AdamSmith. AnInquiryIntoTheNatureAndCausesOf. WealthOfTheNationsThe. Summary. Divided by the author. BookFour. ModernLibrary.1994.

1)      Of Systems of political Œconomy

Introduction

·        The first object of political œconomy is to provide subsistence for the people.

·        Two different systems proposed for this end will be explained.

a)      Of the Principle of the commercial or mercantile System

·        Wealth and money in common language are considered synonymous.

·        Similarly the Tartars throughout wealth consisted of cattle.

·        Locke thought gold and silver the most substantial part of the wealth of a nation.

·        Others say that it is necessary to have much money in order to maintain fleets and armies abroad.

·        So all European nations have tried to accumulate gold and silver.

·        At first by a prohibition of exploration,

·        but merchants found this inconvenient,

·        and therefore argued that exportation did not always diminish the stock in the country,

·        and that the metals could be retained only by attention to the balance of trade.

·        Their arguments were partly sophistical,

·        but they convinced parliaments and councils.

·        The exportation of foreign coin and bullion was permitted by France and England, and the exportation of Dutch coin by Holland.

·        That treasure was obtained by foreign trade became a received maxim.

·        Gold and silver will be imported without any attention of government

·        They can be imported more easily than other commodities when there is an effectual demand.

·        When their quantity exceeds the demand it is impossible to prevent their exportation,

·        and it would be equally impossible to prevent their importation if the supply fell short of the effectual demand.

·        It is this ease of transportation which makes the value of gold and silver so uniform.

·        If they did fall short, their place could be supplied by paper.

·        The common complaint of scarcity of money only means difficulty in borrowing.

·        Money makes but a small part of the national capital.

·        It is easier to buy than to sell simply because money is the instrument of commerce.

·        The durability of a commodity is no reason for accumulating more of it than is wanted.

·        Accumulation of gold and silver is not necessary for carrying on distant wars,

·        which may be paid for by exporting: (1) gold and silver, (2) manufactures, or (3) rude produce.

·        The gold and silver consists of money in circulation, plate, and money in the treasury.

·        Little can be spared from the money in circulation;

·        plate has never yielded much;

·        accumulation in the treasury has been abandoned.

·        The foreign wars of the century have evidently not been paid from the money in circulation

·        but by commodities.

·        Part of the bullion which circulates from country to country may have been employed, but it must have been purchased with commodities.

·        The finer manufactures are the most convenient commodities for the purpose.

·        Rude produce is inconvenient.

·        The principal benefit of foreign trade is not the importation of gold and silver, but the carrying out of surplus produce for which there is not demand and bringing back something for which there is.

·        The discovery of America has benefited Europe not by the cheapening of gold and silver,

·        but by opening up of a new market which improved the productive powers of labour.

·        The discovery of the sea passage to the East Indies would have been still more advantageous if the trade to the East Indies had been free.

·        The exportation of silver to the East Indies is not harmful.

·        Writers who begin by including lands, houses and consumable goods in wealth often forget them later.

·        Wealth being supposed to consist in gold and silver, political economy endeavoured to diminish imports and encourage exports,

·        by restraints upon importation

·        and encouragements to exportation,

·        which restraints and encouragements will be considered in the next six chapters.

b)      Of Restraints upon the Importation from foreign Countries of such Goods as can be produced at Home

·        High duties and prohibitions giving a monopoly to a particular home industry are very common.

·        They encourage the particular industry, but neither increase general industry nor give it the best direction.

·        The number of persons employed cannot exceed a certain proportion to the capital of the society,

·        and every man’s interest leads him to seek that employment of capital which is most advantageous to the society.

·        (1) He tries to employ it as near home as possible.

·        (2) He endeavours to produce the greatest possible value.

·        He can judge of this much better than the statesman.

·        High duties and prohibitions direct people to employ capital in producing at home what they could buy cheaper from abroad.

·        It is as foolish for a nation as for an individual to make what can be bought cheaper.

·        Sometimes by such regulations a manufacture may be established earlier than it would otherwise have been but this would make capital accumulate slower,

·        and the country might always be just as rich if it never acquired the manufacture.

·        No one proposes that a country should strive against great natural advantages, but it is also absurd to strive against smaller advantages whether natural or acquired.

·        Merchants and manufactures get the most benefit from high duties and prohibitions.

·        The free importation of foreign cattle would make no great difference to British graziers.

·        It might even benefit the cultivated plains at the expense of the rugged mountainous districts.

·        The free importation of salt provisions also would make little difference to the graziers,

·        and even the free importation of corn would not much affect the farmers.

·        Country gentlemen and farmers are less subject to the spirit of monopoly than merchants and manufacturers.

·        The prohibition of foreign corn and cattle restraints the population.

·        There are two cases which are exceptional,

·        (1) when a particular industry is necessary for the defence of the country, like shipping, which is properly encouraged by the act of navigation,

·        a wise act, though dictated by animosity,

·        and unfavourable to foreign commerce;

·        and (2) when there is a tax on the produce of the like home manufacture.

·        Some people say that this principle justifies a general imposition of duties on imports to counterbalance taxes levied at home on necessaries,

·        but there is a difference,

·        since (a) the effect of taxes on necessaries cannot be exactly known,

·        and (b) taxes on necessaries are like poor soil or bad climate: they cannot justify an attempt to give capital an unnatural direction.

·        Taxes on necessaries are commonest in the richest countries because no others could support them.

·        There are two other possible exceptions to the general principle:

·        (1) Retaliation

·        may be good policy where it is likely to secure the abolition of foreign restraints.

·        (2) It may be desirable to introduce freedom of trade by slow gradations.

·        But the disorder occasioned by its sudden introduction would be less than is supposed since

·        (a) no manufacture which is now exported would be affected;

·        (b) the people thrown out of one employment would easily find another,

·        especially if the privileges of corporations and the law of settlement were abolished.

·        Private interests are too strong to allow of the restoration of freedom of trade in Great Britain.

·        The fact that equitable regard is due to the manufacturer who has fixed capital in his business is an argument against the establishment of new monopolies.

·        Customs duties imposed for revenue remain to be considered hereafter.

c)      Of the extraordinary Restraints upon the Importation of Goods of almost all Kinds, from those Countries with which the Balance is supposed to be disadvantageous

i)       Of the Unreasonableness of those Restraints even upon the Principle of the Commercial System

·        British restraints on imports from France are an example.

·        Such restraints are unreasonable on the principles of the mercantile system, since

·        (1) if free trade with France did lead to an unfavourable balance with France, it might yet not do so with the world in general,

·        (2) a part of French imports might be re-exported and bring back gold and silver,

·        and (3) the balance cannot be certainly known:

·        custom-house books are useless,

·        and the course of exchange is little better.

·        A favourable exchange with a particular country does not prove a favourable balance with that country.

·        Besides, the ordinary computation of exchange is often misleading, since

·        (1) money is often below its nominal standard.

·        (2) coin is sometimes raised by seignorage above the value of the bullion contained in it,

·        and (3) bank money bears an agio.

(1)    Digression concerning Banks of Deposit, particularly concerning that of Amsterdam

·        Small states must admit foreign coin, which is of uncertain value.

·        Banks are then established to pay in standard money regardless of the condition of the coin, and this money bears an agio.

·        Before 1609 the common currency of Amsterdam was 9 per cent. below the standard.

·        The bank was then established to receive and pay coin at its intrinsic value in good standard money.

·        Money in the bank was not only up to the standard, but also secure and easily transferred, so that it bore an agio.

·        The bank receives bullion as well as coin, giving in exchange a credit in bank money to 95 per cent. of the value.

·        It also gives a receipt which entitles the bearer to recover the bullion on repaying the sum advanced and paying ¼ per cent. for silver and ½ per cent. for gold.

·        The receipts are generally worth something, and are renewed at the end of each six months.

·        The depositor usually parts which his receipt.

·        The bank money and the receipt together equal in value the bullion deposited.

·        Receipts for current coin are also given, but these are often of no value and are allowed to expire.

·        So there is a considerable sum of bank money for which the receipts have expired, but it is not a large proportion of the whole.

·        This cannot be drawn out of the bank.

·        So that if all the holders of bank money desired to exchange it for coin and bullion receipts might command an exorbitant price,

·        but it is supposed in an emergency the bank would pay out money or bullion without receipts being offered.

·        Of late years the bank has always sold bank money at 5 per cent. agio and bought at 4 per cent.

·        If professes to lend out no part of the deposits.

·        The amount of treasure in the bank is a subject of conjecture.

·        The city derives a considerable revenue from the various profits of the bank.

ii)      Of the Unreasonableness of those extraordinary Restraints upon other Principles

·        The whole doctrine of the balance of trade is absurd.

·        Where there is an even balance and the exchange consists wholly of native commodities two countries trading will gain nearly equally.

·        If one exported nothing but native commodities, and the other nothing but foreign, both would gain, but the first would gain most.

·        Mixed cases conform to the principle.

·        It would be no worse for England to pay in gold and silver than in tobacco.

·        The arguments against the French wine trade are fallacious.

·        The sneaking arts of underling tradesmen have been erected into political maxims and commerce has become a source of discord instead of unity.

·        The sophistry of merchants inspired by the spirit of monopoly has confounded the common-sense of mankind.

·        Wealthy neighbours are an advatange to a nation as well as an individual.

·        The French trade, if not restrained, would be much more advantageous to Great Britain than the American.

·        But the traders of France and England are jealous of each other.

·        No country has ever been improverished by an unfavourable balance, and those which have the freest trade have been the most enriched by foreign trade.

·        Prosperity and decay depend on the balance of produce and consumption,

·        which is quite different from the balance of trade,

·        and may be constantly in favour of a nation when the balance of trade is against it.

d)      Of Drawbacks

·        Merchants demand encouragements to exportation.

·        Drawbacks of duty paid on domestic produce are reasonable, as they preserve the natural distribution of labour.

·        So are also drawbacks of duty paid on goods imported.

·        Under the old subsidy a drawback of one-half is allowed.

·        Of more recent duties the whole is generally allowed,

·        and in some cases the whole even of the old subsidy is allowed.

·        In the case of some prohibited goods there is no drawback.

·        French imports generally are allowed a smaller drawback on re-exportation.

·        Wines have been peculiarly favoured,

·        especially when exported to the American colonies,

·        though the export of other foreign commodities to those colonies was discouraged.

·        Drawbacks were originally granted to encourage the carrying trade, which was absurd, but they are reasonable enough.

·        The revenue gains by their existence when they do not amount to the whole of the duty paid.

·        They would be justified even if they always did amount to the whole duty paid

·        but only to independent countries, not to those in respect of which there is a monopoly of trade.

·        They give rise to frauds.

e)      Of Bounties

·        Foreigners cannot be forced to buy our goods, so it is proposed to pay them to do so.

·        Bounties are not demanded for any but losing trades,

·        and their effect is to force trade into disadvantageous channels.

·        Charles Smith forgets the cost of raising the corn upon which the bounty is paid.

·        The fall in the price of corn since the establishment of the bounty is due to other causes.

·        The bounty keeps up the price both in years of plenty and of scarcity.

·        It has been supposed to encourage cultivation and so to lower price.

·        The addition to the price of corn at home caused by the bounty is a heavy tax on the people, which restraints population and industry and in the long run tends to diminish the consumption of corn.

·        The enhancement of price would encourage production if it was an enhancement of real price, but it is not;

·        it is only a degradation of the value of silver,

·        for corn regulates the money price of labour,

·        of all rude produce,

·        and of almost all manufactures.

·        So farmers and landlords are not benefited by the increased price due to the bounty,

·        A worldwide degradation of the value of silver is of little consequence,

·        but degradation confined to one country discourages the industry of that country.

·        In Spain and Portugal gold and silver are naturally cheaper than in the rest of Europe,

·        but by the hindrances to exportation they are made still cheaper,

·        And agriculture and manufactures are thereby discouraged.

·        The corn bounty acts in the same way;

·        it discourages manufactures without much benefiting farmers and country gentlemen.

·        It is essentially serviceable only to the corn merchants.

·        The country gentlemen established the duties on the importation of corn, and the bounty, in imitation of the manufactures,

·        without attending to the essential difference between corn and other goods.

·        All the expedients of the mercantile system force industry into less advantageous channels: bounties on exports force it into actually disadvantageous channels: the bounty on corn does not encourage its production.

·        A bounty on production would be more effectual than one on exportation and would lower the price of commodity,

·        but such bounties have been rare,

·        owing to the interest of merchants and manufacturers.

·        The herring whale fishery bounties are in part given on production.

·        They are supposed to augment the number of sailors and ships.

·        In granting the herring bounties Parliament has been imposed on, since (1) the herring buss bounty is too large,

·        (2) the bounty is not proportioned to the fish caught,

·        (3) the bounty is given to busses, whereas the fishery ought to be carried on by boats,

·        (4) the bounty has raised, or at any rate not lowered, the price of herring.

·        Profits in the busines have not been high.

·        Bounties for manufactures necessary for the defence of the country are not unreasonable.

·        It is less absurd to give bounties in times of prosperity than in times of distress.

·        Some allowances called bounties are, properly speaking, drawbacks.

·        Prizes to successful artists and manufacturers do not divert industry to less advantageous channels, but encourage perfection.

f)       Digression concerning the Corn Trade and Corn Laws

·        The corn bounty and corn laws are undeserving of praise.

·        There are four branches of the corn trade:

·        I. The Inland Dealer, whose interest is the same as that of the people, viz., that the consumption should be proportioned to the supply available.

·        The interest of monopoly might perhaps be to destroy a portion of the crop, but corn cannot be monopolised where the trade is free.

·        Dearths are never occasioned by combination, but always by scarcity, and famines are always caused by the supposed remedies for dearths applied by government.

·        Scarcities are never great enough to cause famine.

·        Governments cause famines by ordering corn to be sold at a reasonable price:

·        The corn merchant is odious to the populace,

·        and this deters respectable people from entering the trade.

·        This popular odium was encouraged by legislation.

·        Many restraints were imposed on traders.

·        Endeavours were made to force the farmers to be retailers, though manufacturers were forbidden to be so.

·        The dealer confined to one branch of business can sell cheaper.

·        Laws preventing the manufacturer from being a shopkeeper and compelling the farmer to be a corn merchant were both impolitic and unjust, but the latter was the most pernicious,

·        by obstructing the improvement of land.

·        Corn merchants support the farmers just as wholesale dealers support the manufacturers.

·        Wholesale dealers allow manufacturers to devote their whole capital to manufacturing.

·        So corn merchants should allow farmers to devote their whole capital to cultivation.

·        Accordingly the statue of Edward VI. endeavoured to annihiliate a trade which is the best palliative and preventative of a dearth.

·        Its provisions were moderated by later statutes down to 14 Car. II., c.7,

·        which is absurd, as it supposes,

·        (1) that engrossing is likely to be hurtful after a certain price has been reached,

·        (2) that forestalling is likely to be hurtul after a certain price has been reached.

·        The fear of engrossing and forestalling is as groundless as that of witchcraft.

·        Still, the 15 Car. II., c. 7, is the best of the corn laws, as it gives the inland corn trade all the freedom it possesses.

·        The inland trade is much more important than the foreign.

·        II. The Importer, whose trade benefits the people and does not really hurt the farmers and country gentlemen.

·        The Act of 22 Car. II., c. 13, imposed very high duties on importation

·        but its operation was generally suspended in years of scarcity.

·        Restraint was necessary on account of the bounty.

·        III. The Exporter, whose trade indirectly contributes to the plentiful supply of the home market.

·        Liberty exportation was made complete in 1700,

·        though the interest of the exporter sometimes differs from that of the people of his country.

·        The bad policy of some great countries may sometimes render it necessary for small countries to restrain exportation.

·        The corn laws are like the laws on religion.

·        IV. The Merchant Carrier, whose trade contributes to the plentiful supply of the home market.

·        British law in effect prohibited the carrying trade in corn.

·        The prosperity of Great Britain is not due to the corn bounty, but to the security of enjoying the fruits of labour.

·        That the greatest prosperity has been subsequent proves nothing.

·        Spain and Portugal are poorer than Great Britain because their bad policy is more effectual,

·        and not counteracted by general liberty and security.

·        The 13 Geo. III., c. 43,

·        opens the home market at lower prices,

·        stops the bounty earlier,

·        and admits corn for re-export duty free;

·        which are improvements,

·        but it gives a bounty on the export of oats,

·        and prohibits exportation of grain at prices much too low.

·        It is as good a law as can be expected at present.

g)      Of Treaties of Commerce

·        Treaties of commerce are advantageous to the favoured,

·        but disadvantageous to the favouring country.

·        Treaties have been concluded with the object of obtaining a favourable balance of trade,

·        e.g., the Methuen treaty, [Art. I. II. III.]

·        which is evidently advantageous to Portugal and disadvantageous to Great Britain.

·        Portugal sends much gold to England;

·        at one time nearly the whole of this gold was said to be on account of other European nations,

·        but even if it were not so, the trade would not be more valuable than another of equal magnitude.

·        Most of the gold must be sent abroad again and exchanged for goods, and it would be better to buy the goods direct with home produce instead of buying gold in Portugal.

·        Britain would find little difficulty in procuring gold even if excluded from trade with Portugal.

·        It is said that all our gold comes from Portugal, but if it did not come from Portugal it would come from other countries.

·        If the attempt of France and Spain to exclude British ships from Portuguese ports had been successful, it would have been an advantage to England.

·        The great importation of gold and silver is for foreign trade.

·        Very little is required for plate and coin.

·        New gold plate is mostly made from old.

·        New coin is mostly made from old, as there is a profit on melting good coin.

·        A seignorage raises the value of coin above that of bullion equal weight,

·        as in France.

·        It diminishes or destroys the profit obtained by melting coin.

·        The abolition of seignorage in England was probably due to the bank of England,

·        but the bank would have lost nothing by a seignorage whether it equalled the depreciation,

·        exceeded it,

·        or fell short of it.

·        Nor would it lose if there were no depreciation.

·        A seignorage is paid by no one,

·        and could not have augmented the expense of the bank.

·        The government loses and nobody gains by the absence of seignorage.

·        Supposing the coin should again become depreciated, a seignorage would preserve the bank from considerable loss.

·        The saving to the government may be regarded as too trifling, but that of the bank is worth considerable.

h)      Of Colonies

i)       Of the Motives for establishing new Colonies

·        Greek colonies were sent out when the population grew too great at home.

·        The mother city claimed no authority.

·        Roman colonies were sent out to satisfy the demand for lands and to establish garrisons in conquerred territories;

·        they were entirely subject to the mother city.

·        The utility of the American colonies is not so evident.

·        The Venetians had a profitable trade in East India goods,

·        which was envied by the Portuguese and led them to discover the Cape of Good Hope passage,

·        while Columbus endeavoured to reach the East Indies by sailing westwards.

·        Columbus mistook the countries he found for the Indies.

·        Hence the names East and West Indies.

·        The countries discovered were not rich

·        in animals

·        or vegetables,

·        cotton being not then considered of great consequence.

·        So Columbus relied on the minerals.

·        The Council of Castile was attracted by the gold, Columbus proposing that the Government should have half the gold and silver discovered.

·        This was an impossible tax and was soon reduced.

·        The subsequent Spanish enterprises were all prompted by the same motive.

·        A prudent lawgiver would not wish to encourage gold and silver mining,

·        but people have always believed in an Eldorado.

·        In this case expectations were to some extent realised, so far as the Spaniards were concerned,

·        but the other nations were not so successful.

ii)      Causes of the Prosperity of New Colonies

·        Colonists take out knowledge and regular government,

·        land is plentiful and cheap,

·        wages are high,

·        and children are taken care of and are profitable.

·        Population and improvement, which mean wealth and greatness, are encouraged.

·        The progress of the Greek colonies was very rapid.

·        That of the Roman colonies much less so.

·        the American colonies have had plenty of land and not very much interference from their mother countries.

·        The progress of the Spanish colonies, Mexico and Peru, has been very considerable.

·        The Portuguese colony of Brazil is very populous.

·        When Spain declined, various countries obtained a footing in America.

·        The Swedish colony of New Jersey was prospering when swallowed up by New York.

·        The Danish colonies of St. Thomas and Santa Cruz have been very prosperous the exclusive company was discovered.

·        The Dutch colony of Surinam is prosperous though still under an exclusive company.

·        The French colony of Canada has shown rapid progress since the dissolution of the exclusive company.

·        St. Domingo, in spite of various obstacles, and the other French sugar colonies, are very thriving.

·        Both the progress of the English colonies has been the most rapid.

·        They have not so much good land at the Spanish and Portuguese, but their institutions are more favourable to its improvement.

·        (1) The engrossing of uncultivated land has been more restrained.

·        (2) Primogeniture and entails are less prevalent and alienation more frequent.

·        (3) Taxes are more moderate.

·        (4) The trade monopoly of the mother country has been less oppressive,

·        since there has been no exclusive company with its interest to buy the produce of the colonies as cheap as possible,

·        nor any restriction of commerce to a particular port and to particular licensed ships,

·        but freedom for every subject to trade with every port in the mother country,

·        and freedom to export everything but the enumerated commodities to other places besides the mother country.

·        Some most important productions are not enumerated,

·        as grain,

·        timber,

·        cattle,

·        fish,

·        sugar,

·        and rum.

·        Grain, meat and fish would have competed too strongly with British produce if forced into the British market.

·        Originally nonenumerated commodities could be exported to any part of the world. Recently they have been confined to countries south of Cape Finisterre.

·        The enumerated commodities are (1) commodities not produced at all in the mother country, and (2) commodities of which only a small part of the supply is produced in the mother country.

·        On the importation of naval stores to Great Britain a bounty was given.

·        American pig iron is exempt from duty.

·        These regulations have raised the value of timber and thus helped to clear the country.

·        Freedom of trade prevails between the British American coloneis and the British West indies.

·        British liberality does not extend to refined manufactures.

·        Manufactured sugar is subject to heavy duty.

·        Steel furnaces and slit-mills may not be erected in the colonies.

·        Hats, wools and woollen goods produced in America may not be carried in bulk from province to province.

·        Such prohibitions, though a violation of sacred rights, have not as yet been very hurtful.

·        The importation into Great Britain of various colonial productions is encouraged either by abatement of duties or by bounties.

·        In regards to imports from Europe the British colonies have had more liberal treatment than those of other countries,

·        drawbacks being allowed,

·        owing to the advice of interested merchants.

·        Except in regard to foreign trade the English colonies have complete liberty.

·        The absolute governments of Spain, or Portugal, and in a less degree of France, are even more violent in the colonies than at home.

·        The sugar colonies of France are more prosperous than the English because they are not discouraged from refining, and slaves are better managed,

·        absolute government being more favourable to the slaves than republican,

·        as may be seen in Roman history.

·        The superiority of the French sugar colonies is the more remarkable inasmuch as they have accumulated their own stock.

·        The policy of Europe has done nothing for the prosperity of the colonies.

·        Folly and injustice directed the first project.

·        The more respectable adventurers of later times were sent out by the disorder and injustice of European governments.

·        To the actual establishment of the colonies the governments of Europe contributed little,

·        and discouraged rather than encouraged them after they were established.

·        Europe has done nothing except provide the men who founded the colonies.

iii)     Of the Advantages which Europe has derived from the Discovery of America, and from that of a Passage to the East Indies by the Cape of Good Hope

·        The advantages derived by Europe from America are (1) the advantages of Europe in general, and (2) the advantages of the particular countries which have colonies.

·        (1) The general advantages to Europe are,

·        (a) an increase of enjoyments,

·        (b) an augmentation of industry not only in the countries which trade with America directly, but also in other countries which do not send their produce to America,

·        or even receive any produce from America.

·        The exclusive trade of the mother countries reduces the enjoyments and industry of all Europe and America, especially the latter.

·        (2) The particular advantages of the colonising countires are (a) the common advantages derived from provinces, (b) the peculiar advantages derived from provinces in America: (a) the common advantages are contributions of military forces and revenue,

·        but none of the colonies have ever furnished military force,

·        and the colonies of Spain and Portugal alone have contributed revenue.

·        (b) the exclusive trade is the sole peculiar advantage.

·        The exclusive trade of each country is a disadvantage to the other countries,

·        rather than an advantage to that country,

·        e.g., England gets tobacco cheaper than France, but not cheaper than it would if there were no exclusive trade.

·        To subject other countries to this disadvantage England has made two sacrifices.

·        The withdrawal of foreign capital from the colony trade raised profits in it and drew capital from other British trades and thereby raised profits in them,

·        and continues to do so.

·        The colony trade has increased faster than the whole British capital,

·        and the colonial monopoly has merely changed the direction of British trade.

·        The monopoly has kept the rate of profit in British trade higher than it naturally would have been,

·        and this puts the country at a disadvantage in the trades of which she has no monopoly,

·        making her buy less and sell less,

·        and enabling other countries to undersell her in foreign markets.

·        High profits raise the price of manufactures more than high wages.

·        So British capital has been taken from European and Mediterranean trade,

·        partly attracted by high profit in the colony trade,

·        partly driven out by foreign competition.

·        While raising British profit, the monopoly has lowered foreign profits.

·        The colony trade is supposed to be more advantageous than others,

·        but trade with a neighbouring country is more advantageous than with a distant one, and a direct trade is more advantageous than a roundabout,

·        while the monopoly has forced capital into (1) a distant and (2) a roundabout about trade.

·        (1) The trade with America and the West Indies is distant and the returns peculiarly infrequent.

·        (2) It is also largely a roundabout trade.

·        The monopoly has also forced part of the capital of Great Britain into a carrying trade,

·        and makes her whole industry and commerce less secure owing to its being driven into one channel.

·        The gradual relaxation of the monopoly is desirable.

·        The present exclusion from the trade with the twelve provinces would have been more severely felt but for five transitory circumstances.

·        The monopoly is bad,

·        but the trade itself is good.

·        The trade in its natural state increases the productive labour of Great Britain,

·        The monopoly diminishes it.

·        The natural good effects of the trade more than counterbalance the bad effects of the monopoly.

·        The colonies offer a market for the manufactured rather than the rude produce of Europe,

·        but the monopoly has not maintained the manufactures of Spain and Portugal,

·        where the bad effects of the monopoly have nearly overbalanced the good effects of the trade.

·        In England the good effects of the trade have greatly counteracted the bad effects of the monopoly.

·        The trade has benefited British manufactures in spite of the monopoly, not in consequence of it.

·        The monopoly reduces wages in the mother country,

·        raises profits, and thereby tends to lower rents and the price of land.

·        It reduces the absolute amount of profit,

·        thus rendering all the original sources of revenue less abundant.

·        More fatal still, it destroys parsimony.

·        The policy of the monopoly is a policy of shopkeepers.

·        The expenditure of Great Britain on the colonies has all been laid out to support the monopoly, and is enormous.

·        A voluntary separation would be very advantageous.

·        The colonies do not furnish nearly sufficient revenue to make them advantageous.

·        The colonial assemblies will never vote enough,

·        and have no knowledge of what is required.

·        It has been proposed that parliament should tax the colonies by requisition,

·        as the King of France taxes some of his provinces,

·        but parliament has not sufficient authority,

·        and resistance breaks out.

·        Representation in parliament in proportion to taxation should be offered.

·        Otherwise it seems hopeless to expect submission,

·        and resistance will be as obstinate as that of Paris.

·        The discovery of representation makes the case different from that of Rome and Italy.

·        The American representatives could be managed.

·        The Americans would not be oppressed.

·        The discovery of America and the Cape passage are the greatest events in history: the misfortunes of the natives of the East and West Indies may be temporary, so the results may be beneficial to all.

·        Meantime the discovery has exalted the mercantile system.

·        The countries which possess America and trade to the East Indies appear to get all the advantage, but this is not the case.

·        The monopoly regulations sometimes harm the country which establishes them more than others.

·        The mother countries have engrossed only the expense and inconveniences of possessing colonies.

·        The monopoly of American trade is a dazzling object.

·        The stock of a country naturally seeks the employment most advantageous to the country,

·        preferring the near to the more distant employments,

·        unless profits are higher in the more distant, which indicates that the more distant employment is necessary.

·        If too much goes to any employment, profit falls in that employment and the proper distribution is soon restored.

·        The mercantile system disturbs this distribution, especially in regard to American and Indian trade.

·        The Portuguese attempted at first to exclude all other nations from trading in the Indian Seas, and the Dutch still exclude all other nations from trade with the Spice Islands.

·        Now the principal ports are open, but each country has established an exclusive company.

·        Monopolies of the American kind always attract, but monopolies of exclusive companies sometimes attract, sometimes repel stock.

·        In poor countries they attract,

·        in rich they repel.

·        Both effects are hurtful,

·        A country which cannot trade to the East Indies without an exclusive company should not trade there.

·        The idea that the large capital of a company is necessary is fallacious.

·        There are not numerous and thriving colonies in Africa and the East Indies, as in America.

·        The Dutch exclusive company destroys spices and nutmeg trees,

·        and has reduced the population of the Moluccas.

·        The English company has the same tendency.

·        This destructive system is contrary to their interest as sovereigns,

·        but they prefer the transitory profits of the monopolist merchant to the permanent revenue of the sovereign.

·        The administration in India thinks only of buying cheap and selling dear,

·        its members trade on their own accont and cannot be prevented from doing so,

·        and this private trade is more extensive and harmful than the public trade of the company.

·        The interest of the servants is not, like the real interest of the company, the same as that of the country.

·        The evils come from the system, not from the character of the men who administer it.

·        Exclusive companies are nuisances.

i)       Conclusion of the Mercantile System

·        The mercantile system discourages the exporation of materials of manufacture and instruments of trade.

·        It encourages the importation of materials though not of instruments of trade.

·        Various materials are exempt from customs duties.

·        Yarn, though a manufactured article, is free from duty,

·        because the spinners are poor, unprotected people, and the master weavers are rich and powerful.

·        This exemption and also the bounty on the exportation of linen are given by a temporary law.

·        Bounties on imported materials have been chiefly given to American produce, such as naval stores,

·        colonial indigo,

·        colonial hemps or undressed flax,

·        American wood,

·        colonial raw silk,

·        colonial barrel staves,

·        Irish hemp.

·        These commodities were subject to duties when coming from foreign countries. It was alleged that the interest of the colonies and of the mother country was the same.

·        The exporation of wool and live sheep is forbidden under heavy penalties,

·        at one time mutilation and death,

·        but now twenty shillings for every sheep with forfeiture of the sheep and the owner’s share in the ship,

·        and three shillings for every pound of wool, with other pains and penalties.

·        To prevent clandestine exportation the inland commerce of wool is much hampered by restrictions,

·        especially in Kent and Sussex,

·        and so also is the coasting trade.

·        The manufactures alleged that English wool was superior to all others, which is entirely false.

·        These regulations have depressed the price of wool, as was desired,

·        but this has not much reduced the quantity of wool grown,

·        nor its quality,

·        so that the growers of wool have been less hurt than might have been expected.

·        Though prohibition of exportation cannot be justified, a duty on the exportation of wool might furnish revenue with little inconvenience.

·        The exportation of fuller’s earth has been subjected to the same penalties as the exportation of wool.

·        The exportation of raw hides is forbidden,

·        horns,

·        woollen yarn and worsted, white cloths, watch cases, etc., also

·        some metals.

·        On various other materials of manufacture considerable export duties are imposed.

·        Gum senega has a peculiar history and is subject to a large export duty,

·        beaver skins exported are charged seven pence,

·        and coals five shillings a ton.

·        The exportation of the instruments of trade is commonly prohibited.

·        Similarly it is a grave offense to entice an artificer abroad,

·        and the artificer who exercises or teaches his trade abroad may be ordered to return.

·        The object is to depress the manufactures of our neighbours.

·        The mercantile system absurdly considers production and not consumption to be the end of industry and commerce.

·        Restraints on importation of competing commodities sacrifice the interest of the consumer to the producer,

·        and so do bounties on exportation and the provisions of the Methuen treaty,

·        but the most extravagant case of all is that of the management of the American and West Indian colonies.

·        The contrivers of the whole mercantile system are the producers and especially the merchants and manufacturers.

j)       Of the Agricultural Systems, or of those Systems of Political Œconomy, which represent the Produce of Land as either the sole or the principal Source of the Revenue and Wealth of every Country

·        The agricultural systems will require less lengthy explanation than the mercantile system.

·        Colbert adopted the mercantile system and favoured town industry,

·        with the result that the French philosophers who support the agricultural system undervalue town industry.

·        There are three classes in their system: (1) proprietors, (2) cultivators, and (3) artificers, manufactures and merchants.

·        Proprietors contribute to production by expenses on improvement of land,

·        cultivators, by original annual expenses of cultivation.

·        These expenses should be free from all taxation.

·        All other expenses and orders of people are unproductive,

·        artificers and manufacturers in particular, and the expense of employing them:

·        mercantile stock also.

·        The labour of artificers and manufacturers adds nothing to the value of the annual produce.

·        Artificers, manufacturers and merchants can augment revenue only by privation.

·        The unproductive class is maintained at the expense of the other two,

·        but is useful to them,

·        and it is not their interest to discourage its industry;

·        nor is it ever the interest of the unproductive class to oppress the others.

·        Mercantile states similarly are maintained at the expense of landed states,

·        but are greatly useful to them,

·        and it is not the interest of landed nations to discourage their industry by high duties.

·        Freedom of trade would in due time supply artificers etc., at home,

·        in consequence of the increase of their capital, which would first employ manufacturers,

·        and afterwards overflow into foreign trade.

·        Freedom of trade therefore is best for introducing manufactures and foreign trade.

·        High duties and prohibitions sink the value of agricultural produce, raise mercantile and manufacturing profit,

·        and could only raise up manufacturers and merchants prematurely.

·        The distribution of the produce of land is represented in the Economical Trade.

·        Nations can prosper in spite of hurtful regulations.

·        The system is wrong in representing artificers, etc., as unproductive, since,

·        (1) they reproduce at least their annual consumption and continue the capital which employs them,

·        (2) they are not like menial servants,

·        (3) their labour increases the real revenue of the society,

·        (4) for augmenting annual produce parsimony is just as much required from farmers as from them,

·        and (5) trade and manufactures can procure that subsistence which the system regards as the only revenue.

·        In spite of its errors the system has been valuable.

·        Some nations have favoured agriculture.

·        China, for example,

·        China is itself of very great extent, but more foreign trade would be advantageous to it.

·        Egypt and the Gentoo government of Indostan favoured agriculture.

·        The people were divided into castes in these countries.

·        Irrigation was attended to there.

·        Egypt and India were dependent on other nations for foreign trade.

·        The land tax gave eastern sovereigns a particular interest in agriculture.

·        Ancient Greece and Rome discouraged manufactures and foreign trade, and carried on manufactures only by slave labour, which is expensive.

·        Everything which raises the price of manufactures discourages agriculture,

·        and this is done by systems which restrain manufactures and foreign trade.

·        So all systems of encouragements and restraints retard the progress of society.

·        The system of natural liberty leaves the sovereigns only three duties: (1) the defence of the country; (2) the administratino of justice, and (3) the maintenance of certain public works.

·        The next book will treat of the necessary expenses of the sovereign, the methods of contribution towards the expenses of the whole society, and the causes and effects of public debts.