. 9
( 25)


to the consumers. The circulation between the dealers, as it is
carried on by wholesale, requires generally a pretty large sum for
every particular transaction. That between the dealers and the
consumers, on the contrary, as it is generally carried on by retail,
frequently requires but very small ones, a shilling, or even a
halfpenny, being often sufficient. But small sums circulate much
faster than large ones. A shilling changes masters more frequently
than a guinea, and a halfpenny more frequently than a shilling. Though
the annual purchases of all the consumers, therefore, are at least
equal in value to those of all the dealers, they can generally be
transacted with a much smaller quantity of money; the same pieces, by
a more rapid circulation, serving as the instrument of many more
purchases of the one kind than of the other.

Paper money may be so regulated as either to confine itself very much
to the circulation between the different dealers, or to extend itself
likewise to a great part of that between the dealers and the
consumers. Where no bank notes are circulated under 10 value, as in
London, paper money confines itself very much to the circulation
between the dealers. When a ten pound bank note comes into the hands
of a consumer, he is generally obliged to change it at the first shop
where he has occasion to purchase five shillings worth of goods; so
that it often returns into the hands of a dealer before the consumer
has spent the fortieth part of the money. Where bank notes are issued
for so small sums as 20s. as in Scotland, paper money extends itself
to a considerable part of the circulation between dealers and
consumers. Before the Act of parliament which put a stop to the
circulation of ten and five shilling notes, it filled a still greater
part of that circulation. In the currencies of North America, paper
was commonly issued for so small a sum as a shilling, and filled
almost the whole of that circulation. In some paper currencies of
Yorkshire, it was issued even for so small a sum as a sixpence.

Where the issuing of bank notes for such very small sums is allowed,
and commonly practised, many mean people are both enabled and
encouraged to become bankers. A person whose promissory note for 5,
or even for 20s. would be rejected by every body, will get it to be
received without scruple when it is issued for so small a sum as a
sixpence. But the frequent bankruptcies to which such beggarly bankers
must be liable, may occasion a very considerable inconveniency, and
sometimes even a very great calamity, to many poor people who had
received their notes in payment.

It were better, perhaps, that no bank notes were issued in any part of
the kingdom for a smaller sum than 5. Paper money would then,
probably, confine itself, in every part of the kingdom, to the
circulation between the different dealers, as much as it does at
present in London, where no bank notes are issued under 10 value; 5
being, in most part of the kingdom, a sum which, though it will
purchase, perhaps, little more than half the quantity of goods, is as
much considered, and is as seldom spent all at once, as 10 are amidst
the profuse expense of London.

Where paper money, it is to be observed, is pretty much confined to
the circulation between dealers and dealers, as at London, there is
always plenty of gold and silver. Where it extends itself to a
considerable part of the circulation between dealers and consumers, as
in Scotland, and still more in North America, it banishes gold and
silver almost entirely from the country; almost all the ordinary
transactions of its interior commerce being thus carried on by paper.
The suppression of ten and five shilling bank notes, somewhat relieved
the scarcity of gold and silver in Scotland; and the suppression of
twenty shilling notes will probably relieve it still more. Those
metals are said to have become more abundant in America, since the
suppression of some of their paper currencies. They are said,
likewise, to have been more abundant before the institution of those

Though paper money should be pretty much confined to the circulation
between dealers and dealers, yet banks and bankers might still be able
to give nearly the same assistance to the industry and commerce of the
country, as they had done when paper money filled almost the whole
circulation. The ready money which a dealer is obliged to keep by him,
for answering occasional demands, is destined altogether for the
circulation between himself and other dealers of whom he buys goods.
He has no occasion to keep any by him for the circulation between
himself and the consumers, who are his customers, and who bring ready
money to him, instead of taking any from him. Though no paper money,
therefore, was allowed to be issued, but for such sums as would
confine it pretty much to the circulation between dealers and dealers;
yet partly by discounting real bills of exchange, and partly by
lending upon cash-accounts, banks and bankers might still be able to
relieve the greater part of those dealers from the necessity of
keeping any considerable part of their stock by them unemployed, and
in ready money, for answering occasional demands. They might still be
able to give the utmost assistance which banks and bankers can with
propriety give to traders of every kind.

To restrain private people, it may be said, from receiving in payment
the promissory notes of a banker for any sum, whether great or small,
when they themselves are willing to receive them; or, to restrain a
banker from issuing such notes, when all his neighbours are willing to
accept of them, is a manifest violation of that natural liberty, which
it is the proper business of law not to infringe, but to support. Such
regulations may, no doubt, be considered as in some respect a
violation of natural liberty. But those exertions of the natural
liberty of a few individuals, which might endanger the security of the
whole society, are, and ought to be, restrained by the laws of all
governments; of the most free, as well as or the most despotical. The
obligation of building party walls, in order to prevent the
communication of fire, is a violation of natural liberty, exactly of
the same kind with the regulations of the banking trade which are here

A paper money, consisting in bank notes, issued by people of undoubted
credit, payable upon demand, without any condition, and, in fact,
always readily paid as soon as presented, is, in every respect, equal
in value to gold and silver money, since gold and silver money can at
anytime be had for it. Whatever is either bought or sold for such
paper, must necessarily be bought or sold as cheap as it could have
been for gold and silver.

The increase of paper money, it has been said, by augmenting the
quantity, and consequently diminishing the value, of the whole
currency, necessarily augments the money price of commodities. But as
the quantity of gold and silver, which is taken from the currency, is
always equal to the quantity of paper which is added to it, paper
money does not necessarily increase the quantity of the whole
currency. From the beginning of the last century to the present time,
provisions never were cheaper in Scotland than in 1759, though, from
the circulation of ten and five shilling bank notes, there was then
more paper money in the country than at present. The proportion
between the price of provisions in Scotland and that in England is the
same now as before the great multiplication of banking companies in
Scotland. Corn is, upon most occasions, fully as cheap in England as
in France, though there is a great deal of paper money in England, and
scarce any in France. In 1751 and 1752, when Mr Hume published his
Political Discourses, and soon after the great multiplication of paper
money in Scotland, there was a very sensible rise in the price of
provisions, owing, probably, to the badness of the seasons, and not to
the multiplication of paper money.

It would be otherwise, indeed, with a paper money, consisting in
promissory notes, of which the immediate payment depended, in any
respect, either upon the good will of those who issued them, or upon a
condition which the holder of the notes might not always have it in
his power to fulfil, or of which the payment was not exigible till
after a certain number of years, and which, in the mean time, bore no
interest. Such a paper money would, no doubt, fall more or less below
the value of gold and silver, according as the difficulty or
uncertainty of obtaining immediate payment was supposed to be greater
or less, or according to the greater or less distance of time at which
payment was exigible.

Some years ago the different banking companies of Scotland were in the
practice of inserting into their bank notes, what they called an
optional clause; by which they promised payment to the bearer, either
as soon as the note should be presented, or, in the option of the
directors, six months after such presentment, together with the legal
interest for the said six months. The directors of some of those banks
sometimes took advantage of this optional clause, and sometimes
threatened those who demanded gold and silver in exchange for a
considerable number of their notes, that they would take advantage of
it, unless such demanders would content themselves with a part of what
they demanded. The promissory notes of those banking companies
constituted, at that time, the far greater part of the currency of
Scotland, which this uncertainty of payment necessarily degraded below
value of gold and silver money. During the continuance of this abuse
(which prevailed chiefly in 1762, 1763, and 1764), while the exchange
between London and Carlisle was at par, that between London and
Dumfries would sometimes be four per cent. against Dumfries, though
this town is not thirty miles distant from Carlisle. But at Carlisle,
bills were paid in gold and silver; whereas at Dumfries they were paid
in Scotch bank notes; and the uncertainty of getting these bank notes
exchanged for gold and silver coin, had thus degraded them four per
cent. below the value of that coin. The same act of parliament which
suppressed ten and five shilling bank notes, suppressed likewise this
optional clause, and thereby restored the exchange between England and
Scotland to its natural rate, or to what the course of trade and
remittances might happen to make it.

In the paper currencies of Yorkshire, the payment of so small a sum as
6d. sometimes depended upon the condition, that the holder of the note
should bring the change of a guinea to the person who issued it; a
condition which the holders of such notes might frequently find it
very difficult to fulfil, and which must have degraded this currency
below the value of gold and silver money. An act of parliament,
accordingly, declared all such clauses unlawful, and suppressed, in
the same manner as in Scotland, all promissory notes, payable to the
bearer, under 20s. value.

The paper currencies of North America consisted, not in bank notes
payable to the bearer on demand, but in a government paper, of which
the payment was not exigible till several years after it was issued;
and though the colony governments paid no interest to the holders of
this paper, they declared it to be, and in fact rendered it, a legal
tender of payment for the full value for which it was issued. But
allowing the colony security to be perfectly good, 100, payable
fifteen years hence, for example, in a country where interest is at
six per cent., is worth little more than 40 ready money. To oblige
a creditor, therefore, to accept of this as full payment for a debt of
100, actually paid down in ready money, was an act of such violent
injustice, as has scarce, perhaps, been attempted by the government of
any other country which pretended to be free. It bears the evident
marks of having originally been, what the honest and downright Doctor
Douglas assures us it was, a scheme of fraudulent debtors to cheat
their creditors. The government of Pennsylvania, indeed, pretended,
upon their first emission of paper money, in 1722, to render their
paper of equal value with gold and silver, by enacting penalties
against all those who made any difference in the price of their goods
when they sold them for a colony paper, and when they sold them for
gold and silver, a regulation equally tyrannical, but much less,
effectual, than that which it was meant to support. A positive law may
render a shilling a legal tender for a guinea, because it may direct
the courts of justice to discharge the debtor who has made that
tender; but no positive law can oblige a person who sells goods, and
who is at liberty to sell or not to sell as he pleases, to accept of a
shilling as equivalent to a guinea in the price of them.
Notwithstanding any regulation of this kind, it appeared, by the
course of exchange with Great Britain, that 100 sterling was
occasionally considered as equivalent, in some of the colonies, to
130, and in others to so great a sum as 1100 currency; this
difference in the value arising from the difference in the quantity of
paper emitted in the different colonies, and in the distance and
probability of the term of its final discharge and redemption.

No law, therefore, could be more equitable than the act of parliament,
so unjustly complained of in the colonies, which declared, that no
paper currency to be emitted there in time coming, should be a legal
tender of payment.

Pennsylvania was always more moderate in its emissions of paper money
than any other of our colonies. Its paper currency, accordingly, is
said never to have sunk below the value of the gold and silver which
was current in the colony before the first emission of its paper
money. Before that emission, the colony had raised the denomination of
its coin, and had, by act of assembly, ordered 5s. sterling to pass in
the colonies for 6s:3d., and afterwards for 6s:8d. A pound, colony
currency, therefore, even when that currency was gold and silver, was
more than thirty per cent. below the value of 1 sterling; and when
that currency was turned into paper, it was seldom much more than
thirty per cent. below that value. The pretence for raising the
denomination of the coin was to prevent the exportation of gold and
silver, by making equal quantities of those metals pass for greater
sums in the colony than they did in the mother country. It was found,
however, that the price of all goods from the mother country rose
exactly in proportion as they raised the denomination of their coin,
so that their gold and silver were exported as fast as ever.

The paper of each colony being received in the payment of the
provincial taxes, for the full value for which it had been issued, it
necessarily derived from this use some additional value, over and
above what it would have had, from the real or supposed distance of
the term of its final discharge and redemption. This additional value
was greater or less, according as the quantity of paper issued was
more or less above what could be employed in the payment of the taxes
of the particular colony which issued it. It was in all the colonies
very much above what could be employed in this manner.

A prince, who should enact that a certain proportion of his taxes
should be paid in a paper money of a certain kind, might thereby give
a certain value to this paper money, even though the term of its final
discharge and redemption should depend altogether upon the will of the
prince. If the bank which issued this paper was careful to keep the
quantity of it always somewhat below what could easily be employed in
this manner, the demand for it might be such as to make it even bear a
premium, or sell for somewhat more in the market than the quantity of
gold or silver currency for which it was issued. Some people account
in this manner for what is called the agio of the bank of Amsterdam,
or for the superiority of bank money over current money, though this
bank money, as they pretend, cannot be taken out of the bank at the
will of the owner. The greater part of foreign bills of exchange must
be paid in bank money, that is, by a transfer in the books of the
bank; and the directors of the bank, they allege, are careful to keep
the whole quantity of bank money always below what this use occasions
a demand for. It is upon this account, they say, the bank money sells
for a premium, or bears an agio of four or five per cent. above the
same nominal sum of the gold and silver currency of the country. This
account of the bank of Amsterdam, however, it will appear hereafter,
is in a great measure chimerical.

A paper currency which falls below the value of gold and silver coin,
does not thereby sink the value of those metals, or occasion equal
quantities of them to exchange for a smaller quantity of goods of any
other kind. The proportion between the value of gold and silver and
that of goods of any other kind, depends in all cases, not upon the
nature and quantity of any particular paper money, which may be
current in any particular country, but upon the richness or poverty of
the mines, which happen at any particular time to supply the great
market of the commercial world with those metals. It depends upon the
proportion between the quantity of labour which is necessary in order
to bring a certain quantity of gold and silver to market, and that
which is necessary in order to bring thither a certain quantity of any
other sort of goods.

If bankers are restrained from issuing any circulating bank notes, or
notes payable to the bearer, for less than a certain sum; and if they
are subjected to the obligation of an immediate and unconditional
payment of such bank notes as soon as presented, their trade may, with
safety to the public, be rendered in all other respects perfectly
free. The late multiplication of banking companies in both parts of
the united kingdom, an event by which many people have been much
alarmed, instead of diminishing, increases the security of the public.
It obliges all of them to be more circumspect in their conduct, and,
by not extending their currency beyond its due proportion to their
cash, to guard themselves against those malicious runs, which the
rivalship of so many competitors is always ready to bring upon them.
It restrains the circulation of each particular company within a
narrower circle, and reduces their circulating notes to a smaller
number. By dividing the whole circulation into a greater number of
parts, the failure of any one company, an accident which, in the
course of things, must sometimes happen, becomes of less consequence
to the public. This free competition, too, obliges all bankers to be
more liberal in their dealings with their customers, lest their rivals
should carry them away. In general, if any branch of trade, or any
division of labour, be advantageous to the public, the freer and more
general the competition, it will always be the more so.



There is one sort of labour which adds to the value of the subject
upon which it is bestowed; there is another which has no such effect.
The former as it produces a value, may be called productive, the
latter, unproductive labour. {Some French authors of great learning
and ingenuity have used those words in a different sense. In the last
chapter of the fourth book, I shall endeavour to shew that their sense
is an improper one.} Thus the labour of a manufacturer adds generally
to the value of the materials which he works upon, that of his own
maintenance, and of his master's profit. The labour of a menial
servant, on the contrary, adds to the value of nothing. Though the
manufacturer has his wages advanced to him by his master, he in
reality costs him no expense, the value of those wages being generally
restored, together with a profit, in the improved value of the subject
upon which his labour is bestowed. But the maintenance of a menial
servant never is restored. A man grows rich by employing a multitude
of manufacturers; he grows poor by maintaining a multitude or menial
servants. The labour of the latter, however, has its value, and
deserves its reward as well as that of the former. But the labour of
the manufacturer fixes and realizes itself in some particular subject
or vendible commodity, which lasts for some time at least after that
labour is past. It is, as it were, a certain quantity of labour
stocked and stored up, to be employed, if necessary, upon some other
occasion. That subject, or, what is the same thing, the price of that
subject, can afterwards, if necessary, put into motion a quantity of
labour equal to that which had originally produced it. The labour of
the menial servant, on the contrary, does not fix or realize itself in
any particular subject or vendible commodity. His services generally
perish in the very instant of their performance, and seldom leave any
trace of value behind them, for which an equal quantity of service
could afterwards be procured.

The labour of some of the most respectable orders in the society is,
like that of menial servants, unproductive of any value, and does not
fix or realize itself in any permanent subject, or vendible commodity,
which endures after that labour is past, and for which an equal
quantity of labour could afterwards be procured. The sovereign, for
example, with all the officers both of justice and war who serve under
him, the whole army and navy, are unproductive labourers. They are the
servants of the public, and are maintained by a part of the annual
produce of the industry of other people. Their service, how
honourable, how useful, or how necessary soever, produces nothing for
which an equal quantity of service can afterwards be procured. The
protection, security, and defence, of the commonwealth, the effect of
their labour this year, will not purchase its protection, security,
and defence, for the year to come. In the same class must be ranked,
some both of the gravest and most important, and some of the most
frivolous professions; churchmen, lawyers, physicians, men of letters
of all kinds; players, buffoons, musicians, opera-singers,
opera-dancers, etc. The labour of the meanest of these has a certain
value, regulated by the very same principles which regulate that of
every other sort of labour; and that of the noblest and most useful,
produces nothing which could afterwards purchase or procure an equal
quantity of labour. Like the declamation of the actor, the harangue of
the orator, or the tune of the musician, the work of all of them
perishes in the very instant of its production.

Both productive and unproductive labourers, and those who do not
labour at all, are all equally maintained by the annual produce of the
land and labour of the country. This produce, how great soever, can
never be infinite, but must have certain limits. According, therefore,
as a smaller or greater proportion of it is in any one year employed
in maintaining unproductive hands, the more in the one case, and the
less in the other, will remain for the productive, and the next year's
produce will be greater or smaller accordingly; the whole annual
produce, if we except the spontaneous productions of the earth, being
the effect of productive labour.

Though the whole annual produce of the land and labour of every
country is no doubt ultimately destined for supplying the consumption
of its inhabitants, and for procuring a revenue to them; yet when it
first comes either from the ground, or from the hands of the
productive labourers, it naturally divides itself into two parts. One
of them, and frequently the largest, is, in the first place, destined
for replacing a capital, or for renewing the provisions, materials,
and finished work, which had been withdrawn from a capital; the other
for constituting a revenue either to the owner of this capital, as the
profit of his stock, or to some other person, as the rent of his land.
Thus, of the produce of land, one part replaces the capital of the
farmer; the other pays his profit and the rent of the landlord; and
thus constitutes a revenue both to the owner of this capital, as the
profits of his stock, and to some other person as the rent of his
land. Of the produce of a great manufactory, in the same manner, one
part, and that always the largest, replaces the capital of the
undertaker of the work; the other pays his profit, and thus
constitutes a revenue to the owner of this capital.

That part of the annual produce of the land and labour of any country
which replaces a capital, never is immediately employed to maintain
any but productive hands. It pays the wages of productive labour only.
That which is immediately destined for constituting a revenue, either
as profit or as rent, may maintain indifferently either productive or
unproductive hands.

Whatever part of his stock a man employs as a capital, he always
expects it to be replaced to him with a profit. He employs it,
therefore, in maintaining productive hands only; and after having
served in the function of a capital to him, it constitutes a revenue
to them. Whenever he employs any part of it in maintaining
unproductive hands of any kind, that part is from that moment
withdrawn from his capital, and placed in his stock reserved for
immediate consumption.

Unproductive labourers, and those who do not labour at all, are all
maintained by revenue; either, first, by that part of the annual
produce which is originally destined for constituting a revenue to
some particular persons, either as the rent of land, or as the profits
of stock; or, secondly, by that part which, though originally destined
for replacing a capital, and for maintaining productive labourers
only, yet when it comes into their hands, whatever part of it is over
and above their necessary subsistence, may be employed in maintaining
indifferently either productive or unproductive hands. Thus, not only
the great landlord or the rich merchant, but even the common workman,
if his wages are considerable, may maintain a menial servant; or he
may sometimes go to a play or a puppet-show, and so contribute his
share towards maintaining one set of unproductive labourers; or he may
pay some taxes, and thus help to maintain another set, more honourable
and useful, indeed, but equally unproductive. No part of the annual
produce, however, which had been originally destined to replace a
capital, is ever directed towards maintaining unproductive hands, till
after it has put into motion its full complement of productive labour,
or all that it could put into motion in the way in which it was
employed. The workman must have earned his wages by work done, before
he can employ any part of them in this manner. That part, too, is
generally but a small one. It is his spare revenue only, of which
productive labourers have seldom a great deal. They generally have
some, however; and in the payment of taxes, the greatness of their
number may compensate, in some measure, the smallness of their
contribution. The rent of land and the profits of stock are
everywhere, therefore, the principal sources from which unproductive
hands derive their subsistence. These are the two sorts of revenue of
which the owners have generally most to spare. They might both
maintain indifferently, either productive or unproductive hands. They
seem, however, to have some predilection for the latter. The expense
of a great lord feeds generally more idle than industrious people The
rich merchant, though with his capital he maintains industrious people
only, yet by his expense, that is, by the employment of his revenue,
he feeds commonly the very same sort as the great lord.

The proportion, therefore, between the productive and unproductive
hands, depends very much in every country upon the proportion between
that part of the annual produce, which, as soon as it comes either
from the ground, or from the hands of the productive labourers, is
destined for replacing a capital, and that which is destined for
constituting a revenue, either as rent or as profit. This proportion
is very different in rich from what it is in poor countries.

Thus, at present, in the opulent countries of Europe, a very large,
frequently the largest, portion of the produce of the land, is
destined for replacing the capital of the rich and independent farmer;
the other for paying his profits, and the rent of the landlord. But
anciently, during the prevalency of the feudal government, a very
small portion of the produce was sufficient to replace the capital
employed in cultivation. It consisted commonly in a few wretched
cattle, maintained altogether by the spontaneous produce of
uncultivated land, and which might, therefore, be considered as a part
of that spontaneous produce. It generally, too, belonged to the
landlord, and was by him advanced to the occupiers of the land. All
the rest of the produce properly belonged to him too, either as rent
for his land, or as profit upon this paltry capital. The occupiers of
land were generally bond-men, whose persons and effects were equally
his property. Those who were not bond-men were tenants at will; and
though the rent which they paid was often nominally little more than a
quit-rent, it really amounted to the whole produce of the land. Their
lord could at all times command their labour in peace and their
service in war. Though they lived at a distance from his house, they
were equally dependent upon him as his retainers who lived in it. But
the whole produce of the land undoubtedly belongs to him, who can
dispose of the labour and service of all those whom it maintains. In
the present state of Europe, the share of the landlord seldom exceeds
a third, sometimes not a fourth part of the whole produce of the land.
The rent of land, however, in all the improved parts of the country,
has been tripled and quadrupled since those ancient times; and this
third or fourth part of the annual produce is, it seems, three or four
times greater than the whole had been before. In the progress of
improvement, rent, though it increases in proportion to the extent,
diminishes in proportion to the produce of the land.

In the opulent countries of Europe, great capitals are at present
employed in trade and manufactures. In the ancient state, the little
trade that was stirring, and the few homely and coarse manufactures
that were carried on, required but very small capitals. These,
however, must have yielded very large profits. The rate of interest
was nowhere less than ten per cent. and their profits must have been
sufficient to afford this great interest. At present, the rate of
interest, in the improved parts of Europe, is nowhere higher than six
per cent.; and in some of the most improved, it is so low as four,
three, and two per cent. Though that part of the revenue of the
inhabitants which is derived from the profits of stock, is always much
greater in rich than in poor countries, it is because the stock is
much greater; in proportion to the stock, the profits are generally
much less.

That part of the annual produce, therefore, which, as soon as it comes
either from the ground, or from the hands of the productive labourers,
is destined for replacing a capital, is not only much greater in rich
than in poor countries, but bears a much greater proportion to that
which is immediately destined for constituting a revenue either as
rent or as profit. The funds destined for the maintenance of
productive labour are not only much greater in the former than in the
latter, but bear a much greater proportion to those which, though they
may be employed to maintain either productive or unproductive hands,
have generally a predilection for the latter.

The proportion between those different funds necessarily determines in
every country the general character of the inhabitants as to industry
or idleness. We are more industrious than our forefathers, because, in
the present times, the funds destined for the maintenance of industry
are much greater in proportion to those which are likely to be
employed in the maintenance of idleness, than they were two or three
centuries ago. Our ancestors were idle for want of a sufficient
encouragement to industry. It is better, says the proverb, to play for
nothing, than to work for nothing. In mercantile and manufacturing
towns, where the inferior ranks of people are chiefly maintained by
the employment of capital, they are in general industrious, sober, and
thriving; as in many English, and in most Dutch towns. In those towns
which are principally supported by the constant or occasional
residence of a court, and in which the inferior ranks of people are
chiefly maintained by the spending of revenue, they are in general
idle, dissolute, and poor; as at Rome, Versailles, Compeigne, and
Fontainbleau. If you except Rouen and Bourdeaux, there is little trade
or industry in any of the parliament towns of France; and the inferior
ranks of people, being chiefly maintained by the expense of the
members of the courts of justice, and of those who come to plead
before them, are in general idle and poor. The great trade of Rouen
and Bourdeaux seems to be altogether the effect of their situation.
Rouen is necessarily the entrepot of almost all the goods which are
brought either from foreign countries, or from the maritime provinces
of France, for the consumption of the great city of Paris. Bourdeaux
is, in the same manner, the entrepot of the wines which grow upon the
banks of the Garronne, and of the rivers which run into it, one of the
richest wine countries in the world, and which seems to produce the
wine fittest for exportation, or best suited to the taste of foreign
nations. Such advantageous situations necessarily attract a great
capital by the great employment which they afford it; and the
employment of this capital is the cause of the industry of those two
cities. In the other parliament towns of France, very little more
capital seems to be employed than what is necessary for supplying
their own consumption; that is, little more than the smallest capital
which can be employed in them. The same thing may be said of Paris,
Madrid, and Vienna. Of those three cities, Paris is by far the most
industrious, but Paris itself is the principal market of all the
manufactures established at Paris, and its own consumption is the
principal object of all the trade which it carries on. London, Lisbon,
and Copenhagen, are, perhaps, the only three cities in Europe, which
are both the constant residence of a court, and can at the same time
be considered as trading cities, or as cities which trade not only for
their own consumption, but for that of other cities and countries. The
situation of all the three is extremely advantageous, and naturally
fits them to be the entrepots of a great part of the goods destined
for the consumption of distant places. In a city where a great revenue
is spent, to employ with advantage a capital for any other purpose
than for supplying the consumption of that city, is probably more
difficult than in one in which the inferior ranks of people have no
other maintenance but what they derive from the employment of such a
capital. The idleness of the greater part of the people who are
maintained by the expense of revenue, corrupts, it is probable, the
industry of those who ought to be maintained by the employment of
capital, and renders it less advantageous to employ a capital there
than in other places. There was little trade or industry in Edinburgh
before the Union. When the Scotch parliament was no longer to be
assembled in it, when it ceased to be the necessary residence of the
principal nobility and gentry of Scotland, it became a city of some
trade and industry. It still continues, however, to be the residence
of the principal courts of justice in Scotland, of the boards of
customs and excise, etc. A considerable revenue, therefore, still
continues to be spent in it. In trade and industry, it is much
inferior to Glasgow, of which the inhabitants are chiefly maintained
by the employment of capital. The inhabitants of a large village, it
has sometimes been observed, after having made considerable progress
in manufactures, have become idle and poor, in consequence of a great
lord's having taken up his residence in their neighbourhood.

The proportion between capital and revenue, therefore, seems
everywhere to regulate the proportion between industry and idleness
Wherever capital predominates, industry prevails; wherever revenue,
idleness. Every increase or diminution of capital, therefore,
naturally tends to increase or diminish the real quantity of industry,
the number of productive hands, and consequently the exchangeable
value of the annual produce of the land and labour of the country, the
real wealth and revenue of all its inhabitants.

Capitals are increased by parsimony, and diminished by prodigality and

Whatever a person saves from his revenue he adds to his capital, and
either employs it himself in maintaining an additional number of
productive hands, or enables some other person to do so, by lending it
to him for an interest, that is, for a share of the profits. As the
capital of an individual can be increased only by what he saves from
his annual revenue or his annual gains, so the capital of a society,
which is the same with that of all the individuals who compose it, can
be increased only in the same manner.

Parsimony, and not industry, is the immediate cause of the increase of
capital. Industry, indeed, provides the subject which parsimony
accumulates; but whatever industry might acquire, if parsimony did not
save and store up, the capital would never be the greater.

Parsimony, by increasing the fund which is destined for the
maintenance of productive hands, tends to increase the number of those
hands whose labour adds to the value of the subject upon winch it is
bestowed. It tends, therefore, to increase the exchangeable value of
the annual produce of the land and labour of the country. It puts into
motion an additional quantity of industry, which gives an additional
value to the annual produce.

What is annually saved, is as regularly consumed as what is annually
spent, and nearly in the same time too: but it is consumed by a
different set of people. That portion of his revenue which a rich man
annually spends, is, in most cases, consumed by idle guests and menial
servants, who leave nothing behind them in return for their
consumption. That portion which he annually saves, as, for the sake of
the profit, it is immediately employed as a capital, is consumed in
the same manner, and nearly in the same time too, but by a different
set of people: by labourers, manufacturers, and artificers, who
reproduce, with a profit, the value of their annual consumption. His
revenue, we shall suppose, is paid him in money. Had he spent the
whole, the food, clothing, and lodging, which the whole could have
purchased, would have been distributed among the former set of people.
By saving a part of it, as that part is, for the sake of the profit,
immediately employed as a capital, either by himself or by some other
person, the food, clothing, and lodging, which may be purchased with
it, are necessarily reserved for the latter. The consumption is the
same, but the consumers are different.

By what a frugal man annually saves, he not only affords maintenance
to an additional number of productive hands, for that of the ensuing
year, but like the founder of a public work-house he establishes, as
it were, a perpetual fund for the maintenance of an equal number in
all times to come. The perpetual allotment and destination of this
fund, indeed, is not always guarded by any positive law, by any
trust-right or deed of mortmain. It is always guarded, however, by a
very powerful principle, the plain and evident interest of every
individual to whom any share of it shall ever belong. No part of it
can ever afterwards be employed to maintain any but productive hands,
without an evident loss to the person who thus perverts it from its
proper destination.

The prodigal perverts it in this manner: By not confining his expense
within his income, he encroaches upon his capital. Like him who
perverts the revenues of some pious foundation to profane purposes, he
pays the wages of idleness with those funds which the frugality of his
forefathers had, as it were, consecrated to the maintenance of
industry. By diminishing the funds destined for the employment of
productive labour, he necessarily diminishes, so far as it depends
upon him, the quantity of that labour which adds a value to the
subject upon which it is bestowed, and, consequently, the value of the
annual produce of the land and labour of the whole country, the real
wealth and revenue of its inhabitants. If the prodigality of some were
not compensated by the frugality of others, the conduct of every
prodigal, by feeding the idle with the bread of the industrious, would
tend not only to beggar himself, but to impoverish his country.

Though the expense of the prodigal should be altogether in home made,
and no part of it in foreign commodities, its effect upon the
productive funds of the society would still be the same. Every year
there would still be a certain quantity of food and clothing, which
ought to have maintained productive, employed in maintaining
unproductive hands. Every year, therefore, there would still be some
diminution in what would otherwise have been the value of the annual
produce of the land and labour of the country.

This expense, it may be said, indeed, not being in foreign goods, and
not occasioning any exportation of gold and silver, the same quantity
of money would remain in the country as before. But if the quantity of
food and clothing which were thus consumed by unproductive, had been
distributed among productive hands, they would have reproduced,
together with a profit, the full value of their consumption. The same
quantity of money would, in this case, equally have remained in the
country, and there would, besides, have been a reproduction of an
equal value of consumable goods. There would have been two values
instead of one.

The same quantity of money, besides, can not long remain in any
country in which the value of the annual produce diminishes. The sole
use of money is to circulate consumable goods. By means of it,
provisions, materials, and finished work, are bought and sold, and
distributed to their proper consumers. The quantity of money,
therefore, which can be annually employed in any country, must be
determined by the value of the consumable goods annually circulated
within it. These must consist, either in the immediate produce of the
land and labour of the country itself, or in something which had been
purchased with some part of that produce. Their value, therefore, must
diminish as the value of that produce diminishes, and along with it
the quantity of money which can be employed in circulating them. But
the money which, by this annual diminution of produce, is annually
thrown out of domestic circulation, will not be allowed to lie idle.
The interest of whoever possesses it requires that it should be
employed; but having no employment at home, it will, in spite of all
laws and prohibitions, be sent abroad, and employed in purchasing
consumable goods, which may be of some use at home. Its annual
exportation will, in this manner, continue for some time to add
something to the annual consumption of the country beyond the value of
its own annual produce. What in the days of its prosperity had been
saved from that annual produce, and employed in purchasing gold and
silver, will contribute, for some little time, to support its
consumption in adversity. The exportation of gold and silver is, in
this case, not the cause, but the effect of its declension, and may
even, for some little time, alleviate the misery of that declension.

The quantity of money, on the contrary, must in every country
naturally increase as the value of the annual produce increases. The
value of the consumable goods annually circulated within the society
being greater, will require a greater quantity of money to circulate
them. A part of the increased produce, therefore, will naturally be
employed in purchasing, wherever it is to be had, the additional
quantity of gold and silver necessary for circulating the rest. The
increase of those metals will, in this case, be the effect, not the
cause, of the public prosperity. Gold and silver are purchased
everywhere in the same manner. The food, clothing, and lodging, the
revenue and maintenance, of all those whose labour or stock is
employed in bringing them from the mine to the market, is the price
paid for them in Peru as well as in England. The country which has
this price to pay, will never belong without the quantity of those
metals which it has occasion for; and no country will ever long retain
a quantity which it has no occasion for.

Whatever, therefore, we may imagine the real wealth and revenue of a
country to consist in, whether in the value of the annual produce of
its land and labour, as plain reason seems to dictate, or in the
quantity of the precious metals which circulate within it, as vulgar
prejudices suppose; in either view of the matter, every prodigal
appears to be a public enemy, and every frugal man a public

The effects of misconduct are often the same as those of prodigality.
Every injudicious and unsuccessful project in agriculture, mines,
fisheries, trade, or manufactures, tends in the same manner to
diminish the funds destined for the maintenance of productive labour.
In every such project, though the capital is consumed by productive
hands only, yet as, by the injudicious manner in which they are
employed, they do not reproduce the full value of their consumption,
there must always be some diminution in what would otherwise have been
the productive funds of the society.

It can seldom happen, indeed, that the circumstances of a great nation
can be much affected either by the prodigality or misconduct of
individuals; the profusion or imprudence of some being always more
than compensated by the frugality and good conduct of others.

With regard to profusion, the principle which prompts to expense is
the passion for present enjoyment; which, though sometimes violent and
very difficult to be restrained, is in general only momentary and
occasional. But the principle which prompts to save, is the desire of
bettering our condition; a desire which, though generally calm and
dispassionate, comes with us from the womb, and never leaves us till
we go into the grave. In the whole interval which separates those two
moments, there is scarce, perhaps, a single instance, in which any man
is so perfectly and completely satisfied with his situation, as to be
without any wish of alteration or improvement of any kind. An
augmentation of fortune is the means by which the greater part of men
propose and wish to better their condition. It is the means the most
vulgar and the most obvious; and the most likely way of augmenting
their fortune, is to save and accumulate some part of what they
acquire, either regularly and annually, or upon some extraordinary
occasion. Though the principle of expense, therefore, prevails in
almost all men upon some occasions, and in some men upon almost all
occasions; yet in the greater part of men, taking the whole course of
their life at an average, the principle of frugality seems not only to
predominate, but to predominate very greatly.

With regard to misconduct, the number of prudent and successful
undertakings is everywhere much greater than that of injudicious and
unsuccessful ones. After all our complaints of the frequency of
bankruptcies, the unhappy men who fall into this misfortune, make but
a very small part of the whole number engaged in trade, and all other
sorts of business; not much more, perhaps, than one in a thousand.
Bankruptcy is, perhaps, the greatest and most humiliating calamity
which can befal an innocent man. The greater part of men, therefore,
are sufficiently careful to avoid it. Some, indeed, do not avoid it;
as some do not avoid the gallows.

Great nations are never impoverished by private, though they sometimes
are by public prodigality and misconduct. The whole, or almost the
whole public revenue is, in most countries, employed in maintaining
unproductive hands. Such are the people who compose a numerous and
splendid court, a great ecclesiastical establishment, great fleets and
armies, who in time of peace produce nothing, and in time of war
acquire nothing which can compensate the expense of maintaining them,
even while the war lasts. Such people, as they themselves produce
nothing, are all maintained by the produce of other men's labour. When
multiplied, therefore, to an unnecessary number, they may in a
particular year consume so great a share of this produce, as not to
leave a sufficiency for maintaining the productive labourers, who
should reproduce it next year. The next year's produce, therefore,
will be less than that of the foregoing; and if the same disorder
should continue, that of the third year will be still less than that
of the second. Those unproductive hands who should be maintained by a
part only of the spare revenue of the people, may consume so great a
share of their whole revenue, and thereby oblige so great a number to
encroach upon their capitals, upon the funds destined for the
maintenance of productive labour, that all the frugality and good
conduct of individuals may not be able to compensate the waste and
degradation of produce occasioned by this violent and forced

This frugality and good conduct, however, is, upon most occasions, it
appears from experience, sufficient to compensate, not only the
private prodigality and misconduct of individuals, but the public
extravagance of government. The uniform, constant, and uninterrupted
effort of every man to better his condition, the principle from which
public and national, as well as private opulence is originally
derived,is frequently powerful enough to maintain the natural progress
of things towards improvement, in spite both of the extravagance of
government, and of the greatest errors of administration. Like the
unknown principle of animal life, it frequently restores health and
vigour to the constitution, in spite not only of the disease, but of
the absurd prescriptions of the doctor.

The annual produce of the land and labour of any nation can be
increased in its value by no other means, but by increasing either the
number of its productive labourers, or the productive powers of those
labourers who had before been employed. The number of its productive
labourers, it is evident, can never be much increased, but in
consequence of an increase of capital, or of the funds destined for
maintaining them. The productive powers of the same number of
labourers cannot be increased, but in consequence either of some
addition and improvement to those machines and instruments which
facilitate and abridge labour, or of more proper division and
distribution of employment. In either case, an additional capital is
almost always required. It is by means of an additional capital only,
that the undertaker of any work can either provide his workmen with
better machinery, or make a more proper distribution of employment
among them. When the work to be done consists of a number of parts, to
keep every man constantly employed in one way, requires a much greater
capital than where every man is occasionally employed in every
different part of the work. When we compare, therefore, the state of a
nation at two different periods, and find that the annual produce of
its land and labour is evidently greater at the latter than at the
former, that its lands are better cultivated, its manufactures more
numerous and more flourishing, and its trade more extensive; we may be
assured that its capital must have increased during the interval
between those two periods, and that more must have been added to it by
the good conduct of some, than had been taken from it either by the
private misconduct of others, or by the public extravagance of
government. But we shall find this to have been the case of almost all
nations, in all tolerably quiet and peaceable times, even of those who
have not enjoyed the most prudent and parsimonious governments. To
form a right judgment of it, indeed, we must compare the state of the
country at periods somewhat distant from one another. The progress is
frequently so gradual, that, at near periods, the improvement is not
only not sensible, but, from the declension either of certain branches
of industry, or of certain districts of the country, things which
sometimes happen, though the country in general is in great
prosperity, there frequently arises a suspicion, that the riches and
industry of the whole are decaying.

The annual produce of the land and labour of England, for example, is
certainly much greater than it was a little more than a century ago,
at the restoration of Charles II. Though at present few people, I
believe, doubt of this, yet during this period five years have seldom
passed away, in which some book or pamphlet has not been published,
written, too, with such abilities as to gain some authority with the
public, and pretending to demonstrate that the wealth of the nation
was fast declining; that the country was depopulated, agriculture
neglected, manufactures decaying, and trade undone. Nor have these
publications been all party pamphlets, the wretched offspring of
falsehood and venality. Many of them have been written by very candid
and very intelligent people, who wrote nothing but what they believed,
and for no other reason but because they believed it.

The annual produce of the land and labour of England, again, was
certainly much greater at the Restoration than we can suppose it to
have been about a hundred years before, at the accession of Elizabeth.
At this period, too, we have all reason to believe, the country was
much more advanced in improvement, than it had been about a century
before, towards the close of the dissensions between the houses of
York and Lancaster. Even then it was, probably, in a better condition
than it had been at the Norman conquest: and at the Norman conquest,
than during the confusion of the Saxon heptarchy. Even at this early
period, it was certainly a more improved country than at the invasion
of Julius Caesar, when its inhabitants were nearly in the same state
with the savages in North America.

In each of those periods, however, there was not only much private and
public profusion, many expensive and unnecessary wars, great
perversion of the annual produce from maintaining productive to
maintain unproductive hands; but sometimes, in the confusion of civil
discord, such absolute waste and destruction of stock, as might be
supposed, not only to retard, as it certainly did, the natural
accumulation of riches, but to have left the country, at the end of
the period, poorer than at the beginning. Thus, in the happiest and
most fortunate period of them all, that which has passed since the
Restoration, how many disorders and misfortunes have occurred, which,
could they have been foreseen, not only the impoverishment, but the
total ruin of the country would have been expected from them? The fire
and the plague of London, the two Dutch wars, the disorders of the
revolution, the war in Ireland, the four expensive French wars of
1688, 1701, 1742, and 1756, together with the two rebellions of 1715
and 1745. In the course of the four French wars, the nation has
contracted more than 145,000,000 of debt, over and above all the
other extraordinary annual expense which they occasioned; so that the
whole cannot be computed at less than 200,000,000. So great a share
of the annual produce of the land and labour of the country, has,
since the Revolution, been employed upon different occasions, in
maintaining an extraordinary number of unproductive hands. But had not
those wars given this particular direction to so large a capital, the
greater part of it would naturally have been employed in maintaining
productive hands, whose labour would have replaced, with a profit, the
whole value of their consumption. The value of the annual produce of
the land and labour of the country would have been considerably
increased by it every year, and every years increase would have
augmented still more that of the following year. More houses would
have been built, more lands would have been improved, and those which
had been improved before would have been better cultivated; more
manufactures would have been established, and those which had been
established before would have been more extended; and to what height
the real wealth and revenue of the country might by this time have
been raised, it is not perhaps very easy even to imagine.

But though the profusion of government must undoubtedly have retarded
the natural progress of England towards wealth and improvement, it has
not been able to stop it. The annual produce of its land and labour is
undoubtedly much greater at present than it was either at the
Restoration or at the Revolution. The capital, therefore, annually
employed in cultivating this land, and in maintaining this labour,
must likewise be much greater. In the midst of all the exactions of
government, this capital has been silently and gradually accumulated
by the private frugality and good conduct of individuals, by their
universal, continual, and uninterrupted effort to better their own
condition. It is this effort, protected by law, and allowed by liberty
to exert itself in the manner that is most advantageous, which has
maintained the progress of England towards opulence and improvement in
almost all former times, and which, it is to be hoped, will do so in
all future times. England, however, as it has never been blessed with
a very parsimonious government, so parsimony has at no time been the
characteristic virtue of its inhabitants. It is the highest
impertinence and presumption, therefore, in kings and ministers to
pretend to watch over the economy of private people, and to restrain
their expense, either by sumptuary laws, or by prohibiting the
importation of foreign luxuries. They are themselves always, and
without any exception, the greatest spendthrifts in the society. Let
them look well after their own expense, and they may safely trust
private people with theirs. If their own extravagance does not ruin
the state, that of the subject never will.

As frugality increases, and prodigality diminishes, the public
capital, so the conduct of those whose expense just equals their
revenue, without either accumulating or encroaching, neither increases
nor diminishes it. Some modes of expense, however, seem to contribute
more to the growth of public opulence than others.

The revenue of an individual may be spent, either in things which are
consumed immediately, and in which one day's expense can neither
alleviate nor support that of another; or it may be spent in things
mere durable, which can therefore be accumulated, and in which every
day's expense may, as he chooses, either alleviate, or support and
heighten, the effect of that of the following day. A man of fortune,
for example, may either spend his revenue in a profuse and sumptuous
table, and in maintaining a great number of menial servants, and a
multitude of dogs and horses; or, contenting himself with a frugal
table, and few attendants, he may lay out the greater part of it in
adorning his house or his country villa, in useful or ornamental
buildings, in useful or ornamental furniture, in collecting books,
statues, pictures; or in things more frivolous, jewels, baubles,
ingenious trinkets of different kinds; or, what is most trifling of
all, in amassing a great wardrobe of fine clothes, like the favourite
and minister of a great prince who died a few years ago. Were two men
of equal fortune to spend their revenue, the one chiefly in the one
way, the other in the other, the magnificence of the person whose
expense had been chiefly in durable commodities, would be continually
increasing, every day's expense contributing something to support and
heighten the effect of that of the following day; that of the other,
on the contrary, would be no greater at the end of the period than at
the beginning. The former too would, at the end of the period, be the
richer man of the two. He would have a stock of goods of some kind or
other, which, though it might not be worth all that it cost, would
always be worth something. No trace or vestige of the expense of the
latter would remain, and the effects of ten or twenty years' profusion
would be as completely annihilated as if they had never existed.

As the one mode of expense is more favourable than the other to the
opulence of an individual, so is it likewise to that of a nation. The
houses, the furniture, the clothing of the rich, in a little time,
become useful to the inferior and middling ranks of people. They are
able to purchase them when their superiors grow weary of them; and the
general accommodation of the whole people is thus gradually improved,
when this mode of expense becomes universal among men of fortune. In
countries which have long been rich, you will frequently find the
inferior ranks of people in possession both of houses and furniture
perfectly good and entire, but of which neither the one could have
been built, nor the other have been made for their use. What was
formerly a seat of the family of Seymour, is now an inn upon the Bath
road. The marriage-bed of James I. of Great Britain, which his queen
brought with her from Denmark, as a present fit for a sovereign to
make to a sovereign, was, a few years ago, the ornament of an alehouse
at Dunfermline. In some ancient cities, which either have been long
stationary, or have gone somewhat to decay, you will sometimes scarce
find a single house which could have been built for its present
inhabitants. If you go into those houses, too, you will frequently
find many excellent, though antiquated pieces of furniture, which are
still very fit for use, and which could as little have been made for
them. Noble palaces, magnificent villas, great collections of books,
statues, pictures, and other curiosities, are frequently both an
ornament and an honour, not only to the neighbourhood, but to the
whole country to which they belong. Versailles is an ornament and an
honour to France, Stowe and Wilton to England. Italy still continues
to command some sort of veneration, by the number of monuments of this
kind which it possesses, though the wealth which produced them has
decayed, and though the genius which planned them seems to be
extinguished, perhaps from not having the same employment.

The expense, too, which is laid out in durable commodities, is
favourable not only to accumulation, but to frugality. If a person
should at any time exceed in it, he can easily reform without exposing
himself to the censure of the public. To reduce very much the number
of his servants, to reform his table from great profusion to great
frugality, to lay down his equipage after he has once set it up, are
changes which cannot escape the observation of his neighbours, and
which are supposed to imply some acknowledgment of preceding bad
conduct. Few, therefore, of those who have once been so unfortunate as
to launch out too far into this sort of expense, have afterwards the
courage to reform, till ruin and bankruptcy oblige them. But if a
person has, at any time, been at too great an expense in building, in
furniture, in books, or pictures, no imprudence can be inferred from
his changing his conduct. These are things in which further expense is
frequently rendered unnecessary by former expense; and when a person
stops short, he appears to do so, not because he has exceeded his
fortune, but because he has satisfied his fancy.

The expense, besides, that is laid out in durable commodities, gives
maintenance, commonly, to a greater number of people than that which
is employed in the most profuse hospitality. Of two or three hundred
weight of provisions, which may sometimes be served up at a great
festival, one half, perhaps, is thrown to the dunghill, and there is
always a great deal wasted and abused. But if the expense of this
entertainment had been employed in setting to work masons, carpenters,
upholsterers, mechanics, etc. a quantity of provisions of equal value
would have been distributed among a still greater number of people,
who would have bought them in pennyworths and pound weights, and not
have lost or thrown away a single ounce of them. In the one way,
besides, this expense maintains productive, in the other unproductive
hands. In the one way, therefore, it increases, in the other it does
not increase the exchangeable value of the annual produce of the land
and labour of the country.

I would not, however, by all this, be understood to mean, that the one
species of expense always betokens a more liberal or generous spirit
than the other. When a man of fortune spends his revenue chiefly in
hospitality, he shares the greater part of it with his friends and
companions; but when he employs it in purchasing such durable
commodities, he often spends the whole upon his own person, and gives
nothing to any body without an equivalent. The latter species of
expense, therefore, especially when directed towards frivolous
objects, the little ornaments of dress and furniture, jewels,
trinkets, gew-gaws, frequently indicates, not only a trifling, but a
base and selfish disposition. All that I mean is, that the one sort of
expense, as it always occasions some accumulation of valuable
commodities, as it is more favourable to private frugality, and,
consequently, to the increase of the public capital, and as it
maintains productive rather than unproductive hands, conduces more
than the other to the growth of public opulence.



The stock which is lent at interest is always considered as a capital
by the lender. He expects that in due time it is to be restored to
him, and that, in the mean time, the borrower is to pay him a certain
annual rent for the use of it. The borrower may use it either as a
capital, or as a stock reserved for immediate consumption. If he uses
it as a capital, he employs it in the maintenance of productive
labourers, who reproduce the value, with a profit. He can, in this
case, both restore the capital, and pay the interest, without
alienating or encroaching upon any other source of revenue. If he uses
it as a stock reserved for immediate consumption, he acts the part of
a prodigal, and dissipates, in the maintenance of the idle, what was
destined for the support of the industrious. He can, in this case,
neither restore the capital nor pay the interest, without either
alienating or encroaching upon some other source of revenue, such as
the property or the rent of land.

The stock which is lent at interest is, no doubt, occasionally
employed in both these ways, but in the former much more frequently
than in the latter. The man who borrows in order to spend will soon be
ruined, and he who lends to him will generally have occasion to repent
of his folly. To borrow or to lend for such a purpose, therefore, is,
in all cases, where gross usury is out of the question, contrary to
the interest of both parties; and though it no doubt happens
sometimes, that people do both the one and the other, yet, from the
regard that all men have for their own interest, we may be assured,
that it cannot happen so very frequently as we are sometimes apt to
imagine. Ask any rich man of common prudence, to which of the two
sorts of people he has lent the greater part of his stock, to those
who he thinks will employ it profitably, or to those who will spend it
idly, and he will laugh at you for proposing the question. Even among
borrowers, therefore, not the people in the world most famous for
frugality, the number of the frugal and industrious surpasses
considerably that of the prodigal and idle.

The only people to whom stock is commonly lent, without their being
expected to make any very profitable use of it, are country gentlemen,
who borrow upon mortgage. Even they scarce ever borrow merely to
spend. What they borrow, one may say, is commonly spent before they
borrow it. They have generally consumed so great a quantity of goods,
advanced to them upon credit by shop-keepers and tradesmen, that they
find it necessary to borrow at interest, in order to pay the debt. The
capital borrowed replaces the capitals of those shop-keepers and
tradesmen which the country gentlemen could not have replaced from the
rents of their estates. It is not properly borrowed in order to be
spent, but in order to replace a capital which had been spent before.

Almost all loans at interest are made in money, either of paper, or of
gold and silver; but what the borrower really wants, and what the
lender readily supplies him with, is not the money, but the money's
worth, or the goods which it can purchase. If he wants it as a stock
for immediate consumption, it is those goods only which he can place
in that stock. If he wants it as a capital for employing industry, it
is from those goods only that the industrious can be furnished with
the tools, materials, and maintenance necessary for carrying on their
work. By means of the loan, the lender, as it were, assigns to the
borrower his right to a certain portion of the annual produce of the
land and labour of the country, to be employed as the borrower

The quantity of stock, therefore, or, as it is commonly expressed, of
money, which can be lent at interest in any country, is not regulated
by the value of the money, whether paper or coin, which serves as the
instrument of the different loans made in that country, but by the
value of that part of the annual produce, which, as soon as it comes
either from the ground, or from the hands of the productive labourers,
is destined, not only for replacing a capital, but such a capital as
the owner does not care to be at the trouble of employing himself. As
such capitals are commonly lent out and paid back in money, they
constitute what is called the monied interest. It is distinct, not
only from the landed, but from the trading and manufacturing
interests, as in these last the owners themselves employ their own
capitals. Even in the monied interest, however, the money is, as it
were, but the deed of assignment, which conveys from one hand to
another those capitals which the owners do not care to employ
themselves. Those capitals may be greater, in almost any proportion,
than the amount of the money which serves as the instrument of their
conveyance; the same pieces of money successively serving for many
different loans, as well as for many different purchases. A, for
example, lends to W 1000, with which W immediately purchases of B
1000 worth of goods. B having no occasion for the money himself,
lends the identical pieces to X, with which X immediately purchases of
C another 1000 worth of goods. C, in the same manner, and for the
same reason, lends them to Y, who again purchases goods with them of
D. In this manner, the same pieces, either of coin or of paper, may,
in the course of a few days, serve as the Instrument of three
different loans, and of three different purchases, each of which is,
in value, equal to the whole amount of those pieces. What the three
monied men, A, B, and C, assigned to the three borrowers, W, X, and Y,
is the power of making those purchases. In this power consist both the
value and the use of the loans. The stock lent by the three monied men
is equal to the value of the goods which can be purchased with it, and
is three times greater than that of the money with which the purchases
are made. Those loans, however, may be all perfectly well secured, the
goods purchased by the different debtors being so employed as, in due
time, to bring back, with a profit, an equal value either of coin or
of paper. And as the same pieces of money can thus serve as the
instrument of different loans to three, or, for the same reason, to
thirty times their value, so they may likewise successively serve as
the instrument of repayment.

A capital lent at interest may, in this manner, be considered as an
assignment, from the lender to the borrower, of a certain considerable
portion of the annual produce, upon condition that the burrower in
return shall, during the continuance of the loan, annually assign to
the lender a small portion, called the interest; and, at the end of
it, a portion equally considerable with that which had originally been
assigned to him, called the repayment. Though money, either coin or
paper, serves generally as the deed of assignment, both to the smaller
and to the more considerable portion, it is itself altogether
different from what is assigned by it.

In proportion as that share of the annual produce which, as soon as it
comes either from the ground, or from the hands of the productive
labourers, is destined for replacing a capital, increases in any
country, what is called the monied interest naturally increases with
it. The increase of those particular capitals from which the owners
wish to derive a revenue, without being at the trouble of employing
them themselves, naturally accompanies the general increase of
capitals; or, in other words, as stock increases, the quantity of
stock to be lent at interest grows gradually greater and greater.

As the quantity of stock to be lent at interest increases, the
interest, or the price which must be paid for the use of that stock,
necessarily diminishes, not only from those general causes which make
the market price of things commonly diminish as their quantity
increases, but from other causes which are peculiar to this particular
case. As capitals increase in any country, the profits which can be
made by employing them necessarily diminish. It becomes gradually more
and more difficult to find within the country a profitable method of
employing any new capital. There arises, in consequence, a competition
between different capitals, the owner of one endeavouring to get
possession of that employment which is occupied by another; but, upon
most occasions, he can hope to justle that other out of this
employment by no other means but by dealing upon more reasonable
terms. He must not only sell what he deals in somewhat cheaper, but,
in order to get it to sell, he must sometimes, too, buy it dearer. The
demand for productive labour, by the increase of the funds which are
destined for maintaining it, grows every day greater and greater.
Labourers easily find employment; but the owners of capitals find it
difficult to get labourers to employ. Their competition raises the
wages of labour, and sinks the profits of stock. But when the profits
which can be made by the use of a capital are in this manner
diminished, as it were, at both ends, the price which can be paid for
the use of it, that is, the rate of interest, must necessarily be
diminished with them.

Mr Locke, Mr Lawe, and Mr Montesquieu, as well as many other writers,
seem to have imagined that the increase of the quantity of gold and
silver, in consequence of the discovery of the Spanish West Indies,
was the real cause of the lowering of the rate of interest through the
greater part of Europe. Those metals, they say, having become of less
value themselves, the use of any particular portion of them
necessarily became of less value too, and, consequently, the price
which could be paid for it. This notion, which at first sight seems so
plausible, has been so fully exposed by Mr Hume, that it is, perhaps,
unnecessary to say any thing more about it. The following very short
and plain argument, however, may serve to explain more distinctly the
fallacy which seems to have misled those gentlemen.

Before the discovery of the Spanish West Indies, ten per cent. seems
to have been the common rate of interest through the greater part of
Europe. It has since that time, in different countries, sunk to six,
five, four, and three per cent. Let us suppose, that in every
particular country the value of silver has sunk precisely in the same
proportion as the rate of interest; and that in those countries, for
example, where interest has been reduced from ten to five per cent.
the same quantity of silver can now purchase just half the quantity of
goods which it could have purchased before. This supposition will not,
I believe, be found anywhere agreeable to the truth; but it is the
most favourable to the opinion which we are going to examine; and,
even upon this supposition, it is utterly impossible that the lowering
of the value of silver could have the smallest tendency to lower the
rate of interest. If 100 are in those countries now of no more value
than 50 were then, 10 must now be of no more value than 5 were
then. Whatever were the causes which lowered the value of the capital,
the same must necessarily have lowered that of the interest, and
exactly in the same proportion. The proportion between the value of
the capital and that of the interest must have remained the same,
though the rate had never been altered. By altering the rate, on the
contrary, the proportion between those two values is necessarily
altered. If 100 now are worth no more than 50 were then, 5 now can
be worth no more than 2:10s. were then. By reducing the rate of
interest, therefore, from ten to five per cent. we give for the use of
a capital, which is supposed to be equal to one half of its former
value, an interest which is equal to one fourth only of the value of
the former interest.

An increase in the quantity of silver, while that of the commodities
circulated by means of it remained the same, could have no other
effect than to diminish the value of that metal. The nominal value of
all sorts of goods would be greater, but their real value would be
precisely the same as before. They would be exchanged for a greater
number of pieces of silver; but the quantity of labour which they
could command, the number of people whom they could maintain and
employ, would be precisely the same. The capital of the country would
be the same, though a greater number of pieces might be requisite for
conveying any equal portion of it from one hand to another. The deeds
of assignment, like the conveyances of a verbose attorney, would be
more cumbersome; but the thing assigned would be precisely the same as
before, and could produce only the same effects. The funds for
maintaining productive labour being the same, the demand for it would
be the same. Its price or wages, therefore, though nominally greater,
would really be the same. They would be paid in a greater number of
pieces of silver, but they would purchase only the same quantity of
goods. The profits of stock would be the same, both nominally and
really. The wages of labour are commonly computed by the quantity of
silver which is paid to the labourer. When that is increased,
therefore, his wages appear to be increased, though they may sometimes
be no greater than before. But the profits of stock are not computed
by the number of pieces of silver with which they are paid, but by the
proportion which those pieces bear to the whole capital employed.
Thus, in a particular country, 5s. a-week are said to be the common
wages of labour, and ten per cent. the common profits of stock; but
the whole capital of the country being the same as before, the
competition between the different capitals of individuals into which
it was divided would likewise be the same. They would all trade with
the same advantages and disadvantages. The common proportion between
capital and profit, therefore, would be the same, and consequently the
common interest of money; what can commonly be given for the use of
money being necessarily regulated by what can commonly be made by the
use of it.

Any increase in the quantity of commodities annually circulated within
the country, while that of the money which circulated them remained
the same, would, on the contrary, produce many other important
effects, besides that of raising the value of the money. The capital
of the country, though it might nominally be the same, would really be
augmented. It might continue to be expressed by the same quantity of
money, but it would command a greater quantity of labour. The quantity
of productive labour which it could maintain and employ would be
increased, and consequently the demand for that labour. Its wages
would naturally rise with the demand, and yet might appear to sink.
They might be paid with a smaller quantity of money, but that smaller
quantity might purchase a greater quantity of goods than a greater had
done before. The profits of stock would be diminished, both really and
in appearance. The whole capital of the country being augmented, the
competition between the different capitals of which it was composed
would naturally be augmented along with it. The owners of those
particular capitals would be obliged to content themselves with a
smaller proportion of the produce of that labour which their
respective capitals employed. The interest of money, keeping pace
always with the profits of stock, might, in this manner, be greatly
diminished, though the value of money, or the quantity of goods which
any particular sum could purchase, was greatly augmented.

In some countries the interest of money has been prohibited by law.
But as something can everywhere be made by the use of money, something
ought everywhere to be paid for the use of it. This regulation,
instead of preventing, has been found from experience to increase the
evil of usury. The debtor being obliged to pay, not only for the use
of the money, but for the risk which his creditor runs by accepting a
compensation for that use, he is obliged, if one may say so, to insure
his creditor from the penalties of usury.

In countries where interest is permitted, the law in order to prevent
the extortion of usury, generally fixes the highest rate which can be
taken without incurring a penalty. This rate ought always to be
somewhat above the lowest market price, or the price which is commonly
paid for the use of money by those who can give the most undoubted
security. If this legal rate should be fixed below the lowest market
rate, the effects of this fixation must be nearly the same as those of
a total prohibition of interest. The creditor will not lend his money
for less than the use of it is worth, and the debtor must pay him for
the risk which he runs by accepting the full value of that use. If it
is fixed precisely at the lowest market price, it ruins, with honest
people who respect the laws of their country, the credit of all those
who cannot give the very best security, and obliges them to have
recourse to exorbitant usurers. In a country such as Great Britain,
where money is lent to government at three per cent. and to private
people, upon good security, at four and four and a-half, the present
legal rate, five per cent. is perhaps as proper as any.

The legal rate, it is to be observed, though it ought to be somewhat
above, ought not to be much above the lowest market rate. If the legal
rate of interest in Great Britain, for example, was fixed so high as
eight or ten per cent. the greater part of the money which was to be
lent, would be lent to prodigals and projectors, who alone would be
willing to give this high interest. Sober people, who will give for
the use of money no more than a part of what they are likely to make
by the use of it, would not venture into the competition. A great part
of the capital of the country would thus be kept out of the hands
which were most likely to make a profitable and advantageous use of
it, and thrown into those which were most likely to waste and destroy
it. Where the legal rate of interest, on the contrary, is fixed but a
very little above the lowest market rate, sober people are universally
preferred, as borrowers, to prodigals and projectors. The person who
lends money gets nearly as much interest from the former as he dares
to take from the latter, and his money is much safer in the hands of
the one set of people than in those of the other. A great part of the
capital of the country is thus thrown into the hands in which it is
most likely to be employed with advantage.

No law can reduce the common rate of interest below the lowest
ordinary market rate at the time when that law is made.
Notwithstanding the edict of 1766, by which the French king attempted
to reduce the rate of interest from five to four per cent. money
continued to be lent in France at five per cent. the law being evaded
in several different ways.

The ordinary market price of land, it is to be observed, depends
everywhere upon the ordinary market rate of interest. The person who
has a capital from which he wishes to derive a revenue, without taking
the trouble to employ it himself, deliberates whether he should buy
land with it, or lend it out at interest. The superior security of
land, together with some other advantages which almost everywhere
attend upon this species of property, will generally dispose him to
content himself with a smaller revenue from land, than what he might
have by lending out his money at interest. These advantages are
sufficient to compensate a certain difference of revenue; but they
will compensate a certain difference only; and if the rent of land
should fall short of the interest of money by a greater difference,
nobody would buy land, which would soon reduce its ordinary price. On
the contrary, if the advantages should much more than compensate the
difference, everybody would buy land, which again would soon raise its
ordinary price. When interest was at ten per cent. land was commonly
sold for ten or twelve years purchase. As interest sunk to six, five,
and four per cent. the price of land rose to twenty, five-and-twenty,
and thirty years purchase. The market rate of interest is higher in
France than in England, and the common price of land is lower. In
England it commonly sells at thirty, in France at twenty years



Though all capitals are destined for the maintenance of productive
labour only, yet the quantity of that labour which equal capitals are
capable of putting into motion, varies extremely according to the
diversity of their employment; as does likewise the value which that
employment adds to the annual produce of the land and labour of the

A capital may be employed in four different ways; either, first, in
procuring the rude produce annually required for the use and
consumption of the society; or, secondly, in manufacturing and
preparing that rude produce for immediate use and consumption; or,
thirdly in transporting either the rude or manufactured produce from
the places where they abound to those where they are wanted; or,
lastly, in dividing particular portions of either into such small
parcels as suit the occasional demands of those who want them. In the
first way are employed the capitals of all those who undertake
improvement or cultivation of lands, mines, or fisheries; in the
second, those of all master manufacturers; in the third, those of all
wholesale merchants; and in the fourth, those of all retailers. It is
difficult to conceive that a capital should be employed in any way
which may not be classed under some one or other of those four.

Each of those four methods of employing a capital is essentially
necessary, either to the existence or extension of the other three, or
to the general conveniency of the society.

Unless a capital was employed in furnishing rude produce to a certain
degree of abundance, neither manufactures nor trade of any kind could

Unless a capital was employed in manufacturing that part of the rude
produce which requires a good deal of preparation before it can be fit
for use and consumption, it either would never be produced, because
there could be no demand for it; or if it was produced spontaneously,
it would be of no value in exchange, and could add nothing to the
wealth of the society.

Unless a capital was employed in transporting either the rude or
manufactured produce from the places where it abounds to those where
it is wanted, no more of either could be produced than was necessary
for the consumption of the neighbourhood. The capital of the merchant
exchanges the surplus produce of one place for that of another, and
thus encourages the industry, and increases the enjoyments of both.

Unless a capital was employed in breaking and dividing certain
portions either of the rude or manufactured produce into such small
parcels as suit the occasional demands of those who want them, every
man would be obliged to purchase a greater quantity of the goods he
wanted than his immediate occasions required. If there was no such
trade as a butcher, for example, every man would be obliged to
purchase a whole ox or a whole sheep at a time. This would generally
be inconvenient to the rich, and much more so to the poor. If a poor
workman was obliged to purchase a month's or six months' provisions at
a time, a great part of the stock which he employs as a capital in the
instruments of his trade, or in the furniture of his shop, and which
yields him a revenue, he would be forced to place in that part of his
stock which is reserved for immediate consumption, and which yields
him no revenue. Nothing can be more convenient for such a person than
to be able to purchase his subsistence from day to day, or even from
hour to hour, as he wants it. He is thereby enabled to employ almost
his whole stock as a capital. He is thus enabled to furnish work to a
greater value; and the profit which he makes by it in this way much
more than compensates the additional price which the profit of the
retailer imposes upon the goods. The prejudices of some political
writers against shopkeepers and tradesmen are altogether without
foundation. So far is it from being necessary either to tax them, or
to restrict their numbers, that they can never be multiplied so as to
hurt the public, though they may so as to hurt one another. The
quantity of grocery goods, for example, which can be sold in a
particular town, is limited by the demand of that town and its
neighbourhood. The capital, therefore, which can be employed in the
grocery trade, cannot exceed what is sufficient to purchase that
quantity. If this capital is divided between two different grocers,
their competition will tend to make both of them sell cheaper than if
it were in the hands of one only; and if it were divided among twenty,
their competition would be just so much the greater, and the chance of
their combining together, in order to raise the price, just so much
the less. Their competition might, perhaps, ruin some of themselves;
but to take care of this, is the business of the parties concerned,
and it may safely be trusted to their discretion. It can never hurt
either the consumer or the producer; on the contrary, it must tend to
make the retailers both sell cheaper and buy dearer, than if the whole
trade was monopolized by one or two persons. Some of them, perhaps,
may sometimes decoy a weak customer to buy what he has no occasion
for. This evil, however, is of too little importance to deserve the
public attention, nor would it necessarily be prevented by restricting
their numbers. It is not the multitude of alehouses, to give the must
suspicious example, that occasions a general disposition to
drunkenness among the common people; but that disposition, arising
from other causes, necessarily gives employment to a multitude of

The persons whose capitals are employed in any of those four ways, are
themselves productive labourers. Their labour, when properly directed,
fixes and realizes itself in the subject or vendible commodity upon


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