home | authors | books | about

Home -> Adam Smith -> An Inquiry Into The Nature And Causes Of The Wealth Of Nations -> Chapter 3, Part 2

An Inquiry Into The Nature And Causes Of The Wealth Of Nations - Chapter 3, Part 2

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

PART II.--Of the Unreasonableness of those extraordinary Restraints,
upon other Principles.

In the foregoing part of this chapter, I have endeavoured to show, even
upon the principles of the commercial system, how unnecessary it is to
lay extraordinary restraints upon the importation of goods from
those countries with which the balance of trade is supposed to be

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 proportion 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, disadvantageous to the country in whose favour it is
meant to be established, as I shall endeavour to show hereafter.
But that trade which, without force or constraint, is naturally and
regularly carried on between any two places, is always advantageous,
though not always equally so, to both.

By advantage or gain, I understand, not the increase of the 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 inhabitants.

If the balance be even, and if the trade between the two places consist
altogether in the exchange of their native commodities, they will, upon
most occasions, not only both gain, but they will gain equally, or very
nearly equally; each will, in this case, afford a market for a part of
the surplus produce of the other; each will replace a capital which had
been employed in raising and preparing for the market this part of the
surplus produce of the other, and which had been distributed among, and
given revenue and maintenance to, a certain number of its inhabitants.
Some part of the inhabitants of each, therefore, will directly derive
their revenue and maintenance from the other. As the commodities
exchanged, too, are supposed to be of equal value, so the two capitals
employed in the trade will, upon most occasions, be equal, or very
nearly equal; and both being employed in raising the native commodities
of the two countries, the revenue and maintenance which their
distribution will afford to the inhabitants of each will be equal, or
very nearly equal. This revenue and maintenance, thus mutually afforded,
will be greater or smaller, in proportion to the extent of their
dealings. If these should annually amount to 100,000, for example, or
to 1,000,000, on each side, each of them will afford an annual revenue,
in the one case, of 100,000, and, in the other, of 1,000,000, 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
sending thither a large quantity of foreign goods, tobacco, we shall
suppose, and East India goods; this trade, though it would give some
revenue to the inhabitants of both countries, would give more to those
of France than to those of England. The whole French capital annually
employed in it would annually be distributed among the people of
France; but that part of the English capital only, which was employed
in producing the English commodities with which those foreign goods were
purchased, would be annually distributed among the people of England.
The greater part of it would replace the capitals which had been
employed in Virginia, Indostan, and China, and which had given revenue
and maintenance to the inhabitants of those distant countries. If the
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 consumption, have already been fully explained.

There is not, probably, between any two countries, a trade which
consists altogether in the exchange, either of native commodities on
both sides, or of native commodities on one side, and of foreign goods
on the other. Almost all countries exchange with one another, partly
native and partly foreign goods That country, however, in whose cargoes
there is the greatest proportion of native, and the least of foreign
goods, will always be the principal gainer.

If it was not with tobacco and East India goods, but with gold and
silver, that England paid for the commodities annually imported 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 revenue to those of
England. The capital which had been employed in producing the English
goods that purchased this gold and silver, the capital which had been
distributed among, and given revenue to, certain inhabitants of England,
would thereby be 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 tobacco which in England is worth only 100,000, when
sent to France, will purchase wine which is in England worth 110,000,
the exchange will augment the capital of England by 10,000. If 100,000
of English gold, in the same manner, purchase French wine, which in
England is worth 110,000, this exchange will equally augment the
capital of England by 10,000. As a merchant, who has 110,000 worth of
wine in his cellar, is a richer man than he who has only 100,000 worth
of tobacco in his warehouse, so is he likewise a richer man than he who
has only 100,000 worth of gold in his coffers. He can put into motion
a greater quantity of industry, and give revenue, maintenance, and
employment, to a greater number of people, than either of the other
two. But the capital of the country is equal to the capital 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 augmented by this exchange. It would, indeed, be more
advantageous for England that it could purchase the wines of France
with its own hardware 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 advantageous than any other
equally round-about one. Neither is a country which has no mines, more
likely to be exhausted of gold and silver by this annual exportation of
those metals, than one which does not grow tobacco by the like annual
exportation of that plant. As a country which has wherewithal to buy
tobacco will never be long in want of it, so neither will one be long in
want of gold and silver which has wherewithal to purchase those metals.

It is a losing trade, it is said, which a workman carries on with the
alehouse; and the trade which a manufacturing nation would naturally
carry on with a wine country, may be considered as a trade of the same
nature. I answer, that the trade with the alehouse is not necessarily a
losing trade. In its own nature it is just as advantageous as any other,
though, perhaps, somewhat more liable to be abused. The employment of
a brewer, and even that of a retailer of fermented liquors, are as
necessary division's of labour as any other. It will generally be more
advantageous for a workman to buy of the brewer the quantity he has
occasion for, than to brew it himself; and if he is a poor workman,
it will generally be more 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 fortunes 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 inhabitants of the wine countries are in general the
soberest people of Europe; witness the Spaniards, the Italians, and
the inhabitants 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 excessive heat or cold, produce no grapes,
and where wine consequently is dear and a rarity, drunkenness is a
common vice, as among the northern nations, and all those who live
between the tropics, the negroes, for example on the coast of Guinea.
When a French regiment comes from some of the northern provinces of
France, where wine is somewhat 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 become
as sober as the rest of the inhabitants. Were the duties upon foreign
wines, and the excises upon malt, beer, and ale, to be taken away all at
once, it might, in the same manner, occasion in Great Britain a pretty
general and temporary drunkenness among the middling and inferior ranks
of people, which would probably be soon followed by a permanent and
almost universal sobriety. At present, drunkenness is by no means the
vice of people of fashion, or of those who can easily afford the most
expensive liquors. A gentleman drunk with ale has scarce ever been seen
among us. The restraints upon the wine trade in Great Britain, besides,
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 customers
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 become the most fertile
source of discord and animosity. The capricious ambition of kings and
ministers has not, during the present and the preceding century, been
more fatal to the repose of Europe, than the impertinent jealousy of
merchants and 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 anybody 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 mankind. Their interest is, in this respect,
directly opposite to that of the great body of the people. As it is
the interest of the freemen of a corporation to hinder the rest of the
inhabitants from employing any workmen but 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 balance of trade is supposed to be disadvantageous; that is,
from those against whom national animosity happens ta be most violently

The wealth of neighbouring nations, however, though dangerous in war and
politics, is certainly advantageous in trade. In a state of hostility,
it may enable our enemies to maintain fleets and armies superior to our
own; but in a state of peace and commerce it must likewise enable them
to exchange with us to a greater value, and to afford a better market,
either for the immediate produce of our own industry, or for whatever
is purchased with that produce. As a rich man is likely to be a better
customer to the industrious people in his neighbourhood, than a poor,
so is likewise a rich nation. A rich man, indeed, who is himself a
manufacturer, is a very dangerous neighbour to all those who deal in
the same way. All the rest of the neighbourhood, however, by far the
greatest number, profit by the good market which his expense 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 expense 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 share of it may fall to them. The
same maxim 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
cultivation of its own lands, and by its own interior commerce, but not
by foreign trade. It seems to have been in this manner that the ancient
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
maxims of foreign commerce, by aiming at the impoverishment of all
our neighbours, so far as they are capable of producing their
intended effect, tend to render that very commerce insignificant and

It is in consequence of these maxims, that the commerce between
France and England has, in both countries, been subjected to so many
discouragements and restraints. If those two countries, however, were
to consider their real interest, without either mercantile jealousy or
national animosity, the commerce of France might be more advantageous to
Great Britain than that of any other country, and, for the same reason,
that of Great Britain to France. France is the nearest neighbour to
Great Britain. In the trade between the southern coast of England and
the northern and north-western coast of France, the returns might be
expected, in the same manner as in the inland trade, four, five, or six
times in the year. The capital, therefore, employed in this trade could,
in each of the two countries, keep in motion four, five, or six times
the quantity of industry, and afford employment and subsistence to four,
five, or six times the number of people, which all equal capital could
do in the greater part of the other branches of foreign trade. Between
the parts of France and Great Britain most remote from one another, the
returns might be expected, at least, once in the year; and even this
trade would so far be at least equally advantageous, as the greater part
of the other branches of our foreign European trade. It would be, at
least, three times more advantageous than the boasted trade with our
North American colonies, in which the returns were seldom made in
less than three years, frequently not in less than four or five years.
France, besides, is supposed to contain 24,000,000 of inhabitants.
Our North American colonies were never supposed to contain more than
3,000,000; 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 account of the superior frequency of the returns,
four-and-twenty times more advantageous than that which our North
American colonies ever afforded. The trade of Great Britain would
be just as advantageous to France, and, in proportion to the wealth,
population, and proximity of the respective countries, would have
the same superiority over that which France carries on with her own
colonies. Such is the very great difference between that trade which the
wisdom of both nations has thought proper to discourage, and that which
it has favoured the most.

But the very same circumstances which would have rendered an open and
free commerce between the two countries so advantageous to both,
have occasioned the principal obstructions to that commerce. Being
neighbours, they are necessarily enemies, and the wealth and power of
each becomes, upon that account, more formidable to the other; and what
would increase the advantage of national friendship, serves only to
inflame the violence of national animosity. They are both rich and
industrious nations; and the merchants and manufacturers of each
dread the competition of the skill and activity of those of the other.
Mercantile jealousy is excited, and both inflames, and is itself
inflamed, by the violence of national animosity, and the traders of
both countries have announced, with all the passionate confidence of
interested falsehood, the certain ruin of each, in consequence of
that unfavourable balance of trade, which, they pretend, would be the
infallible effect of an unrestrained 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 all unfavourably 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
same respects, deserve the name of free ports, there is no country which
does so. Holland, perhaps, approaches the nearest to this character of
any, though still very remote from it; and Holland, it is acknowledged,
not only derives its whole wealth, but a great part of its necessary
subsistence, from foreign trade.

There is another balance, indeed, which has already been 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 employed so as to increase still further the
annual produce. If the exchangeable value of the annual produce, on
the contrary, fall short of the annual consumption, the capital of
the society must annually decay in proportion to this deficiency.
The expense of the society, in this case, exceeds its revenue, and
necessarily encroaches upon its capital. Its capital, therefore, must
necessarily decay, and, together with it, the exchangeable value of the
annual produce of its industry.

This balance of produce and consumption is entirely different from what
is called the balance of trade. It might take place in a nation which
had no foreign trade, but which was entirely separated from all the
world. It may take place in the whole globe of the earth, of which the
wealth, population, and improvement, may be either gradually increasing
or gradually decaying.

The balance of produce and consumption may be constantly in favour of a
nation, though what is called the balance of trade be generally against
it. A nation may import to a greater value than it exports for half
a century, perhaps, together; the gold and silver which comes into
it during all this time, may be all immediately sent out of it; its
circulating coin may gradually decay, different sorts of paper money
being substituted in its place, and even the debts, too, which it
contracts in the principal nations with whom it deals, may be gradually
increasing; and yet its real wealth, the exchangeable 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,
{This paragraph was written in the year 1775.} may serve as a proof that
this is by no means an impossible supposition.

© Art Branch Inc. | English Dictionary