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An Inquiry Into The Nature And Causes Of The Wealth Of Nations - Chapter 1 continue

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

It is not always necessary to accumulate gold and silver, in order to
enable a country to carry on foreign wars, and to maintain fleets and
armies in distant countries. Fleets and armies are maintained, not with
gold and silver, but with consumable goods. The nation which, from the
annual produce of its domestic industry, from the annual revenue arising
out of its lands, and labour, and consumable stock, has wherewithal
to purchase those consumable goods in distant countries, can maintain
foreign wars there.

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

The gold and silver which can properly be considered as accumulated, or
stored up in any country, may be distinguished into three parts; first,
the circulating money; secondly, the plate of private families; and,
last of all, the money which may have been collected by many years
parsimony, and laid up in the treasury of the prince.

It can seldom happen that much can be spared from the circulating money
of the country; because in that there can seldom be much redundancy.
The value of goods annually bought and sold in any country requires
a certain quantity of money to circulate and distribute them to their
proper consumers, and can give employment to no more. The channel of
circulation necessarily draws to itself a sum sufficient to fill it, and
never admits any more. Something, however, is generally withdrawn from
this channel in the case of foreign war. By the great number of people
who are maintained abroad, fewer are maintained at home. Fewer goods are
circulated there, and less money becomes necessary to circulate them. An
extraordinary quantity of paper money of some sort or other, too, such
as exchequer notes, navy bills, and bank bills, in England, is generally
issued upon such occasions, and, by supplying the place of circulating
gold and silver, gives an opportunity of sending a greater quantity
of it abroad. All this, however, could afford but a poor resource for
maintaining a foreign war, of great expense, and several years duration.

The melting down of the plate of private families has, upon every
occasion, been found a still more insignificant one. The French, in the
beginning of the last war, did not derive so much advantage from this
expedient as to compensate the loss of the fashion.

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

The funds which maintained the foreign wars of the present century, the
most expensive perhaps which history records, seem to have had little
dependency upon the exportation either of the circulating money, or of
the plate of private families, or of the treasure of the prince. The
last French war cost Great Britain upwards of 90,000,000, including not
only the 75,000,000 of new debt that was contracted, but the additional
2s. in the pound land-tax, and what was annually borrowed of the sinking
fund. More than two-thirds of this expense were laid out in distant
countries; in Germany, Portugal, America, in the ports of the
Mediterranean, in the East and West Indies. The kings of England had no
accumulated treasure. We never heard of any extraordinary quantity of
plate being melted down. The circulating gold and silver of the country
had not been supposed to exceed 18,000,000. Since the late recoinage of
the gold, however, it is believed to have been a good deal under-rated.
Let us suppose, therefore, according to the most exaggerated computation
which I remember to have either seen or heard of, that, gold and silver
together, it amounted to 30,000,000. Had the war been carried on
by means of our money, the whole of it must, even according to this
computation, have been sent out and returned again, at least twice in a
period of between six and seven years. Should this be supposed, it would
afford the most decisive argument, to demonstrate how unnecessary it is
for government to watch over the preservation of money, since, upon this
supposition, the whole money of the country must have gone from it, and
returned to it again, two different times in so short a period, without
any body's knowing any thing of the matter. The channel of circulation,
however, never appeared more empty than usual during any part of this
period. Few people wanted money who had wherewithal to pay for it. The
profits of foreign trade, indeed, were greater than usual during the
whole war, but especially towards the end of it. This occasioned, what
it always occasions, a general over-trading in all the ports of Great
Britain; and this again occasioned the usual complaint of the scarcity
of money, which always follows over-trading. Many people wanted it, who
had neither wherewithal to buy it, nor credit to borrow it; and because
the debtors found it difficult to borrow, the creditors found it
difficult to get payment. Gold and silver, however, were generally to be
had for their value, by those who had that value to give for them.

The enormous expense of the late war, therefore, must have been chiefly
defrayed, not by the exportation of gold and silver, but by that of
British commodities of some kind or other. When the government, or those
who acted under them, contracted with a merchant for a remittance to
some foreign country, he would naturally endeavour to pay his foreign
correspondent, upon whom he granted a bill, by sending abroad rather
commodities than gold and silver. If the commodities of Great Britain
were not in demand in that country, he would endeavour to send them to
some other country in which he could purchase a bill upon that country.
The transportation of commodities, when properly suited to the market,
is always attended with a considerable profit; whereas that of gold
and silver is scarce ever attended with any. When those metals are sent
abroad in order to purchase foreign commodities, the merchant's profit
arises, not from the purchase, but from the sale of the returns. But
when they are sent abroad merely to pay a debt, he gets no returns, and
consequently no profit. He naturally, therefore, exerts his invention to
find out a way of paying his foreign debts, rather by the exportation
of commodities, than by that of gold and silver. The great quantity
of British goods, exported during the course of the late war, without
bringing back any returns, is accordingly remarked by the author of the
Present State of the Nation.

Besides the three sorts of gold and silver above mentioned, there is
in all great commercial countries a good deal of bullion alternately
imported and exported, for the purposes of foreign trade. This bullion,
as it circulates among different commercial countries, in the same
manner as the national coin circulates in every country, may be
considered as the money of the great mercantile republic. The national
coin receives its movement and direction from the commodities circulated
within the precincts of each particular country; the money in the
mercantile republic, from those circulated between different countries.
Both are employed in facilitating exchanges, the one between different
individuals of the same, the other between those of different nations.
Part of this money of the great mercantile republic may have been, and
probably was, employed in carrying on the late war. In time of a general
war, it is natural to suppose that a movement and direction should be
impressed upon it, different from what it usually follows in profound
peace, that it should circulate more about the seat of the war, and be
more employed in purchasing there, and in the neighbouring countries,
the pay and provisions of the different armies. But whatever part of
this money of the mercantile republic Great Britain may have annually
employed in this manner, it must have been annually purchased, either
with British commodities, or with something else that had been purchased
with them; which still brings us back to commodities, to the annual
produce of the land and labour of the country, as the ultimate resources
which enabled us to carry on the war. It is natural, indeed, to suppose,
that so great an annual expense must have been defrayed from a great
annual produce. The expense of 1761, for example, amounted to more than
19,000,000. No accumulation could have supported so great an annual
profusion. There is no annual produce, even of gold and silver, which
could have supported it. The whole gold and silver annually imported
into both Spain and Portugal, according to the best accounts, does not
commonly much exceed 6,000,000 sterling, which, in some years, would
scarce have paid four months expense of the late war.

The commodities most proper for being transported to distant countries,
in order to purchase there either the pay and provisions of an army,
or some part of the money of the mercantile republic to be employed in
purchasing them, seem to be the finer and more improved manufactures;
such as contain a great value in a small bulk, and can therefore be
exported to a great distance at little expense. A country whose industry
produces a great annual surplus of such manufactures, which are usually
exported to foreign countries, may carry on for many years a very
expensive foreign war, without either exporting any considerable
quantity of gold and silver, or even having any such quantity to export.
A considerable part of the annual surplus of its manufactures must,
indeed, in this case, be exported without bringing back any returns to
the country, though it does to the merchant; the government purchasing
of the merchant his bills upon foreign countries, in order to purchase
there the pay and provisions of an army. Some part of this surplus,
however, may still continue to bring back a return. The manufacturers
during; the war will have a double demand upon them, and be called upon
first to work up goods to be sent abroad, for paying the bills drawn
upon foreign countries for the pay and provisions of the army: and,
secondly, to work up such as are necessary for purchasing the common
returns that had usually been consumed in the country. In the midst
of the most destructive foreign war, therefore, the greater part of
manufactures may frequently flourish greatly; and, on the contrary, they
may decline on the return of peace. They may flourish amidst the ruin of
their country, and begin to decay upon the return of its prosperity. The
different state of many different branches of the British manufactures
during the late war, and for some time after the peace, may serve as an
illustration of what has been just now said.

No foreign war, of great expense or duration, could conveniently be
carried on by the exportation of the rude produce of the soil. The
expense of sending such a quantity of it into a foreign country as
might purchase the pay and provisions of an army would be too great. Few
countries, too, produce much more rude produce than what is sufficient
for the subsistence of their own inhabitants. To send abroad any
great quantity of it, therefore, would be to send abroad a part of
the necessary subsistence of the people. It is otherwise with the
exportation of manufactures. The maintenance of the people employed
in them is kept at home, and only the surplus part of their work is
exported. Mr Hume frequently takes notice of the inability of the
ancient kings of England to carry on, without interruption, any foreign
war of long duration. The English in those days had nothing wherewithal
to purchase the pay and provisions of their armies in foreign countries,
but either the rude produce of the soil, of which no considerable part
could be spared from the home consumption, or a few manufactures of
the coarsest kind, of which, as well as of the rude produce, the
transportation was too expensive. This inability did not arise from the
want of money, but of the finer and more improved manufactures. Buying
and selling was transacted by means of money in England then as well
as now. The quantity of circulating money must have borne the same
proportion, to the number and value of purchases and sales usually
transacted at that time, which it does to those transacted at present;
or, rather, it must have borne a greater proportion, because there was
then no paper, which now occupies a great part of the employment of gold
and silver. Among nations to whom commerce and manufactures are little
known, the sovereign, upon extraordinary occasions, can seldom draw any
considerable aid from his subjects, for reasons which shall be explained
hereafter. It is in such countries, therefore, that he generally
endeavours to accumulate a treasure, as the only resource against such
emergencies. Independent of this necessity, he is, in such a situation,
naturally disposed to the parsimony requisite for accumulation. In that
simple state, the expense even of a sovereign is not directed by the
vanity which delights in the gaudy finery of a court, but is employed in
bounty to his tenants, and hospitality to his retainers. But bounty
and hospitality very seldom lead to extravagance; though vanity almost
always does. Every Tartar chief, accordingly, has a treasure. The
treasures of Mazepa, chief of the Cossacks in the Ukraine, the famous
ally of Charles XII., are said to have been very great. The French
kings of the Merovingian race had all treasures. When they divided their
kingdom among their different children, they divided their treasures
too. The Saxon princes, and the first kings after the Conquest, seem
likewise to have accumulated treasures. The first exploit of every new
reign was commonly to seize the treasure of the preceding king, as the
most essential measure for securing the succession. The sovereigns of
improved and commercial countries are not under the same necessity
of accumulating treasures, because they can generally draw from their
subjects extraordinary aids upon extraordinary occasions. They are
likewise less disposed to do so. They naturally, perhaps necessarily,
follow the mode of the times; and their expense comes to be regulated
by the same extravagant vanity which directs that of all the other great
proprietors in their dominions. The insignificant pageantry of their
court becomes every day more brilliant; and the expense of it not only
prevents accumulation, but frequently encroaches upon the funds destined
for more necessary expenses. What Dercyllidas said of the court of
Persia, may be applied to that of several European princes, that he saw
there much splendour, but little strength, and many servants, but few

The importation of gold and silver is not the principal, much less the
sole benefit, which a nation derives from its foreign trade. Between
whatever places foreign trade is carried on, they all of them derive
two distinct benefits from it. It carries out that surplus part of the
produce of their land and labour for which there is no demand among
them, and brings back in return for it something else for which there
is a demand. It gives a value to their superfluities, by exchanging them
for something else, which may satisfy a part of their wants and increase
their enjoyments. By means of it, the narrowness of the home market does
not hinder the division of labour in any particular branch of art or
manufacture from being carried to the highest perfection. By opening a
more extensive market for whatever part of the produce of their labour
may exceed the home consumption, it encourages them to improve its
productive power, and to augment its annual produce to the utmost, and
thereby to increase the real revenue and wealth of the society. These
great and important services foreign trade is continually occupied in
performing to all the different countries between which it is carried
on. They all derive great benefit from it, though that in which the
merchant resides generally derives the greatest, as he is generally more
employed in supplying the wants, and carrying out the superfluities of
his own, than of any other particular country. To import the gold and
silver which may be wanted into the countries which have no mines, is,
no doubt a part of the business of foreign commerce. It is, however, a
most insignificant part of it. A country which carried on foreign trade
merely upon this account, could scarce have occasion to freight a ship
in a century.

It is not by the importation of gold and silver that the discovery of
America has enriched Europe. By the abundance of the American mines,
those metals have become cheaper. A service of plate can now be
purchased for about a third part of the corn, or a third part of the
labour, which it would have cost in the fifteenth century. With the same
annual expense of labour and commodities, Europe can annually purchase
about three times the quantity of plate which it could have purchased
at that time. But when a commodity comes to be sold for a third part of
what bad been its usual price, not only those who purchased it before
can purchase three times their former quantity, but it is brought down
to the level of a much greater number of purchasers, perhaps to more
than ten, perhaps to more than twenty times the former number. So that
there may be in Europe at present, not only more than three times, but
more than twenty or thirty times the quantity of plate which would have
been in it, even in its present state of improvement, had the discovery
of the American mines never been made. So far Europe has, no doubt,
gained a real conveniency, though surely a very trifling one. The
cheapness of gold and silver renders those metals rather less fit for
the purposes of money than they were before. In order to make the same
purchases, we must load ourselves with a greater quantity of them, and
carry about a shilling in our pocket, where a groat would have
done before. It is difficult to say which is most trifling, this
inconveniency, or the opposite conveniency. Neither the one nor the
other could have made any very essential change in the state of Europe.
The discovery of America, however, certainly made a most essential one.
By opening a new and inexhaustible market to all the commodities of
Europe, it gave occasion to new divisions of labour and improvements of
art, which in the narrow circle of the ancient commerce could never have
taken place, for want of a market to take off the greater part of their
produce. The productive powers of labour were improved, and its produce
increased in all the different countries of Europe, and together with
it the real revenue and wealth of the inhabitants. The commodities of
Europe were almost all new to America, and many of those of America were
new to Europe. A new set of exchanges, therefore, began to take place,
which had never been thought of before, and which should naturally
have proved as advantageous to the new, as it certainly did to the old
continent. The savage injustice of the Europeans rendered an event,
which ought to have been beneficial to all, ruinous and destructive to
several of those unfortunate countries.

The discovery of a passage to the East Indies by the Cape of Good Hope,
which happened much about the same time, opened perhaps a still
more extensive range to foreign commerce, than even that of America,
notwithstanding the greater distance. There were but two nations
in America, in any respect, superior to the savages, and these were
destroyed almost as soon as discovered. The rest were mere savages. But
the empires of China, Indostan, Japan, as well as several others in the
East Indies, without having richer mines of gold or silver, were, in
every other respect, much richer, better cultivated, and more advanced
in all arts and manufactures, than either Mexico or Peru, even though we
should credit, what plainly deserves no credit, the exaggerated accounts
of the Spanish writers concerning the ancient state of those empires.
But rich and civilized nations can always exchange to a much greater
value with one another, than with savages and barbarians. Europe,
however, has hitherto derived much less advantage from its commerce with
the East Indies, than from that with America. The Portuguese monopolized
the East India trade to themselves for about a century; and it was only
indirectly, and through them, that the other nations of Europe could
either send out or receive any goods from that country. When the Dutch,
in the beginning of the last century, began to encroach upon them, they
vested their whole East India commerce in an exclusive company. The
English, French, Swedes, and Danes, have all followed their example; so
that no great nation of Europe has ever yet had the benefit of a free
commerce to the East Indies. No other reason need be assigned why it
has never been so advantageous as the trade to America, which, between
almost every nation of Europe and its own colonies, is free to all its
subjects. The exclusive privileges of those East India companies, their
great riches, the great favour and protection which these have procured
them from their respective governments, have excited much envy against
them. This envy has frequently represented their trade as altogether
pernicious, on account of the great quantities of silver which it every
year exports from the countries from which it is carried on. The parties
concerned have replied, that their trade by this continual exportation
of silver, might indeed tend to impoverish Europe in general, but not
the particular country from which it was carried on; because, by the
exportation of a part of the returns to other European countries, it
annually brought home a much greater quantity of that metal than it
carried out. Both the objection and the reply are founded in the popular
notion which I have been just now examining. It is therefore unnecessary
to say any thing further about either. By the annual exportation of
silver to the East Indies, plate is probably somewhat dearer in Europe
than it otherwise might have been; and coined silver probably purchases
a larger quantity both of labour and commodities. The former of these
two effects is a very small loss, the latter a very small advantage;
both too insignificant to deserve any part of the public attention.
The trade to the East Indies, by opening a market to the commodities of
Europe, or, what comes nearly to the same thing, to the gold and silver
which is purchased with those commodities, must necessarily tend to
increase the annual production of European commodities, and consequently
the real wealth and revenue of Europe. That it has hitherto increased
them so little, is probably owing to the restraints which it everywhere
labours under.

I thought it necessary, though at the hazard of being tedious, to
examine at full length this popular notion, that wealth consists in
money or in gold and silver. Money, in common language, as I have
already observed, frequently signifies wealth; and this ambiguity of
expression has rendered this popular notion so familiar to us, that even
they who are convinced of its absurdity, are very apt to forget their
own principles, and, in the course of their reasonings, to take it for
granted as a certain and undeniable truth. Some of the best English
writers upon commerce set out with observing, that the wealth of a
country consists, not in its gold and silver only, but in its lands,
houses, and consumable goods of all different kinds. In the course of
their reasonings, however, the lands, houses, and consumable goods, seem
to slip out of their memory; and the strain of their argument frequently
supposes that all wealth consists in gold and silver, and that to
multiply those metals is the great object of national industry and

The two principles being established, however, that wealth consisted in
gold and silver, and that those metals could be brought into a country
which had no mines, only by the balance of trade, or by exporting to a
greater value than it imported; it necessarily became the great object
of political economy to diminish as much as possible the importation of
foreign goods for home consumption, and to increase as much as possible
the exportation of the produce of domestic industry. Its two great
engines for enriching the country, therefore, were restraints upon
importation, and encouragement to exportation.

The restraints upon importation were of two kinds.

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

Secondly, restraints upon the importation of goods of almost all kinds,
from those particular countries with which the balance of trade was
supposed to be disadvantageous.

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

Exportation was encouraged sometimes by drawbacks, sometimes by
bounties, sometimes by advantageous treaties of commerce with foreign
states, and sometimes by the establishment of colonies in distant

Drawbacks were given upon two different occasions. When the home
manufactures were subject to any duty or excise, either the whole or a
part of it was frequently drawn back upon their exportation; and when
foreign goods liable to a duty were imported, in order to be exported
again, either the whole or a part of this duty was sometimes given back
upon such exportation.

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 privileges were
procured in some foreign state for the goods and merchants of the
country, beyond what were granted to those of other countries.

By the establishment of colonies in distant countries, not only
particular privileges, but a monopoly was frequently procured for the
goods and merchants of the country which established them.

The two sorts of restraints upon importation above mentioned, together
with these four encouragements to exportation, constitute the six
principal means by which the commercial system proposes to increase the
quantity of gold and silver in any country, by turning the balance
of trade in its favour. I shall consider each of them in a particular
chapter, and, without taking much farther notice of their supposed
tendency to bring money into the country, I shall examine chiefly what
are likely to be the effects of each of them upon the annual produce of
its industry. According as they tend either to increase or diminish
the value of this annual produce, they must evidently tend either to
increase or diminish the real wealth and revenue of the country.

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