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An Inquiry Into The Nature And Causes Of The Wealth Of Nations - Book 4, Chapter 1

1. Introduction And Plan Of The Work

2. Book 1, Chapter 1

3. Chapter 2

4. Chapter 3

5. Chapter 4

6. Chapter 5

7. Chapter 6

8. Chapter 7

9. Chapter 8

10. Chapter 8 continue

11. Chapter 9

12. Chapter 10

13. Chapter 10 continue

14. Chapter 11

15. Chapter 11 continue

16. Chapter 11 continue.

17. Chapter 11 continue..

18. Chapter 11 continue...

19. Conclusion of the Chapter 11

20. Book 2 Introduction

21. Chapter 1

22. Chapter II

23. Chapter II continue

24. Chapter II continue

25. Chapter 3

26. Chapter 4

27. Chapter 5

28. Book 3, Chapter 1

29. Chapter 2

30. Chapter 3

31. Chapter 4

32. Book 4, Chapter 1

33. Chapter 1 continue

34. Chapter 2

35. Chapter 3, Part 1

36. Chapter 3, Part 2

37. Chapter 4

38. Chapter 5

39. Chapter 5 continue

40. Chapter 6

41. Chapter 7, Part 1

42. Chapter 7, Part 2

43. Chapter 7, Part 3

44. Chapter 7, Part 3 continue

45. Chapter 8

46. Chapter 9

47. Book 5, Chapter 1, Part 1

48. Chapter 1, Part 2

49. Chapter 1, Part 3

50. Chapter 1, Part 3 continue

51. Chapter 1, Part 3 continue B

52. Chapter 1, Part 4

53. Chapter 2, Part 1

54. Chapter 2, Part 2

55. Chapter 2, Part 2 continue

56. Chapter 2, Part 2 continue B

57. Chapter 2, Part 2 continue C

58. Chapter 2, Part 2 continue D

59. Chapter 3

60. Chapter 3 continue

Book IV. Of Systems Of Political Economy.

Political economy, considered as a branch of the science of a statesman
or legislator, proposes two distinct objects; first, to provide a
plentiful revenue or subsistence for the people, or, more properly, to
enable them to provide such a revenue or subsistence for themselves;
and, secondly, to supply the state or commonwealth with a revenue
sufficient for the public services. It proposes to enrich both the
people and the sovereign.

The different progress of opulence in different ages and nations, has
given occasion to two different systems of political economy, with
regard to enriching the people. The one may be called the system of
commerce, the other that of agriculture. I shall endeavour to explain
both as fully and distinctly as I can, and shall begin with the system
of commerce. It is the modern system, and is best understood in our own
country and in our own times.


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

A rich country, in the same manner as a rich man, is supposed to be
a country abounding in money; and to heap up gold and silver in any
country is supposed to be the readiest way to enrich it. For some time
after the discovery of America, the first inquiry of the Spaniards, when
they arrived upon any unknown coast, used to be, if there was any gold
or silver to be found in the neighbourhood? By the information which
they received, they judged whether it was worth while to make a
settlement there, or if the country was worth the conquering. Plano
Carpino, a monk sent ambassador from the king of France to one of the
sons of the famous Gengis Khan, says, that the Tartars used frequently
to ask him, if there was plenty of sheep and oxen in the kingdom of
France? Their inquiry had the same object with that of the Spaniards.
They wanted to know if the country was rich enough to be worth the
conquering. Among the Tartars, as among all other nations of shepherds,
who are generally ignorant of the use of money, cattle are the
instruments of commerce and the measures of value. Wealth, therefore,
according to them, consisted in cattle, as, according to the Spaniards,
it consisted in gold and silver. Of the two, the Tartar notion, perhaps,
was the nearest to the truth.

Mr Locke remarks a distinction between money and other moveable goods.
All other moveable goods, he says, are of so consumable a nature, that
the wealth which consists in them cannot be much depended on; and a
nation which abounds in them one year may, without any exportation, but
merely by their own waste and extravagance, be in great want of them the
next. Money, on the contrary, is a steady friend, which, though it may
travel about from hand to hand, yet if it can be kept from going out
of the country, is not very liable to be wasted and consumed. Gold and
silver, therefore, are, according to him, the must solid and substantial
part of the moveable wealth of a nation; and to multiply those metals
ought, he thinks, upon that account, to be the great object of its
political economy.

Others admit, that if a nation could be separated from all the world,
it would be of no consequence how much or how little money circulated in
it. The consumable goods, which were circulated by means of this money,
would only be exchanged for a greater or a smaller number of pieces;
but the real wealth or poverty of the country, they allow, would depend
altogether upon the abundance or scarcity of those consumable goods. But
it is otherwise, they think, with countries which have connections with
foreign nations, and which are obliged to carry on foreign wars, and to
maintain fleets and armies in distant countries. This, they say, cannot
be done, but by sending abroad money to pay them with; and a nation
cannot send much money abroad, unless it has a good deal at home. Every
such nation, therefore, must endeavour, in time of peace, to accumulate
gold and silver, that when occasion requires, it may have wherewithal to
carry on foreign wars.

In consequence of those popular notions, all the different nations of
Europe have studied, though to little purpose, every possible means of
accumulating gold and silver in their respective countries. Spain and
Portugal, the proprietors of the principal mines which supply Europe
with those metals, have either prohibited their exportation under the
severest penalties, or subjected it to a considerable duty. The like
prohibition seems anciently to have made a part of the policy of most
other European nations. It is even to be found, where we should least
of all expect to find it, in some old Scotch acts of Parliament, which
forbid, under heavy penalties, the carrying gold or silver forth of
the kingdom. The like policy anciently took place both in France and

When those countries became commercial, the merchants found this
prohibition, upon many occasions, extremely inconvenient. They could
frequently buy more advantageously with gold and silver, than with any
other commodity, the foreign goods which they wanted, either to
import into their own, or to carry to some other foreign country. They
remonstrated, therefore, against this prohibition as hurtful to trade.

They represented, first, that the exportation of gold and silver, in
order to purchase foreign goods, did not always diminish the quantity of
those metals in the kingdom; that, on the contrary, it might frequently
increase the quantity; because, if the consumption of foreign goods was
not thereby increased in the country, those goods might be re-exported
to foreign countries, and being there sold for a large profit, might
bring back much more treasure than was originally sent out to purchase
them. Mr Mun compares this operation of foreign trade to the seed-time
and harvest of agriculture. "If we only behold," says he, "the actions
of the husbandman in the seed time, when he casteth away much good corn
into the ground, we shall account him rather a madman than a husbandman.
But when we consider his labours in the harvest, which is the end of
his endeavours, we shall find the worth and plentiful increase of his

They represented, secondly, that this prohibition could not hinder the
exportation of gold and silver, which, on account of the smallness
of their bulk in proportion to their value, could easily be smuggled
abroad. That this exportation could only be prevented by a proper
attention to what they called the balance of trade. That when the
country exported to a greater value than it imported, a balance became
due to it from foreign nations, which was necessarily paid to it in gold
and silver, and thereby increased the quantity of those metals in the
kingdom. But that when it imported to a greater value than it exported,
a contrary balance became due to foreign nations, which was necessarily
paid to them in the same manner, and thereby diminished that quantity:
that in this case, to prohibit the exportation of those metals, could
not prevent it, but only, by making it more dangerous, render it more
expensive: that the exchange was thereby turned more against the country
which owed the balance, than it otherwise might have been; the merchant
who purchased a bill upon the foreign country being obliged to pay the
banker who sold it, not only for the natural risk, trouble, and expense
of sending the money thither, but for the extraordinary risk arising
from the prohibition; but that the more the exchange was against any
country, the more the balance of trade became necessarily against it;
the money of that country becoming necessarily of so much less value, in
comparison with that of the country to which the balance was due. That
if the exchange between England and Holland, for example, was five per
cent. against England, it would require 105 ounces of silver in England
to purchase a bill for 100 ounces of silver in Holland: that 105 ounces
of silver in England, therefore, would be worth only 100 ounces of
silver in Holland, and would purchase only a proportionable quantity of
Dutch goods; but that 100 ounces of silver in Holland, on the
contrary, would be worth 105 ounces in England, and would purchase a
proportionable quantity of English goods; that the English goods which
were sold to Holland would be sold so much cheaper, and the Dutch goods
which were sold to England so much dearer, by the difference of the
exchange: that the one would draw so much less Dutch money to England,
and the other so much more English money to Holland, as this difference
amounted to: and that the balance of trade, therefore, would necessarily
be so much more against England, and would require a greater balance of
gold and silver to be exported to Holland.

Those arguments were partly solid and partly sophistical. They were
solid, so far as they asserted that the exportation of gold and silver
in trade might frequently be advantageous to the country. They were
solid, too, in asserting that no prohibition could prevent their
exportation, when private people found any advantage in exporting them.
But they were sophistical, in supposing, that either to preserve or
to augment the quantity of those metals required more the attention of
government, than to preserve or to augment the quantity of any other
useful commodities, which the freedom of trade, without any such
attention, never fails to supply in the proper quantity. They were
sophistical, too, perhaps, in asserting that the high price of exchange
necessarily increased what they called the unfavourable balance of
trade, or occasioned the exportation of a greater quantity of gold and
silver. That high price, indeed, was extremely disadvantageous to the
merchants who had any money to pay in foreign countries. They paid so
much dearer for the bills which their bankers granted them upon those
countries. But though the risk arising from the prohibition might
occasion some extraordinary expense to the bankers, it would not
necessarily carry any more money out of the country. This expense would
generally be all laid out in the country, in smuggling the money out
of it, and could seldom occasion the exportation of a single sixpence
beyond the precise sum drawn for. The high price of exchange, too,
would naturally dispose the merchants to endeavour to make their exports
nearly balance their imports, in order that they might have this high
exchange to pay upon as small a sum as possible. The high price of
exchange, besides, must necessarily have operated as a tax, in raising
the price of foreign goods, and thereby diminishing their consumption.
It would tend, therefore, not to increase, but to diminish, what
they called the unfavourable balance of trade, and consequently the
exportation of gold and silver.

Such as they were, however, those arguments convinced the people to whom
they were addressed. They were addressed by merchants to parliaments
and to the councils of princes, to nobles, and to country gentlemen; by
those who were supposed to understand trade, to those who were conscious
to them selves that they knew nothing about the matter. That foreign
trade enriched the country, experience demonstrated to the nobles and
country gentlemen, as well as to the merchants; but how, or in what
manner, none of them well knew. The merchants knew perfectly in what
manner it enriched themselves, it was their business to know it. But
to know in what manner it enriched the country, was no part of their
business. The subject never came into their consideration, but when
they had occasion to apply to their country for some change in the laws
relating to foreign trade. It then became necessary to say something
about the beneficial effects of foreign trade, and the manner in which
those effects were obstructed by the laws as they then stood. To the
judges who were to decide the business, it appeared a most satisfactory
account of the matter, when they were told that foreign trade brought
money into the country, but that the laws in question hindered it from
bringing so much as it otherwise would do. Those arguments, therefore,
produced the wished-for effect. The prohibition of exporting gold
and silver was, in France and England, confined to the coin of those
respective countries. The exportation of foreign coin and of bullion
was made free. In Holland, and in some other places, this liberty was
extended even to the coin of the country. The attention of government
was turned away from guarding against the exportation of gold and
silver, to watch over the balance of trade, as the only cause which
could occasion any augmentation or diminution of those metals. From one
fruitless care, it was turned away to another care much more intricate,
much more embarrassing, and just equally fruitless. The title of Mun's
book, England's Treasure in Foreign Trade, became a fundamental maxim in
the political economy, not of England only, but of all other commercial
countries. The inland or home trade, the most important of all, the
trade in which an equal capital affords the greatest revenue, and
creates the greatest employment to the people of the country, was
considered as subsidiary only to foreign trade. It neither brought money
into the country, it was said, nor carried any out of it. The country,
therefore, could never become either richer or poorer by means of it,
except so far as its prosperity or decay might indirectly influence the
state of foreign trade.

A country that has no mines of its own, must undoubtedly draw its gold
and silver from foreign countries, in the same manner as one that has
no vineyards of its own must draw its wines. It does not seem necessary,
however, that the attention of government should be more turned towards
the one than towards the other object. A country that has wherewithal
to buy wine, will always get the wine which it has occasion for; and a
country that has wherewithal to buy gold and silver, will never be in
want of those metals. They are to be bought for a certain price,
like all other commodities; and as they are the price of all other
commodities, so all other commodities are the price of those metals.
We trust, with perfect security, that the freedom of trade, without any
attention of government, will always supply us with the wine which we
have occasion for; and we may trust, with equal security, that it will
always supply us with all the gold and silver which we can afford to
purchase or to employ, either in circulating our commodities or in other

The quantity of every commodity which human industry can either purchase
or produce, naturally regulates itself in every country according to the
effectual demand, or according to the demand of those who are willing to
pay the whole rent, labour, and profits, which must be paid in order to
prepare and bring it to market. But no commodities regulate themselves
more easily or more exactly, according to this effectual demand, than
gold and silver; because, on account of the small bulk and great value
of those metals, no commodities can be more easily transported from one
place to another; from the places where they are cheap, to those where
they are dear; from the places where they exceed, to those where they
fall short of this effectual demand. If there were in England, for
example, an effectual demand for an additional quantity of gold, a
packet-boat could bring from Lisbon, or from wherever else it was to
be had, fifty tons of gold, which could be coined into more than five
millions of guineas. But if there were an effectual demand for grain
to the same value, to import it would require, at five guineas a-ton,
a million of tons of shipping, or a thousand ships of a thousand tons
each. The navy of England would not be sufficient.

When the quantity of gold and silver imported into any country exceeds
the effectual demand, no vigilance of government can prevent their
exportation. All the sanguinary laws of Spain and Portugal are not able
to keep their gold and silver at home. The continual importations from
Peru and Brazil exceed the effectual demand of those countries, and
sink the price of those metals there below that in the neighbouring
countries. If, on the contrary, in any particular country, their
quantity fell short of the effectual demand, so as to raise their price
above that of the neighbouring countries, the government would have no
occasion to take any pains to import them. If it were even to take pains
to prevent their importation, it would not be able to effectuate it.
Those metals, when the Spartans had got wherewithal to purchase them,
broke through all the barriers which the laws of Lycurgus opposed to
their entrance into Lacedaemon. All the sanguinary laws of the customs
are not able to prevent the importation of the teas of the Dutch and
Gottenburg East India companies; because somewhat cheaper than those of
the British company. A pound of tea, however, is about a hundred times
the bulk of one of the highest prices, sixteen shillings, that is
commonly paid for it in silver, and more than two thousand times the
bulk of the same price in gold, and, consequently, just so many times
more difficult to smuggle.

It is partly owing to the easy transportation of gold and silver, from
the places where they abound to those where they are wanted, that the
price of those metals does not fluctuate continually, like that of the
greater part of other commodities, which are hindered by their bulk from
shifting their situation, when the market happens to be either over
or under-stocked with them. The price of those metals, indeed, is not
altogether exempted from variation; but the changes to which it is
liable are generally slow, gradual, and uniform. In Europe, for example,
it is supposed, without much foundation, perhaps, that during the course
of the present and preceding century, they have been constantly,
but gradually, sinking in their value, on account of the continual
importations from the Spanish West Indies. But to make any sudden
change in the price of gold and silver, so as to raise or lower at
once, sensibly and remarkably, the money price of all other commodities,
requires such a revolution in commerce as that occasioned by the
discovery of America.

If, not withstanding all this, gold and silver should at any time fall
short in a country which has wherewithal to purchase them, there are
more expedients for supplying their place, than that of almost any other
commodity. If the materials of manufacture are wanted, industry must
stop. If provisions are wanted, the people must starve. But if money
is wanted, barter will supply its place, though with a good deal of
inconveniency. Buying and selling upon credit, and the different dealers
compensating their credits with one another, once a-month, or once
a-year, will supply it with less inconveniency. A well-regulated
paper-money will supply it not only without any inconveniency, but, in
some cases, with some advantages. Upon every account, therefore, the
attention of government never was so unnecessarily employed, as when
directed to watch over the preservation or increase of the quantity of
money in any country.

No complaint, however, is more common than that of a scarcity of money.
Money, like wine, must always be scarce with those who have neither
wherewithal to buy it, nor credit to borrow it. Those who have either,
will seldom be in want either of the money, or of the wine which they
have occasion for. This complaint, however, of the scarcity of money, is
not always confined to improvident spendthrifts. It is sometimes general
through a whole mercantile town and the country in its neighbourhood.
Over-trading is the common cause of it. Sober men, whose projects have
been disproportioned to their capitals, are as likely to have neither
wherewithal to buy money, nor credit to borrow it, as prodigals, whose
expense has been disproportioned to their revenue. Before their projects
can be brought to bear, their stock is gone, and their credit with it.
They run about everywhere to borrow money, and everybody tells them that
they have none to lend. Even such general complaints of the scarcity
of money do not always prove that the usual number of gold and silver
pieces are not circulating in the country, but that many people want
those pieces who have nothing to give for them. When the profits of
trade happen to be greater than ordinary over-trading becomes a general
error, both among great and small dealers. They do not always send more
money abroad than usual, but they buy upon credit, both at home and
abroad, an unusual quantity of goods, which they send to some distant
market, in hopes that the returns will come in before the demand for
payment. The demand comes before the returns, and they have nothing at
hand with which they can either purchase money or give solid security
for borrowing. It is not any scarcity of gold and silver, but the
difficulty which such people find in borrowing, and which their creditor
find in getting payment, that occasions the general complaint of the
scarcity of money.

It would be too ridiculous to go about seriously to prove, that wealth
does not consist in money, or in gold and silver; but in what money
purchases, and is valuable only for purchasing. Money, no doubt, makes
always a part of the national capital; but it has already been
shown that it generally makes but a small part, and always the most
unprofitable part of it.

It is not because wealth consists more essentially in money than in
goods, that the merchant finds it generally more easy to buy goods with
money, than to buy money with goods; but because money is the known and
established instrument of commerce, for which every thing is readily
given in exchange, but which is not always with equal readiness to be
got in exchange for every thing. The greater part of goods, besides, are
more perishable than money, and he may frequently sustain a much greater
loss by keeping them. When his goods are upon hand, too, he is more
liable to such demands for money as he may not be able to answer, than
when he has got their price in his coffers. Over and above all this, his
profit arises more directly from selling than from buying; and he is,
upon all these accounts, generally much more anxious to exchange his
goods for money than his money for goods. But though a particular
merchant, with abundance of goods in his warehouse, may sometimes be
ruined by not being able to sell them in time, a nation or country
is not liable to the same accident, The whole capital of a merchant
frequently consists in perishable goods destined for purchasing money.
But it is but a very small part of the annual produce of the land and
labour of a country, which can ever be destined for purchasing gold and
silver from their neighbours. The far greater part is circulated and
consumed among themselves; and even of the surplus which is sent abroad,
the greater part is generally destined for the purchase of other foreign
goods. Though gold and silver, therefore, could not be had in exchange
for the goods destined to purchase them, the nation would not be ruined.
It might, indeed, suffer some loss and inconveniency, and be forced upon
some of those expedients which are necessary for supplying the place of
money. The annual produce of its land and labour, however, would be the
same, or very nearly the same as usual; because the same, or very nearly
the same consumable capital would be employed in maintaining it. And
though goods do not always draw money so readily as money draws goods,
in the long-run they draw it more necessarily than even it draws them.
Goods can serve many other purposes besides purchasing money, but money
can serve no other purpose besides purchasing goods. Money, therefore,
necessarily runs after goods, but goods do not always or necessarily run
after money. The man who buys, does not always mean to sell again, but
frequently to use or to consume; whereas he who sells always means to
buy again. The one may frequently have done the whole, but the other can
never have done more than the one half of his business. It is not for
its own sake that men desire money, but for the sake of what they can
purchase with it.

Consumable commodities, it is said, are soon destroyed; whereas gold and
silver are of a more durable nature, and were it not for this continual
exportation, might be accumulated for ages together, to the incredible
augmentation of the real wealth of the country. Nothing, therefore, it
is pretended, can be more disadvantageous to any country, than the
trade which consists in the exchange of such lasting for such perishable
commodities. We do not, however, reckon that trade disadvantageous,
which consists in the exchange of the hardware of England for the wines
of France, and yet hardware is a very durable commodity, and were it
not for this continual exportation, might too be accumulated for ages
together, to the incredible augmentation of the pots and pans of the
country. But it readily occurs, that the number of such utensils is in
every country necessarily limited by the use which there is for them;
that it would be absurd to have more pots and pans than were necessary
for cooking the victuals usually consumed there; and that, if the
quantity of victuals were to increase, the number of pots and pans would
readily increase along with it; a part of the increased quantity
of victuals being employed in purchasing them, or in maintaining an
additional number of workmen whose business it was to make them. It
should as readily occur, that the quantity of gold and silver is, in
every country, limited by the use which there is for those metals; that
their use consists in circulating commodities, as coin, and in affording
a species of household furniture, as plate; that the quantity of coin in
every country is regulated by the value of the commodities which are to
be circulated by it; increase that value, and immediately a part of
it will be sent abroad to purchase, wherever it is to be had, the
additional quantity of coin requisite for circulating them: that the
quantity of plate is regulated by the number and wealth of those private
families who choose to indulge themselves in that sort of magnificence;
increase the number and wealth of such families, and a part of this
increased wealth will most probably be employed in purchasing, wherever
it is to be found, an additional quantity of plate; that to attempt
to increase the wealth of any country, either by introducing or by
detaining in it an unnecessary quantity of gold and silver, is as
absurd as it would be to attempt to increase the good cheer of private
families, by obliging them to keep an unnecessary number of kitchen
utensils. As the expense of purchasing those unnecessary utensils would
diminish, instead of increasing, either the quantity or goodness of the
family provisions; so the expense of purchasing an unnecessary quantity
of gold and silver must, in every country, as necessarily diminish the
wealth which feeds, clothes, and lodges, which maintains and employs the
people. Gold and silver, whether in the shape of coin or of plate,
are utensils, it must be remembered, as much as the furniture of the
kitchen. Increase the use of them, increase the consumable commodities
which are to be circulated, managed, and prepared by means of them,
and you will infallibly increase the quantity; but if you attempt by
extraordinary means to increase the quantity, you will as infallibly
diminish the use, and even the quantity too, which in those metals
can never be greater than what the use requires. Were they ever to be
accumulated beyond this quantity, their transportation is so easy, and
the loss which attends their lying idle and unemployed so great, that no
law could prevent their being immediately sent out of the country.

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