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By restraining, either by high duties, or by absolute prohibitions,
the importation of such goods from foreign countries as can be
produced at home, the monopoly of the home market is more or less
secured to the domestic industry employed in producing them. Thus the
prohibition of importing either live 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 moderate plenty, amount to
a prohibition, give a like advantage to the growers of that commodity.
The prohibition of the importation of foreign woollen is equally
favourable to the woollen manufacturers. The silk manufacture, though
altogether employed upon foreign materials, has lately obtained the
same advantage. The linen manufacture has not yet obtained it, but is
making great strides towards it. Many other sorts of manufactures
have, in the same manner obtained in Great Britain, either altogether,
or very nearly, a monopoly against their countrymen. The variety of
goods, of which the importation into Great Britain is prohibited,
either absolutely, or under certain circumstances, greatly exceeds
what can easily be suspected by those who are not well acquainted with
the laws of the customs.

That this monopoly of the home market frequently gives great
encouragement to that particular species of industry which enjoys it,
and frequently turns towards that employment a greater share of both
the labour and stock of the society than would otherwise have gone to
it, cannot be doubted. But whether it tends either to increase the
general industry of the society, or to give it the most advantageous
direction, is not, perhaps, altogether so evident.

The general industry of the society can never 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
proportion to the whole capital of the society, and never can exceed
that proportion. No regulation of commerce can increase the quantity
of industry in any society beyond what its capital can maintain. It
can only divert a part of it into a direction into which it might not
otherwise have gone; and it is by no means certain that this
artificial direction is likely to be more advantageous to the society,
than that into which it would have gone of its own accord.

Every individual is continually exerting himself to find out the most
advantageous employment for whatever capital he can 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 persons whom he trusts; and if he
should happen to be deceived, he knows better the laws of the country
from which he must seek redress. In the carrying trade, the capital of
the merchant is, as it were, divided between two foreign countries,
and no part of it is ever necessarily brought home, or placed under
his own immediate view and command. The capital which an Amsterdam
merchant employs in carrying corn from Koningsberg to Lisbon, and
fruit and wine from Lisbon to Koningsberg, must generally be the one
half of it at Koningsberg, 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 Koningsberg or Lisbon; and it can only be some
very particular circumstances which can make him prefer the residence
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 Koningsberg goods which he destines for the market of
Lisbon, and of the Lisbon goods which he destines for that of
Koningsberg, 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, endeavours always to sell in the home
market, as much of the goods of all those different countries as he
can; and thus, so far as he can, to convert his carrying trade into a
foreign trade of consumption. A merchant, in the same manner, who is
engaged in the foreign trade of consumption, when he collects goods
for foreign markets, will always be glad, 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 centre, if I may say so, round which the
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 domestic 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 greatest support to domestic industry, and to give revenue
and employment to the greatest number of people of his own country.

Secondly, every individual who employs his capital in the support of
domestic industry, necessarily endeavours so to direct that 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 profit that any man employs a capital
in the support of industry; and he will always, therefore, endeavour
to employ it in the support of that industry of which the produce is
likely to be of the greatest value, or to exchange for the greatest
quantity either of money or of other goods.

But the annual revenue of every society is always precisely equal to
the exchangeable value of the whole annual produce of its industry, or
rather is precisely the same thing with that exchangeable value. As
every individual, therefore, endeavours as much as he can, both to
employ his capital in the support of domestic industry, and so to
direct that industry that its produce maybe of the greatest value;
every individual 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 produce may be of the greatest value, he intends only
his own gain; and he is in this, as in many other cases, led by an
invisible hand to promote an end which was no part of his intention.
Nor is it always the worse for the society that it was no part of it.
By pursuing his own interest, he frequently promotes that of the
society more effectually than when he really 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

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 lawgiver can do for him. The statesman,
who should attempt to direct private people in what manner they ought
to employ their capitals, would not only load 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 nowhere 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 tailor 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
tailor. The farmer attempts to make neither the one nor the other, but
employs those different artificers. All of them find it for their
interest to employ their whole industry in a way in which they have
some advantage over their neighbours, and to purchase with a part of
its produce, or, what is the same thing, with the price of a part of
it, whatever else they have occasion for.

What is prudence in the conduct of every private family, can scarce be
folly In that of a great kingdom. If a foreign country can supply us
with a commodity 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
abovementioned artificers; but only left to find out the way in which
it can be employed with the greatest advantage. It is certainly not
employed to the greatest advantage, 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 purchased from foreign countries
cheaper than it can be made at home; it could therefore have been
purchased with a part only of the commodities, or, what is the same
thing, with a part only of the price of the commodities, which the
industry employed by an equal capital would have produced at home, had
it been left to follow its natural course. The industry of the
country, therefore, is thus turned away from a more to a less
advantageous employment; and the exchangeable value of its annual
produce, instead of being increased, according to the intention of the
lawgiver, must necessarily be diminished by every such regulation.

By means of such regulations, indeed, a particular manufacture may
sometimes be acquired sooner than it could have been 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 augments, and its capital
can augment only in proportion to what can be gradually saved out of
its revenue. But the immediate effect of every such regulation is to
diminish its revenue; and what diminishes its revenue is certainly not
very likely to augment its capital faster than it would have augmented
of its own accord, had both capital and industry been left to find out
their natural employments.

Though, for want of such regulations, the society should never acquire
the proposed manufacture, it would not upon that account necessarily
be the poorer in anyone period of its duration. In every period of its
duration its whole capital and industry might still have been
employed, though upon different objects, in the manner that was most
advantageous at the time. In every period its revenue might have been
the greatest which its capital could afford, and both capital and
revenue might have been augmented with the greatest possible rapidity.

The natural advantages which one country has over another, in
producing particular commodities, are sometimes so great, that it is
acknowledged by all the world to be in vain to struggle with them. By
means of glasses, hot-beds, and hot-walls, very good grapes can be
raised in Scotland, and very good wine, too, can be made of them, at
about thirty times the expense 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 industry of the country than would be necessary to
purchase from foreign countries an equal quantity of the commodities
wanted, there must be an absurdity, though not altogether so glaring,
yet exactly of the same kind, in turning towards any such employment a
thirtieth, or even a three hundredth part more of either. Whether the
advantages which one country has over another be natural or acquired,
is in this respect of no consequence. As long as the one country has
those advantages, and the other wants them, it will always be more
advantageous for the latter rather to buy of the former than to make.
It is an acquired advantage only, which one artificer has over his
neighbour, who exercises another trade; and yet they both find it more
advantageous to buy of one another, than to make what does not belong
to their particular trades.

Merchants and manufacturers are the people who derive the greatest
advantage from this monopoly of the home market The prohibition of the
importation of foreign 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 graziers
and farmers of Great Britain, as other regulations of the same kind
are to its merchants and manufacturers. Manufactures, those of the
finer kind especially, are more easily transported from one country to
another than corn or 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 altogether, 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 agriculture of
the country.

If the importation of foreign cattle, for example, were made ever so
free, so few could be imported, that the grazing trade of Great
Britain could be little affected by it. Live cattle are, perhaps, the
only commodity of which the transportation is more expensive by sea
than by land. By land they carry themselves to market. By sea, not
only the cattle, but their food and their water too, must be carried
at no small expense 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 rendered perpetual, it could
have no considerable effect upon the interest of the graziers of Great
Britain. Those parts of Great Britain which border upon the Irish sea
are all grazing countries. Irish cattle could never be imported for
their use, but must be drove through those very extensive countries,
at no small expense and inconveniency, before they could arrive at
their proper market. Fat cattle could not be drove so far. Lean
cattle, therefore, could only be imported; and such importation could
interfere not with the interest of the feeding or fattening countries,
to which, by reducing the price of lean cattle it would rather be
advantageous, but with that of the breeding countries only. The small
number of Irish cattle imported since their importation was permitted,
together with the good price at which lean cattle still continue to
sell, seem to demonstrate, that even the breeding countries of Great
Britain are never likely to be much affected by the free importation
of Irish 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 improvement. 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 countries
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 provisions are not only a very
bulky commodity, but when compared with fresh meat they are a
commodity both of worse quality, and, as they cost more labour and
expense, of higher price. They could never, therefore, come into
competition with the fresh meat, though they might with the salt
provisions of the country. They might be used for victualling ships
for distant voyages, and such like uses, but could never make any
considerable part of the food of the people. The small quantity of
salt provisions imported from Ireland since their importation was
rendered free, is an experimental proof that our graziers have nothing
to apprehend from it. It does not appear that the price of butcher's
meat has ever been sensibly affected by it.

Even the free importation of foreign corn could very 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 fourpence. The small quantity of
foreign corn imported even in times of the greatest scarcity, may
satisfy our farmers that they can have nothing to fear from the freest
importation. The average quantity imported, one year with another,
amounts only, according to the very well informed author of the Tracts
upon the Corn Trade, to 23,728 quarters of all sorts of grain, and
does not exceed the five hundredth and seventy-one part of the annual
consumption. But as the bounty upon corn occasions a greater
exportation in years of plenty, so it must, of consequence, occasion a
greater importation in years of scarcity, than in the actual state of
tillage would otherwise take place. By means of it, the plenty of one
year does not 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, suit is probable that,
one year with another, less would be imported than at present. The
corn-merchants, the fetchers and carriers of corn between Great
Britain and foreign countries, would have much less employment, and
might suffer considerably; but the country gentlemen and farmers could
suffer very little. It is in the corn-merchants, accordingly, rather
than the country gentlemen and farmers, that I have observed the
greatest anxiety 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 monopoly. The
undertaker of a great manufactory is sometimes alarmed if another work
of the same kind is established within twenty miles of him; the Dutch
undertaker of the woollen manufacture at Abbeville, 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 neighbours 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 may have found to be advantageous. "Pius quaestus", says old
Cato, "stabilissimusque, minimeque invidiosus; minimeque male
cogitantes sunt, qui in eo studio occupati sunt." Country gentlemen
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 exclusive 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 imitation 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 forgot the generosity which is natural to their station, as to
demand the exclusive privilege of supplying their countrymen 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 industry of
the country shall, at no time, exceed what the rude produce of its own
soil can maintain.

There seem, however, to be two cases, in which it will generally be
advantageous to lay some burden upon foreign, for the encouragement of
domestic industry.

The first is, when some particular sort of industry is necessary for
the defence of the country. The defence of Great Britain, for example,
depends very much upon the number of its sailors and shipping. The act
of navigation, therefore, very properly endeavours to give the sailors
and shipping of Great Britain the monopoly of the trade of their own
country, in some cases, by absolute prohibitions, and in others, by
heavy burdens upon the shipping of foreign countries. The following
are the principal dispositions of this act.

First, All ships, of which the owners, masters, and three-fourths of
the mariners, are not British subjects, are prohibited, upon pain of
forfeiting ship and cargo, from trading to the British settlements and
plantations, or from being employed in the coasting trade of Great

Secondly, A great variety of the most bulky articles of importation
can be brought into Great Britain only, either in such ships as are
above described, or in ships of the country where those goods are
produced, and of which the owners, masters, and three-fourths of the
mariners, are of that particular country; and when imported even in
ships of this latter kind, they are subject to double aliens duty. If
imported in ships of any other country, the penalty is forfeiture of
ship and goods. When this act was made, the Dutch were, what they
still are, the great carriers of Europe; and by this regulation they
were entirely excluded from being the carriers to Great Britain, or
from importing to us the goods of any other European country.

Thirdly, A great variety of the most bulky articles of importation are
prohibited from being imported, even in British ships, from any
country but that in which they are produced, under pain of 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 hindered
from loading in Holland the goods of any other European country.

Fourthly, Salt fish of all kinds, whale fins, whalebone, oil, and
blubber, not caught by and cured on board British vessels, when
imported into Great Britain, are subject to double aliens duty. The
Dutch, as they are still the principal, were then the only fishers in
Europe that attempted to supply foreign nations with fish. By this
regulation, a very heavy burden was laid upon their supplying Great

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 II. 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 would have recommended,
the diminution 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 commerce, or to the
growth of that opulence which can arise from it. The interest of a
nation, in its commercial relations to foreign nations, is, like that
of a merchant with regard to the different people with whom he deals,
to buy as cheap, and to sell as dear as possible. But it will be most
likely to buy cheap, when, by the most perfect freedom of trade, it
encourages all nations to bring to it the goods which it has occasion
to purchase; and, for the same reason, it will be most likely to sell
dear, when its markets are thus filled with the greatest 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 upon all goods, exported as
well as imported, has, by several subsequent acts, been taken off from
the greater part of the articles of exportation. But if foreigners,
either by prohibitions or high duties, are hindered from coming to
sell, they cannot always afford to come to buy; because, coming
without a cargo, they must lose the freight from their own country to
Great Britain. By diminishing the number of sellers, therefore, we
necessarily diminish that of buyers, and are thus likely not only to
buy foreign goods dearer, but to sell our own cheaper, than if there
was a more perfect freedom of trade. As defence, 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 reasonable that an equal tax should be imposed
upon the like produce of the former. This would not give the monopoly
of the borne 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 most 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 domestic industry. Subsistence, they say,
becomes necessarily dearer in consequence of such taxes; and the price
of labour must always rise with the price of the labourer's
subsistence. Every commodity, therefore, which is the produce of
domestic industry, though not immediately taxed itself, becomes dearer
in consequence of such taxes, because the 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 competition.

Whether taxes upon the necessaries of life, such as those in Great
Britain upon soap, salt, leather, candles, etc. necessarily raise the
price of labour, and consequently that of all other commodities, I
shall consider hereafter, when I come to treat of taxes. Supposing,
however, in the mean time, that they have this effect, and they have
it undoubtedly, this general enhancement of the price of all
commodities, in consequence of that 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 of
every foreign, to the enhancement of the price of every home

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 expense to raise them. As, in
the natural scarcity arising from soil and climate, it would be absurd
to direct the people in what manner they ought to employ their
capitals and industry, so is it likewise in the artificial scarcity
arising from such taxes. To be left to accommodate, as well as they
could, their industry to their situation, and to find out those
employments in which, notwithstanding their unfavourable
circumstances, they might have some advantage either in the home or in
the foreign market, is what, in both cases, would evidently be most
for their advantage. To lay a new-tax upon them, because they are
already overburdened with taxes, and because they already pay too dear
for the necessaries of life, to make them likewise pay too dear for
the greater part of other commodities, is certainly a most absurd way
of making amends.

Such taxes, when they have grown up to a certain height, are a curse
equal to the barrenness of the earth, and the inclemency of the
heavens, and yet it is in the richest and most industrious countries
that they have been most generally imposed. No other countries could
support so great a disorder. As the strongest bodies only can live and
enjoy health under an unwholesome regimen, so the 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, continues to prosper, not by means of them, as has been
most absurdly supposed, but in spite of them.

As there are two cases in which it will generally be advantageous to
lay some burden upon foreign for the encouragement of domestic
industry, so there are two others in which it may sometimes be a
matter of deliberation, in the one, how far it is proper to continue
the free importation of certain foreign goods; and, in the other, how
far, or in what manner, it may be proper to restore that free
importation, after it has been for some time interrupted.

The case in which it may sometimes be a matter of deliberation how far
it is proper to continue the free importation of certain foreign
goods, is when some foreign nation restrains, by high duties or
prohibitions, the importation of some of our manufactures into their
country. Revenge, in this case, naturally dictates retaliation, and
that we should impose the like duties and prohibitions upon the
importation of some or all of their manufactures into ours. Nations,
accordingly, seldom fail to retaliate in this manner. The French have
been particularly forward to favour their own manufactures, 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, notwithstanding his great abilities, seems in this
case to have been imposed upon by the sophistry of merchants and
manufacturers, who are always demanding a monopoly against their
countrymen. It is at present the opinion of the most intelligent men
in France, that his operations of this kind have not been beneficial
to his country. That minister, by the tariff of 1667, imposed very
high duties upon a great number of foreign manufactures. Upon his
refusing to moderate them in favour of the Dutch, they, in 1671,
prohibited the importation of the wines, brandies, and 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 prohibition. It was about the same time
that the French and English began mutually to oppress each other's
industry, by the like duties and prohibitions, of which the French,
however, seem to have set the first example, The spirit of hostility
which has subsisted between the two nations ever since, has hitherto
hindered them from being moderated on either side. In 1697, the
Ehglish 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 bone lace into England
was taken oft; 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 retaliations are likely to produce such an effect, does
not, perhaps, belong so much to the science of a legislator, whose
deliberations ought to be governed by general principles, which are
always the same, as to the skill of that insidious and crafty animal
vulgarly called a statesman or politician, whose 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 considerably, but some other
manufacture of theirs. This may, no doubt, give encouragement to some
particular class of workmen among ourselves, and, by excluding some of
their rivals, may enable them to raise their price in the home market.
Those workmen however, who suffered by our neighbours prohibition,
will not be benefited by ours. On the contrary, they, and almost all
the other classes of our citizens, will thereby be obliged to pay
dearer than before for certain goods. Every such law, therefore,
imposes a real tax upon the whole country, not in favour of that
particular class of workmen who were injured by our neighbours
prohibitions, but of some other class.

The case in which it may sometimes be a matter of deliberation, how
far, or in what manner, it is proper to restore the free importation
of foreign goods, after it has been for some time interrupted, is when
particular manufactures, 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 freedom 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 occasion might no doubt be very
considerable. It would in all probability, however, be much less than
is commonly imagined, for the two following reasons.

First, All those manufactures of which any part is commonly exported
to other European countries without a bounty, could be very little
affected by the freest importation of foreign goods. Such manufactures
must be sold as cheap abroad as any other foreign goods of the same
quality and kind, and consequently must be sold cheaper at home. They
would still, therefore, keep possession of the home market; and though
a capricious man of fashion might sometimes prefer foreign wares,
merely because they were foreign, to cheaper and better goods of the
same kind that were made at home, this folly could, from the nature of
things, extend to so few, that it could make no sensible impression
upon the general employment of the people. But a great part of all the
different branches of our woollen manufacture, of our tanned leather,
and of our hardware, 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 subsistence, 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 100,000 soldiers and seamen, a number 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 subsistence. The greater part of the seamen, it is probable,
gradually betook themselves to the merchant service as they could find
occasion, and in the mean time both they and the soldiers were
absorbed in the great mass of the people, and employed in a great
variety of occupations. Not only no great convulsion, but no sensible
disorder, arose from so great a change in the situation of more than
100,000 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 able to learn, except in
that of seamen in the merchant service. But if we compare together the
habits of a soldier and of any sort of manufacturer, we shall find
that those of the latter do not tend so much to disqualify him from
being employed in a new trade, as those of the former from being
employed in any. The manufacturer has always been accustomed to look
for his subsistence from his labour only; the soldier to expect it
from his pay. Application and industry have been familiar to the one;
idleness and dissipation to the other. But it is surely much easier to
change the direction of industry from one sort of labour to another,
than to turn idleness and dissipation to any. To the greater part of
manufactures, besides, it has already been observed, there are other
collateral manufactures of so similar a nature, that a 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 different places, and for
different occupations. Soldiers and seamen, indeed, when discharged
from the king's service, are at liberty to exercise any trade within
any town or place of Great Britain or Ireland. Let the same natural
liberty of exercising what species of industry they please, be
restored to all his Majesty's subjects, in the same manner as to
soldiers and seamen; that is, break down the exclusive privileges of
corporations, and repeal the statute of apprenticeship, both which are
really encroachments upon natural Liberty, and add to those the repeal
of the law of settlements, so that a poor workman, when thrown out of
employment, either in one trade or in one place, may seek for it in
another trade or in another place, without the fear either of a
prosecution or of a removal; and neither the public nor the
individuals will suffer much more from the occasional disbanding some
particular classes of manufacturers, than from that of the 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 expect that an Oceana or
Utopia should ever be established in it. Not only the prejudices of
the public, but, what is much more unconquerable, the private
interests of many individuals, irresistibly oppose it. Were the
officers of the army to oppose, with the same zeal and unanimity, any
reduction in the number of forces, with which master 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 inflame 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 attempt to diminish, in any respect, the monopoly which our
manufacturers have obtained against us. This monopoly has so much
increased the number of some particular tribes of them, that, like an
overgrown standing army, they have become formidable to the
government, and, upon many occasions, intimidate the legislature. The
member of parliament who supports every proposal for strengthening
this monopoly, is sure to acquire not only the reputation of
understanding trade, but great popularity and influence with an order
of men whose numbers and wealth render them of great importance. If he
opposes them, on the 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 foreigners, should be obliged
to abandon his trade, would no 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 disorder into the constitution of the state, which it
will be difficult afterwards to cure without occasioning another

How far it may be proper to impose taxes upon the importation of
foreign goods, in order not to prevent their importation, but to raise
a revenue for government, I shall consider hereafter when I come to
treat of taxes. Taxes imposed with a view to prevent, or even to
diminish importation, are evidently as destructive of the revenue of
the customs as of the freedom of trade.



Part I -- Of the Unreasonableness of those Restraints, even upon the-
Principles of the Commercial System.

To lay extraordinary restraints upon the importation of goods of
almost all kinds, from those particular countries with which the
balance of trade is supposed to be disadvantageous, is the second
expedient by which the commercial system proposes to increase the
quantity of gold and silver. Thus, in Great Britain, Silesia lawns may
be imported for home consumption, upon paying certain duties; but
French cambrics and lawns are prohibited to be imported, except into
the port of London, there to be warehoused 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
1692, a duty of five and-twenty per cent. of the rate or value, was
laid upon all French goods; while the goods of other nations were, the
greater part of them, subjected to much lighter duties, seldom
exceeding five per cent. The wine, brandy, salt, and vinegar of
France, were indeed excepted; these commodities being subjected to
other heavy duties, either by other laws, or by particular clauses of
the same law. In 1696, a 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 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 subsidy 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 nations; 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 te examine in this, from
national prejudice and animosity. They are, accordingly, as might well
be expected, still more unreasonable. They are so, even upon the
principles of the commercial system.

First, Though it were certain that in the case of a free trade 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 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 frequently been said of the East India trade,
might possibly be true of the French; that though the greater part of
East India goods were bought with gold and silver, the re-exportation
of a part of them to other countries brought back more gold and silver
to that which carried on the trade, than the prime cost of the whole
amounted to. One of the most important branches of the Dutch trade at
present, consists in the carriage of French goods to other European
countries. Some part even of the French wine drank in Great Britain,
is clandestinely imported from Holland and Zealand. If there was
either a free trade between France and 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, however, which have frequently been appealed to upon such
occasions, the custom-house books and the course of exchange. The
custom-house books, I think, it is now generally acknowledged, are a
very uncertain criterion, on account of the inaccuracy of the
valuation at which the greater part of goods are rated in them. The
course of exchange is, perhaps, almost equally so.

When the exchange between two places, such as London and Paris, is at
par, it is said to be a sign that the debts due from London to Paris
are compensated by those due from Paris to London. On the contrary,
when a premium is paid at London for a bill upon Paris, it is said to
be a sign that the debts due from London to Paris are not compensated
by those due from Paris to London, but that a balance in money must be
sent out from the latter place; for the risk, trouble, and expense, 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 regulated, it is said, by the ordinary course of their
dealings with one another. When neither of them imports from from
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 indebted to the latter in a
greater sum than the latter becomes indebted to it: the debts and
credits of each do not compensate one another, and money must be sent
out from that place of which the debts overbalance the credits. The
ordinary course of exchange, therefore, being an indication of the
ordinary state of debt and credit between two places, must likewise be
an indication of the ordinary course of their exports and imports, as
these necessarily regulate that state.

But though the ordinary course of exchange shall be allowed to be a
sufficient indication of the ordinary state of debt and credit between
any two places, it would not from thence follow, that the balance of
trade was in favour of that place which had the ordinary state of debt
and credit in its favour. The ordinary state of debt and credit
between any two places is not always entirely regulated by the
ordinary course of their dealings with one another, but is often
influenced by that of the dealings of either with many other places.
If it is usual, for example, for the merchants of England to pay for
the goods which they buy of Hamburg, Dantzic, Riga, etc. 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
dealings of those two countries with one another, but will be
influenced by that of the dealings in England with those other places.
England may be obliged to send out every year money to Holland, though
its annual exports to that country may exceed very much the annual
value of its imports from thence, and though what is called the
balance of trade may be very much in favour of England.

In the way, besides, in which the par of exchange has hitherto been
computed, the ordinary course of exchange can afford no 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
computed one, that, from the course of the latter, no certain
conclusion can, upon many occasions, be drawn concerning that of the

When for a sum or 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 current money
of different countries by the standard of their respective mints. In
some it is more, in others it is less worn, clipt, and otherwise
degenerated from that standard. But the value of the current coin of
every country, compared with that of any other country, is in
proportion, not to the quantity of pure silver which it ought to
contain, but to that which it actually does contain. Before the
reformation of the silver coin in King William's time, exchange
between England and Holland, computed in the usual manner, 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,
notwithstanding the computed exchange was so much against it; a
smaller number or 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 wore than the English,
and was perhaps two or three per cent. nearer its standard. If the
computed exchange with France, therefore, was not more than two or
three per cent. against England, the real exchange might have been in
its favour. Since the reformation of the gold coin, the exchange has
been constantly in favour of England, and against France.

Secondly, In some countries the expense 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 expense 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 bullion which it actually contains. In France, the
workmanship, as you pay for it, adds to the value, in the same manner
as to that of wrought plate. A sum of French money, therefore,
containing an equal weight of pure silver, is more valuable than a sum
of English money containing an equal weight of pure silver, and must
require more bullion, or other commodities, to purchase it. Though the
current coin of the two countries, therefore, were equally near the
standards of their 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 expense of the French coinage,
the real exchange might be at par between the two countries; their
debts and credits might mutually compensate one another, while the
computed exchange was considerably in favour of France. If less than
this was paid, the real exchange might be in favour of England, while
the computed was in favour of France.

Thirdly, and lastly, In some places, as at Amsterdam, Hamburg, Venice,
etc. foreign bills of exchange are paid in what they call bank money;
while in others, as at London, Lisbon, Antwerp, Leghorn, etc. they are
paid in the common currency of the country. What is called bank money,
is always of more value than the same nominal sum of common currency.
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 the two
countries equally near to the standard of their respective mints, and
that the one pays foreign bills in this common currency, while the
other pays them in bank money, it is evident that the computed
exchange may be in favour of that which pays in bank money, though the
real exchange should be in favour of that which pays in current money;
for the same reason that the computed exchange may be in favour of
that which pays in better money, or in money nearer to its own
standard, though the real exchange should be in favour of that which
pays in worse. The computed exchange, before the late reformation of
the gold coin, was generally against London with Amsterdam, Hamburg,
Venice, and, I believe, with all other places which pay in what is
called bank money. It will by no means follow, however, that the real
exchange was against it. Since the reformation of the gold coin, it
has been in favour of London, even with those places. The computed
exchange has generally been in favour of London with Lisbon, Antwerp,
Leghorn, 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.

Digression concerning Banks of Deposit, particularly concerning that
of Amsterdam.

The currency of a great state, such as France or England, generally
consists almost entirely of its own coin. Should this currency,
therefore, be at any time worn, clipt, or otherwise degraded below its
standard value, the state, by a reformation of its coin, can
effectually re-establish its currency. But the currency of a small
state, such as Genoa or Hamburg, can seldom consist altogether in its
own coin, but must be made up, in a great measure, of the coins of all
the neighbouring states with which its inhabitants have a continual
intercourse. Such a state, therefore, by reforming its coin, will not
always be able to reform its currency. If foreign bills of exchange
are paid in this currency, the uncertain value of any sum, of what is
in its own nature so uncertain, must render the exchange always very
much against such a state, its currency being in all foreign states
necessarily valued even below what it is worth.

In order to remedy the inconvenience to which this disadvantageous
exchange must have subjected their merchants, such small states, when
they began to attend to the interest of trade, have frequently enacted
that foreign bills of exchange of a certain value should be paid, not
in common currency, but by an order upon, or by a transfer in the
books of a certain bank, established upon the credit, and under the
protection of the state, this bank being always obliged to pay, in
good and true money, exactly according to the standard of the state.
The banks of Venice, Genoa, Amsterdam, Hamburg, and Nuremberg, seem to
have been all originally established with this view, though some of
them may have afterwards been made subservient to other purposes. The
money of such banks, being better than the common currency of the
country, necessarily bore an agio, which was greater or smaller,
according as the currency was supposed to be more or less degraded
below the standard of the state. The agio of the bank of Hamburg, for
example, which is said to be commonly about fourteen per cent. is the
supposed difference between the good standard money of the state, and
the clipt, worn, and diminished currency, poured into it from all the
neighbouring states.

Before 1609, the great quantity of clipt and worn foreign coin which
the extensive trade of Amsterdam brought from all parts of Europe,
reduced the value of its currency about nine per cent. below that of
good money fresh from the mint. Such money no sooner appeared, than it
was melted down or carried away, as it always is in such
circumstances. The merchants, with plenty of currency, could not
always find a sufficient quantity of good money to pay their bills of
exchange; and the value of those bills, in spite of several
regulations which were made to prevent it, became in a great measure

In order to remedy these inconveniencies, a bank was established in
1609, under the guarantee of the city. This bank received both foreign
coin, and the light and worn coin of the country, at its real
intrinsic value in the good standard money of the country, deducting
only so much as was necessary for defraying the expense of coinage and
the other necessary expense of management. For the value which
remained after this small deduction was made, it gave a credit in its
books. This credit was called bank money, which, as it represented
money exactly according to the standard of the mint, was always of the
same real value, and intrinsically worth more than current money. It
was at the same time enacted, that all bills drawn upon or negotiated
at Amsterdam, of the value of 600 guilders and upwards, should be paid
in bank money, which at once took away all uncertainty in the value of
those bills. Every merchant, in consequence of this regulation, was
obliged to keep an account with the bank, in order to pay his foreign
bills of exchange, which necessarily occasioned a certain demand for
bank money.

Bank money, over and above both its intrinsic superiority to
currency, and the additional value which this demand necessarily gives
it, has likewise some other advantages, It is secure from fire,
robbery, and other accidents; the city of Amsterdam is bound for it;
it can be paid away by a simple transfer, without the trouble of
counting, or the risk of transporting it from one place to another. In
consequence of those different advantages, it seems from the beginning
to have borne an agio; and it is generally believed that all the money
originally deposited in the bank, was allowed to remain there, nobody
caring to demand payment of a debt which he could sell for a premium
in the market. By demanding payment of the bank, the owner of a bank
credit would lose this premium. As a shilling fresh from the mint will
buy no more goods in the market than one of our common worn shillings,
so the good and true money which might be brought from the coffers of
the bank into those of a private person, being mixed and confounded
with the common currency of the country, would be of no more value
than that currency, from which it could no longer be readily
distinguished. While it remained in the coffers of the bank, its
superiority was known and ascertained. When it had come into those of
a private person, its superiority could not well be ascertained
without more trouble than perhaps the difference was worth. By being
brought from the coffers of the bank, besides, it lost all the other
advantages of bank money; its security, its easy and safe
transferability, its use in paying foreign bills of exchange. Over and
above all this, it could not be brought from those coffers, as will
appear by and by, without previously paying for the keeping.

Those deposits of coin, or those deposits which the bank was bound to
restore in coin, constituted the original capital of the bank, or the
whole value of what was represented by what is called bank money. At
present they are supposed to constitute but a very small part of it.
In order to facilitate the trade in bullion, the bank has been for
these many years in the practice of giving credit in its books, upon
deposits of gold and silver bullion. This credit is generally about
five per cent. below the mint price of such bullion. The bank grants
at the same time what is called a recipice or receipt, entitling the
person who makes the deposit, or the bearer, to take out the bullion
again at any time within six months, upon transferring to the bank a
quantity of bank money equal to that for which credit had been given
in its books when the deposit was made, and upon paying one-fourth per
cent. for the keeping, if the deposit was in silver; and one-half per
cent. if it was in gold; but at the same time declaring, that in
default of such payment, and upon the expiration of this term, the
deposit should belong to the bank, at the price at which it had been
received, or for which credit had been given in the transfer books.
What is thus paid for the keeping of the deposit may be considered as
a sort of warehouse rent; and why this warehouse rent should be so
much dearer for gold than for silver, several different reasons have
been assigned. The fineness of gold, it has been said, is more
difficult to be ascertained than that of silver. Frauds are more
easily practised, and occasion a greater loss in the most precious
metal. Silver, besides, being the standard metal, the state, it has
been said, wishes to encourage more the making of deposits of silver
than those of gold.

Deposits of bullion are most commonly made when the price is somewhat
lower than ordinary, and they are taken out again when it happens to
rise. In Holland the market price of bullion is generally above the
mint price, for the same reason that it was so in England before the
late reformation of the gold coin. The difference is said to be
commonly from about six to sixteen stivers upon the mark, or eight
ounces of silver, of eleven parts of fine and one part alloy. The bank
price, or the credit which the bank gives for the deposits of such
silver (when made in foreign coin, of which the fineness is well known
and ascertained, such as Mexico dollars), is twenty-two guilders the
mark: the mint price is about twenty-three guilders, and the market
price is from twenty-three guilders six, to twenty-three guilders
sixteen stivers, or from two to three per cent. above the mint price.

The following are the prices at which the bank of Amsterdam at
present {September 1775} receives bullion and coin of different

Mexico dollars ................. 22 Guilders / mark
French crowns .................. 22
English silver coin ............. 22
Mexico dollars, new coin ........ 21 10
Ducatoons ....................... 3 0
Rix-dollars ..................... 2 8

Bar silver, containing 11-12ths fine silver, 21 Guilders / mark,
and in this proportion down to 1-4th fine, on which 5 guilders
are given. Fine bars, ................. 28 Guilders / mark.

Portugal coin ................. 310 Guilders / mark
Guineas ....................... 310
Louis d'ors, new .............. 310
Ditto old .............. 300
New ducats .................... 4 19 8 per ducat

Bar or ingot gold is received in proportion to its fineness, compared
with the above foreign gold coin. Upon fine bars the bank gives 340
per mark. In general, however, something more is given upon coin of a
known fineness, than upon gold and silver bars, of which the fineness
cannot be ascertained but by a process of melting and assaying.

The proportions between the bank price, the mint price, and the market
price of gold bullion, are nearly the same. A person can generally
sell his receipt for the difference between the mint price of bullion
and the market price. A receipt for bullion is almost always worth
something, and it very seldom happens, therefore, that anybody suffers
his receipts to expire, or allows his bullion to fall to the bank at
the price at which it had been received, either by not taking it out
before the end of the six months, or by neglecting to pay one fourth
or one half per cent. in order to obtain a new receipt for another six
months. This, however, though it happens seldom, is said to happen
sometimes, and more frequently with regard to gold than with regard to
silver, on account of the higher warehouse rent which is paid for the
keeping of the more precious metal.

The person who, by making a deposit of bullion, obtains both a bank
credit and a receipt, pays his bills of exchange as they become due,
with his bank credit; and either sells or keeps his receipt, according
as he judges that the price of bullion is likely to rise or to fall.
The receipt and the bank credit seldom keep long together, and there
is no occasion that they should. The person who has a receipt, and who
wants to take out bullion, finds always plenty of bank credits, or
bank money, to buy at the ordinary price, and the person who has bank
money, and wants to take out bullion, finds receipts always in equal

The owners of bank credits, and the holders of receipts, constitute
two different sorts of creditors against the bank. The holder of a
receipt cannot draw out the bullion for which it is granted, without
re-assigning to the bank a sum of bank money equal to the price at
which the bullion had been received. If he has no bank money of his
own, he must purchase it of those who have it. The owner of bank money
cannot draw out bullion, without producing to the bank receipts for
the quantity which he wants. If he has none of his own, he must buy
them of those who have them. The holder of a receipt, when he
purchases bank money, purchases the power of taking out a quantity of
bullion, of which the mint price is five per cent. above the bank
price. The agio of five per cent. therefore, which he commonly pays
for it, is paid, not for an imaginary, but for a real value. The owner
of bank money, when he purchases a receipt, purchases the power of
taking out a quantity of bullion, of which the market price is
commonly from two to three per cent. above the mint price. The price
which he pays for it, therefore, is paid likewise for a real value.
The price of the receipt, and the price of the bank money, compound or
make up between them the full value or price of the bullion.

Upon deposits of the coin current in the country, the bank grant
receipts likewise, as well as bank credits; but those receipts are
frequently of no value and will bring no price in the market. Upon
ducatoons, for example, which in the currency pass for three guilders
three stivers each, the bank gives a credit of three guilders only, or
five per cent. below their current value. It grants a receipt
likewise, entitling the bearer to take out the number of ducatoons
deposited at any time within six months, upon paying one fourth per
cent. for the keeping. This receipt will frequently bring no price in
the market. Three guilders, bank money, generally sell in the market
for three guilders three stivers, the full value of the ducatoons, if
they were taken out of the bank; and before they can be taken out,
one-fourth per cent. must be paid for the keeping, which would be mere
loss to the holder of the receipt. If the agio of the bank, however,
should at any time fall to three per cent. such receipts might bring
some price in the market, and might sell for one and three-fourths per
cent. But the agio of the bank being now generally about five per
cent. such receipts are frequently allowed to expire, or, as they
express it, to fall to the bank. The receipts which are given for
deposits of gold ducats fall to it yet more frequently, because a
higher warehouse rent, or one half per cent. must be paid for the
keeping of them, before they can be taken out again. The five per
cent. which the bank gains, when deposits either of coin or bullion
are allowed to fall to it, maybe considered as the warehouse rent for
the perpetual keeping of such deposits.

The sum of bank money, for which the receipts are expired, must be
very considerable. It must comprehend the whole original capital of
the bank, which, it is generally supposed, has been allowed to remain
there from the time it was first deposited, nobody caring either to
renew his receipt, or to take out his deposit, as, for the reasons
already assigned, neither the one nor the other could be done without
loss. But whatever may be the amount of this sum, the proportion which
it bears to the whole mass of bank money is supposed to be very small.
The bank of Amsterdam has, for these many years past, been the great
warehouse of Europe for bullion, for which the receipts are very
seldom allowed to expire, or, as they express it, to fall to the bank.
The far greater part of the bank money, or of the credits upon the
books of the bank, is supposed to have been created, for these many
years past, by such deposits, which the dealers in bullion are
continually both making and withdrawing.

No demand can be made upon the bank, but by means of a recipice or
receipt. The smaller mass of bank money, for which the receipts are
expired, is mixed and confounded with the much greater mass for which
they are still in force; so that, though there may be a considerable
sum of bank money, for which there are no receipts, there is no
specific sum or portion of it which may not at any time be demanded by
one. The bank cannot be debtor to two persons for the same thing; and
the owner of bank money who has no receipt, cannot demand payment of
the bank till he buys one. In ordinary and quiet times, he can find no
difficulty in getting one to buy at the market price, which generally
corresponds with the price at which he can sell the coin or bullion it
entitles him to take out of the bank.

It might be otherwise during a public calamity; an invasion, for
example, such as that of the French in 1672. The owners of bank money
being then all eager to draw it out of the bank, in order to have it
in their own keeping, the demand for receipts might raise their price
to an exorbitant height. The holders of them might form extravagant
expectations, and, instead of two or three per cent. demand half the
bank money for which credit had been given upon the deposits that the
receipts had respectively been granted for. The enemy, informed of the
constitution of the bank, might even buy them up, in order to prevent
the carrying away of the treasure. In such emergencies, the bank, it
is supposed, would break through its ordinary rule of making payment
only to the holders of receipts. The holders of receipts, who had no
bank money, must have received within two or three per cent. of the
value of the deposit for which their respective receipts had been
granted. The bank, therefore, it is said, would in this case make no
scruple of paying, either with money or bullion, the full value of
what the owners of bank money, who could get no receipts, were
credited for in its books; paying, at the same time, two or three per
cent. to such holders of receipts as had no bank money, that being the
whole value which, in this state of things, could justly be supposed
due to them.

Even in ordinary and quiet times, it is the interest of the holders of
receipts to depress the agio, in order either to buy bank money (and
consequently the bullion which their receipts would then enable them
to take out of the bank ) so much cheaper, or to sell their receipts
to those who have bank money, and who want to take out bullion, so
much dearer; the price of a receipt being generally equal to the
difference between the market price of bank money and that of the coin
or bullion for which the receipt had been granted. It is the interest
of the owners of bank money, on the contrary, to raise the agio, in
order either to sell their bank money so much dearer, or to buy a
receipt so much cheaper. To prevent the stock-jobbing tricks which
those opposite interests might sometimes occasion, the bank has of
late years come to the resolution, to sell at all times bank money for
currency at five per cent. agio, and to buy it in again at four per
cent. agio. In consequence of this resolution, the agio can never
either rise above five, or sink below four per cent.; and the
proportion between the market price of bank and that of current money
is kept at all times very near the proportion between their intrinsic
values. Before this resolution was taken, the market price of bank
money used sometimes to rise so high as nine per cent. agio, and
sometimes to sink so low as par, according as opposite interests
happened to influence the market.

The bank of Amsterdam professes to lend out no part of what is
deposited with it, but for every guilder for which it gives credit in
its books, to keep in its repositories the value of a guilder either
in money or bullion. That it keeps in its repositories all the money
or bullion for which there are receipts in force for which it is at
all times liable to be called upon, and which in reality is
continually going from it, and returning to it again, cannot well be
doubted. But whether it does so likewise with regard to that part of
its capital for which the receipts are long ago expired, for which, in
ordinary and quiet times, it cannot be called upon, and which, in
reality, is very likely to remain with it for ever, or as long as the
states of the United Provinces subsist, may perhaps appear more
uncertain. At Amsterdam, however, no point of faith is better
established than that, for every guilder circulated as bank money,
there is a correspondent guilder in gold or silver to be found in the
treasures of the bank. The city is guarantee that it should be so. The
bank is under the direction of the four reigning burgomasters who are
changed every year. Each new set of burgomasters visits the treasure,
compares it with the books, receives it upon oath, and delivers it
over, with the same awful solemnity to the set which succeeds; and in
that sober and religious country, oaths are not yet disregarded. A
rotation of this kind seems alone a sufficient security against any
practices which cannot be avowed. Amidst all the revolutions which
faction has ever occasioned in the government of Amsterdam, the
prevailing party has at no time accused their predecessors of
infidelity in the administration of the bank. No accusation could have
affected more deeply the reputation and fortune of the disgraced
party; and if such an accusation could have been supported, we may be
assured that it would have been brought. In 1672, when the French king
was at Utrecht, the bank of Amsterdam paid so readily, as left no
doubt of the fidelity with which it had observed its engagements. Some
of the pieces which were then brought from its repositories, appeared
to have been scorched with the fire which happened in the town-house
soon after the bank was established. Those pieces, therefore, must
have lain there from that time.

What may be the amount of the treasure in the bank, is a question
which has long employed the speculations of the curious. Nothing but
conjecture can be offered concerning it. It is generally reckoned,
that there are about 2000 people who keep accounts with the bank; and
allowing them to have, one with another, the value of 1500 sterling
lying upon their respective accounts (a very large allowance), the
whole quantity of bank money, and consequently of treasure in the
bank, will amount to about 3,000,000 sterling, or, at eleven guilders
the pound sterling, 33,000,000 of guilders; a great sum, and
sufficient to carry on a very extensive circulation, but vastly below
the extravagant ideas which some people have formed of this treasure.

The city of Amsterdam derives a considerable revenue from the bank.
Besides what may be called the warehouse rent above mentioned, each
person, upon first opening an account with the bank, pays a fee of ten
guilders; and for every new account, three guilder's three stivers;
for every transfer, two stivers; and if the transfer is for less than
300 guilders, six stivers, in order to discourage the multiplicity of
small transactions. The person who neglects to balance his account
twice in the year, forfeits twenty-five guilders. The person who
orders a transfer for more than is upon his account, is obliged to pay
three per cent. for the sum overdrawn, and his order is set aside into
the bargain. The bank is supposed, too, to make a considerable profit
by the sale of the foreign coin or bullion which sometimes falls to it
by the expiring of receipts, and which is always kept till it can be
sold with advantage. It makes a profit, likewise, by selling bank
money at five per cent. agio, and buying it in at four. These
different emoluments amount to a good deal more than what is necessary
for paying the salaries of officers, and defraying the expense of
management. What is paid for the keeping of bullion upon receipts, is
alone supposed to amount to a neat annual revenue of between 150,000
and 200,000 guilders. Public utility, however, and not revenue, was
the original object of this institution. Its object was to relieve the
merchants from the inconvenience of a disadvantageous exchange. The
revenue which has arisen from it was unforeseen, and may be considered
as accidental. But it is now time to return from this long digression,
into which I have been insensibly led, in endeavouring to explain the
reasons why the exchange between the countries which pay in what is
called bank money, and those which pay in common currency, should
generally appear to be in favour of the former, and against the
latter. The former pay in a species of money, of which the intrinsic
value is always the same, and exactly agreeable to the standard of
their respective mints; the latter is a species of money, of which the
intrinsic value is continually varying, and is almost always more or
less below that standard.

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

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


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