part of the public attention. The
trade to the East Indies, by opening a market to the com
modities of Europe, or, what comes nearly to the same thing1,
to the gold and silver which is purchased with those com
modities, must necessarily tend to increase the annual pro
duction of European commodities, and consequently the real
wealth and revenue of Europe. That it has hitherto in
creased 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 tedi
ous, to examine at full length this popular notion that wealth
consists in money, or in gold and silver. Money in common
language, as I have already observed, frequently signifies
wealth; and this ambiguity of expression has rendered this
popular notion so familiar to us, that even they, who are
346 WEALTH OF NATIONS
convinced of its absurdity, are very apt to forget their own
principles, and in the course of their reasonings to take it
for granted as a certain and undeniable truth. Some of the
best English writers upon commerce set out with observing,
that the wealth of a country consists, not in its gold and
silver only, but in its lands, houses, and consumable goods
of all different kinds. In the course of their reasonings,
however, the lands, houses, and consumable goods seem to
slip out of their memory, and the strain of their argument
frequently supposes that all wealth consists in gold and silver,
and that to multiply those metals is the great object of na
tional industry and commerce.
The two principles being established, however, that wealth
consisted in gold and silver, and that those metals could be
brought into a country which had no mines only by the
balance of trade, or by exporting to a greater value than it
imported; it necessarily became the great object of political
oeconomy to diminish as much as possible the importation of
foreign goods for home consumption, and to increase as
much as possible the exportation of the produce of domestic
industry. Its two great engines for enriching the country,
therefore, were restraints upon importation, and encourage
ments to exportation.
The restraints upon importation were of two kinds.
First, Restraints upon the importation of such foreign
goods for home consumption as could be produced at home,
from whatever country they were imported.
Secondly, Restraints upon the importation of goods of
almost all kinds from those particular countries with which
the balance of trade was supposed to be disadvantageous.
Those different restraints consisted sometimes in high du
ties, 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 es
tablishment of colonies in distant countries.
Drawbacks were given upon two different occasions. When
the home manufacturers were subject to any duty or excise
either the whole or a part of it was frequently drawn back
upon their exportation; and when foreign goods liable to a
PRINCIPLE OF THE MERCANTILE SYSTEM 347
duty were imported in order to be exported again, either
the whole or a part of this duty was sometimes given back
upon such exportation.
Bounties were given for the encouragement either of some
beginning manufactures, or of such sorts of industry of
other kinds as were supposed to deserve particular favour.
By advantageous treaties of commerce, particular privi
leges were procured in some foreign state for the goods and
merchants of the country, beyond what were granted to
those of other countries.
By the establishment of colonies in distant countries, not
only particular privileges, but a monopoly was frequently
procured for the goods and merchants of the country which
established them.
The two sorts of restraints upon importation above-men
tioned, together with these four encouragements to exporta
tion, constitute the six principal means by which the com
mercial 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 evidently 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 pro
hibitions, the importation of such goods from foreign
countries as can be produced at home, the monopoly
of the home market is more or less secured to the domestic
industry employed in producing them. Thus the prohibition
of importing either live cattle or salt provisions from foreign
countries secures to the 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 mod
erate 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 alto
gether employed upon foreign materials, has lately obtained
the same advantage. The linen manufacture has not yet ob
tained 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 mo
nopoly 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 ac
quainted 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 employ
ment 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

348
RESTRAINTS OP PARTICULAR IMPORTS 349
industry of the society, or to give it the most advantageous
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 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 pro
portion to the whole capital of that society, and never can
exceed that proportion. No regulation of commerce can in
crease the quantity of industry in any society beyond what
its capital can maintain. It can only divert a part of it
into a direction into which it might not otherwise have gone ;
and it is by no means certain that this artificial direction is
likely to be more advantageous to the society than that into
which it would have gone of its own accord.
Every individual is continually exerting himself to find out
the most advantageous employment for whatever capital he
can command. It is his own advantage, indeed, and not
that of the society, which he has in view. But the study of
his own advantage naturally, or rather necessarily leads him
to prefer that employment which is most advantageous to
the society.
First, every individual 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
merchant naturally prefers the home-trade to the foreign
trade of consumption, and the foreign trade of consumption
to the carrying trade In the home-trade his capital is never
so long out of his sight as it frequently is in the foreign
trade of consumption He can know better the character
and situation of the person whom he trusts, and if he should
happen to be deceived, he knows better the laws of the coun
try from which he must seek redress. In the carrying trade,
the capital of the merchant is, as it were, divided between
two foreign countries, and no part of it is ever necessarily
brought home, or placed under his own immediate view and
350 WEALTH OF NATIONS
command. The capital which an Amsterdam merchant em
ploys 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 should either be at
Konnigsberg or Lisbon, and it can only be some very par
ticular 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 command, he willingly submits to this extraordinary
charge ; and it is in this manner that every country which
has any considerable share of the carrying trade, becomes
always the emporium, or general market, for the goods of
all the different countries whose trade it carries on. The
merchant, in order to save a second loading and unloading,
endeavors always to sell in the home-market as much of the
goods of all those different countries as he can, and thus,
so far as he can, to convert his carrying trade into a foreign
trade of consumption. A merchant, in the same manner, who
is engaged in the foreign trade of consumption, when he
collects goods for foreign markets, will always be glad, upon
equal or nearly equal profits, to sell as great a part of them
at home as he can. He saves himself the risk and trouble
of exportation, when, so far as he can, he thus converts his
foreign trade of consumption into a home-trade. Home is
in this manner the center, if I may say so, round which trie
capitals of the inhabitants of every country are continually
circulating, and towards which they are always tending,
though by particular causes they may sometimes be driven off
and repelled from it towards more distant employments. But
a capital employed in the home-trade, it has already been
shown, necessarily puts into motion a greater quantity of do-
RESTRAINTS OF PARTICULAR IMPORTS 351

mestic industry, and gives revenue and employment to a

greater number of the inhabitants of the country, than an
equal capital employed in the foreign trade of consumption:
and one employed in the foreign trade of consumption has
the same advantage over an equal capital employed in the
carrying trade. Upon equal, or only nearly equal profits,
therefore, every individual naturally inclines to employ his
capital in the manner in which it is likely to afford the great
est 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 industry", that its produce may be of the greatest
possible value.
The produce of industry is what it adds to the subject or
materials upon which it is employed. In proportion as the
value of this produce is great or small, so will likewise be
the profits of the employer. But it is only for the sake of
pront that any man employs a capital in the support of in
dustry; 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 industry, or rather is precisely the same thing with
that exchangeable value. As every individual, therefore, en
deavours 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 indi
vidual necessarily labours to render the annual revenue of
the society as great as he can. He generally, indeed, neither
intends to promote the public interest, nor knows how much
he is promoting it By preferring the support of domestic
to that of foreign industry, he intends only his own security;
and by directing that industry in such a manner as its prod
uce 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
352 WEALTH OF NATIONS
intention. Nor is it always the worse for the society that
it was no part of it. By pursuing his own interest he fre
quently promotes that of the society more effectually than
when he really intends to promote it. I have never known
much good done by those who affected to trade for the
public good. It is an affectation, indeed, not very common
among merchants, and very few words need be employed in
dissuading them from it.
What is the species of domestic industry which his capital
can employ, and of which the produce is likely to be of the
greatest value, every individual, it is evident, can, in his
local situation, judge much better than any statesman or law
giver can do for him. The statesman, who should attempt
to direct private people in what manner they ought to em
ploy their capitals, would not only load himself with a most
unnecessary attention, but assume an authority which could
safely be trusted, not only to no single person, but to no
council or senate whatever, and which would no-where be
so dangerous as in the hands of a man who had folly and
presumption enough to fancy himself fit to exercise it.
To give the monopoly of the home-market to the produce
of domestic industry, in any particular art or manufacture,
is in some measure to direct private people in what manner
they ought to employ their capitals, and must, in almost all
cases, be either a useless or a hurtful regulation. If the
produce of domestic can be brought there as cheap as that
of foreign industry, the regulation is evidently useless. If it
cannot, it must generally be hurtful. It is the maxim of
every prudent master of a family, never to attempt to make
at home what it will cost him more to make than to buy.
The 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 in
terest to employ their whole industry in a way in which they
have some advantage over theii neighbours, and to pur
chase with a part of its produce, or what is the same
thing, with the price of a part of it, whatever else they have
occasion for.
RESTRAINTS OF PARTICULAR IMPORTS 353
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 cheaper than we
ourselves can make it, better buy it of them with some part
of the produce of our own industry, employed in a way in
which we have some advantage. The general industry of
the country, being always in proportion to the capital which
employs it, will not thereby be diminished, no more than that
of the above-mentioned artificers; but only left to find out
the way in which it can be employed with the greatest ad
vantage. It is certainly not employed to the greatest ad
vantage, when it is thus directed towards an object which
it can buy cheaper than it can make. The value of its annual
produce is certainly more or less diminished, when it is thus
turned away from producing commodities evidently of more
value than the commodity which it is directed to produce.
According to the supposition, that commodity could be pur
chased from foreign countries cheaper than it can be made
at home. It could, therefore, have been purchased with a
part only of the commodities, or, what is the same thing,
with a part only of the price of the commodities, which the
industry employed by an equal capital would have produced
at home, had it been left to follow its natural course. The
industry of the country, therefore, is thus turned away from
a more, to a less advantageous employment, and the ex
changeable value of its annual produce, instead of being in
creased, according to the intention of the lawgiver, must
necessarily be diminished by every such regulation.
By means of such regulations, indeed, a particular manu
facture may sometimes be acquired sooner than it could
have been otherwise, and after a certain time may be made
at home as cheap or cheaper than in the foreign country.
But though the industry of the society may be thus carried
with advantage into a particular channel sooner than it could
have been otherwise, it will by no means follow that the sum
total, either of its industry, or of its revenue, can ever be
augmented by any such regulation. The industry of the
society can augment only in proportion as its capital aug
ments, and its capital can augment only in proportion to
what can be gradually saved out of its revenue. But the im
354 WEALTH OF NATIONS
mediate effect of every such regulation is to diminish its rev
enue, and what diminishes its revenue is certainly not very
likely to augment its capital faster than it would have aug
mented 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 advan
tageous at the time. In every period its revenue might have
been the greatest which its capital could afford, and both
capital and revenue might have been augmented with the
greatest possible rapidity.
The natural advantages which one country has over an
other in producing particular commodities are sometimes so
great that it is acknowledged by all the world to be in vain
to struggle with them. By means of glasses, hotbeds, and
hotwalls, very good grapes can be raised in Scotland, and
very good wine too can be made of them at about thirty
times the 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 encourage the making of claret and burgundy in Scotland?
But if there would be a manifest absurdity in turning towards
any employment, thirty times more of the capital and in
dustry of the country, than would be necessary to purchase
from foreign countries an equal quantity of the commodi
ties 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 acquired advantage only,
which one artificer has over his neighbour, who exercises
another trade; and yet they both find it more advantageous
RESTRAINTS OF PARTICULAR IMPORTS 355
to buy of one another, than to make what does not belong
to their particular trades.
Merchants and manufacturers are the people who derive
market.
the greatest
Theadvantage
prohibitionfrom
of this
the monopoly
importation
of of
the foreign
home-

cattle, and of salt provisions, together with the high duties

upon foreign corn, which in times of moderate plenty amount
to a prohibition, are not near so advantageous to the gra
ziers and farmers of Great Britain, as other regulations of
the same kind are to its merchants and manufacturers. Man
ufactures, those of the finer kind especially, are more easily
transported from one country to another than corn or cattle.
It is in the fetching and carrying manufactures, accordingly,
that foreign trade is chiefly employed. In manufactures, a
very small advantage will enable foreigners to undersell our
own workmen, even in the home market. It will require a
very great one to 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 employment. But the freest importation of the rude
produce of the soil could have no such effect upon the agri
culture of the country.
If the importation of foreign cattle, for example, were
made ever so free, so few could be imported, that the grazing
trade of Great Britain could be little affected by it. Live
cattle are, perhaps, the only commodity of which the trans
portation is more expensive by sea than by land. By land
they carry themselves to market. By sea, not only the cattle,
. but their food and water too, must be carried at no small
\ expence and inconveniency. The short sea between Ireland
and Great Britain, indeed, renders the importation of Irish
cattle more easy. But though the free importation of them,
which was lately permitted only for a limited time, were ren
dered 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
356 WEALTH OF NATIONS
use, but must be drove through those very extensive coun'.
tries, at no small expence and inconveniency, before they
could arrive at their proper market. Fat cattle could not
be drove so far. Lean cattle, therefore, only could be im
ported, 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 advan
tageous, but with that of the breeding countries only. The
small number of Irish cattle imported since their importa
tion 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 cattle.
The common people of Ireland, indeed, are said to have
sometimes opposed with violence the exportation of their
cattle. But if the exporters had found any great advantage
in continuing the trade, they could easily, when the law was
on their side, have conquered this 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 uncultivated land, is like a bounty against im
provement. To any country which was highly improved
throughout, it would be more advantageous to import its
lean cattle than to breed them. The province of Holland,
accordingly, is said to follow this maxim at present. The
mountains of Scotland, Wales and Northumberland, indeed,
are countries not capable of much improvement, and seem
destined by nature to be the breeding countries of Great
Britain. The freest importation of foreign cattle could
have no other effect than to hinder those breeding coun
tries from taking advantage of the increasing 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 interest of the
graziers of Great Britain as that of live cattle. Salt pro
visions are not only a very bulky commodity, but when com
RESTRAINTS OF PARTICULAR IMPORTS 357
pared with fresh meat, they are a commodity both of worse
quality, and as they cost more labour and expence, of higher
price. They could never, therefore, come into competition
with the fresh meat, though they might with the salt pro
visions 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 nothing to apprehend from it.
It does not appear that the price of butcher's-meat has evel
been sensibly affected by it.
Even the free importation of foreign corn could very little
affect the interest of the farmers of Great Britain. Corn is
a much more bulky commodity than butcher's-meat. A pound
of wheat at a penny is as dear as a pound of butcher's-meat
at fowrpence. The small quantity of foreign corn imported
even in times of the greatest scarcity, may satisfy our farm
ers that they can have nothing to fear from the freest im
portation. The average quantity imported one year with an
other, amounts only, according to the very well informed
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 im
portation 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 compensate the scarcity of another, and as the
average quantity exported is necessarily augmented by it,
so must likewise, in the actual state of tillage, the average
quantity imported. If there were no bounty, as less corn
would be exported, 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 em
ployment, and might suffer considerably; but the country
gentlemen and farmers could suffer very little. It is in the
corn merchants accordingly, rather than in the country gen-
358 WEALTH OP NATIONS
tlemen and farmers, that I have observed the greatest anx
iety for the renewal and continuation of the bounty.
Country gentlemen and farmers are, to their great honour,
of all people, the least subject to the wretched spirit of mo
nopoly. The undertaker of a great manufactory is some
times alarmed if another work of the same kind is estab
lished within twenty miles of him. The Dutch undertaker
of the woollen manufacture at Abbeville stipulated, that no
work of the same kind should be established within thirty
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 neigh
bours' farms and estates. They have no secrets, such as
those of the greater part of manufacturers, but are generally
rather fond of communicating to their neighbours, and of
extending as far as possible any new practice which they
have found to be advantageous. Pius Questus, says old Cato,
stabilissitnusque, minitneque invidiosus; minimeque male cog-
itantes sunt, qui in eo studio occupati sunt. Country gentle
men and farmers, dispersed in different parts of the country,
cannot so easily combine as merchants and manufacturers,
who being collected into towns, and accustomed to that ex
clusive corporation spirit which prevails in them, naturally
endeavour to obtain against all their countrymen, the same
exclusive privilege which they generally possess against the
inhabitants of their respective towns. They accordingly seem
to have been the original inventors of those restraints upon
the importation of foreign goods, which secure to them the
monopoly of the home-market. It was probably in imita
tion of them, and to put themselves upon a level with those
who, they found, were disposed to oppress them, that the
country gentlemen and farmers of Great Britain so far for
got the generosity which is natural to their station, 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 followed.
To prohibit by a perpetual law the importation of foreign
corn and cattle, is in reality to enact, that the population and
RESTRAINTS OF PARTICULAR IMPORTS 359
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 gen
erally be advantageous to lay some burden upon foreign, for
the encouragement of domestic industry.
The first, is, when some particular sort of industry is neces
sary for the defence of the country. The defence of Great
Britain, for example, depends very much upon the number
of its sailors and shipping. The act of navigation, there
fore, very properly endeavours to give the sailors and ship
ping of Great Britain the monopoly of the trade of their
own country, in some cases, by absolute prohibitions, and
in others by heavy burdens upon the shipping of foreign
countries. The following are the principal dispositions of
this act.
fourths
First, of
all the
ships,
mariners
of which
arethe
notowners,
Britishmasters,
subjects,and
arethree-
pro

hibited, upon pain of forfeiting ship and cargo, from trad

ing to the British settlements and plantations, or from being
employed in the coasting trade of Great Britain.
Secondly, a great variety of the most bulky articles of
importation can be brought into Great Britain only, either
in such ships as are above described, or in ships of the coun
try where those goods are produced, and of which the own
ers, 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 im
ported in ships of any other country, the penalty is forfeit
ure 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 im
portation are prohibited from being imported, even in British
ships, from any country but that in which they are pro
duced; under pain of forfeiting ship and cargo. This
regulation too was probably intended against the Dutch.
Holland was then, as now, the great emporium for all
European goods, and by this regulation, British ships were
360 WEALTH OF NATIONS
hindered from loading in Holland the goods of any other
European country.
Fourthly, salt fish of all kinds, whale-fins, whale-bone, oil,
and blubber, not caught by and cured on board British ves
sels, when imported into Great Britain, are subjected to
double aliens duty. The Dutch, as they are still the princi
pal, were then the only fishers in Europe that attempted to
supply foreign nations with fish. By this regulation, a very
heavy burden was laid upon their supplying Great Britain.
When the act of navigation was made, though England and
Holland were not actually at war, the most violent animosity
subsisted between the two nations. It had begun during the
government of the long parliament, which first framed this
act, and it broke out soon after in the Dutch wars during
that of the Protector and of Charles the Second. It is not
impossible, therefore, that some of the regulations of this
famous act may have proceeded from national animosity.
They are as wise, however, as if they had all been dictated
by the most deliberate wisdom. National animosity at that
particular time aimed at the very same object which the
most deliberate wisdom could have recommended, the diminu
tion of the naval power of Holland, the only naval power
which could endanger the security of England.
The act of navigation is not favourable to foreign com
merce, or to the growth of that opulence which can arise
from it. The interest of a nation in its commercial rela
tions to foreign nations is, like that of a merchant with re
gard to the different people with whom he deals, to buy as
cheap and to sell as dear as possible. But it will be most
likely to buy cheap, when by the most perfect freedom of
trade it encourages all nations to bring to it the goods which
it has occasion to purchase ; and, for the same reason, it will
be most likely to sell dear, when its markets are thus filled
with the greatest number of buyers. The act of navigation,
it is true, lays no burden upon foreign ships that come to
export the produce of British industry. Even the ancient
aliens duty, which used to be paid 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 hin
RESTRAINTS OF PARTICULAR IMPORTS 361
dered 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 dimin
ishing the number of sellers, therefore, we necessarily dimin
ish 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, however, is of
much more importance than opulence, the act of navigation
is, perhaps, the wisest of all the commercial regulations of
England.
The second case, in which it will generally be advantageous
to lay some burden upon foreign for the encouragement of
domestic industry, is, when some tax is imposed at home
upon the produce of the latter. In this case, it seems rea
sonable 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, 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 competition with those which had been
taxed at home. When the necessaries of life have been
taxed in any country, it becomes proper, they pretend, to tax
not only the like necessaries of life imported from other
countries, but all sorts of foreign goods which can come
into competition with any thing that is the produce of do
mestic industry. Subsistence, they say, becomes necessarily
dearer in consequence of such taxes ; and the price of labour
362 WEALTH OF NATIONS

must always rise with the price of the labourers subsistence.

Every commodity, therefore, which is the produce of do
mestic industry, though not immediately taxed itself, becomes
dearer in consequence of such taxes, because the labour
which produces it becomes so. Such taxes, therefore, are
really equivalent, they say, to a tax upon every particular
commodity produced at home. In order to put domestic
upon the same footing with foreign industry, therefore, it
becomes necessary, they think, to lay some duty upon every
foreign commodity, equal to this enhancement of the price
of the home commodities with which it can come into com
petition.
Whether taxes upon the necessaries of life, such as those
in Great Britain upon soap, salt, leather, candles, &c. neces
sarily 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 commodities, in con
sequence 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 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 employed, 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 cap
itals and industry, so is it likewise in the artificial scarcity
RESTRAINTS OF PARTICULAR IMPORTS 363
arising from such taxes. To be left to accommodate, as
well as they could, their industry to their situation, and to
find out those employments in which, notwithstanding their
unfavourable circumstances, they might have some advan
tage either in the home or in the foreign market, is what in
both cases would evidently be most for their advantage. To
lay a new tax upon them, because they are already overbur
dened 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 gen
erally imposed. No other countries could support so great a
disorder. As the strongest bodies only can live and enjoy
health, under an unwholesome regimen ; so the nations only,
that in every sort of industry have the greatest natural and
acquired advantages, can subsist and prosper under such
taxes. Holland is the country in Europe in which they
abound most, and which from peculiar circumstances con
tinues 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 ad
vantageous to lay some burden upon foreign, for the en
in
couragement
which it may
of domestic
sometimesindustry;
be a matter
so there
of deliberation;
are two others
in

the one, how far it is proper to continue the free importa

tion 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 delib
eration how far it is proper to continue the free importation
of certain foreign goods, is, when some foreign nation re
strains 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 importation
of some or all of their manufactures into ours. Nations ac
364 WEALTH OF NATIONS
cordingly seldom fail to retaliate in this manner. The French
have been particularly forward to favour their own manu
factures by restraining the importation of such foreign goods
as could come into competition with them. In this consisted
a great part of the policy of Mr. Colbert, who, notwith
standing his great abilities, seems in this case to have been
imposed upon by the sophistry of merchants and manufac
turers, who are always demanding a monopoly against their
countrymen. It is at present the opinion of the most intelli
gent men in France that his operations of this kind have not
been beneficial 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 impor
tation of the wines, brandies and manufactures of France.
The war of 1672 seems to have been in part occasioned 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 pro
hibition. 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, how
ever, seem to have set the first example. The spirit of hos
tility which has subsisted between the two nations ever since,
has hitherto hindered them from being moderated on either
side. In 1697 the English prohibited the importation of bone-
lace, the manufacture of Flanders. The government of that
country, at that time under the dominion of Spain, prohibited
in return the importation of English woollens. In 1700,
the prohibition of importing bonelace into England, was
taken off upon condition that the importation of English
woollens into Flanders should be put on the same footing as
before.
There may be good policy in retaliations of this kind, when
there is a probability that they will procure the repeal of the
high duties or prohibitions complained of. 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 re
taliations are likely to produce such an effect, does not, per
RESTRAINTS OF PARTICULAR IMPORTS 365
haps, belong so much to the science of a legislator, whose
deliberations ought to be governed by general principles
which are always the same, as to the skill of that insidious
and crafty animal, vulgarly called a statesman or politician,
whose councils are directed by the momentary fluctuations
of affairs. When there is no probability that any such repeal
can be procured, it seems a bad method of compensating the
injury done to certain classes of our people, to do another
injury ourselves, not only to those classes, but to almost all
the other classes of them. When our neighbours prohibit
some manufacture of ours, we generally prohibit, not only
the same, for that alone would seldom affect them consider
ably, but some other manufacture of theirs. This may no
doubt give encouragement to some particular class of work
men 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 de
liberation, how far, or in what manner, it is proper to re
store the free importation of foreign goods, after it has
been for some time interrupted, is, when particular manu
factures, by means of high duties or prohibitions upon all
foreign goods which can come into competition with them,
have been so far extended as to employ a great multitude
of hands. Humanity may in this case require that the free
dom of trade should be restored only by slow gradations,
and with a good deal of reserve and circumspection. Were
those high duties and prohibitions taken away all at once,
cheaper foreign goods of the same kind might be poured so
fast into the home market, as to deprive all at once many
thousands of our people of their ordinary employment and
means of subsistence. The disorder which this would occa
sion might no doubt be very considerable. It would in all
366 WEALTH OF NATIONS
probability, however, be much less than is commonly imag
ined, for the two following reasons :
First, all those manufactures, of which any part is com
monly exports to other European countries without a bounty,
could be very little affected by the freest importation of for
eign 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
employment of the people. But a great part of all the dif
ferent 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
restoring the freedom of trade, be thrown all at once out of
their ordinary employment and common method of subsis
tence, it would by no means follow that they would thereby
be deprived either of employment or subsistence. By the
reduction of the army and navy at the end of the late war,
more than a hundred thousand soldiers and seamen, a num
ber equal to what is employed in the greatest manufactures,
were all at once thrown out of their ordinary employment;
but, though they no doubt suffered some inconveniency, they
were not thereby deprived of all employment and subsis
tence. The greater part of the seamen, it is probable, gradu
ally betook themselves to 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 em
ployed 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
RESTRAINTS OF PARTICULAR IMPORTS 367
men, all accustomed to the use of arms, and many of them
to rapine and plunder. The number of vagrants was scarce
anywhere sensibly increased by it, even the wages of labour
were not reduced by it in any occupation, so far as I have
been
service.
able But
to learn,
if weexcept
compare
in that
together
of seamen
the habits
in theofmerchant-
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 accus
tomed 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 manu
factures besides, it has already been observed, there are
other collateral manufactures of so similar a nature, that a
workman can easily transfer his industry from one of them
to another. The greater part of such workmen, too, are
occasionally employed in country labour. The stock which
employed them in a particular manufacture before, will still
remain in the country to employ an equal number of people
in some other way. The capital of the country remaining
the same, the demand for labour will likewise be the same,
or very nearly the same, though it may be exerted in dif
ferent 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 ex
clusive 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 set
tlements, so that a poor workman, when thrown out of em
ployment 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
368 WEALTH OF NATIONS
public nor the individuals will suffer much more from the
occasional disbanding some particular classes of manufac
turers, 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 entirely restored in Great Britain, is as absurd as to ex
pect 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 individ
uals, irresistibly oppose it. Were the officers of the army to
oppose with the same zeal and unanimity any reduction in
the number of forces, with which master manufacturers set
themselves against every law that is likely to increase the
number of their rivals in the home market; were the former
to animate their soldiers, in the same manner as the latter
enflame their workmen, to attack with violence and outrage
the proposers of any such regulation; to attempt to reduce
the army would be as dangerous as it has now become to at
tempt 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 occa
sions intimidate the legislature. The member of parliament
who supports every proposal for strengthening this monop
oly, is sure to acquire not only the reputation of understand
ing trade, but great popularity and influence with an order
of men whose numbers and wealth render them of great im
portance. If he opposes them, on the contrary, and still
more if he has authority enough to be able to thwart them,
neither the most acknowledged probity, nor the highest rank,
nor the greatest public services, can protect him from the
most infamous abuse and detraction, from personal insults,
nor sometimes from real danger, arising from the insolent
outrage of furious and disappointed monopolists.
The undertaker of a great manufacture, who, by the home
markets being suddenly laid open to the competition of for
eigners, should be obliged to abandon his trade, would no
RESTRAINTS OF PARTICULAR IMPORTS 369

doubt suffer very considerably. That part of his capital

which had usually been employed in purchasing materials
and in paying his workmen, might, without much difficulty,
perhaps, find another employment. But that part of it which
was fixed in workhouses, and in the instruments of trade,
could scarce be disposed of without considerable loss. The
equitable regard, therefore, to his interest requires that
changes of this kind should never be introduced suddenly,
but slowly, gradually, and after a very long warning. The
legislature, were it possible that its deliberations could be
always directed, not by the clamorous importunity of partial
interests, but by an extensive view of the general good,
ought upon this very account, perhaps, to be particularly
careful neither to establish any new monopolies of this kind,
nor to extend further those which are already established.
Every such regulation introduces some degree of real dis
order into the constitution of the state, which it will be diffi
cult afterwards to cure without occasioning another disorder.
How far it may be proper to impose taxes upon the im
portation 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 importa
tion, are evidently as destructive of the revenue of the cus
toms as of the freedom of trade.
CHAPTER III
Of the Extraordinary Restraints Upon The Importation
of Goods of Almost All Kinds, from Those Coun
tries with Which the Balance Is Supposed
to Be Disadvantageous.

PART I
Of the Unreasonableness
Principles Of The
Of Those
Commercial
Restraints
System
Even Upon thb

TO lay extraordinary restraints upon the importation of

goods of almost all kinds, from those particular coun
tries with which the balance of trade is supposed to be
disadvantageous, is the second expedient by which the com
mercial system proposes to increase the quantity of gold and
silver. Thus in Great Britain, Silesia lawns may be im
ported for home consumption, upon paying certain duties.
But French cambrics and lawns are prohibited to be im
ported, except into the port of London, there to be ware
housed for exportation. Higher duties are imposed upon
the wines of France than upon those of Portugal, or indeed
of any other country. By what is called the impost i692, a
duty of five and twenty per cent., of the rate or value, was
laid upon all French goods; while the goods of other na
tions 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 i696, a second duty of twenty-five per cent., the
first not having been thought a sufficient discouragement,
was imposed upon all French goods, except brandy ; together
with a new duty of five and twenty pounds upon the ton of
370
ON IMPORTS FROM PARTICULAR COUNTRIES 371
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 enumerated in the book of rates. If we count the
one-third and two-third subsidies as making a complete sub
sidy between them, there have been five of these general
subsidies ; so that before the commencement of the present
war seventy-five per cent. may be considered as the lowest
duty, to which the greater- part of the goods of the growth,
produce, or manufacture of France were liable. But upon
the greater part of goods, those duties are equivalent to a
prohibition. The French in their turn have, I believe, treated
our goods and 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 na
tions, and smugglers are now the principal importers, either
of British goods into France, or of French goods into Great
Britain. The principles which I have been examining in the
foregoing chapter took their origin from private interest
and the spirit of monopoly; those which I am going to ex
amine in this, from national prejudice and animosity. They
are, accordingly, as might well be expected, still more un
reasonable. They are so, even upon the principles of the
commercial system.
First, though it were certain that in the case of a free
trade between France and England, for example, the balance
would be in favour of France, it would by no 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 importations would be diminished, in
proportion as the French goods of the same quality were
372 WEALTH OF NATIONS
cheaper than those of the other two countries. 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 goods imported. What has fre
quently 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-expor
tation 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 England,
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. National prejudice and animosity,
prompted always by the private interest of particular traders,
are the principles which generally direct our judgment upon
all questions concerning it. There are two criterions, how
ever, which have frequently been appealed to upon such
occasions, the custom-house books and the course of ex
change. The custom-house books, I think, it is now gener
ally acknowledged, are a very uncertain criterion, on account
of the inaccuracy of the valuation at which the greater part
of goods are rated in them. The course of exchange is, per
haps, 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 London to Paris are compensated by those due from
Paris to London. On the contrary, when a premium is paid
ON IMPORTS FROM PARTICULAR COUNTRIES 373
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 between those two cities must necessarily be regu
lated, it is said, by the ordinary course of their dealings with
one another. When neither of them imports from the other
to a greater amount than it exports to that other, the debts
and credits of each may compensate 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 in
debted to the latter in a greater sum than the latter becomes
indebted to it: the debts and credits of each do not com
pensate one another, and money must be sent out from that
place of which the debts over-balance the credits. The or
dinary 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 o,f|
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 or
dinary 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 Ham
burgh, 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 ordinary course of the deal
ings 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
374 WEALTH OF NATIONS
country may exceed very much the annual value of its im
ports from thence; and though what is called the balance of
trade may be very much in favour of England.
In the way, besides, in which the par of exchange has
hitherto been computed, the ordinary course of exchange
can afford no sufficient indication that 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 the com
puted one, that from the course of the latter, no certain
conclusion 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 supposed
to get a premium, and exchange is said to be against France,
and in favour of England.
But, first, we cannot always judge of the value of the cur
rent money of different countries by the standard of their
respective mints. In some it is more, in others it is less
worn, dipt, and otherwise degenerated from that standard.
But the value of the current coin of every country, com
pared 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 reforma
tion of the silver coin in King William's time, exchange be
tween England and Holland, computed, in the usual manner,
according to the standard of their respective mints, was five
and twenty per cent. against England. But the value of the
current coin of England, as we learn from 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, notwith
ON IMPORTS FROM PARTICULAR COUNTRIES 375
standing 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 supposed 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 ex
change might have been in its favour. Since the reforma
tion of the gold coin, the exchange has been constantly in
favour of England, and against France.
Secondly, in some countries, the expence 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 derives 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 England, as the coinage costs nothing, the current coin
can never be much more valuable than the quantity of bul
lion which it actually contains. In France, the workman
ship, as you pay for it, adds to the value, in the same man
ner 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 stand
ards of their respective mints, a sum of English money
could not well purchase a sum of French money, containing
an equal number of ounces of pure silver, nor consequently
a bill upon France for such a sum. If for such a bill no
more additional money .was paid than what was sufficient to
compensate the expence of the French coinage, the real ex
change might be at par between the two countries, their
275 WEALTH OF NATIONS

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 lastly, in some places, as at Amsterdam, Ham
burg, 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 cur
rency of the country. What is called bank money is always
of more value than the same nominal sum of common cur
rency. A thousand guilders in the bank of Amsterdam, for
example, are of more value than a thousand guilders of
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 evi
dent 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 ex
change, before the late reformation of the gold coin, was
generally against London, with Amsterdam, Hamburgh,
Venice, and, I believe, with all other places which pay in
what is called bank money. It will by no means follow, how
ever, that the real exchange was against it. Since the re
formation of the gold coin, it has been in favour of London
even with those places. The computed exchange has gener
ally been in favour of London with Lisbon, Antwerp, Leg
horn, and, if you except France, I believe, with most other
parts of Europe that pay in common currency; and it is not
improbable that the real exchange was so too.
ON IMPORTS FROM PARTICULAR COUNTRIES 377

PART II
Of the Unreasonableness Of Those Extraordinary Restraints
Upon Other Principles

In the foregoing Part of this Chapter I have en

deavoured to shew, even upon the principles of the com
mercial system, how unnecessary it is to lay extraordinary
restraints upon the importation of goods from those coun
tries with which the balance of trade is supposed to be dis
advantageous.
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 in pro
portion to its declension from the exact equilibrium. Both
suppositions are false. A' trade which is forced by means of
bounties and monopolies, may be, and commonly is disad
vantageous 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 quantity of gold and silver, but that of the exchangeable
value of the annual produce of the land and labour of the
country, or the increase of the annual revenue of its in
habitants.
If the balance be even, and if the trade between the two
places consist altogether in the exchange of their native com
modities, 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 em
ployed in raising and preparing for the market this part of
the surplus produce of the other, and which had been dis
tributed among, and given revenue and maintenance to a
378 WEALTH OF NATIONS
certain number of its inhabitants. Some part of the in
habitants of each, therefore, will indirectly derive their
revenue and maintenance from the other. As the commodi
ties 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 revenue 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 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 exported 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 annually repay them by send
ing 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 distrib
uted among the people of England. The greater part of it
would replace the capitals which had been employed in Vir
ginia, Indostan, and China, and which had given revenue
ON IMPORTS PROM PARTICULAR COUNTRIES 379
and maintenance to the inhabitants of those distant countries.
If the capitals were equal, or nearly equal, therefore, this
employment of the French capital would augment much
more the revenue of the people of France, than that of the
English capital would the revenue of the people of England.
France would in this case carry on a direct foreign trade of
consumption with England; whereas England would carry
on a round-about trade of the same kind with France. The
different effects of a capital employed in the direct, and of
one employed in the round-about foreign trade of 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 an
nually imported 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 foregoing, give some revenue
to the inhabitants of both countries, but more to those of
France than to those of England. It would give some reve
nue 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 Eng
land, would thereby be replaced, 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 consequently, it is expected, will be of more
value at home than the commodities exported. If the to
380 WEALTH OF NATIONS
bacco 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 thou
sand pounds. If a hundred thousand pounds of Englisi
gold, in the same manner, purchase French wine, which, in
England, 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 thou
sand 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 quan
tity 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 different inhabitants, and the quantity of industry
which can be annually maintained in it, is equal to what all
those different capitals can maintain. Both the capital of
the country, therefore, and the quantity of industry which
can be annually maintained in it, must generally be aug
mented by this exchange. It would, indeed, be more advan
tageous 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 consumption, which is carried
on with gold and silver, does not seem to be less advan
tageous 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 where
withal 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
ON IMPORTS FROM PARTICULAR COUNTRIES 381

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 advantageous as any other,
though, perhaps, somewhat more liable to be abused. The
employment of a brewer, and even that of a retailer of fer
mented liquors, are as necessary divisions of labour as any
other. It will generally be more advantageous for a work
man to buy of the brewer the quantity he has occasion for,
than to brew it himself, and if he is a poor workman, it will
generally be more advantageous for him to buy it, by little
and little, of the retailer, than a large quantity of the brewer.
He may no doubt buy too much of either, as he may of any
other dealers in his neighbourhood, of the butcher, if he is a
glutton, or of the draper, if he affects to be a beau among
his companions. It is 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 for
tunes by an excessive consumption of fermented liquors,
there seems to be no risk that a nation should do so. Though
in every country there are many people who spend upon such
liquors more than they can afford, there are always many
more who spend less. It deserves to be remarked too, that,
if we consult experience, the cheapness of wine seems to be
a cause, not of drunkenness, but of sobriety. The inhabit
ants of the wine countries are in general the soberest people
in Europe; witness the Spaniards, the Italians, and the in
habitants of the southern 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 exces
sive heat or cold, produce no grapes, and where wine con
sequently 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 conies from some of
the northern provinces of France, where wine is somewhat
382 WEALTH OF NATIONS

dear, to be quartered in the southern, where it is very cheap,

the soldiers, I have frequently heard it observed, are at first
debauched by the cheapness and novelty of good wine; but
after a few months residence, the greater part of them be
come 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
tianner, occasion in Great Britain a pretty general and tem
porary 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 drunken
ness is by no means the vice of people of fashion, or of those
who can easily afford the most expensive liquors. A gen
tleman drunk with ale, has scarce ever been seen among us.
The restraints upon the wine trade in Great Britain, be
sides, do not so much seem calculated to hinder the people
from going, if I may say so, to the alehouse, as from going
where they can, 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 cus
tomers for our manufactures 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 purchases 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 nation has been made to look with an
invidious eye upon the prosperity of all the nations with
which it trades, and to consider their gain as its own loss.
Commerce, which ought naturally to be, among nations, as
among individuals, a bond of union and friendship, has be
come 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
ON IMPORTS FROM PARTICULAR COUNTRIES 383
the repose of Europe, than the impertinent jealousy of mer
chants and manufacturers. 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
invented 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 ridiculous to
take any pains to prove it ; nor could it ever have been called
in question, had not the interested sophistry- of merchants
and manufacturers confounded the common sense of man
kind. 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 in
habitants from employing any workmen but themselves, 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 countries, the extraordinary duties upon almost
all goods imported by alien merchants. Hence the high
duties and prohibitions upon all those foreign manufactures
which can come into competition with our own. Hence too
the extraordinary restraints upon the importation of almost
all sorts of goods from those countries with which the bal
ance 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
384 WEALTH OF NATIONS
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 indus
trious people in his neighbourhood, than a poor, so is like
wise 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 neighbour
hood, 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 barbarians might, no doubt, acquire riches by the cul
tivation of its own lands, and by its own interior commerce,
but not by foreign trade. It seems to have been in this
manner that the ancient Egyptians and the modern Chinese
acquired their great wealth. The ancient Egyptians, it is
said, neglected foreign 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
ON IMPORTS FROM PARTICULAR COUNTRIES 385
maxims of foreign commerce, by aiming at the impoverish
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 ani
mosity, 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 be
tween the southern coast of England and the northern and
north-western coasts of France, the returns might be ex
pected, 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 ad
vantageous 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
four
five years.
millionsFrance,
of inhabitants.
besides, isOur
supposed
North to
American
contain colonies
twenty-

were never supposed to contain more than three millions :

And France is a much richer country than North America;
though, on account of the more unequal distribution of
riches, there is much more poverty and beggary in the one
country, than in the other. France therefore could afford
a market at least eight times more extensive, and, on ac
count of the superior frequency of the returns, four and
twenty times more advantageous, than that which our North
386 WEALTH OF NATIONS
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 ren
dered an open and free commerce between the two countries
so advantageous to both, have occasioned the principal ob
structions to that commerce. Being neighbours, they are
necessarily enemies, and the wealth and power of each be
comes, upon that account, more formidable to the other;
and what would increase the advantage of national friend
ship, serves only to inflame the violence of national ani
mosity. They are both rich and industrious nations; and
the merchants and manufacturers of each, dread the com
petition of the skill and activity of those of the other. Mer
cantile 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 pas
sionate 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 commerce with the other.
There is no commercial country in Europe of which the
approaching 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 proportion as they have opened their ports to all nations,
instead of being ruined by this free trade, as the principles
of the commercial system would lead us to expect, have been
enriched by it. Though there are in Europe, indeed, a few
towns which in some respects deserve the name of free ports,
ON IMPORTS FROM PARTICULAR COUNTRIES 387

there is no country which does so. Holland, perhaps, ap

proaches 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 neces
sary subsistence, from foreign trade.
There is another balance, indeed, which has already been
explained, very different from the balance of trade, and
which, according 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
increase in proportion to this excess. The society in this
case lives within its revenue, and what is annually saved
out of its revenue, is naturally added to its capital, and em
ployed so as to increase still further the annual produce. If
the exchangeable value of the annual produce, on the con
trary, fall short of the annual consumption, the capital of the
society must annually decay in proportion to this deficiency.
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 dif
ferent 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 in
creasing or gradually decaying.
The balance of produce and consumption may be con
stantly in favour of a nation, though what is called the bal
ance 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 sent out of it ; its circulat
ing 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
388 WEALTH OF NATIONS
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 proportion. 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 encouragements to exportation.
Of these encouragements what are called Drawbacks seem
to be the most reasonable. To allow the merchant to draw
back upon exportation, either the whole or a part of what
ever 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 employment of its
own accord, but only to hinder the duty from driving away
any part of that share to other employments. They tend not
to overturn that balance which naturally 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 advan
tageous to preserve, the natural division and distribution of
labour in the society.
The same thing may be said of the drawbacks upon the re
exportation 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 en
couragement of the carrying trade, which, as the freight of
the ships is frequently paid by foreigners in money, was sap
390 WEALTH OF NATIONS
posed to be peculiarly fitted for bringing gold and silver into
the country. But though the carrying trade certainly de
serves no peculiar encouragement, though the motive of the
institution was, perhaps, abundantly foolish, 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 pre
vent its being excluded altogether by those duties. The
carrying trade, though it deserves no preference, ought not
to be precluded, but to be left free like all other trades. It
is a necessary resource 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 re
tained. 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 cus
toms a good deal more; but the natural balance of industry,
the natural division and distribution of labour, which is al
ways 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
exporting goods to those countries which are altogether for
eign and independent, not to those in which our merchants
and manufacturers enjoy a monopoly. A drawback, for ex
ample, upon the exportation of European goods to our Ameri
can colonies, will not always occasion a greater exportation
than what would have taken place without it. By means of
the monopoly which our merchants and manufacturers enjoy
there, the same quantity might frequently, perhaps, be sent
DRAWBACKS 391
thither, though the whole duties were retained. The draw
back, 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 justified, 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 exporta
tion of which they are given, are really exported to some
foreign country ; and not clandestinely re-imported into our
own. That some drawbacks, 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, fre

quently petitioned for, and sometimes granted to the
produce of particular branches of domestic industry.
By means of them our merchants and manufacturers, it is
pretended, will be enabled to sell their goods as cheap or
cheaper than their rivals in 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 coun
try. We cannot give our workmen a monopoly in the foreign,
as we have done in the home market. We cannot force for
eigners to buy their goods, as we have done our own country
men. The next best expedient, it has been thought, therefore,
is to pay them for buying. It is in this manner that the mer
cantile 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
392
BOUNTIES S93
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 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 regu
larly 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 mer
chant 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 mer
cantile system, 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 exported, valued moderately enough, has exceeded
that of the corn imported, 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, upon
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 exporta
tion 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 capital,
together with the ordinary profits of stock, the society is a
loser by the difference, or the national stock is to much

\
,:

304
diminished. But WEALTH
the very OF
reason
NATIONS
for which it has been.

thought necessary to grant a bounty, is the supposed insuffi

ciency of the price to do this.
The average price of corn, it has been said, has fallen con
siderably 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 happened in spite
of the bounty, and cannot possibly have happened in conse
quence of it. It has happened in France, as well as in Eng
land, though in France there was, not only no bounty, but,
till i764, 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 in
sensible 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 exportation, 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 fre
quently suspended, yet the great exportation which it occa
sions 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, therefore,
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 neces
sarily 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
BOUNTIES 305
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, occasion such an increase in the production of corn,
as may lower its price in the home market, much more than
the bounty can raise it, in 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 altogether 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 in
crease the consumption, and to lower the price of that com
modity. 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 contribute, in order to pay the bounty; and secondly, the
tax which arises from the advanced price of the commodity
in the home market, and which, as the whole body of the
people are purchasers of corn, must, in this particular com
modity, be paid by the whole body of the people. In this par
ticular 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 com
modity 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 exported, 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
396 WEALTH OF NATIONS
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 sub
sistence. So far as it operates in the one way, it must
reduce the ability of the labouring poor to educate and
bring up their children, and must, so far, tend to restrain
the population of the country. So far as it 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 coun
try. The extraordinary exportation of corn, therefore, oc
casioned by the bounty, not only, in every particular year,
diminishes 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 extension of the home market; and
thereby, in the long run, rather to diminish, than to augment,
the whole market and consumption of corn.
This enhancement of the money price of corn, however, it
has been thought, by rendering that commodity more profit
able to the farmer, must necessarily encourage its production.
I 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 people, may be very burdensome
to those who pay it, it is of very little advantage to those
who receive it.
The real effect of the bounty is not so much to raise the
real value of corn, as to degrade the real value of silver; or
to make an equal quantity of it exchange for a smaller quan
BOUNTIES 397
tity, not only of corn, but of all other home-made commodi
ties: 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 sufficient 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 produce of land, which, in every period of improve
ment, must bear a certain proportion to that of corn, though
this proportion is different 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 car
riage consequently, or of the greater part of the inland com
merce of the country.
By regulating the money price of all the other parts of
the rude produce of land, it regulates that of the materials
of almost all manufactures. By regulating the money price
of labour, it regulates that of manufacturing art and indus
try. And by regulating both, it regulates that of the com
plete manufacture. The money price of labour, and of every
thing that is the produce either of land or labour, must neces
sarily 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 proportionable to this rise in the
money price of his produce ; yet if, in consequence of this
rise in the price of corn, four shillings will purchase 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 cul
tivate much better : the landlord will not be able to live much
better. In the purchase of foreign commodities this en
hancement in the price of corn may give them some little ad
vantage. In that of home-made commodities it can give
986 WEALTH OF NATIONS
them none at all. And almost the whole expence of the
farmer, and the far greater part even of that of the land
lord, 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 commer
cial world, is a matter of very little consequence to any par
ticular 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 pre
cisely of the same real value as before.
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 industry which
is carried on within it, and to enable foreign nations, by fur
nishing almost all sorts of goods for a smaller quantity of
silver than its own workmen can afford to do, to under
sell them, not only in the foreign, but even in the home
market.
It is the peculiar situation of Spain and Portugal as pro
prietors 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 matter, and
their insurance is the same as that of any other goods of
equal value. Spain and Portugal, therefore, could suffer very
little from their peculiar situation, if they did not aggravate
its disadvantages by their political institutions.
Spain by taxing, and Portugal by prohibiting the exporta
tion of gold and silver, load that exportation with the ex-
pence of smuggling, and raise the value of those metals in
BOUNTIES 399
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 ex
portation of gold and silver from Spain and Portugal accord
ingly is, by all accounts, notwithstanding these restraints,
very near equal to the whole annual importation. As the
water, however, must always be deeper behind the dam-head
than before it, so the quantity of gold and silver which these
restraints detain in Spain and Portugal must, in proportion to
the annual produce of their land and labour, be greater than
what is to be found in other countries. The higher and
stronger the dam-head, the greater must be the difference in
the depth of water behind and before it. 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 dif
ference 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
considerable, and that you frequently find there a profusion
of plate in houses, where there is nothing else which would,
in other countries, be thought suitable or correspondent to
this sort of magnificence. 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 manu
factures of Spain and Portugal, and enables foreign nations
to supply them with many sorts of rude, and with almost all
sorts of manufactured produce, for a smaller quantity of gold
and silver than what they themselves can either raise or
make them for at home. The tax and prohibition operate in
two different ways. They not only lower very much the
400 WEALTH OF NATIONS
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 other
wise would be, and thereby give those countries a double ad
vantage 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 consid
erably in Spain and Portugal, so it will increase somewhat
in other countries, and the value of those metals, their pro
portion 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 exportation
of their gold and silver would be altogether nominal and im
aginary. The nominal value of their goods, and of the an
nual produce of their land and labour, would fall, and would
be expressed or represented by a smaller quantity of silver
than before: but their real value would be the same as be
fore, and would be sufficient to maintain, command, and em
ploy, 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 quantity of
those metals would answer all the same purposes of com
merce and circulation which had employed a greater quan
tity before. 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 extraordinary
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 maintenance of industrious people, who
would reproduce, with a profit, the full value of their con
sumption. A part of the dead stock of the society would
BOUNTIES 401
thus be turned into active stock, and would put into motion
a greater quantity of industry than had been employed be
fore The annual produce of their land and labour would
immediately 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 The
at present
bountylabours
upon the
under.
exportation of corn necessarily oper

ates exactly 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 regu
lates 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 do, but sometimes to eat it cheaper than even our own
people can do upon the same occasions ; as we are assured by
an excellent authority, that of Sir 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 mar
ket, and their's somewhat cheaper than they otherwise would
be, and consequently 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,
Hot 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 discourages our manufactures,
without rendering any considerable service either to our
farmers or country gentlemen. It puts, indeed, a little more
money into the pockets 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, pro
visions, and home-made commodities of all different kinds
which it is capable of purchasing, as much as it rises in its
i02 WEALTH OF NATIONS
quantity, the service will be little more than nominal and
imaginary.
monwealth
There is, to
perhaps,
whom but
the one
bounty
set either
of menwas
in the
or could
whole becom-
es

sentially serviceable. 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 busi
ness 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 continuance or
renewal of the bounty.
Our country gentlemen, when they imposed the high duties
upon the importation of foreign corn, which in times of mod
erate plenty amount to a prohibition, and when they estab
lished the bounty, seem to have imitated the conduct of our
manufacturers. By the one institution, they secured to them
selves 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 endeav
oured 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 established between corn and almost every
other sort of goods. When, either by the monoply 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 quan
tity of labour and subsistence, you encrease not only the
nominal, but the real profit, the real wealth and revenue of
BOUNTIES 403
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 quan
tity 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 gentle
men. You do not encourage the growth of corn, because
you do not enable them to maintain and employ more labour
ers 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 com
petition cannot lower it. Through the world in general that
value is equal to the quantity of labour which it can main
tain, and in every particular place it is equal to the quantity
of labour which it can maintain in the way, whether liberal,
moderate, or scanty, in which labour is commonly maintained
in that place. Woollen or linen cloth are not the regulating
commodities by which the real value of all other commodi
ties 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 sometimes occur from one century to
another. It is the real value of silver which varies with
them.
Bounties upon the exportation of any home-made com
modity are liable, first, to that general objection which may
be made to all the different expedients of the mercantile sys- |
tern; 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 disad
vantageous ; the trade which cannot be carried on but by
means of a bounty being necessarily a losing trade. The
404 WEALTH OF NATIONS
bounty upon the exportation 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 encour
age the production. When our country gentlemen, therefore,
demanded the establishment of the bounty, though they acted
in imitation of our merchants and manufacturers, they did
not act with that complete comprehension of their own in
terest 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 com
modity ; and by lowering somewhat the real value of silver,
they discouraged, in some degree, the general industry of
the country, and, instead of advancing, retarded more or less
the improvement of their own lands, which necessarily de
pends 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 di
rect operation, 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 the commodity in the home
market; and thereby, instead of imposing a second tax upon
the people, it might at least in part, repay them for what
they had contributed to the first. Bounties upon production,
however, have been very rarely granted. The prejudices es
tablished by the commercial system have taught us to believe,
that nominal wealth arises more immediately from exporta
tion than from production. It has been more favoured ac
cordingly, as the more immediate means of bringing money
into the country. Bounties upon production, 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.
BOUNTIES 405
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 ex
pedients of the mercantile system, accordingly, it is the one of
which they are the fondest. I have known the different
undertakers of some particular works agree privately among
themselves to give a bounty out of their own pockets upon
the exportation of a certain proportion of the goods which
they dealt in. This expedient succeeded so well, that it more
than doubled the price of their goods in the home market,
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 considered as somewhat of this nature. They
tend directly, it may be supposed, to render the goods cheaper
in the home market than they otherwise would be. In other
respects their effects, it must be acknowledged, are the same
as those of bounties upon exportation. By means of them
a part of the capital of the country is employed in bringing
goods to market, of which the price does not repay the cost,
together with the ordinary profits of stock.
If any particular manufacture was necessary, indeed, for
the defence 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 in
dustry should be taxed in order to support it. The bounties
made
upon the
gun-powder,
exportationmay,
of British-made
perhaps, both
sail-cloth,
be vindicated
and British-
upon

this principle.
But though it can very seldom be reasonable to tax the
industry of the great body of the people, in order to support
that of some particular class of manufacturers; yet in the
wantonness of great prosperity, when the public enjoys a
greater revenue than it knows well what to do with, to give
such bounties to favourite manufacturers, may, perhaps, be
406 WEALTH OF NATIONS
as natural, as to incur any other idle expence. In public, as
well as in private expences, great wealth may, perhaps, fre
quently 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 objec
tions as what is properly a bounty. The bounty, for example,
upon refined sugar exported, may be considered as a draw
back of the duties upon the brown and muscovado sugars
from which it is made. The bounty upon wrought silk ex
ported, a drawback of the duties upon raw and thrown silk
imported. The bounty upon gunpowder exported, a draw
back of the duties upon brimstone and saltpetre imported.
In the language of the customs those allowances only are
called drawbacks, 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 manufacttf /ers
who excel in their particular occupations, are not liable to
the same objections as bounties. By encouraging extraordi
nary dexterity and ingenuity, they serve to keep up the emu
lation 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 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 com
plete 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 sometimes called bounties. But we must in all cases at
tend 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 coun
try which it prohibits from all others, or to exempt
the goods of one country from duties to which it subjects those
of all others, the country, or at least the merchants and manu
facturers of the country, whose commerce is so favoured,
must necessarily derive great advantage from the treaty
Those merchants and manufacturers enjoy a sort of mo
nopoly in the country which is so indulgent to them. That
country becomes a market both more extensive and more
advantageous for their goods ; more extensive, because the
goods of other nations being either excluded or subjected to
heavier duties, it takes off a greater quantity of theirs : more
advantageous, because the merchants of the favoured coun
try, enjoying a sort of monopoly there, will often sell their
goods for a better price than if exposed to the free competi
tion of all other nations.
Such treaties, however, though they may be advantageous
to the merchants and manufacturers of the favoured, are
necessarily disadvantageous to those of the favouring coun
try. A monopoly is thus granted against them to a foreign
nation ; and they must frequently 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 con
sequently be sold cheaper, because when two things are ex
changed for one another, the cheapness of the one is a neces
sary 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 dimirmtion, however, can scarce amount to any
407
406 WEALTH OF NATIONS
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
for less than they cost; nor, as in the case of bounties, for
a price which will not replace the capital employed in bring
ing them to market, 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
Some less
treaties
than of
if there
commerce,
was ahowever,
free competition.
have been supposed

advantageous 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 be
tween England and Portugal, concluded in i703, 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 indirectly, whether they shall be imported
into Great Britain in pipes or hogsheads, or other casks, than
TREATIES OF COMMERCE 469
what shall be demanded for the like quantity or measure of
French wine, deducting 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 man
ner be attempted and prejudiced, it shall be just and lawful
for his sacred royal majesty of Portugal, again to prohibit
the woollen cloths, and the rest of the British woollen
manufactures.
ART. III

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 example. 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, there
fore, is evidently advantageous to Portugal, and disadvan
tageous 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 em
ployed in its domestic commerce, 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 ad
vantageous 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 Bngland. Mr. Baretti
was informed that the weekly packet-boat from Lisbon
410 WEALTH OF NATIONS
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
hundred 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 treaty, but by the free grace of that
crown, at the solicitation, indeed, it is probable, and in return
for much greater favours, defence and protection, from the
crown of Great Britain, had been either infringed or re
voked. The people, therefore, usually most interested in
celebrating the Portugal trade, were then rather disposed to
represent it as less advantageous than it had commonly been
imagined. The far greater part, almost the whole, they pre
tended, of this annual importation of gold, was not on ac
count of Great Britain, but of other European nations; the
fruits and wines of Portugal annually 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 pur
chased 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 after
wards to purchase with that gold those consumable goods. A
direct foreign trade of consumption is always more advan
tageous 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
TREATIES OF COMMERCE 411
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 Eng
land. 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.
Though Britain were entirely excluded from the Portugal
trade, it could find very little difficulty in procuring all the
annual supplies of gold which it wants, either for the pur
poses 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 dif
ference, however, would surely be too insignificant to de
serve 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 neces
sarily 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
412 WEALTH OF NATIONS
trade, appears to be in our favour with some particular coun
tries, the more it must necessarily appear to be against us
with many others.
It was upon this silly notion, however, that England could
not subsist without the Portugal trade, that, towards the
end of the late war, France and Spain, without pretending
either offence or provocation, required the king of Portugal
to exclude all British ships from his ports, and for the se
curity of this exclusion, to receive into them French or
Spanish garrisons. Had the king of Portgual 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 inconveniency than the loss of the
Portugal trade, the burden of supporting 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 mer
chants at that time engaged in it, who might not, perhaps,
have found out, for a year or two, any other equally advan
tageous 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 com
mercial 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 instru
ments of commerce, they are more readily received in re
turn for all commodities than any other goods; and on ac
count of their small bulk and great value, it costs less to
transport them backward and forward from one place to an
other 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
TREATIES OF COMMERCE 413
convenient as gold and silver. In facilitating all the different
round-about foreign trades of consumption which are car
ried on in Great Britain, consists the principal advantage of
the Portugal trade; and though it is not a capital advantage,
it is, no doubt, a considerable one.
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 altogether 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
foundation of Rome, were inhabited by barbarous and un
civilised nations: those of the Ionians 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 consid
ered the colony as a child, at all times entitled to great
favour and assistance, and owing in return much gratitude
and respect, yet considered it as an emancipated child, over
whom she pretended to claim no direct authority or juris
diction. 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 independent state,
414
MOTIVES FOR ESTABLISHING COLONIES 415

which had no occasion to wait foi the approbation or con

sent of the mother city. Nothing can be more plain and
distinct than the interest which directed every such estab
lishment.
Rome, like most of the other ancient republics, was orig

inally 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, neces
sarily deranged this original division, and frequently threw
the lands, which had been allotted for the maintenance 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 English acres. This law, however, though
we read of its having been executed upon one or two occa
sions, 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 overseer, who
was likewise a slave ; so that a poor freeman had little 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
416 WEALTH OF NATIONS
of private property as the fundamental law of the republic.
The people became clamorous 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 meas
ure, therefore, they frequently proposed to send out a new
colony. But conquering Rome was, even upon such occa
sions, under no necessity of turning out her citizens to seek
their 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 people, but
often established a sort of garrison too in a newly conquered
province, of which the obedience might otherwise have been
doubtful. A Roman colony, therefore, whether we consider
the nature of the establishment itself, or the motives for mak
ing 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 (iitoix(a) on the contrary, signifies a sep
aration 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 under
stood at their first establishment, and was not the motive
either of that establishment or of the discoveries which gave
occasion to it ; and the nature, extent, and limits of that
utility are not, perhaps, well understood at this day.
MOTIVES FOR ESTABLISHING COLONIES 417

The Venetians, during the fourteenth and fifteenth cen

turies, 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.
The great profits of the Venetians tempted the avidity of
the Portuguese. 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 i497, 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 cen
tury together
Some years before this, while the expectations of Europe
were in suspense about the projects of the Portuguese, of
which the success appeared yet to be doubtful, a Genoese
pilot formed the yet more daring project of sailing to the
East Indies by the West. The situation of those countries
was at that time very imperfectly known in Europe. The
few European 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 some
what 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
418 WEALTH OF NATIONS
had the good fortune to convince Isabella of Castile of the
probability of his project. He sailed from the port of Palos
in August, i492, near five years before the expedition 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 populousness 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 sufficient to make
him return to this favourite prepossession, though contrary
to the clearest evidence. In his letters to Ferdinand and
Isabella he called the countries which he had discovered, the
Indies. He entertained no doubt but that they were the ex
tremity 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 conquered 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 different from the old Indies, the former
were called the West, in contradistinction to the latter, which
were called the East Indies.
MOTIVES FOR ESTABLISHING COLONIES 419
It was of importance to Columbus, however, that the coun
tries which he had discovered, whatever they were, should be
represented to the court of Spain as of very great conse
quence; and, in what constitutes the real riches of every
country, the animal and vegetable productions of the soil,
there was at that time nothing which could well justify such
a representation of them.
The Cori, something between a rat and a rabbit, and sup
posed by Mr. Bufifon 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 some other tribes of
a still smaller size. These, however, together with a pretty
large lizard, called the Ivana or Iguana, constituted the prin
cipal 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 consisted 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 produc
tions 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
ithe 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 advan
tageous representation of them, Columbus turned his view
towards their minerals ; and in the richness of the production
of this third kingdom, he flattered 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 orna
420 WEALTH OF NATIONS

mented their dress, and which, he was informed, they fre

quently 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, there
fore, 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 kindom of Spain. When
Columbus, upon his return from his first voyage, was intro-
' duced with a sort of triumphal honours to the sovereigns of
Castile and Arragon, the principal productions of the coun
tries which he had discovered were carried in solemn pro
cession before him. The only valuable part of them con
sisted in some little fillets, bracelets, and other ornaments of
gold, and in some bales of cotton. The rest were mere ob
jects of vulgar wonder and curiosity; some reeds of an ex
traordinary 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 na
tives, 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 inhabitants were plainly incapable of defending
themselves. The pious purpose of converting them to Chris
tianity 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 perhaps very difficult to pay even this
heavy tax. But when the natives were once fairly stript of
all that they had, which, in St. Domingo, and in all the other
countries discovered by Columbus, was done completely in
six or eight years, and when in order to find more it had be
come necessary to dig for it in the mines, there was no longer
MOTIVES FOR ESTABLISHING COLONIES 421
any possibility of paying this tax. The rigorous exaction of
it, accordingly, first occasioned, it is said, the total abandon
ing 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 twen
tieth 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, subsequent to those of Columbus, seem to have been
prompted by the same motive. It was the sacred thirst of
gold that carried Oieda, Nicuessa, and Vasco Nugnes de
Balboa, to the isthmus of Darien, that carried Cortez to
Mexico, and Almagro and Pizzarro to Chili 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
concerning this particular, they determined either to quit the
country or to settle in it.
Of all those expensive and uncertain projects, however,
which bring bankruptcy upon the greater part of the people
who engage in them, there is none perhaps more perfectly
ruinous than the search after new silver and gold mines. It
is perhaps the most disadvantageous lottery in 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 com
mon price of a ticket is the whole fortune of a very rich man.
Projects of mining, instead of replacing the capital employed
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 con
fidence which almost all men have in their own eraod fortune,
422 WEALTH OF NATIONS
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 experience
concerning such projects has always been extremely un
favourable, that of human avidity has commonly been quite
otherwise. The same passion which has suggested to so
many people the absurd idea of the philosopher's stone, has
suggested to others 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 sur
rounded those small quantities, and consequently from the
labour and expence which are every where necessary in order
to penetrate to and get at them. They flattered themselves
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 concerning 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 ex
pressed with great warmth, and I dare to say, with great sin
cerity, 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 prob
ably been very much magnified, as well as the fertility of the
mines which were wrought immediately after the first dis
covery. 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 upon very few other occasions. She real-
MOTIVES FOR ESTABLISHING COLONIES 423

ized in some measure the extravagant hopes 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 Columbus), she presented
them with something not very unlike that profusion of the
precious metals which they sought for. i
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 Span
iards 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 ex
pecting.
The first adventurers of all the other nations of Europe,
who attempted to make settlements in America, were ani
mated by the like 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 work
ing. 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 Lon
don 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 sett‘ers
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

discouragement of importation, are the two great en
gines by which the mercantile system proposes to en
rich every country, yet with regard to some particular com
modities, it seems to follow an opposite plan: to discourage
exportation and to encourage importation. Its ultimate ob
ject, 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 exportation of a few commodities, of no great
price, it proposes to occasion a much greater and more valu
able 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 manu
factured commodities. I do not observe, at least in our
Statute Book, any encouragement given to the importation of
the instruments of trade. When manufactures have advanced
to a certain pitch of greatness, the fabrication of the instru
ments 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 encouraged, has
frequently been prohibited. Thus the importation of wool
cards, except from Ireland, or when brought in as wreck or
prize goods, was prohibited by the 3d of Edward IV.,
which prohibition was renewed by the 39th of Elizabeth,
424
CONCLUSION OF MERCANTILE SYSTEM 425

and has been continued and rendered perpetual by subse

quent laws.
The importation of the materials of manufacture has some
times 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 Greenland fishery, of pig and bar
iron from the British colonies, as well as of several other
materials of manufacture, has been encouraged by an ex
emption from all duties, if properly entered at the custom
house. The private interest of our merchants and manufac
turers may, perhaps, have extorted from the legislature these
exemptions, as well as the greater part of our other com
mercial regulations. They are, however, perfectly just and
reasonable, and if, consistently with the necessities of the
state, they could be extended to all the other materials 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. i5, the
same law which gave a bounty upon the exportation of Brit
ish 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 opera
tions, however, which are necessary for the preparation of
linen yarn, a good deal more industry is employed, than in
the subsequent operation of preparing linen cloth from linen
jam. To say nothing of the industry of the flax-growere
436 WEALTH OF NATIONS

and flax-dressers, three or four spinners, at least, are neces

sary, 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 people, women
commonly, scattered about in all different parts of the coun
try, 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 interest to sell the complete manufacture as dear,
so is it to buy the materials as cheap as possible. By extort
ing 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 importation
of foreign linen yarn, and thereby bringing it into compe
tition with that which is made by our own people, they en
deavour 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 earnings of the poor spinners, and it is
by no means for the benefit of the workman, that they en
deavour either to raise the price of the complete work, or to
lower that of the rude materials. It is the industry 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 in
digent, is too often, either neglected, or oppressed.
Both the bounty upon the exportation of linen, and the
exemption from duty upon the importation of foreign yarn,
which were granted only for fifteen years, but continued by
two different prolongations, expire with the end of the ses
sion of parliament which shall immediately follow the 24th
of June i786.
The encouragement given to the importation of the ma
terials of manufacture by bounties, has been principally con
fined to such as were imported from our American planta
tions.
The first bounties of this kind were those granted, about the
beginning of the present century, upon the importation of
CONCLUSION OF MERCANTILE SYSTEM 427
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 imported into England from Scotland. Both these boun
ties continued without any variation, at the same rate, till
they were severally allowed to expire ; that upon hemp on
the ist of January i74i, and that upon masting-timber at the
end of the session of parliament immediately following the
24th June i 78 i.
The bounties upon the importation of tar, pitch, and tur
pentine underwent, during their continuance, several altera
tions. Originally that upon tar was four pounds the ton;
that upon pitch the same; and that upon turpentine, three
pounds the ton. The bounty of four pounds the ton upon
tar was afterwards confined to such as had been prepared in
a particular manner; that upon other good, clean, and mer
chantable tar was reduced to two pounds 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 2i Geo. II. chap 30. upon the im
portation of indigo from the British 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 pound. 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 pound. It
was allowed to expire with the end of the session of parlia
ment which followed the 25th March i78i.
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. upon the importation of hemp, or un
dressed flax, from the British plantations. This bounty was
granted for twenty-one years, from the 24th June i764, to
the 24th June i785. For the first seven years it was to be at
428 WEALTH OF NATIONS
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 im
portation of Scotch flax into England would have been too
great a discouragement 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, chap. 45. upon the importation of wood from
America. It was granted for nine years, from the ist Janu
ary i766, to the ist January i775. 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 shil
lings. 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 importation of raw silk from
the British plantations. It was granted for twenty-one years,
from the ist January i77o, to the ist January i79i. 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 manage
ment of the silk-worm, and the preparation of silk, requires
so much hand labour ; and labour is so very dear in America,
that even this great bounty, I have been informed, was not
likely to produce any considerable effect.
The sixth bounty of this kind, was that granted by ii Geo.
III. chap. 50. for the importation of pipe, hogshead, and bar
rel staves and heading from the British plantations. It was
granted for nine years, from ist January i772, to the ist
January 178i. For the first three years, it was for a certain
quantity of each, to be at the rate of six pounds ; for the sec
ond 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
CONCLUSION OF MERCANTILE SYSTEM 429
by the i9 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 i779, to the 24th
June i800. This term is divided, likewise, 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. When this last bounty was granted, the Brit
ish 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 expence 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 boun
ties upon 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 some
times discouraged by absolute prohibitions, and sometimes
by high duties.
Our woollen manufacturers have been more successful than
any other class of workmen, in persuading the legislature that
430 WEALTH OF NATIONS
the prosperity 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 upon actions which, antecedent to
the statutes that declared them to be crimes, had always been
understood to be innocent. But the cruellest of our revenue
laws, I will venture to affirm, are mild and gentle, in com
parison of some of those which the 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 accordingly. To pre
vent the breed of our sheep from being propagated in foreign
countries, seems to have been the object of this law. By the
i3th and i4th of Charles II. chap. i8. 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, however, so far as I know, has never been directly
repealed, and Serjeant Hawkins seems to consider it as still
in force. It may however, perhaps, be considered as virtually
repealed by the i2th of Charles II. chap. 32. sect. 3. which,
without expressly taking away the penalties imposed by for
mer 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
CONCLUSION OF MERCANTILE SYSTEM 431
repealed by the 7th and 8th of William III, chap. 28. sect. 4.
By which it is declared that, "Whereas the statute of the
i3th and i4th of King Charles II. made against the exporta
tion 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 authority 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. Be
sides the forfeiture of the goods, the exporter incurs the
penalty of three shillings for every 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 wiy, whether he is, or is not able
to pay those heavy penalties, the law means to ruin him com
pletely. But as the morals of the great body of the people
are not yet so corrupt as those of the contrivers of this stat
ute, I have not heard that anv 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 be
fore 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 restric
tions. 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,
432 WEALTH OF NATIONS
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 carriages. The hundred next adjoining to the sea coast,
out of or through which the wool is carried or exported, for
feits twenty pounds, if the wool is under the value of ten
pounds; and if of greater value, then treble that value, to
gether 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 assessment on the other in
habitants, as in the cases of robbery. And if any person com
pounds with the hundred for less than this penalty, he is to be
imprisoned for five years; and any other person may prose
cute. These regulations take place through the whole king
dom.
But in the particular counties of Kent and Sussex the re
strictions are still more troublesome. Every owner of wool
within ten miles of the sea-coast must give an account in writ
ing, three days after shearing, to the next officer of the cus
toms, of the number of his fleeces, and of the places where
they are lodged. And before he removes any part of them he
must give the like notice of the number and weight of the
fleeces, and of the name and abode of the person to whom
they are sold, and of the place to which it is intended they
should 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 forfeited, 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,
CONCLUSION OF MERCANTILE SYSTEM 433
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 conveyed, con
taining the weight, marks, and number of the packages be
fore 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 indul
gent as to declare, that "this shall not hinder any person
"from carrying his wool home from the place of shearing,
"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, without 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 presence
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 de
mand of such extraordinary restrictions and regulations,
confidently asserted, that English wool was of a peculiar
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, therefore, if the
exportation of it could be totally prevented, could monopo
lize to herself almost the whole wollen 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 de
gree of wealth by the most advantageous balance of trade.
This doctrine, like most other doctrines which are confidently
asserted by any considerable number of people, was, and still
434 WEALTH OF NATIONS
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 en
quiries. 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 cannot be even so mixed with
Spanish wool as to enter into the composition without spoil
ing and degrading, in some degree, the fabric of the cloth.
It has been shown in the foregoing part of this work, that
the effect of these regulations has been to depress the price
of English wool, not only below what it naturally would be
in the present times, but very much below what it actually
was in the time of Edward 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 be
low what 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 proper
price, was the avowed purpose of those regulations; and
there seems to be no doubt of their having produced the effect
that was expected from them.
This reduction of price, it may perhaps be thought, by
discouraging the growing of wool, must have reduced very
much the annual produce of that commodity, though not be
low what it formerly was, yet below what, in the present
state of things, it probably would have been, had it, in conse
quence of an open and free market, been allowed to rise to
ithe natural and proper price. I am, however, disposed to be
lieve, that the quantity of the annual produce cannot have
been much, though it may perhaps have been a little, af
fected by these regulations. The growing of wool is not
the chief purpose 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
CONCLUSION OF MERCANTILE SYSTEM 435

the average or ordinary price of the former. It has been

observed in the foregoing part of this work, that "What-
'ever 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 cul
tivated 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, 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." Ac
cording to this reasoning, therefore, this degradation in the
price of wool is not likely, in an improved and cultivated
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 production 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 prod
uce 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 im
provement and cultivation, must have been, it may perhaps be
supposed, very nearly in proportion to the degradation of
price. As the quality depends upon the breed, upon the
pasture, 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
436 WEALTH OF NATIONS
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 attention 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 im
provement of the carcase, is, in some respects, sufficient for
that of the fleece. Notwithstanding the degradation of price,
English wool is said to have been improved considerably
during the course even of the present century. The im
provement 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
improvement.
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 inter
est 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 abso
lute prohibition 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, because it would not
probably lower the price of wool quite so much. It would
CONCLUSION OF MERCANTILE SYSTEM 437
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 revenue
to the sovereign, and at the same time occasion so little
inconveniency 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 for
eign market, presents such a lemptation to smuggling, that
all the rigour of the law cannot prevent it. This illegal
exportation is advantageous to nobody but the smuggler.
A legal exportation subject to a tax, by affording a revenue
to the sovereign, and thereby saving the imposition of some
other, perhaps, more burdensome and inconvenient taxes,
might prove advantageous to all the different subjects of tlv
state.
The exportation of fuller's earth, or fuller's clay, sup
posed to be necessary for preparing and cleansing the woollen
manufactures, has been subjected to nearly the same pen
alties as the exportation of wool. Even tobacco-pipe clay,
though acknowledged to be different 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 tinder the same prohibitions and penalties.
By the i3th and i4th of Charles II. chap. 7. the exporta
tion, 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-mak
ers, not only against our graziers, but against our tanners.
empted
By subsequent
from this
statutes,
monopoly,
our tanners
upon paying
hav? agot
small
themselves
tax of only
ex

one shilling on the hundred weight of tanned leather, weigh

ing one hundred and twelve pounds. They have obtained
likewise the drawback of two-thirds of the excise duties
imposed upon their commodity, even when exported without
438 WEALTH OF NATIONS
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 sep
arated from one another, and dispersed through all the dif
ferent corners of the country, cannot, without great diffi
culty, combine together for the purpose either of imposing
monopolies upon their fellow-citizens, or of exempting them
selves from such as may have been imposed upon them by,
j other people. Manufacturers of all kinds, collected to
gether in numerous bodies in all great cities, easily can.
Even the horns of cattle are prohibited to be exported;
and
makerthe enjoy,
two insignificant
in this respect,
trades aof monopoly
the horner against
and comb-
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 prohibited
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 them
selves against it, but it happens that the greater part of our
principal
cases, clock-cases,
clothiers are
and themselves
dial-plates likewise
for clocks
dyers.
and watches
Watch-

have been prohibited to be exported. Our clock-makers and

watch-makers are, it seems, unwilling 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 VI., 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 i7, exempted
CONCLUSION OF MERCANTILE SYSTEM 439

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 ioth of William III., chap. 26. The ex
metal,
portation
bell-metal,
of unmanufactured
and shroff-metal,
brass,still
of continues
what is called
to be gun-
pro

hibited. 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. i5, the exportation of all goods,
the produce or manufacture of Great Britain, upon which
any duties had been imposed by former statutes, was ren
dered duty free. The following goods, however, were ex
cepted: 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 in
complete manufactures (which may be considered as ma
terials for still further manufacture), or instruments of
trade. This statute leaves them subject to all the old duties
which had ever been imposed upon them, the old subsidy
and one per cent. outwards.
By the same statute a great number of foreign drugs for
dyers use, are exempted from all 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 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 mer
cantile ingenuity, most probably disappointed itself of its
object. It necessarily taught the importers to be more care
ful than they might otherwise have been, that their impor
tation should not exceed what was necessary for the supply
of the home market. The home market was at all times
, likely to be more scantily supplied ; the commodities were
440 WEALTH OF NATIONS
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 encourage this species of
trade, so contrary to the general principles of the mercan
tile 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 i755 gave Great Britain
the same exclusive trade to those countries which France
had enjoyed before. Our manufacturers, as soon as the
peace was made, endeavoured to avail themselves of this ad
vantage, 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, regulations, forfeitures, and
penalties, as that of the enumerated commodities of the
British colonies in America and the West Indies. Its im
portation, indeed, was subjected to a small duty of six-pence
the hundred weight, but its re-exportation was subjected
to the enormous duty of one pound ten shillings the hun
dred weight. It was the intention of our manufacturers
that the whole produce of those countries should be im
ported 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
CONCLUSION OF MERCANTILE SYSTEM 441
would sufficiently discourage that exportation. Their avidity,
however, upon this, as well as upon many other occasions,
disappointed itself of its object. This enormous duty pre
sented such a temptation to smuggling, that great quantities
of this commodity were clandestinely exported, probably
to all the manufacturing countries of Europe, but particu
larly to Holland, not only from Great Britain but from
Africa. Upon this account, by the i4 Geo. III, chap. io.
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 i722 had been laid upon their im
portation, amounted to one-fifth part of the rate, or to six-
teen-pence upon each skin; all of which, except half the
old subsidy, amounting only to two-pence, was drawn back
upon exportation. This duty upon the importation of so im
portant a material of manufacture had been thought too
high, and, in the year i722, the rate was reduced to two
shillings and six-pence, which reduced the duty upon im
portation 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 do
minion of Great Britain, and beaver skins being among
the enumerated commodities, their exportation from America
was consequently confined to the market of Great Britain.
Our manufacturers soon bethought themselves of the ad
vantage which they might make of this circumstance, and
in
skinthewas
year
reduced
i764, to
theone
dutypenny,
upon but
the the
importation
duty uponof exporta
beaver-

tion was raised to seven-pence each skin, without any draw

back of the duty upon importation. By the same law, a duty
of eighteen pence the pound was imposed upon the ex
portation of beaver-wool or wombs, without making any
alteration in the duty upon the importation of that com
modity, which when imported by British and in British ship
ping, amounted
pence the piece. at that time to between four-pence and five-

Coals may be considered both as a material of manufacture

442 WEALTH OF NATIONS
and as an instrument of trade. Heavy duties, accordingly,
have been imposed upon their exportation, amounting at pres
ent (i783) 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 com
modity at the coal pit, or even at the shipping port for
exportation.
The exportation, however, of the instruments of trade,
properly so called, is commonly restrained, not by high du
ties, but by absolute 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, sc 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 i4th Geo. III. chap. 7i, the exportation to foreign
parts, of any utensils made use of in the cotton, linen,
woollen and silk manufactures, is prohibited under the pen
alty, 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 ex
portation of the dead instruments of trade, it could not well
be expected that the living instrument, the artificer, should
be allowed to go free. Accordingly, by the 5 Geo. I. chap.
27. the person who shall be convicted of enticing any artifi
cer 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 im
prisonment, 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 imprisonment for twelve months, and until
the fine shall be paid. By the 23 Geo. II. chap. i3. this pen
alty is increased for the first offence to five hundred pounds
for every artificer so enticed, and to twelve months imprison
ment, and until the fine shall be paid; and for the second
CONCLUSION OF MERCANTILE SYSTEM 443
offence, to one thousand pounds, and to two years imprison
ment, and until the fine shall be paid.
By the former of those two statutes, upon proof that any
person
has promised
has been
or contracted
enticing any
to artificer,
go into foreign
or that parts
any artificer
for the ,

purposes aforesaid, such artificer may be obliged to give se

curity 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 exer
cising or teaching his trade in any foreign country, upon
warning being given to him by any of his majesty's min
isters or consuls abroad, or by one of his majesty's secre
taries 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 devised to him within this kingdom, or of being ex
ecutor or administrator 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
regulations 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 com
petition of such odious and disagreeable rivals. Our master
manufacturers think it reasonable, that they themselves
should have the monopoly of the ingenuity of all their coun
trymen. Though by restraining, in some trades, the number
of apprentices which can be employed at one time, and by
imposing the necessity of a long apprenticeship in all trades,
they endeavour, all of them, to confine the knowledge of
their respective employments to as small a number as pos
444 WEALTH OF NATIONS
sible ; they are unwilling, however, that any part of this small
number should go abroad to instruct foreigners.
Consumption is the sole end and purpose of all production ;
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 mer
cantile stystem, the interest of the consumer is almost con
stantly 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 com
modities which can come into competition with those of our
own growth, or manufacture, the interest of the home-con
sumer is evidently sacrificed 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 mo
nopoly almost always occasions.
It is altogether for the benefit of the producer that boun
ties are granted upon the exportation of some of his pro
ductions. The home-consumer is obliged to pay, first, the
tax which is necessary for paying the bounty, and secondly,
the still greater tax which necessarily arises from the en
hancement 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 acknowledged, 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 upon more ad
vantageous terms than he would otherwise have been al
lowed 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 management of our American and West Indian colonies,
CONCLUSION OF MERCANTILE SYSTEM 445
the interest of the home-consumer has been sacrificed to
that of the producer with a more extravagant profusion than
in all our other commercial regulations. A great empire
has been established for the sole purpose of raising up a
nation of customers who should be obliged to buy from
the shops of our different producers, all the goods with which
these could supply them. For the sake of that little en
hancement of price which this monopoly might afford our
producers, the home-consumers have been burdened with
the whole expence of maintaining and defending that em
pire. 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 ex
pended for the same purpose in former wars. The interest
of this debt alone is not only greater than the whole ex
traordinary 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
contrivers of this whole mercantile system; not the con
sumers, we may believe, whose interest has been entirely neg
lected; but the producers, whose interest has been so care
fully 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 pro
ducers, has been sacrificed to it.
CHAPTER IX
Of the Agricultural Systems, Or Of The Systems of
Political (Economy, Which Represent 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 ceconomy 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 speculation 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 probably never will do
any harm in any part of the world. I shall endeavour to
explain, however, as distinctly as I can, the great outlines
of this very ingenious system.
Mr. Colbert, the famous minister of Lewis XIV., was a
man of probity, of great industry and knowledge of detail;
of great experience and acuteness in the examination of pub
lic 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 un
fortunately 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 establish the necessary checks and controls
for confining each to its proper sphere. The industry and
commerce of a great country he endeavoured to regulate
446
AGRICULTURAL SYSTEMS 447
upon the same model as the departments of a public office;
and instead of allowing every man to pursue his own inter
est his own way, upon the liberal plan of equality, liberty,
and justice, he bestowed upon certain branches of industry
extraordinary privileges, which he laid others under as ex
traordinary restraints. He was not only disposed, like other
European 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 provi
sions cheap to the inhabitants of the towns, and thereby
to eacourage manufactures and foreign commerce, he pro
hibited altogether the exportation of corn, and thus ex
cluded the inhabitants of the country from every foreign
market for by far the most important part of the produce
of their industry. This prohibition, joined to the restraints
imposed by the ancient provincial laws of France upon the
transportation of corn from one province to another, and to
the arbitrary and degrading taxes which are levied upon the
cultivators 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 discour
agement and depression was felt more or less in every dif
ferent 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 institutions 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 agriculture as the sole source of the rev
enue and wealth of every country, 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 compari
son 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 sup
posed to contribute in any respect towards the annual prod
448 WEALTH OF NATIONS
uce 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 honor with the peculiar
appellation of the productive class. The third is the class
of artificers, manufacturers and merchants, whom they en
deavour to degrade by the humiliating appellation of the
barren or unproductive class.
The class of proprietors contributes to the annual produce
by the expence which they may occasionally lay out upon
the improvement of the land, upon the buildings, drains,
enclosures and other ameliorations, which they may either
make or maintain upon it, and by means of which the cul
tivators are enabled, with the same capital, to raise a greater
produce, and consequently to pay a greater rent. This ad
vanced rent may be considered as the interest or profit due
to the proprietor upon the expence or capital which he thus
employs in the improvement of his land. Such expences
are in this system called ground expences (depenses fon-
cieres).
The cultivators or farmers contribute to the annual prod
uce by what are in this system called the original and annual
expences (depenses primitives et depenses annuelles) which
they lay out upon the cultivation of the land. The original
expences consist in the instruments of husbandry, in the
stock of cattle, in the seed, and in the maintenance of the
farmer's family, servants and cattle, during at least a great
part of the first year of his occupancy, or till he can receive
some return from the land. The annual expences consist
in the seed, in the wear and tear of the instruments of hus
bandry, and in the annual maintenance of the farmer's serv
ants and cattle, and of his family too, so far as any part
of them can be considered as servants employed in culti
vation. That part of the produce of the land which remains
to him after paying the rent, ought to be sufficient, first, to
replace to him within a reasonable time, at least during the
term of his occupancy, the whole of his original expences,
together with the ordinary profits of stock; and, secondly,
to replace to him annually the whole of his annual expences,
together likewise with the ordinary profits of stock. Those
AGRICULTURAL SYSTEMS 449
two sorts of expences are two capitals which the farmer
employs in cultivation ; and unless they are regularly re
stored to him, together with a reasonable profit, he cannot
carry on his employment upon a level with other employ
ments; but, from a regard to his own interest, must desert
it as soon as possible, and seek some other. That part of
the produce of the land which is thus necessary for enabling
the farmer to continue his business, ought to be considered
as a fund sacred to cultivation, which if the landlord vio
lates, 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 reasonable 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 man
ner 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 pay
ing completely all those necessary expences, affords a neat
produce of this kind, that this class of people are in this
system peculiarly distinguished by the honourable appella
tion of the productive class. Their original and annual ex
pences are for the same reason called, in this system, pro
ductive 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 land
lord lays out upon the improvement of his land, are in this
system too honoured with the appellation of productive ex
pences. 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 invio
lable, both by the church and by the king; ought to be subject
neither to tithe nor to taxation. If it is otherwise, by dis
couraging 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 expences, over and above
reproducing in the completest manner their own value, oc
450 WEALTH OF NATIONS
casion 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 productive. All other expences and all other
orders of people, even those who in the common appre
hensions of men are regarded as the most productive, are
in this account of things represented as altogether barren
and unproductive.
Artificers and manufacturers, in particular, whose indus
try, 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 un
productive. Their labour, it is said, replaces only the stock
which employs them, together with its ordinary 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 des
tined for the maintenance of their employer. Their employer,
as he advances 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. Unless 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 evidently does not repay to him
the whole expence which he lays out upon it. The profits
of manufacturing stock, therefore, are not, like the rent of
land, a neat produce which remains after completely repay
ing 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
manufacturer does not. The expense, therefore, laid out
in employing and maintaining artificers and manufacturers,
does no more than continue, if one may say so, the existence
of its own value, and does not produce any new value. It is
AGRICULTURAL SYSTEMS 451
therefore altogether a barren and unproductive expence. The
expence, on the contrary, laid out in employing farmers
and country labourers, over and above continuing the exist
ence 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
manufacturing 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 em
ployer advances to himself during 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 occasions 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 ad
vances 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 consuming, being always equal to the value
which he is continually producing. The extreme poverty of
the greater part of the persons employed in this expensive,
452 WEALTH OF NATIONS
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 farmers
and country labourers. The rent of the landlord is a value,
which, in ordinary cases, it is continually producing, over
and above replacing, in the most complete manner, the whole
consumption, the whole expence laid out upon the employ
ment 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 in this system, by privation, that is, by de
priving themselves of a part of the funds destined for their
own subsistence. They annually reproduce nothing but those
funds. Unless, therefore, they annually save some part of them,
unless they annually deprive themselves of the enjoyment
of some part of them, the revenue and wealth of their society
can never be in the smallest degree augmented by means of
their industry. Farmers and 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 aug
ments 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 contrary, which,
like Holland and Hamburgh, are composed chiefly of mer
chants, 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, nar
rowness, meanness, and a selfish disposition, averse to all
social pleasure and enjoyment.
The unproductive class, that of merchants, artificers and
manufacturers, is maintained and employed altogether at the
expence of the two other classes, of that of proprietors, and
AGRICULTURAL SYSTEMS 453
of that of cultivators. They furnish it both with the ma
terials of its work and with the fund of its subsistence, with
the corn and cattle which it consumes while it is employed
about that work. The proprietors and cultivators finally pay
both the wages of all the workmen of the unproductive 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 unpro
ductive. It adds nothing to the value of the sum total of the
rude produce of the land. Instead of increasing 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 merchants, artificers and manufacturers, the pro
prietors 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 un
skilful manner, either to import the one, or to make the other
for their own use. By means of the unproductive class, the
cultivators are delivered from many cares which would other
wise distract their attention from the cultivation of land. The
superiority of produce, which, in consequence of this undi
vided attention, they are enabled to raise, is fully sufficient
to pay the whole expence which the maintenance and em
ployment of the unproductive class costs either the proprie
tors, or themselves. The industry of merchants, artificers
and manufacturers, though in its own nature altogether un
productive, yet contributes in this manner indirectly to in
crease the produce of the land. It increases the productive
powers of productive labour, by leaving it at liberty to con
fine 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 re
mote from the plough.
454 WEALTH OF NATIONS
vators
It can
to never
restrain
be or
thetointerest
discourage
of the
in any
proprietors
respect the
and indus
cu'al

try of merchants, artificers and manufacturers. The greater

the liberty which this unproductive class enjoys, the greater
will be the competition in all the different trades which com
pose it, and the cheaper will the other two classes be sup
plied, both with foreign goods and with the manufactured
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 likewise be the main
tenance and employment of that class. The establishment
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 mer
cantile states which, like Holland and Hamburgh, consist
chiefly of this unproductive class, are in the same manner
maintained and employed 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 sub
sistence, are the inhabitants of other countries, and the sub
jects of other governments.
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, andl
supply the place of the merchants, artificers and manufac
turers, 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 mercantile states, by imposing high duties upon their
trade, or upon the commodities which they furnish. Such
AGRICULTURAL SYSTEMS 455
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 increase, and consequently the improve
ment and cultivation of their own land, would be to allow
the most perfect freedom to the trade of all such mercantile
nations.
This perfect freedom of trade would even be the most
effectual expedient for supplying them, in due time, with all
the artificers, manufacturers and merchants, whom they
wanted at home, and for filling up in the properest and most
advantageous manner that very important void which they
felt there.
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 naturally turn itself to the employment of artifi
cers 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 mercantile states,
which could not be brought to that market but from so great
a distance; and as their art and skill improved, they would
soon be able to sell it cheaper. The artificers and manu
facturers of such mercantile states, therefore, would immedi
ately be rivalled in the market of those landed nations, and
soon after undersold and justled out of it altogether. The
cheapness of the manufactures of those landed nations, in
456 WEALTH OF NATIONS
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 justle out many of the
manufactures of such mercantile nations.
This continual increase both of the rude and manufactured
produce of those landed nations would in due time create a
greater capital than could, with the ordinary rate of profit,
be employed either in agriculture or in manufactures. 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 produce of its own
country, as exceeded the demand of the home market. In the
exportation of the produce of their own country, the mer
chants of a landed nation would have an advantage of the
same kind over those of mercantile nations, which its artifi
cers and manufacturers had over the artificers and manu
facturers of such nations; the advantage of finding at home
that cargo, and those stores and provisions, which the others
were obliged 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 artificers, manufacturers and merchants of its own,
is to grant the most perfect freedom of trade to the artifi
cers, manufacturers and merchants 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 artifi
cers, manufactures 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 na
tions, 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 necessarily sinks the real value
AGRICULTURAL SYSTEMS 457
of the surplus produce of its own land, with which, or, what
comes to the same thing, with the price of which, it pur
chases those foreign goods and manufactures. Secondly, by
giving a sort of monopoly of the home market to its own
merchants, artificers and manufacturers, it raises the rate of
mercantile and manufacturing profit in proportion to that of
agricultural profit, and consequently either draws from agri
culture a part of the capital which had before been employed
in it, or hinders from going to it a part of what would other
wise have gone to it. This policy, therefore, discourages
agriculture in two different ways; first, by sinking 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
employments. 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 employments.
Though, by this oppressive policy, a landed nation should
be able to raise up artificers, manufacturers and merchants
of its own, somewhat 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 species 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 de
press a species of industry which, over and above replacing
that stock with its profit, affords likewise a neat produce, a
free rent to the landlord. 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 unproductive class does no more than replace the value
of its own consumption, 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
458 WEALTH OF NATIONS

some arithmetical formularies. The first of these formu

laries, which by way of eminence he peculiarly distinguishes
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 pros
perity; in a state where the annual produce is such as to
afford the greatest possible neat produce, and where each
class enjoys its proper share of the whole annual produce.
Some subsequent formularies represent the manner, in which,
he supposes, this distribution is made in different states of
restraint and regulation; in which, either the class of proprie
tors, or the barren and unproductive class, is more favoured
than the class of cultivators, and in which, either the one or
the other encroaches more or less upon the share which ought
properly to belong to this productive class. Every such en
croachment, every violation of that natural distribution,
which the most perfect liberty would establish, must, accord
ing 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
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 nat
ural distribution, which the most perfect liberty would es
tablish, is more or less violated. Those subsequent formu
laries 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 precise regimen of diet and exercise, of which every,
the smallest, violation necessarily occasioned some degree
of disease or disorder proportioned to the degree of the vio
lation. Experience, however, would seem to show, that the
human body frequently preserves, to all appearance at least.
the most perfect state of health under a vast variety of
different regimens; even under some which are generally
believed to be very far from being perfectly wholesome.
But the healthful state of the human body, it would seem,
contains in itself some unknown principle of preservation,
AGRICULTURAL SYSTEMS 459
capable either of preventing or of correcting, in many re
spects, the bad effects even of a very faulty regimen. Mr.
Quesnai, who was himself a physician, and a very specu
lative physician, seems to have entertained a notion of the
same kind concerning the political body, and to have imag
ined 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
political body, the natural effort which every man is contin
ually 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 ceconomy, in some
degree both partial and oppressive. Such a political cecon
omy, though it no doubt retards more or less, is not always
capable of stopping altogether the natural progress of a na
tion towards wealth and prosperity, and still less of making
it go backwards. If a nation could not prosper without the
enjoyment of perfect liberty and perfect justice, there is not
in the world a nation which could ever have prospered. In
the political body, however, the wisdom of nature has fortu
nately made ample provision for remedying many of the bad
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 representing the class of artificers, manufacturers and
merchants, as altogether barren and unproductive. The fol
lowing 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 denomina
tion of barren or unproductive should seem to be very im
properly 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 species,
but only continued it as it was before. Farmers and country
labourers, indeed, over and above the stock which maintains
460 WEALTH OF NATIONS
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 labourers
is certainly more productive than that of merchants, artifi
cers and manufacturers. The superior produce of the one
class, however, does not render the other barren or unpro
ductive.
Secondly, it seems, upon this account, altogether improper
to consider 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 contrary,
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 unproductive labour, I have classed artifi
cers, manufacturers and merchants, among the productive
labourers, and menial servants among the barren or unpro
ductive.
Thirdly, it seems, upon every supposition, improper to say,
that the labour of artificers, manufacturers and merchants,
does not increase the real revenue of the society. Though
we should 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 exactly 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 pounds to the annual produce
AGRICULTURAL SYSTEMS 461
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 capable of purchasing, either to himself or to some
other person, an equal half yearly revenue. The value, there
fore, of what has been consumed and produced during these
six months is equal, not to ten, but to twenty pounds. It is
possible, indeed, that no more than ten pounds worth of this
value, may ever have existed at any one moment of time.
But if the ten pounds worth of corn and other necessaries,
which were consumed by the artificer, had been consumed
by a soldier or by a menial servant, the value of that part
of the annual produce which existed at the end of the six
months, would have been ten pounds 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 consump
tion 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 con
sumption, is equal to it. But if they had expressed them
selves more accurately, and only asserted, that the revenue
of this class was equal to the value of what they produced,
it might readily have occurred to the reader, that what would
naturally be saved out of this revenue, must necessarily in
crease more or less, the real wealth of the society. In order,
therefore, to make out something like an argument, it was
necessary that they should express themselves as they have
done ; and this argument, 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 aug
ment, without parsimony, the real revenue, the annual prod
uce of the land and labour of their society, than artificers,
manufacturers and merchants. The annual produce of the
land and labour of any society can be augmented only in two
462 WEALTH OF NATIONS
ways; either, first. by some improvement in the productive
powers of the useful labour actually maintained within it;
or, secondly, by some increase in the quantity of that labour.
The improvement in the productive powers of useful
labour depend, 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 manu
facturers, 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
cultivators can have no sort of advantage over that of arti
ficers and manufacturers.
The increase in the quantity of useful labour actually em
ployed 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 per
sons who manage and direct the employment of that capital,
or of some other persons who lend it to them. If merchants,
artificers and manufacturers are, as this system seems to
suppose, naturally more inclined to parsimony and saving
than proprietors and cultivators, they are, so far, more likely
to augment the quantity of useful labour employed within
their society, and consequently to increase its real revenue,
the annual produce of its land and labour.
Fifthly and lastly, though 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 manufactures. By
means of trade and manufactures, a greater quantity of sub
sistence can be annually imported into a particular country
than what its own lands, in the actual state of their cultiva
tion, could afford. The inhabitants of a town, though they
frequently possess no lands of their own, yet draw to them
selves by their industry such a quantity of the rude produce
AGRICULTURAL SYSTEMS 463
of the lands of other people as supplies them, not only with the
materials of their work, but with the fund of their subsistence.
What a town always is with regard to the country in its neigh
bourhood, one independent state or country may frequently 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 almost all the different countries of Europe. A small
quantity of manufactured produce purchases a great quan
tity of rude produce. A trading and manufacturing country,
therefore, naturally purchases with a small part of its manu
factured 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 im
ports the subsistence and accommodation of a great number.
The other exports the accommodation and subsistence of a
great number, and imports that of a very few only. The in
habitants of the one must always enjoy a much greater quan
tity of subsistence than what their own lands, in the actual
state of their cultivation, could afford. The inhabitants of
the other must always enjoy a much smaller quantity.
This system, however, with all its imperfections, is, per
haps, the nearest approximation to the truth that has yet
been published upon the subject of political ceconomy, 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 nar
row and confined; yet in representing the wealth of nations
as consisting, not in the unconsumable riches of money, but
in the consumable 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 possible, its doctrine 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, and of appear
464 WEALTH OF NATIONS
ing to understand what surpasses the comprehension of
ordinary people, the paradox which it maintains, concerning
the unproductive nature of manufacturing labour, has not
perhaps contributed a little to increase the number of its
admirers. They have for some years past made a pretty
considerable sect, distinguished in the French republic of
letters by the name of, The (Economists. Their works have
certainly been of some service to their country; not only by
bringing into general discussion, many subjects which had
never been well examined before, but by influencing in some
measure the public administration in favour of agriculture.
It has been in consequence of their representations, accord
ingly, that the agriculture of France has been delivered from
several of the oppressions which it before laboured under.
The term during which such a lease can be granted, as will
be valid against every future purchaser or proprietor of the
land, has been prolonged from nine to twenty-seven years.
The ancient provincial restraints upon the transportation of
corn from one province of the kingdom to another, have
been entirely taken away, and the liberty of exporting it to
all foreign countries, has been established as the common
law of the kingdom in all ordinary cases. This sect, in their
works, which are very numerous, and which treat not only
of what is properly called Political (Economy, or of the na
ture and causes of the wealth of nations, but of every other
branch of the system of civil government, all follow im
plicitly, and without any sensible variation, the doctrine of
Mr. Quesnai. There is upon this account little variety in
the greater part of their works. The most distinct and best
connected account of this doctrine is to be found in a little
book written by Mr. Mercier de la Riviere, sometime Inten-
dant of Martinico, intitled, The natural and essential Order
of Political Societies. The admiration of this whole sect for
their master, who was himself a man of the greatest modesty
and simplicity, is not inferior to that of any of the ancient
philosophers for the founders of their respective systems.
"There have been, since the world began," says a very dili
gent and respectable author, the Marquis de Mirabeau, "three
"great inventions which have principally given stability to
"political societies, independent of many other inventions
AGRICULTURAL SYSTEMS 465
"which have enriched and adorned them. The first, is the
"invention of writing, which alone gives human nature the
"power of transmitting, without alteration, its laws, its con-
"tracts, its annals, and its discoveries. The second, is the
"invention of money, which binds together all the relations
"between civilized societies. The third, is the (Economical
"Table, the result of the other two, which completes them
"both by perfecting their object; the great discovery of our
"age, but of which our posterity will reap the benefit."
The greatest and most important branch of the commerce
of every nation, it has already been observed, is that which
is carried on between the inhabitants of the town and those
of the country. The inhabitants of the town draw from the
country the rude produce which constitutes both the mate
rials of their work and the fund of their subsistence; and
they pay for this rude produce by sending back to the coun
try a certain portion of it manufactured and prepared for
immediate use. The trade which is carried on between
those two different sets of people, consists ultimately in a
certain quantity of rude produce exchanged for a certain
quantity of manufactured produce. The dearer the latter,
therefore, the cheaper the former; and whatever tends in
any country to raise the price of manufactured produce,
tends to lower that of the rude produce of the land, and
thereby to discourage agriculture. The smaller the quantity
of manufactured produce which any given quantity of rude
produce, or, what comes to the same thing, which the price
of any given quantity of rude produce is capable of pur
chasing, the smaller the exchangeable value of that given
quantity of rude produce; the smaller the encouragement
which either the landlord has to increase its quantity by im
proving, or the farmer by cultivating the land. Whatever,
besides, tends to diminish in any country the number of artifi
cers and manufacturers, tends to diminish the home market,
the most important of all markets for the rude produce of the
land, and thereby still further to discourage agriculture.
Those systems, therefore, which preferring agriculture to
all other employments, in order to promote it, impose re
straints upon manufactures and foreign trade, act contrary
to the very end which they propose, and directly discourage
466 WEALTH OF NATIONS
that very species of industry which they mean to promote.
They are so far, perhaps, more inconsistent than even the
mercantile system. That system, by encouraging manufac
tures and foreign trade more than agriculture, turns a cer
tain portion of the capital of the society from supporting a
more advantageous, to support a less advantageous species
of industry. But still it really and in the end encourages that
species of industry which it means to promote. Those agri
cultural systems, on the contrary, really and in the end dis
courage their own favourite species of industry.
It is thus that every system which endeavours, either, by
extraordinary encouragements, to draw towards a particular
species of industry a greater share of the capital of the soci
ety than what would naturally go to it ; or, by extraordinary
restraints, to force from a particular species of industry
some share of the capital which would otherwise be employed
in it; is in reality subversive of the great purpose which it
means to promote. It retards, instead of accelerating, the
progress of the society towards real wealth and greatness:
and diminishes, instead of increasing, the real value of the
annual produce of its land and labour.
All systems either of preference or of restraint, therefore,
being thus completely taken away, the obvious and simple
system of natural liberty establishes itself of its own accord.
Every man, as long as he does not violate the laws of jus
tice, is left perfectly free to pursue his own interest his own
way, and to bring both his industry and capital into compe
tition with those of any other man, or order of men. The
sovereign is completely discharged from a duty, in the at
tempting to perform which he must always be^ exposed to
innumerable delusions, and for the proper performance of
which no human wisdom or knowledge could ever be suffi
cient; the duty of superintending the industry of private
i people, and of directing it towards the employments most
suitable to the interest of the society. According to the sys
tem of natural liberty, the sovereign has only three duties to
. attend to ; three duties of great importance, indeed, but plain
and intelligible to common understandings; first, the duty of
protecting the society from the violence and invasion of other
independent societies; secondly, the duty of protecting, as
AGRICULTURAL SYSTEMS 467
far as possible, every member of the society from the injus
tice or oppression of every other member of it, or the duty
of establishing an exact administration of justice; and,
thirdly, the duty of erecting and maintaining certain public
works and certain public institutions, which it can never be
for the interest of any individual, or small number of indi
viduals, to erect and maintain ; because the profit could never
repay the expence to any individual or small number of indi
viduals, though it may frequently do much more than repay
it to a great society.
The proper performance of those several duties of the
sovereign necessarily supposes a certain expence ; and this
expence again necessarily requires a certain revenue to sup
port it. In the following book, therefore, I shall endeavour
to explain; first, what are the necessary expences of the
sovereign or commonwealth ; and which of those expences
ought to be defrayed by the general contribution of the
whole society; and which of them, by that of some particu
lar part only, or of some particular members of the society:
secondly, what are the different methods in which the whole
society may be made to contribute towards defraying the
expences incumbent on the whole society, and what are the
principal advantages and inconveniences of each of those
methods : and, thirdly, what are the reasons and causes which
have induced almost all modern governments to mortgage
some part of this revenue, or to contract debts, and what
have been the effects of those debts upon the real wealth,
the annual produce of the land and labour of the society.
The following book, therefore, will naturally be divided into
three chapters.
BOOK V
Of the Revenue Of The Sovereign or Commonwealth

CHAPTER I
Of The Expenses Of The Sovereign or Commonwealth

PART I
Of The Expense Of Defence
THE first duty of the sovereign, that of protecting the
society from the violence and invasion of other inde
pendent societies, can be performed only by means of
a military force. But the expence both of preparing this
military force in time of peace, and of employing it in time
of war, is very different in the different states of society, in
the different periods of improvement.
Among nations of hunters, the lowest and rudest state of
society, such as we find it among the native tribes of North
America, every man is a warrior as well as a hunter. When
he goes to war, either to defend his society, or to revenge
the injuries which have been done to it by other societies,
he maintains himself by his own labour, in the same manner
as when he lives at home. His society, for in this state of
things there is properly neither sovereign nor commonwealth,
or
is at
to no
maintain
sort ofhim
expence,
while he
either
is intoit.prepare him for the field,

**********
When a civilized nation depends for its defence upon a
militia, it is at all times exposed to be conquered by any
barbarous nation which happens to be in its neighbourhood.
The frequent conquests of all the civilized countries in Asia
by the Tartars, sufficiently demonstrates the natural superi-
468
EXPENCE OF DEFENCE 469
ority, which the militia of a barbarous, has over that of a
civilized nation. A well-regulated standing army is superior
to every militia. Such an army, as it can best be maintained
by an opulent and civilized nation, so it can alone defend such
a nation against the invasion of a poor and barbarous neigh
bour. It is only by means of a standing army, therefore,
that the civilization of any country can be perpetuated, or
even preserved for any considerable time.
As it is only by means of a well-regulated standing army
that a civilized country can be defended; so it is only by
means of it, that a barbarous country can be suddenly and
tolerably civilized. A standing army establishes, with an
irresistible force, the law of the sovereign through the re
motest provinces of the empire, and maintains some degree
of regular government in countries which could not other
wise admit of any. Whoever examines, with attention, the
improvements which Peter the Great introduced into the
Russian empire, will find that they almost all resolve them
selves into the establishment of a well-regulated standing
army. It is the instrument which executes and maintains all
his other regulations. That degree of order and internal
peace, which that empire has ever since enjoyed, is altogether
owing to the influence of that army.
Men of republican principles have been jealous of a stand
ing army as dangerous to liberty. It certainly is so, wherever
the interest of the general and that of the principal officers
are not necessarily connected with the support of the consti
tution of the state. The standing army of Caesar destroyed
the Roman republic. The standing army of Cromwel turned
the long parliament out of doors. But where the sovereign
is himself the general, and the principal nobility and gentry
of the country the chief officers of the army ; where the mili
tary force is placed under the command of those who have
the greatest interest in the support of the civil authority, be
cause they have themselves the greatest share of that
authority, a standing army can never be dangerous to liberty.
On the contrary, it may in some cases be favourable to lib
erty. The security which it gives to the sovereign renders
unnecessary that troublessome jealousy, which, in some mod
ern republics, seems to watch over the minutest actions, and
470 WEALTH OF NATIONS
to be at all times ready to disturb the peace of every citizen.
Where the security of the magistrate, though supported by
the principal people of the country, is endangered by every
popular discontent ; where a small tumult is capable of bring
ing about in a few hours a great revolution, the whole
authority of government must be employed to suppress and
punish every murmur and complaint against it. To a sov
ereign, on the contrary, who feels himself supported, not only
by
regulated
the natural
standing
aristocracy
army, the of
rudest,
the country,
the most groundless,
but by a well-
and

the most licentious remonstrances can give little disturbance.

He can safely pardon or neglect them, and his consciousness
of his own superiority naturally disposes him to do so. That
degree of liberty which approaches to licentiousness can be
tolerated only in countries where the sovereign is secured by
a well-regulated standing army. It is in such countries only,
that the public safety does not require, that the sovereign
should be trusted with any discretionary power, for suppress
ing even the impertinent wantonness of this licentious liberty.
The first duty of the sovereign, therefore, that of defending
the society from the violence and injustice of other inde
pendent societies, grows gradually more and more expensive,
as the society advances in civilization. The military force of
the society, which originally cost the sovereign no expence
either in time of peace or in time of war, must, in the prog
ress of improvement, first be maintained by him in time of
war, and afterwards even in time of peace.
The great change introduced into the art of war by the
invention of fire-arms, has enhanced still further both the
expence of exercising and disciplining any particular number
of soldiers in time of peace, and that of employing them in
time of war. Both their arms and their ammunition are be
come more expensive. A musquet is a more expensive ma
chine that a javelin or a bow and arrows; a cannon or a
mortar than a balista or a catapulta. The powder, which is
spent in a modern review, is lost irrevocably, and occasions a
very considerable expence. The javelins and arrows which
were thrown or shot in an ancient one, could easily be picked
up again, and were besides of very little value. The cannon
and the mortar are, not only much dearer, but much heavier
EXPENCE OF DEFENCE 471
machines than the balista or catapulta, and require a greater
expence, not only to prepare them for the field, but to carry
them to it. As the superiority of the modern artillery too,
over that of the ancients is very great; it has become much
more difficult, and consequently much more expensive, to for
tify a town so as to resist even for a few weeks the attack
of that superior artillery. In modern times many different
causes contribute to render the defence of the society more
expensive. The unavoidable effects of the natural progress
of improvement have, in this respect, been a good deal en
hanced by a great revolution in the art of war, to which a
mere accident, the invention of gunpowder, seems to have
given occasion.
In modern war the great expence of fire-arms gives an
evident advantage to the nation which can best afford that
expence; and consequently, to an opulent and civilized, over
a poor and barbarous nation. In ancient times the opulent
and civilized found it difficult to defend themselves against
the poor and barbarous nations. In modern times the poor
and barbarous find it difficult to defend themselves against
the opulent and civilized. The invention of fire-arms, an
invention which at first sight appears to be so pernicious, is
certainly favourable both to the permanency and to the exten
sion of civilization.

PART II
Of the Expence of Justice
The second duty of the sovereign, that of protecting, as
far as possible, every member of the society from the in
justice or oppression of every other member of it, or
the duty of establishing an exact administration of justice
periods
requires of
toosociety.
very different degrees of expence in the different

* * * * * * * * * *
Justice, however, never was in reality administered gratis
in any country. Lawyers and attornies, at least, must al
ways be paid by the parties ; and, if they were not, they would
perform their duty still worse than they actually perform it.
The fees annually paid to lawyers and attornies amount, in
472 WEALTH OF NATIONS ,

every court, to a much greater sum than the salaries of the

judges. The circumstance of those salaries being paid by
the crown, can no-where much diminish the necessary ex
pence of a law-suit. But it was not so much to diminish the
expence, as to prevent the corruption of justice, that the
judges were prohibited from receiving any present or fee
from the parties.
The office of judge is in itself so very honourable, that men
are willing to accept of it, though accompanied with very
small emoluments. The inferior office of justice of peace,
though attended with a good deal of trouble, and in most
cases with no emoluments at all, is an object of ambition to
the greater part of our country gentlemen. The salaries of
all the different judges, high and low, together with the whole
expense of the administration and execution of justice, even
where it is not managed with very good (Economy, makes, in
any civilized country, but a very inconsiderable part of the
whole expence of government.
The whole expence of justice too might easily be defrayed
by the fees of court; and, without exposing the administra
tion of justice to any real hazard of corruption, the public
revenue might thus be entirely discharged from a certain,
though, perhaps, but a small incumbrance. It is diflicult to
regulate the fees of court effectually, where a person so
powerful as the sovereign is to share in them, and to derive
any considerable part of his revenue from them. It is very
easy, where the judge is the principal person who can reap
any benefit from them. The law can, very easily oblige the
judge to respect the regulation, though it might not always
be able to make the sovereign respect it. Where the fees of
court are precisely regulated and ascertained, where they are
paid all at once, at a certain period of every process, into the
hands of a cashier or receiver, to be by him distributed in
certain known proportions among the different judges after
the process is decided, and not till it is decided, there seems
to be no more danger of corruption than where such fees are
prohibited altogether. Those fees, without occasioning any
considerable increase in the expence of a law-suit, might be
rendered fully sufficient for defraying the whole expence of
justice. By not being paid to the judges till the process was
EXPENCE OF DEFENCE 473
determined, they might be some incitement to the diligence
of the court in examining and deciding it. In courts which
consisted of a considerable number of judges, by proportion
ing the share of each judge to the number of hours and days
which he had employed in examining the process, either in
the court or in a committee by order of the court, those fees
might give some encouragement to the diligence of each par
ticular judge. Public services are never better performed
than when their reward comes only in consequence of their
being performed, and is proportioned to the diligence em
ployed in performing them. . . .
A stamp-duty upon the law proceedings of each particular
court, to be levied by that court, and applied towards the
maintenance of the judges and other officers belonging to it,
might, in the same manner, afford a revenue sufficient for
defraying the expence of the administration of justice, with
out bringing any burden upon the general revenue of the
society. The judges indeed might, in this case, be under the
temptation of multiplying unnecessarily the proceedings upon
every cause, in order to increase, as much as possible, the
produce of such a stamp-duty. It has been the custom in
modern Europe to regulate, upon most occasions, the pay
ment of the attornies and clerks of court, according to the
number of pages which they had occasion to write; the
court, however, requiring that each page should contain so
many lines, and each line so many words. In order to in
crease their payment, the attornies and clerks have contrived
to multiply words beyond all necessity, to the corruption of
the law language of, I believe, every court of justice in
Europe. A like temptation might perhaps occasion a like
corruption in the form of law proceedings.

PART III
Of The Expense of Public Works and Public Institutions
The third and last duty of the sovereign or common
wealth is that of erecting and maintaining those public
institutions and those public works, which, though they
may be in the highest degree advantageous to a great society,
474 WEALTH OF NATIONS
are, however, of such a nature, that the profit could never
repay the expence to any individual or small number of indi
viduals, and which it therefore cannot be expected that any
individual or small number of individuals should erect or
maintain. The performance of this duty requires too very
different degrees of expence in the different periods of
society.
After the public institutions and public works necessary
for the defence of the society, and for the administration of
justice, both of which have already been mentioned, the other
works and institutions of this kind are chiefly those for
facilitating the commerce of the society, and those for pro
moting the instruction of the people. The institutions for
instruction are of two kinds ; those for the education of the
youth, and those for the instruction of people of all ages.
The consideration of the manner in which the expence of
those different sorts of public works and institutions may
be most properly defrayed, will divide this third part of the
present chapter into three different articles.

ARTICLE I
Of the Public Works and Institutions for Facilitating the
Commerce Of The Society
And, First, of Those Which are Necessary for Facilitating
Commerce in General
That the erection and maintenance of the public works
which facilitate the commerce of any country, such as
good roads, bridges, navigable canals, harbours, &c.
must require very different degrees of expence in the differ
ent periods of society, is evident without any proof. The
expence of making and maintaining the public roads of any
country must evidently increase with the annual produce of
the land and labour of that country, or with the quantity
and weight of the goods which it becomes necessary to fetch
and carry upon those roads. The strength of a bridge must
be suited to the number and weight of the carriages which
are likely to pass over it. The depth and the supply of
water for a navigable canal must be proportioned to the num
COMMERCE IN GENERAL 475
ber and tonnage of the lighters, which are likely to carry
goods upon it; the extent of a harbour to the number of the
shipping which are likely to take shelter in it.
It does not seem necessary that the expence of those pub
lic works should be defrayed from that public revenue, as it
is commonly called, of which the collection and application
are in most countries assigned to the executive power. The
greater part of such public works may easily be so managed,
as to afford a particular revenue sufficient for defraying their
own expence, without bringing any burden upon the general
revenue of the society.
A highway, a bridge, a navigable canal, for example, may
in most cases be both made and maintained by a small toll
upon the carriages which make use of them : a harbour, by a
moderate port-duty upon the tunnage of the shipping which
load or unload in it. The coinage, another institution for
facilitating commerce, in many countries, not only defrays
its own expence, but affords a small revenue or seignorage
to the sovereign. The post-office, another institution for the
same purpose, over and above defraying its own expence,
affords in almost all countries a very considerable revenue
to the sovereign.
When the carriages which pass over a highway or a bridge,
and the lighters which sail upon a navigable canal, pay toll
in proportion to their weight or their tunnage, they pay for
the maintenance of those public works exactly in proportion
to the wear and tear which they occasion of them. It seems
scarce possible to invent a more equitable way of maintain
ing such works. This tax or toll too, though it is advanced
by the carrier, is finally paid by the consumer, to whom it
must always be charged in the price of the goods. As the
expence of carriage, however, is very much reduced by means
of such public works, the goods, notwithstanding the toll,
come cheaper to the consumer than they could otherwise have
done ; their price not being so much raised by the toll, as it is
lowered by the cheapness of the carriage. The person who
finally pays this tax, therefore, gains by the application, more
than he loses by the payment of it. His payment is exactly
in proportion to his gain. It is in reality no more than a part
of that gain which he is obliged to give up in order to get
476 WEALTH OF NATIONS
the rest. It seems impossible to imagine a more equitable
method of raising a tax.
When the toll upon carriages of luxury, upon coaches,
post-chaises, &c. is made somewhat higher in proportion to
their weight, than upon carriages of necessary use, such as
carts, waggons, &c. the indolence and vanity of the rich is
made to contribute in a very easy manner to the relief of the
poor, by rendering cheaper the transportation of heavy goods
to all the different parts of the country.
When high roads, bridges, canals, &c. are in this manner
made and supported by the commerce which is carried on by
means of them, they can be made only where that commerce
requires them, and consequently where it is proper to make
them. Their expence too, their grandeur and magnificence,
must be suited to what that commerce can afford to pay.
They must be made consequently as it is proper to make them.
A magnificent high road cannot be made through a desart
country where there is little or no commerce, or merely be
cause it happens to lead to the country villa of the intendant
of the province, or to that of some great lord to whom the
intendant finds it convenient to make his court. A great
bridge cannot be thrown over a river at a place where no
body passes, or merely to embellish the view from the win
dows of a neighbouring palace : things which sometimes hap
pen, in countries where works of this kind are carried on by
any other revenue than that which they themselves are
capable of affording.
In several different parts of Europe the toll or lock-duty
upon a canal is the property of private persons, whose pri
vate interest obliges them to keep up the canal. If it is not
kept in tolerable order, the navigation necessarily ceases alto
gether, and along with it the whole profit which they can
make by the tolls. If those tolls were put under the manage
ment of commissioners, who had themselves no interest in
them, they might be less attentive to the maintenance of the
works which produced them. The canal of Languedoc cost
the king of France and the province upwards of thirteen mil
lions of livres, which (at twenty-eight livres the mark of
silver, the value of French money in the end of the last cen
tury) amounted to upwards of nine hundred thousand pounds
COMMERCE IN GENERAL 477
sterling. When that great work was finished, the most likely
method, it was found, of keeping it in constant repair was to
make a present of the tolls to Riquet the engineer, who
planned and conducted the work. Those tolls constitute at
present a very large estate to the different branches of the
family of that gentleman, who have, therefore, a great in
terest to keep the work in constant repair. But had those
tolls been put under the management of commissioners,
who had no such interest, they might perhaps have been
dissipated in ornamental and unnecessary expences, while
the most essential parts of the work were allowed to go
to ruin.
The tolls for the maintenance of a high road, cannot with
any safety be made the property of private persons. A high
road, though entirely neglected, does not become altogether
impassable, though a canal does. The proprietors of the
tolls upon a high road, therefore, might neglect altogether the
repair of the road, and yet continue to levy very nearly the
same tolls. It is proper, therefore, that the tolls for the
maintenance of such work should be put under the manage
ment of commissioners or trustees.
**********
Even those public works which are of such a nature that
they cannot afford any revenue for maintaining themselves,
but of which the conveniency is nearly confined to some par
ticular place or district, are always better maintained by a
local or provincial revenue, under the management of a local
and provincial administration, than by the general revenue
of the state, of which the executive power must always have
the management. Were the streets of London to be lighted
and paved at the expense of the treasury, is there any prob
ability that they would be so well lighted and paved as they
are at present, or even at so small an expence? The ex-
pence, besides, instead f being raised by a local tax upon
the inhabitants of each particular street, parish, or district
in London, would, in this case, be defrayed out of the general
revenue of the state, and would onsequently be raised by a
tax upon all the inhabitants of the kingdom, of whom the
greater part derive no sort of benefit from the lighting and
paving of the streets of London.,
478 WEALTH OF NATIONS
The abuses which sometimes creep into the local and pro
vincial administration of a local and provincial revenue, how
enormous soever they may appear, are in reality, however,
almost always very trifling, in comparison of those which
commonly take place in the administration and expenditure
of the revenue of a great empire. They are, besides, much
more easily corrected. Under the local or provincial admin
istration of the justices of the peace in Great Britain, the six
days labour which the country people are obliged to give to
the reparation of the highways, is not always perhaps very
judiciously applied, but it is scarce ever exacted with any
circumstance of cruelty or oppression. In France, under the
administration of the intendants, the application is not always
more judicious, and the exaction is frequently the most cruel
and oppressive. Such Corvees, as they are called, make one
of the principal instruments of tyranny by which those of
ficers chastise any parish or communeaute which has had the
misfortune to fall under their displeasure.

OF THE. PUBLIC WORKS AND INSTITUTIONS WHICH ARE NECES

SARY FOR FACILITATING PARTICULAR BRANCHES OF
COMMERCE

The object of the public works and institutions above men

tioned is to facilitate commerce in general. But in order to
facilitate some particular branches of it, particular institu
tions are necessary, which again require a particular and
extraordinary expence.
Some particular branches of commerce, which are carried
on with barbarous and uncivilized nations, require extraor
dinary protection. An ordinary store or counting-house
could give little security to the goods of the merchants who
trade to the western coast of Africa. To defend them from
the barbarous natives, it is necessary that the place where
they are deposited, should be, in some measure, fortified.
The disorders in the government of Indostan have been sup
posed to render a like precaution necessary even among that
mild and gentle people; and it was under pretence of secur
ing their persons and property from violence, that both the
English and French East India Companies were allowed to
PARTICULAR BRANCHES OF COMMERCE 479
erect the first forts which they possessed in that country.
Among other nations, whose vigorous government will suffer
no strangers to possess any fortified place within their terri
tory, it may be necessary to maintain some ambassador, min
ister, or consul, who may both decide, according to their own
customs, the differences arising among his own countrymen;
and, in their disputes with the natives, may, by means of his
public character, interfere with more authority, and afford
them a more powerful protection, than they could expect
quently
from anymade
private
it necessary
man. Thetointerests
maintainof ministers
commerceinhave
foreign
tre-

countries, where the purposes, either of war or alliance,

would not have required any. The commerce of the Turkey
Company first occasioned the establishment of an ordinary
ambassador at Constantinople. The first English embassies
to Russia arose altogether from commercial interests. The
constant interference, which those interests necessarily occa
sioned between the subjects of the different states of Europe,
has probably introduced the custom of keeping, in all neigh
bouring countries, ambassadors or ministers constantly resi
dent even in the time of peace. This custom, unknown to
ancient times, seems not to be older than the end of the fif
teenth or beginning of the sixteenth century; that is, than
the time when commerce first began to extend itself to the
greater part of the nations of Europe, and when they first
began to attend to its interests.
It seems not unreasonable, that the extraordinary expence,
which the protection of any particular branch of commerce
may occasion, should be defrayed by a moderate tax upon
that particular branch; by a moderate fine, for example, to
be paid by the traders when they first enter into it, or, what
is more equal, by a particular duty of so much per cent, upon
the goods which they either import into, or export out of,
the particular countries with which it is carried on. The
protection of trade in general, from pirates and free-booters,
is said to have given occasion to the first institution of the
duties of customs. But, if it was thought reasonable to lay
a general tax upon trade, in order to defray the expence of
protecting trade in general, it should seem equally reasonable
to lay a particular tax upon a particular branch of trade, in
480 WEALTH OF NATIONS
order to defray the extraordinary expence of protecting that
branch.
The protection of trade in general has always been con
sidered as essential to the defence of the commonwealth, and,
upon that account, a necessary part of the duty of the execu
tive power. The collection and application of the general
duties of customs, therefore, have always been left to that
power. But the protection of any particular branch of trade
is a part of the general protection of trade ; a part, therefore,
of the duty of that power; and if nations always acted con
sistently, the particular duties levied for the purposes of such
particular protection, should always have been left equally
to its disposal. But in this respect, as well as in many others,
nations have not always acted consistently ; and in the greater
part of the commercial states of Europe, particular companies
of merchants have had the address to persuade the legislature
to entrust to them the performance of this part of the duty
of the sovereign, together with all the powers which are
necessarily connected with it.
These companies, though they may, perhaps, have been use
ful for the first introduction of some branches of commerce,
by making, at their own expence, an experiment which the
run
state proved,
might not
universally,
think it prudent
either burdensome
to make, have
or useless,
in the long-
and

have either mismanaged or confined the trade.

When those companies do not trade upon a joint stock, but
are obliged to admit any person, properly qualified, upon pay
ing a certain fine, and agreeing to submit to the regulations
of the company, each member trading upon his own stock,
and at his own risk, they are called regulated companies.
When they trade upon a joint stock, each member sharing
in the common profit or loss in proportion to his share in
this stock, they are called joint stock companies. Such com
panies,
and sometimes
whetherhave
regulated
not, exclusive
or jointprivileges.
stock, sometimes have,
**********
When a company of merchants undertake, at their own
risk and expence, to establish a new trade with some remote
and barbarous nation, it may not be unreasonable to incor
porate them into a joint stock company, and to grant them,
PARTICULAR BRANCHES OF COMMERCE 481
in case of their success, a monopoly of the trade for a certain
number of years. It is the easiest and most natural way in
which the state can recompense them for hazarding a dan
gerous and expensive experiment, of which the public is
afterwards to reap the benefit. A temporary monopoly of
this kind may be vindicated upon the same principles upon
which a like monopoly of a new machine is granted to its
inventor, and that of a new book to its author. But upon
the expiration of the term, the monopoly ought certainly to
determine ; the forts and garrisons, if it was found necessary
to establish any, to be taken into the hands of government,
their value to be paid to the company, and the trade to be
laid open to all the subjects of the state. By a perpetual
monopoly, all the other subjects of the state are taxed very
absurdly in two different ways; first, by the high price of
goods, which, in the case of a free-trade, they could buy
much cheaper; and, secondly, by their total exclusion from a
branch of business, which it might be both convenient and
profitable for many of them to carry on. It is for the most
worthless of all purposes too that they are taxed in this man
ner. It is merely to enable the company to support the neg
ligence, profusion, and malversation of their own servants,
whose disorderly conduct seldom allows the dividend of the
company to exceed the ordinary rate of profit in trades which
are altogether free, and very frequently makes it fall even a
good deal short of that rate. Without a monopoly, however,
a joint stock company, it would appear from experience, can
not long carry on any branch of foreign trade. To buy in
one market, in order to sell, with profit, in another, when
there are many competitors in both ; to watch over, not only
the occasional variations in the demand, but the much greater
and more frequent variations in the competition, or in the
supply which that demand is likely to get from other people,
and to suit with dexterity and judgment both the quantity
and quality of each assortment of goods to all these circum
stances, is a species of warfare of which the operations are
continually changing, and which can scarce ever be con
ducted successfully, without such an unremitting exertion of
vigilance and attention, as cannot long be expected from the
directors of a joint stock company. The East India Com
482 WEALTH OF NATIONS
pany, upon the redemption of their funds, and the expiration
of their exclusive privilege, have a right, by act of parlia
ment, to continue a corporation with a joint stock, and to
trade in their corporate capacity to the East Indies in com
mon with the rest of their fellow-subjects. But in this situ
ation, the superior vigilance and attention of private adven
turers would, in all probability, soon make them weary of
the trade.
An eminent French author, of great knowledge in matters
five
of political
joint stock
oeconomy,
companies
the Abbe
for foreign
Morellet,
trade,
gives
which
a list
have
of fifty-
been

established in different parts of Europe since the year i6o0,

and which, according to him, have all failed from misman
agement, notwithstanding they had exclusive privileges. He
has been misinformed with regard to the history of two or
three of them, which were not joint stock companies and
have not failed. But, in compensation, there have been sev
eral joint stock companies which have failed, and which he
has omitted.
The only trades which it seems possible for a joint stock
company to carry on successfully, without an exclusive privi
lege, are those, of which all the operations are capable of
being reduced to what is called a routine, or to such a uni
formity of method as admits of little or no variation. Of
this kind is, first, the banking trade; secondly, the trade of
insurance from fire, and from sea risk and capture in time of
war; thirdly, the trade of making and maintaining a navi
gable cut or canal ; and, fourthly, the similar trade of bring
ing water for the supply of a great city.
Though the principles of the banking trade may appear
somewhat abstruse, the practice is capable of being reduced
to strict rules. To depart upon any occasion from those
rules, in consequence of some flattering speculation of extra
ordinary gain, is almost always extremely dangerous, and
frequently fatal to the banking company which attempts it
But the constitution of joint stock companies renders them
in general more tenacious of established rules than any pri
vate copartnery. Such companies, therefore, seem extremely
well fitted for this trade- The principal banking companies
in Europe, accordingly, are joint stock companies, many of
PARTICULAR BRANCHES OF COMMERCE 483
which manage their trade very successfully without any ex
clusive privilege. The Bank of England has no other ex
clusive privilege, except that no other banking company in
England shall consist of more than six persons. The two
banks of Edinburgh are joint stock companies without any
exclusive privilege.
The value of the risk, either from fire, or from loss by sea,
or by capture, though it cannot, perhaps, be calculated very
exactly, admits, however, of such a gross estimation as ren
ders it, in some degree, reducible to strict rule and method.
The trade of insurance, therefore, may be carried on success
fully by a joint stock company, without any exclusive privi
lege. Neither the London Assurance, nor the Royal Ex
change Assurance companies, have any such privilege.
When a navigable cut or canal has been once made, the
management of it becomes quite simple and easy, and is re
ducible to strict rule and method. Even the making of it is
so, as it may be contracted for with undertakers at so much a
mile, and so much a lock. The same thing may be said of a
canal, an aqueduct, or a great pipe for bringing water to sup
ply a great city. Such undertakings, therefore, may be, and
accordingly frequently are, very successfully managed by
joint stock companies without any exclusive privilege.
To establish a joint stock company, however, for any under
taking, merely because such a company might be capable of
managing it successfully; or to exempt a particular set of
dealers from some of the general laws which take place with
regard to all their neighbours, merely because they might be
capable of thriving if they had such an exemption, would
certainly not be reasonable. To render such an establishment
perfectly reasonable, with the circumstance of being reducible
to strict rule and method, two other circumstances ought to
concur. First, it ought to appear with the clearest evidence,
(hat the undertaking is of greater and more general utility
than the greater part of common trades ; and secondly, that
it requires a greater capital than can easily be collected into
a private copartnery. If a moderate capital were sufficient,
the great utility of the undertaking would not be a sufficient
reason for establishing a joint stock company; because, in
this case, the demand for what it was to produce, would
484 WEALTH OF NATIONS
readily and easily be supplied by private adventurers. In
the four trades above mentioned, both those circumstances
concur.
The great and general utility of the banking trade when
prudently managed, has been fully explained in the second
book of this inquiry. But a public bank which is to support
public credit, and upon particular emergencies to advance to
government the whole produce of a tax, to the amount, per
haps, of several millions, a year or two before it comes in,
requires a greater capital than can easily be collected into
any private copartnery.
The trade of insurance gives great security to the fortunes
of private people, and by dividing among a great many that
loss which would ruin an individual, makes it fall light and
easy upon the whole society. In order to give this security,
however, it is necessary that the insurers should have a very
large capital. Before the establishment of the two joint
stock companies for insurance in London, a list, it is said,
was laid before the attorney-general, of one hundred and
fifty private insurers who had failed in the course of a few
years.
That navigable cuts and canals, and the works which are
sometimes necessary for supplying a great city with water,
are of great and general utility; while at the same time they
frequently require a greater expence than suits the fortunes
of private people, is sufficiently obvious.
Except the four trades above mentioned, I have not been
able to recollect any other in which all the three circum
stances, requisite for rendering reasonable the establishment
of a joint stock company, concur. The English copper com
pany of London, the lead smelting company, the glass grind
ing company, have not even the pretext of any great or
singular utility in the object which they pursue; nor does the
pursuit of that object seem to require any expence unsuit
able to the fortunes of many private men. Whether the
trade which those companies carry on, is reducible to such
strict rule and method as to render it fit for the management
of a joint stock company, or whether they have any reason
to boast of their extraordinary profits, I do not pretend to
know. The mine-adventurers company has been long ago
EDUCATIONAL INSTITUTIONS 485
bankrupt. A share in the stock of the British Linen Com
pany of Edinburgh sells, at present, very much below par,
though less so than it did some years ago. The joint stock
companies, which are established for the public-spirited pur
pose of promoting some particular manufacture, over and
above managing their own affairs ill, to the diminution of
the general stock of the society, can in other respects scarce
ever fail to do more harm than good. Notwithstanding the
most upright intentions, the unavoidable partiality of their
directors to particular branches of the manufacture, of which
the undertakers mislead and impose upon them, is a real dis
couragement to the rest, and necessarily breaks, more or less,
that natural proportion which would otherwise establish it
self between judicious industry and profit, and which, to the
general industry of the country, is of all encouragements the
greatest and the most effectual.

ARTICLE II
Of the Expence Of The Institutions For The Education
of Youth

The institutions for the education of the youth may,

in the same manner, furnish a revenue sufficient for de
fraying their own expence. The fee or honorary which
the scholar pays to the master naturally constitutes a revenue
of this kind.
Even where the reward of the master does not arise alto
gether from this natural revenue, it still is not necessary that
it should be derived from that general revenue of the society,
of which the collection and application are, in most countries,
assigned to the executive power. Through the greater part
of Europe, accordingly, the endowment of schools and col
leges makes either no charge upon that general revenue, or
but a very small one. It every where arises chiefly from
some local or provincial revenue, from the rent of some
landed estate, or from the interest of some sum of money
allotted and put under the management of trustees for this
particular purpose, sometimes by the sovereign himself, and
sometimes by some private donor.
486 WEALTH OF NATIONS

ARTICLE III
Of the Expence Of The Institutions For The Instruction of
People Of All Ages
The institutions for the instruction of people of all
ages are chiefly those for religious instruction. This is a
species of instruction of which the object is not so
much to render the people good citizens in this world, as to
prepare them for another and a better world in a life to come.
The teachers of the doctrine which contains this instruction,
in the same manner as other teachers, may either depend al
together for their subsistence upon the voluntary contribu
tions of their hearers ; or they may derive it from some other
fund to which the law of their country may entitle them;
such as a landed estate, a tythe or land tax, an established
salary or stipend. Their exertion, their zeal and industry,
are likely to be much greater in the former situation than in
the latter. In this respect the teachers of new religions have
always had a considerable advantage in attacking those
ancient and established systems of which the clergy, reposing
themselves upon their benefices, had neglected to keep up the
fervour of faith and devotion in the great body of the people ;
and having given themselves up to indolence, were become al
together incapable of making any vigorous exertion in de
fence even of their own establishment.

PART IV
Of the Expence of Supporting the Dignity Of The Sovereign
Over and above the expence necessary for enabling
the sovereign to perform his several duties, a certain
expence is requisite for the support of his dignity. This
expence varies both with the different periods of improve
ment, and with the different forms of government.
In an opulent and improved society, where all the different
orders of people are growing every day more expensive in
their houses, in their furniture, in their tables, in their dress,
and in their equipage; it cannot well be expected that the
CONCLUSION 487
sovereign should alone hold out against the fashion. He
naturally, therefore, or rather necessarily becomes more ex
pensive in all those different articles too. His dignity even
seems to require that he should become so.
As in point of dignity, a monarch is more raised above his
subjects than the chief magistrate of any republic is ever
supposed to be above his fellow-citizens ; so a greater expence
is necessary for supporting that higher dignity. We nat
urally expect more splendor in the court of a king, than in
the mansion-house of a doge or burgo-master.

CONCLUSION

The expence of defending the society, and that of sup

porting the dignity of the chief magistrate, are both
laid out for the general benefit of the whole society. It
is reasonable, therefore, that they should be defrayed by
the general contribution of the whole society, all the different
members contributing, as nearly as possible, in proportion to
their respective abilities.
The expence of the administration of justice too, may, no
doubt, be considered as laid out for the benefit of the whole
society. There is no impropriety, therefore, in its being
defrayed by the general contribution of the whole society.
The persons, however, who give occasion to this expence are
those who, by their injustice in one way or another, make it
necessary to seek redress or protection from the courts of
justice. The persons again most immediately benefited by
this expence, are those whom the courts of justice either
restore to their rights, or maintain in their rights. The ex-
pence of the administration of justice, therefore, may very
properly be defrayed by the particular contribution of one or
other, or both of those two different sets of persons, accord
ing as different occasions may require, that is, by the fees of
court. It cannot be necessary to have recourse to the gen
eral contribution of the whole society, except for the con
viction of those criminals who have not themselves any
estate or fund sufficient for paying those fees.
Those local or provincial expences of which the benefit is
488 WEALTH OF NATIONS
local or provincial (what is laid out, for example, upon the
police of a particular town or district) ought to be defrayed
by a local or provincial revenue, and ought to be no burden
upon the general revenue of the society. It is unjust that
the whole society should contribute towards an expence of
which the benefit is confined to a part of the society.
The expence of maintaining good roads and communica
tions is, no doubt, beneficial to the whole society, and may,
therefore, without any injustice, be defrayed by the general
contribution of the whole society. This expence, however,
Is most immediately and directly beneficial to those who
travel or carry goods from one place to another, and to those
who consume such goods. The turnpike tolls in England,
and the duties called peages in other countries, lay it alto
gether upon those two different sets of people, and thereby
discharge the general revenue of the society from a very
considerable burden.
The expence of the institutions for education and religious
instruction, is likewise, no doubt, beneficial to the whole
society, and may, therefore, without injustice, be defrayed
by the general contribution of the whole society. This ex-
pence, however, might perhaps with equal propriety, and
even with some advantage, be defrayed altogether by those
who receive the immediate benefit of such education and in
struction, or by the voluntary contribution of those who think
they have occasion for either the one or the other.
When the institutions or public works which are beneficial
to the whole society, either cannot be maintained altogether,
or are not maintained altogether by the contribution of such
particular members of the society as are most immediately
benefited by them, the deficiency must in most cases be made
up by the general contribution of the whole society. The
general revenue of the society, over and above defraying the
expence of defending the society, and of supporting the dig
nity of the chief magistrate, must make up for the deficiency
of many particular branches of revenue. The sources of this
general or public revenue, I shall endeavour to explain in
the following chapter.
CHAPTER II
Of the Sources Of The General or Public Revenue
Of The Society

THE revenue which must defray, not only the expence

of defending the society and of supporting the dignity
of the chief magistrate, but all the other necessary ex-
pences of government, for which the constitution of the state
has not provided any particular revenue, may be drawn,
either, first, from some fund which peculiarly belongs to the
sovereign or commonwealth, and which is independent of
the revenue of the people ; or, secondly, from the revenue of
the people.

PART I
Of the Funds or Sources of Revenue Which May Peculiarly
Belong To The Sovereign or Commonwealth

The funds or sources of revenue which may peculiarly

belong to the sovereign or commonwealth must consist,
either in stock, or in land.
The sovereign, like any other owner of stock, may derive
a revenue from it, either by employing it himself, or by
lending it. His revenue is in the one case profit, in the other
interest.
The revenue of a Tartar or Arabian chief consists in
profit. It arises principally from the milk and increase of
his own herds and flocks, of which he himself superintends
the management, and is the principal shepherd or herdsman
of his own horde or tribe. It is, however, in this earliest and
rudest state of civil government only that profit has ever
made the principal part of the public revenue of a monarchi
cal state.
Small republics have sometimes derived a considerable
489
490 WEALTH OF NATIONS
revenue from the profit of mercantile projects. The republic
of Hamburgh is said to do so from the profits of a public wine
cellar and apothecary's shop. The state cannot be very great
of which the sovereign has leisure to carry on the trade of
a wine merchant or apothecary. The profit of a public bank
has been a source of revenue to more considerable states.
It has been so not only to Hamburgh, but to Venice and
Amsterdam. A revenue of this kind has even by some people
been thought not below the attention of so great an empire
as that of Great Britain. Reckoning the ordinary dividend
of the bank of England at five and a halt per cent., and its
capital at ten millions seven hundred and eighty thousand
pounds, the neat annual profit, after paying the expence of
management, must amount, it is said, to five hundred and
ninety-two thousand nine hundred pounds. Government, it
is pretended, could borrow this capital at three per cent. in
terest, and by taking the management of the bank into its
own hands, might make a clear profit of two hundred and
sixty-nine thousand five hundred pounds a year The or
derly, vigilant, and parsimonious administration of such aris
tocracies as those of Venice and Amsterdam, is extremely
proper, it appears from experience, for the management of a
mercantile project of this kind. But whether such a govern
ment as that of England; which, whatever may be its vir
tues, has never been famous for good ceconomy; which, in
time of peace, has generally conducted itself with the sloth
ful and negligent profusion that is perhaps natural to mon
archies; and in time of war has constantly acted with all the
thoughtless extravagance that democracies are apt to fall
into ; could be safely trusted with the management of such a
project, must at least be a good deal more doubtful.
The post office is properly a mercantile project. The gov
ernment advances the expence of establishing the different
offices, and of buying or hiring the necessary horses or car
riages, and is repaid with a large profit by the duties upon
what is carried. It is perhaps the only mercantile project
which has been successfully managed by, I believe, every
sort of government. The capital to be advanced is not very
considerable. There is no mystery in the business. The
returns are not only certain, but immediate.
FUNDS OF THE SOVEREIGN 491
Princes, however, have frequently engaged in many other
mercantile projects, and have been willing, like private per
sons, to mend their fortunes by becoming adventurers in the
common branches of trade. They have scarce ever suc
ceeded. The profusion with which the affairs of princes are
always managed, renders it almost impossible that they
should. The agents of a prince regard the wealth of their
master as inexhaustible ; are careless at what price they buy ;
are careless at what price they sell ; are careless at what ex-
pence they transport his goods from one place to another.
Those agents frequently live with the profusion of princes,
and sometimes too, in spite of that profusion, and by a proper
method of making up their accounts, acquire the fortunes of
princes. It was thus, as we are told by Machiavel, that the
agents of Lorenzo of Medicis, not a prince of mean abilities,
carried on his trade. The republic of Florence was several
times obliged to pay the debt into which their extravagance
had involved him. He found it convenient, accordingly, to
give up the business of merchant, the business to which his
family had originally owed their fortune, and in the latter
part of his life to employ both what remained of that for
tune, and the revenue of the state of which he had the dis
posal, in projects and expences more suitable to his station.
No two characters seem more inconsistent than those of
trader and sovereign. If the trading spirit of the English
East India company renders them very bad sovereigns; the
spirit of sovereignty seems to have rendered them equally bad
traders. While they were traders only, they managed their
trade successfully, and were able to pay from their profits a
moderate dividend to the proprietors of their stock. Since
they became sovereigns, with a revenue which, it is said, was
originally more than three millions sterling, they have been
obliged to beg the extraordinary assistance of government
in order to avoid immediate bankruptcy. In their former
situation, their servants in India considered themselves as
the clerks of merchants : in their present situation, those
servants consider themselves as the ministers of sovereigns.
A state may sometimes derive some part of its public reve
nue from the interest of money, as well as from the profits
of stock. If it has amassed a treasure, it may lend a part of
492 WEALTH OF NATIONS
that treasure, either to foreign states, or to its own subjects.
The canton of Berne derives a considerable revenue by
lending a part of its treasure to foreign states; that is, by
placing it in the public funds of the different indebted nations
of Europe, chiefly in those of France and England. The
security of this revenue must depend, first, upon the security
of the funds in which it is placed, or upon the good faith of
the government which has the management of them; and,
secondly, upon the certainty or probability of the continu
ance of peace with the debtor nation. In the case of a war,
the very first act of hostility, on the part of the debtor nation,
might be the forfeiture of the funds of its creditor. This
policy of lending money to foreign states is, so far as I know,
peculiar to the canton of Berne.
The city of Hamburgh has established a sort of public
pawn-shop, which lends money to the subjects of the state
upon pledges at six per cent. interest. This pawn-shop or
Lombard, as it is called, affords a revenue, it is pretended,
to the state of a hundred and fifty thousand crowns, which,
at four-and-sixpence the crown, amounts to 33,750/ sterling.
The government of Pensylvania, without amassing any
treasure, invented a method of lending, not money indeed,
but what is equivalent to money, to its subjects. By advanc
ing to private people, at interest, and upon land security to
double the value, paper bills of credit to be redeemed fifteen
years after their date, and in the mean time made transfer
able from hand to hand like bank notes, and declared by act
of assembly to be a legal tender in all payments from one
inhabitant of the province to another, it raised a moderate
revenue, which went a considerable way towards defraying
an annual expence of about 4,500/. the whole ordinary ex-
pence of that frugal and orderly government. The success
of an expedient of this kind must have depended upon three
different circumstances; first, upon the demand for some
other instrument of commerce, besides gold and silver money ;
or upon the demand for such a quantity of consumable stock,
as could not be had without sending abroad the greater part
of their gold and silver money, in order to purchase it; sec
ondly, upon the good credit of the government which made
use of this expedient ; and, thirdly, upon the moderation with
FUNDS OF THE SOVEREIGN 493
which it was used, the whole value of the paper bills of credit
never exceeding that of the gold and silver money which
would have been necessary for carrying on their circulation,
had there been no paper bills of credit. The same expedient
was upon different occasions adopted by several other Ameri
can colonies : but, from want of this moderation, it produced,
in the greater part of them, much more disorder than con-
veniency.
The unstable and perishable nature of stock and credit,
however, render them unfit to be trusted to, as the principal
funds of that sure, steady and permanent revenue, which can
alone give security and dignity to government. The govern
ment of no great nation, that was advanced beyond the shep
herd state, seems ever to have derived the greater part of its
public revenue from such sources.
Land is a fund of a more stable and permanent nature:
and the rent of public lands, accordingly, has been the prin
cipal source of the public revenue of many a great nation
that was much advanced beyond the shepherd state. From
the produce or rent of the public lands, the ancient republics
of Greece and Italy derived, for a long time, the greater part
of that revenue which defrayed the necessary expences of the
commonwealth. The rent of the crown lands constituted for
a long time the greater part of the revenue of the ancient
sovereigns of Europe.
War and the preparation for war, are the two circum
stances which in modern times occasion the greater part of
the necessary expence of all great states. But in the ancient
republics of Greece and Italy every citizen was a soldier, who
both served and prepared himself for service at his own ex-
pence. Neither of those two circumstances, therefore, could
occasion any very considerable expence to the state. The
rent of a very moderate landed estate might be fully sufficient
for defraying all the other necessary expences of government.
In the ancient monarchies of Europe, the manners and cus
toms of the times sufficiently prepared the great body of the
people for war; and when they took the field, they were, by
the condition of their feudal tenures, to be maintained, either
at their own expence, or at that of their immediate lords,
without bringing any new charge upon the sovereign. The
494 WEALTH OF NATIONS

other expences of government were, the greater part of them,

very moderate. The administration of justice^ it has been
shown, instead of being a cause of expence, was a source of
revenue. The labour of the country people, for three days
before and for three days after harvest, was thought a fund
sufficient for making and maintaining all the bridges, high
ways, and other public works which the commerce of the
country was supposed to require. In those days the prin
cipal expence of the sovereign seems to have consisted in the
maintenance of his own family and household. The officers
of his household, accordingly, were then the great officers of
state. The lord treasurer received his rents The lord stew
ard and lord chamberlain looked after the expence of his
family. The care of his stables was committed to the lord
constable and the lord marshal. His houses were all built
in the form of castles, and seem to have been the principal
fortresses which he possessed. The keepers of those houses
or castles might be considered as a sort of military gov
ernors. They seem to have been the only military officers
whom it was necessary to maintain in time of peace. In
these circumstances the rent of a great landed estate might,
upon ordinary occasions, very well defray all the necessary
expences
In the of
present
government.
state of the greater part of the civilized

monarchies of Europe, the rent of all the lands in the coun

try, managed as they probably would be if they all belonged
to one proprietor, would scarce perhaps amount to the or
dinary revenue which they levy upon the people even in
peaceable times. The ordinary revenue of Great Britain, for
example, including not only what is necessary for defraying
the current expence of the year, but for paying the interest
of the public debts, and for sinking a part of the capital of
those debts, amounts to upwards of ten millions a year. But
the land tax, at four shillings in the pound, falls short of two
millions a year. This land tax, as it is called, however, is
supposed to be one-fifth, not only of the rent of all the land,
but of that of all the houses, and of the interest of all the
capital stock of Great Britain, that part of it only excepted
which is either lent to the public, or employed as farming
stock in the cultivation of land. A very considerable part of
FUNDS OF THE SOVEREIGN 495
the produce of this tax arises from the rent of houses, and the
interest of capital stock. The land-tax of the city of London,
for example, at four shillings in the pound, amounts to
123,399l. 6s, 7d, That of the city of Westminster, to 63,092l.
1s. 5rf. That of the palaces of Whitehall and St. James's, to
30,754/. 6s. 3d. A certain proportion of the land-tax is in
the same manner assessed upon all the other cities and towns
corporate in the kingdom, and arises almost altogether, either
from the rent of houses, or from what is supposed to be the
interest of trading and capital stock. According to the esti
tax,
mation,
the therefore,
whole massby which
of revenue
Greatarising
Britainfrom
is rated
the torent
the of
land-
all

the lands, from that of all the houses, and from the interest
of all the capital stock, that part of it only excepted which
is either lent to the public, or employed in the cultivation of
land, does not exceed ten millions sterling a year, the or
dinary revenue which government levies upon the people even
in peaceable times. The estimation by which Great Britain
is rated to the land-tax is, no doubt, taking the whole king
dom at an average, very much below the real value ; though
in several particular counties and districts it is said to be
nearly equal to that value. The rent of the lands alone, ex
clusive of that of houses, and of the interest of stock, has by
many people been estimated at twenty millions, an estimation
made in a great measure at random, and which, I apprehend,
is as likely to be above as below the truth. But if the lands
of Great Britain, in the present state of their cultivation, do
not afford a rent of more than twenty millions a year, they
could not well afford the half, most probably not the fourth
part of that rent, if they all belonged to a single proprietor,
and were put under the negligent, expensive, and oppressive
management of his factors and agents. The crown lands of
Great Britain do not at present afford the fourth part of the
rent, which could probably be drawn from them if they were
the property of private persons. If the crown lands were
more extensive, it is probable they would be still worse
managed.
The revenue which the great body of the people derives
from land is in proportion, not to the rent, but to the produce
of the land. The whole annual produce of the land of every
496 WEALTH OF NATIONS
country, if we except what is reserved for seed, is either
annually consumed by the great body of the people, or ex
changed for something else that is consumed by them. What
ever keeps down the produce of the land below what it would
otherwise rise to, keeps down the revenue of the great body
of the people, still more than it does that of the proprietors
of land. The rent of land, that portion of the produce which
belongs to the proprietors, is scarce anywhere in Great
Britain supposed to be more than a third part of the whole
produce. If the land, which in one state of cultivation affords
a rent of ten millions sterling a year, would in another afford
a rent of twenty millions ; the rent being, in both cases, sup
posed a third part of the produce; the revenue of the pro
prietors would be less than it otherwise might be by ten mil
lions a year only; but the revenue of the great body of the
people would be less than it otherwise might be by thirty
millions a year, deducting only what would be necessary for
seed. The population of the country would be less by the
number of people which thirty millions a year, deducting al
ways the seed, could maintain, according to the particular
mode of living and expence which might take place in the
different ranks of men among whom the remainder was
distributed.
Though there is not at present, in Europe, any civilized
state of any kind which derives the greater part of its public
revenue from the rent of lands which are the property of the
state; yet, in all the great monarchies of Europe, there are
still many large tracts of land which belong to the crown.
They are generally forest; and sometimes forest where, after
travelling several miles, you will scarce find a single tree ; a
mere waste and loss of country in respect both of produce and
population. In every great monarchy of Europe the sale of the
crown lands would produce a very large sum of money,
which, if applied to the payment of the public debts, would
deliver from mortgage a much greater revenue than any
which those lands have ever afforded to the crown. In coun
tries where lands, improved and cultivated very highly, and
yielding at the time of sale as great a rent as can easily be
got from them, commonly sell at thirty years purchase; the
unimproved, uncultivated, and low-rented crown lands might
FUNDS OF THE SOVEREIGN 497
well be expected to sell at forty, fifty, or sixty years pur
chase. The crown might immediately enjoy the revenue
which this great price would redeem from mortgage. In the
course of a few years it would probably enjoy another rev
enue. When the crown lands had become private property,
they would, in the course of a few years, become well im
proved and well cultivated. The increase of their produce
would increase the population of the country, by augmenting
the revenue and consumption of the people. But the revenue
which the crown derives from the duties of customs and ex
cise, would necessarily increase with the revenue and con
sumption of the people.
The revenue which, in any civilized monarchy, the crown
derives from the crown lands, though it appears to cost noth
ing to individuals, in reality costs more to the society than
perhaps any other equal revenue which the crown enjoys.
It would, in all cases, be for the interest of the society to
replace this revenue to the crown by some other equal rev
enue, and to divide the lands among the people, which could
not well be done better, perhaps, than by exposing them
to public sale.
Lands, for the purposes of pleasure and magnificence,
parks, gardens, public walks, &c., possessions which are
every where considered as causes of expence, not as sources
of revenue, seem to be the only lands which, in a great and
civilized monarchy, ought to belong to the crown.
Public stock and public lands, therefore, the two sources
of revenue which may peculiarly belong to the sovereign or
commonwealth, being both improper and insufficient funds
for defraying the necessary expence of any great and civi
lized state; it remains that this expence must, the greater
part of it, be defrayed by taxes of one kind or another; the
people contributing a part of their own private revenue in
order to make up a public revenue to the sovereign or com
monwealth.
498 WEALTH OF NATIONS

PART I
Of Taxes
The private revenue of individuals, it has been shewn
in the first book of this Inquiry, arises ultimately from
three different sources: Rent, Profit, and Wages. Every
tax must finally be paid from some one or other of
those three different sorts of revenue, or from all of them
indifferently. I shall endeavour to give the best account I
can, first, of those taxes which, it is intended, should fall
upon rent; secondly, of those which, it is intended, should
fall upon profit; thirdly, of those which, it is intended, should
fall upon wages ; and, fourthly, of those which, it is intended,
should fall indifferently upon all those three different sources
of private revenue. The particular consideration of each of
these four different sorts of taxes will divide the second
part of the present chapter into four articles, three of which
will require several other subdivisions. Many of those taxes,
it will appear from the following review, are not finally paid
from the fund, or source of revenue, upon which it was in
tended they should fall.
Before I enter upon the examination of particular taxes,
it is necessary to premise the four following maxims with
regard to taxes in general.
I. The subjects of every state ought to contribute towards
the support of the government, as nearly as possible, in pro
portion to their respective abilities ; that is, in proportion to
the revenue which they respectively enjoy under the protec
tion of the state. The expence of government to the indi
viduals of a great nation, is like the expence of manage
ment to the joint tenants of a great estate, who are all obliged
to contribute in proportion to their respective interests in
the estate. In the observation or neglect of this maxim
consists, what is called the equality or inequality of taxation.
Every tax, it must be observed once for all, which falls
finally upon one only of the three sorts of revenue above
mentioned, is necessarily unequal, in so far as it does not
affect the other two. In the following examination of dif
ferent taxes I shall seldom take much further notice of this
TAXES 499
sort of inequality, but shall, in most cases, confine my obser
vations to that inequality which is occasioned by a particular
tax falling unequally even upon that particular sort of pri
vate revenue which is affected by it.
II. The tax which each individual is bound to pay ought
to be certain, and not arbitrary. The time of payment, the
manner of payment, the quantity to be paid, ought all to be
clear and plain to the contributor, and to every other person.
Where it is otherwise, every person subject to the tax is put
more or less in the power of the tax-gatherer, who can
either aggravate the tax upon any obnoxious contributor, or
extort, by the terror of such aggravation, some present or
perquisite to himself. The uncertainty of taxation encour
ages the insolence and favours the corruption of an order of
men who are naturally unpopular, even where they are
neither insolent nor corrupt. The certainty of what each in
dividual ought to pay is, in taxation, a matter of so great
importance, that a very considerable degree of inequality,
it appears, I believe, from the experience of all nations, is
not near so great an evil as a very small degree of un
certainty.
III. Every tax ought to be levied at the time, or in the
manner, in which it is most likely to be convenient for the
contributor to pay it A tax upon the rent of land or of
houses, payable at the same term at which such rents are
usually paid, is levied at the time when it is most likely to
be convenient for the contributor to pay; or, when he is
most likely to have wherewithal to pay. Taxes upon such
consumable goods as are articles of luxury, are all finally
paid by the consumer, and generally in a manner that is very
convenient for him. He pays them by little and little, as he
has occasion to buy the goods. As he is at liberty too, either
to buy, or not to buy, as he pleases, it must be his own fault
if he ever suffers any considerable inconveniency from such
taxes.
IV. Every tax ought to be so contrived as both to take out
and to keep out of the pockets of the people as little as pos
sible, over and above what it brings into the public treasury
of the state. A tax may either take out or keep out of the
pockets of the people a great deal more than it brings into
500 WEALTH OF NATIONS
the public treasury, in the four following ways. First, the
levying of it may require a great number of officers, whose
salaries may eat up the greater part of the produce of the
tax, and whose perquisites may impose another additional
tax upon the people. Secondly, it may obstruct the industry
of the people, and discourage them from applying to certain
branches of business which might give maintenance and em
ployment to great multitudes. While it obliges the people to
pay, it may thus diminish, or perhaps destroy, some of the
funds which might enable them more easily to do so.
Thirdly, by the forfeitures and other penalties which
those unfortunate individuals incur who attempt unsuc
cessfully to evade the tax, it may frequently ruin
them, and thereby put an end to the benefit which the
community might have received from the employment
of their capitals. An injudicious tax offers a great
temptation to smuggling. But the penalties of smuggling
must rise in proportion to the temptation. The law, con
trary to all the ordinary principles of justice, first creates
the temptation, and then punishes those who yield to it; and
it commonly enhances the punishment too in proportion to
the very circumstance which ought certainly to alleviate it,
the temptation to commit the crime. Fourthly, by subjecting
the people to the frequent visits and the odious examination
of the tax-gatherers, it may expose them to much unneces
sary trouble, vexation, and oppression ; and though vexation
is not, strictly speaking, expence, it is certainly equivalent
to the expence at which every man would be willing to re
deem himself from it. It is in some one or other of these
four different ways that taxes are frequently so much more
burdensome to the people than they are beneficial to the
sovereign.
The evident justice and utility of the foregoing maxims

have recommended them more or less to the attention of all

nations. All nations have endeavoured, to the best of their
judgment, to render their taxes as equal as they could con
trive; as certain, as convenient to the contributor, both in
the time and in the mode of payment, and in proportion to
the revenue which they brought to the prince, as little bur
densome to the people. The following short review of some
TAXES ON THE RENT OF LAND 501
of the principal taxes which have taken place in different
ages and countries will show, that the endeavours of all na
tions have not in this respect been equally successful.

ARTICLE I
Taxes upon Rent. Taxes Upon The Rent of Land.

A! tax upon the rent of land may either be imposed

according to a certain canon, every district being valued
at a certain rent, which valuation is not afterwards to be
altered; or it may be imposed in such a manner as to
vary with every variation in the real rent of the land,
and to rise or fall with the improvement or declension of
its cultivation.
A land-tax, which, like that of Great Britain, is assessed
upon each district according to a certain invariable canon,
though it should be equal at the time of its first establish
ment, necessarily becomes unequal in process of time, accord
ing to the unequal degrees of improvement or neglect in the
cultivation of the different parts of the country. In Eng
land, the valuation according to which the different counties
and parishes were assessed to the land-tax by the 4th of
William and Mary was very unequal even at its first estab
lishment. This tax, therefore, so far offends against the
first of the four maxims above-mentioned. It is perfectly
agreeable to the other three. It is perfectly certain. The
time of payment for the tax, being the same as that for the
rent, is as convenient as ifcan be to the contributor. Though
the landlord is in all cases the real contributor, the tax is
commonly advanced by the tenant, to whom the landlord is
obliged to allow it in the payment of the rent. This tax is
levied by a much smaller number of officers than any other
which affords nearly the same revenue. As the tax upon
each district does not rise with the rise of the rent, the sov
ereign does not share in the profits of the landlord's im
provements. Those improvements sometimes contribute,
indeed, to the discharge of the other landlords of the district.
But the aggravation of the tax, which this may sometimes
occasion upon a particular estate, is always so very small,
502 WEALTH OF NATIONS
that it never can discourage those improvements, nor keep
down the produce of the land below what it would otherwise
rise to. . As it has no tendency to diminish the quantity, it
can have none to raise the price of that produce. It does
not obstruct the industry of the people. It subjects the land
lord to no other inconveniency besides the unavoidable one
of paying the tax.
The advantage, however, which the landlord has derived
from the invariable constancy of the valuation by which all
the lands of Great Britain are rated to the land-tax, has
been principally owing to some circumstances altogether ex
traneous to the nature of the tax.
It has been owing in part to the great prosperity of almost
every part of the country, the rents of almost all the estates
of Great Britain having, since the time when this valuation
was first established, been continually rising, and scarce any
of them having fallen. The landlords, therefore, have al
most all gained the difference between the tax which they
would have paid, according to the present rent of their es
tates, and that which they actually pay according to the
ancient valuation. Had the state of the country been differ
ent, had rents been gradually falling in consequence of the
declension of cultivation, the landlords would almost all have
lost this difference. In the state of things which has hap
pened to take place since the revolution, the constancy of
the valuation has been advantageous to the landlord and
hurtful to the sovereign. In a different state of things it
might have been advantageous to the sovereign and hurtful
to the landlord.
As the tax is made payable in money, so the valuation of
the land is expressed in money. Since the establishment of
this valuation the value of silver has been pretty uniform,
and there has been no alteration in the standard of the coin
either as to weight or fineness. Had silver risen considerably
in its value, as it seems to have done in the course of the
two centuries which preceded the discovery of the mines of
America, the constancy of the valuation might have proved
very oppressive to the landlord. Had silver fallen consid
erably in its value, as it certainly did for about a century at
least after the discovery of those mines, the same constancy
TAXES ON THE RENT OF LAND 503
of valuation would have reduced very much this branch of the
revenue of the sovereign. Had any considerable alteration
been made in the standard of the money, either by sinking
the same quantity of silver to a lower denomination, or by
raising it to a higher; had an ounce of silver, for example,
instead of being coined into five shillings and twopence, been
coined, either into pieces which bore so low a denomination
as two shillings and seven-pence, or into pieces which bore
so high a one as ten shillings and four-pence, it would in
the one case have hurt the revenue of the proprietor, in the
other that of the sovereign.
In circumstances, therefore, somewhat different from those
which have actually taken place, this constancy of valuation
might have been a very great inconveniency, either to the
contributors, or to the commonwealth. In the course of ages
such circumstances, however, must, at some time or other,
happen. But though empires, like all 'he other works of
men, have all hitherto proved mortal, yet every empire aims
at immortality. Every constitution, therefore, which it is
meant should be as permanent as the empire itself, ought to
be convenient, not in certain circumstances only, but in all
circumstances; or ought to be suited, not to those circum
stances which are transitory, occasional, or accidental, but
to those which are necessary and therefore always the same.
A tax upon the rent of land which varies with every varia
tion of the rent, or which rises and falls according to the
improvement or neglect of cultivation, is recommended by
that sect of men of letters in France, who call themselves
the ceconomists, as the most equitable of all taxes. All taxes,
they pretend, fall ultimately upon the rent of land, and ought
therefore to be imposed equally upon the fund which must
finally pay them. That all taxes ought to fall as equally
as possible upon the fund which must finally pay them, is
certainly true. But without entering into the disagreeable
discussion of the metaphysical arguments by which they
support their very ingenious theory, it will sufficiently ap
pear, from the following review, what are the taxes which
fall finally upon the rent of the land, and what are those
which fall finally upon some other fund.
In the Venetian territory all the arable lands which are
504 WEALTH OF NATIONS
given in lease to farmers are taxed at a tenth of the rent.
The leases are recorded in a public register which is kept by
the officers of revenue in each province or district. When
the proprietor cultivates his own lands, they are valued ac
cording to an equitable estimation, and he is allowed a deduc
tion of one-fifth of the tax, so that for such lands he pays
only eight instead of ten per cent. of the supposed rent.
A land-tax of this kind is certainly more equal than the
land-tax of England. It might not, perhaps, be altogether
so certain, and the assessment of the tax might frequently
occasion a good deal more trouble to the landlord. It might
too be a good deal more expensive in the levying.
Such a system of administration, however, might perhaps
be contrived as would, in a great measure, both prevent this
uncertainty and moderate this expence.
The landlord and tenant, for example, might jointly be
obliged to record their lease in a public register. Proper
penalties might be enacted against concealing or misrepre
senting any of the conditions; and if part of those penalties
were to be paid to either of the two parties who informed
against and convicted the other of such concealment or mis
representation, it would effectually deter them from com
bining together in order to defraud the public revenue. All
the conditions of the lease might be sufficiently known from
such a record.
Some landlords, instead of raising the rent, take a fine for
the renewal of the lease. This practice is in most cases the
expedient of a spendthrift, who for a sum of ready money
sells a future revenue of much greater value. It is in most
cases, therefore, hurtful to the landlord. It is frequently
hurtful to the tenant, and it is always hurtful to the com
munity. It frequently takes from the tenant so great a part
of his capital, and thereby diminishes so much his ability to
cultivate the land, that he finds it more difficult to pay a
small rent than it would otherwise have been to pay a great
one. Whatever diminishes his ability to cultivate, necessarily
keeps down, below what it would otherwise have been, the
most important part of the revenue of the community. By
rendering the tax upon such fines a good deal heavier than
upon the ordinary rent, this hurtful practice might be dis
TAXES ON THE RENT OF LAND 505
couraged, to the no small advantage of all the different
parties concerned, of the landlord, of the tenant, of the sov
ereign, and of the whole community.
Such a system of administration might, perhaps, free a tax
of this kind from any degree of uncertainty which could
occasion either oppression or inconveniency to the contribu
tor; and might at the same time serve to introduce into the
common management of land such a plan or policy, as might
contribute a good deal to the general improvement and good
cultivation of the country.
The expence of levying a land-tax, which varied with
every variation of the rent, would no doubt be somewhat
greater than that of levying one which was always rated
according to a fixed valuation. Some additional expence
would necessarily be incurred both by the different register
offices which it would be proper to establish in the different
districts of the country, and by the different valuations which
might occasionally be made of the lands which the proprietor
chose to occupy himself. The expence of all this, how
ever, might be very moderate, and much below what is in
curred in the levying of many other taxes, which afford a
very inconsiderable revenue in comparison of what might
easily be drawn from a tax of this kind.
The discouragement which a variable land-tax of this
kind might give to the improvement of land, seems to be the
most important objection which can be made to it. The
landlord would certainly be less disposed to improve, when
the sovereign, who contributed nothing to the expence, was
to share in the profit of the improvement. Even this objec
tion might perhaps be obviated by allowing the landlord, be
fore he began his improvement, to ascertain, in conjunction
with the officers of revenue, the actual value of his lands,
according to the equitable arbitration of a certain number of
landlords and farmers in the neighbourhood, equally chosen
by both parties; and by rating him according to this valua
tion for such a number of years, as might be fully sufficient
for his complete indemnification. To draw the attention of
the sovereign towards the improvement of the land, from a
regard to the increase of his own revenue, is one of the
principal advantages proposed by this species of land-tax.
506 WEALTH OF NATIONS
The term, therefore, allowed for the indemnification of the
landlord, ought not to be a great deal longer than what was
necessary for that purpose ; lest the remoteness of the interest
should discourage too much this attention. It had better,
however, be somewhat too long than in any respect too short.
No incitement to the attention of the sovereign can ever
counterbalance the smallest discouragement to that of the
landlord. The attention of the sovereign can be at best but
a very general and vague consideration of what is likely to
contribute to the better cultivation of the greater part of his
dominions. The attention of the landlord is a particular and
minute consideration of what is likely to be the most advan
tageous application of every inch of ground upon his estate.
The principal attention of the sovereign ought to be to en
courage, by every means in his power, the attention both of
the landlord and of the farmer; by allowing both to pursue
their own interest in their own way, and accordingly to their
own judgment; by giving to both the most perfect security
that they shall enjoy the full recompence of their own in
dustry ; and by procuring to both the most extensive market
for every part of their produce, in consequence of establish
ing the easiest and safest communications both by land and
by water, through every part of his own dominions, as well
as the most unbounded freedom of exportation to the do
minions of all other princes.
If by such a system of administration a tax of this kind
could be so managed as to give, not only no discouragement,
but, on the contrary, some encouragement to the improve
ment of land, it does not appear likely to occasion any other
inconveniency to the landlord, except always the unavoidable
one of being obliged to pay the tax.
In all the variations of the state of the society, in the
improvement and in the declension of agriculture; in all the
variations in the value of silver, and in all those in the stand
ard of the coin, a tax of this kind would, of its own accord
and without any attention of government, readily suit itself
to the actual situation of things, and would be equally just
and equitable in all those different changes. It would, there
fore, be much more proper to be established as a perpetual
and unalterable regulation, or as what is called a fundamental
TAXES ON THE RENT OF LAND 507
law of the commonwealth, than any tax which was always
to be levied according to a certain valuation.
Some states, instead of the simple and obvious expedient
of a register of leases, have had recourse to the laborious
and expensive one of an actual survey and valuation of all
the lands in the country. They have suspected, probably,
that the lessor and lessee, in order to defraud the public rev
enue, might combine to conceal the real terms of the lease.
Doomsday-book seems to have been the result of a very ac
curate survey of this kind.
taxInisthe
assessed
ancientaccording
dominionsto ofanthe
actual
king survey
of Prussia,
and valuation,
the land-

which is reviewed and altered from time to time. According

to that valuation, the lay proprietors pay from twenty to
twenty-five per cent. of their revenue. Ecclesiastics from
forty to forty-five per cent. The survey and valuation of
Silesia was made by order of the present king; it is said
with great accuracy. According to that valuation, the lands
belonging to the bishop of Breslaw are taxed at twenty-five
per cent. of their rent. The other revenues of the ecclesias
tics of both religions, at fifty per cent. The commanderies
of the Teutonic order, and of that of Malta, at forty per
third
cent. per
Lands
cent.
heldLands
by a noble
held bytenure,
a base
at thirty-eight
tenure, at thirty-five
and one-

and one-third per cent.

A land-tax assessed according to a general survey and
valuation, how equal soever it may be at first, must, in the
course of a very moderate period of time, become unequal.
To prevent its becoming so would require the continual and
painful attention of government to all the variations in the
state and produce of every different farm in the country.
The governments of Prussia, of Bohemia, of Sardinia, and
of the dutchy of Milan, actually exert an attention of this
kind ; an attention so unsuitable to the nature of government,
that it is not likely to be of long continuance, and which, if
it is continued, will probably in the long-run occasion much
more trouble and vexation than it can possibly bring relief
to the contributors.
In i666, the generality of Montauban was assessed to the
Real or predial taille according, it is said, to a very exact
508 WEALTH OF NATIONS
survey and valuation. By i727, this assessment had become
altogether unequal. In order to remedy this inconveniency,
government has found no better expedient than to impose
upon the whole generality an additional tax of a hundred
and twenty thousand livres. This additional tax is rated
upon all the different districts subject to the taille according
to the old assessment. But it is levied only upon those which
in
taxed,
the and
actual
it is
state
applied
of things
to theare
relief
by that
of those
assessment
which by
under-
the

same assessment are over-taxed. Two districts, for example,

one of which ought in the actual state of things to be taxed
at nine hundred, the other at eleven hundred livres, are by
the old assessment both taxed at a thousand livres. Both
these districts are by the additional tax rated at eleven hun
dred livres each. But this additional tax is levied only upon
the district under-charged, and it is applied altogether to the
relief of that over-charged, which consequently pays only
nine hundred livres. The government neither gains nor
loses by the additional tax, which is applied altogether to
remedy the inequalities arising from the old assessment. The
application is pretty much regulated according to the discre
tion of the intendant of the generality, and must, therefore,
be in a great measure arbitrary.

TAXES WHICH ARE PROPORTIONED, NOT TO THE RENT, BUT

TO THE PRODUCE OF LAND

Taxes upon the produce of land are in reality taxes upon

the rent; and though they may be originally advanced by the
farmer, are finally paid by the landlord. When a certain
portion of the produce is to be paid away for a tax, the
farmer computes, as well as he can, what the value of this
portion is, one year with another, likely to amount to, and
he makes a proportionable abatement in the rent which he
agrees to pay to the landlord. There is no farmer who does
not compute beforehand what the church tythe, which is a
land-tax of this kind, is, one year with another, likely to
amount to.
The tythe, and every other land-tax of this kind, under
the appearance of perfect equality, are very unequal taxes;
TAXES ON THE PRODUCE OF LAND 509
a certain portion of the produce being, in different situations,
equivalent to a very different portion of the rent. In some
very rich lands the produce is so great, that the one half of
it is fully sufficient to replace the farmer his capital employed
in cultivation together with the ordinary profits of farming
stock in the neighbourhood. The other half, or what comes
to the same thing, the value of the other half, he could afford
to pay as rent to the landlord, if there was no tythe. But if
a tenth of the produce is taken from him in the way of tythe,
he must require an abatement of the fifth part of his rent,
otherwise he cannot get back his capital with the ordinary
profit. In this case the rent of the landlord, instead of
amounting to a half. or five-tenths of the whole produce, will
amount only to four-tenths of it. In poorer lands, on the
contrary, the produce is sometimes so small, and the expence
of cultivation so great, that it requires four-fifths of the
whole produce to replace to the farmer his capital with the
ordinary profit. In this case, though there was no tythe,
the
fifthrent
or two-tenths
of the landlord
of thecould
wholeamount
produce.
to no
Butmore
if the
than
farmer
one-

pays one-tenth of the produce in the way of tythe, he must

require an equal abatement of the rent of the landlord, which
will thus be reduced to one-tenth only of the whole produce.
Upon the rent of rich lands, the tythe may sometimes be a
tax of no more than one-fifth part, or four shillings in the
pound; whereas upon that of poorer lands, it may sometimes
be a tax of one-half, or of ten shillings in the pound.
The tythe, as it is frequently a very unequal tax upon the
rent, so it is always a great discouragement both to the im
provements of the landlord and to the cultivation of the
farmer. The one cannot venture to make the most im
portant, which are generally the most expensive improve
ments; nor the other to raise the most valuable, which are
generally too the most expensive crops ; when the church,
which lays out no part of the expence, is to share so very
largely in the profit. The cultivation of madder was for a
long time confined by the tythe to the United Provinces,
which, being presbyterian countries, and upon that account
exempted from this destructive tax, enjoyed a sort of mo
nopoly of that useful dying drug against the rest of Europe.
510 WEALTH OF NATIONS

The late attempts to introduce the culture of this plant into

England, have been made only in consequence of the statute
which enacted that five shillings an acre should be received
in lieu of all manner of tythe upon madder.
As through the greater part of Europe, the church, so in
many different countries of Asia, the state, is principally
supported by a land-tax, proportioned, not to the rent, but
to the produce of the land. In China, the principal revenue
of the sovereign consists in a tenth part of the produce of
all the lands of the empire, This tenth part, however, is
estimated so very moderately, that, in many provinces, it is
said not to exceed a thirtieth part of the ordinary produce.
The land-tax or land-rent which used to be paid to the Ma
hometan government of Bengal, before that country fell into
the hands of the English East India company, is said to have
amounted to about a fifth part of the produce. The land-tax
of ancient Egypt is said likewise to have amounted to a
fifth part. . . .

TAXES UPON THE RENT or HOUSES

The rent of a house may be distinguished into two parts,

of which the one may very properly be called the Building
rent; the other is commonly called the Ground rent.
The building rent is the interest or profit of the capital
expended in building the house. In order to put the trade of
a builder upon a level with other trades, it is necessary that
this rent should be sufficient, first, to pay him the same inter
est which he would have got for his capital if he had lent
it upon good security; and, secondly, to keep the house in
constant repair, or, what comes to the same thing, to replace,
within a certain term of years, the capital which had been
employed in building it. The building rent, or the ordinary
profit of building, is, therefore, every where regulated by the
ordinary interest of money. Where the market rate of inter
est is four per cent. the rent of a house which, over and
above paying the ground rent, affords six, or six and a half
per cent. upon the whole expence of building, may perhaps
afford a sufficient profit to the builder. Where the market
rate of interest is five per cent., it may perhaps require
TAXES ON THE RENT OF HOUSES 511
seven or seven and a half per cent. If, in proportion to
the interest of money, the trade of the builder affords at
any time a much greater profit than this, it will soon draw
so much capital from other trades as will reduce the profit
to its proper level. If it affords at any time much less than
this, other trades will soon draw so much capital from it
as will again raise that profit.
Whatever part of the whole rent of a house is over and
above what is sufficient for affording this reasonable profit,
naturally goes to the ground-rent; and where the owner of
the ground and the owner of the building are two different
persons, is, in most cases, completely paid to the former.
This surplus rent is the price which the inhabitant of the
house pays for some real or supposed advantage of the situa
tion. In country houses, at a distance from any great town,
where
rent is there
scarceis any
plenty
thing,
of ground
or no more
to chuse
thanupon,
what the
the ground-
ground

which the house stands upon would pay if employed in agri

culture. In country villas in the neighbourhood of some great
town, it is sometimes a good deal higher; and the peculiar
conveniency or beauty of situation is there frequently very
well paid for. Ground-rents are generally highest in the
capital, and in those particular parts of it where there hap
pens to be the greatest demand for houses, whatever be the
reason of that demand, whether for trade and business, for
pleasure and society, or for mere vanity and fashion.
A tax upon house-rent, payable by the tenant and propor
tioned to the whole rent of each house, could not, for any
considerable time at least, affect the building rent. If the
builder did not get his reasonable profit, he would be obliged
to quit the trade ; which, by raising the demand for build
ing, would in a short time bring back his profit to its
proper level with that of other trades. Neither would such
a tax fall altogether upon the ground-rent; but it would
divide itself in such a manner as to fall, partly upon the
inhabitants of the house, and partly upon the owner of the
ground.
Let us suppose, for example, that a particular person
judges that he can afford for house-rent an expence of sixty
pounds a year; and let us suppose too that a tax of four
512 WEALTH OF NATIONS
shillings in the pound, or of one-fifth, payable by the inhabi
tant, is laid upon house-rent. A house of sixty pounds rent
will in this case cost him seventy-two pounds a year, which
is twelve pounds more than he thinks he can afford. He
will, therefore, content himself with a worse house, or a
house of fifty pounds rent, which, with the additional ten
pounds that he must pay for the tax, will make up the sum
of sixty pounds a year, the expence which he judges he can
afford ; and in order to pay the tax he will give up a part of
the additional conveniency which he might have had from a
house of ten pounds a year more rent. He will give up, I
say, a part of this additional conveniency ; for he will seldom
be obliged to give up the whole, but will, in consequence of
the tax, get a better house for fifty pounds a year, than he
could have got if there had been no tax. For as a tax of
this kind, by taking away this particular competitor, must
diminish the competition for houses of sixty pounds rent, so
it must likewise diminish it for those of fifty pounds rent,
and in the same manner for those of all other rents, except
the lowest rent, for which it would for some time increase
the competition. But the rents of every class of houses for
which the competition was diminished, would necessarily
be more or less reduced. As no part of this reduction, how
ever, could for any considerable time at least, affect the
building rent; the whole of it must in the long-run necessa
rily fall upon the ground-rent. The final payment of this
tax, therefore, would fall, partly upon the inhabitant of the
house, who, in order to pay his share, would be obliged to
give up a part of his conveniency ; and partly upon the
owner of the ground, who, in order to pay his share, would
be obliged to give up a part of his revenue. In what propor
tion this final payment would be divided between them, it is
not perhaps very easy to ascertain. The division would
probably be very different in different circumstances, and a
tax of this kind might, according to those different circum
stances, affect very unequally both the inhabitant of the
house and the owner of the ground
The inequality with which a tax of this kind might fall
upon the owners of different ground-rents, would arise alto
gether from the accidental inequality of this division. But
TAXES ON THE RENT OF HOUSES 513
the inequality with which it might fall upon the inhabitants
of different houses would arise, not only from this, but from
another
rent to the
cause.
wholeThe
expence
proportion
of living,
of the
is different
expence inofthe
house-
dif

ferent degrees of fortune. It is perhaps highest in the high

est degree, and it diminishes gradually through the inferior
degrees, so as in general to be lowest in the lowest degree.
The necessities of life occasion the great expence of the
poor. Thy find it difficult to get food, and the greater part
of their little revenue is spent in getting it. The luxuries
and vanities of life occasion the principal expence of the
rich; and a magnificent house embellishes and sets off to the
best advantage all the other luxuries and vanities which they
possess. A tax upon house-rents, therefore, would in gen
eral fall heaviest upon the rich; and in this sort of ine
quality there would not, perhaps, be any thing very unrea
sonable. It is not very unreasonable that the rich should
contribute to the public expence, not only in proportion to
their revenue, but something more than in that proportion.
The rent of houses, though it in some respects resembles
the rent of land, is in one respect essentially different from
it. The rent of land is paid for the use of a productive
subject. The land* which pays it produces it. The rent of
houses is paid for the use of an unproductive subject.
Neither the house nor the ground which it stands upon pro
duce any thing. The person who pays the rent, therefore,
must draw it from some other source of revenue, distinct
from and independent of this subject. A tax upon the rent
of houses, so far as it falls upon the inhabitants, must be
drawn from the same source as the rent itself, and must be
paid from their revenue, whether derived from the wages
of labour, the profits of, stock, or the rent of land. So far
as it falls upon the inhabitants, it is one of those taxes which
fall, not upon one only, but indifferently upon all the three
different sources of revenue; and is in every respect of the
same nature as a tax upon any other sort of consumable
commodities. In general there is not, perhaps, any one
article of expence or consumption by which the liberality
or narrowness of a man's whole expence can be better
judged of, than by his house-rent. A proportional tax upon
q—hc x
514 WEALTH OF NATIONS
this particular article of expence might, perhaps, produce a
more considerable revenue than any which has hitherto been
drawn from it in any part of Europe. If the tax indeed was
very high, the greater part of people would endeavour to
evade it, as much as they could, by contenting themselves
with smaller houses, and by turning the greater part of their
expense into some other channel.
The rent of houses might easily be ascertained with suffi
cient accuracy, by a policy of the same kind with that which
would be necessary for ascertaining the ordinary rent of
land. Houses not inhabited ought to pay no tax. A tax
upon them would fall altogether upon the proprietor, who
would thus be taxed for a subject which afforded him neither
conveniency nor revenue. Houses inhabited by the proprie
tor ought to be rated, not according to the expence which
they might have cost in building, but according to the rent
which an equitable arbitration might judge them likely to
bring, if leased to a tenant. If rated according to the ex-
pence which they may have cost in building, a tax of three
or four shillings in the pound, joined with other taxes,
would ruin almost all the rich and great families of this,
and, I believe, of every other civilized country. Whoever
will examine, with attention, the different town and country
houses of some of the richest and greatest families in this
country, will find that, at the rate of only six and a half, or
seven per cent. upon the original expence of building, their
house-rent is nearly equal to the whole neat rent of their
estates. It is the accumulated expence of several successive
generations, laid out upon objects of great beauty and mag
nificence, indeed; but, in proportion to what they cost, of
very small exchangeable value.
Ground-rents are a still more proper subject of taxation
than the rent of houses. A tax upon ground-rents would
not raise the rents of houses. It would fall altogether upon
the owner of the ground-rent, who acts always as a mo
nopolist, and exacts the greatest rent which can be got for
the use of his ground. More or less can be got for it ac
cording as the competitors happen to be richer or poorer,
or can afford to gratify their fancy for a particular spot of
ground at a greater or smaller expence. In every country
TAXES ON THE BENT OF HOUSES SIS
the greatest number of rich competitors is in the capital, and
it is there accordingly that the highest ground-rents are al
ways to be found. As the wealth of those competitors would
in no respect be increased by a tax upon ground-rents, they
would not probably be disposed to pay more for the use of
the ground. Whether the tax was to be advanced by the
inhabitant, or by the owner of the ground, would be of little
importance. The more the inhabitant was obliged to pay
for the tax, the less he would incline to pay for the ground;
so that the final payment of the tax would fall altogether
upon the owner of the ground-rent. The ground-rents of
uninhabited houses ought to pay no tax.
Both ground-rents and the ordinary rent of land are a
species of revenue which the owner, in many cases, enjoys
without any care or attention of his own. Though a part
of this revenue should be taken from him in order to defray
the expences of the state, no discouragement will thereby be
given to any sort of industry. The annual produce of the
land and labour of the society, the real wealth and revenue
of the great body of the people, might be the same
after such a tax as before. Ground-rents, and the ordinary
rent of land, are, therefore, perhaps, the species of revenue
which can best bear to have a peculiar tax imposed upon
them.
Ground-rents seem, in this respect, a more proper subject
of peculiar taxation than even the ordinary rent of land.
The ordinary rent of land is, in many cases, owing partly
at least to the attention and good management of the land
lord. A very heavy tax might discourage too much this
attention and good management. Ground-rents, so far as
they exceed the ordinary rent of land, are altogether owing
to the good government of the sovereign, which, by pro
tecting the industry either of the whole people, or of the in
habitants of some particular place, enables them to pay so
much more than its real value for the ground which they
build their houses upon; or to make to its owner so much
more than compensation for the loss which he might sustain
by this use of it. Nothing can be more reasonable than that
a fund which owes its existence to the good government of
the state, should be taxed peculiarly, or should contribute
S16 WEALTH OF NATIONS
something more than the greater part of other funds, towards
the support of that government.
Though, in many different countries of Europe, taxes have
been imposed upon the rent of houses, I do not know of any
in which ground-rents have been considered as a separate
subject of taxation. The contrivers of taxes have, probably,
found some difficulty in ascertaining what part of the rent
ought to be considered as ground-rent, and what part ought
to be considered as building-rent. It should not, however,
seem very difficult to distinguish those two parts of the rent
from one another.
In Great Britain the rent of houses is supposed to be taxed
in the same proportion as the rent of land, by what is called
the annual land-tax. The valuation, according to which each
different parish and district is assessed to this tax, is always
the same. It was originally extremely unequal, and it still
continues to be so. Through the greater part of the kingdom
this tax falls still more lightly upon the rent of houses than
upon that of land. In some few districts only- which were
originally rated high, and in which the rents of houses have
fallen considerably, the land-tax of three or four shillings
in the pound, is said to amount to an equal proportion of
the real rent of houses. Untenanted houses, though by law
subject to the tax, are, in most districts, exempted from it
by the favour of the assessors ; and this exemption sometimes
occasions some little variation in the rate of particular houses,
though that of the district is always the same. Improvements
of rent, by new buildings, repairs, &c. ; go to the discharge
of the district, which occasions still further variations in the
rate of particular houses.
In the province of Holland every house is taxed at two and
a half per cent. of its value, without any regard either to
the rent which it actually pays, or to the circumstance of its
being tenanted or untenanted. There seems to be a hardship
in obliging the proprietor to pay a tax for an untenanted
house, from which he can derive no revenue, especially so
very heavy a tax. In Holland, where the market rate of
interest does not exceed three per cent. two and a half per
cent. upon the whole value of the house, must, in most cases,
amount to more than a third of the building-rent, perhaps
TAXES ON THE RENT OF HOUSES 517
of the whole rent. The valuation, indeed, according to which
the houses are rated, though very unequal, is said to be al
ways below the real value. When a house is rebuilt, im
proved or enlarged, there is a new valuation, and the tax is
rated accordingly.
The contrivers of the several taxes which in England have,
at different times, been imposed upon houses, seem to have
imagined that there was some great difficulty in ascertaining,
with tolerable exactness, what was the real rent of every
house. They have regulated their taxes, therefore, according
to some more obvious circumstance, such as they had prob
ably imagined would, in most cases, bear some proportion
to the rent.
The first tax of this kind was hearth-money ; or a tax of
two shillings upon every hearth. In order to ascertain how
many hearths were in the house, it was necessary that the
tax-gatherer should enter every room in it. This odious visit
rendered the tax odious. Soon after the revolution, there
fore, it was abolished as a badge of slavery.
The next tax of this kind was, a tax of two shillings upon
every dwelling house inhabited. A house with ten windows
to pay four shillings more. A house with twenty windows
and upwards to pay eight shillings. This tax was afterwards
so far altered, that houses with twenty windows, and with
less than thirty, were ordered to pay ten shillings, and those
with thirty windows and upwards to pay twenty shillings.
The number of windows can, in most cases, be counted from
the outside, and, in all cases, without entering every room
in the house. The visit of the tax-gatherer, therefore, was
less offensive in this tax than in the hearth-money.
This tax was afterwards repealed, and in the room of it
was established the window-tax, which has undergone too
several alterations and augmentations. The window-tax, as
it stands at present (January, i775), over and above the
duty of three shillings upon every house in England, and of
one shilling upon every house in Scotland, lays a duty upon
every window, which, in England, augments gradually from
two-pence, the lowest rate, upon houses with not more than
seven windows; to two shillings, the highest rate, upon
houses with twenty-five windows and upwards.
518 WEALTH OF NATIONS
The principal objection to all such taxes is their inequality,
an inequality of the worst kind, as they must frequently fall
much heavier upon the poor than upon the rich. A house of
ten pounds rent in a country town may sometimes have more
windows than a house of five hundred pounds rent in London ;
and though the inhabitant of the former is likely to be a
much poorer man than that of the latter, yet so far as his
contribution is regulated by the window-tax, he must con
tribute more to the support of the state. Such taxes are,
therefore, directly contrary to the first of the four maxims
above mentioned. They do not seem to offend much against
any of the other three.
The natural tendency of the window-tax, and of all other
taxes upon houses, is to lower rents. The more a man pays
for the tax, the less, it is evident, he can afford to pay for
the rent. Since the imposition of the window-tax, however,
the rents of houses have upon the whole risen, more or less,
in almost every town and village of Great Britain, with
which I am acquainted. Such has been almost every where
the increase of the demand for houses, that it has raised the
rents more than the window-tax could sink them ; one of the
many proofs of the great prosperity of the country, and of
the increasing revenue of its inhabitants. Had it not been
for the tax, rents would probably have risen still higher.

ARTICLE II
Taxes upon Profit, Or Upon The Revenue Arising From Stock

The revenue or profit arising from stock naturally

divides itself into two parts ; that which pays the interest,
and which belongs to the owner of the stock; and that
surplus part which is over and above what is necessary for
paying the interest.
This latter profit is evidently a subject not taxable directly
It is the compensation, and in most cases it is no more than a
very moderate compensation, for the risk and trouble of
employing the stock. The employer must have this compen
sation, otherwise he cannot, consistently with his own inter
est, continue the employment. If he was taxed directly,
therefore, in proportion to the whole profit, he would be
TAXES ON PROFITS IN GENERAL 519
obliged either to raise the rate of his profit, or to charge the
tax upon the interest of money; that is, to pay less interest.
If he raised the rate of his profit in proportion to the tax,
the whole tax, though it might be advanced by him, would
be finally paid by one or other of two different sets of people,
according to the different ways in which he might employ
the stock of which he had the management. If he employed
it as a farming stock in the cultivation of land, he could
raise the rate of his profit only by retaining a greater por
tion, or, what comes to the same thing, the price of a greater
portion of the produce of the land; and as this could be done
only by a reduction of lent, the final payment of the tax
would fall upon the landlord. If he employed it as a mer
cantile or manufacturing stock, he could raise the rate of his
profit only by raising the price of his goods ; in which case
the final payment of the tax would fall altogether upon the
consumers of those goods. If he did not raise the rate of
his profit, he would be obliged to charge the whole tax upon
that part. of it which was allotted for the interest of money.
He could afford less interest for whatever stock he borrowed,
and the whole weight of the tax would in this case fall ulti
mately upon the interest of money. So far as he could not
relieve himself from the tax in the one way, he would be
obliged to relieve himself in the other.
The interest of money seems at first sight a subject equally
capable of being taxed directly as the rent of land. Like
the rent of land, it is a neat produce which remains after
completely compensating the whole risk and trouble of em
ploying the stock. As a tax upon the rent of land cannot
raise rents; because the neat produce which remains after
replacing the stock of the farmer, together with his reason
able profit, cannot be greater after the tax than before it; so,
for the same reason, a tax upon the interest of money could
not raise the rate of interest; the quantity of stock or money
in the country, like the quantity of land, being supposed to
remain the same after the tax as before it. The ordinary
rate of profit, it has been shewn in the first book, is every
where regulated by the quantity of stock to be employed in
proportion to the quantity of the employment, or of the busi
ness which must be done by it. But the quantity of the em
520 WEALTH OF NATIONS
ployment, or of the business to be done by stock, could neither
be increased nor diminished by any tax upon the interest of
money. If the quantity of the stock to be employed, therefore,
was neither increased nor diminished by it, the ordinary rate
of profit would necessarily remain the same. But the por
tion of this profit necessary for compensating the risk and
trouble of the employer, would likewise remain the same ;
that risk and trouble being in no respect altered. The residue,
therefore, that portion which belongs to the owner of the
stock, and which pays the interest of money, would neces
sarily remain the same too. At first sight, therefore, the
interest of money seems to be a subject as fit to be taxed
directly as the rent of land.
There are, however, two different circumstances which
render the interest of money a much less proper subject of
direct taxation than the rent of land.
First, the quantity and value of the land which any man
possesses can never be a secret, and can always be ascer
tained with great exactness. But the whole amount of the
capital stock which he possesses is almost always a secret,
and can scarce ever be ascertained with tolerable exactness.
It is liable, besides, to almost continual variations. A year
seldom passes away, frequently not a month, sometimes scarce
a single day, in which it does not rise or fall more or less.
An inquisition into every man's private circumstances, and
an inquisition which, in order to accommodate the tax to
them, watched over all the fluctuations of his fortune, would
be a source of such continual and endless vexation as no
people could support.
Secondly, land is a subject which cannot be removed,
whereas stock easily may. The proprietor of land is neces
sarily a citizen of the particular country in which his estate
lies. The proprietor of stock is properly a citizen of the
world, and is not necessarily attached to any particular coun
try. He would be apt to abandon the country in which he
was exposed to a vexatious inquisition, in order to be as
sessed to a burdensome tax, and would remove his stock
to some other country where he could either carry on his
business, or enjoy his fortune more at his ease. By remov
ing his stock he would put an end to all the industry which
TAXES ON PROFITS IN GENERAL 521
it had maintained in the country which he left. Stock culti
vates land; stock employs labour. A tax which tended to
drive away stock from any particular country, would so far
tend to dry up every source of revenue, both to the sovereign
and to the society. Not only the profits of stock, but the
rent of land and the wages of labour, would necessarily be
more or less diminished by its removal.
The nations, accordingly, who have attempted to tax the
revenue arising from stock, instead of any severe inquisition
of this kind, have been obliged to content themselves with
some very loose, and, therefore, more or less arbitrary esti
mation. The extreme inequality and uncertainty of a tax
assessed in this manner, can be compensated only by its
extreme moderation, in consequence of which every man
finds himself rated so very much below his real revenue, that
he gives himself little disturbance though his neighbour
should be rated somewhat lower.
By what is called the land-tax in England, it was intended
that stock should be taxed in the same proportion as land.
When the tax upon land was at four shillings in the pound,
or at one-fifth of the supposed rent, it was intended that
stock should be taxed at one-fifth of the supposed interest.
When the present annual land-tax was first imposed, the legal
rate of interest was six per cent. Every hundred pounds
stock, accordingly, was supposed to be taxed at twenty-four
shillings, the fifth part of six pounds. Since the legal rate
of interest has been reduced to five per cent. every hundred
pounds stock is supposed to be taxed at twenty shillings
only. The sum to be raised, by what is called the land-tax,
was divided between the country and the principal towns.
The greater part of it was laid upon the country; and of
what was laid upon the towns, the greater part was assessed
upon the houses. What remained to be assessed upon the
stock or trade of the towns (for the stock upon the land was
not meant to be taxed) was very much below the real value
of that stock or trade. Whatever inequalities, therefore,
there might be in the original assessment, gave little dis
turbance. Every parish and district still continues to be
rated for its land, its houses, and its stock, according to the
original assessment; and the almost universal prosperity of
522 WEALTH OF NATIONS

the country, which in most places has raised very much the
value of all these, has rendered those inequalities of still
less importance now. The rate too upon each district con
tinuing always the same, the uncertainty of this tax, so far
as it might be assessed upon the stock of any individual,
has been very much diminished, as well as rendered of much
less consequence. If the greater part of the lands of Eng
land are not rated to the land-tax at half their actual value,
the greater part of the stock of England is, perhaps, scarce
rated at the fiftieth part of its actual value. In some towns
the whole land-tax is assessed upon houses; as in West
minster, where stock and trade are free. It is otherwise in
London.
In all countries a severe inquisition into the circumstances
of private persons has been carefully avoided.
At Hamburgh every inhabitant is obliged to pay to the
state, one-fourth per cent. of all that he possesses; and as
the wealth of the people of Hamburgh consists principally
in stock, this tax may be considered as a tax upon stock.
Every man assesses himself, and, in the presence of the
magistrate, puts annually into the public coffer a certain
sum of money, which he declares upon oath to be one-fourth
per cent, of all that he possesses, but without declaring what
it amounts to, or being liable to any examination upon that
subject. This tax is generally supposed to be paid with
great fidelity. In a small republic, where the people have
entire confidence in their magistrates, are convinced of the
necessity of the tax for the support of the state, and believe
that it will be faithfully applied to that purpose, such con
scientious and voluntary payment may sometimes be ex
pected. It is not peculiar to the people of Hamburgh.
The canton of Underwald in Switaerland is frequently
ravaged by storms and inundations, and is thereby exposed
to extraordinary expences. Upon such occasions the people
assemble, and every one is said to declare with the greatest
frankness what he is worth, in order to be taxed accordingly.
At Zurich the law orders, that, in cases of necessity, every
one should be taxed in proportion to his revenue; the amount
of which, he is obliged to declare upon oath. They have no
suspicion, it is said, that any of their fellow-citizens will
TAXES ON PROFITS IN GENERAL 523
deceive them. At Basil the principal revenue of the state
arises from a small custom upon goods exported. All the
citizens make oath that they will pay every three months
all the taxes imposed by the law. All merchants and even
all inn-keepers are trusted with keeping themselves the ac
count of the goods which they sell either within or without
the territory. At the end of every three months they send
this account to the treasurer, with the amount of the tax
computed at the bottom of it. It is not suspected that the
revenue suffers by this confidence.
To oblige every citizen to declare publicly upon oath the
amount of his fortune, must not, it seems, in those Swiss
cantons, be reckoned a hardship. At Hamburgh it would
be reckoned the greatest. Merchants engaged in the hazard
ous projects of trade, all tremble at the thoughts of being
obliged at all times to expose the real state of their circum
stances. The ruin of their credit and the miscarriage of
their projects, they foresee, would too often be the conse
quence. A sober and parsimonious people, who are strangers
to all such projects, do not feel that they have occasion for
any such concealment.
In Holland, soon after the exaltation of the late prince of
Orange to the stadtholdership, a tax of two per cent. or the
fiftieth penny, as it was called, was imposed upon the whole
substance of every citizen. Every citizen assessed himself
and paid his tax in the same manner as at Hamburgh; and
it was in general supposed to have been paid with great
fidelity. The people had at that time the greatest affection
for their new government, which they had just established
by a general insurrection. The tax was to be paid but once ;
in order to relieve the state in a particular exigency. It was,
indeed, too heavy to be permanent. In a country where the
market rate of interest seldom exceeds three per cent., a tax
of two per cent. amounts to thirteen shillings and fourpen'ce
in the pound upon the highest neat revenue which is com
monly drawn from stock. It is a tax which very few people
could pay without encroaching more or less upon their capi
tals. In a particular exigency the people may, from great
public zeal, make a great effort, and give up even a part of
their capital, in order to relieve the state. But it is im
524 WEALTH OF NATIONS
possible that they should continue to do so for any con
siderable time; and if they did, the tax would soon ruin
them so completely as to render them altogether incapable
of supporting the state.
The tax upon stock imposed by the land-tax bill in Eng
land, though it is proportioned to the capital, is not intended
to diminish or take away any part of that capital. It is
meant only to be a tax upon the interest of money pro
portioned to that upon the rent of land; so that when the
latter is at four shillings in the pound, the former may be at
four shillings in the pound too. The tax at Hamburgh, and
the still more moderate taxes of Underwald and Zurich, are
meant, in the same manner, to be taxes, not upon the capi
tal, but upon the interest or neat revenue of stock. That of
Holland was meant to be a tax upon the capital.

TAXES UPON THE PROFIT OF PARTICULAR EMPLOYMENTS

In some countries extraordinary taxes are imposed

upon the profits of stock ; sometimes when employed in
particular branches of trade, and sometimes when employed
in agriculture.
Of the former kind are in England the tax upon hawkers
and pedlars, that upon hackney coaches and chairs, and that
which the keepers of ale-houses pay for a licence to retail
ale and spirituous liquors. During the late war, another tax
of the same kind was proposed upon shops. The war having
been undertaken, it was said, in defence of the trade of the
country, the merchants, who were to profit by it, ought to
contribute towards the support of it.
A tax, however, upon the profits of stock employed in any
particular branch of trade, can never fall finally upon the
dealers (who must in all ordinary cases have their reason
able profit, and, where the competition is free, can seldom
have more than that profit), but always upon the consumers,
who must be obliged to pay in the price of the goods the
tax which the dealer advances; and generally with some
overcharge.
A tax of this kind when it is proportioned to the trade of
the dealer, is finally paid by the consumer, and occasions no
TAXES ON PARTICULAR PROFITS 525
oppression to the dealer. When it is not so proportioned, but
is the same upon all dealers, though in this case too it is
finally paid by the consumer, yet it favours the great, and
occasions some oppression to the small dealer. The tax of
five shillings a week upon every hackney coach, and that of
ten shillings a year upon every hackney chair, so far as it is
advanced by the different keepers of such coaches and chairs,
is exactly enough proportioned to the extent of their re
spective dealings. It neither favours the great, nor oppresses
the smaller dealer. The tax of twenty shillings a year for
a license to sell ale; of forty shillings for a licence to sell
spirituous liquors; and of forty shillings more for a licence
to sell wine, being the same upon all retailers, must neces
sarily give some advantage to the great, and occasion some
oppression to the small dealers. The former must find it
more easy to get back the tax in the price of their goods
than the latter. The moderation of the tax, however, renders
this inequality of less importance, and it may to many people
appear not improper to give some discouragement to the mul
tiplication of little ale-houses. The tax upon shops, it was
intended, should be the same upon all shops. It could not
well have been otherwise. It would have been impossible to
proportion with tolerable exactness the tax upon a shop to the
extent of the trade carried on in it, without such an inquisi
tion as would have been altogether insupportable in a free
country. If the tax had been considerable, it would have
oppressed the small, and forced almost the whole retail
trade into the hands of the great dealers. The competition
of the former being taken away, the latter would have en
joyed a monopoly of the trade; and like all other monopolists
would soon have combined to raise their profits much be
yond what was necessary for the payment of the tax. The
final payment, instead of falling upon the shopkeeper, would
have fallen upon the consumer, with a considerable over
charge to the profit of the shopkeeper. For these reasons,
the project of a tax upon shops was laid aside, and in the
room of it was substituted the subsidy i759.
When a tax is imposed upon the profits of stock in a
particular branch of trade, the traders are all careful to bring
no more goods to market than what they can sell at a price
526 WEALTH OF NATIONS
sufficient to reimburse them for advancing the tax. Some
of them withdraw a part of their stocks from the trade, and
the market is more sparingly supplied than before. The
price of the goods rises, and the final payment of the tax
falls upon the consumer. But when a tax is imposed upon
the profits of stock employed in agriculture, it is not the
interest of the farmers to withdraw any part of their stock
from that employment. Each farmer occupies a certain
quantity of land, for which he pays rent. For the proper
cultivation of this land a certain quantity of stock is neces
sary; and by withdrawing any part of this necessary quan
tity, the farmer is not likely to be more able to pay, either
the rent or the tax. In order to pay the tax, it can never
be his interest to diminish the quantity of his produce, nor
consequently to supply the market more sparingly than be
fore. The tax, therefore, will never enable him to raise the
price of his produce, so as to reimburse himself by throwing
the final payment upon the consumer. The farmer, however,
must have his reasonable profit as well as every other dealer,
otherwise he must give up the trade. After the imposition
of a tax of this kind, he can get this reasonable profit only
by paying less rent to the landlord. The more he is obliged
to pay in the way of tax, the less he can afford to pay in
the way of rent. A tax of this kind imposed during the
currency of a lease may, no doubt, distress or ruin the
farmer. Upon the renewal of the lease it must always fall
upon the landlord.
What are called poll-taxes in the southern provinces of
North America, and in the West Indian islands, annual
taxes of so much a head upon every negroe, are properly
taxes upon the profits of a certain species of stock employed
in agriculture. As the planters are, the greater part of them,
both farmers and landlords, the final payment of the tax
falls upon them in their quality of landlords without any
retribution.
Taxes of so much a head upon the bondmen employed in
cultivation, seem anciently to have been common all over
Europe. There subsists at present a tax of this kind in the
empire
taxes ofofall
Russia.
kinds have
It is probably
often been
upon
represented
this account
as badges
that poll-
of
TAXES ON PARTICULAR PROFITS 527
slavery. Every tax, however, is to the person who pays it
a badge, not of slavery, but of liberty. It denotes that he is
subject to government, indeed, but that, as he has some prop
erty, he cannot himself be the property of a master. A poll-
tax upon slaves is altogether different from a poll-tax upon
freemen. The latter is paid by the persons upon whom it
is imposed; the former by a different set of persons. The
latter is either altogether arbitrary or altogether unequal,
and in most cases is both the one and the other ; the former,
though in some respects unequal, different slaves being of
different values, is in no respect arbitrary. Every master who
knows the number of his own slaves, knows exactly what he
has to pay. Those different taxes, however, being called by
the same name, have been considered as of the same nature.
The taxes which in Holland are imposed upon men and
maid servants, are taxes, not upon stock, but upon expence;
and so far resemble the taxes upon consumable commodities.
The tax of a guinea a head for every man servant, which
has lately been imposed in Great Britain, is of the same kind.
It falls heaviest upon the middling rank. A man of two
hundred a year may keep a single man servant. A man of
ten thousand a year will not keep fifty. It does not affect
the poor.
Taxes upon the profits of stock in particular employments
can never affect the interest of money. Nobody will lend
his money for less interest to those who exercise the taxed,
than to those who exercise the untaxed employments. Taxes
upon the revenue arising from stock in all employments,
where the government attempts to levy them with any degree
of exactness, will, in many cases, fall upon the interest of
money. The Vingtieme, or twentieth penny, in France, is a
tax of the same kind with what is called the land-tax in
England, and is assessed, in the same manner, upon the
revenue arising from land, houses, and stock. So far as it
affects stock it is assessed, though not with great rigour, yet
with much more exactness than that part of the land-tax
of England which is imposed upon the same fund. It, in
many cases, falls altogether upon the interest of money.
Money is frequently sunk in France upon what are called
Contracts for the constitution of a rent; that is, perpetual
528 WEALTH OF NATIONS
annuities redeemable at any time by the debtor upon repay
ment of the sum originally advanced, but of which this re
demption is not exigible by the creditor except in particular
cases. The Vingtieme seems not to have raised the rate of
those annuities, though it is exactly levied upon them all.

APPENDIX TO ARTICLES I AND II

Taxes Upon The Capital Value of Land, Houses, and Stock

While property remains in the possession of the same

person, whatever permanent taxes may have been im
posed upon it, they have never been intended to dimin
ish or take away any part of its capital value, but only
some part of the revenue arising from it. But when prop
erty changes hands, when it is transmitted either from the
dead to the living, or from the living to the living, such taxes
have frequently been imposed upon it as necessarily take
away some part of its capital value.
The transference of all sorts of property from the dead to
the living, and that of immoveable property, of lands and
houses, from the living to the living, are transactions which
are in their nature either public and notorious, or such as
cannot be long concealed. Such transactions, therefore, may
be taxed directly. The transference of stock or moveable
property, from the living to the living, by the lending of
money, is frequently a secret transaction, and may always
be made so. It cannot easily, therefore, be taxed directly.
It has been taxed indirectly in two different ways; first, by
requiring that the deed, containing the obligation to repay,
should be written upon paper or parchment which had paid
a certain stamp-duty, otherwise not to be valid ; secondly, by
requiring, under the like penalty of invalidity, that it should
be recorded either in a public or secret register, and by im
posing certain duties upon such registration. Stamp-duties
and duties of registration have frequently been imposed like
wise upon the deeds transferring property of all kinds from
the dead to the living, and upon those transferring immove
able property from the living to the living, transactions which
might easily have been taxed directly.
TAXES ON CAPITAL VALUE 529
The Vicesima Hereditatum, the twentieth penny of inher
itances, imposed by Augustus upon the ancient Romans, was
a tax upon the transference of property from the dead to the
living. Dion Cassius, the author who writes concerning it
the least indistinctly, says, that it was imposed upon all suc
cessions, legacies, and donations, in case of death, except
upon those to the nearest relations, and to the poor.
Of the same kind is the Dutch tax upon successions. Col
lateral successions are taxed, according to the degree of rela
tion, from five to thirty per cent, upon the whole value of
the succession. Testamentary donations, or legacies to col
laterals, are subject to the like duties. Those from husband
to wife, or from wife to husband, to the fifteenth penny.
The Luctuosa Hereditas, the mournful succession of as
cendents to descendents, to the twentieth penny only. Direct
successions, or those of descendents to ascendents, pay no
tax. The death of a father, to such of his children as live
in the same house with him, is seldom attended with any
increase, and frequently with a considerable diminution of
revenue ; by the loss of his industry, of his office, or of some
life-rent estate, of which he may have been in possession.
That tax would be cruel and oppressive which aggravated
their loss by taking from them any part of his succession.
It may, however, sometimes be otherwise with those chil
dren who, in the language of the Roman law, are said to be
emancipated; in that of the Scotch law, to be foris-famili-
ated ; that is, who have received their portion, have got fam
ilies of their own, and are supported by funds separate and
independent of those of their father. Whatever part of his
succession might come to such children, would be a real
addition to their fortune, and might therefore, perhaps, with
out more inconveniency than what attends all duties of this
kind, be liable to some tax.
The casualties of the feudal law were taxes upon the
transference of land, both from the dead to the living, and
from the living to the living. In ancient times they con
stituted in every part of Europe one of the principal branches
of the revenue of the crown.
The heir of every immediate vassal of the crown paid a
certain duty, generally a year's rent, upon receiving the in
530 WEALTH OF NATIONS
vestiture of the estate. If the heir was a minor, the whole
rents of the estate, during the continuance of the minority,
devolved to the superior without any other charge, besides
the maintenance of the minor, and the payment of the
widow's dower, when there happened to be a dowager upon
the land. When the minor came to be of age, another tax,
called Relief, was still due to the superior, which generally
amounted likewise to a year's rent. A long minority, which
in the present times so frequently disburdens a great estate
of all its incumbrances, and restores the family to their
ancient splendour, could in those times have no such effect.
The waste, and not the disincumbrance of the estate, was
the common effect of a long minority.
By the feudal law the vassal could not alienate without
the consent of his superior, who generally extorted a fine or
composition for granting it. This fine, which was at first
arbitrary, came in many countries to be regulated at a certain
portion of the price of the land. In some countries, where
the greater part of the other feudal customs have gone into
disuse, this tax upon the alienation of land still continues to
make a very considerable branch of the revenue of the sov
ereign. In the canton of Berne it is so high as a sixth part
of the price of all noble fiefs ; and a tenth part of that of all
ignoble ones. In the canton of Lucerne the tax upon the
sale of lands is not universal, and takes place only in certain
districts. But if any person sells his land, in order to remove
out of the territory, he pays ten per cent. upon the whole
price of the sale. Taxes of the same kind upon the sale
either of all lands, or of lands held by certain tenures, take
place in many other countries, and make a more or less
considerable branch of the revenue of the sovereign.
Such transactions may be taxed indirectly, by means either
of stamp-duties, or of duties upon registration; and those
duties either may or may not be proportioned to the value
of the subject which is transferred.
In Great Britain the stamp-duties are higher or lower, not
so much according to the value of the property transferred
(an eighteen penny or half crown stamp being sufficient upon
a bond for the largest sum of money) as according to the
nature of the deed. The highest do not exceed six pounds
TAXES ON CAPITAL VALUE 531
upon every sheet of paper, or skin of parchment; and these
high duties fall chiefly upon grants from the crown, and
upon certain law proceedings, without any regard to the
value of the subject. There are in Great Britain no duties
on the registration of deeds or writings, except the fees of
the officers who keep the register ; and these are seldom
more than a reasonable recompense for their labour. The
crown derives no revenue from them.
In Holland there are both stamp-duties and duties upon
registration; which in somes cases are, and in some are not
proportioned to the value of the property transferred. All
testaments must be written upon stamped paper of which the
price is proportioned to the property disposed of, so that
there are stamps which cost from three pence, or three stivers
a sheet, to three hundred florins, equal to about twenty-seven
pounds ten shillings of our money. If the stamp is of an
inferior price to what the testator ought to have made use of,
his succession is confiscated. This is over and above all
their other taxes on succession. Except bills of exchange,
and some other mercantile bills, all other deeds, bonds, and
contracts, are subject to a stamp-duty. This duty, however,
does not rise in proportion to the value of the subject. All
sales of land and of houses, and all mortgages upon either,
must be registered, and, upon registration, pay a duty to the
state of two and a half per cent. upon the amount of the
price or of the mortgage. This duty is extended to the sale
of all ships and vessels of more than two tons burthen,
whether decked or undecked. These, it seems, are considered
as a sort of houses upon the water. The sale of moveables,
when it is ordered by a court of justice, is subject to the like
duty of two and a half per cent.
In France there are both stamp-duties and duties upon
registration. The former are considered as a branch of the
aides or excise, and in the provinces where those duties take
place, are levied by the excise officers. The latter are con
sidered as a branch of the domain of the crown, and are
levied by a different set of officers.
Those modes of taxation, by stamp-duties and by duties
upon registration, are of very modern invention. In the
course of little more than a century, however, stamp-duties
532 WEALTH OF NATIONS
have, in Europe, become almost universal, and duties upon
registration extremely common. There is no art which one
government sooner learns of another, than that of draining
money from the pockets of the people.
Taxes upon the transference of property from the dead to
the living, fall finally as well as immediately upon the person
to whom the property is transferred. Taxes upon the sale
of land fall altogether upon the seller. The seller is almost
always under the necessity of selling, and must, therefore,
take such a price as he can get. The buyer is scarce ever
under the necessity of buying, and will, therefore, only give
such a price as he likes. He considers what the land will
cost him in tax and price together. The more he is obliged
to pay in the way of tax, the less he will be disposed to give
in the way of price. Such taxes, therefore, fall almost always
upon a necessitous person, and must, therefore, be frequently
very cruel and oppressive. Taxes upon the sale of new-built
houses, where the building is sold without the ground, fall
generally upon the buyer, because the builder must generally
have his profit; otherwise he must give up the trade. If he
advances the tax, therefore, the buyer must generally repay
it to him. Taxes upon the sale of old houses, for the same
reason as those upon the sale of land, fall generally upon
the seller; whom in most cases either conveniency or neces
sity obliges to sell. The number of new-built houses that are
annually brought to market, is more or less regulated by the
demand. Unless the demand is such as to afford the builder
his profit, after paying all expences, he will build no more
houses. The number of old houses which happen at any time
to come to market is regulated by accidents of which the
greater part have no relation to the demand. Two or three
great bankruptcies in a mercantile town, will bring many
nouses to sale, which must be sold for what can be got for
them. Taxes upon the sale of ground rents fall altogether
upon the seller; for the same reason as those upon the sale
of land. Stamp-duties, and duties upon the registration of
bonds and contracts for borrowed money, fall altogether upon
the borrower, and, in fact, are always paid by him. Duties
of the same kind upon law proceedings fall upon the suitors.
They reduce to both the capital value of the subject in dis
TAXES ON CAPITAL VALUE S33
pute. The more it costs to acquire any property, the less
must be the neat value of it when acquired.
All taxes upon the transference of property of every kind,
so far as they diminish the capital value of that property,
tend to diminish the funds destined for the maintenance of
productive labour. They are all more or less unthrifty taxes
that increase the revenue of the sovereign, which seldom
maintains any but unproductive labourers ; at the expence of
the capital of the people, which maintains none but pro
ductive.
Such taxes, even when they are proportioned to the value
of the property transferred, are still unequal; the frequency
of transference not being always equal in property of equal
value. When they are not proportioned to this value, which
is the case with the greater part of the stamp duties, and
duties of registration, they are still more so. They are in no
respect arbitrary, but are or may be in all cases perfectly
clear and certain. Though they sometimes fall Upon the
person who is not very able to pay; the time of payment is
in most cases sufficiently convenient for him. When the pay
ment becomes due, he must in most cases have the money
to pay. They are levied at very little expence, and in gen
eral subject the contributors to no other inconveniency be
sides always the unavoidable one of paying the tax.
In France the stamp-duties are not much complained of.
Those of registration, which they call the Controle, are. They
give occasion, it is pretended, to much extortion in the officers
of the farmers-general who collect the tax, which is in a
great measure arbitrary and uncertain. In the greater part
of the libels which have been written against the present
system of finances in France, the abuses of the Controle make
a principal article. Uncertainty, however, does not seem to
be necessarily inherent in the nature of such taxes. If the
popular complaints are well founded, the abuse must arise,
not so much from the nature of the tax, as from the want
of precision and distinctness ,in the words of the edicts or
laws which impose it.
The registration of mortgages, and in general of all rights
upon immoveable property, as it gives great security both to
creditors and purchasers, is extremely advantageous to the
534 WEALTH OF NATIONS
public. That of the greater part of deeds of other kinds is
frequently inconvenient and even dangerous to individuals,
without any advantage to the public. All registers wkich,
it is acknowledged, ought to be kept secret, ought certainly
never to exist. The credit of individuals ought certainly
never to depend upon so very slender a security as the probity
and religion of the inferior officers of revenue. But where
the fees of registration have been made a source of rev
enue to the sovereign, register offices have commonly been
multiplied without end, both for the deeds which ought to
be registered, and for those which ought not. In France
there are several different sorts of secret registers. This
abuse, though not perhaps a necessary, it must be acknowl
edged, is a very natural effect of such taxes.
Such stamp-duties as those in England upon cards and
dice, upon news-papers and periodical pamphlets, &c. are
properly taxes upon consumption ; the final payment falls
upon the persons who use or consume such commodities.
Such stamp-duties as those upon licences to retail ale, wine,
and spirituous liquors, though intended, perhaps, to fall upon
the profits of the retailers, are likewise finally paid by the
consumers of those liquors. Such taxes, though called by the
same name, and levied by the same officers and in the same
manner with the stamp-duties above mentioned upon the
transference of property, are however of a quite different
nature, and fall Upon quite different funds.

ARTICLE III
Taxes Upon The Wages of Labour

The wages of the inferior classes of workmen, I

have endeavoured to show in the first book, are every
where necessarily regulated by two different circum
stances; the demand for labour, and the ordinary or average
price of provisions. The demand for labour, according as it
happens to be either increasing, stationary, or declining; or
to require an increasing, stationary, or declining population,
regulates the subsistence of the labourer, and determines in
what degree it shall be, either liberal, moderate, or scanty.
t
TAXES ON WAGES 535
The ordinary or average price of provisions determines the
quantity of money which must be paid to the workman in
order to enable him, one year with another, to purchase this
liberal, moderate, or scanty subsistence. While the demand
for labour and the price of provisions, therefore, remain the
same, a direct tax upon the wages of labour can have no
other effect than to raise them somewhat higher than the
tax. Let us suppose, for example, that in a particular place
the demand for labour and the price of provisions were such,
as to render ten shillings a week the ordinary wages of la
bour; and that a tax of one-fifth, or four shillings in the
pound, was imposed upon wages. If the demand for labour
and the price of provisions remained the same, it would
still be necessary that the labourer should in that place earn
such a subsistence as could be bought only for ten shillings
a week, or that after paying the tax he should have ten
shillings a week free wages. But in order to leave him such
free wages after paying such a tax, the price of labour must
in that place soon rise, not to twelve shillings a week only,
but to twelve and sixpence; that is, in order to enable him
to pay a tax of one-fifth, his wages must necessarily soon
rise, not one-fifth part only, but one-fourth. Whatever was
the proportion of the tax, the wages of labour must in all
cases rise, not only in that proportion, but in a higher pro
portion. If the tax, for example, was one-tenth, the wages
of labour must necessarily soon rise, not one-tenth part only,
but one-eighth.
A direct tax upon the wages of labour, therefore, though
the labourer might perhaps pay it out of his hand, could not
properly be said to be even advanced by him; at least if the
demand for labour and the average price of provisions re
mained the same after the tax as before it. In all such
cases, not only the tax, but something more than the tax,
would in reality be advanced by the person who immediately
employed him. The final payment would in different cases
fall upon different persons. The rise which such a tax might
occasion in the wages of manufacturing labour would be ad
vanced by the master manufacturer, who would both be en
titled and obliged to charge it, with a profit, upon the price
of his goods. The final payment of this rise of wages, there-
536 WEALTH OF NATIONS

fore, together with the additional profit of the master .manu

facturer, would fall upon the consumer. The rise which such
a tax might occasion in the wages of country labour would
be advanced by the farmer, who, in order to maintain the
same number of labourers as before, would be obliged to
employ a greater capital. In order to get back this greater
capital, together with the ordinary profits of stock, it would
be necessary that he should retain a larger portion, or what
comes to the same thing, the price of a larger portion, of
the produce of the land, and consequently that he should pay
less rent to the landlord. The final payment of this rise of
wages, therefore, would in this case fall upon the landlord,
together with the additional profit of the farmer who had
advanced it. In all cases a direct tax upon the wages of
labour must, in the long-run, occasion both a greater re
duction in the rent of land, and a greater rise in the price
of manufactured goods, than would have followed from the
proper assessment of a sum equal to the produce of the tax,
partly upon the rent of land, and partly upon consumable
commodities.
If direct taxes upon the wages of labour have not always
occasioned a. proportionable rise in those wages, it is be
cause they have generally occasioned a considerable fall in
the demand for labour. The declension of industry, the
decrease of employment for the poor, the diminution of the
annual produce of the land and labour of the country, have
generally been the effects of such taxes. In consequence of
them, however, the price of labour must always be higher
than it otherwise would have been in the actual State of the
demand: and this enhancement of price, together with the
profit of those who advance it, must always be finally paid
by the landlords and consumers.
A tax upon the wages of country labour does not raise
the price of the rude produce of land,in proportion to the
tax; for the same reason that a tax upon the farmer’s profit
does not raise that price in that proportion.
Absurd and destructive as such taxes are, however, they
take place in many countries. In France that part of the
taille which is charged upon the industry of workmen and
day-labourers in country villages, is properly a tax of this
TAXES ON WAGES 537
kind. Their wages are computed according- to the common
rate of the district in which they reside, and that they may
be as little liable as possible to any ovei -charge, their yearly
gains are estimated at no more than two hundred working
days in the year. The tax of each individual is varied from
year to year according to different circumstances, of which
the collector or the commissary, whom the intendant appoints
to assist him, are the judges. In Bohemia, in consequence
of the alteration in the system of finances which was begun
in i748, a very heavy tax is imposed upon the industry of
artificers. They are divided into four classes. The highest
class pay a hundred' florins a year ; which, at two-and-twenty-
pence halfpenny a florin, amounts to 9l. 7s. 6d. The second
class are taxed at seventy ; the third at fifty ; and the fourth,
comprehending artificers in villages, and the lowest class of
those in towns, at twenty-five florins.
The recompence of ingenious artists and of men of liberal
professions, I have endeavoured to show in the first book,
necessarily keeps a certain proportion to the emoluments of
inferior trades. A tax upon this recompence, therefore, could
have no other effect than to raise it somewhat higher than
in proportion to the tax. If it did not rise in this manner,
the ingenious arts and the liberal professions, being no
longer upon a level with other trades, would be so much
deserted that they would soon return to that level.
The emoluments of offices are not, like those of trades
and professions, regulated by the free competition of the
market, and do not, therefore, always bear a just proportion
to what the nature of the employment requires. They are
perhaps, in most countries, higher than it requires; the per
sons who have the administration of government being gen
erally disposed to reward both themselves and their immedi
ate dependents rather more than enough. The emoluments
of offices, therefore, can in most cases very well bear to be
taxed. The persons, besides, who enjoy public offices, es
pecially the more lucrative, are in all countries the objects
of general envy; and a tax upon their emoluments, even
though it should be somewhat higher than upon any other
sort of revenue, is always a very popular tax. In England,
for example, when by the land-tax every other sort of rev
538 WEALTH OF NATIONS
enue was supposed to be assessed at four shillings in the
pound, it was very popular to lay a real tax of five shillings
and sixpence in the pound upon the salaries of offices which
exceeded a hundred pounds a year; the pensions of the
younger branches of the royal family, the pay of the officers
of the army and navy, and a few others less obnoxious to
envy excepted. There are in England no other direct taxes
upon the wages of labour.

ARTICLE IV
Taxes Which, It Is Intended, Should Fall Indifferently Upon
Every Different Species Of Revenue

The taxes which, it is intended, should fall indiffer

ently upon every different species of revenue, are capitation
taxes, and taxes upon consumable commodities. These
must be paid indifferently from whatever revenue the con
tributors may possess; from the rent of their land,
from the profits of their stock, or from the wages of
their labour.
CAPITATION TAXES

Capitation taxes, if it is attempted to proportion them to

the fortune or revenue of each contributor, become alto
gether arbitrary. The state of a man's fortune varies from
day to day, and without an inquisition more intolerable than
any tax, and renewed at least once every year, can only be
guessed at. His assessment, therefore, must in most cases
depend upon the good or bad humour of his assessors, and
must, therefore, be altogether arbitrary and uncertain.
Capitation taxes, if they are proportioned not to the sup
posed fortune, but to the rank of each contributor, become
altogether unequal; the degrees of fortune being frequently
unequal in the same degree of rank.
Such taxes, therefore, if it is attempted to render them
equal, become altogether arbitrary and uncertain; and if it
is attempted to render them certain and not arbitrary, be
come altogether unequal. Let the tax be light or heavy, un
certainty is always a great grievance. In a light tax a con
CAPITATION TAXES 539
siderable degree of inequality may be supported; in a heavy
one it is altogether intolerable
In the different poll-taxes which took place in England
during the reign of William III. the contributors were, the
greater part of them, assessed according to the degree of
their rank; as dukes, marquisses, earls, viscounts, barons,
esquires, gentlemen, the eldest and youngest sons of peers,
&c. All shopkeepers and tradesmen worth more than three
hundred pounds, that is, the better sort of them, were subject
to the same assessment; how great soever might be the dif
ference in their fortunes. Their rank was more considered
than
tax were
their rated
fortune.
according
Severalto oftheir
thosesupposed
who in fortune,
the first were
poll-

afterwards rated according to their rank. Serjeants, at-

tornies, and proctors at law, who in the first poll-tax were
assessed at three shillings in the pound of their supposed
income, were afterwards assessed as gentlemen. In the as
sessment of a tax which was not very heavy, a considerable
degree of inequality had been found less insupportable than
any degree of uncertainty.
In the capitation which has been levied in France without
any interruption since the beginning of the present century,
the highest orders of people are rated according to their
rank, by an invariable tariff; the lower orders of people,
according to what is supposed to be their fortune, by an
assessment which varies from year to year. The officers of
the king's court, the judges and other officers in the superior
courts of justice, the officers of the troops, &c. are assessed
in the first manner. The inferior ranks of people in the
provinces are assessed in the second. In France the great
easily submit to a considerable degree of inequality in a tax
which, so far as it affects them, is not a very heavy one ; but
could not brook the arbitrary assessment of an intendant.
The inferior ranks of people must, in that country, suffer
patiently the usage which their superiors think proper to
give them.
In England the different poll-taxes never produced the sum
which had been expected from them, or which, it was sup
posed, they might have produced, had they been exactly
levied. In France the capitation always produces the sum
540 WEALTH OF NATIONS
expected from it. The mild government of England, when
it assessed the different ranks of people to the poll-tax, con
tented itself with what that assessment happened to produce ;
and required no compensation for the loss which the state
might sustain either by those who could not pay, or by those
who would not pay (for there were many such), and who,
by the indulgent execution of the law, were not forced to
pay. The more severe government of France assesses upon
each generality a certain sum, which the intendant must find
as he can. If any province complains of being assessed too
high, it may, in the assessment of next year, obtain an abate
ment proportioned to the over-charge of the year before.
But it must pay in the mean time. The intendant, in order
to be sure of finding the sum assessed upon his generality,
was impowered to assess it in a larger sum, that the failure
or inability of some of the contributors might be compen
sated by the over-charge of the rest; and till i765, the fix
ation of this surplus assessment was left altogether to his
discretion. In. that year indeed the council assumed this
power to itself. In the capitation of the provinces, it is
observed by the perfectly well-informed author of the
Memoirs upon the impositions in France, the proportion
which falls upon the nobility, and upon those whose privi
leges exempt them from the taille, is the least considerable.
The largest falls upon those subject to the taille, who are
assessed to the capitation at so much a pound of what they
pay to that other tax.
Capitation taxes, so far as they are levied upon the lower
ranks of people, are direct taxes upon the wages of labour,
and are attended with all the inconveniences of such taxes.
Capitation taxes are levied at little expence; and, where
they are rigorously exacted, afford a very sure revenue to
the state. It is upon this account that in countries where
the ease, comfort, and security of the inferior ranks of
people are little attended to, capitation taxes are very com
mon. It is in general, however, but a small part of the pub
lic revenue, which, in a great empire, has ever been drawn
from such taxes ; and the greatest sum which they have ever
afforded, might always have been found in some other way
much more convenient to the people.
TAXES UPON CONSUMABLE COMMODITIES 541

TAXES UPON CONSUMABLE COMMODITIES

The impossibility of taxing the people, in proportion to

their revenue, by any capitation, seems to have given occa
sion to the invention of taxes upon consumable commodities.
The state not knowing how to tax, directly and proportion-
ably, the revenue of its subjects, endeavours to tax it indi
rectly by taxing their expence, which, it is supposed, will in
most cases be nearly in proportion to their revenue. Their
expence is taxed by taxing the consumable commodities upon
which it is laid out.
Consumable commodities are either necessaries or luxuries.
By necessaries I understand, not only the commodities
which are indispensably necessary for the support of life, but
whatever the custom of the country renders it indecent for
creditable people, even of the lowest order, to be without. A
linen shirt, for example, is, strictly speaking, not a necessary
of life. The Greeks and Romans lived, I suppose, very com
fortably, though they had no linen. But in the present times,
through the greater part of Europe, a creditable day-labourer
would be ashamed to appear in public without a linen shirt,
the want of which would be supposed to denote that dis
graceful degree of poverty, which, it is presumed, no body
can well fall into without extreme bad conduct. Custom,
in the same manner, has rendered leather shoes a necessary
of life in England. The poorest creditable person of either
sex would be ashamed to appear in public without them. In
Scotland, custom has rendered them a necessary of life to
the lowest order of men ; but not to the same order of women,
who may, without any discredit, walk about bare-footed. In
France, they are necessaries neither to men nor to women;
the lowest rank of both sexes appearing there publicly, with
out any discredit, sometimes in wooden shoes, and sometimes
bare-footed. Under necessaries therefore, I comprehend, not
only those things which nature, but those things which the
established rules of decency have rendered necessary to the
lowest rank of people. All other things I call luxuries ; with
out meaning by this appellation, to throw the smallest degree
of reproach upon the temperate use of them. Beer and ale,
for example, in Great Britain, and wine, even in the wine
542 WEALTH OP NATIONS
countries, I call luxuries. A man of any rank may, without
any reproach, abstain totally from tasting such liquors.
Nature does not render them necessary for the support of
life ; and custom nowhere renders it indecent to live without
them.
As the wages of labour are every where regulated, partly
by the demand for it, and partly by the average price of the
necessary articles of subsistence ; whatever raises this aver
age price must necessarily raise those wages, so that the
labourer may still be able to purchase that quantity of those
necessary articles which the state of the demand for labour,
whether increasing, stationary, or declining, requires that he
should have. A tax upon those articles necessarily raises
their price somewhat higher than the amount of the tax, be
cause the dealer who advances the tax, must generally get it
back with a profit. Such a tax must, therefore, occasion a
rise in the wages of labour proportionable to this rise of
price.
It is thus that a tax upon the necessaries of life, operates
exactly in the same manner as a direct tax upon the
wages of labour. The labourer, though he may pay
it out of his hand, cannot, for any considerable time at
least, be properly said even to advance it. It must always
in the long-run be advanced to him by his immediate
employer in the advanced rate of his wages. His employer,
if he is a manufacturer, will charge upon the price of his
goods this rise of wages, together with a profit; so that the
final payment of the tax, together with this over-charge, will
fall upon the consumer. If his employer is a farmer, the
final payment, together with a like over-charge, will fall
upon the rent of the landlord.
It is otherwise with taxes upon what I call luxuries; even
upon those of the poor. The rise in the price of the taxed
commodities, will not necessarily occasion any rise in the
wages of labour. A tax upon tobacco, for example, though
a luxury of the poor as well as of the rich, will not raise
wages. Though it in taxed in England at three times, and
in France at fifteen times its original price, those high duties
seem to have no effect upon the wages of labour. The same
thing may be said of the taxes upon tea and sugar ; which in
TAXES UPON CONSUMABLE COMMODITIES 543

England and Holland have become luxuries of the lowest

ranks of people; and of those upon chocolate, which in Spain
is said to have become so. The different taxes which in
Great Britain have in the course of the present century been
imposed upon spirituous liquors, are not supposed to have
had any effect upon the wages of labour. The rise in the
price of porter, occasioned by an additional tax of three shil
lings upon the barrel of strong beer, has not raised the
wages of common labour in London. These were about
eighteen pence and twenty-pence a day before the tax, and
they are not more now.
The high price of such commodities does not necessarily
diminish the ability of the inferior ranks of people to bring
up families. Upon the sober and industrious poor, taxes
upon such commodities act as sumptuary laws, and dispose
them either to moderate, or to refrain altogether from the
use of superfiuities which they can no longer easily afford.
Their ability to bring up families, in consequence of this
forced frugality, instead of being diminished, is frequently,
perhaps, increased by the tax. It is the sober and industrious
poor who generally bring up the most numerous families,
and who principally supply the demand for useful labour.
All the poor indeed are not sober and industrious, and the
dissolute and disorderly might continue to indulge themselves
in the use of such commodities after this rise of price in the
same manner as before; without regarding the distress which
this indulgence might bring upon their families. Such dis
orderly persons, however, seldom rear up numerous fami
lies; their children generally perishing from neglect, mis
management, and the scantiness or unwholesomeness of
their food. If by the strength of their constitution they
survive the hardships to which the bad conduct of their par
ents exposes them; yet the example of that bad conduct com
monly corrupts their morals; so that, instead of being useful
to society by their industry, they become public nuisances by
their vices and disorders. Though the advanced price of the
luxuries of the poor, therefore, might increase somewhat the
distress of such disorderly families, and thereby diminish
somewhat their ability to bring up children; it would not
probably diminish much the useful population of the country.

,,
544 WEALTH OF NATIONS
Any rise in the average price of necessaries, unless it is
compensated by a proportionable rise in the wages of labour,
must necessarily diminish more or less the ability of the poor
to bring up numerous families, and consequently to supply
the demand for useful labour ; whatever may be the state of
that demand, whether increasing, stationary, or declining;
or such as requires an increasing, stationary, or declining
population.
Taxes upon luxuries have no tendency to raise the price
of any other commodities except that of the commodities
taxed. Taxes upon necessaries, by raising the wages of
labour, necessarily tend to raise the price of all manufac
tures, and consequently to diminish the extent of their sale
and consumption. Taxes upon luxuries are finally paid by
the consumers of the commodities taxed, without any retri
bution. They fall indifferently upon every species of reve
nue, the wages of labour, the profits of stock, and the rent
of land. Taxes upon necessaries, so far as they affect the
labouring poor, are finally paid, partly by landlords in the
diminished rent of their lands, and partly by rich consumers,
whether landlords or others, in the advanced price of manu
factured goods; and always with a considerable over-charge.
The advanced price of such manufactures as are real neces
saries of life, and are destined for the consumption of the
poor, of coarse woollens, for example, must be compensated
to the poor by a farther advancement of their wages. The
middling and superior ranks of people, if they understood
their own interest, ought always to oppose all taxes upon
the necessaries of life, as well as all direct taxes upon the
wages of labour. The final payment of both the one and the
other falls altogether upon themselves, and always with a
considerable over-charge. They fall heaviest upon the land
lords, who always pay in a double capacity; in that of land
lords, by the reduction of their rent ; and in that of rich con
sumers, by the increase of their expence. The observation
of Sir Matthew Decker, that certain taxes are, in the price
of certain goods, sometimes repeated and accumulated four
or five times, is perfectly just with regard to taxes upon the
necessaries of life. In the price of leather, for example,
you must pay, not only for the tax upon the leather of your
TAXES UPON CONSUMABLE COMMODITIES 545
own shoes, but for a part of that upon those of the shoe
maker and the tanner. You must pay too for the tax upon
the salt, upon the soap, and upon the candles which those
workmen consume while employed in your service, and for
maker,
the tax and
uponthethecandle-maker
leather, which
consume
the salt-maker,
while employed
the soap-
in

their service.
In Great Britain, the principal taxes upon the necessaries
of life are those upon the four commodities just now men
tioned, salt, leather, soap, and candles.
. Salt is a very ancient and a very universal subject of tax
ation. It was taxed among the Romans, and it is so at pres
ent in, I believe, every part of Europe. The quantity an
nually consumed by any individual is so small, and may be
purchased so gradually, that nobody, it seems to have been
thought, could feel very sensibly even a pretty heavy tax
upon it. It is in England taxed at three shillings and four-
pence a bushel; about three times the original price of the
commodity. In some other countries the tax is still higher.
Leather is a real necessary of life. The use of linen renders
soap such. In countries where the winter nights are long,
candles are a necessary instrument of trade. Leather and
soap are in Great Britain taxed at three halfpence a pound;
candles at a penny; taxes which, upon the original price of
leather, may amount to about eight or ten per cent.; upon
that of soap about twenty or five and twenty per cent.,
and upon that of candles to about fourteen or fifteen per
cent.; taxes which, though lighter than that upon salt, are
still very heavy. As all those four commodities are real
necessaries of life, such heavy taxes upon them must in
crease somewhat the expence of the sober and industrious
poor, and must consequently raise more or less the wages of
their labour.
In a country where the winters are so cold as in Great
Britain, fuel is, during that season, in the strictest sense of
the word, a necessary of life, not only for the purpose of
dressing victuals, but for the comfortable subsistence of
many different sorts of workmen who work within doors;
and coals are the cheapest of all fuel. The price of fuel has
so important an influence upon that of labour, that all over
546 WEALTH OF NATIONS
Great Britain manufactures have confined themselves prin
cipally to the coal countries ; other parts of the country, on
account of the high price of this necessary article, not being
able to work so cheap. In some manufactures, besides, coal
is a necessary instrument of trade; as in those of glass, iron,
and all other metals. If a bounty could in any case be rea
sonable, it might perhaps be so upon the transportation of
coals from those parts of the country in which they abound,
to those in which they are wanted. But the legislature, in
stead of a bounty, has imposed a tax of three shillings and
three-pence a ton upon coal carried coastways; which upon
most sorts of coal is more than sixty per cent. of the original
price at the coal-pit. Coals carried either by land or by
inland navigation pay no duty. Where they are naturally
cheap, they are consumed duty free; where they are nat
urally dear, they are loaded with a heavy duty.
Such taxes, though they raise the price of subsistence, and
consequently the wages of labour, yet they afford a consid
erable revenue to government, which it might not be easy to
find in any other way. There may, therefore, be good rea
sons for continuing them. The bounty upon the exportation
of corn, so far as it tends in the actual state of tillage to
raise the price of that necessary article, produces all the like
bad effects ; and instead of affording any revenue, frequently
occasions a very great expense to government. The high
duties upon the importation of foreign corn, which in years
of moderate plenty amount to a prohibition; and the abso
lute prohibition of the importation either of live cattle or of
salt provisions, which takes place in the ordinary state of
the law, and which, on account of the scarcity, is at present
suspended for a limited time with regard to Ireland and the
British plantations, have all the bad effects of taxes upon the
necessaries of life, and produce no revenue to government.
Nothing seems necessary for the repeal of such regulations,
but to convince the public of the futility of that system in
consequence of which they have been established.
Taxes upon the necessaries of life are much higher in
many other countries than in Great Britain. Duties upon
flour and meal when ground at the mill, and upon bread
when baked at the oven, take place in many countries. In
TAXES UPON CONSUMABLE COMMODITIES 547
Holland the money price of the bread consumed in towns is
supposed to be doubled by means of such taxes. In lieu of
a part of them, the people who live in the country pay every
year so much a head, according to the sort of bread they are
supposed to consume. Those who consume wheaten bread,
pay three guilders fifteen stivers; about six shillings and
ninepence halfpenny. These, and some other taxes of the
same kind, by raising the price of labour, are said to have
ruined the greater part of the manufactures of Holland.
Similar taxes, though not quite so heavy, take place in the
Milanese, in the states of Genoa, in the dutchy of Modena,
in the dutchies of Parma, Placentia, and Guastalla, and in
the ecclesiastical state. A French author of some note has
proposed to reform the finances of his country, by substitut
ing in the room of the greater part of other taxes, this most
ruinous of all taxes. There is nothing so absurd, says
Cicero, which has not sometimes been asserted by some
philosophers.
Taxes upon butchers meat are still more common than
those upon bread. It may indeed be doubted whether
butchers meat is any where a necessary of life. Grain and
other vegetables, with the help of milk, cheese, and butter,
or oil, where butter is not to be had, it is known from ex
perience, can, without any butchers meat, afford the most
plentiful, the most wholesome, the most nourishing, and the
most invigorating diet. Decency no where requires that any
man should eat butchers meat, as it in most places requires
that he should wear a linen shirt or a pair of leather shoes.
Consumable commodities, whether necessaries or luxuries,
may be taxed in two different ways. The consumer may
either pay an annual sum on account of his using or con
suming goods of a certain kind; or the goods may be taxed
while they remain in the hands of the dealer, and before they
are delivered to the consumer. The consumable goods which
last a considerable time before they are consumed altogether,
are most properly taxed in the one way. Those of which
the consumption is either immediate or more speedy, in the
other. The coach-tax and plate-tax are examples of the
former method of imposing: the greater part of the other
duties of excise and customs, of the latter.
548 WEALTH OF NATIONS
The duties of excise are imposed chiefly upon goods of
home produce destined for home consumption. They are
imposed only upon a few sorts of goods of the most general
use. There can never be any doubt either concerning the
goods which are subject to those duties, or concerning the
particular duty which each species of goods is subject to.
They fall almost altogether upon what I call luxuries, ex
cepting always the four duties above mentioned, upon salt,
soap, leather, candles, and, perhaps, that upon green glass.
The duties of customs are much more ancient than those
of excise. They seem to have been called customs, as de
noting customary payments which had been in use from time
immemorial. They appear to have been originally consid
ered as taxes upon the profits of merchants. During the
barbarous times of feudal anarchy, merchants, like all the
other inhabitants of burghs, were considered so little better
than emancipated bondmen, whose persons were despised, and
whose gains were envied. The great nobility, who had con
sented that the king should tallage the profits of their own
tenants, were not unwilling that he should tallage likewise
those of an order of men whom it was much less their in
terest to protect. In those ignorant times, it was not under
stood, that the profits of merchants are a subject not taxable
directly; or that the final payment of all such taxes must
fall, with a considerable over-charge, upon the consumers.
The gains of alien merchants were looked upon more un
favourably than those of English merchants. It was nat
ural, therefore, that those of the former should be taxed more
heavily than those of the latter. This distinction between
the duties upon aliens and those upon English merchants,
which was begun from ignorance, has been continued from
the spirit of monopoly, or in order to give our own merchants
an advantage both in the home and in the foreign market.
With this distinction, the ancient duties of customs were
imposed equally upon all sorts of goods, necessaries as well
as luxuries, goods exported as well as goods imported. Why
should the dealers in one sort of goods, it seems to have been
thought, be more favoured than those in another? or why
should the merchant exporter be more favoured than the
merchant importer?
TAXES UPON CONSUMABLE COMMODITIES 549
The ancient customs were divided into three branches.
The first, and perhaps the most ancient of all those duties,
was that upon wool and leather. It seems to have been
chiefly or altogether an exportation duty. When the woollen
manufacture came to be established in England, lest the king
should lose any part of his customs upon wool by the ex
portation of woollen cloths, a like duty was imposed upon
them. The other two branches were, first, a duty upon wine,
which, being imposed at so much a ton, was called a ton
nage; and, secondly, a duty upon all other goods, which,
being imposed at so much a pound of their supposed value,
was called a poundage. In the forty-seventh year of Ed
ward III. a duty of sixpence in the pound was imposed upon
all goods exported and imported, except wools, wool-fells,
leather, and wines, which were subject to particular duties.
In the fourteenth of Richard II this duty was raised to one
shilling in the pound; but three years afterwards, it was
again reduced to sixpence. It was raised to eight-pence in
the second year of Henry IV. ; and in the fourth year of the
same prince, to one shilling. From this time to the ninth
year of William III. this duty continued at one shilling in
the pound. The duties of tonnage and poundage were gen
erally granted to the king by one and the same act of par
liament, and were called the Subsidy of Tonnage and Pound
age. The subsidy of poundage having continued for so long
a time at one shilling in the pound, or at five per cent.; a
subsidy came, in the language of the customs, to denote a
general duty of this kind of five per cent. The subsidy,
which is now called the Old Subsidy, still continues to be
levied according to the book of rates established in the
twelfth of Charles II. The method of ascertaining, by a
book of rates, the value of goods subject to this duty, is said
to be older than the time of James I. The new subsidy im
posed by the ninth and tenth of William III , was an addi
tional five per cent. upon the greater part of goods. The
one-third and the two-third subsidy made up between them
another five per cent. of which they were proportionately
parts. The subsidy of 1747 made a fourth five per cent. upon
the greater part of goods ; and that of 1759, a fifth upon some
particular sorts of goods. Besides those five subsidies, a
550 WEALTH OF NATIONS
great variety of other duties have occasionally been imposed
upon particular sorts of goods, in order sometimes to relieve
the exigencies of the state, and sometimes to regulate the
trade of the country, according to the principles of the mer
cantile system.
That system has come gradually more and more into
fashion. The old subsidy was imposed indifferently upon
exportation as well as importation. The four subsequent
subsidies, as well as the other duties which have since been
occasionally imposed upon particular sorts of goods, have,
with a few exceptions, been laid altogether upon importation.
The greater part of the ancient duties which had been im
posed upon the exportation of the goods of home produce
and manufacture, have either been lightened or taken away
altogether. In most cases they have been taken away.
Bounties have even been given upon the exportation of some
of them. Drawbacks too, sometimes of the whole, and, in
most cases, of a part of the duties which are paid upon the
importation of foreign goods, have been granted upon their
exportation. Only half the duties imposed by the old subsidy
upon importation are drawn back upon exportation : but the
whole of those imposed by the latter subsidies and other im
posts are, upon the greater part of goods, drawn back in the
same manner. This growing favour of exportation, and dis
couragement of importation, have suffered only a few excep
tions, which chiefly concern the materials of some manufac
tures. These, our merchants and manufacturers are willing
should come as cheap as possible to themselves, and as dear
as possible to their rivals and competitors in other countries.
Foreign materials are, upon this account, sometimes allowed
to be imported duty free; Spanish wool, for example, flax,
and raw linen yarn. The exportation of the materials of
home produce, and of those which are the particular produce
of our colonies, has sometimes been prohibited, and some
times subjected to higher duties. The exportation of Eng
lish wool has been prohibited. That of beaver skins, of
beaver wool, and of gum Senega, has been subjected to higher
duties ; Great Britain, by the conquest of Canada and Senegal,
having got almost the monopoly of those commodities.
That the mercantile system has not been very favourable
TAXES UPON CONSUMABLE COMMODITIES 551
to the revenue of the great body of the people, to the annual
produce of the land and labour of the country, I have en
deavoured to shew in the fourth book of this Inquiry. It
seems not to have been more favourable to the revenue of the
sovereign; so far at least as that revenue depends upon the
duties of customs.
In consequence of that system, the importation of several
sorts of goods has been prohibited altogether. This pro
hibition has in some cases entirely prevented, and in others
has very much diminished the importation of those commodi
ties, by reducing the importers to the necessity of smuggling.
It has entirely prevented the importation of foreign woollens ;
and it has very much diminished that of foreign silks and
velvets. In both cases it has entirely annihilated the reve
nue of customs which might have been levied upon such
importation.
The high duties which have been imposed upon the im
portation of many different sorts of foreign goods, in order
to discourage their consumption in Great Britain, have in
many cases served only to encourage smuggling; and in all
cases have reduced the revenue of the customs below what
more moderate duties would have afforded. The saying of
Dr. Swift, that in the arithmetic of the customs two and two,
instead of making four, make sometimes only one, holds per
fectly true with regard to such heavy duties, which never
could have been imposed, had not the mercantile system
taught us, in many cases, to employ taxation as an instru
ment, not of revenue, but of monopoly.
In order that the greater part of the members of any
society should contribute to the public revenue in proportion
to their respective expence, it does not seem necessary that
every single article of that expence should be taxed. The
revenue, which is levied by the duties of excise, is supposed
to fall as equally upon the contributors as that which is levied
by the duties of customs; and the duties of excise are im
posed upon a few articles only of the most general use and
consumption. It has been the opinion of many people, that,
by proper management, the duties of customs might likewise,
without any loss to the public revenue, and with great ad
vantage to foreign trade, be confined to a few articles only.
552 WEALTH OF NATIONS
The foreign articles, of the most general use and consump
tion in Great Britain, seem at present to consist chiefly in
foreign wines and brandies; in some of the productions of
America and the West Indies, sugar, rum, tobacco, cocoa-
nuts, &c. and in some of those of the East Indies, tea, coffee,
china-ware, spiceries of all kinds, several sorts of piece-
goods, &c. These different articles afford, perhaps, at pres
ent, the greater part of the revenue which is drawn from
the duties of customs. The taxes which at present subsist
upon foreign manufactures, if you except those upon the few
contained in the foregoing enumeration, have the greater
part of them been imposed for the purpose, not of revenue,
but of monopoly, or to give our own merchants an advantage
in the home market. By removing all prohibitions, and by
subjecting all foreign manufactures to such moderate taxes,
as it was found from experience afforded upon each article
the greatest revenue to the public, our own workmen might
still have a considerable advantage in the home market, and
many articles, some of which at present afford no revenue
to government, and others a very inconsiderable one, might
afford a very great one.
High taxes, sometimes by diminishing the consumption of
the taxed commodities, and sometimes by encouraging smug
gling, frequently afford a smaller revenue to government
than what might be drawn from more moderate taxes.
When the diminution of revenue is the effect of the di
minution of consumption, there can be but one remedy, and
that is the lowering of the tax.
When the diminution of the revenue is the effect of the
encouragement given to smuggling, it may perhaps be reme
died in two ways ; either by diminishing the temptation to
smuggle, or by increasing the difficulty of smuggling. The
temptation to smuggle can be diminished only by the lower
ing of the tax; and the difficulty of smuggling can be in
creased only by establishing that system of administration
which is most proper for preventing it.
The excise laws, it appears, I believe, from experience,
obstruct and embarrass the operations of the smuggler much
more effectually than those of the customs. By introducing
into the customs a system of administration as similar to
TAXES UPON CONSUMABLE COMMODITIES 553
that of the excise as the nature of the different duties will
admit, the difficulty of smuggling might be very much in
creased. This alteration, it has been supposed by many
people, might very easily be brought about.
The importer of commodities liable to any duties of cus
toms, it has been said, might at his option be allowed either to
carry them to his own private warehouse, or to lodge them in
a warehouse provided either at his own expence or at that of
the public, but under the key of the customhouse officer, and
never to be opened but in his presence. If the merchant car
ried them to his own private warehouse, the duties to be
immediately paid, and never afterwards to be drawn back ;
and that warehouse to be at all times subject to the visit and
examination of the customhouse officer, in order to ascertain
how far the quantity contained in it corresponded with that
for which the duty had been paid. If he.carried them to the
public warehouse, no duty to be paid till they were taken out
for home consumption. If taken out for exportation, to be
duty-free ; proper security being always given that they
should be so exported. The dealers in those particular com
modities, either by wholesale or retail, to be at all times sub
ject to the visit and examination of the customhouse officer;
and to be obliged to justify by proper certificates the pay
ment of the duty upon the whole quantity contained in their
shops or warehouses. What are called the excise-duties
upon rum imported are at present levied in this manner, and
the same system of administration might perhaps be ex
tended to all duties upon goods imported; provided always
that those duties were, like the duties of excise, confined to
a few sorts of goods of the most general use and consump
tion. If they were extended to almost all sorts of goods, as
at present, public warehouses of sufficient extent could not
easily be provided, and goods of a very delicate nature, or of
which the preservation required much care and attention,
could not safely be trusted by the merchant in any warehouse
but his own.
If by such a system of administration smuggling, to any
considerable extent, could be prevented even under pretty high
duties; and if every duty was occasionally either heightened
or lowered according as it was most likely, either the one
554 WEALTH OF NATIONS
way or the other, to afford the greatest revenue to the state ;
taxation being always employed as an instrument of revenue
and never of monopoly; it seems not improbable that a reve
nue, at least equal to the present neat revenue of the cus
toms, might be drawn from duties upon the importation of
only a few sorts of goods of the most general use and con
sumption; and that the duties of customs might thus be
brought to the same degree of simplicity, certainty, and pre
cision, as those of excise. What the revenue at present loses,
by drawbacks upon the re-exportation of foreign goods which
are afterwards relanded and consumed at home, would under
this system be saved altogether. If to this saving, which
would alone be very considerable, were added the abolition
of all bounties upon the exportation of home-produce; in all
cases in which those bounties were not in reality drawbacks
of some duties of excise which had before been advanced ; it
cannot well be doubted but that the neat revenue of customs
might, after an alteration of this kind, be fully equal to what
it had ever been before.
If by such a change of system the public revenue suffered
no loss, the trade and manufactures of the country would
certainly gain a very considerable advantage. The trade in
the commodities not taxed, by far the greatest number, would
be perfectly free, and might be carried on to and from all
parts of the world with every possible advantage. Among
those commodities would be comprehended all the necessaries
of life, and all the materials of manufacture. So far as the
free importation of the necessaries of life reduced their aver
age money price in the home market, it would reduce the
money price of labour, but without reducing in any respect
its real recompence. The value of money is in proportion to
the quantity of the necessaries of life which it will purchase.
That of the necessaries of life is altogether independent of
the quantity of money which can be had for them. The
reduction in the money price of labour would necessarily be
attended with a proportionable one in that of all home-manu
factures, which would thereby gain some advantage in all
foreign markets. The price of some manufactures would be
reduced in a still greater proportion by the free importation
of the raw materials. If raw silk could be imported from
TAXES UPON CONSUMABLE COMMODITIES 555
China and Indostan duty-free, the silk manufacturers in
England could greatly undersell those of both France and
Italy. There would be no occasion to prohibit the importa
tion of foreign silks and velvets. The cheapness of their
goods would secure to our own workmen, not only the pos
session of the home, but a very great command of the foreign
market. Even the trade in the commodities taxed would be
carried on with much more advantage than at present. If
those commodities were delivered out of the public warehouse
for foreign exportation, being in this case exempted from all
taxes, the trade in them would be perfectly free. The carry
ing trade in all sorts of goods would under this system enjoy
every possible advantage. If those commodities were deliv
ered out for home-consumption, the importer not being
obliged to advance the tax till he had an opportunity of sell
ing his goods, either to some dealer, or to some consumer, he
could always afford to sell them cheaper than if he had been
obliged to advance it at the moment of importation. Under
the same taxes, the foreign trade of consumption even in the
taxed commodities, might in this manner be carried on with
much more advantage than it can at present.
It was the object of the famous excise scheme of Sir Rob
ert Walpole to establish, with regard to wine and tobacco, a
system not very unlike that which is here proposed. But
though the bill which was then brought into parliament, com
prehended those two commodities only ; it was generally sup
posed to be meant as an introduction to a more extensive
scheme of the same kind. Faction, combined with the in
terest of smuggling merchants, raised so violent, though so
unjust, a clamour against that bill, that the minister thought
proper to drop it ; and from a dread of exciting a clamour of
the same kind, none of his successors have dared to resume
the project.
The duties upon foreign luxuries imported for home-con
sumption, though they sometimes fall upon the poor, fall
principally upon people of middling or more than middling
fortune. Such are, for example, the duties upon foreign
wines, upon coffee, chocolate, tea, sugar, &c.
The duties upon the cheaper luxuries of home-produce
destined for home-consumption, fall pretty equally upon
556 WEALTH OF NATIONS
people of all ranks in proportion to their respective expense.
The poor pay the duties upon malt, hops, beer, and ale, upon
their own consumption : The rich, upon both their own con
sumption and that of their servants.
The whole consumption of the inferior ranks of people,
or of those below the middling rank, it must be observed, is
in every country much greater, not only in quantity, but in
value, than that of the middling and of those above the
middling rank. The whole expence of the inferior is much
greater than that of the superior ranks. In the first place,
almost the whole capital of every country is annually dis
tributed among the inferior ranks of people, as the wages of
productive labour. Secondly, a great part of the revenue
arising from both the rent of land and the profits of stock,
is annually distributed among the same rank, in the wages
and maintenance of menial servants, and other unproductive
labourers. Thirdly, some part of the profits of stock be
longs to the same rank, as a revenue arising from the em
ployment of their small capitals. The amount of the profits
annually
tailers of made
all kinds,
by small
is every
shopkeepers,
where very
tradesmen,
considerable,
and an
re

makes a very considerable portion of the annual produce.

Fourthly, and lastly, some part even of the rent of land be
longs to the same rank ; a considerable part to those who are
somewhat below the middling rank, and a small part even to
the lowest rank ; common labourers sometimes possessing in
property an acre or two of land. Though the expence of
those inferior ranks of people, therefore, taking them indi
vidually, is very small, yet the whole mass of it, taking them
collectively, amounts always to by much the largest portion
of the whole expence of the society; what remains, of the
annual produce of the land and labour of the country for the
consumption of the superior ranks, being always much less,
not only in quantity but in value. The taxes upon expence,
therefore, which fall chiefly upon that of the superior ranks
of people, upon the smaller portion of the annual produce,
are likely to be much less productive than either those which
fall indifferently upon the expense of all ranks, or even those
which fall chiefly upon that of the inferior ranks ; than either
those which fall indifferently upon the whole annual produce,
TAXES UPON CONSUMABLE COMMODITIES 557
or those which fall chiefly upon the larger portion of it. The
excise upon the materials and manufacture of home-made
fermented and spirituous liquors is accordingly, of all the
different taxes upon expence, by far the most productive;
and this branch of the excise falls very much, perhaps prin
cipally, upon the expence of the common people. In the
year which ended on the 5th of July i775, the gross produce
of this branch of the excise amounted to 3,341,837l. 9s. 9d.
It must always be remembered, however, that it is the
luxurious and not the necessary expence of the inferior ranks
of people that ought ever to be taxed. The final payment of
any tax upon their necessary expence would fall altogether
upon the superior ranks of people; upon the smaller portion
of the annual produce, and not upon the greater. Such a tax
must in all cases either raise the wages of labour, or lessen
the demand for it. It could not raise the wages of labour,
without throwing the final payment of the tax upon the
superior ranks of people. It could not lessen the demand for
labour, without lessening the annual produce of the land and
labour of the country, the fund from which all taxes must be
finally paid. Whatever might be the state to which a tax of
this kind reduced the demand for labour, it must always raise
wages higher than they otherwise would be in that state ; and
the final payment of this enhancement of wages must in all
cases fall upon the superior ranks of people.
Fermented liquors brewed, and spirituous liquors distilled,
not for sale, but for private use, are not in Great Britain
liable to any duties of excise. This exemption, of which the
object is to save private families from the odious visit and
examination of the tax-gatherer, occasions the burden of
those duties to fall frequently much lighter upon the rich
than upon the poor. It is not, indeed, very common to distil
for private use, though it is done sometimes. But in the
country, many middling and almost all rich and great fami
lies brew their own beer. Their strong beer, therefore, costs
them eight shillings a barrel less than it costs the common
brewer, who must have his profit upon the tax, as well as
upon all the other expence which he advances. Such fami
lies, therefore, must drink their beer at least nine or ten shil
lings a barrel cheaper than any liquor of the same quality
558 WEALTH OF NATIONS
can be drunk by the common people, to whom it is every
where more convenient to buy their beer, by little and little,
from the brewery or the alehouse. Malt, in the same man
ner, that is made for the use of a private family, is not liable
to the visit or examination of the tax-gatherer; but in this
case the family must compound at seven shillings and six
pence a head for the tax. Seven shillings and sixpence are
equal to the excise upon ten bushels of malt; a quantity
fully equal to what all the different members of any sober
family, men, women, and children, are at an average likely
to consume. But in rich and great families, where country
hospitality is much practised, the malt liquors consumed by
the members of the family make but a small part of the con
sumption of the house. Either on account of this composi
tion, however, or for other reasons, it is not near so common
to malt as to brew for private use. It is difficult to imagine
any equitable reason why those who either brew or distil for
private use, should not be subject to a composition of the
same kind.
A greater revenue than what is at present drawn from all
the heavy taxes upon malt, beer, and ale, might be raised, it
has frequently been said, by a much lighter tax upon malt;
the opportunities of defrauding the revenue being much
greater in a brewery than in a malt-house ; and those who
brew for private use being exempted from all duties or com
position
for private
for use
duties, which is not the case with those who malt

***********
Besides such duties as those of customs and excise above-
mentioned, there are several others which affect the price of
goods more unequally and more indirectly. Of this kind are
the duties which in French are called Peages, which in old
Saxon times were called Duties of Passage, and which seem
to have been originally established for the same purpose as
our turnpike tolls, or the tolls upon our canals and navigable
rivers, for the maintenance of the road or of the navigation.
Those duties, when applied to such purposes, are most prop
erly imposed according to the bulk of weight of the goods.
As they were originally local and provincial duties, appli
cable to local and provincial purposes, the administration of
TAXES UPON CONSUMABLE COMMODITIES 559
them was in most cases entrusted to the particular town,
parish, or lordship, in which they were levied; such com
munities being in some way or other supposed to be account
able for the application. The sovereign, who is altogether
unaccountable, has in many countries assumed to himself the
administration of those duties; and though he has in most
cases enhanced very much the duty, he has in many entirely
neglected the application. If the turnpike tolls of Great
Britain should ever become one of the resources of govern
ment, we may learn, by the example of many other nations,
what would probably be the consequence. Such tolls are no
doubt finally paid by the consumer; but the consumer is not
taxed in proportion to his expence when he pays, not accord
ing to the value, but according to the bulk or weight of what
he consumes. When such duties are imposed, not according
to the bulk or weight, but according to the supposed value of
the goods, they become properly a sort of inland customs or
excises, which obstruct very much the most important of all
branches of commerce, the interior commerce of the country.
In some small states duties similar to those passage duties
are imposed upon goods carried across the territory, either
by land or by water, from one foreign country to another.
These are in some countries called transit-duties. Some of
the little Italian states, which are situated upon the Po, and
the rivers which run into it, derive some revenue from duties
of this kind, which are paid altogether by foreigners, and
which, perhaps, are the only duties that one state can impose
upon the subjects of another, without obstructing in any re
spect the industry or commerce of its own. The most im
portant transit-duty in the world is that levied by the king of
Denmark upon all merchant ships which pass through the
Sound.
Such taxes upon luxuries as the greater part of the duties
of customs and excise, though they all fall indifferently upon
every different species of revenue, and are paid finally, or
without any retribution, by whoever consumes the commodi
ties upon which they are imposed, yet they do not always fall
equally or proportionably upon the revenue. of every indi
vidual. As every man's humour regulates the degree of his
consumption, every man contributes rather according to his
560 WEALTH OF NATIONS
humour than in proportion to his revenue; the profuse con
tribute more, the parsimonious less, than their proper pro
portion. During the minority of a man of great fortune, he
contributes commonly very little, by his consumption, towards
the support of that state from whose protection he derives a
great revenue. Those who live in another country con
tribute nothing, by their consumption, towards the support
of the government of that country, in which is situated the
source of their revenue. If in this latter country there should
be no land-tax, nor any considerable duty upon the transfer
ence either of moveable or of immoveable property, as is the
case in Ireland, such absentees may derive a great revenue
from the protection of a government to the support of which
they do not contribute a single shilling. This inequality is
likely to be greatest in a country of which the government is
in some respects subordinate and dependent upon that of
some other. The people who possess the most extensive
property in the dependent, will in this case generally chuse
to live in the governing country. Ireland is precisely in this
situation, and we cannot therefore wonder that the proposal
of a tax upon absentees should be so very popular in that
country. It might, perhaps, be a little difficult to ascertain
either what sort, or what degree of absence would subject a
man to be taxed as an absentee, or at what precise time the
tax should either begin or end. If you except, however,
this very particular situation, any inequality in the contribu
tion of individuals, which can arise from such taxes, is much
more than compensated by the very circumstance which oc
casions that inequality; the circumstance that every man's
contribution is altogether voluntary; it being altogether in
his power either to consume or not to consume the com
modity taxed. Where such taxes, therefore, are properly
assessed and upon proper commodities, they are paid with
less grumbling than any other. When they are advanced by
the merchant or manufacturer, the consumer, who finally pays
them, soon comes to confound them with the price of the
commodities, and almost forgets that he pays any tax.
Such taxes are or may be perfectly certain, or may be
assessed so as to leave no doubt concerning either what ought
to be paid, or when it ought to be paid; concerning either
TAXES UPON CONSUMABLE COMMODITIES 561
the quantity or the time of payment. Whatever uncertainty
there may sometimes be, either in the duties of customs in
Great Britain, or in other duties of the same kind in other
countries, it cannot arise from the nature of those duties,
but from the inaccurate or unskilful manner in which the
law that imposes them is expressed.
Taxes upon luxuries generally are, and always may be,
paid piecemeal, or in proportion as the contributors have oc
casion to purchase the goods upon which they are imposed.
In the time and mode of payment they are, or may be, of all
taxes the most convenient. Upon the whole, such taxes,
therefore, are, perhaps, as agreeable to the three first of the
four general maxims concerning taxation, as any other.
They offend in every respect against the fourth.
Such taxes, in proportion to what they bring into the pub
lic treasury of the state, always take out or keep out of the
pockets of the people more than almost any other taxes.
They seem to do this in all the four different ways in which
it is possible to do it.
First, the levying of such taxes, even when imposed in the
most judicious manner, requires a great number of custom
house and excise officers, whose salaries and perquisites are a
real tax upon the people, which brings nothing into the treas
ury of the state. This expence, however, it must be ac
knowledged, is more moderate in Great Britain than in most
other countries. In the year which ended on the fifth of
July i775, the gross produce of the different duties, under
the management of the commissioners of excise in England,
amounted to 5,507,308/. 18s. 8%d. which was levied at an ex-
pence of little more than five and a half per cent. From
this gross produce, however, there must be deducted what
was paid away in bounties and drawbacks upon the exporta
tion of exciseable goods, which will reduce the neat produce
below five millions. The levying of the salt duty, an excise
duty, but under a different management, is much more ex
pensive. The neat revenue of the customs does not amount
to two millions and a half, which is levied at an expense of
more than ten per cent. in the salaries of officers, and other
incidents. But the perquisites of customhouse officers are
every where much greater than their salaries; at some ports

f
562 WEALTH OF NATIONS
more than double or triple those salaries. If the salaries of
officers, and other incidents, therefore, amount to more than
ten per cent. upon the neat revenue of the customs ; the whole
expense of levying that revenue may amount, in salaries and
perquisites together, to more than twenty or thirty per cent.
The officers of excise receive few or no perquisites : and the
administration of that branch of the revenue being of more
recent establishment, is in general less corrupted than that of
the customs, into which length of time has introduced and
authorized many abuses. By charging upon malt the whole
revenue which is at present levied by the different duties upon
malt and malt liquors, a saving, it is supposed, of more than
fifty thousand pounds might be made in the annual expence
of the excise. By confining the duties of customs to a few
sorts of goods, and by levying those duties according to the
excise laws, a much greater saving might probably be made
in the annual expence of the customs.
Secondly, such taxes necessarily occasion some obstruction
or discouragement to certain branches of industry. As they
always raise the price of the commodity taxed, they so far
discourage its consumption, and consequently its production.
If it is a commodity of home growth or manufacture, less
labour comes to be employed in raising and producing it. If
it is a foreign commodity of which the tax increases in this
manner, the price, the commodities of the same kind which
are made at home may thereby, indeed, gain some advantage
in the home market, and a greater quantity of domestic in
dustry may thereby be turned toward preparing them. But
though this rise of price in a foreign commodity may en
courage domestic industry in one particular branch, it neces
sarily discourages that industry in almost every other. The
dearer the Birmingham manufacturer buys his foreign wine,
the cheaper he necessarily sells that part of his hardware
with which, or, what comes to the same thing, with the price
of which he buys it. That part of his hardware, therefore,
becomes of less value to him, and he has less encouragement
to work at it. The dearer the consumers in one country pay
for the surplus produce of another, the cheaper they neces
sarily sell that part of their own surplus produce with which,
or, what comes to the same thing, with the price of which
TAXES UPON CONSUMABLE COMMODITIES 563
they buy it. That part of their own surplus produce becomes
of less value to them, and they have less encouragement to
increase its quantity. All taxes upon consumable commodi
ties, therefore, tend to reduce the quantity of productive
labour below what it otherwise would be, either in preparing
the commodities taxed, if they are home commodities; or in
preparing those with which they are purchased, if they are
foreign commodities. Such taxes too always alter, more or less,
the natural direction of national industry, and turn it into a
channel always different from, and always less advantageous
than that in which it would have run of its own accord.
Thirdly, the hope of evading such taxes by smuggling gives
frequent occasion to forfeitures and other penalties, which
entirely ruin the smuggler; a person who, though no doubt
highly blameable for violating the laws of his country, is fre
quently incapable of violating those of natural justice, and
would have been, in every respect, an excellent citizen, had
not the laws of his country made that a crime which nature
never meant to be so. In those corrupted governments where
there is at least a general suspicion of much unnecessary ex-
pence, and great misapplication of the public revenue, the
laws which guard it are little respected. Not many people
are scrupulous about smuggling, when, without perjury, they
can find easy and safe opportunity of doing so. To pre
tend to have any scruple about buying smuggled goods,
though a manifest encouragement to the violation of the rev
enue laws, and to the perjury which almost always attends it,
would in most countries be regarded as one of those pedantic
pieces
body, serve
of hypocrisy
only to which,
expose instead
the person
of gaining
who affects
credittowith
practise
any

them, to the suspicion of being a greater knave than most of

his neighbours. By this indulgence of the public, the smug
gler is often encouraged to continue a trade which he is thus
taught to consider as in some measure innocent; and when
the severity of the revenue laws is ready to fall upon hiin, he
is frequently disposed to defend with violence, what he has
been accustomed to regard as his just property. From being
at first, perhaps, rather imprudent than criminal, he at last
too often becomes one of the hardiest and most determined
violators of the laws of society. By the ruin of the smuggler,
564 WEALTH OF NATIONS
his capital, which had before been employed in maintaining
productive labour, is absorbed either in the revenue of the
state or in that of the revenue-officer, and is employed in
maintaining unproductive, to the diminution of the general
capital of the society, and of the useful industry which it
might otherwise have maintained.
Fourthly, such taxes, by subjecting at least the dealers in
the taxed commodities to the frequent visits and odious ex
amination of the tax-gatherers, expose them sometimes, no
doubt, tc some degree of oppression, and always to much
trouble and vexation ; and though vexation, as has already
been said, is not strictly speaking expence, it is certainly
equivalent to the expence at which every man would be
willing to redeem himself from it The laws of excise,
though more effectual for the purpose for which they were
instituted, are, in this respect, more vexatious than those of
the customs. When a merchant has imported goods subject
to certain duties of customs, when he has paid those duties,
and lodged the goods in his warehouse, he is not in most
cases liable to any further trouble or vexation from the cus
tomhouse officer. It is otherwise with goods subject to duties
of excise. The dealers have no respite from the continual
visits and examination of the excise officers The duties of
excise are, upon this account, more unpopular than those of
the customs ; and so are the officers who levy them. Those
officers, it is pretended, though in general, perhaps, they do
their duty fully as well as those of the customs; yet, as that
duty obliges them to be frequently very troublesome to some
of their neighbours, commonly contract a certain hardness of
character which the others frequently have not This obser
vation, however, may very probably be the mere suggestion of
fraudulent dealers, whose smuggling is either prevented or
detected by their diligence.
The inconveniencies, however, which are, perhaps, in some
degree inseparable from taxes upon consumable commodities,
fall as light upon the people of Great Britain as upon those
of any other country of which the government is nearly as
expensive Our state is not perfect, and might be mended;
but it is as good or better than that of most of our
neighbours.
TAXES UPON CONSUMABLE COMMODITIES 565
In consequence of the notion that duties upon consumable
goods were taxes upon the profits of merchants, those duties
have, in some countries, been repeated upon every successive
sale of the goods. If the profits of the merchant importer
or merchant manufacturer were taxed, equality seemed to
require that those of all the middle buyers, who intervened
between either of them and the consumer, should likewise be
taxed. The famous Alcavala of Spain seems to have been
established upon this principle. It was at first a tax of ten
per cent., afterwards of fourteen per cent., and is at present
of only six per cent. upon the sale of every sort of property,
whether moveable or immoveable ; and it is repeated every
time the property is sold. The levying of this tax requires
a multitude of revenue officers sufficient to guard the trans
portation of goods, not only from one province to another,
but from one shop to another. It subjects, not only the
dealers in some sorts of goods, but those in all sorts, every
farmer, every manufacturer, every merchant and shop-keeper,
to the continual visits and examination of the tax-gatherers.
Through the greater part of a country in which a tax of this
kind is established, nothing can be produced for distant sale.
The produce of every part of the country must be propor
tioned to the consumption of the neighbourhood. It is to the
Alcavala, accordingly, that Ustaritz imputes the ruin of the
manufactures of Spain. He might have imputed to it like
wise the declension of agriculture, it being imposed not only
upon manufactures, but upon the rude produce of the land.
In the kingdom of Naples there is a similar tax of three
per cent. upon the value of all contracts, and consequently
upon that of all contracts of sale. It is both lighter than the
Spanish tax, and the greater part of towns and parishes are
allowed to pay a composition in lieu of it. They levy this
composition in what manner they please, generally in a way
that gives no interruption to the interior commerce of the
place. The Neapolitan tax, therefore, is not near so ruinous
as the Spanish one.
The uniform system of taxation, which, with a few excep
tions of no great consequence, takes place in all the different
parts of the united kingdom of Great Britain, leaves the in
terior commerce of the country, the inland and coasting trade,
566 WEALTH OF NATIONS
almost entirely free. The inland trade is almost perfectly
free, and the greater part of goods may be carried from one
end of the kingdom to the other, without requiring any
permit or let-pass, without being subject to question, visit, or
examination from the revenue officers. There are a few ex
ceptions, but they are such as can give no interruption to any
important branch of the inland commerce of the country.
Goods carried coastwise, indeed, require certificates or coast
cockets. If you except coals, however, the rest are almost
all duty-free. This freedom of interior commerce, the effect
of the uniformity of the system of taxation, is perhaps one
of the principal causes of the prosperity of Great Britain ;
every great country being necessarily the best and most ex
tensive market for the greater part of the productions of its
own industry. If the same freedom, in consequence of the
same uniformity, could be extended to Ireland and the planta
tions, both the grandeur of the state and the prosperity of
every part of the empire, would probably be still greater than
at present.
In France, the different revenue laws which take place in
the different provinces, require a multitude of revenue-officers
to surround, not only the frontiers of the kingdom, but those
of almost each particular province, in order either to prevent
the importation of certain goods, or to subject it to the pay
ment of certain duties, to the no small interruption of the
interior commerce of the country. Some provinces are al
lowed to compound, for the gabelle or salt-tax. Others are
exempted from it altogether. Some provinces are exempted
from the exclusive sale of tobacco, which the farmers-general
enjoy through the greater part of the kingdom. The aids,
which correspond to the excise in England, are very different
in different provinces. Some provinces are exempted from
them, and pay a composition or equivalent. In those in which
they take place and are in farm, there are many local duties
which do not extend beyond a particular town or district.
The Traites, which correspond to our customs, divide the
kingdom into three great parts; first, the provinces subject
to the tarif of i664, which are called the provinces of the five
great farms, and under which are comprehended Picardy,
Normandy, and the greater part of the interior provinces of
TAXES UPON CONSUMABLE COMMODITIES 567
the kingdom; secondly, the provinces subject to the tarif of
i667, which are called the provinces reckoned foreign, and
under which are comprehended the greater part of the fron
tier provinces; and, thirdly, those provinces which are said
to be treated as foreign, or which, because they are allowed
a free commerce with foreign countries, are in their com
merce with the other provinces of France subjected to the
same duties as other foreign countries. These are Alsace,
the three bishopricks of Metz, Toul, and Verdun, and the
three cities of Dunkirk, Bayonne, and Marseilles. Both in
the provinces of the five great farms (called so on account
of an ancient division of the duties of customs into five great
branches, each of which was originally the subject of a par
ticular farm, though they are now all united into one), and in
those which are said to be reckoned foreign, there are many
local duties which do not extend beyond a particular town or
district. There are some such even in the provinces which
are said to be treated as foreign, particularly in the city of
Marseilles. It is unnecessary to observe how much, both the
restraints upon the interior commerce of the country, and the
number of the revenue officers must be multiplied, in order
to guard the frontiers of those different provinces and dis
tricts, which are subject to such different systems of taxation.
Over and above the general restraints arising from this
complicated system of revenue laws, the commerce of wine,
after corn perhaps the most important production of France,
is in the greater part of the provinces subject to particular
restraints, arising from the favour which has been shewn to
the vineyards of particular provinces and districts, above
those of others. The provinces most famous for their wines,
it will be found, I believe, are those in which the trade in
that article. is subject to the fewest restraints of this kind.
The extensive market which such provinces enjoy, encour
ages good management both in the cultivation of their vine
yards, and in the subsequent preparation of their wines.
Such various and complicated revenue laws are not pe
culiar to France. The little dutchy of Milan is divided into
six provinces, in each of which there is a different system of
taxation with regard to several different sorts of consumable
goods. The still smaller territories of the duke of Parma
568 WEALTH OF NATIONS
are divided into three or four, each of which has, in the
same manner, a system of its own. Under such absurd man
agement, nothing, but the great fertility of the soil and hap
piness of the climate, could preserve such countries from soon
relapsing into the lowest state of poverty and barbarism.
Taxes upon consumable commodities may either be levied
by an administration of which the officers are appointed by
government and are immediately accountable to government,
of which the revenue must in this case vary from year to
year, according to the occasional variations in the produce of
the tax; or they may be let in farm for a rent certain, the
farmer being allowed to appoint his own officers, who, though
obliged to levy the tax in the manner directed by the law,
are under his immediate inspection, and are immediately ac
countable to him. The best and most frugal way of levying
a tax can never be by farm Over and above what is neces
sary for paying the stipulated rent, the salaries of the officers,
and the whole expence of administration, the farmer must
always draw from the produce of the tax a certain profit pro
portioned at least to the advance which he makes, to the risk
which he runs, to the trouble which he is at, and to the
knowledge and skill which it requires to manage so very
complicated a concern. Government, by establishing an ad
ministration under their own immediate inspection, of the
same kind with that which the farmer establishes, might at
least save this profit, which is almost always exorbitant. To
farm any considerable branch of the public revenue, requires
either a great capital or a great credit; circumstances which
would alone restrain the competition for such an undertaking
to a very small number of people. Of the few who have this
capital or credit, a still smaller number have the necessary
knowledge or experience; another circumstance which re
strains the competition still further. The very few, who are
in condition to become competitors, find it more for their
interest to combine together; to become co-partners instead
of competitors, and when the farm is set up to auction, to
offer no rent, but what is much below the real value. In
countries where the public revenues are in farm, the farmers
are generally the most opulent people. Their wealth would
alone excite the public indignation, and the vanity which al
TAXES UPON CONSUMABLE COMMODITIES 569
most always accompanies such upstart fortunes, the foolish
ostentation with which they commonly display that wealth,
excites that indignation still more.
The farmers of the public revenue never find the laws too
severe, which punish any attempt to evade the payment of a
tax. They have no bowels for the contributors, who are not
their subjects, and whose universal bankruptcy, if it should
happen the day after their farm is expired, would not much
affect their interest. In the greatest exigencies of the state,
when the anxiety of the sovereign for the exact payment
of his revenue is necessarily the greatest, they seldom fail
to complain that without laws more rigorous than those which
actually take place, it will be impossible for them to pay even
the usual rent. In those moments of public distress their
demands cannot be disputed. The revenue laws, therefore,
become gradually more and more severe. The most sangui
nary are always to be found in countries where the greater
part of the public revenue is in farm. The mildest. in coun
tries where it is levied under the immediate inspection of the
sovereign. Even a bad sovereign feels more compassion
for his people than can be expected from the farmers
of his revenue. He knows that the permanent grandeur of
his family depends upon the prosperity of his people, and he
will never knowingly ruin that prosperity for the sake of any
momentary interest of his own. It is otherwise with the
farmers of his revenue, whose grandeur may frequently be
the effect of the ruin, and not of the prosperity of his people.
A tax is sometimes, not only farmed for a certain rent,
but the farmer has, besides, the monopoly of the commodity
taxed. In France, the duties upon tobacco and salt are levied
in this manner. In such cases the farmer, instead of one,
levies two exorbitant profits upon the people ; the profit of
the farmer, and the still more exorbitant one of the monop
olist. Tobacco being a luxury, every man is allowed to buy
or not to buy as he chuses. But salt being a necessary, every
man is obliged to buy of the farmer a certain quantity of it ;
because, if he did not buy this quantity of the farmer, he
would, it is presumed, buy it of some smuggler. The taxes
upon both commodities are exorbitant. The temptation to
smuggle consequently is to many people irresistible, while
570 WEALTH OF NATIONS
at the same time the rigour of the law, and the vigilance of
the farmer's officers, render the yielding to that temptation
almost certainly ruinous. The smuggling of salt and tobacco
sends every year several hundred people to the gallies, be
sides a very considerable number whom it sends to the gibbet
Those taxes levied in this manner yield a very considerable
revenue to government In i767, the farm of tobacco was
let for twenty-two millions five hundred and forty-one thou
sand two hundred and seventy-eight livres a year. That of
salt, for thirty-six millions four hundred and nine-two thou
sand four hundred and four livres. The farm in both cases
was to commence in i768, and to last for six years. Those
who consider the blood of the people as nothing in compari
son with the revenue of the prince, may perhaps approve of
this method of levying taxes. Similar taxes and monopolies
of salt and tobacco have been established in many other coun
tries; particularly in the Austrian and Prussian dominions,
and in the greater part of the states of Italy.
In France, the greater part of the actual revenue of the
crown is derived from eight different sources; the taille,
the capitation, the two vingtiemes, the gabelles, the aides, the
traites, the domaine, and the farm of tobacco. The five last
are, in the greater part of the provinces, under farm. The
three first are every where levied by an administration under
the immediate inspection and direction of government, and
it is universally acknowledged that, in proportion to what
they take out of the pockets of the people, they bring more
into the treasury of the prince than the other five, of which
the administration is much more wasteful and expensive.
The finances of France seem, in their present state, to ad
mit of three very obvious reformations. First, by abolishing
the taille and the capitation, and by encreasing the number
of vingtiemes, so as to produce an additional revenue equal
to the amount of those other taxes, the revenue of the crown
might be preserved ; the expense of collection might be much
diminished; the vexation of the inferior ranks of people,
which the taille and capitation occasion, might be entirely
prevented; and the superior ranks might not be more bur
dened than the greater part of them are at present. The ving-
tieme, I have already observed, is a tax very nearly of the
TAXES UPON CONSUMABLE COMMODITIES 571
same kind with what is called the land-tax of England. The
burden of the taille, it is acknowledged, falls finally upon the
proprietors of land, and as the greater part of the capitation
is assessed upon those who are subject to the taille at so
much a pound of that other tax, the final payment of the
greater part of it must likewise fall upon the same order of
people. Though the number of the vingtiemes, therefore,
was increased so as to produce an additional revenue equal to
the amount of both those taxes, the superior ranks of people
might not be more burdened than they are at present. Many
individuals no doubt would, on account of the great inequal
ities with which the taille is commonly assessed upon the es
tates and tenants of different individuals. The interest and
opposition of such favoured subjects are the obstacles most
likely to prevent this or any other reformation of the same
kind. Secondly, by rendering the gabelle, the aides, the
traites, the taxes upon tobacco, all the different customs and
excises, uniform in all the different parts of the kingdom,
those taxes might be levied at much less expence, and the
interior commerce of the kingdom might be rendered as free
as that of England. Thirdly, and lastly, by subjecting all
those taxes to an administration under the immediate inspec
tion and direction of government, the exorbitant profits of
the farmers general might be added to the revenue of the
state. The opposition arising from the private interest of
individuals, is likely to be as effectual for preventing the two
last as the first mentioned scheme of reformation.
The French system of taxation seems, in every respect.
inferior to the British. In Great Britain ten million sterling
are annually levied upon less than eight millions of people,
without its being possible to say that any particular order is
oppressed. From the collections of the Abbe Expilly, and
the observations of the author of the Essay upon the legis
lation and commerce of corn, it appears probable, that France,
including the provinces of Lorraine and Bar, contains about
twenty-three or twenty-four millions of people; three times
the number perhaps contained in Great Britain. The soil
and climate of France are better than those of Great Britain.
The country has been much longer in a state of improvement
and cultivation, and is, upon that account, better stocked with
572 WEALTH OF NATIONS
all those things which it requires a long time to raise up and
accumulate, such as great towns, and convenient and well-
built houses, both in town and country. With these advan
tages, it might be expected that in France a revenue of thirty
millions might be levied for the support of the state, with
as little inconveniency as a revenue of ten millions is in Great
Britain. In i765 and i766, the whole revenue paid into the
treasury of France, according to the best, though, I acknowl
edge, very imperfect, accounts which I could get of it, usually
run between 308 and 325 millions of livres ; that is, it did not
amount to fifteen millions sterling; not the half of what might
have been expected, had the people contributed in the same
proportion to their numbers as the people of Great Britain.
The people of France, however, it is generally acknowledged,
are much more oppressed by taxes than the people of Great
Britain. France, however, is certainly the great empire in
Europe which, after that of Great Britain, enjoys the mildest
and most indulgent government.
In Holland the heavy taxes upon the necessaries of life
have ruined, it is said, their principal manufactures, and are
likely to discourage gradually even their fisheries and their
trade in ship-building. The taxes upon the necessaries of
life are inconsiderable in Great Britain, and no manufacture
has hitherto been ruined by them. The British taxes which
bear hardest on manufactures are some duties upon the im
portation of raw materials, particularly upon that of raw silk.
The revenue of the states general and of the different cities,
however, is said to amount to more than five millions two
hundred and fifty thousand pounds sterling; and as the in
habitants of the United Provinces cannot well be supposed
to amount to more than a third part of those of Great Britain,
they must, in proportion to their number, be much more
heavily taxed.
After all the proper subjects of taxation have been ex
hausted, if the exigencies of the state still continue to require
new taxes, they must be imposed upon improper ones. The
taxes upon the necessaries of life, therefore, may be no im
peachment of the wisdom of that republic, which, in order
to acquire and to maintain its independency, has, in spite of
its great frugality, been involved in such expensive wars as
TAXES UPON CONSUMABLE COMMODITIES S73
have obliged it to contract great debts. The singular coun
tries of Holland and Zealand, besides, require a considerable
expence even to preserve their existence, or to prevent their
being swallowed up by the sea, which must have contributed
to increase considerably the load of taxes in those two prov
inces. The republican form of government seems to be the
principal support of the present grandeur of Holland. The
owners of great capitals, the great mercantile families, have
generally either some direct share, or some indirect influence,
in the administration of that government. For the sake of
the respect and authority which they derive from this situa
tion, they are willing to live in a country where their capital,
if they employ it themselves, will bring them less profit, and
if they lend it to another, less interest; and where the very
moderate revenue which they can draw from it will purchase
less of the necessaries and conveniences of life than in any
other part of Europe. The residence of such wealthy people
necessarily keeps alive, in spite of all disadvantages, a certain
degree of industry in the country. Any public calamity which
should destroy the republican form of government, which
should throw the whole administration into the hands of no
bles and of soldiers, which should annihilate altogether the
importance of those wealthy merchants, would soon render it
disagreeable to them to live in a country where they were no
longer likely to be much respected. They would remove both
their residence and their capital to some other country, and
the industry and commerce of Holland would soon follow the
capitals which supported them.
CHAPTER III
Of Public Debts

IN that rude state of society which precedes the extension

of commerce and the improvement of manufactures,
when those expensive luxuries which commerce and man
ufactures can alone introduce, are altogether unknown, the
person who possesses a large revenue, I have endeavoured to
show in the third book of this Inquiry, can spend or enjoy
that revenue in no other way than by maintaining nearly as
many people as it can maintain. A large revenue may at all
times be said to consist in the command of a large quantity of
the necessaries of life. In that rude state of things it is com
monly paid in a large quantity of those necessaries, in the
materials of plain food and coarse clothing, in corn and cattle,
in wool and raw hides. When neither commerce nor manu
factures furnish any thing for which the owner can ex
change the greater part of those materials which are over
and above his own consumption, he can do nothing with the
surplus but feed and clothe nearly as many people as it will
feed and clothe. A hospitality in which there is no luxury,
and a liberality in which there is no ostentation, occasion, in
this situation of things, the principal expences of the rich and
the great. But these, I have likewise endeavoured to show
in the same book, are expences by which people are not very
apt to ruin themselves. There is not, perhaps, any selfish
pleasure so frivolous, of which the pursuit has not sometimes
ruined even sensible men. A passion for cock-fighting has
ruined many. But the instances, I believe, are not very nu
merous of people who have been ruined by a hospitality or
liberality of this kind; though the hospitality of luxury and
the liberality of ostentation have ruined many. Among our
feudal ancestors, the long time during which estates used to
continue in the same family, sufficiently demonstrates the
574
PUBLIC DEBTS 575
general disposition of people to live within their income.
Though the rustic hospitality, constantly exercised by the
great land-holders, may not, to us in the present times, seem
consistent with that order, which we are apt to consider as
inseparably connected with good ceconomy, yet we must cer
tainly allow them to have been at least so far frugal as not
commonly to have spent their whole income. A part of their
wool and raw hides they had generally an opportunity of
selling for money. Some part of this money, perhaps, they
spent in purchasing the few objects of vanity and luxury,
with which the circumstances of the times could furnish
them ; but some part of it they seem commonly to have
hoarded. They could not well indeed do any thing else but
hoard whatever money they saved. To trade was disgraceful
to a gentleman, and to lend money at interest, which at that
time was considered as usury and prohibited by law, would
have been still more so. In those times of violence and dis
order, besides, it was convenient to have a hoard of money
at hand, that in case they should be driven from their own
home, they might have something of known value to carry
with them to some place of safety. The same violence, which
made it convenient to hoard, made it equally convenient to
conceal the hoard. The frequency of treasure-trove, or of
treasure found of which no owner was known, sufficiently
demonstrates the frequency in those times both of hoarding
and of concealing the hoard. Treasure-trove was then con
sidered as an important branch of the revenue of the sov
ereign. All the treasure-trove of the kingdom would
scarce perhaps in the present times make an important
branch of the revenue of a private gentleman of a good
estate.
The same disposition to save and to hoard prevailed in the

sovereign, as well as in the subjects. Among nations to whom

commerce and manufactures are little known, the sovereign,
it has already been observed in the fourth book, is in a situa
tion which naturally disposes him to the parsimony requisite
for accumulation. In that situation the expence even of a
sovereign cannot be directed by that vanity which delights
in the gaudy finery of a court. The ignorance of the times
affords but few of the trinkets in which that finery consists.
576 WEALTH OF NATIONS

Standing armies are not then necessary, so that the expence

even of a sovereign, like that of any other great lord, can be
employed in scarce any thing but bounty to his tenants, and
hospitality to his retainers. , But bounty and hospitality very
seldom lead to extravagance; though vanity almost always
does. All the ancient sovereigns of Europe accordingly, it
has already been observed, had treasures. Every Tartar chief
in the present times is said to have one.
In a commercial country abounding with every sort of
expensive luxury, the sovereign, in the same manner as al
most all the great proprietors in his dominions, naturally
spends a great part of his revenue in purchasing those lux
uries. His own and the neighbouring countries supply him
abundantly with all the costly trinkets which compose the
splendid, but insignificant pageantry of a court. For the
sake of an inferior pageantry of the same kind, his nobles
dismiss their retainers, make their tenants independent, and
become gradually themselves as insignificant as the greater
part of the wealthy burghers in his dominions. The same
frivolous passions, which influence their conduct, influence
his. How can it be supposed that he should be the only rich
man in his dominions who is insensible to pleasures of this
kind? If he does not, what he is very likely to do, spend upon
those pleasures so great a part of his revenue as to debilitate
very much the defensive power of the state, it cannot well
be expected that he should not spend upon them all that part
of it which is over and above what is necessary for support
ing that defensive power. His ordinary expence becomes
equal to his ordinary revenue, and it is well if it does not
frequently exceed it. The amassing of treasure can no longer
be expected, and whef extraordinary exigencies require ex
traordinary expences, he must necessarily call upon his sub
jects for an extraordinary aid. The present and the late king
of Prussia are the only great princes of Europe, who, since
the death of Henry IV. of France in i6io, are supposed to
have amassed any considerable treasure. The parsimony
which leads to accumulation has become almost as rare in
republican as in monarchial governments. The Italian re
publics, the United Provinces of the Netherlands, are all in
debt. The canton of Berne is the single republic in Europe
PUBLIC DEBTS 577
which has amassed any considerable treasure. The other
Swiss republics have not. The taste for some sort of pa
geantry, for splendid buildings, at least, and other public
ornaments, frequently prevails as much in the apparently
sober senate-house of a little republic, as in the dissipated
court of the greatest king.
The want of parsimony in time of peace, imposes the ne
cessity of contracting debt in time of war. When war comes,
there is no money in the treasury but what is necessary for
carrying on the ordinary expence of the peace establishment.
In war an establishment of three or four times that expence
becomes necessary for the defence of the state, and conse
quently a revenue three or four times greater than the peace
revenue. Supposing that the sovereign should have, what he
scarce ever has, the immediate means of augmenting his rev
enue in proportion to the augmentation of his expense, yet
still the produce of the taxes, from which this increase of
revenue must be drawn, will not begin to come into the
treasury till perhaps ten or twelve months after they are im
posed. But the moment in which war begins, or rather the
moment in which it appears likely to begin, the army must be
augmented, the fleet must be fitted out, the garrisoned towns
must be put into a posture of defence; that army, that fleet,
those garrisoned towns must be furnished with arms, ammu
nition, and provisions. An immediate and great expence
must be incurred in that moment of immediate danger, which
will not wait for the gradual and slow returns of the new
taxes. In this exigency government can have no other re
source but in borrowing.
The same commercial state of society which, by the oper
ation of moral causes, brings government in this manner
into the necessity of borrowing, produces in the subjects both
an ability and an inclination to lend. If it commonly brings
along with it the necessity of borrowing, it likewise brings
along with it the facility of doing so.
A country abounding with merchants and manufacturers,
necessarily abounds with a set of people through whose
hands not only their own capitals, but the capitals of all
those who either lend them money, or trust them with goods,
pass as frequently, or more frequently, than the revenue of
578 WEALTH OF NATIONS
a private man, who, without trade or business, lives upon
his income, passes through his hands. The revenue of such
a man can regularly pass through his hands only once in a
year. But the whole amount of the capital and credit of a
merchant, who deals in a trade in which the returns are very
quick, may sometimes pass through his hands two, three, or
four times in a year. A country abounding with merchants
and manufacturers, therefore, necessarily abounds with a set
of people who have at all times in their power to advance, if
they chuse to do so, a very large sum of money to govern
ment. Hence the ability in the subjects of a commercial state
to lend.
Commerce and manufactures can seldom flourish long in
any state which does not enjoy a regular administration of
justice, in which the people do not feel themselves secure
in the possession of their property, in which the faith of
contracts is not supported by law, and in which the authority
of the state is not supposed to be regularly employed in
enforcing the payment of debts from all those who are able
to pay. Commerce and manufactures, in short, can seldom
flourish in any state in which there is not a certain degree of
confidence in the justice of government. The same confi
dence which disposes great merchants and manufacturers,
upon ordinary occasions, to trust their property to the pro
tection of a particular government; disposes them, upon ex
traordinary occasions, to trust that government with the use
of their property. By lending money to government, they do
not even for a moment diminish their ability to carry on their
trade and manufactures. On the contrary, they commonly
augment it. The necessities of the state render government
upon most occasions willing to borrow upon terms extremely
advantageous to the lender. The security which it grants
to the original creditor- is made transferable to any other
creditor, and, from the universal confidence in the justice
of the state, generally sells in the market for more than was
originally paid for it. The merchant or monied man makes
money by lending money to government, and instead of di
minishing, increases his trading capital. He generally con
siders it as a favour, therefore, when the administration
admits him to a share in the first subscription for a new
PUBLIC DEBTS 579
loan. Hence the inclination or willingness in the subjects
of a commercial state to lend.
The government of such a state is very apt to repose itself
upon this ability and willingness of its subjects to lend it
their money on extraordinary occasions. It foresees the
facility of borrowing, and therefore dispenses itself from the
duty of saving.
In a rude state of society there are no great mercantile
or manufacturing capitals. The individuals, who hoard what
ever money they can save, and who conceal their hoard, do
so from a distrust of the justice of government, from a fear
that if it was known that they had a hoard, and where that
hoard was to be found, they would quickly be plundered. In
such a state of things few people would be able, and no body
would be willing, to lend their money to government on ex
traordinary exigencies. The sovereign feels that he must
provide for such exigencies by saving, because he foresees
the absolute impossibility of borrowing. This foresight in
creases still further his natural disposition to save.
The progress of the enormous debts which at present op
press, and will in the long-run probably ruin, all the great
nations of Europe, has been pretty uniform. Nations, like
private men, have generally begun to borrow upon what
may be called personal credit, without assigning or mort
gaging any particular fund for the payment of the debt ; and
when this resource has failed them, they have gone on to
borrow upon assignments or mortgages of particular funds.
What is called the unfunded debt of Great Britain, is con
tracted in the former of those two ways. It consists partly
in a debt which bears, or is supposed to bear, no interest, and
which resembles the debts that a private man contracts upon
account ; and partly in a debt which bears interest, and which
resembles what a private man contracts upon his bill or
promissory note. The debts which are due either for ex
traordinary services, or for services either not provided for,
or not paid at the time when they are performed ; part of the
extraordinaries of the army, navy, and ordnance, the arrears
of subsidies to foreign princes, those of seamen's wages, &c.
usually constitute a debt of the first kind. Navy and Ex
chequer bills, which are issued sometimes in payment of a
580 WEALTH OF NATIONS
part of such debts and sometimes for other purposes, consti
tute a debt of the second kind; Exchequer bills bearing in
terest from the day on which they are issued, and navy bills
six months after they are issued. The bank of England,
either by voluntarily discounting those bills at their current
value, or by agreeing with government for certain consider
ations to circulate Exchequer bills, that is, to receive them
at par, paying the interest which happens to be due upon
them, keeps up their value and facilitates their circulation,
and thereby frequently enables government to contract a very
large debt of this kind. In France, where there is no bank,
the state bills (billets d'etat) have sometimes sold at sixty
and seventy per cent. discount. During the great re-coinage
in King William's time, when the bank of England thought
proper to put a stop to its usual transactions, Exchequer
bills and tallies are said to have sold from twenty-five to
sixty per cent. discount; owing partly, no doubt, to the sup
posed instability of the new government established by the
Revolution, but partly too to the want of the support of the
bank of England.
When this resource is exhausted, and it becomes necessary,
in order to raise money, to assign or mortgage some par
ticular branch of the public revenue for the payment of the
debt, government has upon different occasions done this in
two different ways. Sometimes it has made this assignment
or mortgage for a short period of time only, a year, or a few
years, for example; and sometimes for perpetuity. In the
one case, the fund was supposed sufficient to pay, within the
limited time, both principal and interest of the money bor
rowed. In the other, it was supposed sufficient to pay the
interest only, or a perpetual annuity equivalent to the interest,
government being at liberty to redeem at any time this an
nuity, upon paying back the principal sum borrowed. When
money was raised in the one way, it was said to be raised
by anticipation; when in the other, by perpetual funding, or,
more shortly, by funding.
**** ****
The ordinary expence of the greater part of modern gov
ernments in time of peace being equal or nearly equal to their
ordinary revenue, when war comes, they are both unwilling
PUBLIC DEBTS 581
and unable to increase their revenue in proportion to the in
crease of their expence. They are unwilling, for fear of of
fending the people, who by so great and so sudden an in
crease of taxes, would soon be disgusted with the war; and
they are unable, from not well knowing what taxes would be
sufficient to produce the revenue wanted. The facility of
borrowing delivers them from the embarrassment which this
fear and inability would otherwise occasion. By means of
borrowing they are enabled, with a very moderate increase
of taxes, to raise, from year to year, money sufficient for
carrying on the war, and by the practice of perpetual funding
they are enabled, with the smallest possible increase of taxes,
to raise annually the largest possible sum of money. In
great empires the people who live in the capital, and in the
provinces remote from the scene of action, feel, many of
them, scarce any inconveniency from the war ; but enjoy, at
their ease, the amusement of reading in the newspapers the
exploits of their own fleets and armies. To them this amuse
ment compensates the small difference between the taxes
which they pay on account of the war, and those which they
had been accustomed to pay in time of peace. They are com
monly dissatisfied with the return of peace, which puts an end
to their amusement, and to a thousand visionary hopes of con
quest
Theandreturn
national
of peace,
glory,indeed,
from a seldom
longer continuance
relieves themoffrom
the war.
the

greater part of the taxes imposed during the war. These are
mortgaged for the interest of the debt contracted in order
to carry it on. If, over and above paying the interest of this
debt, and defraying the ordinary expence of government, the
old revenue, together with the new taxes, produce some sur
plus revenue, it may perhaps be converted into a sinking
fund for paying off the debt. But, in the first place, this
sinking fund, even supposing it should be applied to. no other
purpose, is generally altogether inadequate for paying, in the
course of any period during which it can reasonably be ex
pected that peace should continue, the whole debt contracted
during the war; and, in the second place, this fund is almost
always applied to other purposes.
The new taxes were imposed for the sole purpose of pay
ing the interest of the money borrowed upon them. If they
582 WEALTH OF NATIONS
produce more, it is generally something which was neither
intended nor expected, and is therefore seldom very consid
erable. Sinking funds have generally arisen, not so much
from any surplus of the taxes which was over and above
what was necessary for paying the interest or annuity orig
inally charged upon them, as from a subsequent reduction
of that interest. That of Holland in i655, and that of the
ecclesiastical state in 1685, were both formed in this manner.
Hence the usual insufficiency of such funds.
During the most profound peace, various events occur
which require an extraordinary expence, and government
finds it always more convenient to defray this expense by
misapplying the sinking fund than by imposing a new tax.
Every new tax is immediately felt more or less by the people.
It occasions always some murmur, and meets with some op
position. The more taxes may have been multiplied, the
higher they may have been raised upon every different sub
ject of taxation; the more loudly the people complain of every
new tax, the more difficult it becomes too either to find out
new subjects of taxation, or to raise much higher the taxes
already imposed upon the old. A momentary suspension of
the payment of debt is not immediately felt by the people,
and occasions neither murmur nor complaint. To borrow of
the sinking fund is always an obvious and easy expedient for
getting out of the present difficulty. The more the public
debts may have been accumulated, the more necessary it may
have become to study to reduce them, the more dangerous, the
more ruinous it may be to misapply any part of the sinking
fund; the less likely is the public debt to be reduced to any
considerable degree, the more likely, the more certainly is
the sinking fund to be misapplied towards defraying all the
extraordinary expences which occur in time of peace. When
a nation is already overburdened with taxes, nothing but the
necessities of a new war, nothing but either the animosity of
national vengeance, or the anxiety for national security, can
induce the people to submit, with tolerable patience, to a new
tax. Hence the usual misapplication of the sinking fund.
**********
The public funds of the different indebted nations of Eu
rope, particularly those of England, have by one author
PUBLIC DEBTS 583
been represented as the accumulation of a great capital super
added to the other capital of the country, by means of which
its trade is extended, its manufactures multiplied, and its
lands cultivated and improved much beyond what they could
have been by means of that other capital only. He does not
consider that the capital which the first creditors of the public
advanced to government, was, from the moment in which they
advanced it, a certain portion of the annual produce turned
away from serving in the function of a capital, to serve in
that of a revenue; from maintaining productive labourers to
maintain unproductive ones, and to be spent and wasted, gen
erally in the course of the year, without even the hope of any
future reproduction. In return for the capital which they
advanced they obtained, indeed, an annuity in the public
funds in most cases of more than equal value. This annuity,
no doubt, replaced to them their capital, and enabled them to
carry on their trade and business to the same or perhaps to
a greater extent than before ; that is, they were enabled either
to borrow of other people a new capital upon the credit of
this annuity, or by selling it to get from other people a new
capital of their own, equal or superior to that which they had
advanced to government. This new capital, however, which
they in this manner either bought or borrowed of other
people, must have existed in the country before, and must
have been employed as all capitals are, in maintaining pro
ductive labour. When it came into the hands of those who
had advanced their money to government, though it was in
some respects a new capital to them, it was not so to the
country ; but was only a capital withdrawn from certain
employments in order to be turned towards others. Though
it replaced to them what they had advanced to government,
it did not replace it to the country. Had they not advanced
this capital to government, there would have been in the
country two capitals, two portions of the annual produce, in
stead of one, employed in maintaining productive labour.
When for defraying the expence of government a revenue
is raised within the year from the produce of free or unmort
gaged taxes, a certain portion of the revenue of private people
is only turned away from maintaining one species of un
productive labour, towards maintaining another. Some part
584 WEALTH OF NATIONS
of what they pay in those taxes might no doubt have been
accumulated into capital, and consequently employed in main
taining productive labour; but the greater part would prob
ably have been spent and consequently employed in main
taining unproductive labour. The public expence, however,
when defrayed in this manner, no doubt hinders more or
less the further accumulation of new capital ; but it does not
necessarily occasion the destruction of any actually existing
capital.
When the public expence is defrayed by funding, it is de
frayed by the annual destruction of some capital which had
before existed in the country; by the perversion of some
portion of the annual produce which had before been destined
for the maintenance of productive labour, towards that of
unproductive labour. As in this case, however, the taxes are
lighter than they would have been, had a revenue sufficient
for defraying the same expence been raised within the year ;
the private revenue of individuals is necessarily less bur
dened, and consequently their ability to save and accumulate
some part of that revenue into capital is a good deal less im
paired. If the method of funding destroy more old capital,
it at the same time hinders less the accumulation or acquisi
tion of new capital, than that of defraying the public expence
by a revenue raised within the year. Under the system of
funding, the frugality and industry of private people can
more easily repair the breaches which the waste and ex
travagance of government may occasionally make in the
general capital of the society.
It is only during the continuance of war, however, that the
system of funding has this advantage over the other system.
Were the expence of war to be defrayed always by a revenue
raised within the year, the taxes from which that extraordi
nary revenue was drawn would last no longer than the war.
The ability of private people to accumulate, though less dur
ing the war, would have been greater during the peace than
under the system of funding. War would not necessarily have
occasioned the destruction of any old capitals, and peace
would have occasioned the accumulation of many more new.
Wars would in general be more speedily concluded, and less
wantonly undertaken. The people feeling, during the con
PUBLIC DEBTS 585
tinuance of the war, the complete burden of it, would soon
grow weary of it, and government, in order to humour them,
would not be under the necessity of carrying it on longer
than it was necessary to do so. The foresight of the heavy
and unavoidable burdens of war would hinder the people from
wantonly calling for it when there was no real or solid in
terest to fight for. The seasons during which the ability of
private people to accumulate was somewhat impaired, would
occur more rarely, and be of shorter continuance. Those on
the contrary, during which that ability was in the highest
vigour, would be of much longer duration than they can well
be under the system of funding.
When funding, besides, has made a certain progress, the
multiplication of taxes which it brings along with it some
times impairs as much the ability of private people to ac
cumulate even in time of peace, as the other system would
in time of war. The peace revenue of Great Britain amounts
at present to more than ten millions a year. If free and un
mortgaged, it might be sufficient, with proper management
and without contracting a shilling of new debt, to carry on
the most vigorous war. The private revenue of the inhabi
tants of Great Britain is at present as much encumbered in
time of peace, their ability to accumulate is as much impaired
as it would have been in the time of the most expensive war,
had the pernicious system of funding never been adopted.
In the payment of the interest of the public debt, it has
been said, it is the right hand which pays the left. The money
does not go out of the country. It is only a part of the rev
enue of one set of the inhabitants which is transferred to
another; and the nation is not a farthing the poorer. This
apology is founded altogether in the sophistry of the mer
cantile system, and after the long examination which I have
already bestowed upon that system, it may perhaps be unnec
essary to say any thing further about it. It supposes, besides,
that the whole public debt is owing to the inhabitants of the
country, which happens not to be true; the Dutch, as well
as several other foreign nations, having a very considerable
share in our public funds. But though the whole debt were
owing to the inhabitants of the country, it would not upon
that account be less pernicious.
586 WEALTH OF NATIONS
Land and capital stock are the two original sources of all
revenue both private and public. Capital stock pays the
wages of productive labour, whether employed in agriculture,
manufactures, or commerce. The management of those two
original sources of revenue belongs to two different sets of
people ; the proprietors of land, and the owners or employers
of capital stock.
The proprietor of land is interested for the sake of his own
revenue to keep his estate in as good condition as he can, by
building and repairing his tenants houses, by making and
maintaining the necessary drains and enclosures, and all those
other expensive improvements which it properly belongs to
the landlord
taxes the revenue
to make
of and
the landlord
maintain.may
Butbebysodifferent
much dimin
land-

ished; and by different duties upon the necessaries and con

veniences of life, that diminished revenue may be rendered
of so little real value, that he may find himself altogether
unable to make or maintain those expensive improvements.
When the landlord, however, ceases to do his part, it is alto
gether impossible that the tenant should continue to do his.
As the distress of the landlord increases, the agriculture of
the country must necessarily decline.
When, by different taxes upon the necessaries and con
veniences of life, the owners and employers of capital stock
find, that whatever revenue they derive from it, will not, in a
particular country, purchase the same quantity of those nec
essaries and conveniences which an equal revenue would in
almost any other, they will be disposed to remove to some
other. And when, in order to raise those taxes, all or the
greater part of merchants and manufacturers, that is, all
or the greater part of the employers of great capitals, come
to be continually exposed to the mortifying and vexatious
visits of the tax-gatherers, this disposition to remove will
soon be changed into an actual removal. The industry of the
country will necessarily fall with the removal of the capital
which supported it, and the ruin of trade and manufactures
will follow the declension of agriculture.
To transfer from the owners of those two great sources of
revenue, land and capital stock, from the persons immediately
interested in the good condition of every particular portion
PUBLIC DEBTS 587
of land, and in the good management of every particular por
tion of capital stock, to another set of persons (the creditors
of the public, who have no such particular interest), the
greater part of the revenue arising from either, must, in the
long-run, occasion both the neglect of land, and the waste or
removal of capital stock, A creditor of the public has no
doubt a general interest in the prosperity of the agriculture,
manufactures, and commerce of the country; and conse
quently in the good condition of its lands, and in the good
management of its capital stock. Should there be any gen
eral failure or declension in any of these things, the produce
of the different taxes might no longer be sufficient to pay him
the annuity or interest which is due him. But a creditor of the
public, considered merely as such, has no interest in the good
condition of any particular portion of land, or in the good
management of any particular portion of capital stock. As
a creditor of the public hi has no knowledge of any such
particular portion. He has no inspection of it. He can have
no care about it. Its ruin may in some cases be unknown to
him, and cannot directly affect him.
The practice of funding has gradually enfeebled every state
which has adopted it. The Italian republics seem to have
begun it. Genoa and Venice, the only two remaining which
can pretend to an independent existence, have both been en
feebled by it. Spain seems to have learned the practice from
the Italian republics, and (its taxes being probably less judi
cious than theirs) it has, in proportion to its natural strength,
been still more enfeebled. The debts of Spain are of very old
standing. It was deeply in debt before the end of the six
teenth century, about a hundred years before England owed
a shilling. France, notwithstanding all its natural resources,
languishes under an oppressive load of the same kind. The
republic of the United Provinces is as much enfeebled by its
debts as either Genoa or Venice. Is it likely that in Great
Britain alone a practice, which has brought either weakness
or desolation into every other country, should prove alto
gether innocent?
The system of taxation established in those different coun
tries, it may be said, is inferior to that of England. I believe
it is so. But it ought to be remembered, that when the wisest
588 WEALTH OF NATIONS
government has exhausted all the proper subjects of taxation,
it must, in cases of urgent necessity, have recourse to im
proper ones. The wise republic of Holland has upon some
occasions been obliged to have recourse to taxes as incon
venient as the greater part of those of Spain. Another war
begun before any considerable liberation of the public revenue
had been brought about, and growing in its progress as ex
pensive as the last war, may, from irresistible necessity,
render the British system of taxation as oppressive as that of
Holland, or even as that of Spain. To the honour of our
present system of taxation, indeed, it has hitherto given so
little embarrassment to industry, that, during the course even
of the most expensive wars, the frugality and good conduct
of individuals seem to have been able, by saving and accumu
lation, to repair all the breaches which the waste and extrava
gance of government had made in the general capital of the
society. At the conclusion of the late war, the most ex
pensive that Great Britain ever waged, her agriculture was
as flourishing, her manufacturers as numerous and as fully
employed, and her commerce as extensive, as they had ever
been before. The capital, therefore, which supported all
those different branches of industry, must have been equal
to what it had ever been before. Since the peace, agricul
ture has been still further improved, the rents of houses have
risen in every town and village of the country, a proof of the
increasing wealth and revenue of the people ; and the annual
amount of the greater part of the old taxes, of the principal
branches of the excise and customs in particular, has been
continually increasing, an equally clear proof of an increas
ing consumption, and consequently of an increasing produce,
which could alone support that consumption. Great Britain
seems to support with ease a burden which, half a century
ago, nobody believed her capable of supporting. Let us not,
however, upon this account rashly conclude that she is ca
pable of supporting any burden; nor even be too confident
that she could support, without great distress, a burden a
little greater than what has already been laid upon her.
When national debts have once been accumulated to a cer
tain degree, there is scarce, I believe, a single instance of
their having been fairly and completely paid. The liberation
PUBLIC DEBTS 589
of the public revenue, if it has ever been brought about at
all, has always been brought about by a bankruptcy; some
times by an avowed one, but always by a real one, though fre
quently by a pretended payment.
The raising of the denomination of the coin has been the
most usual expedient by which a real public bankruptcy has
been disguised under the appearance of a pretended pay
ment. If a sixpence, for example, should either by act of
parliament or royal proclamation be raised to the denomina
tion of a shilling, and twenty sixpences to that of a pound
sterling; the person who under the old denomination had
borrowed twenty shillings, or near four ounces of silver,
would, under the new, pay with twenty sixpences, or with
something less than two ounces. A national debt of about
a hundred and twenty-eight millions, nearly the capital of
the funded and unfunded debt of Great Britain, might in
this manner be paid with about sixty-four millions of our
present money. It would indeed be a pretended payment
only, and the creditors of the public would really be de
frauded of ten shillings in the pound of what was due to
them. The calamity, too, would extend much further than
to the creditors of the public, and those of every private per
son would suffer a proportionable loss; and this without any
advantage, but in most cases with a great additional loss, to
the creditors of the public. If the creditors of the public
indeed were generally much in debt to other people, they
might in some measure compensate their loss by paying their
creditors in the same coin in which the public had paid them.
But in most countries the creditors of the public are, the
greater part of them, wealthy people, who stand more in the
relation of creditors than in that of debtors towards the
rest of their fellow-citizens. A pretended payment of this
kind, therefore, instead of alleviating, aggravates in most
cases the loss of the creditors of the public; and without
any advantage to the public, extends the calamity to a great
number of other innocent people. It occasions a general and
most pernicious subversion of the fortunes of private peo
ple; enriching in most cases the idle and profuse debtor at
the expense of the industrious and frugal creditor, and trans
porting a great part of the national capital from the hands
/

500 , WEALTH OF NATIONS

which were likely to increase and improve it, to those which
are likely to dissipate and destroy it. When it becomes nec
essary for a state to declare itself bankrupt, in the same
manner as when it becomes necessary for an individual to
do so, a fair, open, and avowed bankruptcy is always the
measure which is both least dishonourable to the debtor, and
least hurtful to the creditor. The honour of a state is surely
very poorly provided for, when, in order to cover the dis
grace of a real bankruptcy, it has recourse to a juggling trick
of this kind, so easily seen through, and at the same time so
extremely pernicious.
4
/ I
UNIVERSITY OF MICHIGAN