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diff --git a/old/66710-0.txt b/old/66710-0.txt deleted file mode 100644 index 0df8984..0000000 --- a/old/66710-0.txt +++ /dev/null @@ -1,27373 +0,0 @@ -The Project Gutenberg eBook of An Inquiry into the Principles of Political -Oeconomy (Vol. 2 of 2), by Sir James Steuart - -This eBook is for the use of anyone anywhere in the United States and -most other parts of the world at no cost and with almost no restrictions -whatsoever. You may copy it, give it away or re-use it under the terms -of the Project Gutenberg License included with this eBook or online at -www.gutenberg.org. If you are not located in the United States, you -will have to check the laws of the country where you are located before -using this eBook. - -Title: An Inquiry into the Principles of Political Oeconomy (Vol. 2 of - 2) - Being an essay on the science of domestic policy in free - nations. In which are particularly considered population, - agriculture, - -Author: Sir James Steuart - -Release Date: November 11, 2021 [eBook #66710] - -Language: English - -Character set encoding: UTF-8 - -Produced by: KD Weeks, MFR and the Online Distributed Proofreading Team at - http://www.pgdp.net (This file was produced from images - generously made available by The Internet Archive) - -*** START OF THE PROJECT GUTENBERG EBOOK AN INQUIRY INTO THE PRINCIPLES OF -POLITICAL OECONOMY (VOL. 2 OF 2) *** - ------------------------------------------------------------------------- - - Transcriber’s Note: - -This version of the text cannot represent certain typographical effects. -Italics are delimited with the ‘_’ character as _italic_. - -Footnotes were lettered, beginning with ‘a’, on each page. They have -been numerically resequenced for uniqueness and moved to follow the -paragraphs in which they are referenced. - -There was an Errata included in the text. The corrections listed there -were made. - -Minor errors, attributable to the printer, have been corrected. Please -see the transcriber’s note at the end of this text for details regarding -the handling of any textual issues encountered during its preparation. - - AN - INQUIRY - INTO THE - PRINCIPLES OF POLITICAL OECONOMY: - - BEING AN - - ESSAY ON THE SCIENCE - - OF - - Domestic Policy in Free Nations. - - IN WHICH ARE PARTICULARLY CONSIDERED - - POPULATION, AGRICULTURE, TRADE, INDUSTRY, - MONEY, COIN, INTEREST, CIRCULATION, BANKS, - EXCHANGE, PUBLIC CREDIT, AND TAXES. - ------------------------------------------------------------------------- - - By Sir _JAMES STEUART_, Bart. - ------------------------------------------------------------------------- - - _Ore trahit quodcumque potest atque addit acervo._ HOR. Lib. I. Sat. 1 - ------------------------------------------------------------------------- - - _VOL._ II. - ------------------------------------------------------------------------- - - LONDON: - Printed for A. MILLAR, and T. CADELL, in the Strand. - - ---------- - - MDCCLXVII. - ------------------------------------------------------------------------- - - CONTENTS - OF THE - SECOND VOLUME. - ------------------------------------------------------------------------- - - BOOK III. - - OF MONEY AND COIN. - - - PART II. - - The principles of Money applied to trade. - - CHAP. I. Consequences of imposing the price of coinage, and the Page - duty of seigniorage, upon the coin of a nation, in so far as 1 - they affect the price of bullion, and that of all other - commodities, - - Intricacy of this subject, 2 - - Recapitulation of some principles, — - - The first introduction of coinage must make prices fall 3 - - Consequences of the exclusive privilege of coining, 4 - - A wrong balance of trade raises the price of bullion to the 5 - value of coin, - - And ought to raise proportionally the price of commodities, — - - How traders obstruct the operation of this principle, while 6 - the balance of trade continues fluctuating, - - And how an overturned balance of trade attaches prices to 7 - the denominations of coin, - - How profits consolidate into prime cost, 8 - - And are preserved upon articles of home consumption, 9 - - But are torn away by foreign competition, for articles of — - exportation, - - How this hurts the industrious, and how the state may 10 - indemnify them, - - CHAP. II. Concerning the influence which the imposing the price 11 - of coinage, and the duty of seigniorage, in the English mint, - will have upon the course of exchange, and trade of Great - Britain, - - Theory of prices upon articles of exportation, — - - How the course of exchange is regulated, 13 - - Price of exchange, what? — - - Where coinage is free, the price of bullion ought to be — - invariable, - - And fluctuating where coinage is imposed, — - - Bullion in England dearer than in France, 14 - - Because the price of it is kept up by the mint, — - - And is allowed to fall in France 8 _per cent._ below the — - coin, - - This a wise regulation, — - - England loses by this sometimes 8 _per cent._ upon her 15 - trade with France, - - And at a medium 4 _per cent._ as is proved by a matter of 17 - fact, - - Easy to be verified at all times by the price of bullion 18 - and course of exchange in the Paris market, - - When bullion is exported to England, exchange is against — - France, - - Course of exchange no rule for judging of the balance of — - trade, but only of the value of coin, - - The real par not to be calculated by the intrinsic value of 19 - the coin, unless bills were drawn in weight of fine - bullion, - - OBJ. Exchange _regulates_ the price of bullion, 20 - - ANSW. Denied: Exchange only _raises_ its price, the mint — - price _pulls it down_, - - _Balance upon the real par_ no mark of _a balance_ upon — - trade, proved by examples, - - Balance of trade, what? 21 - - The real par of exchange to be fixed by the fluctuating — - value of the coin, not by the permanent quantity of the - bullion it contains, - - Proof of this proposition, 22 - - Application of these principles to the English trade with 24 - France, - - CHAP. III. Is the loss which the course of exchange marks upon 25 - the trade of Great Britain with France, real or apparent, - - Reason for proposing this question, — - - Suppositions, — - - Principles, 25 - - How the paying for coinage affects the profits on goods 26 - _exported_, - - When the balance is favourable, 27 - - And how, when unfavourable, 28 - - How the paying for coinage affects the profits on goods — - _imported_, - - When the balance is favourable, — - - And how, when unfavourable, — - - The more trade is favourable, the more adviseable it is to 29 - impose a price upon coinage, - - CHAP. IV. Of the different methods of imposing coinage, and of 30 - the influence they respectively have upon the value of the - money unit, and upon the domestic interests of a nation, - - Two ways of imposing coinage, — - - Plan laid down in this chapter, 31 - - How coinage is imposed by authority, — - - How by consent, — - - When by authority, what the consequence, — - - The metals are exported, — - - How, in France, this is prevented in some measure, 32 - - French policy as to coin not generally understood, — - - How coinage influences the price of inland commodities, 33 - - A case not to be resolved by this theory, but left to be — - verified by experiment, - - An objection answered, — - - Coinage affects the price of bullion immediately, and that 34 - of commodities indirectly, - - Consequence of the price of coinage, when imposed with — - consent, - - That bullion is brought to the mint, when trade is 35 - favourable, - - How the mint price of the metals may be allowed to vary, 36 - - Influence of this method of imposing coinage, on the price 37 - of commodities, and value of the pound sterling, - - CHAP. V. How an experiment may be made to discover with 38 - certainty the real effects of the imposition of coinage, - - Plan of the experiment proposed, 39 - - The consequence of this will be, to recall the old guineas — - from abroad, - - During this experiment a close attention must be had to the 40 - rate of prices, - - And if they vary how to discover the true cause, — - - Farther consequences of this experiment, — - - Can we estimate the wealth of a nation by the quantity of 42 - its coin? - - Just as we can estimate a man’s estate by the weight of his 43 - purse, - - CHAP. VI. Miscellaneous questions and observations concerning 44 - the doctrine of money and coin, - - The use of a miscellaneous chapter at the end of a subject, — - - QUEST. 1. Why does the doctrine of money appear so 45 - intricate? - - ANSW. Because it is perplexed with jargon, — - - The denominations of coin are confounded with the intrinsic — - value, - - The terms metal, money, coin, bullion, and price, are all 46 - considered as synonimous, - - What is meant by _metal_? what by _money_? what by _coin_? — - what by _bullion_? what by _price_? - - Of the abuse of the terms _rising_ and _sinking_, and of — - the inaccuracy of speech, - - Prices attached to the denominations of coin, 47 - - _Coinage raises the value of coin_, is a more proper — - expression, than _coinage sinks the price of commodities_, - - How to avoid such ambiguities of speech, — - - A case which cannot be resolved by this theory, — - - In speaking we do not distinguish between pure metal, and 48 - that which is mixed with alloy, - - Of the abuse of terms relative to denominations of coins, 49 - - This illustrated by an example, — - - Farther obscurities from the abuse of language, — - - How to avoid such abuse, 50 - - QUEST. 2. What is the difference between raising the value — - of coin, by imposing coinage, and raising the denomination - of it? - - ANSW. The first is real, and affects foreign nations; the — - other does not, - - Proved by an example, 51 - - How the arbitrary method of raising the denominations of — - coin affects prices at home, - - QUEST. 3. How will the imposition of coinage affect the 53 - creditors of Great Britain? - - ANSW. If they continue to be paid by denominations, they — - will gain; if by weight of metal, they will not gain, nor - will they lose, - - Proved by an example, — - - How the imposition of coinage advances the credit of 54 - France, - - QUEST. 4. Is the plan we have proposed effectual towards — - preserving the pound sterling invariable? - - ANSW. No: but seems to be the best relative to material — - money, - - A scale of value realized in metal never can be exact; — - because the metal itself varies in its value, - - 1. From the manufacturing of it. 2. From the interest of 55 - money. 3. From the manners of a people, - - The only exact scale of value is that which can measure the — - metals like every other commodity, - - Explanation of this proposition, by an example, — - - And by an application, to the bank of Amsterdam, 56 - - How the locking up the coin in that bank renders the value — - of it more stable, - - QUEST. 5. Will not the imposition of coinage in England 57 - frequently stop the mint? - - ANSW. Certainly: when the balance of trade is unfavourable, — - - But this is an advantage to England which France now 58 - enjoys, - - The coin of France passes in other nations above its value — - as a metal, and returns to France unmelted, - - QUEST. 6. Is not this return a loss to France? — - - Intricacy of this question, 59 - - Resolution of it, — - - It is no loss to France, 60 - - Another view of this question, — - - QUEST. 7. If by overrating gold the English lose their 61 - silver, why should not France by overrating silver lose her - gold? - - ANSW. Because the English rate their gold above the value — - of it in their own market. The French do not so with their - silver, - - How the proportion of the metals is kept nearly the same in 62 - all European markets? - - Because when home demand disturbs the proportion, foreign — - trade brings it even again, - - Coins of gold and silver should be proportioned at the rate 63 - of the market at home, - - And nations cannot fix that proportion by any convention — - among themselves, - - Why is the proportion of the metals so different in Europe — - and in Asia? - - Answer to this, — - - QUEST. 8. Is it the interest of Princes to debase the 64 - standard of their coin? - - ANSW. It is their immediate interest when they are debtors, — - and it is their interest to raise it when creditors; but - always unjust, - - Who are debtors and who creditors; and how Princes who 65 - incline to rob their subjects may avoid robbing themselves - at the same time, - - Example of a Prince who is now employing this engine — - against his enemies, not his subjects, - - Writers against this practice have used wrong arguments to 66 - dissuade Princes from it, - - The proper arguments against it are three, 67 - - 1. It disturbs the ideas of people with regard to value, — - - 2. It either robs the class of debtors, or creditors, — - - 3. It ruins credit, — - - This last circumstance will probably put an end to the — - practice, - - QUEST. 9. What is the best form to be given to coin? — - - Difference between medals and coins, — - - Of indenting the impression, — - - The less the surface, the wearing is the less, 68 - - The advantage of having heavy pieces for the greatest part — - of the coin: yet small denominations are useful in some - cases, for preventing the rise of prices, - - Mixed metal better than copper for small denominations, as — - appears from the practice in Germany, - - Mixed metal never to be bagged up with fine, 69 - - CHAP. VII. Of the regulations observed in France, with regard 70 - to coin, bullion, and plate, - - The marc is the unit of French weight at the mint, — - - The remedy of weight upon silver, what? — - - The standard of fineness is 11 fine to 1 of alloy, — - - Remedy of alloy, what? — - - Quantity of fine silver in a marc, as it is delivered at 71 - the mint, - - Into what coined, — - - Mint price of a marc of fine silver, — - - The price of coinage 8⅕ _per cent._ upon silver, — - - Remedy of weight upon gold, — - - The fineness of standard gold, 72 - - The remedy of alloy upon gold, — - - The marc into what coined, — - - Mint price of a marc of fine gold, — - - The price of coinage 8⅕ _per cent._ upon gold, — - - Which no way stops the mint, — - - Of the proportion of the metals, 73 - - How to discover it, — - - The proportion is as 1 to 14.47, — - - Gold contained in a louis d’or, and silver in a crown of 6 — - livres, - - Proportion of a French grain to a troy grain, — - - Proportion between the louis and the guinea, 74 - - Of the fineness of French wrought plate, — - - Goldsmiths profit by the imposition of coinage, 75 - - And never find the mint in competition with them for the — - metals, - - Advantages of the French regulations, — - - High price of bullion in the Paris market during the year 76 - 1760, - - Present state of the wearing of the French silver coin, 77 - - CHAP. VIII. Of the regulations observed in Holland, with regard 78 - to coin and bullion, - - Present state of the Dutch currency, — - - Regulations in the Dutch mint, 79 - - Their unit of weight is the marc Hollands troes, — - - The remedy of weight on silver, — - - The fineness of silver is different in different coins, — - - Florins are 11⁄12 fine with one grain of remedy, — - - How they reckon their silver standard, — - - Exact quantity of fine silver in a marc weight of Dutch 80 - florins as they come from the mint, - - Mint price of fine silver, — - - Price of coinage in Holland is 1½ _per cent._ upon silver, — - - Of the Dutch gold coins, 80 - - The ducat has no legal denomination, — - - The fineness of it 23 carats 8 grains, 81 - - How the fineness is reckoned, — - - Fineness of the ducats of the empire, — - - Exact quantity of fine gold in a marc weight of Dutch — - ducats as they come from the mint, - - Mint price of fine gold, — - - Price of coinage upon ducats about 1 _per cent._ 82 - - The price of coinage upon both species should be the same, — - - The rider — - - Has a legal denomination, and is a lawful tender in — - payments to ⅓ of the sum, - - As it is always coined by the state, and for the state — - there can be no mint price, - - Regulation as to the fineness, denomination, and weight of 83 - the rider, - - Quantity of fine gold in a florin of riders, — - - To put the ducat upon a par with riders, it should — - circulate for 5 florins 4⅛ stivers, - - Utility of not fixing the denomination of ducats, — - - How to find the proportion of the metals in the coin of 84 - Holland, and a wonderful phænomenon in the value of ducats, - - Were all the coin of full weight the proportion would be as — - 1 to 14.62, - - Quantity of fine silver in a florin piece, 85 - - Quantity of fine gold in a florin of riders, — - - Investigation of this proportion as to the ducats, — - - By which it appears that the war has raised the value of 86 - gold, and set the market proportion of the metals in - Holland at 1 to 14.785, - - Which is a rise in the value of gold of 1.12 _per cent._ — - - The intention of this minute detail is to calculate the 87 - real par of the coins of Europe, - - Proportion between the mint weights of Holland, England, — - France, and Germany, - - Par of a pound sterling (in weighty silver) with Dutch 88 - florins in riders, is 11 florins 12 stivers, - - Par of a pound sterling in gold with ditto, is 11 florins — - 3⅕ stivers, - - Par of a French louis with ditto, 11 florins, 3¾ stivers, — - - Par of 24 livres French in silver with ditto, 11 florins 1½ — - stivers, - - Great balance of trade against France in September 1761, — - - Low value of the pound sterling in Holland in 1761, — - - Owing to the lightness of the English gold at that time, 89 - - And not to the wrong balance of their trade, as was 91 - alleged, - - Defects of the silver currency of Holland, — - - Account of this currency, 92 - - Regulation for the payment of foreign bills in coin, — - - Ditto for current bills—ditto for merchandize, — - - The denominations of the several silver currencies not — - proportioned to their intrinsic value, - - Cause of this.—-Regulations concerning the weighing of 93 - silver species in banks current, - - All allowances for light weight are an abuse, 94 - - Frauds of money-jobbers in Holland, — - - The best silver coin in Holland is upon an average 1 _per — - cent._ too light, - - From which it follows that the actual proportion of the 95 - metals is as 1 to 14.479, - - Another abuse in the silver coin of Holland, — - - Reason of the great apparent scarcity of the silver coin in 96 - Holland, - - A paradox to be resolved, — - - Resolution of it, 97 - - BOOK IV. - - OF CREDIT AND DEBTS. - - PART I. - - Of the Interest of money. - - INTRODUCTION, Page 101 - - CHAP. I. What Credit is, and on what founded, 105 - - CHAP. II. Of the nature of obligations to be performed, in 108 - consequence of credit given, - - CHAP. III. Of the interest of money, 112 - - CHAP. IV. Of the _principles_ which regulate the rate of 115 - interest, - - CHAP. V. Of the regulation of interest by statute, 121 - - CHAP. VI. What would be the consequences of reducing, by a 125 - British statute, the legal interest of money below the - present level of the stocks? - - CHAP. VII. Methods of bringing down the rate of interest, 129 - in consequence of the principles of demand and - competition, - - CHAP. VIII. Is the rate of interest the sure barometer of 135 - the state of commerce? - - CHAP. IX. Does not interest fall in proportion as wealth 139 - increases? - ------------------------------------------------------------------------- - - PART II. - - Of Banks. - - CHAP. I. Of the various kinds of credit, 141 - - CHAP. II. Of private credit, 144 - - CHAP. III. Of banks, 146 - - CHAP. IV. Of banks of circulation upon mortgage or private 150 - credit, - - CHAP. V. Such banks ought to issue their notes on private, 153 - not mercantile credit, - - CHAP. VI. Use of subaltern bankers and exchangers, 154 - - CHAP. VII. Concerning the obligation to pay in coin, and 157 - the consequences thereof, - - CHAP. VIII. How a wrong balance of trade affects banks of 161 - circulation, - - CHAP. IX. How a grand balance may be paid by banks, without 162 - the assistance of coin, - - CHAP. X. Insufficiency of temporary credits for the payment 164 - of a wrong balance, - - CHAP. XI. Of the hurt resulting to banks, when they leave 165 - the payment of a wrong balance to exchangers, - - CHAP. XII. How the payment of a wrong balance affects 169 - circulation, - - CHAP. XIII. Continuation of the same subject; and of the 178 - principles upon which banks ought _to borrow abroad_, and - _give credit at home_, - - CHAP. XIV. Of optional clauses contained in bank notes, 195 - - CHAP. XV. Of subaltern banks of circulation, and of their 202 - competition with one another, - - CHAP. XVI. Of some regulations proper to be made with 205 - regard to national banks, - - CHAP. XVII. When, and in what case, banks should be obliged 208 - to keep open books, - - CHAP. XVIII. Is it the interest of banks to grant credits 210 - and cash accompts to exchangers and others, who make a - trade of sending coin out of the country? - - CHAP. XIX. Application of the principles above deduced, 212 - towards forming the policy of circulation, - - CHAP. XX. Objections to this doctrine, 215 - - CHAP. XXI. How, by a return of a favourable balance, the 218 - bank may be enabled to pay off the debts due to - foreigners, and thus deliver the nation from that burden, - - CHAP. XXII. Of banks of circulation, established on 220 - mercantile credit, - - CHAP. XXIII. Of the first establishment of Mr. Law’s bank 235 - of circulation, in the year 1716, - - CHAP. XXIV. Account of the variations of the French coin 236 - some time before and after the death of Louis XIV. - - CHAP. XXV. Continuation of the account of Law’s bank, 239 - - CHAP. XXVI. Account of the royal Mississippi bank of 243 - France, established on public credit, - - CHAP. XXVII. A short account of the French company of the 247 - Indies, - - CHAP. XXVIII. Chronological anecdotes, 250 - - CHAP. XXIX. Continuation of the royal bank of France, until 252 - the time the company cf the Indies promised a dividend of - 200 livres _per_ action, - - CHAP. XXX. Inquiry into the motives of the Duke of Orleans 256 - in concerting the plan of the Mississippi, - - CHAP. XXXI. Continuation of the account of the royal bank 265 - of France, until the total bankruptcy the 21st of May - 1720, - - CHAP. XXXII. Conclusion of the Mississippi scheme, 270 - - CHAP. XXXIII. Why credit fell, and how it might have been 276 - supported, - - CHAP. XXXIV. How the diminishing the denomination of the 284 - paper in circulation, by the arret of the 21st of May - 1720, destroyed the credit of France, when the same - arbitrary measures taken with regard to the coin had - produced no such effect, - - CHAP. XXXV. How a bank may be safely established in France, 289 - as matters stand at present, - - CHAP. XXXVI. Of banks of deposit and transfer, 291 - - CHAP. XXXVII. Of the bank of Amsterdam, 292 - - CHAP. XXXVIII. Of the agio of the bank of Amsterdam, 294 - - CHAP. XXXIX. Continuation of the same subject; and 298 - concerning the circulation of coin through the bank of - Amsterdam, - ------------------------------------------------------------------------- - - PART III. - - Of Exchange. - - CHAP. I. OF the first principles of exchange, 310 - - CHAP. II. How to determine exactly the true and intrinsic 316 - value of the metals, coin, or money, in which a balance - to foreign nations is to be paid, - - CHAP. III. How to remove the inconveniences which occur in 325 - paying balances with the metals or coin of a nation, - - CHAP. IV. How the price of exchange, _in a prosperous 333 - trading nation_, may be prevented from operating upon the - whole mass of reciprocal payments, instead of affecting - the balance only, - - CHAP. V. How, when other expedients prove ineffectual for 344 - discharging of balances, the same may be paid by the - means of credit, without the intervention of coin or - bullion; and who are they who ought to conduct that - operation, - ------------------------------------------------------------------------- - - PART IV. - - Of public Credit. - - CHAP. I. Of the various consequences of public debts, 348 - - CHAP. II. Of the rise and progress of public credit, 351 - - CHAP. III. Of anticipations, or borrowing money upon 354 - assignments to taxes, for the discharge of principal and - interest, - - CHAP. IV. Of the state of public credit in France before 367 - the reign of Louis XIV. and of the sentiments of the - great Richlieu upon that subject, - - CHAP. V. Of the present state of public credit in Great 380 - Britain, - - CHAP. VI. State of the public credit of France; their 402 - debts, funds, and appropriations, at the peace 1763, - - CHAP. VII. Comparative view of the revenue, debts, and 438 - credit of Great Britain and France, - - CHAP. VIII. Contingent consequences of the extension of 441 - credit, and increase of debts, - - CHAP. IX. Of bankruptcies, 456 - - CHAP. X. Methods of contracting and paying off public 465 - debts, - - BOOK V. - - Of Taxes, and of the proper application of their amount. - - INTRODUCTION, 482 - - CHAP. I. Of the different kinds of taxes, 484 - - CHAP. II. Of proportional taxes, and their proper object, 486 - - CHAP. III. How proportional taxes are drawn back by the 490 - industrious; and how that drawing back is the only reason - why taxes raise the prices of commodities, - - CHAP. IV. Of cumulative taxes, 495 - - CHAP. V. Of the inconveniences which proceed from 500 - proportional taxes, and of the methods of removing them, - - CHAP. VI. Cumulative and proportional taxes compared with 517 - one another, and farther examined, - - CHAP. VII. Consequences of taxes, when the amount of them 523 - is properly applied, - - CHAP. VIII. Of the extent of taxation, 527 - - CHAP. IX. The consequences of an abolition of taxes, 542 - - CHAP. X. Are taxes a spur to industry, as some pretend? 556 - - CHAP. XI. Considerations upon land taxes, with some 561 - observations upon those of England and France, - - CHAP. XII. Miscellaneous questions upon taxes, 577 - - CHAP. XIII. Recapitulation of the fourth book, 593 - - CHAP. XIV. Recapitulation of the fifth book, 637 - ------------------------------------------------------------------------- - - AN - - INQUIRY - - INTO THE - - PRINCIPLES OF POLITICAL OECONOMY. - ------------------------------------------------------------------------- - - - BOOK III. - OF MONEY AND COIN. - - PART II. - THE PRINCIPLES OF MONEY APPLIED TO TRADE. - ------------------------------------------------------------------------- - - - CHAP. I. - _Consequences of imposing the Price of Coinage, and the Duty of -Seignorage upon the Coin of a Nation, so far as they affect the Price of - Bullion, and that of all other Commodities._ - - -The political oeconomy of modern states is so involved with the -interests of commerce, that it is necessary at every step we make, to -keep in our eye the combinations which arise from that quarter. - -Whatever tends to simplify an intricate theory, greatly assists the -mind: dividing this book into two parts, seems, as it were, dividing the -burden it has to carry: the principles already deduced may there ripen -by a short pause, and the analogy of the matter which is to follow in -the second part, where new combinations are taken in, will recall them -to the mind and fix them in the memory. - -[Sidenote: Intricacy of this subject.] - -I am now to examine one of the nicest principles in the whole doctrine -of money, to wit, the effects of imposing the price of coinage, and the -duty of seignorage upon coin. - -When this question is considered in relation to all the combinations -which arise, 1. from the nature of coin considered as a metal, and at -the same time as a money of accompt; 2. from the influence this duty has -upon the price of commodities; and 3. from the imposition as affecting, -_directly_, the nation which lays it on, and all other nations trading -with it _occasionally_: when all these combinations are taken together, -I say nothing will be found more difficult than to reduce this question -to a distinct theory. - -What I have to say upon it has found a place in this inquiry, rather -with a view to suggest ideas to men of a better capacity, than from the -hopes of satisfying my readers in every particular. - -[Sidenote: Recapitulation of some principles.] - -I have said, that gold and silver are commodities merely like every -other thing. I have shewn the utter impossibility of their being a -scale, or an invariable measure of value. I have observed that their -being made into coin (_among trading nations_) has not the effect of -rendring them less a commodity than they were before, except so far, as -by that operation every piece, instead of being valued by its own -weight, comes to be in the mean proportion of all the pieces which -compose the currency: and I have shewn how the operations of trade are -capable to sift out and establish this mean proportion, in spite of very -great irregularities. These are the principles laid down in the first -part, which we must keep in our eye while we examine the question. - -Since gold and silver, then, are commodities like every other thing, the -invariable scale of value must measure _them_ as well as every other -commodity, and money of accompt must be considered in no other light, -than as a scale for expressing the proportional value of grains of -metals, yards of stuffs, pounds of wares, bushels of grain, or gallons -of liquors. In this view, when we mention a hundred pounds, it is just -as proper to consider this value relatively to the measure of any -merchandize, as to the metalic measure of the coin. Every merchandize, -when considered by itself, should be measured by its own measure, gold -by grains, liquors by gallons, wheat by bushels, &c. The denominations -of pounds, shillings, and pence, are only necessary for reducing all -other sorts of weights and measures to an equation of value. This is -what is understood by the universal scale of proportional value. I think -this idea is sufficiently clear. - -[Sidenote: The first introduction of coinage must make prices fall.] - -Let us now suppose a country where the invention of coin is not known, -and where a yard of cloth of a certain quality, is commonly sold for 100 -grains of either silver or gold, no matter which. The state falls upon -the invention of coining, the conveniency of which every body -understands. This coinage, I suppose, costs 2 _per cent._ Coin is -introduced, and commodities are ordered to be bought with it. I ask, -what effect ought this revolution to produce upon the price of the -cloth, according to strict theory, and without taking in any other -combination of circumstances? I answer, that the cloth ought in reason -to fall 2 _per cent._ that is, that the price of a yard ought to be a -coin of 98 grains. Here is the reason: He who formerly had the 100 -grains, had the value of the yard of cloth, and could change the one for -the other when he would. Now he has the 100 grains, but he must give two -grains to have it coined, before he can buy; because after this -invention people will not trust to the weighing of private people, nor -to the purity of the metals; but they will believe, upon the authority -of the stamp, that in every piece a certain number of grains of the fine -metal is contained. He, therefore, who has a coin of 98 grains, comes to -the merchant, and offers him his coin for his yard of cloth; the -merchant demands a coin of 100 grains, says the other, these 98 grains -which I give you in coin, cost me two grains to have their weight and -fineness ascertained; and if you refuse to repay me for what I have paid -for this manufacture which I offer you for your cloth, I may with equal -reason refuse to pay you for what you paid for weaving your wool into -cloth. Now since I, in buying your cloth, must pay the weaver, so you, -in buying my piece, must pay the mint. The merchant, convinced by this -reasoning, takes the piece, and as it circulates from hand to hand, -every commodity given in exchange for it, must fall 2 _per cent._ -relatively to the grains of metal it was worth before. - -[Sidenote: Consequences of the exclusive privilege of coinage.] - -Farther, if by the laws and customs of a country, coin is absolutely -necessary for buying and selling, this coin must be had; and if there be -but one person who can make it, the price he thinks fit to demand for it -is the only measure of the value of fabrication. The grains of the -metals, therefore, in the coin, must rise in their proportional value to -yards of cloth, and to gallons of liquor, in proportion to the cost of -coinage, as the pounds of wool and silk must rise in their value in -proportion to their manufacture. - -From this it follows, that since the value of coin must rise in -proportion to every commodity, it must also rise with respect to the -metals it is made of, just as wool manufactured rises with respect to -wool which is not manufactured. - -Now let us suppose that a Prince finding that he has the exclusive -privilege of making coin, shall raise his price of coinage to 8 _per -cent._ what will the consequence be? - -The first consequence of this will be to destroy, or at least to perplex -the ideas of his subjects with regard to coin, and to make them believe, -that it is the stamp, and not the metal which constitutes the value of -it. - -The next consequence will be, to reduce the price of the yard of cloth, -which was worth 100 grains of metal before the invention of coinage, -from 98, where it stood, to 92. Now let us suppose that this country, -which we shall call (F), is in the neighbourhood of another which we -shall call (E), where there is both cloth of the same quality, and coin -of the same weight and fineness, which costs nothing for the coinage. In -the country (E), _cæteris paribus_, the yard of cloth must be sold for -100 grains, as it sold formerly in the country (F) before the coinage -was imposed. If the country (F) wants the cloth of the country (E), the -cloth they demand must cost (F) 100 grains the yard. If the country (E) -wants the cloth of the country (F), this cloth will also cost 100 -grains; because to procure a coin of 92 grains of the country (F), (E) -must pay 8 grains for the coinage, which raises the price of the cloth -to 100 grains. - -[Sidenote: A wrong balance of trade raises the price of bullion to the - value of coin,] - -Let us now suppose, that for a certain time the country (F) has absolute -occasion for the cloth of the country (E). The merchants of (F) who -carry on this trade, must send bullion to (E) to pay for this cloth. But -the merchants of the country (F) who deal in bullion, perceiving the -usefulness of it for this trade, will then raise the price of the 100 -grains of it above the 92 grains in coin (the common market price of -bullion before this trade was known) and according to the demand made -for the foreign cloth, the bullion will rise in the country (F), until -100 grains of it become exactly worth 100 grains in coin. The bullion -can never rise higher; because at that period, the coin itself will be -exported for bullion; and the country of (E) will accept of 100 grains -in their coin as willingly as in any other form. Nor will it ever fall -lower than 92 grains; because the mint in the country (F) is always -ready to give that price for all the bullion which is brought to be -coined. - -Here then is a case, where the coin is made to lose all its advanced -price as a manufacture, and this is owing entirely to its being a metal -as well as a money of accompt. - -Now as the coin has lost this additional value, by a circumstance purely -relative to itself as a metal, there is no reason why other merchandize -should sink in value along with it. - -[Sidenote: and ought to raise proportionally the price of commodities.] - -The consequence, therefore, of this revolution ought to be, that as the -merchandize, _bullion_, has got up 8 _per cent._ with regard to the -coin, and as the price of all merchandize ought to be in proportion to -the grains of bullion to which that price amounts, the revolution having -annihilated the 8 _per cent._ advance upon the coin, ought to have the -same effect with respect to prices as if coinage were given gratis, as -in the country of (E); that is, the yard of cloth ought at this time to -cost, in the country of (F), 100 grains, either of coin or bullion, -since they are of the same value. - -Farther, in proportion as this demand for bullion comes to diminish, -that is to say, in proportion as the balance of trade becomes less -unfavourable to the country of (F), in the same proportion will coin -rise in its price, when compared with bullion; and when the country of -(E), in its turn, comes to have occasion for the country of (F), then -(E) must pay as formerly for a yard of cloth 92 grains in bullion, and -the remaining 8 grains to have it coined; in which case, the yard of -cloth will fall to the old price of 92 grains in coin, and will stand at -100 grains in bullion as before. - -Did the price of a manufacture rise and fall as has been here -represented, it is plain that these variations would be constantly -determined by the proportion of the grains of the metals it costs to -acquire the coin which is the price of the manufacture. - -We have seen that upon the institution of coinage and seigniorage, the -yard of cloth fell to 92 grains; because then it was impossible to -procure coin at a less price than 8 _per cent._ but when the balance of -trade had sunk the coin to the value of bullion, then the 92 grains of -the _coin_ being to be purchased with 92 grains of _bullion_, it was -reasonable that the cloth should rise to its former price; because then -no body could say that the coin of 92 grains had cost 100 to procure it. - -But this theory does not hold in practice, nor can it possibly hold, as -long as the greatest part of a people are ignorant of, and even do not -feel the revolutions we have been here describing. - -[Sidenote: How traders obstruct the operation of these principles, while - the balance of trade continues fluctuating,] - -The price of bullion is entirely regulated by merchants, who have the -whole correspondence in their hands. It rises and falls in countries -where coinage is imposed, in proportion to the state of the balance of -trade at the time. The smallest rise or fall in the demand for bullion -in the market, is immediately marked by the price of it, and that ought -(by the principles we have been laying down) to regulate the rise and -fall of every commodity. But this is by no means the case. Commodities -rise and fall only after a certain time; and of this interval merchants -will constantly profit. Does the price of bullion rise, they immediately -sell to strangers as if all prices were immediately risen; but with -regard to manufacturers, they hide the revolution with great care, and -preserve prices from rising, until the competition among themselves -discovers the secret. Does the price of bullion fall, they do all they -can to keep up the prices of every commodity which they sell to -strangers, until the competition among themselves obliges them to bring -them down; and with regard to manufactures, they are all in one interest -to reduce the prices in proportion to the fall of the bullion, which -works its effects by slow degrees. - -[Sidenote: and how an overturned balance of trade attaches prices to the - denominations of coin.] - -These are the operations of traders, in times when there is a -_fluctuation_ in the balance of the trade of a country; that is to say, -in times when the balance is sometimes favourable and sometimes not. - -At such times the true influence which trade ought to have upon prices -is never exactly known, but to the merchants, who seldom fail to profit -of their knowledge, in place of communicating it for the benefit of the -society. But that is not the case when the balance of trade is quite -_overturned_, that is, when it remains for a long time against a nation, -without any favourable vibration; as we shall presently explain. - -We have seen how, by the changes in the balance of trade, the price of -bullion is made susceptible of a variation in its value, equal to the -price of coinage; and we have pointed out the principle which confines -the variation within certain limits; to wit, the value of the coin as a -metal, which prevents bullion from rising higher; and the mint price, -which preserves it from falling lower. - -We have observed how merchants may profit of such variations, and how -they obstruct the operation of principles upon the rise and fall of -prices. We now proceed to another chain of causes, which tend greatly to -destroy the due proportion of value between coin and merchandize. This -with justice may be put also to the account of the imperfection of the -metals in performing the functions of money of accompt. - -Universal experience shews that the prices of merchandize are so -attached to the denominations of coin, that they do not fluctuate as -principles point out, any more than projectiles describe parabolas, or -that machines operate the effects, which by calculation they ought to -do. The resistance of the air in one case, the friction of the parts in -the other, tend to render theory incorrect. Just so here, our theory -represents prices as rising and sinking in the most harmonious -proportion together with the metals; but in practice it is not so. They -have their frictions and political resistances, which only render the -theory delusive when every circumstance is not combined. A good gunner -must calculate the resistance of the air upon his bomb, or he never will -hit the mark. - -We have already shewn how the interests of mercantile people tend to -obstruct the due fluctuation of prices; we must now take in other -combinations. - -Although this be not a proper place to resume a discussion of the -particular theory of the rise and fall of prices, yet still something -must be said upon that subject, in order to bring the question we are -upon to some sort of solution. - -[Sidenote: How profits consolidate into prime cost,] - -First then, it will be agreed that it is far easier to make a price -rise, than to make it fall. I believe I might take this for granted, -without giving the reason for it. At all times, a price which has long -stood low, may be made to rise; but it is next to impossible to make a -price which has long stood high, to fall in the same manner. Here is the -reason: Let me suppose the yard of an extensive manufacture which -occupies a number of hands, to be worth 100 grains. The workmen here -live nearly at the same expence, and I suppose them to live upon the -profits of their work, when they sell at 100 grains a yard. The price -rises to 120; here is an additional profit of 20 grains. If a sudden -turn should diminish the demand which raised the price of the -merchandize, it will fall to the old rate without much difficulty; the -workmen will consider the 20 grains addition as a precarious profit upon -which they cannot reckon: but let the price of 120 grains remain -uniformly for some years, the 20 grains will cease to be precarious -profits; they will consolidate, as we have called it, into the value of -the merchandize; because the workmen, by having long enjoyed them, will -have bettered their way of living; and as they are many, and live -uniformly, any thing which obliges them to retrench a part of their -habitual expence, is supposed to deprive them of necessaries. - -[Sidenote: and are preserved upon articles of home consumption,] - -This is sufficient, as a hint, upon a subject which branches out into an -infinity of different relations, not at all to the present purpose. But -it is very much to the purpose to shew how the imposition of coinage -must, on many occasions, have the effect of attaching the price of -commodities to the denominations of the coin, instead of preserving them -attached to the grains of the metals which compose them, as in theory -they ought to be. - -When wars, _e. g._ occasion a wrong balance to continue for many years -against a nation, this keeps coin at par with bullion for a long time. -Is it not very natural, that during that time manufacturers should -estimate their work according to the coin, and not as formerly, -according to the bullion? The consequence of this is, that when peace -returns, and when coin begins to rise above the price of bullion, the -manufacturers stick to the denominations of the coin, instead of -descending in value (as they ought to do by theory) along with the -bullion. What is the consequence of this? It is that the prices of -manufactures _for home consumption_, and of _commodities peculiar to the -country_, stand their ground; that is, prices do not descend, and cannot -be brought down by merchants. - -[Sidenote: but are torn away by foreign competition for articles of - exportation.] - -But as to manufactures for exportation, which are not peculiar, but -which are produced by different countries, their prices are violently -pulled down by foreign competition; and the workmen are forced to -diminish them. This hurts them effectually, not because of the -diminution of the prices; because, properly speaking, this diminution is -only relative to the denominations of the coin; their gains will -purchase as many grains of bullion in the market as before, but not so -much coin, and consequently not so much of any commodity which, by the -principles just laid down, have attached themselves to the denominations -of the coin, and have risen in their price along with it. - -From this short exposition of a very intricate matter, we may conclude, -that the imposition of coinage does not raise the price of such -merchandize as is in common to several nations, and which trade demands -from each, without any competition with the natives; that is to say, the -prices of them stand as formerly with respect to strangers; because -although the prices be made to sink at home, with respect to the -denominations of the coin, yet strangers, being obliged to pay for them -in those denominations, are also obliged to pay an advanced price for -the coin, in order to procure them. This is the price of coinage. This, -I confess, is a little subtil, but I believe the reasoning will be found -just. - -On the other hand, when trade extends itself to other commodities, to -those, I mean, which it buys in competition with the natives (and which -are made to rise and fall from the vicissitudes of inland demand) or to -such commodities as are peculiar to the country; in these cases, I have -little doubt but the prices, once raised and continued high for some -time, attach themselves to the denominations of the coin, and rise along -with it; that is to say, coinage is included over and above the price -which the merchandize would have born had no coinage been imposed. - -[Sidenote: How this hurts the industrious, and how the state may - indemnify them.] - -The conclusion I draw from this reasoning, is, that the imposition of -coinage has not, in fact, the effect of reducing the prices of -commodities to fewer grains of bullion than before, excepting those of -such commodities as are sold in competition with other nations; and even -then it may be said, that it is not the imposition of the coinage, but -the competition with strangers, which reduces them to the minimum of -their value, as well as the profits of those who work in them, to the -minimum of a physical necessary. This last circumstance shews why those -who work for foreign exportation, are the poorest class of all the -industrious of a state, but the most useful to it, at the same time. I -believe experience supports the truth of these conclusions. I shall here -by the bye observe, that as the state is made to profit by the -diminution of the profits of this most useful class; as she receives the -coinage which strangers pay, and which is really deducted from the -manufacturers who support exportation, she ought to indemnify this class -(as may be done in a thousand ways, by premiums, for example, upon -exportation) out of the profits arising upon coinage, instead of making -coinage free, to the evident loss of the nation, and benefit to -strangers, as we shall now endeavour to prove. - - ------------------------------------------------------------------------- - - - CHAP. II. - _Concerning the Influence which the imposing the Price of Coinage, and - the Duty of Seigniorage in the English Mint, will have upon the Course - of Exchange, and Trade of Great Britain._ - - -[Sidenote: Theory of prices upon articles of exportation.] - -In the preceding chapter we have examined a very nice theory, into which -such a number of circumstances have been combined, depending upon facts, -that little stress is to be laid upon several conclusions which have -been drawn from it, unless they be approved by experience. - -Let the best workman in London make a watch, he cannot depend upon its -being a good one, until it be tried; and when that is done, the -application of his theory will enable him to discover all the defects -and irregularities in the movement. It is just so in political matters. -The force of theory is not sufficient to form a good plan; but it is -useful for discovering many faults which would not have been foreseen -without it. The more extensive, therefore, any theory is made, the more -it is useful for these purposes. It is proper only to observe that the -more complicated any principle of it is, the less dependance can be had -upon its operation when applied to practice. - -It is impossible to lay down a distinct theory for the rise and fall of -the prices of all sorts of commodities in a nation such as Great -Britain. All that can be said with certainty, is, that competition on -the part of the consumers will make them rise, and that competition on -the part of the furnishers will make them fall. Now the competition -among the furnishers may be reduced to theory; because it is fixed -within determinate limits, which it cannot exceed, and is influenced by -this principle, viz. that when profits are reduced to the minimum (that -is to the exact physical-necessary of the workman) all competition among -furnishers must cease. - -But the competition among consumers is fixed within no determinate -limits: some demand to satisfy physical wants; others those of vanity -and caprice. Most inland demand for consumption is of this kind, and -consequently it is impossible to foresee what effect the imposition of -coinage will have upon the prices of many commodities. Perhaps they will -fluctuate with bullion; perhaps they will adhere to the denominations of -the coin: experience alone can bring this matter to light. - -But with regard to such commodities as are the object of foreign trade, -prices are influenced by certain principles on both sides. Merchants, -not the consumers themselves, are the demanders here. Neither vanity or -caprice, but profit, regulates the price they offer. Thus it is, that as -all competition among furnishers must cease upon the reduction of -profits to the minimum, so all demand from merchants (who in this case -represent the consumers) must cease, so soon as prices rise above what -they can afford to give, consistent with their minimum of profit upon -the sale of what they buy. - -The degree, therefore, of foreign competition will alone regulate the -prices of several exportable commodities, and of consequence the profits -of such as are employed in them, as has been said. This premised, we -come to examine the influence which the imposition of coinage would have -upon the course of exchange and trade of a nation. - -[Sidenote: How the course of exchange is regulated.] - -In speaking of exchange, so far as it influences the decision of this -question, we must throw out all extraneous circumstances, and endeavour -to reduce it to the plainest theory. - -When one nation pays to another the price of what they buy, the -interposition of bullion is unavoidable; and the whole operation -consists in comparing the value of coin with the value of bullion in the -one and in the other. - -[Sidenote: Price of exchange what?] - -Suppose France to owe to England 1000 pound sterling; what regulates -exchange here, is the price of bullion in Paris and in London. The -French merchant inquires first, what is the quantity of bullion in -London, which at that time is equal to the sum he wants to pay? And -next, what that quantity of bullion costs to procure in the Paris -market? Upon this the par of exchange ought to be regulated. Whatever is -given more than this quantity is the price of transportation, when the -balance of trade is against France. Whatever is given less, may be -considered as the price of transportation which the English would be -obliged to pay were the balance against England, if the French merchant, -by sending his paper to London, did not save them the trouble, by -diminishing so far the balance against them; and of this he profits, -until the balance turns to the other side. Now let us leave the price of -transportation out of the question, and consider only how the imposition -of coinage, by affecting the price of bullion, may influence the course -of exchange. - -[Sidenote: Where coinage is free the price of bullion ought to be - invariable,] - -We have seen how the imposition of coinage renders the price of bullion -susceptible of a variation in its price, equal to the amount of the -imposition. Wherever, therefore, coinage costs nothing, there bullion -and coin must always be of the same value. This would be the case in -England, without doubt, were the metals in the coin exactly -proportioned, were all the coin of a legal weight, and were neither -melting down, or exporting made penal. - -[Sidenote: and fluctuating where coinage is imposed.] - -The bullion, therefore, in France may vary 8 _per cent._ in its price, -according to the balance of trade; the bullion in England must be -supposed invariable, let the balance stand as it will. - -[Sidenote: Bullion in England dearer than in France,] - -According to this representation of the matter, may we not say, that -bullion in England is always at the highest price it ever can be in -France, since it is at the price of the coin? Is not this the condition -of France, when the balance of her trade is the most unfavourable it -possibly can be? - -[Sidenote: because the price of it is kept up by the mint,] - -If therefore England, _herself_, contributes to keep the price of her -bullion higher than it is in France, is not this an advantage to France, -since France can buy the bullion with which she pays her English debts -cheap in her own market, and can sell it dear in that of her creditor? -Is there not a profit in buying an ox cheap in the country, and selling -him dear in Smithfield market? - -[Sidenote: and is allowed to fall in France 8 per cent. below the coin.] - -Now why is bullion sometimes cheaper in France than in England? I -answer, that in France it is allowed to fall 8 _per cent._ below the -coin, and the King only takes it at times when no body can get a better -price for it: and that in England the King gives always coin for -bullion, and by that keeps the price of it from ever falling lower. Let -the English mint pay the pound troy standard silver at the rate of -thirteen ounces of coin, the price of bullion in England will always be -1⁄13 dearer than the coin. - -When bullion in France falls to 8 _per cent._ below the coin, it is -carried to the mint: when it is worth more no body carries any to be -coined. - -[Sidenote: The wise regulation.] - -No body in France (except upon a general coinage) is forced to sell -their bullion at this price. Is it not, therefore, a very wise -regulation, to permit the operations of trade to reduce, as low as -possible, the value of that commodity with which all they owe is paid, -and this more especially, as the fall of its price is a proof of the -prosperity of their trade. - -If, therefore, it be supposed, that the effect of having a material -money for a scale of value, is, that the denominations in the coin, and -not the grains of the bullion, must measure the value of commodities -_for home consumption_; then it follows, that the variations in the -price of bullion, should not affect the price of commodities. - -This is a question, however, which I do not pretend to determine, and I -apprehend that nothing but experience can resolve it. - -[Sidenote: England loses by this sometimes 8 per cent. upon her trade - with France.] - -Now let me consider the difference there is between the trade of France -and that of England as matters now stand; and what would be the case, -were the regulations of the mint the same in both countries. - -I shall suppose that England buys of French goods as much as may be paid -with one thousand pounds troy weight of English guineas. I ask for what -weight of French louis d’ors must France buy of English goods to make -the balance even? Will it not be answered (according to the ordinary -method of calculating the true par of exchange) that if France buys for -one thousand pounds troy of her louis d’ors (supposing the guineas and -the louis d’ors of the same fineness) that the balance is even? - -Is it not true, that England must send this thousand pounds weight -either in gold bullion or in guineas, and is it not the same thing to -the English merchant to send the one or the other, providing the guineas -be full weight? - -But when France comes to send the thousand pounds weight of her louis -d’ors, she finds at market a thousand pounds weight of gold bullion 8 -_per cent._ cheaper, and this bullion is as good to the Englishman as if -he had got the louis d’ors. - -Let me state the case otherwise. Suppose France buys in England for 1000 -pounds weight of her guineas in Virginia tobacco; and that England buys -in France for 1000 pounds weight of her louis d’ors of Bourdeaux claret. -Is not this called par? Will not France pay her debt to England with -1000 pound of gold bullion? Whereas England must pay 1080 pounds to -France; because 1000 pounds weight of her louis d’ors, is worth in -France 1080 pounds of any bullion of the same standard. The 1000 pounds -then compensates the 1000 pounds; the 80 pounds over must be sent to -France, and the carriage of this quantity only, must be paid for -according to the principles of exchange. - -Here is evidently a balance of trade against England of 8 _per cent._ -above the real par of the metals. Will any body say that the 8 _per -cent._ is paid for the transportation of 80 pounds of bullion due? -Certainly not. - -Now if the English should declare that they, for the future, would coin -neither gold or silver bullion for any person, but at the rate of 8 _per -cent._ below the value of the coin; and if it be true, that this -regulation would have the effect of linking the price of bullion, on -many occasions, to 8 _per cent._ below the coin; in that case, would not -the English and the French acquit their debts of the 1000 pounds weight -of their respective coin upon the same conditions? In this case, would -not the price of exchange vanish, since there would be no bullion to be -sent by either party? But in the first case, would not England be -obliged to send 8 _per cent._ above the quantity of gold bullion she -received from France, and would not the transportation of this cost -money, and would not this transportation be marked by a certain price of -exchange, and consequently, would not the price of exchange rise against -England? - -But to this it is objected, that by the former example, the exchange -marked 8 _per cent._ against England with great reason; because it is -plain, that there is a balance of 8 _per cent._ against England, since -she has sent that proportion over to France in bullion. Very true. But -had England, instead of taking to the value of 1000 pounds weight of -louis d’ors in claret, taken only for 100 pounds weight, the exchange -would have still marked 8 _per cent._ loss; because the 100 pounds of -louis d’ors must be paid with the 108 pounds of bullion, although -England by this trade has evidently gained 892 pounds of bullion, which -France must send her as a balance. - -As matters of fact, when they can be procured, tend greatly to confirm -theory, by forming a solid basis whereupon to reason, I shall here -profit of one which has fallen into my hands, and by applying it to the -present question, endeavour to give some additional force to this -reasoning. - -[Sidenote: and at a medium 4 per cent. as is proved by a matter of - fact.] - -Mr. Cantillon, in his _Analysis of Trade_, which I suppose he understood -by practice as well as by theory, has the following passage in his 99th -page. - -“The course of exchange between Paris and London since the year 1726, -has been at a medium price of 32 pence sterling for the crown of three -livres; that is to say, we pay for this French crown of three livres, 32 -pence sterling, _when calculated on gold_, when in fact it is worth but -thirty pence and three farthings, which is giving four pounds in the -hundred for this French money; and consequently, upon gold, the balance -of trade is 4 _per cent._ against England in favour of France.” - -In this place, Mr. Cantillon calculates the par of exchange according to -the common rule, to wit, gold bullion against gold bullion in the coins -of both nations, where both are of legal weight; and he finds that there -has been, these thirty four years past, a balance of 4 _per cent._ -against England. - -Now according to my theory, this is exactly what the coinage in France -ought to produce, supposing on an average that the trade had been at -par. Here is the reason. - -The coinage in France costs 8 _per cent._ - -When the balance of trade is favourable for France, coin is worth 8 _per -cent._ above bullion. - -The proof is plain. Were it not 8 _per cent._ above bullion, no man -would ever carry bullion to the mint; because the mint price is 8 _per -cent._ below that of the coin. - -When the balance of trade is against France, coin must fall nearly to -the price of bullion. - -Supposing then that the balance of the trade of France (at a medium of -thirty four years) is found to have been at par, will it not follow, -that at a medium also of these thirty four years, French coin must have -been at 4 _per cent._ (the half of the coinage) above bullion? -Consequently England having taken merchandize from France, and France -having merchandize from England, for the same weight and fineness in -their respective coins, must not England have been obliged to send to -France 4 _per cent._ more bullion in order to pay the coinage? This -reasoning appears conclusive to me, who am no merchant, and who do by no -means pretend to a perfect understanding of those affairs; but I think -this circumstance is at least of sufficient importance to make the -matter be inquired into. For this purpose, I shall suggest a method of -making the discovery. - -[Sidenote: Easy to be verified at all times by the price of bullion and - course of exchange in the Paris market.] - -If it shall be found, that English draughts on Paris, or French -remittances to England, shall at any time occasion bullion to rise in -the market of Paris above the mint price, will it not be allowed that -such a circumstance demonstrates that the balance of trade is then in -favour of England? If at that same time it shall be found, that exchange -(when reckoned upon the gold as Cantillon has done) is against England, -will it not be a demonstration of the truth of what I have here -suggested as a question worthy of examination? - -[Sidenote: When bullion is exported to England, exchange is against - France.] - -For if the balance of trade be against France, so as to make her buy -bullion to send to England, this is a proof that she owes England a -balance; and if at the same time the English are paying above the -intrinsic value of the metals (in their respective coins) in what they -owe to France, that additional value cannot be paid by England as the -price of exchange, or to pay for the transportation of their bullion, -but to pay the French creditors the additional value of their coin above -the price of bullion. - -[Sidenote: Course of exchange no rule of judging of the balance of - trade, but only of the value of coin.] - -May we not also conclude, that in a kingdom such as England, where -coinage is free, the course of exchange is no certain rule for judging -of the balance of trade with France; but only of the value of French -coin above French bullion. All authors who have written upon exchange, -represent the advanced price given upon bills above the intrinsic value -of the coins, to be the price of carriage and insurance, &c. in which -case exchange, no doubt, _may_ mark the balance of trade; but if an -advanced price must be given in order to put bullion into coin, or in -other words, if the metals in the coin are worth 8 _per cent._ more than -any bullion of the same fineness, is it not evident that a nation may be -drawing a great balance of bullion from another, although she be, at the -same time, paying 8 _per cent._ above the rate of bullion in the sums -she repays to the nation which is her debtor upon the whole; that is to -say, although she be paying above the real par of exchange, _as it is -commonly calculated_. - -If it be here objected that this cannot be the case, because when the -balance of trade is against the nation which imposes coinage, their coin -falls to the price of bullion: I answer, that a balance may be against -such a nation, without producing so great a fall in the coin. Coin is -reduced to the par of bullion only when the balance is at the height -against a nation, and when it has remained so for a long time. Who would -give coin at a discount of 8 _per cent._ if there was a prospect that in -a few days, weeks, or even months, it was to rise to its former value? - -These are the reasons which engaged me, in a former chapter, to lay it -down as a rule, that trading states should endeavour, as nearly as -possible, to observe the same regulations with their neighbours, in -every thing relating to their coin. It is also in order to facilitate -such a regulation, that I shall insert, at the end of this book, a very -particular state of the French coinage, and of what I can gather with -regard to that of Holland. - -[Sidenote: The real par not to be calculated by the intrinsic value of - the coin, unless bills were drawn in weight of fine bullion.] - -From what has been said, it appears that the common method of -calculating the real par of exchange is not correct, since it is -calculated by comparing the quantity of fine bullion in different coins, -and attributing the difference between the bullion paid for the paper, -and the bullion received in payment of it, as the price of -transportation. This, I say, is by no means correct; nor is it possible -it should be so, unless bills of exchange were specified in the weight -of fine bullion, instead of being specified in the denominations of the -coin: an example will make this plain. - -Were a merchant in London to ask of another who has a correspondence in -Paris, to give him an order for a hundred yards of Abbeville cloth, and -to offer him, in exchange, the same quantity of cloth of a worse -quality, would not the merchant to whom the proposal is made, -immediately calculate the value of both commodities, and demand the -difference of the value between what he was to give, and what he was to -receive? Could ever this difference be considered as any thing else than -the difference between the real worth of the commodities? But were they -to exchange at London an hundred pounds of fine silver bullion, for the -same weight at Paris; then if the merchant demanded one grain more than -he was to give, it must be upon the account of transportation; because, -weight for weight, there is not the smallest difference between equal -weights of the fine metals. - -Bills of exchange, then, being all conceived in denominations of money -of accompt, realized in coin; and coin changing in its value with regard -to bullion; it is evident that the real par cannot be computed upon the -bullion alone contained in the coin. - -[Sidenote: Obj. Exchange regulates the price of bullion.] - -If it is objected, that since it is the course of exchange which -regulates the price of bullion, all variations between bullion and coin -ought to be ascribed to that cause. - -[Sidenote: Answ. Denied: exchange only raises its price; the mint price - pulls it down.] - -I answer, that it is not the course of exchange which regulates the -price of bullion; but exchange makes it ascend from the price to which -it is regulated. - -[Sidenote: Balance upon the real par, no mark of a balance upon trade; - proved by examples.] - -The mint price regulates the price of bullion; and there it will nearly -stand, while the balance of trade is either at par, or favourable to a -country. Exchange therefore, or a wrong balance, can only make it rise; -and it returns to where it was, by the force of another principle. - -In the next place, were I to allow that the balance of trade regulates -the price of bullion, it would not follow that what is called the _real -par_ of exchange is a rule to judge of the _balance of trade_ of a -nation. Is it not plain, that if France, for example, being at present -obliged to send great sums into Germany, upon account of the war (_anno_ -1760,) has reduced the price of her coin to a par with bullion, that all -nations will profit of it as much in their trade with France, as if the -balance was become favourable to them; since the course of exchange will -then answer according to the conversion of bullion for bullion in all -remittances to France. - -But were France at present to remit money to any other country, which -has the balance favourable, and where coinage is paid, suppose to Spain, -while the balance between France and Spain is supposed to be exactly -even; would not the real par between the money of Spain and of France -mark an exchange against France, for the value of the coinage imposed by -Spain? This is the reason why, in time of war, exchange between France -and England appears more favourable to England than in time of peace. -But does this anywise prove that the balance of trade is then more in -favour of England? by no means: for let me suppose the balance of their -trade to remain the same after the peace as at present; is it not -evident, that in proportion as the coin of France shall rise above the -bullion, that the _balance of trade_ will become, in appearance, against -England? - -[Sidenote: Balance of trade, what?] - -By the _balance of trade_, I here constantly understand a certain -quantity of bullion sent by one nation to another, to pay what they have -not been able to compensate by an exchange of their commodities, -remittances, &c. and not that which they compute in their bills as the -difference between the respective values of coin and bullion in both -countries. - -How, then, is the real par of exchange to be regulated, so as to -determine which nation pays a balance upon the exchange of their -commodities? - -[Sidenote: The real par of exchange to be fixed by the fluctuating value - of the coin, not by the permanent quantity of the bullion it - contains.] - -I answer, To determine that question, let bullion over all the -commercial world be stated at 100, and let coin in every country be -compared with it, according to the current price. In England, for -example, (were all disorders of the coin removed) coin must always be as -100. In France, when the balance is favourable, at 108.27. In Germany -(were the Emperor’s late regulation with Bavaria to be made general) at -101. And so forth, according to the price of coinage imposed every -where. These advanced values above the 100, never can rise higher; and -the more the balance of their respective trade is unfavourable, the -nearer they will severally come to 100; below which they never can fall. -These fluctuations will constantly be marked in exchange; because all -circumstances are exactly combined by merchants; but the _balance of the -trade_ will only be marked _by what exchange is made to vary from these -proportions_. - -[Sidenote: Proof of this proposition.] - -Let me suppose the trade of France favourable upon the whole, by great -commissions from Cadiz, and bullion at the same time to be carried to -the mint at 8 _per cent._ below the price of coin. - -Let me suppose, that upon all the trade of England with France, there -shall be, at that time, a balance of 2 _per cent._ sent from France to -England in bullion; and upon the trade with Germany a balance of 1 _per -cent._ - -I say, that the _par of exchange_ between England and France is 8 _per -cent._ against England; and that the _par of exchange_ between Germany -and France is 7 _per cent._ I state it at this rate; because the balance -being supposed favourable for the three nations, the value of their coin -with respect to their bullion ought to be in proportion to the mint -price. - -The _course of exchange_, therefore, if it be a rule to judge by, ought -to mark 6 _per cent._ against England; which I say is 2 _per cent._ in -her favour: and the exchange with Germany ought to mark 6 _per cent._ -against Germany; which I call 1 _per cent._ in her favour. - -An example will make this plain. - -Suppose English guineas, German carolins, and French Louis, to be all of -the same weight and fineness; I say, the _real par_ in the example we -have stated is, between Paris and London, 100 Louis are equal to 108 -guineas; because the 100 Louis are worth 100 guineas in London, and 108 -guineas are worth no more than 100 Louis in Paris. Again, between Paris -and Francfort, 100 Louis are equal to 107 carolins; because 108 carolins -are worth at Paris 100 Louis; and 101 Louis at Francfort are worth 100 -carolins; consequently, the difference between 7 and 8 is the _real -par_, to wit, 100 Louis for 101 carolins. Next, as to the par between -London and Francfort, here 100 carolins equal 101 guineas; because 100 -carolins in London are worth 100 guineas; and 101 guineas at Francfort -are worth no more than 100 carolins. - -Now in the ordinary way of reckoning the _real par_, the 100 Louis, 100 -carolins, and 100 guineas, are all supposed to be of the same value, in -the three markets; and the difference between this supposed value, and -what is paid for it, is supposed to be a loss upon trade. In this light, -the nation’s loss resembles the loss incurred by him, who, when he goes -to the bank, and pays ten pounds sterling in coin, for a bank-note, -says, that he has given ten pounds for a bit of paper, not worth one -farthing; reckoning the value of the note, at the real par of the paper -it is writ upon. - -The general rule, therefore, as I apprehend, is, to settle the real par -of different coins, not according to the _bullion_ they contain, but -according to the bullion they can buy with them in their own market at -the time. - -If 1000 pounds weight of guineas can purchase at London 1000 pounds -weight of standard bullion; and that 1000 pounds of the same weight of -Louis can buy at Paris 1080 pounds weight of the same standard bullion; -then the 1000 pounds weight of guineas is at the real par with 9256⁄1000 -pounds weight of the Louis, and not worth 1000, as is commonly supposed. - -If the doctrine laid down in this chapter be found solid; if no -essential circumstance has been overlooked, which ought to have entred -into our combinations, (points left to the reader to determine) then we -may conclude, - -_1mo_, That the course of exchange, in the way people take to calculate -the real par, is no rule for judging of the balance of trade. - -_2do_, That the great duty laid upon the fabrication of the French coin, -either deceives the English nation, and makes them conclude, from the -course of exchange, that their commerce with France is extremely -disadvantageous: or, if it be really disadvantageous, that it is the -imposition of a duty on coinage in the French mint which occasions it. - -It is a question belonging to the theory of commerce, and not to that -which we are now upon, to examine the nature of a disadvantageous trade, -and to investigate the principles pointing out the commodities which -every country ought to encourage for exportation, and those which are -the most profitable to take in return. - -[Sidenote: Application of these principles to the English trade with - France.] - -Upon these principles the trade of England with France must be examined, -and upon examination it will be found whether that trade be advantageous -or hurtful. Here the question is reduced to this; Whether from the -course of exchange it may be concluded that the balance of trade is -against England, because the French crown is commonly paid with -thirty-two pence sterling? We have decided that it cannot. If there be -no other objections against the trade of France but this loss upon -exchange; and if it be true that this is no proof of trade being against -England, but only the consequence of her free coinage; then it will -follow, that England may lay as many restrictions, duties, and clogs, -upon the French trade, as she pleases, and may even reduce it to -nothing, without ever removing the cause of complaint; while at the same -time she may be ruining a trade, which pays her upon the whole a great -balance, and upon which trade she has it in her power, by following a -different system in her mint, to render her exchange as favourable as -with any other nation in Europe. - -This point seems to be a matter of no small importance to England; since -(from a mistake in point of fact, into which she is led from a delusive -appearance) a very lucrative trade, when considered by the balance it -produces, may, upon false principles, be proscribed as disadvantageous. - -These questions, however, are not as yet considered as entirely -discussed, and they shall be a little farther examined in the following -chapter. - - ------------------------------------------------------------------------- - - - CHAP. III. -_Is the loss which the course of exchange marks upon the trade of Great - Britain with France real or apparent?_ - - -[Sidenote: Reason for proposing this question.] - -Questions are here proposed, which I do not pretend to resolve; all I -aim at is to discover how they may be resolved. - -If this inquiry shall prove an incitement to men of better capacity to -review the same subjects, who have more extensive combinations, more -experience, and better information as to facts, in that respect it has -some degree of merit. - -[Sidenote: Suppositions.] - -I answer to the question proposed, that if the imposition of a duty on -coinage in England would have the effect of rendring her trade with -France more lucrative, then the loss marked by the course of exchange is -real, at least in part; if otherwise, it is only apparent. - -[Sidenote: Principles.] - -What makes the commerce with any country lucrative, is the balance paid -upon the exchange of their commodities. - -What regulates the quantity of commodities taken from any country, in -the way of trade, is the wants of the country demanding; and what sets -the balance even, is the reciprocal wants of the other country. Nations -do not give up correspondence with their neighbours, because these do -not accept of merchandize in exchange for merchandize, but because they -find their advantage in supplying their wants upon easier terms -elsewhere. - -Every merchant seeks to sell dear; and the dearer he can sell, the -greater is his profit: that merchant, therefore, must thrive most, who -sells dearest, and who at the same time _can afford_ to sell cheapest. - -If an imposition on coinage shall enable England to sell dearer, without -depriving her of the advantage of being able to sell as cheap as at -present, then it will follow, that an imposition on coinage will be -advantageous. If it shall lay her under a necessity of selling dearer, -and deprive her of the possibility of selling so cheap as formerly, then -the imposition of coinage will be hurtful. - -[Sidenote: How the paying for coinage affects the profits on goods - exported.] - -These principles premised, as a foundation for our reasoning, let us -first consider the influence of coinage upon the profits on -_exportation_; and then proceed to inquire into the influence it has -upon articles of _importation_. - -As to the first, I must observe, that England, as well as every other -country, has several articles of exportation which are peculiar to -herself, and others which she must sell in competition with other -nations. - -The price of what is peculiar is determined by the competition of those -who furnish at home, and the lowest price is regulated by their minimum -of profit. The price of what is common is regulated by the competition -of those who furnish from different countries. - -If the prices of what is peculiar shall remain, as before, attached to -the denominations of the coin, after the imposition of a duty on -coinage, the competition of those who furnish will remain the same as -before; because prices will not vary; but the stranger, who buys, must -nevertheless pay an advanced price for such merchandize, because the -nation’s coin, with which they are purchased, will be raised in its -value with respect to bullion, the only price he can pay with. This is -the price of coinage: and this imposition has the good effect of -obliging strangers to pay dearer than before, in favour of a benefit -resulting therefrom to the state. - -Now, if it be observed that the demand made by the English for goods -peculiar to France, (while these remain in France at the same price as -formerly) does not diminish in proportion as the loss upon exchange -happens to rise; why should we suppose that the demand for goods -peculiar to England should diminish, for a similar reason? - -If the rise, however, in the price of exchange should diminish the -foreign demand for such English goods, by raising the price of them in -the foreign market, this, at least, will prove that coinage does not -make prices fall proportionally at home; because, if they should fall, -strangers would buy as cheap as formerly: the prime cost (as it would -appear upon the accounts of their English correspondents) would diminish -in proportion to the loss upon exchange in remitting to England, and -would just compensate it: so upon the whole, the price of the -merchandize would be the same in the foreign market as before. - -If the imposition of coinage, therefore, be said to raise the price of -English merchandize in foreign markets, it must be allowed that it will -not raise the value of the pound sterling at home, by sinking the value -of commodities: that is to say, the prices of commodities will adhere to -the denominations of the coin; and the coin bearing an advanced value, -above what it bore formerly, strangers must pay it. - -But will not this diminish the demand for English goods? Not if they be -peculiar to England, as we here suppose. But allowing it should, will -not this diminution of demand sink the value of the English coin, by -influencing the balance of trade? If so, it will render remittances to -England more advantageous: consequently, it will recall the demand. The -disease, therefore, in this case, seems to draw the remedy along with -it. - -Now what appears here to be a remedy against a disease, is at present, -as we may call it, the ordinary English diet, since it is sinking the -coin to the price of bullion. If, therefore, the having coin always as -cheap as bullion, can be any advantage to trade, the nation is sure of -having it, whenever the balance is unfavourable, notwithstanding the -imposition of a duty on coinage. - -[Sidenote: When the balance is favourable.] - -Trade has its vicissitudes, and all nations find, at times, that their -neighbours must depend upon them. On such occasions, the balance of -their commerce is greatly in their favour. - -Is it not, therefore, an advantage to have a principle at home, which, -upon such occasions, is capable of diminishing with us the value of that -merchandize (bullion) which strangers must give as the price of all they -buy? - -[Sidenote: And how, when unfavourable.] - -On the other hand, the same principle seems to fly to the assistance of -trade, when the balance becomes unfavourable, as it virtually diminishes -to strangers the price of all our commodities, by raising in our market -the value of that commodity, (bullion) which they must give as the price -of what they buy. - -This may suffice, in general, upon exportation. It is a hint from a -person not versed in commerce; and as such it is humbly submitted. - -[Sidenote: How the paying for coinage affects the profits on goods - imported.] - -I now pass to the second part of this operation, to wit, the influence -which the imposition of coinage has upon the interests of trade, when -the question is to purchase the commodities of other countries. These -operations are quite different, and in examining this theory they must -be carefully distinguished. - -[Sidenote: When the balance is favourable.] - -We have seen how the imposition of coinage, during the favourable -balance of trade, procures to the nation an advanced price upon the sale -of her exports. As long as it remains favourable, it must produce the -same good effect with regard to her importations, by sinking at home the -price of the bullion with which she must pay for them. Bullion must -become cheap in the English market, in proportion as the balance of her -trade is favourable, and in proportion as it is cheaper there than in -other nations (with respect to their respective coins) in the same -proportion, the nation has an advantage in paying what she buys, or in -employing her bullion for extending the fund of her own commerce. - -[Sidenote: And how, when unfavourable.] - -Upon the other hand, should the balance of her trade turn against her, -her bullion rises. This renders the price of all foreign merchandize -dearer to the importers than otherwise they would be; because they must -pay them in bullion. But this loss is at present constantly incurred; -and when incurred, is not _national_, the national loss is upon the -balance of the trade; but whether this balance be paid in bullion at the -mint price, or in bullion at the price of coin, the balance of the trade -is just the same. Now, if this wrong balance (which I here suppose to -proceed only from the imports exceeding the exports upon trade in -general) renders the purchase of foreign commodities dearer to the -merchants, without costing more to the nation; is not this so far -advantageous, that it discourages importations, just at the time they -ought to be discouraged, and thereby may _tend_ to set the balance even -again? - -Thus I have endeavoured to analize the influence of this principle in -the four cases; to wit, upon exportation and importation, under a -favourable and unfavourable balance of trade. These different -combinations must always be examined separately, or else obscurity and -confusion will ensue. - -We must also observe, that there are still other combinations to be -attended to, although it be superfluous to apply the principles to them; -because the variations proceeding from them are self-evident. I mean, -that this question may be considered as relative to a nation which has -coinage free, with respect to another nation where that duty is imposed. -In this case we may decide, that as far as the situation of the latter -is advantageous, so far must that of the former be disadvantageous, and -_vice versa_. - -The question may also be considered in relation to countries who have -either the duty on coinage the same, or different. When they have the -same, there can be no advantage on either side; excepting in this -respect, that the nation which has, upon an average, the balance of -trade in her favour, will thereby render her trade still more favourable -than it would be, were the coinage free on both sides. - -[Sidenote: The more trade is favourable, the more adviseable it is to - impose a duty upon coinage.] - -From which we may conclude, that the more a nation has the advantage in -point of trade, the more it is her interest to impose the duty of -coinage. When the imposition is unequal in the two countries, I -apprehend that the country which lays the smallest duty upon her -coinage, may be considered as having it altogether free, and that the -other may be considered as imposing no more than the difference. - -Upon these principles must the question here proposed be resolved. They -never can decide as to the matter of fact, to wit, whether the French -trade is hurtful or lucrative: all we are warranted to conclude from -them is, that the trade of Great Britain would be more advantageous with -France than it is, were a duty on coinage to be laid in England as high -as there. In that sense, we may say, that the apparent loss by exchange -is a proof that coin is commonly dearer in France than in England; from -which a loss may be implied; but the loss upon exchange no way denotes -the degree of loss upon the trade, and much less does it certify that -the balance upon the whole is against Great Britain. - - ------------------------------------------------------------------------- - - - CHAP. IV. -_Of the different methods of imposing coinage; and of the influence they - respectively have upon the value of the money-unit, and upon the - domestic interests of the nation._ - - -[Sidenote: Two ways of imposing coinage.] - -There are two ways of imposing coinage; one by positive law, and by the -force of that authority which is every where lodged in the legislature; -the other, which is more gentle, renders the imposition almost -insensible, and is effectuated by the influence of the principles of -commerce. - -By the one and the other the same end may be obtained; with this -difference, that all circumstances must yield to the force of authority: -and when this is employed, coinage is imposed as a tax upon coin, in -spight of all resistance; whereas, in the other case, the effect takes -place by degrees: it is no tax upon coin; but it is liable to -interruptions; and therefore, upon a general recoinage of all the specie -of a nation, it is not so effectual as the first; although it may answer -perfectly well for supporting a fund of good specie, and for replacing -all the diminutions it may suffer from melting down or exportation. - -[Sidenote: Plan laid down in this chapter.] - -I shall now give examples of the one and the other method: I shall point -out some of the consequences which attend both: I shall chalk out a -rough draught of the principles, which may be applied in forming a plan -for laying on that imposition in the English mint: and last of all, I -shall shew how the experiment may be made. - -[Sidenote: How coinage is imposed by authority.] - -Were the government of England to call in, at present, all the coin in -the nation, in order to be recoined, and to fix the mint price of it, as -gold and silver standard bullion, at —— _per cent._ below the value of -the new coin; this would be imposing coinage by positive law; and being -an arbitrary operation upon the coin of the nation, could not fail of -influencing the value of the money-unit. - -[Sidenote: How by consent.] - -Were the government, on the other hand, to give orders to the mint, to -pay gold and silver bullion for the future, no dearer than —— _per -cent._ below the coin, this would be no arbitrary operation on the coin -of the nation, and would not (as I imagine) influence the value of the -money-unit, although it might sink the price of bullion, by the -influence of the principles of commerce. - -The different consequences of these two methods of imposing coinage are -now to be explained. - -[Sidenote: When by authority, what is the consequence?] - -Were England, during a war, or at any time when the balance of her trade -is unfavourable, to impose coinage by law, in the manner proposed, the -consequence would be, that all the specie in Great Britain, or at least -a considerable part of it, might possibly be melted down, and sold in -the market for bills of exchange. [Sidenote: The metals are exported.]In -a nation of trade, where credit is so extensively and solidly -established, there would, in such a case, be no difficulty to find an -outlet abroad for all the metals in the kingdom; because then every -thing would be considered as profit, which was less than the —— _per -cent._ loss in carrying the coin to the mint. - -If it is objected, that this plan has been many times executed in -France, particularly in 1709, and 1726, without any such inconveniences; -I answer, as I have done upon other occasions, circumstances are to be -examined. - -[Sidenote: How, in France, this is prevented in some measure.] - -Upon such occasions, in France, the coin is ordered to the mint, upon -penalties against those who shall not obey; melting down is strictly -inquired into, and severely punished; all the roads which lead to -foreign countries are beset with guards, and no coin is suffered to be -exported; all debts may be demanded in coin; and all internal commerce -is carried on with specie. - -This is a violent method of imposing a tax upon all the coin in the -nation; and the general coinage is made with no other intention. In the -coinage 1709, this tax amounted to 231⁄13 _per cent._ (Dutot, Vol. I. p. -104.) - -[Sidenote: French politics, as to coin, not generally understood.] - -Under these circumstances, it is very evident, that those who have coin -or bullion must either carry it to the mint, or bury it: there is no -middle course to be followed. - -Let me here observe by the bye, how frequent it is to see people blame -the greatest ministers rashly, and impute to them the most absurd -opinions concerning the most simple matters. How much have the ministers -of France been laugh’d at, for pretending to forbid the exportation of -coin, to pay the balance of their trade? They did not forbid the -exportation of the coin for paying of their debts: On the contrary, the -King has sometimes had his bankers, whose business it was to send coin -to Holland for that purpose, as we shall explain in another place. This, -I think, is common sense. - -If the ridicule is turned against those states, who forbid the melting -down and exportation of coin, where coinage is free, I must also make -answer, that _there_ the prohibition is laid on, to save to government -the expence of perpetually recoining what is melted down, or of coining -the foreign specie, imported in return for that of the nation which has -been exported without necessity. - -Let us next examine the consequence of imposing coinage by law, when the -plan is so laid down (no matter how) as not to be frustrated by the -total desertion of the mint. - -[Sidenote: How coinage influences the price of inland commodities.] - -Is it not evident, from the principles laid down in the first chapter, -that, in this case, the value of the coin must rise, not only with -respect to bullion, but with respect to every commodity: or in other -words, that the prices of commodities must fall universally with respect -to the denominations of the coin. For who will pay the same price for a -commodity, after he has been obliged to pay —— _per cent._ to purchase -the price with which he must buy? But the moment the great operation of -the general coinage is over, and that trade begins to work its former -effects, while the balance of it is supposed to remain unfavourable, all -prices will return to their former rate, with regard to the -denominations of the coin, by the operation of another principle. The -new coin procured at so much cost will then fall to the price of -bullion; that is to say, all the price paid for coinage will be lost, -and consequently money will return to its former value; or in other -words, prices will be made to rise to their former height; because then -no body will be obliged to pay — _per cent._ to procure the price. - -[Sidenote: A case not to be resolved by this theory, but left to be - verified by experiment.] - -Now, it is the effect operated upon prices by the _return_ of a -favourable balance, when coin _regains_ an advanced price above bullion -by the influence of commerce, which my theory does not reach to. I -cannot discover a principle, which can force the prices _of articles of -inland consumption_ to fall and fluctuate with the prices of bullion; -because I find them too closely attached to the denominations of the -coin; and that foreign commerce has not sufficient influence upon them. -As that combination is beyond my reach to extricate, I leave it to the -decision of experiment. - -[Sidenote: An objection answered.] - -Here a plain objection occurs against what has been said in the twelfth -chapter of the first part, viz. That the wearing of the English coin has -the effect of raising the price of corn in the market, which would be -made to fall upon a restitution of the coin to legal weight. But the -answer is plain. In the former case, the diminution of the value of the -coin was supposed real and permanent; in which case, with time, it works -its effects of raising prices without doubt: but here the augmentation -is not real, and the fluctuations of the value of the coin with respect -to bullion, are both imperceptible to any but merchants, and at the same -time so uncertain, that they have not time to work their effects upon -the price of other commodities. - -Were a balance of trade to continue long favourable, and were coin to -preserve, during all that time, the same advanced value with regard to -_bullion_, in that case I have little doubt but the value of that -universal commodity (bullion) in conjunction with the operations and -influence of foreign commerce, might reach inland markets, and reduce -the price of commodities. But this is seldom the case (as I am apt to -believe,) and in proportion as it is so, more or less, will a duty on -coinage influence the price of commodities. - -[Sidenote: Coinage affects the price of bullion immediately; and that of - commodities indirectly.] - -Coinage therefore ought, upon many occasions, to be considered as -affecting _immediately_ the price of bullion only, and that of -commodities _indirectly_: whereas the diminution of the intrinsic value -of the coin, by immediately affecting _price_, must consequently affect -the rate of every thing which is given for it. - -Let us next examine the consequence of imposing coinage by the influence -of the principles of commerce. - -[Sidenote: Consequence of the price of coinage imposed with consent.] - -The method here is to leave every one free to do with their coin, or -with their bullion, what they please. Do they incline to melt down or -export the coin, they may have entire liberty to do it: no penalty ought -to be imposed, other than that which will necessarily follow, viz. the -expence of procuring new coin. - -In order to make our reasoning here more distinct, let us form a -supposition with regard to a new regulation of the British coin. - -The present confusion has convinced every man, that a reformation of the -coin is necessary; and the opinions of those who have writ best upon -that subject seem to be divided upon one main article. The metals are -disproportioned in the coin, the gold being there to the silver, as 1 to -15.21, instead of being as 1 to 14.5. By law, 113 grains of gold are -made equal to 1718.7 grains of silver. One party would have the silver -adjusted to the gold; the other would have the gold adjusted to the -silver. This is the question, in a few words. Now, suppose a middle -course were taken, and that the standard were to be fixed at the mean -proportion of these two values; that is, at the value of the half of -1718.7 grains fine silver, added to the half of 113 grains fine gold; -which, in the first part of this book, we have shewn, by many arguments, -to be the only method of preserving an equality in the money-unit; this -will make the new pound consist of 1678.6 grains of fine silver, and -115.77 grains fine gold: and this is also a sort of medium between the -two opinions. - -At that rate, the pound troy standard silver must be coined into 63 -shillings and 6 pence, and the pound troy standard gold into 46 guineas, -or pound-pieces, each worth 20 shillings. - -Now, if upon both species 8 _per cent._ coinage were imposed, (for as -all this is a pure supposition, it is no matter at what rate the coinage -be stated) then the mint price of the pound troy fine silver must be -fixed at 63_s._ 1¾_d._ and the mint price of a pound troy of fine gold -at 45_l._ 5_s._ ¾_d._ sterling. - -[Sidenote: That bullion is brought to the mint when trade is - favourable.] - -Suppose then (as an example) that the mint price of fine bullion should -be fixed at 8 _per cent._ below the coin in England; What principle -could oblige people to carry bullion to be coined? - -I answer, When the balance of trade is favourable for England, that -balance must sooner or later be paid in bullion. If trade still -continues favourable, after the first balance is paid, what use can -those who have the bullion make of it, if there be no demand for it to -work it into plate? To export it, by employing it in trade, does not -remove the difficulty; because, while the balance stands favourable, -export as much as you will, more bullion must enter than it is possible -to export, in the way of trade; for we do not suppose that in exporting -it, it is to be given away gratis. The bullion, therefore, not being -demanded for exportation; not being permitted to pass current for money; -and not being demanded for making into plate; must be employed so as to -be profitable to the owner one way or other. For this purpose it must be -lent, or employed within the country for purchasing some sort of effects -which produce an income. For this purpose the bullion must be coined, in -order to render it capable of circulation, and of becoming price. - -At all times, therefore, when in a country there is bullion, not -demanded as such, the proprietor carries it to the mint, he sells it at -the mint price; and as this mint price is stated at 8 _per cent._ below -the price of coin, he gives it for the price he can get for it: this he -does without regret, because, if next day he should want to change his -coin into bullion again, he will find it in the market at the same -value. - -If it be farther objected, that rather than carry it to the mint at 8 -_per cent._ discount, people will lend it to foreigners: I answer, that -if it be lent to foreigners, this lending will turn what we call the -balance of trade against England, and then certainly no body will carry -bullion to be coined; for in which ever way it happens that more bullion -is exported than is imported, in every case the price of exchange and of -bullion must rise; and this is constantly constructed, though very -improperly, as a balance of trade against England; which, to mention it -by the bye, is another reason to prove how ill people judge of the -prosperity of trade by the course of exchange, since the lending of -money, as well as the paying of debts, equally turns exchange against -the country. - -Bullion, therefore, never will be carried to the mint, when it can be -disposed of above the mint price; and both theory and experience, over -all Europe, where, England excepted, coinage is imposed, proves, that -bullion is carried to the mint, and sold below the price of coin, weight -for weight of equal fineness. - -[Sidenote: How the mint price of the metals may be allowed to vary.] - -By fixing the mint price at 8 _per cent._ below the value of the coin, -it is not necessary that this price be made invariable: a power may be -lodged somewhere, by the state, to make deviations from the standard -price. A war breaks out; large quantities of coin are exported; specie -becomes scarce: May not the state, at such a time, deliver coin at the -mint at the current price of the bullion? Let matters come to the worst, -the price can never possibly rise above the present value, to wit, that -of the coin, when it is preserved at its true weight. If peace returns, -and trade becomes favourable, the mint may then be ordered to sink its -price, in proportion to circumstances. In short, the mint may receive -bullion at different prices, at different times, without occasioning the -smallest confusion by such variations in the intrinsic value of the -current specie, which must constantly be the same. It is of no -consequence to any person who receives it, whether the coinage costs -nothing, or whether it costs 8 _per cent._ - -[Sidenote: Influence of this method of imposing coinage on the price of - commodities, and value of the pound sterling.] - -By this method of imposing coinage, all the advantages reaped by France -may be reaped by England. The bullion will be allowed to fall as low as -with them, when trade is favourable. If it rises, upon a wrong balance, -the mint need not be stopped, in case coin be found wanting for the uses -of the state; and when that necessary demand is satisfied, the mint -price may be reduced again. - -I do not see how the value of the pound sterling can be anywise -influenced by this plan of imposing coinage: because the imposition is -not arbitrary; nor can it either add to or take from the mass of the -metals appointed by statute to enter into the coin. - -The only possible influence coinage can have upon the value of the pound -sterling, is by lowering the price of commodities. If it has this -effect, I still agree that it is the same thing as if an addition were -made to the metals in the coin. Experience alone will resolve the -question: and if by this it is found that prices are not affected by it, -then we may safely declare, that no variation has been occasioned in the -value of the money-unit, and consequently no injury done to any interest -within the state. - -This proposition, however, requires some limitations. The prices of -commodities, certainly, will not be affected _immediately_ by the -imposition of coinage, in the way it has been proposed to lay it on; but -I do not say that, upon some occasions, they may not be affected by slow -degrees. - -When the balance of trade at any time has stood long favourable for -England; when the coin has remained long considerably above the price of -bullion; and when, consequently, the mint has been well employed; then -the value of commodities, as has been said, may become influenced by the -operations of foreign commerce, and be sunk in their price. Yet even -here this consequence is by no means certain; for this reason, that what -turns the balance of trade in favour of a nation is the demand which -foreign markets make for her commodities: now this demand, as it raises -the value of her coin above her bullion, so it raises the price of her -commodities, by increasing foreign competition to acquire them. - -These combinations are very intricate, and more properly belong to the -doctrine of commerce than to that which we are now upon. I have thrown -them in here, for the sake of extending the present theory a little -farther, and for enabling us to account for appearances which may happen -upon the imposition of coinage, supposing it should be thought proper to -make the experiment. - - ------------------------------------------------------------------------- - - - CHAP. V. - _How an Experiment may be made to discover with Certainty the real - Effects of the Imposition of Coinage._ - - -We have dwelt very long upon this part of our subject, and after all our -endeavours to elucidate the principles which ought to decide whether or -not the imposition of coinage will raise the value of the pound -sterling, in a kingdom which, like Great Britain, is in a mercantile -correspondence with nations where that duty is introduced, we have still -been obliged to leave the final decision of the question to an -experiment. - -By that alone it will be clearly discovered, whether coinage will have -the effect, _1mo_, of sinking the prices of commodities, to the -prejudice of manufacturers; _2do_, of raising the price of the pound -sterling, to the prejudice of all the classes of debtors within the -nation; and _3tio_, of hurting trade, by putting England under the -necessity of selling dearer, without being able to sell as cheap as -before: or whether commodities will remain at their former prices; the -pound sterling at the same value; and England be enabled to sell dearer -to foreigners, when her commerce is favourable, without being obliged -upon other occasions to sell one bit dearer than at present. - -I shall now give a hint concerning a proper method of making the -experiment. - -[Sidenote: The plan of an experiment proposed.] - -Suppose peace[1] restored, and a balance of trade favourable to England; -that government shall take the resolution to set about the reformation -of the coin; that they shall publish the plan of reformation three years -before it is intended to commence, according to what was proposed in the -14th chapter of the first part; that they shall make a change in the -mean time upon the regulation of the mint, by ordering all silver coin, -and all guineas, except those of George II. to pass by weight; that -shillings shall be ordered to be coined at 65 in the pound troy; the -mint price, when at par with the coin, remaining as at present with -regard to the gold, and raised to 65 new pence _per_ ounce with regard -to the silver. This, I imagine, will furnish specie sufficient to the -nation, and will make no change upon the value of the pound sterling at -present. - -Footnote 1: - - Written in the year 1761. - -[Sidenote: The consequence of this will be to recall the old guineas - from abroad.] - -So soon as there shall be a few millions of silver coined free, let the -mint price both of gold and silver be diminished, suppose 4 _per cent._ -This, I imagine, will in a short time give an advanced price to coin, -and sink the price of bullion; which will have the effect of recalling -all the guineas of the late King from Holland and Flanders; because coin -being then dearer than bullion in England, people will choose to send -over current guineas to pay their English debts, rather than to remit -bills of exchange. This circumstance will naturally stop the coining of -gold for some time; but if the balance of trade shall continue -favourable, the mint must, in time, be set a-going. - -[Sidenote: During this experiment, a close attention must be had to the - rate of prices.] - -During this period, a strict attention must be had to the state of -prices. It is plain, that stopping the coining of gold ought not to make -them sink; since the daily augmentation upon the quantity of the gold -coin from abroad (which will not cost any coinage) will, I imagine, be -sufficient to compensate it. If, therefore, prices shall be found to -sink notwithstanding, this effect must proceed from a combination among -the merchants. An intelligent statesman will quickly discover the true -state of the case. - -[Sidenote: And if they vary, how to discover the true cause of it.] - -If the sinking of the price is a necessary consequence of the imposition -of coinage, it will perhaps manifest itself by the following symptoms: -_1mo_, The profit of the English merchants upon goods exported will be -the same as before. _2do_, The price of the goods exported will be the -same as before in foreign markets. And _3tio_, Exchange will mark as -many _per cent._ favourable for England as goods will have fallen in -their price at home. - -If the fall of the prices be forced, by a combination among the -merchants, their profits will be greater; and very probably no variation -will appear upon the exchange in favour of England. - -Let, therefore, the course of exchange be attended to, and by this the -minister will be able to judge, when silver and gold are to be brought -to the mint. The moment exchange, and the price of bullion in the London -market, shall shew that coin is near the full price of coinage above the -price of bullion, then the time approaches when the mint is to be set -a-going. - -[Sidenote: Farther consequences of this experiment.] - -It is to no purpose to pretend to prognosticate the effect of this -change in the policy of the English mint. Effects it will certainly -produce, which every one will interpret according as their interest may -dictate to them. But the principles of trade are now too well known. -English ministers are too well instructed in the theory of it, and too -sharp-sighted to be deceived by appearances. A trial of a few years will -render the consequences of this innovation perfectly clear; and before -the great reform takes place, the principles will be so well confirmed, -as not to leave a shadow of doubt concerning the course which is best to -be followed. - -The silver coined in the interval, at 65 shillings in the pound troy, -may then be rated at its just value, in proportion to the new pound -sterling, and may form a denomination by itself, easily to be -distinguished by the stamp. If it should happen to fall into -inconvenient fractions, let it be called in, and received at the mint -above the rate of other bullion: the loss will not be considerable; and -it cannot be expected that any plan can be proposed which is liable to -none. - -Another method is, to coin, during the interval of the three years, -shillings of the weight adapted to the new regulation, and to give them -a value proportioned to the present currency, in the mean time. - -In whatever way the experiment be made, by the imposition of the price -of coinage, a great expence will be saved to the state, the expence of -the mint. The national coin will be kept at home, and when exported, -will be preserved from the melting pot. This is the case with the French -coin. Why are louis d’ors worth as much as guineas in many foreign -countries? It is evident that they are not intrinsically worth so much -by 4½ _per cent._ but they are virtually so in the eyes of -money-jobbers; because, being exported from France while coin is fallen -low by a wrong balance of their trade, they still retain an advanced -value, for this reason, that when sent back, upon a revolution in trade, -they are better than bullion, by all the advanced price of the French -coin, at a time when their balance becomes favourable; and for this -reason they are sought for, and are paid for in proportion: whereas any -bullion, or any coin whatsoever, is as good to send to England as her -own proper specie; which occasions the guineas to be melted down without -the smallest regret. - -[Sidenote: Can we estimate the wealth of a nation by the quantity of its - coin?] - -It would be a curious inquiry to examine the proportion of money coined -in England and in France, and to compare the quantities coined with the -quantities in existence. People commonly estimate the wealth of a nation -by the quantity of its coined money. Some go farther, and imagine that -the quantity of the coined money is the representation and even the -measure of its wealth. I cannot be of this opinion, for reasons which I -have given in another place; but I shall only observe here, that coin, -like every other thing, is made in proportion to the occasions people -have for it. - -The more equality there is between industry and consumption in any -nation, the less coin they have occasion for, in proportion to the -alienations they make; the more a nation is given to penury and -hoarding, their occasions for coin are proportionally greater. - -An example will make this plain. Suppose two markets in a country, where -paper does not circulate; that 1000 people come to the one to sell, in -order to buy; that 500 resort to the other, with an intention only to -sell, and 500 others only to buy. In the last example, it is evident, -that there must be brought to market, in specie, the price of all the -goods offered to sale, or else a part must remain unsold: but in the -first case, a much smaller proportion will suffice; because no sooner -has any one sold the goods he has, than he buys from another what he has -occasion for; and so the same money circulates from hand to hand, so -much, that if we suppose every one of the thousand persons to sell for -the precise value of what he buys, every man will carry home the same -sum of money he had in his pocket on coming to market. Those who begin -by selling, will carry home their own coin; those who begin with buying, -will replace what they had with the coin of other people. - -In proportion, therefore, to the trucks of commodities for commodities, -money is the less necessary; and in proportion as people sell, in order -to realize, coin is the more necessary. When hoarding was in fashion, -and when lending upon interest was little known, had alienation been as -frequent as at present, the total of coin must have been much greater. -At present no body hoards, where lending at interest is lawful, except -in nations where credit is precarious. This was the case in England -about 1695, and is perhaps the case at present in France[2]. Hoarding -from this motive is more hurtful than from any other: because, at the -same time that it deprives the public of a circulating value, by -preventing the lending of the coin of the nation, it also prevents -bullion from being lent by neighbouring states, and from being carried -to the mint by those who have it at home. Whereas hoarding from avarice -has none of these inconveniences; and when credit is good, there will -always be found coin sufficient; because a demand for it will always -procure it. - -[Sidenote: Just as we can estimate a man’s estate by the weight of his - purse.] - -Why is there so little coin in England, in proportion to what there is -in France? Does any man imagine that this is a mark of poverty? By no -means. Let the state proscribe the currency of paper money, the coin -will quickly return; because then it will be demanded. But at present -the paper supplies its place, and so it goes abroad in order to gain -more; whereas in France it remains at home, and produces nothing. The -wealth of a nation can no more be estimated by the quantity of its coin, -than the wealth of private people by the weight of their purse. Were a -person, from that circumstance, to calculate the wealth of the British -courtiers, assembled at the Groom Porter’s, he would find himself -grossly deceived in his conclusions. - -Footnote 2: - - In 1760. - - ------------------------------------------------------------------------- - - - CHAP. VI. - _Miscellaneous Questions and Observations concerning the Doctrine of - Money and Coin._ - - -In deducing the principles of every branch of politics, it is of great -importance, at setting out, to treat every one separately; to avoid -intricate combinations of circumstances; and to learn how to distinguish -between the operations of the general principle in question, and the -influence of an accidental circumstance, which may throw the decision of -a particular case upon a principle different from that upon which our -attention is fixed at the time. Let the combination and complication of -circumstances be ever so great, all and every one of them constantly -remain under the influence of one principle or other. - -The great art, therefore, is to have the whole plan of the science so -ready at command, as to be able to combine and apply every principle of -it to the case proposed. - -From this we discover of what importance it is to be exactly informed as -to facts, and how utterly insufficient the best theory is in the hands -of any person, who is not at the same time a thorough practitioner in -the political science. - -In treating of the application of principles to particular cases, we -must constantly go upon this hypothesis, that in the case proposed there -are no unknown circumstances, which may be repugnant to the exact -combination of those which have entred into our supposition. - -[Sidenote: The use of a miscellaneous chapter at the end of a subject.] - -The use, therefore, of a miscellaneous chapter, after the deduction of -the general principles is over, is to serve as an exercise upon them. -This is done by introducing questions which may tend to illustrate or -explain the matters already treated of, and which have not been -introduced in the body of the work, for fear of rendering combinations -too complicated, and of drawing the attention from the main object of -inquiry. When a particular appearance, also, seems to contradict a known -principle, that appearance may here be analized, and the particularity -of the case pointed out, and ranged under the principle which influences -it. Numbers of objections also occur to readers of such inquiries, and -which even naturally occur to the author himself, although he be obliged -to take no notice of them at the time, for fear of interrupting his -subject; these may properly find a place in a subsidiary chapter. It is, -however, to no purpose to attempt to exhaust any political subject. The -combinations of circumstances are infinite; and therefore people must -content themselves with deducing all the principles by which they may be -resolved, leaving the rest to the reader’s ingenuity. - -[Sidenote: Quest. 1. Why does the doctrine of money appear so - intricate?] - -QUEST. I. The first question I shall propose for illustrating this -subject shall be, Whence it comes to pass that the doctrine of money is -so extremely difficult and involved? - -[Sidenote: Answ. Because it is perplexed with jargon.] - -ANSW. This I ascribe chiefly to the introduction of a money-jargon, -employed by people who have had the management of mints, or who have -been practical merchants, without knowing any thing of the theory of -their business. - -[Sidenote: The denominations of coin are confounded with the intrinsic - value of it.] - -As long as money went by weight, and was considered as gold and silver -bullion, the whole doctrine of it remained clear and intelligible: but -the introduction of a numerary value, or denominations of money of -accompt, sometimes attached to one quantity of the metals, sometimes to -another; and the interest of Princes, which made them endeavour to -persuade their subjects that the stamp of the coin was sufficient to -give a value to it; has both introduced an unintelligible language, and -has really involved the subject with so many extraneous circumstances, -that when we consider every thing, the perplexity is not much to be -wondered at. - -I shall now endeavour to reduce all these perplexities under some -general heads. - -[Sidenote: The terms metal, money, coin, bullion, and price, are all - considered as synonimous.] - -_1mo_, The first is, confounding ideas quite different in themselves. -The terms _gold_ and _silver_, _money of accompt_, _coin_, _bullion_, -and _price_, are often understood and made use of as synonimous, -although no things can be more different. - -[Sidenote: What is meant by _metal_?] - -The terms _gold_ and _silver_ should convey to us no other idea than -that of pure physical substances. - -[Sidenote: What by _money_?] - -That of _money of accompt_ represents an invariable scale for measuring -value. - -[Sidenote: What by _coin_?] - -_Coin_ conveys the idea of the public authority ascertaining the exact -proportion of fine and alloy in a mixed metal, and the realizing, in a -determinate weight of it, the invariable scale of money, sometimes -correctly, sometimes incorrectly. - -[Sidenote: What by _bullion_?] - -_Bullion_ carries the idea of certain determinate mixtures of the -metals, commonly ascertained by some public stamp or other, and drawing -their value exactly from the proportion of the fine metals they contain, -the workmanship being considered as of no value. - -[Sidenote: What by _price_?] - -_Price_, again, when considered as consisting in coin, is a more complex -idea still. In it are comprehended the value of the metals; the -authority of the stamp for the currency; the actual value of the coin as -a manufacture, above the value of it as a metal; the common and -universal equivalent of all things alienable; and the mean value of the -currency of which _price_ is supposed to contain exact aliquot parts, -when perhaps it does not. - -The ideas, therefore, of _gold_ and _silver_, of _money_, of _coin_, of -_bullion_, and of _price_, are all different; they are commonly -confounded, both in speaking and in writing: from this arises the first -cause of perplexity. - -[Sidenote: The abuse of the terms _rising_ and _sinking_, and inaccuracy - of speech.] - -_2do_, The second is owing to the common method of estimating the value, -and the proportions between _gold_ and _silver_; _coin_ and _bullion_; -_money_ and _merchandize_. The terms usually employed to express such -combinations are, _rising_ and _sinking_, or the like: people employ -these terms, without previously agreeing upon the thing which they are -to consider as fixed. The value of one of the precious metals is -constantly relative to that of the other; and yet, without attending to -this, we sometimes consider the gold, and sometimes the silver, as the -common measure; and while one is talking of gold as a common measure, -the person he talks to is considering it perhaps as the thing measured. -This inaccuracy, in supposing sometimes the one as fixed, and sometimes -the other, involves us in great obscurities; especially when we speak -upon such matters with those who have not distinct combinations of -ideas: and if three or four people are engaged in a conversation upon -money, every one using the same term in a different acceptation, the -confusion which it causes is inextricable. - -In like manner, when we speak of coin and bullion, that of the two ought -to be considered as fixed which changes its proportion of value the -least with respect to all commodities. - -[Sidenote: Prices attached to denominations of coin.] - -Were prices attached to grains of silver and gold, bullion ought in that -case to be considered as fixed; but as they are more attached to the -denominations of the coin, coin ought to be considered as fixed. - -[Sidenote: _Coinage raises the value of coin_, is a more proper - expression than _Coinage sinks the price of commodities_.] - -In the next place, in speaking of coin and commodities, we say, for -example, that the imposition of coinage makes the prices of commodities -sink. We do not, in this case, speak correctly; because if any thing -ought to be considered as fixed, it is the relative proportion of value -between the different sorts of commodities. In this case, therefore, I -think it would be more proper to say, that coinage raises the value of -coin, than that it sinks the value of commodities. - -[Sidenote: How to avoid such ambiguities in speech.] - -To prevent the ambiguity of such expressions from occasioning confusion, -and not to depart too far from common language, I have frequently spoken -of commodities as rising and sinking in their values with respect to -coin; but I have at the same time observed the influence which that -rising and sinking has upon the rising and sinking of the value of the -pound sterling realized in it. - -[Sidenote: A case which cannot be resolved by this theory.] - -I have not, however, concluded with equal certainty that the rising and -sinking in the value of bullion, _with respect to coin_, ought to imply -any change upon the value of the money-unit; because I have not been -able to determine whether prices ought to be considered as most attached -to the denominations of the coin, or to the grains of the metals: except -indeed in one case, to wit, when the quantity of the metals comes to be -augmented or diminished in the coin. In that case, I have not hesitated -to decide that, sooner or later, the influence of trade must operate a -rise or a fall in the current value of the specie, which will be marked -by an apparent rise or fall in the price of all commodities. - -[Sidenote: In speaking, we do not distinguish between pure metal and - that which is mixed with alloy.] - -_3tio_, Our comparing the value of silver sometimes with the pure metal, -sometimes with that compounded with alloy, involves us frequently in a -language which is hardly to be understood. - -Says one, a pound of silver, troy, is worth 67 shillings. He means a -pound of fine silver. We in England, says another, coin our pound troy -of silver into 62 shillings. He means the pound of standard silver, -which contains 18 penny weights of copper. Says a third, our pound of -silver, which we coin into 62 shillings, is not worth 57_s._ 6_d._ He -understands the shillings of fine silver of the same weight with those -of standard silver. Another affirms, that an ounce of standard silver, -which, at the mint, and in the coin, is worth no more than 5_s._ 2_d._ -is worth in the market 5_s._ 6_d._ He means, that one must pay at that -rate for silver bullion, when they purchase it with over-rated gold. At -last comes Mr. Cantillon, who, as a proof of the decline of the English -commerce, affirms to us, in his Analysis of trade, p. 133. that both -silver and gold bullion are dearer in the London market than in the -coin: at the same time, he might have discovered the cause of it, from -the lightness of the gold and silver currency at the time he wrote; -since the phænomenon could proceed from nothing else: the new guineas -must then have been sent abroad. Says a Frenchman, one of our crowns of -3 livres, which passes for 60 sols, is intrinsically worth no more than -56½ sols. He means, that the fine silver it contains is worth no more -than 56½ sols, according to the mint price of the fine metals. - -[Sidenote: Of the abuse of terms relative to the denomination of coins.] - -_4to_, Another cause of perplexity in the money-jargon, is the -prodigious abuse of the terms which express the denominations of the -coin, or the numerary unit. - -French historians write familiarly of sums of money in livres and -crowns, through all the stages of the monarchy. English writers (for the -most part) do the same, in speaking of pounds sterling. Nothing however -is more different than the ideas expressed by the same term. - -[Sidenote: This illustrated by an example.] - -Were any person, talking of lengths and distances, to use the word -_foot_, sometimes to signify _yard_, sometimes _perch_; or to use the -word _mile_, to signify sometimes _league_, sometimes _inch_, and -sometimes _fathom_; who could comprehend one word of his discourse -concerning the matter? Would we not even laugh at such a person, for -pretending to inform us of any thing concerning lengths or distances. - -If any change be made upon the value of the money-unit of a country, -which is called a pound; in propriety of language, it can no more be -called a pound, after the change, than it can be called a rhinoceros. - -[Sidenote: Farther obscurities from the abuse of language.] - -_5to_, Another reason for the obscurity of money-jargon, is the manner -in which writers express themselves, when they speak of variations in -the value of money. Upon this occasion, says one, the King raised the -money 5 _per cent._ What does this mean? No man living can understand -the expression; because it may signify, that he raised either the -denomination of the coin, or the value of the unit. If he raised the -coin, he debased the unit: if he sunk the coin, he raised the unit. A -crown of 6 livres is a coin: a livre is the unit. If it is said, the 6 -livre piece is raised; that is as much as to say, it is made to be more -than 6 units; consequently, as the silver in the piece does not change -its weight, it follows, that the unit, or money of accompt, is -diminished. On the other hand, if it is said that the livre is raised, -it implies that the crown, which contained 6 livres, is made to contain -less than 6 units; therefore, the value of the unit is raised; that is, -it is made to contain more silver than before. - -[Sidenote: How to avoid such abuse.] - -Writers, therefore, to be distinct, ought never to mention these -matters, without removing the ambiguity, in favour of readers of all -denominations. As for example: The King raised his coin, and debased his -money of accompt. For this reason the French expression is good, and -easily understood; _augmenter la valeur numeraire des especes_, is -liable to no obscurity. - -There are also two terms used by French writers, which appear -synonimous, and yet are directly opposite; AFFOIBLISSEMENT, _et_ -DIMINUTION _de la monnoïe_. Such terms are perplexing, and ought either -to be avoided, or constantly explained. The first signifies the coining -the specie of the same denomination lighter in the metals than before: -the last signifies the lowering the denominations of the coin already -made. The first therefore diminishes, the second increases the value of -the unit, which is the livre. - -[Sidenote: Quest 2d. What is the difference between raising the _value_ - of coin, by imposing coinage, and raising the denomination of - it?] - -QUEST. II. What is the difference between the effects produced by -raising the value of the coin by the imposition of coinage, and raising -the denomination of it? This question is proposed as a further means of -rendering the money-jargon intelligible. - -ANSW. The imposition of coinage, when it gives an advanced value to coin -above the metals it contains, is very different from that advanced value -which the coin appears to receive when the Sovereign arbitrarily raises -the denomination of it; or as the French call it, when he augments its -numerary value. - -[Sidenote: Answer. The first is real, and affects foreign nations; the - other does not.] - -When the imposition of coinage gives an advanced value to the coin above -the bullion it contains, that value becomes real, and extends itself to -foreign nations; that is to say, the coin, so augmented as a -manufacture, must be bought with more foreign coin than formerly. But -when the denomination, or numerary value, is augmented, the same piece -(though augmented in denomination) is bought by strangers with the same -quantity of their coin as before. An example will make this plain. - -[Sidenote: Proved by an example.] - -Let us suppose the coin in France, in war time, reduced to the value of -bullion, and that the value of a crown of three livres, by the course of -exchange, should be then worth 29½ pence heavy silver sterling money; if -the balance of the French trade should become favourable in general, and -that coin should become 8 _per cent._ dearer than bullion in the Paris -market, then the price of the crown of three livres will rise 8 _per -cent._ upon the London exchange above 29½ pence heavy silver sterling -money, although there be respectively no balance to be paid in bullion -either by England or France. But let the King of France ordain, that the -crown of three livres shall be raised in its denomination to six livres, -and let the coin at that time be supposed to be at par with bullion in -the Paris market, the crown of three livres will then be paid as -formerly with 29½ pence. That is to say, the augmentation of the -denomination will have no effect upon the value of the coin in other -countries; whereas the augmentation affected by the operations of trade, -in consequence of the imposition of coinage, is a real augmentation, -since it extends to foreign nations. - -[Sidenote: How the arbitrary method of raising the denomination of coin - affects prices at home.] - -Now it is certain and evident, that the augmentation of the numerary -value has the undoubted effect of sinking the value of the numerary unit -realized in the coin, and that upon such occasions we ought to say, that -the King has diminished the value of the livre, and not that he has -raised the value of the coin. But the abuse of language has made people -consider the livre as the thing fixed, and therefore the coin is -considered as the thing which rises and sinks. The consequence of this -is, to introduce another abuse of language. People say, that the prices -of commodities rise: I ask, With respect to what? Not with respect to -the pieces of coin, but with respect to the denominations they carry: -that is to say, with respect to livres; although the livre be considered -as the thing fixed. There is, however, a reason why people express -themselves in this improper manner, which proceeds from the perplexity -and confusion of their ideas concerning money. - -When the King of France arbitrarily changes the numerary value of his -coin, commodities are found, by universal experience, to stick so -closely to the denominations of it, that people are apt to think that it -is the King’s will and pleasure, and not the metal of which the coin is -made, which gives it a value. But commodities depart from these -denominations by degrees, and fix themselves a-new at a determinate -value of the fine metals, proportioned to what they bear in foreign -nations. This is brought about by the operations of commerce; and -consequently, the rise of prices not taking place till some time after -the numerary value of the coin has been augmented, people accustom -themselves to say, that the augmenting the denomination of the coin -raises prices, and that diminishing the denomination sinks them. But did -all prices strictly adhere to the grains of bullion contained in the -coin, and not to the denominations of the numerary value, then language -would change, and no body would speak about the rising and sinking of -prices, but of the rising and sinking of livres, sols, and deniers. - -I hope, from what has been said, that the difference between raising the -value of the coin by imposing coinage, and the raising the nominal value -of it by augmenting the denomination or numerary value of it, is -perfectly understood. The first raises the value of the numerary unit, -by giving a real additional value to the coin as a manufacture: the last -raises, for a while, the value of the numerary unit; only because the -price of commodities, being attached to the denominations of money of -accompt, stick to them, until the operations of trade reduce them to -their true principle. - -Whenever, therefore, the terms _rising_ and _sinking_ are applied to -value, the thing which is said to rise, is supposed to be the moveable; -and the thing it is compared with, or with respect to which it is said -to rise or sink, is supposed to be the term fixed. Every one, therefore, -who reads books upon this subject, ought, upon all occasions where there -is mention made of rising and sinking of the price of the gold, silver, -bullion, coin, exchange, or commodities, constantly to cast his eye upon -the thing which is supposed to be fixed, and retaining that in his mind, -he will preserve his ideas distinct. - -[Sidenote: Quest. 2. How will the imposition of coinage affect the - creditors of Great Britain?] - -QUEST. III. Let us suppose that the imposition of coinage, when properly -laid on, will not raise the value of the pound sterling; and -consequently that it will not affect the domestic interests of Great -Britain: it may be asked, What influence that imposition will have upon -the interest of her foreign creditors, since it must affect exchange? - -[Sidenote: Answ. If they continue to be paid by denominations, they will - gain; if by weight of metal, they will not gain, nor will - they lose.] - -ANSW. The foreign creditors of the nation will thereby be gainers, -provided their interest continues to be paid in denominations of pounds -sterling, and not in a determinate number of grains of the fine metals, -as was proposed to be done in the fourteenth chapter of the first part. -The reason is plain: upon all occasions, when coin carries an advanced -price above bullion, those who have funds in England will gain upon -exchange. This gain will nowise, I think, be at the expence of the -nation, but at the expence of those foreigners who have occasion for -paper draughts upon London. - -[Sidenote: Proved by an example.] - -A creditor of England (in Holland I shall suppose) draws for a thousand -pounds sterling, (the interest of his English funds) a Dutchman who owes -a thousand pounds sterling in London, buys his bill; must he not pay the -creditor of England, not only the intrinsic value of the bullion -contained in the thousand pounds sterling, but also the difference -between the thousand pounds sterling in coin, and the bullion it -contains, according to the price of it in the London market? This -difference then, received by the proprietor of the English funds, is -clear gain to him, and is no loss to the nation; it is a loss to the -Dutchman. - -Farther, every Dutchman who pays his debts to people residing in -England, must suffer the same loss; that is, he must pay the coinage, -which at present the state makes him a present of. - -From this I think it is plain, that while the balance of trade is -favourable to England, or at par, all remittances made by foreigners, to -pay their English debts, must pay the coinage. - -The operation of this principle has not a little contributed to -facilitate the establishment of the French credit. - -[Sidenote: How the imposition of coinage advances the credit of France.] - -When France borrows, especially in war time, foreigners can remit to -Paris the money they lend nearly at par with bullion. Then they pay -little or no coinage; and when peace is restored, the coin rising in its -value, they gain annually several _per cent._ upon their draughts for -their interest, to wit, all the advanced value of the coin, at no loss -to France. - -[Sidenote: Quest. 4. Is the plan we have proposed effectual towards - preserving the pound sterling invariable?] - -QUEST. IV. Is the preserving the pound sterling at the mean value of a -determinate weight of fine gold, and fine silver, a sure method of -realizing the unit of money of accompt, so as to preserve it at all -times invariable? - -[Sidenote: Answ. No; but seems to be the best relative to material - money.] - -ANSW. I apprehend it is not; although it seems to be the best that can -be devised, upon supposition that the metals are to be made use of, as -the most proper substance for realizing the scale. - -I have said, in the beginning of this book, that the use of the scale -was to measure the relative value of things alienable. Now the metals -themselves being of the number of things alienable, and their proportion -of value being nowise determined, but liable to augmentations and -diminutions, as well as that of grain or any other commodity, no scale -which is attached to them can measure any thing but their weight and -fineness, and consequently can be no permanent measure for any thing -else. - -[Sidenote: A scale of value realized in metal can never be exact; - because the metal itself varies in its value.] - -Did the value of commodities rise and fall with respect to grains of the -fine metals, in the same proportion that they rise and fall with regard -to one another, the scale would be exact: but if the grains of metal can -acquire an increment, and a diminution of value, from circumstances -entirely peculiar to themselves, such circumstances must render the -scale they compose inaccurate in proportion. - -[Sidenote: 1. From the manufacturing of it.] - -[Sidenote: 2. From the interest of money.] - -[Sidenote: 3. From the manners of a people.] - -Now we have seen how the imposition of coinage enhances the value of -coin. The rising and sinking of the interest of money has the same -effect. The vicissitudes to which credit is liable has a prodigious -influence upon the value of the metals. The manners even of a people, -which can be determined by no principle, operate the same effect. When -people, for example, are given to hoarding, the metals come to be -demanded with more eagerness, that is, the competition to acquire them -is greater; consequently the value of them with respect to all -commodities, is greater than when they are purely considered as money of -accompt. - -[Sidenote: The only exact scale of value is that which can measure the - metals like every other commodity.] - -That scale, therefore, is the only just one, which measuring the value -of the metals, like that of every thing else, renders every individual -of a state equally rich, who is proprietor of the same number of -denominations of specie; whether his wealth be in gold, silver, or any -other property or commodity. - -[Sidenote: Explanation of this proportion] - -Now I agree that, at any given time, this is the case when the scale is -properly attached to the metals; but it is not permanently so. A -determinate property in land bears sometimes a greater, sometimes a less -proportion to a determinate property in money. When the scale is -attached to the metals, he who is proprietor, for instance, of a -thousand denominations in coin, becomes richer or poorer, according to -the fluctuation of the value of that commodity, the metals. Whereas when -the scale is not attached to any species of commodity, nothing can -change his proportion of wealth, except the augmentation or diminution -of the value of the whole state. This idea is not so distinct as I could -wish: let me illustrate it by an example. - -[Sidenote: by an example,] - -Suppose then three partners (A), (B), (C). They form a common stock by -equal shares; (A) contributes a thousand pounds sterling in current -specie, (B) the same value in corn, (C) a like value in broad cloth. Let -me suppose the measures of these commodities to be expressed by their -proper denominations; the metals by grains, the corn by bushels, the -broad cloth by yards. I suppose that at the end of the year 20 _per -cent._ is gained upon each article of stock; that is, 20 _per cent._ -increase upon the grains of metal, 20 _per cent._ on the bushels of -grain, 20 _per cent._ on the yards of broad cloth. This supposition may -be allowed. I ask, if it would not be a much more equal way of dividing -this profit, to reduce the whole value of the grains, bushels, and -yards, to the then actual value in pounds sterling, and so to divide; -than if every man were to take his 20 _per cent._ out of that commodity -he had furnished to the co-partnership? This method of reducing all to a -common measure, is what I understand by an ideal scale of money of -accompt. - -[Sidenote: and by an application to the bank of Amsterdam.] - -The bank of Amsterdam pays none in either gold or silver coin, or -bullion; consequently it cannot be said, that the florin banco is -attached to the metals. What is it then which determines its value? I -answer, That which it can bring; and what it can bring when turned into -gold or silver, shews the proportion of the metals to every other -commodity whatsoever _at that time_: such and such only is the nature of -an invariable scale. - -[Sidenote: How the locking up the coin in that bank renders the value of - it more stable.] - -I confess I am not capable of analyzing all the complicated operations -of trade in such a distinct manner as to demonstrate how the universal -circulation of value, over the commercial world, should operate this -effect; and how the burying, as it were, a quantity of gold and silver -in a vault, should give a more invariable worth to a florin, whose value -depends upon it, than if the metal itself was to circulate in coin. - -Thus far, however, I think I understand, that the impossibility of -profiting of the _rising_ value of one of the metals (which is buried) -ought to find a compensation at all times in avoiding the loss upon the -other, which sinks in its value. - -Farther, the burying the coin both in gold and silver is in a manner -forming these two metals into one mass; this takes away the variation in -the proportion of their value, which principally disturbs the uniformity -of their operation as a scale. They cannot either be considered as -commodities, because they are taken out of commerce entirely; yet the -permanent value of them remains. Upon that the bank money is secured; -but it is not realized in it. In banks which pay in coin the case is -different; because the denominations in their paper are liable to all -the fluctuations incident to the coin in which they pay. The bank money, -therefore, of Amsterdam is pure money of accompt, and has nothing of -merchandize in it from the metals in the vaults. The paper of all banks -which pay, rises and falls in value, according to the currencies in -which their notes are acquitted. - -I leave the farther delucidation of this mysterious affair to people of -better capacity, and of more extensive knowledge in those matters than I -can pretend to. - -To conclude, no material money, let it be contrived as it will, is -exempted from vicissitudes in its value as a metal. This is proved by -the universal risings and sinkings in the price of commodities, in -consequence of circumstances peculiar to the coin. These risings and -sinkings of prices, I say, are properly risings and sinkings of the -value of the coin, and that again is a lengthening and contracting of -the equal parts of the scale of value which is attached to it. Now there -is no such thing as any vicissitudes in the prices _of all commodities_ -with respect to bank money, although nothing is more common than -fluctuations in agio, with respect to current money; consequently, bank -money has a property and a stability in it, which no material money is -capable of acquiring, and for that reason it is preferable to it, and is -properly considered as the thing fixed. - -[Sidenote: QUEST. 5. Will not the imposition of coinage in England - frequently stop the mint?] - -QUEST. V. Will not the imposition of coinage in England prevent, upon -many occasions, the carrying bullion to be coined at the mint, when it -would be carried were the coinage free? - -[Sidenote: ANSW. Certainly; when the balance of trade is unfavourable.] - -ANSW. Without all doubt. When coinage is free, every man who imports -bullion runs with it to the mint; there it is proved, cut, and stamped -to his hand, and at no cost. Now to what purpose all this expence; why -carry bullion to be coined, while the balance of trade is against a -nation, since such bullion must be re-exported, together with a part of -the national stock of the metals? Besides, the coining of it gratis, -adds not the smallest value to the metals considered as a manufacture; -consequently, upon the exportation, the whole price of coinage is -entirely lost, and the national stock of coin is not thereby augmented; -nor would it be augmented while trade is unfavourable, were five hundred -mints kept constantly at work. - -[Sidenote: But this is an advantage to England which France now enjoys.] - -The imposition of coinage, therefore, has these good effects. First, it -prevents bullion from being coined, except when such coined bullion can -remain in the country and augment the national stock of coin. Secondly, -as has been said, it gives an additional value to the coin, even in -foreign countries, and thereby prevents it from being melted down -abroad, in order to be re-coined in other mints, and thus augment the -stock of coin in rival nations. - -I believe no body ever imports louis d’ors to be coined in the English -mint (notwithstanding of the benefit there is in importing gold into -England from France, where the proportion of the metals is lower) yet -nothing is more common than to carry guineas to every foreign mint, at -the bare price of bullion. This is the reason why so little English -coin, and so much French coin is found in circulation, in countries -foreign to both these nations. - -[Sidenote: The coin of France passes in other nations above its value as - a metal, and returns to France unmelted.] - -Louis d’ors, in consequence of the high imposition of coinage in the -French mint, pass current, almost every where, for more than their -intrinsic value, even when compared with the coin of the very nation -where they circulate without the sanction of public authority; and when -that authority regulates their currency, according to their intrinsic -value, such regulation has the same effect as forbidding them -altogether; because the moment a money-jobber lays his hand upon them at -the statute value, he circulates them no more; but sends them either -back to France, or to some country where they pass, by a conventional -value, above their intrinsic worth. Thus louis d’ors, as well as all -French coin, are effectually prevented from being melted down, and so -soon as the balance of the French trade becomes favourable, they return -home. - -[Sidenote: QUEST. 6. Is not this return a loss to France?] - -QUEST. VI. Is not this return of louis d’ors to France, upon the balance -of their trade becoming favourable, a loss to France; since, in that -case, the balance of their trade is paid with a less weight of bullion -than it would be paid with, were their coin worth no more than bullion; -and secondly, because when the coin is exported to pay the balance, it -is exported upon the footing of bullion, and when it returns it is paid -back at an advanced price? - -[Sidenote: Intricacy of this question.] - -The difficulty of resolving this question proceeds from the complication -of circumstances in which it is involved; and the intention of proposing -it, is to shew how necessary it is, in practice, to combine every -circumstance in political problems. - -[Sidenote: Resolution of it.] - -I shall therefore observe, that since, at all times almost, French coin -passes (out of France) for more than its intrinsic value, it is not well -possible to suppose that, even during a wrong balance of the French -trade, their coin can ever fall so low as the price of bullion; -consequently the French by exporting their coin, upon such occasions, -above the value of bullion, that nation is a gainer of all the -difference. This operates a compensation of the loss (if any they -sustain) upon the return of their coin. In the second place, when the -balance becomes favourable for France, and when there is found a profit -in sending back the French coin, the demand that is made for it, by -those who want to pick it up in foreign countries, raises the value of -it there in circulation; this again favours the trade of France, and -makes the difference of paying what one owes to France in bullion at the -market price, or in louis d’ors at the advanced value, very -inconsiderable; which consequently prevents merchants from finding any -great advantage in sending back large quantities of it. - -Besides, when the coin returns, although it has an advanced value, it -has no advanced denomination. It was exported according to its numerary -value, and it returns upon the same footing. Farther, when the coin -returns as the price of French merchandize, for the same value it bears -in the country, I cannot discover a principle which can make this appear -to be a loss to France. The loss therefore must be upon the exportation -of the coin, not upon the return of it. But we have said that if it be -exported at a higher value than that of the bullion it contains, this -must imply a profit to France. Consequently, the remainder of loss upon -exportation must be apparent, not real: It is a loss to Frenchmen, who, -in exporting the coin below the full value of it (coinage included) lose -a part of what they had paid the King for the coinage; that is to say, -they lose it so far as they do not draw it back _in full_ from the -foreigners to whom they owe; [Sidenote: It is no loss to France.] but it -is no loss to France: on the contrary, it is a gain, as far as any part -of the coinage is drawn back; and this is the case as oft as the coin is -exported above the price of bullion. - -[Sidenote: Another view of this question.] - -Or in another view. This going out and returning of the French coin, may -be considered as a loss to France in this respect, that when the balance -of her trade is against her, when her coin loses of its advanced value -in payments made to strangers for the price of foreign commodities, -those who consume such commodities in France, must consume them at an -advanced price to themselves, but at no additional profit to foreign -suppliers; because as to these last, the French coin, with which we -suppose the commodities to be paid, having lost of its value every -where, cannot then purchase so much as at another time, and consequently -is not worth so much to the foreign supplier who receives it. For the -better understanding of what has been here said, attention is to be had -to the difference there is between a _national_ loss, and the loss -sustained by the individuals in a nation. The balance of trade is the -national profit, or the national loss; but the gains or losses of -individuals, may be compatible with either a right or a wrong balance of -the trade of the nation to which they belong. This will be fully -explained when we come to treat of exchange. - -In this respect, therefore, France may be supposed to lose upon -exporting her coin, to wit, so far as she consumes foreign commodities -at an advanced value; but then I say, that in this case France loses the -whole price of the commodities, not the advanced price only; because she -loses the balance of her trade. Abstracted from that, I say she loses -nothing. Who loses then the advanced price? I answer, the consumer of -the commodity loses it, and I say that no body gains it. This is what, -in the eighth chapter of the second book, was called positive loss, and -it is owing to the annihilation of a part of the advanced value of the -coin, which the operations of commerce have effectuated. - -In these respects only can France be considered as a loser upon -exporting her coin; but in having it returned upon her, when at an -advanced price above bullion, the loss is nothing; because the advanced -price then is a real value added to the coin, and there is no manner of -difference as to France, to receive, for the balance of her trade, an -hundred pounds weight of her own louis d’ors, or an hundred and eight -pounds of standard gold bullion, at such times as bullion is commonly -carried to the mint; because the one and the other weight of coin and -bullion will answer the same occasions both in the Paris market, and in -most trading towns in Europe. - -From these principles we may gather how effectually the imposition of -coinage must prevent the melting down of the coin, providing a -sufficient attention is had to preserve the denominations of the coin in -both species at the exact proportion of the market price of the metals. - -[Sidenote: QUEST. 7. If by over-rating gold, the English lose their - silver, Why should not France, by over-rating silver, lose - their gold?] - -QUEST. VII. The two metals being only valued by one another, if the -English, by valuing the gold higher than the French do, occasion the -exportation of their silver, why should not the French, by valuing their -silver higher than the English do, occasion thereby the exportation of -their gold? And if the English, by over-rating their gold, prevent the -carrying silver to be coined at their mint, why should not the French by -over-rating their silver prevent the carrying gold to be coined in their -mint? - -[Sidenote: ANSW. Because the English rate their gold above the value of - it in _their own market_, the French do not so with their - silver.] - -ANSW. The English over-rate their gold not only with respect to other -nations, but with respect to the value of it in their own market; -whereas the French preserve, in their gold and silver coins, nearly the -proportion between the metals as they are sold in their own market. - -In France no body can profit by melting down either of the species, in -order to sell it, with advantage, as bullion; but in England, by melting -the heavy silver coin, one may sell it in London for more gold than the -same coin not melted can purchase. - -But here it is objected, that although the proportion between gold and -silver, in the English coin, were set upon a par with that of the metals -in the London market, still one species may be exported with profit, -providing the proportion be different in other nations. - -There is little force in this objection, and were there any, it would be -an additional argument for the imposition of coinage; because by this -the exportation of either of the species, for the sake of any small -difference which may sometimes be found between the proportion of the -metals in the different markets of Europe, would be prevented. This -circumstance however requires a more particular examination. - -It is a principle in commerce, that the demand for any commodity raises -the value of it; and every nation knows how to profit of a demand for -what they have. - -[Sidenote: How the proportion of the metals is kept nearly the same in - all European markets.] - -Whenever, therefore, one of the metals bears an under value in one -nation, below what it bears in another, that under value makes that -species more demanded by strangers, and it consequently rises in its -value, even at home. - -[Sidenote: Because when home demand disturbs the proportion, foreign - trade brings it even again.] - -By this principle the proportion between the metals in European markets -is kept nearly the same, and the small difference which is found does -not so much proceed from the demand of foreign trade, as from the taste -of the inhabitants. The foreign demand tends to set the proportion even -in all markets, and the internal demand for one metal preferably to -another, is what makes it vary. - -The carrying the metals backwards and forwards is attended with risque -and expence; there is not, therefore, so much danger of a nation’s being -stripped of one of its species of current coin by such a trade, as there -is when the proportion of the market price of the metals is different, -at home, from that observed in the coin; because in the last case, every -one may profit of the disproportion, at the trifling expence of melting -down the rising species. - -[Sidenote: Coin of gold and silver should be proportioned to the rate of - the market at home,] - -From this we may conclude, that nations ought to regulate the proportion -of the metals in their coin, according to the market price of them at -home, without regard to what it is found to be in other nations; because -they may be assured, that the moment any difference in the market price -shall begin to be profited of, that very demand will alter the -proportion, and raise the market price of the metal sought for by -foreigners. While the coin, therefore, is kept at the proportion of the -market at home, and while the denominations of both species are made to -keep pace with it, it will be utterly impossible for any nation to hurt -another by any such traffic in the metals. - -[Sidenote: and nations cannot fix that proportion by any convention - among themselves.] - -We may farther conclude, that it is to no purpose for nations to agree -by treaty upon a certain proportion between silver and gold in their -coins: it is the several market prices every where which alone can -regulate that proportion, and the only method to keep matters even -between them, is to make the denominations in both species keep an equal -pace with the price of the metals in their own market. - -[Sidenote: Why is the proportion of the metals so different in England - and Asia?] - -Here it is farther objected, that were these principles just, there -would not be found so great a disproportion as there actually is, -between the value of gold and silver in Europe, and in the empire of -China. - -To this I answer, that the principles are just, and that this difference -proceeds from incidental circumstances which I shall now point out. - -[Sidenote: Answer to this.] - -First then, the European trade hardly penetrates into that vast empire. -2. The lowness of the proportion between gold and silver is maintained -by the high internal demand for silver in China. 3. The India trade -being every where in the hands of companies, there is not so great a -competition between the sellers of silver, in the Chinese market, as if -that trade were open to every private adventurer; consequently the price -of it is not so liable to be diminished. And last of all, the expence of -carrying silver thither, and the long lying out of the interest, would -put a stop to the trade, were the proportion between the metals to rise -in China. This prevents competition still more between the different -European companies, and consequently prevents the rising of the -proportion. - -I need not observe, I suppose, that the term _rising of the proportion_, -denotes the rising of the price of silver; as when being at that of 1 to -10, it comes, for example, to that of 1 to 11. This term has been -already explained. - -[Sidenote: QUEST. 8. Is it the interest of Princes to debase the - standard of their coin?] - -QUEST. VIII. Is it the interest of Princes to debase the standard of -their coin? - -ANSW. This question has been already touched upon in the twelfth chapter -of the first part. Perhaps some farther observations upon it may not be -found superfluous. - -In order to set it in a fair light, I shall begin by reducing it to its -ruling principle. - -The question turning entirely upon the _interest_ of Princes, I shall -take no notice of the iniquity of such a measure with respect to their -subjects; but shall confine it purely to the _interest_ they may have in -exercising this branch of prerogative. - -[Sidenote: ANSW. It is their immediate interest to debase it when they - are debtors, and to raise it when creditors, but always - unjust.] - -I answer then, as I have hinted above, that it is their _interest_ to -debase the standard of their coin when they are in the situation of -debtors; and it is their _interest_ to raise the standard when they are -in the situation of creditors. - -Debasing the standard I have explained to be the diminution of the -intrinsic value of the unit below what it was before, either by raising -the denomination, augmenting the alloy, or diminishing the weight of the -coin. - -Now since Princes pay their servants by denominations, that is, by money -of accompt, the more they augment the denomination of the coin they -possess, the more they gain upon what they have at the time. But they -lose proportionally upon their revenue ever after; because the rents and -duties levied on their subjects being also paid by denominations, the -Prince loses every year on his income what he had gained upon one -operation. - -From this we may draw a principle, that Kings who have begun to debase -the standard, ought to go regularly on every year, as long as they find -themselves in the state of debtors; and when they come to alter their -situation, and become of the class of creditors, it is then their -interest to raise the standard. This must be a little further explained. - -[Sidenote: Who are debtors and who creditors, and how Princes who - incline to rob their subjects may avoid robbing themselves at - the same time.] - -It has been abundantly proved, that increasing the denomination, or -debasing the standard, must constantly be advantageous to the whole -class of debtors; consequently, Princes, who are upon certain occasions -obliged to lay out more than they receive, may then be considered as -being of that class. Whoever receives from another what the other is -obliged to pay him, may be considered as a creditor; whoever gives to -another what the other is intitled to demand of him, may be considered -as a debtor. Those, therefore, who both pay and receive, are, upon the -whole, either debtor or creditor, according to the side which -preponderates. He who is obliged annually to pay more than he annually -receives, must be obliged either to run in debt, to borrow, or to take -from a fund already formed (a treasure). The maxim therefore is, first -to fill the exchequer with the annual income; then to debase the -standard; and last of all to pay. The debts paid, and the current -expence brought within the income; then is the time to raise the -standard. This operation is like that of the ram; he runs back in order -to advance again with more force. - -[Sidenote: Example of a Prince who is now employing this engine against - his enemies, not his subjects.] - -The great master of government and political oeconomy well understands -this doctrine. He is now spending his treasure, not his income. He is -then in the state of the debtors, and accordingly is regularly every -year debasing the standard of the S——n coin. This debasement, I suppose, -regularly takes place after the contributions for the year are paid. So -soon as the war is over, and that this oeconomical Prince shall return -to the state of creditor, he will, I suppose, suppress the currency of -all this bad money, and restore the standard. That is to say, he has -during the war been ruining all the class of creditors in permanent -contracts (the S——n nobility) and when the peace is re-established their -own Prince may indemnify them, if he pleases, by restoring the former -value of the unit. All sudden revolutions are hurtful; but necessity has -no law[3]. - -Footnote 3: - - Writ in the year 1760. - -This, in a few words, is, I think, the answer to the question proposed. -Princes have for several centuries, in almost every nation in Europe, -been gradually debasing the standard of their money-unit; and the debts -they have contracted during the debasement have constantly been an -argument against the restoring it. But had they first regulated all -their debts upon the footing of the last debasement, stipulating with -their creditors that they were to be paid upon the footing of the then -currency, that is to say, according to the French stile, _au cours du -jour_ of the stipulation; they then might, without any advantage to -their creditors, and with great profit to themselves, have restored the -standard, and so prepared the means of executing the same operation as -before, upon a new emergency. - -[Sidenote: Writers against this practice have used wrong arguments to - dissuade Princes from it.] - -Those who have writ against this practice of debasing the standard, have -made use of wrong arguments to dissuade Princes from following such a -measure. They have first represented it as hurtful to their own -interest. This we have seen is not always true. They have also -endeavoured to prove that it is vastly prejudicial to commerce. This is -the great point laboured by Dutot, in his _Reflexions Politiques sur le -Commerce_; but to very little purpose. All the facts and arguments he -has produced to prove (by the source of exchange) that the variations -made in France in the standard value of their crown of three livres did -hurt to the trade of that nation, prove nothing at all, as it would be -easy to shew, were this a proper place. The hurt done to manufactures is -greater; but, in a trading nation, those establishments being under the -influence and direction of merchants, who are perfectly instructed as to -every consequence of such alterations, the manufacturers, after a very -short time, raise their prices to the full proportion of the increase in -the denomination of the coin. - -[Sidenote: The proper arguments against it are three.] - -The real inconveniencies which proceed from this exercise of power, may -be reduced to three. - -[Sidenote: 1. It disturbs the ideas of a people with regard to value.] - -1_mo_, It disturbs the ideas of a whole nation with regard to value, and -gives an advantage in all bargains, to those of the society who can -calculate, over those who cannot. - -[Sidenote: 2. It either robs the class of debtors or of creditors.] - -2_do_, It robs the whole class of debtors when the standard is raised; -and it robs the whole class of creditors when it is debased. - -[Sidenote: 3. It ruins credit.] - -3_tio_, It ruins credit; because no man will borrow or lend, in a -country where he cannot be sure of receiving back the value of his loan; -or of being in a capacity of clearing himself by paying back the value -he had borrowed. - -[Sidenote: This last circumstance will probably put an end to the - practice.] - -This last circumstance has overturned the whole scheme in France. -Princes would go on debasing their standard as formerly, could they do -it and preserve their credit. But who will lend a shilling to a Prince -if he suspects he will pay him back, perhaps, with sixpence? The Prince -above mentioned does not borrow; and as he is the only one in this -situation, he may debase his standard: but others cannot venture upon -such a step. - -[Sidenote: Quest. 9. What is the best form to be given to coin?] - -QUEST. IX. What is the best form to be given to coin? - -[Sidenote: Difference between medals and coins.] - -ANSW. The intention of coinage, _for circulation_, being to ascertain -the quantity of the fine metals in every piece, and not to represent the -effigies of the sovereign, we see a manifest difference every where -between the impressions struck upon medals, and those of the current -coin: in the first, the head is raised, in the last, it is purposely -made flat. - -[Sidenote: Of indenting the impression.] - -Antiently, the impression put upon some of the English coins was a -cross; which being indented upon the penny, instead of being raised, -occasioned these pieces frequently to be broken into four parts. This is -said to have given rise to the denomination of farthings, or fourth -parts. The indenting the impression upon the coin, is no doubt a -preservative against its wearing; but as it is liable to other -inconveniences, and is so repugnant to custom, it would be ridiculous, -perhaps, to propose it. - -I shall reduce, therefore, all I have to propose as a supplement to what -has been said already on this subject, to a very few observations. - -[Sidenote: The less the surface, the wearing is the less.] - -1_mo_, The less surface any piece has in proportion to its mass, the -less it is worn in circulation; and as all coin is made cylindrical, -that whose form approaches nearest to the cylinder, whose height is -equal to its diameter, must have the least. Coin therefore ought to be -made thick, and for this reason louis d’ors are of a better form than -guineas, and guineas of a far better form than ducats. Were it easy to -give the surface a spheroidal form on both sides, rendring the coin -thicker in the middle than at the edges, the surface would be thereby a -little more diminished. - -[Sidenote: The advantage of heavy pieces for the greater part of the - coin; yet small denominations are useful, in some cases, for - preventing the rise of prices.] - -2_do_, The great credit of paper in England, is a vast advantage in many -respects. It renders coin less necessary. While that credit subsists, -large payments will always be made in paper; and this renders the -coinage of gold in large heavy pieces less necessary. The coin, -therefore, in England, ought to be calculated for the easy changing of -bank notes, not with a view to the making great payments in it. For this -purpose, two and three pound pieces might be full as convenient as -single guineas, and half guineas might be proscribed. Small -denominations of gold coin lead to expence, and tend to raise the prices -of such commodities as people of fashion pay immediately out of their -own pockets. As for the silver, the same principles are to be observed. -Crown pieces are very convenient in payments, and have a great advantage -over shillings and sixpences in point of surface. The practice in France -of coining the greatest part of their silver in such pieces abundantly -shews how few of the lesser denominations (that is shillings, &c.) are -necessary for carrying on circulation. - -[Sidenote: Mixt metal better than copper for small denominations, as - appears from the practice in Germany.] - -3_tio_, The copper coin of England is exceedingly bulky, in order to -give it an intrinsic value. This makes many people ashamed to carry it; -consequently increases expence, and raises the price of many things for -the reason already given. - -What inconveniency could there possibly be in making pence of a mixed -metal of a much lower standard than the other coin. The coin would be -less bulky, and the intrinsic value might be preserved. This is the -custom all over Germany. The lower denominations of the coin are all of -different fineness. The standard for what they call the _gros_; the 7, -the 10, the 17, the 20 creutzer pieces, are all of different fineness; -but still in the same sum, in whatever coin it is paid, according to the -laws, there ought to be found the same quantity of fine silver. This -enables them to coin pieces of very small denominations which have -however the same intrinsic value with the other denominations of the -coin, and which are neither of an unwieldy bulk, or of an inconvenient -smallness. This is the regulation in Germany: I do not say that the -regulation is well observed. - -Farthings of copper are good and convenient; a few of these ought always -to be preserved in favour of the lower classes of the people, who -thereby are enabled to keep down the prices of the small necessaries of -life: a matter of the greatest importance to a trading nation. - -Nations ought to copy from one another what is good and convenient, and -should be above the thraldom of little prejudices in favour of -established customs, which have frequently nothing but custom to -recommend them. - -[Sidenote: Mixed metal never to be bagged up with fine.] - -4_to_, It must be observed that upon adopting the German regulation as -to pence, such coin must not be allowed to be put up in bags of coin -delivered by weight; nor made a legal tender beyond the value of the -lowest silver coin. - - ------------------------------------------------------------------------- - - - CHAP. VII. - _Of the Regulations observed in France, with regard to Coin, Bullion, - and Plate._ - - -It now only remains, that I lay before the reader what I have been able -to gather, upon good authority, concerning the regulations in some of -the principal nations of Europe, with regard to their mint: and this so -far only as is necessary for illustrating our subject, and confirming -the principles we have been laying down. - -[Sidenote: The marc is the unit of French weight at the mint.] - -The unit of weight in the French mint, is the _Marc_; composed of eight -ounces, every ounce containing 576 grains. The marc consequently -contains 4608 grains of Paris weight, called _poids de marc_. - -[Sidenote: The remedy of weight upon silver what.] - -By this weight the bullion is delivered to, and the coin is taken from -the workmen in the mint, to whom the King gives an allowance of 36 -grains upon the weight of every marc of coin delivered. This allowance -is called _le remede de poids_. - -A marc therefore of French silver coin, is not to be reckoned at 4608 -grains, but at 4572 grains effective. - -[Sidenote: The standard of fineness is 11 fine to 1 alloy.] - -The _Titre_ or title, as the French call it, or the standard of their -silver coin, is 11 parts fine to 1 part alloy. At this rate we shall -find in this _Marc_ of coin, consisting of 4572 grains standard silver, -4191 grains of fine silver, and 381 grains of alloy. - -[Sidenote: Remedy of alloy what.] - -But the workmen have also an allowance of 3 grains upon the fineness, -which introduces a new equation. - -The mass of silver in the French mint (when we speak of the fineness) is -supposed to be divided into 12 deniers, and every denier into 24 grains; -which, in this acceptation, are both denominations of proportion, not of -weight. - -Any mass of silver, therefore, of whatever weight, must be supposed to -contain 12 × 24 = 288 grains of proportion; consequently, were the -standard exactly 11 deniers fine, the proportion would be marked thus, -264 grains fine, to 24 alloy; but since there is an allowance of 3 -grains of proportion, called _le remede d’alloy_, this brings the -proportion to be as 261 is to 27. This is the exact standard of French -silver coin, and answers to 10 deniers and 21 grains fine, which is the -term used in the mint. - -To find, therefore, the number of grains of fine silver in a marc of the -French silver coin, we must state this proportion, 288 : 261 :: 4572 : -4143.38. - -[Sidenote: Quantity of fine silver in a marc, as delivered at the mint.] - -The marc, therefore, of coined silver, after all deductions for alloy, -and for _remede de poids_, contains of fine silver 4143.38 grains _poids -de marc_. - -[Sidenote: Into what coined.] - -This _marc_ is coined into 8 great crowns and 3⁄10 of a crown, value in -the coin 49 livres, 16 sols. - -If therefore 4143.38 grains of fine silver, be worth 49 livres 16 sols, -4608 grains (or a marc of fine silver) will be worth 55 livres 6 sols 9 -deniers. - -[Sidenote: Mint price of a marc of fine silver.] - -But the mint price of fine silver is 51 livres 3 sols 3 deniers. - -The difference, therefore, between the mint price of fine silver, and -the price of it in the coin, will shew exactly the expence of coinage; -consequently there is withheld for the expence of coinage and duty of -seignorage (all which deductions and impositions are called _le trait -des monnoyes_) 4 livres 3 sols 6 deniers upon every marc of fine silver. -To know how much this makes _per cent._ state it thus, - - 51.162 : 55.38 :: 100 : 108.2. - -[Sidenote: The price of coinage 8⅕ per cent. upon silver.] - -So that in France there is 8.2 _per cent._ deducted upon the coinage of -silver, as has been said. Let us next examine the regulations as to the -gold. - -[Sidenote: Remedy of weight upon gold.] - -The marc, as above, is the unit of weight for the gold, and contains, as -has been said, 4608 grains, of which 15 grains are allowed to the -workmen for the _Remede de poids_: remains of standard gold in the marc -4593 grains. - -[Sidenote: The fineness of standard gold.] - -The fineness is reckoned by carats (not a weight, but a denomination of -proportion) for the gold, as the denier is for the silver. Fine gold is -said to be, as in England, of 24 carats. The carat is divided into 32 -parts, so 32 × 24 = 768, are the parts into which any given mass of gold -is supposed to be divided, when we speak of the standard fineness. - -[Sidenote: The remedy of alloy upon gold.] - -The standard of French gold is the same with that of silver, to wit, -11⁄12, or 22 carats fine. Upon this the workmen are allowed 12⁄32 parts -of a carat, for the _Remede d’alloy_; which reduces the standard to -210⁄32 carats fine, to 12⁄32 carats alloy. This expressed according to -the division above mentioned, stands thus, 692 parts fine to 76 alloy. - -To find, therefore, the number of grains of fine gold in a marc of the -coin, we must state the following analogy. - - 768 : 692 :: 4593 : 4138.48. - -[Sidenote: The marc into what coined.] - -The marc of gold coin therefore contains, after all deductions, 4138.48 -grains of fine gold. - -This marc is coined into 30 louis d’ors of 24 livres each, value in all -720 livres. - -If therefore 4138.48 grains of fine gold be worth in the coin 720 -livres, the marc of fine gold, or 4608 grains, will be worth 801 livres -12 sols. - -[Sidenote: Mint price of a marc of fine gold.] - -But the mint price of fine gold is 740 livres 9 sols 1 denier. - -The difference, therefore, between the mint price of fine gold, and the -worth of it in the coin, (viz. 61 livres 3 sols 2 deniers) will shew -exactly the price of coinage. - -If we ask how much this makes _per cent._ we may state it thus, - - 740.409 : 801.68 :: 100 : 108.2. - -[Sidenote: The price of coinage 8⅕ per cent. upon gold.] - -So in France there are 8.2 _per cent._ deducted for coinage of the gold. - -By the foregoing calculations it appears, that the King takes above 8 -_per cent._ upon the coinage both of gold and silver. - -[Sidenote: Which no way stops the mint.] - -For many years past there have been no violent methods used to bring -bullion to the mint, and yet we see, by the dates upon the French coin, -what great quantities have been struck both of gold and silver. This is -a most convincing proof, I think, that the imposition of coinage, when -properly laid on, is no interruption to the mint; and being a matter of -fact well determined, is a confirmation of that principle. - -[Sidenote: Of the proportion of the metals.] - -Let us next examine the proportion between the value of the metals, both -in the coin and at the mint. - -For this purpose we must compare the mint prices in one equation, and -the value of the gold and silver coin in another. - -[Sidenote: How to discover it.] - -At the mint, a marc of fine silver is paid 51.162 livres, and a marc of -fine gold 740.409 livres; consequently 51.162 : 740.409 :: 1 : 14.47. - -A marc of fine silver, in the coin, is worth 55.38 livres; a marc of -fine gold, in the coin, is worth 801.68 livres. We may therefore state -thus, 55.38 : 801.68 :: 1 : 14.47. - -[Sidenote: The proportion is as 1 to 14.47.] - -The proportion, therefore, both at the mint and in the coin is the same; -and is nearly as the French writers state it, to wit, as 1 is to 149⁄19, -but more exactly as 1 to 14.47, which is very nearly as 1 to 14.5. - -[Sidenote: Gold contained in a louis d’or, and silver in a crown of 6 - livres.] - -From these computations we find the exact quantity of fine gold in a -louis d’or, and of fine silver in a great crown, or piece of 6 livres. - -In the louis d’or there are 137.94 grains fine, and 153.1 standard gold. - -In the great crown there are 499.22 fine, and 550.843 standard silver. - -[Sidenote: Proportion of a French grain weight to a troy grain.] - -Farther, by the most exact calculations I have been able to make, after -comparing the accounts which French writers give of the proportion of -the English troy grain, with the grain of the Paris pound, and the -accounts which English writers give of the proportion of French grains, -with those of the troy pound; and after checking these accounts with the -most accurate trials, by weighing and taking a mean proportion upon all, -I find that a French grain _poids de marc_, is to an English grain troy, -as 121.78 is to 100. See the table. What a shame it is, that such -proportions can only be guessed at by approximations, in the age in -which we live! - -To discover, therefore, the number of troy grains of fine gold in a -louis d’or, state thus, 121.78 : 100 :: 137.94 : 113.27. - -[Sidenote: Proportion between the louis and the guinea.] - -Now a guinea contains 118.651 troy grains of fine gold, and yet, in -almost every country in Europe, the louis d’or, in time of peace, passes -for as much as the guinea, when both are of good weight. This is a -matter of fact well known, and is a confirmation of another principle -which I have laid down, to wit, that the imposition of coinage gives an -advanced value to a nation’s coin, even in foreign countries. - -[Sidenote: Of the fineness of French wrought plate.] - -The fineness of the French silver wrought into plate, is different from -that of the coin. The fineness of the coin we have said to be 10 deniers -and 21 grains, or 261 parts fine, to 27 alloy; and the value of a marc -of it (when the 36 grains of remedy of weight is deduced) is 49 livres -16 sols, which makes the full marc of 4608 grains to be worth 50 livres -4 sols. The standard of the plate is 110⁄24 deniers, or 274 fine, and 14 -alloy. In order, therefore, to find the value of the plate, at the rate -of the coin, state thus, 261 : 50.2 :: 274 : 52.7; consequently silver -plate in France, at the rate of the coin, is worth 52 livres 14 sols. - -When goldsmiths sell their plate, they ought regularly to charge, for -the metal, the current price of the market; but as that is constantly -varying, the King, for their encouragement, has fixed the value of the -marc of it at 52 livres, which is only 14 sols per marc below the value -of the coined silver, including the price of coinage. Consequently, were -goldsmiths to melt down the coin in order to make plate of it, they -would lose 14 sols per marc, besides the expence of reducing the melted -coin to the standard of the plate. Goldsmiths, therefore, in France, -will never melt down the coin when they can find bullion in the market, -at the price of 14 sols per marc below the value of the coin; and we -have seen that the price imposed on coinage generally reduces the -bullion to near 8 _per cent._ below coin: but supposing them to melt it -down, there is no loss to the state, because the coinage is already -paid. - -[Sidenote: Goldsmiths profit by the imposition on coinage,] - -By this regulation, goldsmiths profit by the imposition of coinage; -because the mint price of silver being 8 _per cent._ below the value of -the coin, and that keeping the price of bullion low, goldsmiths gain -upon the sale of their wrought plate, all the difference between the -price they pay for bullion when they make their provision of it, and the -price they are allowed to sell it at when wrought. - -Another consequence of this regulation is, that there is no competition -occasioned between the mint and the goldsmiths, to the prejudice of the -latter. No body will carry bullion to the mint while there is the least -demand for it to make it into plate. This consequence is plain. - -[Sidenote: And never find the mint in competition with them for the - metals.] - -Bullion can never fall lower than mint price; consequently, the mint may -rather be considered as receiving the bullion upon an obligation to pay -a certain price for it, than as demanding it in the market. The smallest -demand, therefore, from the goldsmith, will raise the price of bullion -when it stands at mint price; because he who has it, will never give it -to any body who has occasion for it, without some small advantage above -what the mint must give him for it; but the mint price being fixed, no -competition can come from that quarter, and therefore the advanced price -the goldsmith gives must be very small. - -[Sidenote: Advantages of the French regulations.] - -Upon the whole, the regulations in France appear (so far as I comprehend -them) admirably well contrived to serve every purpose. They prevent the -melting down and exporting of the coin; they prevent bullion from being -coined, when it cannot remain in the kingdom; they give an advanced -value to that part of the nation’s coin which must be exported for the -payment of the balance of trade; and they recall it home when the -balance becomes favourable. They prove an encouragement to the industry -of goldsmiths; there is a sufficient check put upon their melting down -the specie; and there is no discouragement given to private people from -making plate, because the silver in the plate is sold by the goldsmith, -a small matter below its intrinsic worth when compared with the coin. - -The only thing to be reformed is the remedies allowed by the King upon -the weight and fineness; because it tends to perplex calculations, and -is not at all necessary. When exactness can be procured, it ought to be -procured; and as the workmen regularly profit of all the remedies -allowed them, it is a proof that they have no occasion for any -indulgence to make up for their want of dexterity. - -I shall make no mention of the duty of _controle_ upon wrought plate. -This I consider as an excise upon a branch of luxury; consequently, the -examination of it belongs to the doctrine of taxation, and is foreign to -that of money. - -It has been said above, that the imposition of coinage (occasioning the -coin of France to circulate, almost at all times, above its intrinsic -value as bullion, even in foreign countries) prevented bullion from ever -rising in the Paris market to the price of coin. This principle I also -find confirmed by facts. - -[Sidenote: High price of bullion in the Paris market during the year - 1760.] - -Foreign gold of 22 carats fine, sold in the Paris market (December 13th, -1760) at 712 livres the marc. In order to find the value of the marc of -fine gold, state thus, 22 : 712 :: 24 : 776.7. Now the marc of fine gold -in the coin, we have seen to be 801.12 sols. So at this time, when -France is engaged in a most expensive war, while she is daily exporting -immense quantities of both gold and silver coin, to pay her armies and -subsidies, the price of gold bullion in her market is 24 livres 18 sols -per marc below the value of her coin. Nothing but the advanced value of -her specie in foreign currency, could possibly produce such a -phænomenon. But when she was sending stamped ingots of gold to Russia, -in the month of September last, the price of the gold bullion of 22 -carats then rose to 734 livres per marc, which for the marc of fine gold -makes 800 livres 14 sols, which is but 18 sols below the value of the -coin. The reason is plain: the coin sent to Germany, or Holland is -constantly returning to France, or at least may soon return, which -supports the high price of it in these countries; but what was sent to -Russia was plain bullion. - -Before I conclude this chapter, I must say a word concerning the wearing -of the French coin by circulation. - -[Sidenote: Present state of the wearing of the French silver coin.] - -As paper money has no currency in France, by any public authority, all -payments must be made in coin. For this purpose the silver is more -commonly used than the gold; from which I am obliged to conclude, that -the silver must be somewhat over-rated in the coin, above the proportion -of the price of gold in the Paris market; but of this I have no exact -information. - -The silver coin is put up in sacs of 200 great crowns, value 1200 -livres. This sum on coming out of the mint, weighs, according to the -following equation, 23 marcs 7 ounces 152 grains. State thus, 8.3 great -crowns = 4572 grains standard silver; consequently, 200 = 110168.6 = 23 -marcs 7 ounces 152 grains. - -These sacs, according to my information, weigh constantly at least 23 -marcs 7 ounces, exclusive of the sac; so that the French silver currency -has not, at this time, lost above 152 grains upon the sac of 1200 -livres, which is about 137⁄1000 per cent. This is a trifle upon a small -sum; but as no difference, however small, is a trifle upon a large sum, -a limit ought to be set to the farther diminution of the weight of the -currency, which might be accomplished easily, by ordering all sacs of -1200 livres to be made up to the weight of 23 marcs 7 ounces effective, -for the future. This would be, at present, no injury to the public, -there would be a sufficient allowance given for many years circulation -of the coin, and the degradation of it in time coming, would be -effectually prevented. - - ------------------------------------------------------------------------- - - - CHAP. VIII. - _Of the Regulations observed in Holland, with regard to Coin and - Bullion._ - - -[Sidenote: Present state of the Dutch currency.] - -It comes next in order to examine how this matter stands in the states -of the United Provinces, and with this I shall conclude. - -We shall here find the question infinitely more involved in -combinations, than hitherto we have found it. We shall find the most -sagacious people in the world, with regard to trade and money, -struggling with all the inconveniencies of an ill regulated coinage, and -an old worn out silver currency; carrying on their reckonings by the -help of agio; weighing their specie; giving allowance for light weight; -buying silver with silver, and gold with gold; as if it were impossible -to bring the value of these metals to an equation; and loading commerce -with an infinity of brokers, Jews, and cashiers, without the aid of -which it is impossible in Holland either to pay or to receive -considerable sums in material money. - -It is very true that what must appear an inextricable perplexity to a -stranger, is really none at all to the Dutch. Trade is there so well -reduced to system, and every branch of it so completely furnished with -hands to carry it forward, that the whole goes on mechanically, and -though at a great additional expence to trade in general, yet at none to -the merchant; because he regularly sums up all this extraordinary -expence upon his dealings, before he superadds his own profit upon the -operation. Were therefore all this unnecessary expence avoided, by a -proper regulation of the coin, the consequence would be, to diminish the -price of goods to strangers, as well as to the inhabitants, to leave the -profits upon trade, relative to the merchants, exactly as before; and to -increase, considerably, the trade of the republic, by enabling them to -furnish all commodities to other nations cheaper than they can do, as -matters stand; but were this plan put in execution, the consequence -would also be, to take bread from all those who at present live by the -disorder, which ought to be removed. - - Of the regulations in the Dutch mint. - -[Sidenote: Regulations in the Dutch mint.] - -The unit of weight in the Dutch mint, is the marc _Holland’s troes_, or -gold weight. - -[Sidenote: Their unit of weight is the marc Holland’s troes.] - -This weight is about 1½ _per cent._ lighter than 8 ounces English -weight, without coming to the most scrupulous exactness. - -This marc is divided into 8 ounces; every ounce into 20 engles; every -engle into 32 aces or grains. The ounce therefore contains 640, and the -marc 5120 aces. By this weight, bullion is bought, and the coin is -delivered at the mint, or weighed in circulation, when weighing is -necessary. - -[Sidenote: The _remede_ of weight on silver.] - -The mint delivers the silver coin by the marc weight; but from the full -weight, there is deducted as a _remedy_, one engles and one ace, or 33 -aces: so the marc of the mint, by which they deliver the silver, -contains 5087 aces, in place of 5120. - -[Sidenote: The fineness of silver is different in different coins.] - -The fineness of the Dutch silver is various, according to the species. I -shall here, for the greater distinctness, take notice only of the -fineness of the florins; because it is the best and the most standard -coin, used in the payments of foreign bills of exchange, leaving the -other varieties of their specie to be considered afterwards. - -[Sidenote: Florins are 11⁄12 fine with one grain of remedy.] - -By florins I mean (besides the florin pieces) those also of 30 stivers, -and the 3 florin pieces, the standard of which is all the same, to wit, -11⁄12 fine with one grain of remedy. - -[Sidenote: How they reckon their silver standard.] - -The mass of silver in the Dutch mint, (when we speak of the fineness) is -supposed to be divided into 12 pence, and every penny into 24 grains, as -in France. - -Any mass of silver, therefore, of whatever weight, is supposed to be -divided into 288 parts; consequently by 11⁄12 fine with one grain of -remedy, is meant, that there are 263 of these parts _fine_, and the -remaining 25 parts of _alloy_. This is the exact standard of the Dutch -florins. - -To find therefore the number of grains of fine silver in the marc -weight, as it is delivered at the mint, we must state this proportion, -288 : 263 :: 5087 : 4645.4. - -[Sidenote: Exact quantity of fine silver in a marc weight of Dutch - florins as they come from the mint.] - -The marc therefore of coined silver florins, after all deductions for -alloy, and for remedies of weight and of fineness, contains of fine -silver 4645.4 aces Hollands troes. - -This marc is ordered to be coined into 237⁄331 florins. If therefore -4645.4 aces of fine silver be worth 237⁄331 or (in decimals, for the -sake of facilitating calculation) 23.2024 florins, then the full marc or -5120 aces of fine silver will be worth 25.572 florins by this analogy, -4645.4 : 23.2024 :: 5120 : 25.572. - -[Sidenote: Mint price of fine silver.] - -But the mint price of the marc of fine silver is 25.1 florins. The -difference, therefore, between the mint price of fine silver, and the -price of it in the coin, will shew exactly the expence of coinage. State -thus, - - The price of a marc of fine silver in the coin _fl._ 25.572 - Price of ditto as paid by the mint 25.1 - ———— - Price of coinage 0.472 - -To know how much this makes _per cent._ state thus, - - 25.1 : 25.472 :: 100 : 101.48 - -[Sidenote: Price of coinage in Holland is about 1½ _per cent._ on - silver.] - -So that in Holland there is not quite 1½ _per cent._ taken upon the -coinage of silver florins. Let us next examine the regulations as to -gold coin. - -[Sidenote: Of the Dutch gold coins.] - -There are in Holland two species of gold coins of different weights, -fineness, and denominations, to wit, the _Ducat_ and the _Rider_; we -must therefore examine them separately. - -[Sidenote: The ducat has no legal denomination.] - -The ducat is what they call a _negotie pfenning_, that is, a coin struck -under the authority of the state, in all the mints, and of a determinate -weight and fineness; but not a legal money in payments, because it has -no _legal_ denomination. - -Ducats are delivered by the marc weight as the silver; but there is a -remedy of weight deducted of one engle per marc. So the marc of ducats, -as delivered by the mint, weighs but 5088 aces. - -[Sidenote: The fineness 23 carats 8 grains.] - -The fineness of the ducats is (as in the empire) of 23 carats 8 grains; -but in Holland they allow one grain of remedy. - -[Sidenote: How the fineness is reckoned.] - -The standard of the gold is reckoned by carats and grains: 24 carats are -called fine gold, and every carat is divided into 12 grains; so let the -mass of gold be of what weight soever, it is always supposed to contain -288 parts, that is, 12 × 24: at this rate the fineness of ducats is 283 -parts fine gold, and 5 parts alloy. - -[Sidenote: Fineness of the ducats of the empire.] - -The imperial ducats ought to be 284 parts fine, 3 parts silver, and one -part copper, without any remedy; but in Holland the assayers bring the -gold to the fineness of 23 carats and 8 grains; then they suppose that -what remains is all silver, and they take their remedy by adding one -grain of copper. Dutch ducats are therefore something in the fineness, -though nothing in the weight below the regulations of the empire. - -[Sidenote: Exact quantity of fine gold in a marc weight of Dutch ducats - as they come from the mint.] - -To find the number of grains of fine gold in the marc weight, as it is -delivered from the mint, we must state this proportion, - - 288 : 283 :: 5088 : 4999.6. - -The marc, therefore, of gold coined into ducats, after all deductions -for alloy, and for the remedies of weight and fineness, contains 4999.6 -aces of fine gold. This marc is ordered to be coined into 70 ducats. - -If, therefore, 4999.6 aces of fine gold, be worth 70 ducats, then the -full marc of 5120 aces of fine gold will be worth 71.687 ducats, by this -proportion, 4999.6 : 70 :: 5120 : 71.687. - -[Sidenote: Mint price of fine gold.] - -But the mint price of the marc of fine gold is 71 ducats. - -The difference, therefore, between the value of a marc of fine gold in -ducats, and the price given by the mint for the same quantity of fine -gold bullion, shews the expence of coinage. State thus, - - Price of the marc of fine gold in ducats 71.687 ducats - Mint price of the marc ditto 71 - —————— - Price of coinage 0.687 - -To know how much this makes _per cent._ state thus, - - 71 : 71.687 :: 100 : 100.96. - -[Sidenote: Price of coinage upon ducats about 1 per cent.] - -So that there is not quite 1 _per cent._ taken in Holland upon the -coinage of their gold ducats. - -[Sidenote: The price of coinage upon both species should be the same.] - -But upon the silver florins there is (as we have seen) near 1½ _per -cent._ consequently, there is an encouragement of 1½ _per cent._ given -for carrying gold to the mint preferably to silver; which, in my humble -opinion, is ill judged. I allow that the expence of coining a sum in -silver is greater than the expence of coining the same sum in gold; but -I think it is better to allow an additional profit to the mint upon the -gold, than to disturb the equality of intrinsic value which ought to be -contained in the same sum coined in gold and silver. But indeed, -according to the present state of the Dutch mint, this small -irregularity is not much to be minded, as we shall see presently. - -[Sidenote: The Rider] - -_Riders_ are a coin but lately used in Holland. Formerly, the Dutch had -no legal gold coin, silver was their standard; and ducats as a _negotie -pfenning_ (as they call them) found their own value, having no -determinate legal denomination, as has been said. - -[Sidenote: has a legal denomination, and is a lawful tender in payments - to ⅓ of the sum,] - -But of late the States have coined this new species of gold, to which -they have given a fixed denomination, and the authority of a legal coin, -to be received in all payments, so far as one third of the sum to be -paid; the other two thirds must be paid in silver: but of this more -afterwards, our present business being to examine the weight, -denomination, and fineness of this species. - -[Sidenote: is coined always by the state and for the state; so there can - be no mint price.] - -_Riders_ are coined by the State alone, no private persons carrying -bullion to the mint for that purpose; the coinage, therefore, not being -open to the public, it is in vain to seek for a mint price. They are -delivered at the mint by tale, not by weight; so we must inquire into -the statute weight, fineness, and denominations of this species, in -order to discover the quantity of fine gold which is contained in the -florin of this currency: this we shall compare with the florin in the -ducat, and so strike an equation between the florin in this standard -coin, and in the other, which finds its own price, according to the -fluctuation of the metal it is made of. - -[Sidenote: Regulations as to the fineness, denomination, and weight of - riders.] - -A marc of fine gold struck into riders circulates for 374 florins. This -is the regulation as to the weight. - -The standard is exactly 11⁄12 fine, or 22 carats, without any remedy. - -The denomination is 14 florins for every rider, the half rider in -proportion. To discover therefore the quantity of fine gold in a rider, -we must first divide 374 by 14, which will give the number of riders in -the marc fine, viz. 26.714 riders; then we must say, if 26.714 riders -contain a marc of fine gold, or 5120 aces, how much will one rider -contain? The answer is 5120⁄26.714 = 191.65. - -[Sidenote: Quantity of fine gold in a florin of riders.] - -Divide this by 14, and you have the number of aces of fine gold -contained in a florin of this currency, 191.65⁄14 = 13.69. - -Here then is the exact weight of the fine gold contained in one florin -of the currency in riders. - -[Sidenote: To put the ducat upon a par with riders it should circulate - for 5 florins 4⅛ stivers.] - -Let us now examine how much a ducat ought to pass for, in order to be -upon a par with the currency of the riders. - -We have seen that a marc of fine gold is coined into 71.687 ducats. That -number of ducats, therefore, to be upon a par with the riders, should be -worth 374 florins. Divide, therefore, this last number by the first, you -have 374⁄71.687 = 5.217 florins, which is a little more than 5 florins -4⅛ stivers. - -[Sidenote: Utility of not fixing the denomination of ducats.] - -Were the States, therefore, to give a fixed denomination to ducats, they -ought to be put at that value; but the trade of Holland requires that -this coin should be allowed to fluctuate, according to circumstances. -The great demand at present (1761) for _gold_ to send to the armies -preferably to silver, on account of the ease of transportation, has -raised the value of that metal, perhaps ¼ _per cent._ above what it -would otherwise be. If then ¼ _per cent._ be added, it will bring the -ducat to the present current value, to wit, 5.4⅜ florins. If, therefore, -in order to bring the currency of ducats upon a par with the riders, -they were fixed at 5.4⅛ florins, it is very plain, that no more would be -sent away in payment at that rate, because of the present advanced value -of gold; consequently, none would be coined; the mints would be stopped, -and the armies would be paid in guineas and Portugal gold; the melting -and recoining of which keeps all the mints in Holland in constant -occupation. - -This, besides employing and giving bread to a number of hands, -multiplies the Dutch currency, at a time when they have so great -occasion for it. - -Let us next examine the proportion of the metals in the coin. - -[Sidenote: How to find the proportion of the metals in the coin of - Holland, and a wonderful phænomenon in the value of ducats.] - -Here we must adhere closely to the regulations of the mint above -mentioned, and only determine what the proportion of the metals would -be, were the coin of Holland, both gold and silver, of standard weight, -and were it the practice to pay for the metals at the mint, -indifferently in either species. But neither of these suppositions are -to be admitted: First, because the silver coin is not of its due weight; -and in the second place, because the mint never buys gold bullion but -with gold coin, nor silver bullion but with silver coin. This is the -infallible consequence of a coinage ill regulated in what relates to the -proportion of the metals, which ought respectively to be put into the -same sum, in the two different species. - -It would be endless to examine the proportion of the metals, with -respect to every species of their coin. It would also be incorrect to -examine it as to the ducats; because that species has no fixed legal -denomination; and the proportion of the metals is to be discovered by -the denomination of the coins only. - -Ducats pass current among the people for 5 florins 5 stivers; but with -merchants, who buy them as merchandize, their value is continually -varying. At present (September 1761) the new coined ducats brought in -bags from the mint, which never have circulated, are bought for 5 -florins 4⅝ stivers; those which have circulated (were it for a day) -fall, from that very circumstance, to 5 florins 4⅜ stivers; which is a -diminution of near ¼ _per cent._ of their value. This phænomenon shall -afterwards be accounted for. - -[Sidenote: Were all the coin of full weight, the proportion would be as - 1 to 14.62.] - -This being the case, we have no method left to judge of the proportion -of the metals in the coin of Holland, but by the proportion of fine gold -and fine silver found in the same sum, paid in florins of full weight, -and in new riders; the one and the other coined according to the -regulations of the mint above mentioned. - -It has been shewn that a marc of fine gold in riders, circulates for -_f._ 374, and that a marc of fine silver in florins, circulates for _f._ -25.572; divide the first by the last, you have the proportion as 1 to -14.62: But we shall afterward discover a circumstance, not taken notice -of in this place, which will reduce the proportion lower. - -[Sidenote: Quantity of fine silver in a florin piece.] - -From the above calculations, we may easily discover the exact quantity -of fine silver and fine gold contained in a Dutch florin, whether -realized in silver florin pieces, in gold riders, or in ducats. As this -will be of use when we come to examine the par of exchange, it will not -be amiss to set before the reader, the exact state of that particular -before we proceed. We have said that whoever receives _f._ 25.572 in -silver florins of full weight, receives a marc of fine silver, which -contains 5120 aces. Divide the last sum by the first, you have 200.21 -aces of fine silver for the florin. - -[Sidenote: Quantity of fine gold in a florin of riders.] - -Whoever receives _f._ 374 in gold riders, receives a marc of fine gold, -which contains 5120 aces. Divide the last sum by the first, you have -13.69 aces of fine gold for the florin. - -[Sidenote: Investigation of this proportion as to the ducat;] - -We have seen that ducats fluctuate in their value, having no legal -denomination, which obliged us to state the current value of a marc of -them at 71.687 ducats, not being able to express that value in florins; -because of the unsettled denomination of that species. Let us now -specify that value in florins, upon three suppositions. The first, that -the ducat is worth what it passes for among the people, to wit, 5_f._ -5_st._ The second, at the value of new ducats from the mint, to wit, -5_f._ 4⅜_st._ The last, at the merchant price of good ducats, which have -circulated, to wit, 5_f._ 4⅜_st._ - -In the first case (the ducat at 5_f._ 5_st._) 71.687 ducats are worth -376.35 florins, this being the value of a marc of fine gold in ducats, -and the marc containing 5120 aces; divide the last by the first, you -have 13.604 aces of fine gold for the florin. - -In the second case (the ducat at 5_f._ 4⅝_st._) 71.687 ducats are worth -375.04 florins; by which number divide 5120 as before, you have 13.651 -aces of fine gold for the florin. - -In the last case (the ducat at 5_f._ 4⅜_st._) 71.687 ducats are worth -374.11; by which number dividing 5120, you have 13.685 aces of fine gold -for the florin, which comes within a trifle of the florin in riders. - -[Sidenote: by which it appears that the late war has raised the value of - gold, and set the market price of the metals in Holland at 1 - to 14.785.] - -But now (in June 1762) I learn, that the course of new ducats from the -mint in the Holland-market, is got up to 5_f._ 5½_st._ In this case, -71.687 ducats are worth 378.1 florins; by which number dividing 5120, as -before, you have 13.541 aces of fine gold for the florin. - -If we seek here the proportion between the gold and silver, we must -state thus. If a florin in ducats contain 13.541 aces of fine gold, and -a florin in silver coin contain as above 200.21 aces of fine silver, -then 13.541 : 200.21 :: 1 : 14.785. So the effect of this war has -already been to raise the value of gold 1.12 _per cent._ above what it -was esteemed to be, when the riders were coined. - -The proportion as to riders is, as before, 1 to 14.62. - -[Sidenote: Which is a rise upon the value of gold of 1.12 per cent.] - -The present proportion as to ducats is 1 to 14.785. - - 14.62 : 100 :: 14.785 : 101.12. - -I must farther observe upon this subject, that although we have seen -that the ducats which have circulated for ever so short a while, when -bought at 5_f._ 4⅜_st._ produce for the florin 13.685, (which is more -than is produced by the new coined ducats fresh from the mint) we are -not from this to conclude, that the former are intrinsically a cheaper -currency than the latter. I have been at all the pains imaginable to -weigh these ducats against others fresh from the mint; and also to -compare their weight with what it ought to be by the regulation; and I -have constantly found near ¼ _per cent._ difference between them. This -is entirely owing to the nature of the coin. The ducat has a large -surface in proportion to its weight; it carries a very sharp impression, -full of small points; the cord about the edges is exceedingly rough; so -that the least rubbing, breaking off those small points, diminishes the -weight of the piece near ¼ _per cent._ which is clear loss, not only to -the proprietor, but to the state, and to all the world. Besides, those -who are obliged to go to the mint for new ducats, are supposed to bear -the greatest weight of the coinage of a piece which, having no legal -denomination, is left afterwards to seek its own value, according to -that of the metals at the time. - -[Sidenote: The intention of this minute detail is in order to calculate - the real par of the coins of Europe.] - -As I have entred into this minute detail of the weight of fine silver -and fine gold contained in the Dutch florins, with a view to facilitate -the calculation of the par of the metals contained in the coins of -Holland, and those of other nations; I must next mention the proportion -between the aces in which we have expressed the weight of the Dutch -specie, and the grains in use in some of the principal nations with -which they trade: These I take to be England, France, and Germany. - -[Sidenote: Proportion between the mint weights of Holland, England, - France, and Germany.] - -The reduction of weights to mathematical exactness, is beyond the art of -man; and to this every one, who ever tried it, must subscribe. I have -been at all the pains I am capable of, to bring those weights to an -equation; and here follows the result of my examination into that -matter. - -By all the trials and calculations I have made, I find that 5192.8 aces -Holland-troes; 3840 grains English troy weight; 4676.35 grains Paris -poid de marc; and 4649.03 grains Colonia (which is the gold weight of -the empire) are exactly equal. - -I reckon by the lowest denomination of these several weights, to wit, -their grains; to avoid the endless perplexity of reducing to a -proportion, their pounds, marcs, and ounces, which bear no regular -proportion to their grains. - -[Sidenote: Par of a pound sterling, in weighty silver, with Dutch - florins in riders is 11 florins 12 stivers.] - -To give some examples of this method of calculating the exact par of the -metals contained in the coin of those nations, reduced to the weights of -Holland, I shall state the following computations. - -A pound sterling in silver, by the statute of the 43d of Elizabeth, is -1718.7 grains troy fine; to know how many aces Holland-troes that makes, -state thus, 3840 : 5192.8 :: 1718.7 : 2324.1. - -Divide 2324.1 by 200.21, (the number of aces contained in a silver -florin) you have for the par of the pound sterling, _f._ 11.609. - -[Sidenote: Par of the pound sterling in gold with ditto, is 11 florins 3 - stivers and ⅕.] - -A pound sterling in guineas, by the statute fixing guineas at 21 -shillings, contains 113 grains troy fine; to know how many aces -Holland-troes that makes, state thus, - - 3840 : 5192.8 :: 113 : 152.8. - -Divide 152.8 by 13.69, (the number of aces contained in a gold florin in -riders) you have for the par of the pound sterling in guineas, _f._ -11.161. - -[Sidenote: Par of a French louis d’or with the same florin, is 11 - florins 3 stivers and ¾.] - -A French louis d’or contains 137.94 grains poid de marc fine gold; to -know how many aces Hollands that makes, state thus, - - 4676.35 : 5192.8 :: 137.94 : 153.17. - -Divide 153.17 by 13.69, (the number of aces contained in a gold florin -in riders) you have for the par of the louis d’or, _f._ 11.188. - -[Sidenote: Par of 24 livres French in silver with the same florin, is 11 - florins 1½ stiver.] - -24 livres French, contain 1996.88 grains poids de marc of fine silver; -to know how many aces Hollands that makes, state thus, - - 4676.35 : 5192.8 :: 1996.88 : 2217.4. - -Divide 2217.4 by 200.21, (the number of aces in a silver florin) and you -have for the par of 24 livres French silver, _f._ 11.076. - -[Sidenote: Great balance of trade against France, in September 1761.] - -The French silver here is less valuable in Holland than the gold: this -is no proof that the proportion between the metals in the respective -coins of these two nations is different (we shall soon find it to be -very exactly the same); but this preference in favour of the French -gold, is owing to the temporary demand for gold on account of the war; -for which reason no French silver coin appears at present in Holland. I -write in September 1761. - -I must also observe, that at this time the course of louis d’ors is -11_f._ 4_st._ which is little or nothing above the real par of the metal -they contain; which in peaceable times is not the case. This proves how -strongly the balance of trade is against France with respect to Holland, -as it has reduced her specie to the price of bullion: it is not so in -Germany. - -[Sidenote: Low value of the pound sterling in Holland, in 1761.] - -The low value which a pound sterling has borne for these several years -in exchange, and the great fall of its worth in Holland of late, when it -has been at 10_f._ 10_st._ is no argument against the high conversion I -have given it, to wit, above 11_f._ 12_st._ Were there nothing but -silver coin in England, and were it all of standard weight, exchange -would frequently run even above that value in peaceable times; because -the silver coin in Holland is light, and I have reckoned it as if it -were of full weight. - -It will be observed, that the par upon the gold does not quite amount to -11_f._ 4_st._ the reason of which is the great disproportion in the -British coin, between the intrinsic value of a pound sterling in silver, -and in gold, when both are of standard weight; the latter being near 5 -_per cent._ worse than the former, when the proportion of the metals is -supposed to be at 14½. But at present there are no sterling pounds in -silver money; there is no silver in England in any proportion to the -circulation of trade; and therefore the only currency by which a pound -can be valued, is the guinea. - -[Sidenote: Owing to the lightness of the gold coin in England at that - time,] - -It has been said, and I think sufficiently proved, that the price of the -metals in the market, shew very exactly the weight of the currency in -nations where coinage is free, when there is no severe prohibition (_put -in execution_) against the exportation of the coin. This I take to be -the case in England. Now gold there has risen of late to 4_l._ 0_s._ -8_d._ per ounce; from which I conclude, that the guineas with which it -is bought, or with which bank notes are paid, are at present so light, -that 4_l._ 0_s._ 8_d._ of them do not weigh above an ounce, (the good -guineas are exported) whereas an ounce of new guineas is worth no more -than 3_l._ 17_s._ 10½_d._ - -Gold, therefore, which now sells for 4_l._ 0_s._ 8_d._ would certainly -be worth no more than 3_l._ 17_s._ 10½_d._ were English gold coin of its -proper weight: and the price of it will come down to that value, in -proportion as circumstances shall call back the heavy guineas. - -To facilitate the verification of this point, I shall first observe, -that the difference between 4_l._ 0_s._ 8_d._ and 3_l._ 17_s._ 10½_d._ -is 4.57 _per cent._ The English gold currency, therefore, at the time -standard bullion was worth 4_l._ 0_s._ 8_d._ must have been worn 4.57 -_per cent._ Guineas, when of full weight, weigh 129.43 grains of troy -weight; if such guineas are worn 4.57 _per cent._ they ought to weigh no -more than 123.23 grains troy. Now let any man try the experiment, and -put an old guinea, taken by chance (not picked out) into a scale, and -see whether it has not been worn down to 123.23 grains; and let him also -examine whether the _greatest part_ of the guineas, at the time when -gold bullion has got to so high a price, are not of King George I. and -his predecessors: these I call old. - -Besides these there are other circumstances to be attended to. Men who -job in coin, pick up all the worst guineas they can when they go to -market; or if they buy with paper, we may decide, that the bank at that -time pays in guineas not above the weight of 123.23 grains troy; for if -the bank paid with guineas of a greater weight, he who had occasion to -carry his paper to market to buy gold bullion, would certainly rather go -to the bank, and afterwards melt down their guineas. Were the bank of -England never to pay but in gold of full weight, and were the -exportation of guineas free, it is impossible that gold should ever rise -above the mint price, which is 3_l._ 17_s._ 10½_d._ - -As a farther confirmation of the justness of the high valuation I have -put upon a silver pound sterling of standard weight, I shall observe, -that a new guinea passes in Holland (at the time when the exchange is at -10_f._ 10_st._) for 11_f._ 11_st._ and every body knows, that such a -guinea in England is not above the intrinsic value of a silver pound -sterling of full weight. If then I can get 11_f._ 11_st._ for a new -guinea, I ought to get as much for a new silver pound sterling, since -the intrinsic value of both is the same, when the proportion of gold to -silver is as 1 to 14½. Now this guinea must be worth more than 11_f._ -11_st._ because the Jews, who carry them to the mint, give that price -for them (I have disposed of them to Jews at that value[4]); and as the -coinage of ducats costs, as we have seen, near 1 _per cent._ the guinea -is intrinsically worth 2 stivers more, that is 11_f._ 13_st._ but as -gold at present bears an advanced price upon account of the war, and -that the proportion between gold and silver is in Holland above 1 to -14½, these are the reasons why the guinea, in Holland, is at present -something above the intrinsic value of a silver pound sterling, which we -have stated at _f._ 11.609, a trifle above 11_f._ 12_st._ - -Footnote 4: - - This was writ in Holland. - -[Sidenote: and not to the wrong balance of their trade, as is alledged.] - -Let me here observe, by the bye, that all the pounds remitted from -Holland to England, for filling the subscription for 12 millions of last -year, cost the remitters but about 10_f._ 10_st._ for the pound -sterling. If this low course of exchange be owing (as some pretend) to a -wrong balance of trade against England, and not (as I pretend) to the -lightness of the gold currency; then we must allow, that the expence of -the German war (which is what alone carries off coin out of the kingdom) -must have exceeded all the profits of the English commerce, which I -apprehend to be at present immense; and also all the money lent by -foreigners towards the loan of 12 millions. I leave to others more -knowing than myself, to determine if such a supposition be admissible. -If it be rejected, let any man reflect how absurd it would be to raise, -at this time, the standard of the pound sterling to the old value; and -to repay at 11_f._ 12_st._ such sums as have been borrowed at the value -of 10_f._ 10_st._ or in other words, to make a present to the Dutch -creditors of above 11 _per cent._ upon account of a loan for a year or -two. - -[Sidenote: Defects of the silver currency of Holland.] - -Having now given as good an account as I can of the Dutch coin, -according to the regulations of the state, I shall next point out the -defects of their silver currency, and shew the consequences which result -from them. As for the gold, it is at present perfectly well regulated. -The riders are all exact in their weight, fineness, and denomination; -the ducats are all now recoined of legal weight and fineness; and the -denomination not being fixed, they serve, in a trading nation, as a -merchandize, of which the weight and fineness are well ascertained. The -only defect, therefore, I can discover in the Dutch gold currency, is -the form of the pieces. They have too much surface in proportion to -their weight, and the impression is too sharp; both which contribute -greatly to the wearing of the coin. - -[Sidenote: Account of this currency.] - -The silver currency of Holland is of two sorts. The bank species, and -the current species. Here it must be observed, that by bank _species_ is -not meant Amsterdam _banco_, or bank money, but certain coins which are -called _bank species_. These are, - - Pieces of 3 guilders. - ————— 30 stivers. - ————— 20 stivers. - -These are called _groff gelt_, as being the good specie, of which -hitherto we have only spoken. Sums to be paid in bank species, must be -composed of ⅔ of this currency, and of ⅓ of what follows, viz. - - Riders of 14 florins. - Dutch half crowns of 28 stivers. - Ses t’halves of 5½ stivers. - -I have put in the riders, though a gold coin, in order to give a -compleat enumeration of all the kinds of these bank species. - -[Sidenote: Regulations for the payment of foreign bills in coin.] - -Foreign bills drawn on Rotterdam in banco (i. e. bank species) are often -received _there_, in any of the above species, without regard to the ⅔ -which ought to be groff gelt; but when the holder of the bill desires -the acceptor (which the latter cannot refuse) to write it off to his -credit in the current bank of Rotterdam, and that he has there no stock, -then, if he brings in specie to the bank, it must be as above specified. - -[Sidenote: Ditto for current bills.] - -Current bills, not specified by the word _banco_, are generally paid -according to the following proportion: - - 3⁄10 in schillings of 6 stivers. - 1⁄10 in dubleties of 2 stivers. - 6⁄10 in good silver. - -[Sidenote: Ditto for merchandize.] - -Merchandize are paid with all kinds of Dutch silver, ⅒ only in -dubleties, and ⅓ gold, less or more, or sometimes none, according to -agreement. - -[Sidenote: The denominations of the several silver currencies not - proportioned to their intrinsic value.] - -From this exposition of the matter, it is very evident, that all these -currencies must be of different intrinsic values, in proportion to their -denomination; otherwise, why all this trouble about regulating the -proportion to be received in payments? [Sidenote: Cause of this.] This -proceeds from two causes: first, from the wearing of the pieces; the -second, from the disproportion of the fineness in pieces of the same -weight and denomination. - -[Sidenote: Regulations concerning the weighing of silver species in - banks current.] - -As to the first, to wit, the wearing of the coin, I shall observe, that -the three denominations of the good silver, to wit, the 3 guilder -pieces, the 30 stiver pieces, and the 20 stiver pieces, are put up -promiscuously in the same bags; being of the same fineness, and -consequently of the same value, in proportion to their weight. These -bags contain 600 florins each, and the legal and full weight, with which -they are weighed at the bank current of Rotterdam, is 25 marcs 5 ounces -and 10 engles. Now the exact weight of a florin, according to the -regulation, is, as we have said, 200.21 aces fine; then the 600 florins -ought to weigh 120126 aces fine, which at the standard of 263 parts fine -to 25 alloy, is 131545 aces standard: by this analogy, 263 : 120126 :: -288 : 131545; which is equal to 25 marcs 5 ounces 10 engles and 13 aces. -So the weight at the bank is but 13 aces lighter than in strictness it -ought to be; which is so small a difference, that it could hardly turn a -scale with such a weight suspended in it: for which reason, I suppose, -it is left out, for the sake of the even reckoning of 25 marcs 5½ -ounces. - -Did these bags of silver coin come up to the full weight, then the -silver currency in Holland would be good as to those pieces; but as the -greatest part of them are old, having been struck with the hammer, and -are of unequal weight, having been coined (_al marco_) in the old -fashion, when coin was weighed by the marc, and not as at present piece -by piece, it is impossible they should be of legal weight: the bank, -therefore, allows 2 ounces of remedy in receiving those sacs, that is, -they put 2 ounces into the scale with the sac, and if they find that the -sac is still light, but that the deficiency does not exceed one ounce -more than the remedy, they throw out the coin and reckon it over; and if -the tale be just, and that none of the pieces appear to have been -clipped, they receive it as if it were of due weight: if it prove above -3 ounces short of the just weight, they do not receive it. - -[Sidenote: All allowances for light weight are an abuse.] - -Here is a palpable abuse, from a disorder in the coin. If a sac is ever -so little too light, why allow it to pass, as if it were of due weight? -Nothing is so easy as to order such deficiency to be made good by the -deliverer. Weights are made for exactness, and all remedies are aukward -and incorrect. - -This allowance must open a door to malversations in a country like -Holland, where there is almost no milled silver coin. The old hammered -money was not weighed at the mint, as has been said, piece by piece: it -was sufficient that every marc of it answered to the legal denomination: -under such a regulation, it is very plain, that there must be many -pieces above the legal weight, as well as many pieces below it. Is it to -be supposed that money-jobbers will not profit of that inequality, by -reducing the heavy pieces to their standard weight, when by such an -action they cannot be convicted of any crime? This is one abuse. - -By reducing the heavy pieces to their legal weight, the currency is -degraded; because that which is taken from these ought to be left to -compensate what the light pieces fall short. The bank, therefore, by -giving the remedy, gives a kind of sanction to this malversation. - -[Sidenote: Frauds of money-jobbers in Holland.] - -Farther, if a money-jobber gets some sacs above the current weight, is -it to be doubted but he will reduce them as near as he can to the lowest -weight received at the bank? And if he should mistake, and reduce them -too low, he has still an expedient for cheating the public, which shall -be mentioned presently. - -[Sidenote: The best silver coin in Holland is, upon an average, 1 per - cent. too light.] - -Now let us suppose, that the specie we are speaking of is, upon an -average, only 2 ounces _per_ sac below the standard. If it be no more, -this circumstance does great honour to the money-jobbers. Such a -deficiency, however, amounts to within a mere trifle of 1 _per cent._ Is -not this an object of great importance, upon all the silver specie of -Holland; especially as the remedy given by the current bank, is a tacit -permission given to every body who has address, to rob so much from all -the weighty coin? - -[Sidenote: From which it follows, that the actual proportion of the - metals in their coin is as 1 to 14.479.] - -Now let us, by the way, correct the former calculation we made upon the -proportion of the metals in the Dutch coin. We said above, that a marc -of fine gold in riders circulated for _f._ 374, and that the same weight -of silver circulated for _f._ 25.572, which gave for the proportion 1 to -14.62; but here we find that the marc of silver has lost by fraud and -wear 1 _per cent._ - -Now the marc of silver being 5120 aces, if they have lost 1 _per cent._ -there will remain 5068.8 aces. If these 5068.8 aces, therefore, -circulate for _f._ 25.571, the full marc must be worth in the coin _f._ -25.83. - -In order then to find the exact proportion of the metals in the Dutch -currency, we must divide 374 by 25.83, instead of dividing by 25.572, as -we did when we supposed the silver of full weight. Now 374⁄25.83 is = -14.479. So the proportion is as 1 to 14.479, the same, within a trifle, -of that received in France; which is as 1 to 14.47. But if we attend to -every circumstance, we shall find the proportion still lower than the -last calculation makes it; for in that, we have searched for it with -respect to the best silver specie in Holland; whereas we ought, in -strictness, to calculate the gold, against a mixture of ⅓ of less -valuable specie, with ⅔ of the good: but when computations cannot be -brought to perfect exactness, it is better not to attempt a calculation. - -[Sidenote: Another abuse in the silver coin of Holland.] - -Before I leave the consideration of the inequality in the weight of the -Dutch currency, I must take notice of another circumstance of -considerable importance. - -No payments made in silver, below _f._ 600, are subject to be weighed; -any more than what circulates without being put up in bags. What -restraint, therefore, is there laid upon money-jobbers, with respect to -this part of the currency? When these gentlemen have occasion for money -bagged up, they take care that such specie shall be of the proper weight -to pass at the current bank, and as for all that is light, they either -employ it in payments below _f._ 600, or throw it into the common -circulation. This circumstance presents us then with two sorts of silver -currency in Holland; that which is bagged up, and weighty; and that -which is not, and light. - -If we consider the trade of Holland, and the prodigious quantity of -payments made in current money, we shall find the quantity of silver -which circulates in loose pieces very small, in proportion to that which -is bagged up: the regulation therefore of weighing the bags is of -infinite importance; and were it not for that, the currency would be -debased in a very short time. But the cashiers, who are the great -depositaries of this currency, being obliged to deliver the bags of the -legal weight, they are thereby restrained from tampering with it: and -the bagging up, greatly preventing the wear, supports tolerably well the -weight of this old currency of hammered money. - -[Sidenote: Reason of the great apparent scarcity in Holland of silver - coin.] - -To people who do not attend to all these circumstances, there _appears_ -a prodigious scarcity of silver currency in Holland. It is there as -difficult to get change for ducats, as it is in England to get change -for guineas; and yet, upon examination, we shall find, that the -intrinsic value of the silver coin, commonly given in exchange for the -gold species, is far below the value of the gold. - -[Sidenote: A paradox to be resolved.] - -Here then is a paradoxical appearance to be resolved; to wit, How it can -happen in trading nations, such as England and Holland, that in the -exchanging light silver coin for weighty gold coin, people should be so -unwilling to part with the silver, although really of less value than -the gold. - -This is the case in both countries: thus it happens in England, where -there is so little silver currency; and the case is the same in Holland, -where there is a vast deal. Let me therefore endeavour to account for -these political phænomena. - -Since the time I composed the former part of this inquiry into the -principles of money and coins, I have found, by the trials I made in -Holland upon the weight of the English silver currency, that shillings -are at present (1761) far below the weight of 1⁄65 of a pound troy, -which is what they ought to be, in order to make 21 of them equal in -value to a new guinea, according to the present proportion of the -metals. It is therefore demanded, - -1_mo_, How it comes about that such shillings do not debase the value of -the English standard below that of the gold? - -2_do_, Why are they so difficult to obtain, in change even for new -guineas, which are of more intrinsic value every where? And, - -3_tio_, Why money-jobbers are not always ready to give them in exchange -for new guineas? - -These appearances seem inconsistent with the principles above laid down; -and a reason must be given why these principles do not operate their -effect in this example. - -[Sidenote: Solution of it.] - -I answer, that circumstances are infinite, and must constantly be -attended to; and there are in the case before us several specialities -not to be overlooked; I shall therefore point them out, in my answers to -the three questions, as they lie in order. - -As to the first, I answer, that these shillings are in so small a -quantity, in proportion to the gold species, that they cannot be -employed in _payments_. Now it has been said above, that _exchange_ (in -trade) regulates the value of the pound sterling, and considers it as a -determinate value, according to the combination of the intrinsic worth -of all the several currencies, _in proportion as payments are made in -one or the other_. Now (generally speaking) no commercial obligations -are acquitted in silver. I do not understand by the word _payments_, a -few pounds sterling sent from farmers in the country, perhaps in -payments of their rents to their landlords; nor what falls into the -public offices, in the payment of taxes. It is trade alone, and the -payment of bills of exchange between different countries, which can -ascertain the true value of that currency in which mercantile payments -are made. Were these worn-out shillings in such plenty as to allow bills -of exchange to be acquitted in them, I make no doubt but they would fall -below the value of the 1⁄21 of new guineas; every one would be glad to -dispose of them for guineas, at the rate of their currency; and guineas, -then, would be as difficult to be got for silver, as silver is now to be -had for guineas. This would bring the standard still lower than it is at -present; that is, below the value of the gold: but as payments cannot be -made in shillings, their currency cannot affect the standard. - -The second question is, Why they should be so difficult to obtain in -change for guineas, which are above their value? - -I answer, that it is not the intrinsic worth of the light shillings -which makes them valuable, and difficult to be got; but the utility they -are of in small circulation, forces people to part with their guineas -for a less valuable currency. These shillings I consider (now) as -_marks_, not as material money, fitted to a standard. Every body knows -the difference between _marks_ or _counters_, and _specie of intrinsic -worth_. The copper coin of most nations is marks, and passes current, -although it does not contain the intrinsic value of the denomination it -carries; nor ought it to be a legal tender in payments above a certain -sum. Such a regulation preserves its usefulness for small circulation, -and prevents it, at the same time, from debasing the standard, and -involving in confusion the _specific currency_ (as I may call the gold -and silver coins) when properly proportioned, and of just weight. - -But shillings in England, although they be at present in a manner no -better than marks, because of their lightness; yet in the eye of the law -they continue to be lawful money, and a legal tender in payments. It is -therefore of great consequence that such shillings be not in too great -plenty. That would have been the case, had government come in to the -plan proposed for the coinage of shillings below the standard; such -shillings would have been coined abroad, and run in upon England, to the -great detriment of the nation; and although they had been proscribed in -payments, beyond a certain sum, yet they would have been so multiplied -in small payments, as to have furnished a means of buying up the gold -coin, and carrying it out of the country for an under-value. Whereas the -worn shillings do not produce that bad effect, from the scarcity of -them, and from the impossibility of imitating them in foreign mints[5]. - -Footnote 5: - - It is commonly believed that shillings are coined at Birmingham, and - that government winks at the abuse, because of the great scarcity of - silver in England. I find no foundation for this belief, after the - inquiry I have made. - - In the first place, Mr. Harris, who was the best assay-maker in - Europe, told me, that a bag of those shillings had been sent to the - mint by the Lords of the Treasury, to be tried by him: that he had - found them to be English standard, to the most scrupulous exactness: - that he did not believe any such correct assay could be made, except - at the mint: that all the engravers of the mint declared it was - impossible to imitate a worn shilling. - - The trials I myself made were of a different nature. I examined the - shillings with a magnifying glass; and found almost every one - different in the impression, as well as in the weight. In some the - back-part of the head was worn, in others the face: none, in short, - were worn perfectly alike. - - I put a handful of them into a coal fire; and taking them out when - red-hot, and throwing them on the hearth, I plainly discovered, on - many of them, some part of the arms of Great Britain appearing in the - cross upon the reverse, in a different colour from the ground of the - coin: in others indeed nothing could be seen: this was owing to the - degree of wearing. How then can any dye strike an impression upon a - coin, which answers all these appearances? - - I communicated to Mr. Harris the trials I had made, and he was - perfectly satisfied, upon the whole, that no old shilling had ever - been counterfeited at Birmingham. - -The answer to the third question, viz. Why money-jobbers are not always -ready to give old shillings for new guineas? is easy, from what has been -said. They cannot pick them up below the mean value of the currency; -because of the great demand there is for them in exchange for guineas; -therefore they can gain nothing by providing them for that purpose. - -It comes next in order, to solve a similar phænomenon in Holland, where -there are great quantities of silver specie, and yet one can hardly find -change for a ducat, except in a shop, where one has occasion to buy -something. - -This mystery is easily resolved. The great quantities of silver in -Holland consist of what is put up in bags of due weight, according to -the regulations mentioned above. This part of their currency is about ½ -_per cent._ better, in intrinsic value, than ducats at 5_f._ 5_st._ tale -for tale; which is a sufficient reason not to part with it, in change -for ducats at that rate. But besides this bagged up bank specie, there -are many other sorts of old worn-out coin, of unequal weight and -fineness. - -These serve as marks for the small circulation, and are not a legal -tender in all payments; such as foreign bills. What is the consequence -of this? Since this old specie carries denominations above its value, -when compared with the bagged-bank-silver coin, it serves to buy up this -good silver, when it falls into circulation; that is, it serves to buy -up, or to exchange, florin pieces, which are, as I have said, ½ _per -cent._ better than ducats at 5_f._ 5_st._ Such good silver pieces are -not very common in ordinary circulation; but as it frequently happens -that people receive silver in sacs, for their daily expence, who do not -mind the difference of ½ _per cent._ when they pay in this good money, -it circulates for a little time, until it falls into the hands of those -who know it, and bag it up again. Thus it happens in Holland, from the -disorder of their coin, that you may be paid a million sterling, if you -please, in good silver coin; and yet you find difficulty to procure -silver for a ducat, in the lightest, basest, and most aukward pieces -imaginable for reckoning. The bad consequences resulting from this -disorder, have been taken notice of in the proper place. - - END OF THE THIRD BOOK. - ------------------------------------------------------------------------- - - AN - - INQUIRY - - INTO THE - - PRINCIPLES OF POLITICAL OECONOMY. - ------------------------------------------------------------------------- - - BOOK IV. - OF CREDIT AND DEBTS. - - PART I. - OF THE INTEREST OF MONEY. - ------------------------------------------------------------------------- - - - INTRODUCTION. - - -I come now to inquire into the principles of credit; a subject already -introduced in the 27th chapter of the second book, where I examined the -nature of circulation, and pointed out the principles, which direct a -statesman when and how to retard or accelerate its activity, according -as the political interests of his people may require. - -In that chapter the object was, when and how either to extend or -restrain the use of credit, according to political circumstances. The -question now comes to be, what that credit is; upon what it is founded; -what the various species of it are; what the methods of establishing and -extending it, while in its infancy and vigour; how to sustain it when -overstretched; and last of all, how to let it fall as gently as -possible, when by no human prudence it can be longer supported? - -Many political writers in treating of credit, represent it as being of a -very mysterious nature; owing its establishment to a confidence not -easily accounted for, and disappearing from the slightest unfavourable -circumstances. - -That credit, in its infancy, is of a very delicate nature, I willingly -allow; as also that we have many examples which confirm the sentiments -of those who believe it to contain, in itself, something very -mysterious: but this proves no more, than that, in such cases, credit -(as I consider it, and as it will appear really to be) has not been -properly established. The cause of confidence has had nothing in it but -opinion, and when this is the case, credit is but a shadow; a thin -vapour, which may be dissipated by the smallest breath of wind. - -They all agree that credit is no more than confidence, but they do not -examine how that confidence is to be established on a solid foundation. - -The operations of credit are incompatible with the involved contracts of -the law, and with the spirit of intricate land-securities. The policy of -such contracts was analogous to the manners of the times which gave them -birth. Trade is a late refinement, in most nations of Europe, and -industry is still a later: the beginnings of both are slow, -imperceptible, and obscure. The instruments by which they are promoted, -are the lower classes of a people; such individuals appear to be of very -small consequence; and yet it is by the accumulation of many small -things only, that this huge fabric is erected. - -To establish that credit, which is necessary for carrying on so great a -work, a statesman must lend his hand. He must give a validity to -mercantile obligations, which have no name in his law books: he must -support the weak against the strong: he must reform the unwieldy -procedure of courts of justice: he must facilitate the sale of property: -he must establish the credibility of merchants books regularly kept: he -must discourage frauds, and support fair dealing. - -When such a plan is once established, confidence will find a basis in -the property of every individual who profits by it. When it is not -established, credit will appear like a meteor: intelligent and crafty -men will avail themselves of it, and thereby dazzle the eyes of the -public, with gilded schemes of opulence and prosperity: mankind will fly -to industry, confidence will be established; but as there will be no -method of determining the bounds of that confidence, the promoters of -the scheme will profit of the delusion: confidence will vanish; and the -whole will appear to have been a mystery, a dream. Is not this a -representation of many projects set on foot since the beginning of this -century? What were the South Sea’s and Missisippi’s, but an abuse of -confidence? Had ever the _cause_ of confidence been examined into, would -ever such extravagant ideas have arrived at the height they did? - -Credit therefore must have a _real_, not an _imaginary_ object to -support it; and although I allow that in all operations of _mercantile_ -credit, there must be something left to chance and accident; yet that -chance must bear a due proportion to the extraordinary profits -reasonably to be expected from the undertaking. - -From this it appears, what an useful speculation it is to inquire -properly into the nature of credit; to deduce with accuracy the -principles upon which it is founded; to banish mystery from plain -reason; to shew how even the most surprizing effect of credit, whether -tending to the advantage, or to the hurt of society, may easily be -accounted for; and, which is the most useful of all, to point out how -such effects may be foreseen, so as either to be improved or prevented. - -In going through so extensive a subject, as a deduction of the -principles of credit, method is very necessary; and when a detail is -long, subdivisions are very convenient. I have, upon this account, -divided this book into four parts. - -The first shall be set apart for deducing the principles which regulate -the rate of interest; because this is the basis of the whole. - -The second, for the principles of banking; under which I shall have an -opportunity to unfold the whole doctrine of domestic circulation. - -The third, for those of exchange; which is equally well calculated for -carrying on foreign circulation; and as to what regards debts, and the -borrowing of money, with all the consequences which they draw along with -them, these important objects will furnish ample matter for - -The fourth and last part, which shall treat of the principles of public -credit. - -These premised, I proceed to the definition of credit. - - - CHAP. I. - _What Credit is, and on what founded._ - - -Credit is the _reasonable expectation entertained by him who fulfills -his side of any contract, that the other contracting party will -reciprocally make good his engagements_. - -To illustrate this, we may say with the lawyers, that as all contracts -may be reduced under one of the following heads, _Do ut des, do ut -facias; facio ut des, facio ut facias_; so he who actually gives or -performs his part, is the creditor, or the person who gives credit; and -he who only promises to give or perform, is the debtor, or the person -who receives it. - -Credit, therefore, is no more than a _well established_ confidence -between men, in what relates to the fulfilling their engagements. This -confidence must be supported by laws, and established by manners. By -laws, the execution of formal contracts may be enforced: manners, alone, -can introduce that entire confidence which is requisite to form the -spirit of a trading nation. - -Credit, in its infancy, must be supported by statutes, and enforced by -penalties; but when it is once well established, every recourse had to -law, is found to wound the delicacy of its constitution. For this reason -we see, that in certain nations, the legislator wisely excludes the -ordinary courts of justice from extending their rigid jurisdiction over -mercantile engagements: they leave to the prudence and good faith of men -versed in commerce, to extricate the combinations which result from such -transactions; because they are to be interpreted more according to the -constant fluctuation of manners, than to the more permanent institutions -of positive law. - -The more the jurisdiction of the statesman is unlimited; or in other -words, the less the power of any sovereign is restrained, by the laws -and constitution of the state he governs, the more it behoves him to -avoid every step of administration which can make his authority be felt -in cases where credit is concerned. If he should happen, for example, to -be a debtor himself, he must take good care never to appear in any other -light to his creditor. The moment he puts on the sovereign, the same -moment all confidence is lost. For these reasons, we have hitherto had -few examples (I might perhaps have said none at all) where credit has -been found _permanently_ solid, under a pure monarchy. - -But we must observe, at the same time, that the stability of credit is -not incompatible with that form of government. At certain times, we have -seen credit make a surprising progress in France; and it has never -suffered any check in that state, but from acts of power, which I think -have proceeded more from inadvertency, and want of knowledge, than from -a design of defrauding creditors. These may be looked on as blunders in -administration; because they have constantly disappointed the purpose -for which they were intended. Let me prove this by some examples. - -The arret of 21 May 1720, (of which we shall give an account hereafter) -destroyed in one day the whole fabric of credit, which had been erected -in France during the course of three years; and which in so short a time -had mounted to a height hardly credible. I say, that in one day this -inadvertent step (for no real injury was intended) destroyed the credit -of 2,697,048,000 livres of bank notes, (above 120 millions sterling) and -of 624,000 actions of the East India company, which (reckoned at 5000 -livres apiece, the price at which the company had last sold them) amount -to 3,120,000,000 livres, or above 140 millions sterling. Thus at one -blow, and in one day, 260 millions sterling of paper currency, payable -to bearers, was struck out of the circulation of France; by an useless -and inadvertent act of power, which ruined the nation, and withered the -hand which struck it: an event too little understood, and too little -remembered in that kingdom. - -This plainly appears from their late conduct; for in the end of 1759, at -a time when the credit of France was in so flourishing a situation as to -have enabled her to borrow, that very year, near 200 millions of livres; -and when there was a prospect of being able to borrow, in the year -following, a far greater sum, the shutting up what they called their -_caisse d’amortissement_, for the sake of withholding 32 millions of -livres interest due to the creditors, struck all credit _with -foreigners_ dead in one instant. - -These examples shew what fatal consequences follow a misjudged exercise -of power in matters of credit. - -On the other hand, the rapid progress of credit in France before the -Missisippi, and the stability of it from 1726 to the year 1759, -abundantly proves, that nothing is more compatible than monarchy and -confidence. All that is wanting is the establishment of _one maxim in -government_; to wit, that the King’s power is never to extend so far, as -to alter the smallest article of such stipulations as have been made -with those who have lent money for the service of the state. - -_Maxims in government bind the monarch and the legislature, as laws bind -subjects and subordinate magistrates_: the one and the other ought to be -held inviolable, so far as they regard credit; or confidence will be -precarious. - -What has supported the credit of Great Britain, but the maxim constantly -adhered to, that the public faith pledged to her creditors is to be -inviolable? - -Does any one doubt, but the legislature of that nation may spunge out -the public debts, with as much ease as a King of France? But in the one -kingdom, the whole nation must be consulted as to the propriety of such -a step; in the other, it may be done at the instigation of a single -person, ignorant of the consequences: but I hope to make it appear, -before the conclusion of this book, that it is impossible to form a -supposition, when a state can be benefited by deliberately departing, -for one moment, from the faith of her engagements. A national bankruptcy -may (no doubt) happen, and become irreparable; but that must be when the -state is emerging from a signal calamity, after having been involved in -ruin and confusion. - -Confidence, then, is the soul and essence of credit, and in every -modification of it, we shall constantly find it built on that basis; but -this confidence must have for its object a _willingness_ and a -_capacity_ in the debtor to fulfil his obligations. - - ------------------------------------------------------------------------- - - - CHAP. II. -_Of the Nature of Obligations to be performed, in Consequence of Credit - given._ - - -We have already said, that all obligations contracted with a view to be -performed in future time, consist in doing or giving something; in -consideration of something _done_, or _given_. - -When actions only are stipulated in contracts, _credit_ (in a strict -acceptation of the term) is little concerned; because no adequate -security can be given for performing an action: such contracts stand -wholly upon the willingness and capacity of _acting_, which depend more -upon the _person_ than upon the _faculties_ of the debtor. To supply -that defect, we see penalties usually stipulated in such cases; which -reduce those contracts to an alternative obligation of either _doing_ or -_giving_. - -We shall therefore throw out the consideration of the first altogether, -as being foreign to our purpose; and adhere to the latter, which is the -true object of credit. Again, - -In all obligations to give any particular thing, there is constantly -implied an alternative also; to wit, either the thing stipulated, or the -value (_id quod interest_, according to the lawyers) this must be -relative to money; which is the common price of all things in commerce -among men. - -Thus we have brought credit to the object under which we are to consider -it, viz. the obligation to pay money, either for value received, or for -some consideration relative to the parties, which may be the just ground -of a contract. - -Credit and debts are therefore inseparable, and very properly come to be -examined together in this book. - -When money is to be paid at a distant period of time, the obligation may -either be, 1. for one precise sum; or 2. for that sum with interest, -during the interval between contracting and fulfilling the obligation. - -The lending of money without interest, was very common, before the -introduction of trade and industry. Money then was considered as a -barren stock, incapable of producing fruit; and whenever the quantity of -it, in any country, exceeded the uses of circulation, the remainder was -locked up in treasures. In that light, the exacting of interest for it -appeared unreasonable. - -Things are now changed: no money is ever locked up; and the regular -payment of interest for it, when borrowed, is as essential to the -obtaining of credit, as the confidence of being repaid the capital. -These periodical payments are a constant corroboration of this -confidence; so that it may be said, with truth, that he who can give -good security, to pay to perpetuity, a regular interest for money, will -obtain credit for any sum, although it should appear evident, that he -never can be in a capacity to refund the capital. - -The reason of this may be gathered from the principles already deduced, -and from the plan of our modern oeconomy. - -We have said in the second book, that the current money of a country is -always in proportion to the trade, industry, consumption, and -alienation, which regularly takes place in it; and when it happens that -the money already in the country is not sufficient for carrying on these -purposes, a part of the solid property, equal to the deficiency, may be -melted down (as we have called it) and made to circulate in paper. That -so soon again as this paper augments beyond that proportion, a part of -what was before in circulation, must return upon the debtor in the -paper, and be realized anew. - -Now let us consider what is understood by _realized_. By this term is -meant, that the regorging paper, or that quantity of currency which a -nation possesses over and above what is necessary for its circulation, -must be turned into some shape whereby it may produce an income; for it -is now a maxim, that no money is to be suffered to remain useless to the -proprietor of it. - -When this _regorging_ paper then comes upon the debtor in it, if he -should pay the value of it in hard specie, how would the condition of -the creditor be improved? - -We suppose the credit of the paper equal to the credit of the coin -within the country. We also suppose that the paper has so stagnated in -the hands of the bearer, that he can neither lend it, or purchase with -it any species of solid property, within the country, capable to produce -an income: for if any way of disposing it usefully can be found, this -circumstance proves that circulation is not, at that time, fully -stocked; consequently, the money does not regorge. But let us suppose -that it does regorge; then he must either oblige the debtor in the paper -to pay in coin, and lock that up in his coffers, as was the case of old; -or he must send his coin to other countries, where circulation is not -fully stocked, and where an income may be bought with it. This -constantly happens when circulation is either overstocked, or when the -quantity of it begins to diminish in a country. - -Let me next suppose, that in a country reasonably stocked with money, a -sudden demand for it, far beyond the ordinary rate of circulation, -should occur: suppose a war to break out, which absorbs, in a short -time, more money than, perhaps, all the coin in a nation can realize. -The state imposes a tax, which, let me suppose, may produce a sum equal -to the interest of the money required. Is it not very certain, that such -persons who found a difficulty in placing their regorging capitals, will -be better pleased to purchase a part of this annual interest, than to -lend it to any person who might pay it back in a short time; by which -repayment the lender would again be thrown into the same inconvenience -as before, of finding a proper out-let for it? This is a way of -realizing superfluous money, more effectual than turning it into gold or -silver. - -When I speak, therefore, of realizing paper money, I understand either -the converting it into gold and silver, which is the money of the world; -or the placing of it in such a way as to produce a perpetual fund of -annual interest. - -Were public borrowing, therefore, to work the effect of bringing the -money in circulation below the proportion required for carrying on -alienation, then an obligation to repay the capital would be necessary, -and complaints would be heard against the state for not paying off their -debts; because thereby the progress of industry would be prevented. But -when the operations of credit are allowed to introduce a method of -creating money anew, in proportion to the demand of industry, then the -state has no occasion to pay back capitals; and the public creditors -enjoy far better conditions in their annual income, than if the capitals -were refunded. - -Let me illustrate this by an example. - -We must take it for granted, that in every nation in Europe, there is a -sum in circulation equal to the alienation which goes on actually at the -time. We must also take it for granted, that the amount of all debts -whatsoever, public and private, paying interest to the class of -creditors, is a very great sum: now let us suppose, that the class of -debtors should be enabled (no matter by what means) to pay off what they -owe, in coin; would not, by the supposition, a sum nearly equal to that -coin immediately fall into stagnation, and would it not be impossible to -draw any income from it? This was exactly the case of old. The coin far -exceeded the uses of circulation, and stagnated in treasures. Wars -brought it out; because then circulation augmented; peace again cutting -off these extraordinary demands, the coin stagnated again, and returned -to the treasures. - -What is the case at present? - -Money and coin are never found to surpass the uses of circulation in -commercial countries. When war comes, which demands an extraordinary -supply, recourse is had to borrowing upon interest; not to treasures: -and the desire of purchasing this interest, which we call an annuity, -draws treasures even from the enemies of those nations who have the best -credit. Again, at the end of a war, in place of an empty treasure, as -was the case of old, we find a huge sum of public debts. As oeconomy -filled the treasury then, so oeconomy must pay off the debts now. - -From what has been said, it plainly appears, that interest is now become -so absolutely essential to credit, that it may be considered as the -principal requisite, and basis on which the whole fabric stands: we -shall therefore begin by examining the origin and nature of interest, -and also the principles which influence the rate, and regulate the -fluctuations of it. - - ------------------------------------------------------------------------- - - - CHAP. III. - _Of the Interest of Money._ - - -I shall leave it to divines and casuists to determine how far the -exacting of interest for money is lawful, according to the principles of -our religion. - -The Jews, by the laws of Moses, were forbid to lend at interest to their -brethren, but it was permitted to lend to strangers. _Deut._ chap. -xxiii. ver. 19, 20. This was one of the wisest political institutions to -be met with in so remote antiquity, as we shall hereafter explain. - -In the primitive ages of christianity, the lending at interest was -certainly reputed to be unlawful on most occasions. That spirit of -charity, _to all who were in want_, was so warped in with the doctrine -of our religion, that a borrower was constantly considered to be in that -situation. Trade was little known; trading men were generally ill looked -upon; and those who deviated so far from the spirit of the times, as to -think of accumulating wealth by the use of their money, commonly -degenerated into usurers. - -In the middle centuries, when a mistaken zeal animated christianity with -a most ungodly thirst for the blood of infidels, the Jews were, in every -nation in Europe, almost the only money lenders. This circumstance still -more engaged the church to dart her thunder against this practice; and -the loan upon interest never took root among christians, until a spirit -of trade and industry sprung up in Italy in the time of the Lombards, -and spread itself through the channel of the Hans-towns over several -nations. - -Then the church began to open her eyes, and saw the expediency of -introducing many modifications, to limit the general anathema against -the whole class of money lenders. At one time it was declared lawful to -lend at interest, when the capital shared any risque in the hands of the -borrower; at another, it was found allowable; when the capital was not -demandable from the debtor, while he paid the interest: again, it was -permitted, when the debtor was declared by sentence of a judge, to be -_in mora_ in acquitting his obligation: at last, it was permitted on -bills of exchange. In short, in most Roman catholic countries, interest -is now permitted in every case almost, except in obligations bearing a -stipulation of interest for sums demandable at any time after the term -of payment; and it is as yet no where considered as essential to loan, -or demandable upon obligations payable on demand. - -Expediency and the good of society (politically speaking) are the only -rule for judging, when the loan upon interest should be permitted, when -forbid. While people borrowed only in order to procure a circulating -equivalent for providing their necessaries, until they could have time -to dispose of their effects; and while there was seldom any certain -profit to be made by the use of the money borrowed, by turning it into -trade, it was very natural to consider the lender in an unfavourable -light; because it was supposed that the money, if not lent, must have -remained locked up in his coffers. But at present, when we see so many -people employed in providing stores of necessaries for others, which, -without money, could not be done; forbidding the loan upon interest, has -the effect of locking up the very instrument (money) which is necessary -for supplying the wants of the society. The loan, therefore, upon -interest, _as society now stands composed_, is established, not in -favour of the lenders, but of the whole community; and taking the matter -in this light, no one, I suppose, will pretend that what is beneficial -to a whole society should be forbid, because of its being proportionably -advantageous to some particular members of it. - -If it be then allowed, that the loan upon interest is a good political -institution, relative to the present situation of European societies, -the next question is, to determine a proper standard for it, so as to -avoid the oppression of usurers, on one hand, and on the other, to allow -such a reasonable profit to the lender, as may engage him to throw his -money into circulation for the common advantage. - -This question leads us directly to the examination of the principles -which regulate the rate of interest; and if we can discover a certain -rule, arising from the nature of things, and from the principles of -commerce, which may direct a statesman how to establish a proper -regulation in that matter, we may decide with certainty concerning the -exact limits, between unlawful and pinching usury, exacted by a vicious -set of men, who profit of the distress of individuals; and that -reasonable equivalent which men have a right to expect for the use of -their money, lent for carrying on the circulation of trade, and the -employment of the lower classes of a people, who must subsist by their -industry or labour. - - ------------------------------------------------------------------------- - - - CHAP. IV. - _Of the_ Principles _which regulate the Rate of Interest_. - - -We must now recal to mind the principles of demand and competition, so -fully deduced in the second book, in order to answer the following -question, viz. - -What is the principle which regulates, at all times, the just and -adequate rate of interest for money, in any particular state? - -I answer, That at all times, there is in every state a certain number of -persons who have occasion to borrow money, and a certain number of -persons who desire to lend: there is also a certain sum of money -demanded by the borrowers, and a certain sum offered to be lent. The -borrowers desire to fix the interest as _low_ as they can; the lenders -seek, from a like principle of self-interest, to carry the rate of it as -high as _they_ can. - -From this combination of interests arises a double competition, which -fluctuates between the two parties. If more is demanded to be borrowed, -than there is found to be lent, the competition will take place among -the borrowers. Such among them who have the most pressing occasion for -money, will offer the highest interest, and will be preferred. If, on -the contrary, the money to be lent exceeds the demand of the borrowers, -the competition will be upon the other side. Such of the lenders, who -have the most pressing occasion to draw an interest for their money, -will offer it at the lowest interest, and this offer will be accepted -of. - -I need not launch out into a repetition of what has been said concerning -the influence of double competition, in fixing the price of commodities: -I suppose those principles understood, and well retained, by those who -read this chapter; and confine myself here to what is peculiar to the -demand for money. - -The price of commodities is extremely fluctuating: they are all -calculated for particular uses; money serves every purpose. Commodities, -though of the same kind, differ in goodness: money _is_ all, or _ought -to be_ all of the same value, relative to its denominations. Hence the -_price of money_ (which is what we express by the term _interest_) is -susceptible of a far greater stability and uniformity, than the price of -any other thing. - -We have shewn in the 28th chapter of the second book, in examining the -principles which regulate the prices of subsistence, that the only thing -which can fix a standard there, is frequent and familiar alienation. The -same holds true of money. Were we to suppose a state, where borrowing -and lending are not common, and where the laws fix no determinate -interest for money, it would hardly be possible to ascertain the rate of -it at any time. This was the case of old. - -Before the reign of Henry VIII. of England, _anno_ 1545, there was no -statute regulating the rate of interest in that kingdom. The reason is -very plain. In those days there was little circulation, and the -borrowing upon interest was considered as a mortal sin. The consequence -of this was, that usurers, having nothing but conscience to restrain -them, carried the price of their money to a level with the pressing -occasion of spendthrifts, while others, from friendship, lent for no -interest at all. Henry fixed the rate of interest at 10 _per cent._ and -his cotemporary, Francis I. of France, _anno_ 1522, (who was the first -who borrowed money in a regular manner upon the town-house of Paris) -fixed the interest at the 12th penny, that is, at 8⅓ _per cent._ - -In those days, it was impossible for a statesman to determine any just -rate for interest; and accordingly we find history filled with the -extortion of usurers, on one hand, and the violence and injustice of -Princes and ministers towards those who had lent them money, on the -other: was it then any wonder, that lending at interest was universally -cried out against? It really produced very little good, and was the -cause of manifold calamities to a state. When the Prince borrowed, it -was when in the most urgent distress: those who lent to him, foresaw the -danger of being plundered if they refused, and of being defrauded as -soon as the public distress was over: for this reason they exacted the -most exorbitant interest: the consequence was, that the people were -loaded with the most grievous taxes, and the tax-gatherers were the -Prince’s creditors, to whom such taxes were assigned. - -In our days, trade, industry, and a call for money for such purposes, -enable the borrower to enrich himself, to supply the wants of the state, -and to pay his interest regularly. - -If we compare the two situations, we shall find every disadvantage -attending the former, and every advantage connected with the latter. - -Without good faith there is no credit; without credit there is no -borrowing of money, no trade, no industry, no circulation, no bread for -the lower classes, no luxury, not even the conveniencies of life, for -the rich. Under these circumstances, there can be no rule for the rate -of interest; because borrowing cannot be frequent and familiar. - -In proportion, therefore, as borrowing becomes frequent and familiar, -the rule for fixing the rate of a legal interest becomes more -practicable to a statesman. Let me take a step farther. - -We have said, that it is the fluctuation of the double competition -between borrowers and lenders, which occasions the rise and fall of the -rate of interest; I must now point out the principles which occasion -this fluctuation. - -Were the interests of trade and industry so exactly established, as to -produce the same profit on every branch, the money borrowed for carrying -them on, would naturally be taken at the same rate; but this is not the -case: some branches afford more, some less profit. In proportion, -therefore, to the advantages to be reaped from borrowed money, the -borrowers offer more or less for the use of it. - -Besides the class of men who borrow _in order to profit_ by the loan, -there is another class, who borrow _in order to dissipate_. The first -class never can offer an interest which exceeds the proportion of their -gains: the second class, finding nothing but want of credit to limit -their expence, become a prey to usurers. Were it not then upon account -of these last, there would be no occasion for a statute to regulate the -rate of interest. The profits on trade would strike an average among the -industrious classes; and that average would fall and rise, in proportion -to the flourishing or decay of commerce. - -Let us next examine the principles which prevent the monied men from -committing extortions, and which oblige them to lend their money for -that rate of interest which is in proportion to the profits upon trade -and industry. - -In every country there is found a sum of money (that is, of circulating -value, no matter whether coin or paper) proportioned to the trade and -industry of it. How this sum is determined, and how it is made to -augment and diminish in proportion to industry, we have already -explained in the 26th chapter of the second book: we are now to examine -some of the consequences which result from the accidental stagnation of -any part of it to the prejudice of alienation; and we must shew how the -loan upon interest is the means of throwing it again into circulation. - -There are in every state some who spend more, and some who spend less -than their income. What is not spent must stagnate; or be lent to those -who spend more than the produce of their own funds. Were the first class -found so to preponderate, as to require more money to borrow than all -that is to be lent, the consequence would be, to prevent the borrowing -of merchants; to raise interest so high as to extinguish trade; and to -destroy industry; and these resources coming to fail, foreign -commodities would be brought in, while exportation would be stopt, money -would disappear, and all would fall into decay. - -This, I believe, is a case which seldom happens; because the rise of -interest (as states are now formed) has so much the effect of -depreciating the value of every species of solid property, that -spendthrifts are quickly stripped of them, by the growing accumulation -of that canker worm, interest; their ruin terrifies many from following -so hurtful an example, and their property falling into the hands of the -other class, who spend less than their income; these new possessors -introduce, by their example, a more frugal set of manners. This may be -the case in countries where trade and industry have been introduced; and -where the operations of credit have been able to draw a large quantity -of solid property into circulation, according to the principles deduced -in the chapter above referred to. But in nations of idleness, who -circulate their coin only, and who are deprived of the resource of -credit, high interest prevents them from emerging out of their sloth; -the little trade they have, continues to produce great profits, which -are incompatible with foreign commerce: this may, indeed, make the coin -they have circulate for home consumption, but can bring nothing from -abroad. - -On the other hand, when trade and industry flourish, and a monied -interest is formed, in consequence of melting down of solid property, -and still more when a state comes to contract great debts, were the -money lenders to attempt to raise the rate of interest to the standard -of the spendthrift, the demands of trade, &c. would soon be cut off: the -stagnation would then swell so fast in their hands, that it would in a -manner choak them, and in a little time interest would fall to nothing. -Whereas by contenting themselves with the standard of trade, the largest -supplies (provided for the borrowers) easily find a vent, without -raising the rate of interest so high as to be hurtful to any interest -within the state. - -Add to this, that the advantage of realizing, into lands, so unstable a -property as money, must naturally throw the proprietors of it into a -competition for the lands which dissipation brings to market; and so by -raising the value of these, they, with their own hands, defeat the -consequences of the dissipation of spendthrifts, and hurt their own -interest, to wit, the rise of the price of money. From a combination of -these circumstances, lenders become obliged to part with their money at -that rate of interest which is the most consistent with the good of -commerce. - -We have hitherto preserved our combinations as simple as possible. We -have suggested no extrinsic obstacle to borrowing and lending. If money -is to be lent, and if people are found who incline to borrow, we have -taken it for granted, that circulation will go on; and that the -stagnations in the hands of the lenders, will find a ready vent by the -dissipation of the other class: we must now take a step farther. - -The spendthrifts must have credit; that is, they must have it in their -power to repay with interest what they have borrowed: any impediment to -credit, has the effect either of diminishing the demand for money, and -consequently of lowering the rate of interest, or of introducing -unlawful usury. If we suppose the rate of interest well determined, and -usury prevented by a regular execution of good laws, it is very certain, -that a statesman by hurting the credit of extravagant people, will keep -the rate of interest within due bounds. - -If, therefore, we find the laws of any country, in our days, defective -in establishing a facility in securing money on solid property, while -the rate of interest stands higher than is consistent with the good of -trade, and with public credit; we should be slow in finding fault with -such a defect. The motives of statesmen lie very deep; and they are not -always at liberty to explain them. An example of such clogs upon credit -are entails upon lands, and the want of proper registers for mortgages. - -Did the dissipation of landed men tend to promote foreign trade, such -clogs would be pernicious: but if the tendency be to promote domestic -luxury only, and thereby raise the price of labour and industry, the -case is widely different. This observation is only by the bye. Our -object at present extends no farther, than to point out, that the -dissipation of landed men, and the credit they have to borrow money, -influences, not a little, the rate of interest in every modern state. - -These are the general principles which, arising from things themselves, -without the interposition of a statesman, tend to regulate the rate of -interest in commercial nations. - - ------------------------------------------------------------------------- - - - CHAP. V. - _Of the Regulation of Interest by Statute._ - - -From the principles deduced in the preceeding chapter, we have seen how, -without the aid of any law, the interest of money, in a trading nation, -becomes determined, from natural causes, and from the irresistible -effects of competition. - -But as there is no country in the world so entirely given to commerce, -as not to contain great numbers of people, who are totally unacquainted -with it, a regulation becomes necessary to restrain, on one hand, the -frenzy of those, who, listening to nothing but the violence of their -passions, are willing to procure money at any rate for the gratification -of them, let the political consequences of their dissipation prove ever -so hurtful; and on the other, to protect those who, from necessity, may -be obliged to submit to the heavy oppression of their usurious -creditors. - -Laws restraining usury, are directly calculated for the sake of those -two classes, not engaged in commerce, and indirectly calculated for -commerce itself; which otherwise might receive a wound through their -sides. - -In entring upon the subject mentioned in the title of this chapter, I -think we may agree in this, that hitherto all regulations made -concerning interest, have been calculated either for bringing it down, -or for preventing its rise. The distress which may come upon a state, by -its falling too low, is a phænomenon which has not yet manifested itself -in any modern state, by any symptom I can at present recollect. - -Now if it be true, as I think it has been proved, that the operations of -demand and competition work irresistible effects in determining the rate -of interest in commercial states; the statesman who is about to make a -regulation, must keep these principles constantly in his eye. - -If we examine the writings of those who have treated of this subject -with intelligence (among whom, I think, Child has a right to stand in -the foremost rank) we shall find very little attention bestowed upon -that most necessary and ruling principle. - -He lays it down as an axiom, that low interest is the soul of trade, in -which he is certainly right; but he seems to think, _that it is in the -power of a legislature, by statute, to bring interest down to that level -which is most advantageous to trade_; and in this I differ from him. I -must do him the justice to say, that he no where directly affirms that -proposition; but by suggesting none of the inconveniences which may -follow upon an arbitrary reduction of interest by statute, he leaves his -reader at liberty to suppose, that the lowering of it is solely in the -hands of a statesman. - -It is very plain, from the history he has given us of the successive -rates of interest in England, from 10 to 6 _per cent._ that without the -interposition of statutes, such diminutions would not, _in that period_, -have taken place, from the principle of competition: but I am not so -clear that, _at this time_, when trade is so well understood, and credit -so generally established in many nations of Europe, that a like -administration would work effects equally advantageous. - -It is with great diffidence I presume to differ from Child upon this -subject; and I find a sensible satisfaction in perceiving that my -principles bring me so very near to his sentiments on this matter. - -The strong arguments in favour of Child’s opinion, are grounded upon -facts. He says, that when interest was brought down by statute, _anno_ -1625, from 10 to 8 _per cent._ that in place of producing any bad -effect, it had that of bringing it still lower immediately afterwards; -and the same thing happened, _anno_ 1650, when it was reduced a second -time by statute, from 8 to 6 _per cent._ at which rate it stood at the -time he wrote. These facts I give credit to, and shall now account for -them, from the consequences of sudden revolutions. - -When a law is made for the reduction of interest, all debtors -immediately profit by it. Upon this, the creditors must either submit, -or call in their capitals. If they submit, land immediately rises in its -value. If they call in their capitals, they must have an outlet for -lending them out again, beyond the limits of the jurisdiction of the -legislature. Now this outlet was not then to be found; because credit -was no where well established, except in Holland, where interest was -still lower. - -They were, therefore, obliged to submit, and thus interest was violently -brought down by statute; and a great advantage resulted from it to the -commercial interests of England. - -The subsequent fall of interest, in the natural way, is thus easily -accounted for. - -The consequence of lowering the interest, was, that the price of land -rose several years in purchase: the landed men, who had long groaned -under the heavy interest of 10 _per cent._ finding their lands rise from -12 years purchase to 15, upon reducing the interest to 8 _per cent._ -sold off part of their lands, and cleared themselves. The natural -consequence of this was, to make money regorge in the hands of the -monied men; to diminish the number of borrowers; and consequently, to -bring the rate of interest still lower. - -One sudden revolution produces another. When interest is brought down by -statute, the price of land must rise by a jerk; and landed men will -suddenly profit of the change in their favour. When it falls gently, by -natural revolutions in the state of demand, the effects are more -insensible; the sharper sighted only profit of it; others, from -expectation of a still greater rise in the price of their lands, neglect -to sell in the proper point of time; and may perhaps be disappointed -from a new fluctuation in favour of money. This is at present actually -the case in Great Britain, since the peace of 1762. I write in 1764. - -These facts speak strongly in favour of Child’s opinion, that it is -expedient to have recourse directly to the statute, whenever there is a -prospect of advancing the interests of trade by a reduction of interest. - -It is impossible to reply to matters of fact: all, therefore, I have to -allege in favour of my own opinion, is, that it is more consistent with -the very principles in which both Child and I agree; it implies no -sudden revolution, and will, in a short time, operate the same effect. - -The method of proceeding, according to my principles, is shortly this. - -Since it is agreed on all hands, that low interest is the soul of trade, -and the firmest basis of public credit; that it rises in proportion to -the demand of borrowers, and sinks in proportion as money is made to -regorge in the hands of the monied interest; - -The statesman should set out by such steps of administration as will -discourage borrowing, in those who employ their money in prodigality and -dissipation, as far as may be consistent with the interest of the lower -classes employed in supplying home consumption, according to the -principles laid down in the second book. He should abstain from -borrowing himself, and even from creating new outlets for money, except -from the most cogent motives. By this he will, in a short time, gently -reduce the rate of interest. Then by statute he may bring it down a -little, but not so very low as the foregoing operations may have reduced -it; contenting himself with having farther restricted the extent of the -ordinary fluctuations. - -As for example: let us suppose interest limited by law to 5 _per cent._ -and that by good management the state may be enabled to borrow easily at -3 _per cent._ I believe there would result a notable advantage, in -reducing the legal rate to 4 _per cent._ and were it brought down to 3 -_per cent._ there might follow a very great inconvenience to landed men, -in case a war should suddenly occasion a revolution in favour of money. - -The difference then between Child and me, is, that I am more scrupulous -than he, in introducing restraint into political oeconomy; and my only -reason against applying the statute, as he proposes, is for fear of the -immediate bad effects which might follow (in many ways impossible to be -foreseen) upon a sudden and violent revolution, in a point so -excessively delicate as public credit. - -In his days, credit was not so well established, nor was it stretched as -at present: it was more accustomed to violent shocks, and could bear a -rougher treatment. But in order to come the better to a thorough -knowledge of this matter, let us examine into what might be the -consequence, if Great Britain should, at this time, bring down, by -statute, the rate of interest _below the level of the stocks_, which I -take to be the best rule of determining the present value of money; and -this is also the best method of examining the expediency of Child’s -method of reducing interest, under the present combination of all our -political circumstances. - - ------------------------------------------------------------------------- - - - CHAP. VI. - _What would be the Consequence of reducing, by a British Statute, the - legal Interest of Money below the present level of the Stocks._ - - -When Great Britain borrows money upon the public faith, the rate of -interest is always stipulated, and these stipulations must be -religiously fulfilled, or credit will be at an end. - -The regulations then proposed to be made, must only refer to contracts -of loan entred into by private parties. - -The current value of money, I think, is best to be determined by the -price of stocks. If a 4 _per cent._ sells at par, money may be said to -be then at 4 _per cent._ If the same stock falls to 89, then the value -of money rises to near 4½: if the same stock rises to 114, then the -value of money falls to about 3½; and so in proportion. - -According, therefore, as stock is found to rise, the price of money -falls, and _vice versa_. - -Suppose, then, the price of money to be at 4 _per cent._ and that -government should pass a law, forbidding any man to lend at above 3 _per -cent._ what would be the consequence? This is exactly the expedient -proposed by Child: money then was at 6 _per cent._ and he proposes, _by -a law_, to bring it, all at once, to 4, without alledging that money was -then commonly got by private convention at so low a rate. - -Would not the consequence be, that the creditors of private people would -demand their money, in order to get 4 _per cent._ in buying stock, and -would not this additional demand for stocks make them rise? I answer in -the affirmative, unless money could be employed abroad, so as to produce -at least 4 _per cent._ to the lenders, free of all charge of commission, -&c. If it could not, I have little doubt, but that money would soon fall -to the legal interest of 3 _per cent._ land would rise to 40 years -purchase; and landed men would profit of the rise, as Child says was the -case in his time. The whole inconvenience would be limited to the -immediate effects of the sudden revolution; which would occasion so -great a run upon the landed interest, as to reduce them to an utter -incapacity of answering it. This might be, in some measure, prevented, -by a clause in the act, allowing a certain time for the liquidation of -their debts. But who will pretend to foretell the immediate consequences -of so great a stagnation of credit, and borrowing on land security? The -purses of all monied people, would, for some time at least, be fast shut -against their demand. What a shock again, would this be to all inland -trade, what a discouragement to all the manufacturing interest, what -distress upon all creditors for accounts furnished, and upon those who -supply daily wants! I think, even supposing that in a year or two, the -first effects might come to disappear, and a notable advantage result, -in the main, to the commercial interest of Great Britain, yet the -distress in the interval might prove so hurtful, as to render it quite -intolerable. The common people who live by the luxury of the rich, in -the city of London, and who are constantly acted upon by the immediate -feelings of present inconveniences, might lose all patience; and being -blown into a ferment, by the address of the monied interest (whose -condition would be made to suffer by the scheme) might throw the state -into confusion, and impress the nation with a belief, that high interest -for money, in place of being hurtful, was essential to their prosperity. - -I have said above, that supposing the money drawn from debtors, could -not be placed abroad, free of all deductions, at a rate equal to the -then value of money (supposed, for the sake of an example, to be at 4 -_per cent._) that then money would fall to 3 _per cent._ and the stocks -would rise in proportion. - -But let us suppose (what perhaps is the matter of fact) that the -extensive operations of trade and credit, do actually fix an average for -the price of stocks, from the value of money in other nations in Europe. -Would not then the consequence of bringing down the rate of legal -interest, below that level, be, to send out of the kingdom all the money -now circulating on private security, real and personal? Would not this -destroy all private credit at one blow? Would it not have the effect of -preventing, among individuals, the loan upon interest altogether? What -would become of the bank of England, and all other banks, whose paper in -circulation is all in the hands of private people? Is not every man who -has a bank note, a creditor on the bank, and would not the same interest -which moves other creditors to exact their debts, under such -circumstances, also move many holders of bank notes, to demand payment -of them? Would not a run of that nature, only for a few weeks, throw the -whole nation into the most dreadful distress? May we not even suppose, -that upon such an occasion, the monied interest (_from a certainty of -disappointing the intention of government in making the law_) might form -a combination among themselves to lock up their money, even although it -should remain dead in their hands for a few months? What would become of -the improvement of land? Is there an industrious farmer any where to be -met with, who does not borrow money, which he can so profitably turn to -account upon his farm, even though he receives it at the highest legal -interest? These and many more inconveniences _might_ manifest -themselves, were government to force down the value of money, contrary -to the ordinary operations of demand and competition: and to what -purpose have recourse to authority, when it is most certain, that -without any such expedient the same end may be compassed? - -If it be true, as I believe it is, that in states where credit is so -well established, that their funds or public debts are commonly -negotiated abroad, there is an average fixed for the value of money, by -the operations of credit over the commercial world: and if it be true, -that no law can be framed so as to restrain mercantile people, and those -who make a trade of money, from turning it to the best account; then all -that should be proposed by government, is, to preserve the value of it -at home, within that standard. For which purpose, nothing more is -necessary than to prevent the competition of the dissipating class of -inhabitants, from disturbing the rate which commerce may establish from -time to time. This is accomplished by the methods above hinted at, and -which in the next chapter shall be more largely insisted on. If, by -prudent management, the _conventional_ rate of interest, can thus be -brought below the _legal_, then there will be no harm in diminishing the -latter by statute, not however _quite_ so low as the conventional -standard; but to leave a reasonable latitude for gentle fluctuations -above it. From what I have said, I still think I had reason to object to -Child’s plan for forcing down the interest by statute: and had he lived -at this time, I am persuaded he would have come into that opinion. - - ------------------------------------------------------------------------- - - - CHAP. VII. - _Methods of bringing down the Rate of Interest, in Consequence of the - Principles of Demand and Competition._ - - -I hope the arguments used in the foregoing chapter will not be construed -as an apology for the high interest of money. - -I entirely agree with Sir Josiah Child, that low interest is the soul of -trade; the most active principle for promoting industry, and the -improvement of land; and a requisite, without which it is hardly -possible that foreign commerce can long be supported. - -This proposition I take to be at this time universally admitted to be -true; and did there remain, concerning it, the vestige of a doubt in the -mind of any one, the writings of many, much more capable than I can -pretend to be, and among the rest the author just now cited, are -sufficiently capable to remove it. I shall not therefore trouble my -reader with a chapter upon that head, but only observe, that the terms -_high_ and _low_ are constantly relative. Here the relation must be -understood to regard other states, because when we speak of a _rate_ of -interest, we are supposed to mean something general in the country we -are speaking of: accordingly, if we could suppose that, within the same -state, the rate of interest should be lower in one city than any where -else, that circumstance would give an advantage to that city in all its -mercantile operations. - -I must farther observe, for the sake of connecting this part of our -subject with our general plan, that the low interest for money is most -essential to such states as carry on the most extensive foreign -commerce. - -In the infancy of industry, and before trade comes to be established, it -is very natural that the coin of the country should be found in a great -measure locked up in treasures: high interest tends to bring it forth, -and in that respect works a good effect. - -In proportion as alienation augments, money comes to be multiplied, by -the melting down of solid property, as has been explained; and then the -business of a statesman is to contrive expedients for bringing the rate -of it as low as possible, in order to support foreign trade, and to -rival all neighbouring nations, where interest is higher. When foreign -trade again comes to decline, from the multiplication of abuses -introduced by luxury, low interest still continues useful, for -supporting public credit, so necessary for defending a nation against -her enemies. - -If money consisted only in the precious metals, which are not to be -found in every country, but must be purchased with the produce of -industry, and brought from far; and if no other expedient could be -fallen upon to supply their place for the uses of circulation; then the -possessors of these metals would in a manner be masters to establish -what rate of interest they thought fit for the use of them. - -But if that be not the case, and if money can be made of paper, to the -value of all the solid property of a nation, (so far as occasion is -found for it, by the owners of that property) the use of the metals -comes to be in a manner reduced to that of serving as a standard, for -ascertaining the value of the denominations of money of accompt; perhaps -for facilitating the circulation of small sums, and for paying a balance -of trade to other nations. - -When this is the case, a statesman has it in his power to increase or -diminish the extent of credit and paper money in circulation, by various -expedients, which greatly influence the rate of interest. - -The progress of credit has been very rapid since the beginning of this -century. This has been almost entirely owing to the mechanical -combinations of trading men. Lawgivers have hitherto had but imperfect -notions concerning the nature of it; and there still remains, in the -womb of nature, some mighty genius, born to govern a commercial nation, -who alone will be able to set it on its true principles. Let us in the -mean time speculate concerning them. - -We have said, and every body feels, that interest falls in proportion to -the redundancy of money to be lent. - -Now what is this money but property, of one kind or other, thrown into -circulation? I speak of trading nations, who are not confined to the -quantity of their specie alone. - -When a man of property wants money, does he not go to a bank, which -lends upon mortgage, and by pledging his security, does he not receive -money, which is in the same instant created for his use? Do not those -notes circulate as long as they are found necessary for carrying on the -affairs of the nation? that is to say, the accompts of debtors and -creditors of all denominations; and as soon as the quantity of them -exceeds that proportion, they stagnate, and return on the debtors in -them, (the bank) who is enabled to realize them, because the original -security is still in their hands, which was at first pledged when the -notes were issued. This realization is commonly made in the metals; -because they are the money of the world: they are real and true riches, -as much as land; and they have this advantage over land, that they are -transportable every where. - -Now, does it not appear evident, that what we have been describing is a -round-about operation, which it is possible to shorten? - -I beg of my reader, that he may attend to one thing; which is, that I am -not here treating of, or proposing a plan, but labouring in the -deduction of principles in an intricate subject. - -I say, when landed men go to such a bank, and receive paper for a land -security, that this operation may be shortened. - -Do not the notes he gets stand (though that is not expressed) upon the -security of his land? Now, can any man assign any other reason but -custom, why his own notes, carrying expresly in their bosom the same -security, might not be issued, without his being obliged to interpose -the bank between the public and himself: And for what does he pay that -interest? Not that he has gratuitously received any value from the bank; -because in his obligation he has given a full equivalent for the notes; -but the obligation carries interest, and the notes carry none. Why? -Because the one circulates like money, the other does not. For this -advantage, therefore, of circulation, not for any additional value, does -the landed man pay interest to the bank. - -Had landed men, and not merchants, invented this method of turning their -property into circulation, and had they been all assembled in one body, -with a legislative authority, I imagine they would have had wit enough -to find out that a land bank was a thing practicable in its nature. - -Suppose they had agreed that all their lands should be let by the acre, -and that land property should be esteemed at a certain number of years -purchase, in proportion to the rate of interest at the time, where would -be the great difficulty in paying in lands? - -This is only a hint, to which a thousand objections may be made, as -matters stand: all I say, is, that there is nothing here against -principles; and though there might, in every way such a plan could be -laid down, result inconveniencies to the landed interest, yet still -these inconveniencies would hardly counterbalance that of their being -obliged to pay interest for every penny they borrow. - -It is demanded, what advantage would result to the nation from such a -regulation? - -I answer, that by it all the borrowings of landed men would be struck -out of the competition at the money-market. The money’d interest alone -would borrow among themselves for the purposes of trade, (for money’d -men do not borrow to squander) and landed men would consequently pay -with their own paper, in every case, where now they borrow in order to -pay. Thus interest would be regulated by the demands of trade, and the -rate of it would not be disturbed by the competition of spendthrifts. - -Who can say how far the consequences of such a scheme might reach? Might -not landed men begin in time to issue notes by way of loan, at a very -inconsiderable interest? But I do not incline to carry my speculations -farther: perhaps what has been said may appear sufficiently aerial. - -If a statesman shall find every modification of this idea impracticable; -either from his own want of power, or of combination, or, which is more -probable, from the opposition of the money’d interest, he must take -other measures for striking out, as much as possible, the competition of -spendthrifts at the money-market. Entails, and lame securities, are good -expedients; though they are productive of many inconveniencies. His own -frugal œconomy in state affairs will go much farther than any such -trifling expedients. - -Did a nation enjoying peace, although indebted perhaps 140 millions -sterling, begin by paying off but 2 _per cent._ of their capital yearly, -besides the current interest; while no neighbouring state was borrowing -any; what would interest fall to in a short time! It may be answered, -that the consequence would be, to enrich other nations; because the -regorging money would be sent abroad. Is any state ever enriched by -their borrowing? And in what does such lending to foreigners differ from -the nation’s paying off their foreign creditors? Will not the return of -interest from abroad compensate, _pro tanto_, the sums sent out for the -like purpose? - -But if it be said, that the consequence will be to enable other nations -to bring down their own rate of interest; I allow it to be so; and so -much the better, as long as it remains proportionally lower with us; -which it must do, as long as we can lend abroad. We have said, and I -believe with truth, that as credit is now extended, a general average is -struck every where upon the value of money: consequently, the lower -interest is found abroad, the lower still it will remain at home, as -long as merchants and exchangers subsist. - -From this circumstance of the average on the rate of interest, the Dutch -must, I think, have lost the great advantage they formerly enjoyed, from -the low rate of it in Holland, in proportion to their neighbours. - -In Child’s time, they were familiarly buying up sugars in London, above -the price paid by English sugar-bakers; and, notwithstanding the -additional freight and charges, they grew rich by their trade, while the -others were hardly making any profit. This he accounts for, from the low -rate of their interest. He supposes both Dutch and English to have -carried on this trade with borrowed money; for which the first paid 3 -_per cent._ and the other 6 _per cent._ - -But at present, were it possible to get 6 _per cent._ for money in -London, what Dutchman would lend his father a shilling at 3 _per cent._? -The English stocks are as currently bought and sold, nay, all the -stockjobbing tricks are practised with the same subtlety at Amsterdam as -in Change-Alley: from which I conclude, that a great part of the -advantage of low interest is now lost to that nation; and I conclude -farther, that it is the common interest of all trading nations to bring -it as low as possible every where. - -Another cause of high interest proceeds from certain clogs laid upon -circulation, which proceed merely from custom and prejudice. Of this -nature is the obligation of debtors to pay in the metals, nothing but -coin being a legal tender. - -The only foundation for such a regulation was the precariousness of -credit in former times. Were all the circulating paper in a nation -secured by law, either upon the lands or revenue of the country -appropriated for that purpose, there could be no injustice or -inconvenience in making paper (so secured) a legal tender in all -payments. Again, how extraordinary must it appear to any reasonable man, -that the same paper which passes on one side of a river, should not pass -on its opposite bank, though running through the same country? - -The reason indeed is very plain: the subaltern jurisdictions are -different; and the debtors in the paper are different: but if the paper -of both stood upon a security equally good, what is to hinder both to be -received as a legal tender in all payments over the kingdom? Should not -little private objects of profit among bankers (who are the servants of -the state, and who are so well paid for their service) be over-ruled, -when the consequences of their disputes are found to be so hurtful? But -of this more, when we come to speak of banks. - -The only occasion where coin is necessary in the liquidation of paper, -is for payment of the balance of trade with foreign nations. Of this -also we shall treat more at large, when we come to the doctrine of -exchange. But surely nothing is so ill judged, as to create an imaginary -balance within the same state; or rather, to permit money-jobbers to -create it; at the expence of raising interest, and hurting trade, in the -very places where it stands in the greatest need of encouragement. - -From these principles, and others which naturally flow from them, may a -statesman steer a very certain course, towards bringing the rate of -interest as low as the prosperity of trade requires, or the principles -of double competition between borrowers and lenders will permit. - - ------------------------------------------------------------------------- - - - CHAP. VIII. - _Is the Rate of Interest the sure Barometer of the State of Commerce?_ - - -Some political writers are fond of every expedient to reduce within a -narrow compass many questions, which being involved in intricate -combinations, cannot be reduced to one principle. This throws them into -what I call systems; of which we have an example in the question now -before us. - -There is nothing more difficult than to determine when commerce runs -favourably, and when unfavourably for a nation. This would not be the -case, were the rate of interest the just barometer of it. I have found -it however advanced, that nothing more is necessary to be known, in -order to estimate the relative profits upon the foreign trade of two -nations, than to compare the common rate of interest in both, and to -decide the preference in favour of that nation where it is found to be -lowest. - -We may say of this proposition, as of the course of exchange; the -lowness of interest and exchange are both exceedingly favourable to -trade; but they are no adequate measure of the profits arising from it. - -The best argument in favour of this opinion with regard to interest is, -that the nation which sells the cheapest at foreign markets is -constantly preferred; and, consequently, where the use of money is the -lowest, the merchant can sell the cheapest. - -I answer, that this consequence _would_ be just, were all trade carried -on with borrowed money, and were the difference of the price of the -materials or first matter, the ease in procuring them, the promptitude -of payments, the industry of the manufacturer, and his dexterity, -reckoned for nothing. But such advantages are frequently found in these -articles, as to be more than sufficient to counterbalance the additional -interest which is paid for the money employed in trade. This is so true, -that we see the dexterity alone of the workman (living in an expensive -capital, where the charge of living may be double of what it is in the -country) enabling him to undersell his competitors every where: the same -may be true with regard to the other articles. Farther, how far is it -not from truth to say, that all _trade_ is carried on with borrowed -money? When the term _trade_ here made use of, is properly understood, -we shall see, that a very inconsiderable part of its object is carried -on with borrowed money, in any country in Europe; and that part which is -carried on with borrowed money is not so much clogged by the high rate -of interest, as by want of punctuality in payments. A merchant who can -turn his money in three months, borrows as cheaply at 6 _per cent._ as -another who turns his in six months, when he borrows at 3 _per cent._ - -The object of trade is produce and manufacture. If any one will consider -the value of these two articles, before they come into the hands of -merchants, and compare this with the money borrowed by farmers and -manufacturers, in order to bring them to market, the proportion will be -very small. - -Do we not see every day, that ingenious workmen, who obtain credit for -very small sums, are soon enabled, by the means of their own industry, -to produce a surprizing value in manufactures, and not only to subsist, -but to increase in riches? The interest they pay for the money borrowed -is inconsiderable, when compared with the value, created (as it were) by -the proper employment of their time and talents. - -If it be said, that this is a vague assertion, supported by no proof; I -answer, that the value of a man’s work may be estimated by the -proportion between the manufacture when brought to market, and the first -matter. Nothing but the first matter, and the instruments of -manufacture, can be considered as the objects of borrowed money; unless -we go so far as to estimate the nourishment, and every expence of the -manufacturer, and suppose that these are also supplied from borrowed -money. To affirm that, would be turning arguments into cavil. - -The object, therefore, of borrowed money for carrying on trade, is more -relative to the merchant than to the manufacturer. Borrowing is -necessary for collecting all this product and manufacture into the hands -of merchants. This, no doubt, is very commonly the operation of credit: -interest of money, here, comes in, to indemnify the giver of credit, for -the use of his money: but this interest is only due from the time the -borrower pays those from whom he collects, to the time he receives -payment from those to whom he sells. This interval it is of the highest -importance to the merchant to shorten. In proportion as it is long, and -in proportion to the rate of interest, he must raise his profits; and in -proportion as payments are quick and regular, and interest low, he may -diminish them. Whether merchants do regulate their profits, in all -commercial nations, according to the exact proportion of the respective -rates of interest, and promptitude of payments among them; or whether -these are determined by the circumstances of demand and competition in -the several foreign markets where the trade is carried on, I leave to -merchants to determine. All I shall remark is, that a well founded -credit, and prompt payments, will do more service to trade, than any -advantage trading men can reap from the different rate of interest in -different countries. - -It must not be concluded from this, that low interest is not a very -great advantage to trade; all I contend for, is, that it is not the -barometer of it. - -Another circumstance which puts nations, in our days, much more on a -level than they were in former times, I have already hinted at. It is -_that general average_ which the great loads of national debts, and the -extension of credit, through the several nations of Europe, who pay -annually large sums of interest to their creditors, has established. Let -me suppose the Dutch, for example, to have fixed, by placard, the rate -of their interest at 3 _per cent._ I say, that so soon as the _general -average_ of interest comes to stand above that rate, from the price of -public funds in England and France, we may safely conclude, that their -trade cannot be carried on with any very considerable sum of money -borrowed at 3 _per cent._ The consequence then must be, to send the -money which regorges in the hands of the frugal Dutch, into other -countries, where it can produce a better return, exclusive of all -expences of remitting and drawing. What the consequences of this lending -to foreigners may be to Holland, shall be afterwards examined. - -To conclude; I believe it will be found, that what has led some to -believe that low interest is the barometer of commerce, has been owing -to this; that in some of the most commercial countries and cities -interest has been found to be lower than in great kingdoms: but _that_, -I imagine, is entirely owing to the frugality of their manners, which -cuts off the borrowing of the rich for the sake of dissipation. When -this is accomplished, trade alone being what absorbs the stagnations of -the frugal, the price of interest will fall to that rate which is the -best proportioned to the profits upon it: but this also will be less and -less the case every day, in proportion to the credit and circulation of -public funds in different nations. - - ------------------------------------------------------------------------- - - - CHAP. IX. - _Does not Interest fall in Proportion as Wealth increases?_ - - -I answer in the affirmative: providing it be supposed that dissipation -does not increase in proportion to the wealth. Now in a general -proposition, such as this which stands at the head of our chapter, that -very necessary proviso is not attended to, and thus people are led to -error. It is the manners of a people, not their external circumstances -as to riches, which render them frugal or extravagant. What, therefore, -depends upon the spirit of a people, cannot be changed, but in -consequence of a change of that spirit. - -If the rate of interest be high, from a taste of dissipation, let -foreign trade throw in what loads of money it may, interest will still -stand high, until manners change. Every class of a people has their -peculiar spirit. The frugal merchant will accumulate wealth, and the -prodigal lord will borrow it. In this situation, internal circulation -will be rapid, and lands will shift hands. If this revolution should -prove a corrective to dissipation, by vesting property in those who have -contracted a firm habit of frugality, then an augmentation of wealth may -sink the rate of interest. But if, on the contrary, the laws and manners -of the country do distinguish classes by their manner of living, and -mode of expence, it is ten to one that the industrious and frugal -merchant will put on the prodigal gentleman, the moment he gets into a -fine country seat, and hears himself called Your honour. In certain -countries, the memory of past industry carries a dreg along with it, -which nothing but expensive living has power to purge away. - -Let this suffice at present upon the subject of interest: it is so -connected with the doctrine of credit, that it will recur again at -almost every step as we go along. - - - END OF THE FIRST PART. - ------------------------------------------------------------------------- - - AN - - INQUIRY - - INTO THE - - PRINCIPLES OF POLITICAL OECONOMY. - ------------------------------------------------------------------------- - - BOOK IV. | OF CREDIT AND DEBTS. - - PART IV. | OF PUBLIC CREDIT. - ------------------------------------------------------------------------- - - BOOK IV. | OF CREDIT AND DEBTS. - - - PART II. - OF BANKS. - ------------------------------------------------------------------------- - - CHAP. I. - _Of the various Kinds of Credit._ - - -We have already pointed out the nature of credit, which is confidence; -and we have deduced the principles which influence the rate of interest, -the essential requisite for its support. - -We come now to treat of domestic circulation; where we are to deduce the -principles of banking. This is the great engine calculated for carrying -it on. - -That I may, with order, investigate the many combinations we shall here -meet with, I must point out wherein banks differ from one another in -point of policy, as well as in the principle upon which their credit is -built. - -If we consider them relative to their policy, I divide them into banks -of circulation, and banks of deposit. This every one understands. - -If according to their principle, they are established either on -_private_, or _mercantile_, or _public credit_. - -This last division I must attend to in the distribution of what is to -follow; and therefore it is proper to set out by explaining what I -understand by the terms I have here introduced. - -1_mo_, Private credit. This is established upon a security, real or -personal, of value sufficient to make good the obligation of repayment -both of capital and interest. This is the most solid of all. - -2_do_, Mercantile credit. This is established upon the confidence the -lender has, that the borrower, from his integrity and knowledge in -trade, may be able to replace the capital advanced, and the interest due -during the advance, in terms of the agreement. This is the most -precarious of all. - -3_tio_, Public credit. This is established upon the confidence reposed -in a state, or body politic, who borrow money upon condition that the -capital shall not be demandable; but that a certain proportional part of -the sum shall be annually paid, either in lieu of interest, or in -extinction of part of the capital; for the security of which, a -permanent annual fund is appropriated, with a liberty, however, to the -state to liberate itself at pleasure, upon repaying the whole; when -nothing to the contrary is stipulated. - -The solidity of this species of credit depends upon circumstances. - -The difference between the three kinds of credit lies more in the object -of the confidence, and the nature of the security, than in the condition -of the borrower. Either a private man, a merchant, or a state, may -pledge, for the security of a loan, a real or a moveable security, with -an obligation to refund the capital. In this case, the obligation stands -upon the solid basis of private credit. - -Either a private man, a merchant, or a state, may strike out projects -which carry a favourable appearance of success, and thereupon borrow -considerable sums of money, repayable with interest. In this case, the -obligation stands upon a mercantile credit. - -Either a private man, a merchant, or a state, may pledge (for the -security of money borrowed) a perpetual annual income, the fund of which -is not their property, without any obligation to refund the capital: -such obligations stand upon the principles of public credit. - -I allow there is a great resemblance between the three species of credit -here enumerated: there are however some characteristic differences -between them. - -1_mo_, In the difficulty of establishing and supporting them. - -Private credit is inseparable, in some degree, from human society. We -find it subsisting in all ages: the security is palpable, and the -principles on which it is built are simple and easy to be comprehended. -Public credit is but a late invention: it is the infant of commerce, and -of extensive circulation. It has supplied the place of the treasures of -old, which were constant and ready resources to statesmen in cases of -public distress: the security is not palpable, nor readily understood, -by the multitude; as it rests upon the liability of certain fundamental -maxims of government. Mercantile credit is still more difficult to -establish; because the security is the most precarious of any: it -depends upon opinion and speculation, more than upon a fund provided for -repayment of either capital or interest. - -2_do_, They differ in the nature of the security and object of -confidence. - -Private credit has a determinate object of confidence, viz. the real -existence of value in the hands of the debtor, sufficient to satisfy -both capital and interest. Public credit has the visible security of a -fund appropriated for the perpetual payment of the interest. Mercantile -credit depends wholly upon the integrity, capacity, and good fortune of -the debtor. - -3_tio_, The third difference is with regard to the ease of transfer. - -Public debts stand generally on the same bottom. No part of the same -fund is better than another: the price of them is publicly known, and -the securities are laid in the most convenient way for transfer, that -is, circulation, without consent of the debtor. This is far from being -the case in private securities. Nor is it the case in the mercantile, -except in bills payable to order, in which case alone, the creditor can -effectually transfer without the consent of the debtor. - -4_to_, The fourth difference is discovered in the stability of the -confidence. - -Nothing can shake private credit, but an appearance of insolvency in the -very debtor. But the bankruptcy of one considerable merchant, will give -a very great shock to mercantile credit over all Europe: and nothing -will hurt public credit, so long as the stipulated interest continues -regularly to be paid, and so long as the funds appropriated for that -payment remain entire. - -From what has been said, I hope the three species of credit have been -sufficiently explained; and from what is to follow, we shall feel the -utility of this distribution. - - ------------------------------------------------------------------------- - - - CHAP. II. - _Of private Credit._ - - -Private credit is either real, personal, or mixed. - -Real security or credit, every body understands. It is the object of -law, not of politics, to give an enumeration of its different branches. -By this term, we understand no more than the pledging an immoveable -subject for the payment of a debt. As by a personal security we -understand the engagement of the debtor’s whole effects for the relief -of his creditors. The mixed, I have found it necessary to superadd, in -order to explain with more facility, the security of one species of -banks. The notes issued by banks upon private credit, stand upon a mixed -security: that is, both real and personal. Personal, so far as they -affect the banker, and the banking stock pledged for the security of the -paper: and in the second place, upon the securities, real and personal, -granted to the banker for the notes he lends, which afterwards enter -into circulation. - -The ruling principles in private credit, and the basis on which it -rests, is the facility of converting, into money, the effects of the -debtor; because the capital and interest are constantly supposed to be -demandable. The proper way, therefore, to support this sort of credit to -the utmost, is to contrive a ready method of appretiating every subject -affectable by debts; and secondly, of melting it down into symbolical or -paper money. - -In former times, when circulation was confined, the scheme of melting -down the property of debtors, for the payment of creditors, was -impracticable; and accordingly we see that capitals secured on land -property were not demandable. This formed another species of credit, -different from any we have mentioned; which only differed from public -credit in this, that the solid property producing the income, was really -in the hands of the debtor. This subdivision we have omitted, as its -basis rests solely upon the regular payment of the interest. Of this -nature are the contracts of constitution in France, and the old -infeftments of annual rent in Scotland. There are few nations, I -believe, in Europe, where a vestige, at least, of this kind of security -does not remain. - -In order, then, to carry private credit to its greatest extent, all -entails upon lands should be dissolved; all obligations should be -regularly recorded in public registers; the value of all lands should be -ascertained, the moment any security is granted upon them; and the -statesman should interpose between parties, to accelerate the -liquidation of all debts, in the shortest time, and at the least expence -possible. - -Although this method of proceeding be the most effectual to secure, and -to extend private credit, yet it is not, at all times, expedient to have -recourse to it; as we have abundantly explained in the 27th chapter of -the second book; and therefore I shall not here interrupt my subject -with a needless repetition. - - ------------------------------------------------------------------------- - - - CHAP. III. - _Of Banks._ - - -In deducing the principles of banks, I shall do the best I can to go -through the subject systematically. - -I have divided credit into three branches, private, mercantile, and -public. This distribution will be of use on many occasions, and shall be -followed as far as it will go, consistently with perspicuity: but as I -have often observed of subjects of a complex nature, they cannot be -brought under the influence of a few general principles, without running -into the modern vice of forming systems, by wire-drawing many relations -in order to make them answer. - -The great operations of domestic circulation are better discovered by an -examination of the principles upon which we find banking established, -than by any other method I can contrive. It has been by inquiry into the -nature of those banks which are the most remarkable in Europe, that I -have gathered the little knowledge I have of the theory of circulation. -This induces me to think that the best way of communicating my thoughts -on that subject, is to lay down the result of my inquiries relative to -the very object of them. - -After comparing the operations of different banks in promoting -circulation, I find I can divide them, as to their policy, into two -general classes, viz. those which issue notes payable in coin to bearer; -and those which only transfer the credit written down in their books -from one person to another. - -Those which issue notes, I call banks of circulation; those which -transfer their credit, I call banks of deposit. - -Both indeed may be called banks of circulation, because by their means -circulation is facilitated; but as different terms serve to distinguish -ideas different in themselves, those I here employ, will answer the -purpose as well as any others, when once they are defined; and -circulation undoubtedly reaps far greater advantages from banks which -issue notes transferable every where, than from banks which only -transfer their credit on the very spot where the books are kept. - -I shall, according to this distribution, first explain the principles -upon which the banks of circulation are constituted and conducted, -before I treat of the other. - -This will lead me to avail myself of the division I have made of credit, -into private, mercantile, and public: because, according to the purposes -for which a bank is established, the ground of confidence, that is, the -credit of the bank, is settled upon one or other of them. - -In countries where trade and industry are in their infancy, credit must -be little known; and they who have solid property, find the greatest -difficulty in turning it into money, without which industry cannot be -carried on, as we have abundantly explained in the 26th chapter of the -second book; and consequently the whole plan of improvement is -disappointed. - -Under such circumstances, it is proper to establish a bank upon the -principles of private credit. This bank must issue notes upon land and -other securities, and the profits of it must arise from the permanent -interest drawn for the money lent. - -Of this nature are the banks of Scotland. To them the improvement of -that country is entirely owing; and until they are generally established -in other countries of Europe, where trade and industry are little known, -it will be very difficult to set those great engines to work. - -Although I have represented this species of banks, which I shall call -_banks of circulation upon mortgage_, as peculiarly well adapted to -countries where industry and trade are in their infancy, their -usefulness to all nations, who have upon an average a favourable balance -upon their trade, will sufficiently appear upon an examination of the -principles upon which they are established. - -It is for this reason, that I have applied myself to reduce to -principles all the operations of the Scotch banks, while they were in -the greatest distress imaginable, from the heavy balance the country -owed during the last years of the late war, and for some time after the -peace in 1763. By this I flatter myself to do a particular service to -Scotland, as well as to suggest hints which may prove useful, not only -to England, but to all commercial countries, who, by imitating this -establishment, will reap advantages of which they are at present -deprived. - -For these reasons, I hope the detail I shall enter into with regard to -Scotland, will not appear tedious, both from the variety of curious -combinations it will contain, as also from the lights it will cast upon -the whole doctrine of circulation, which is the present object of our -attention. - -In countries where trade is established, industry flourishing, credit -extensive, circulation copious and rapid, as in England, banks upon -mortgage, however useful they may prove for other purposes, would not -answer the demands of the trade of London, and the service of -government, so well as the bank of England. - -The ruling principle of that bank, and the ground of their confidence, -is mercantile credit. The bank of England does not lend upon mortgage, -nor personal security: their profits arise from discounting bills; loans -to government, upon the faith of taxes, to be paid within the year and -upon the credit cash of those who deal with them. - -A bank such as that of England, cannot therefore be established, except -in a great wealthy mercantile city, where the accumulation of the -smallest profits amount, at the end of the year, to very considerable -sums. - -In France, under the regency of the Duke of Orleans, there was a bank -erected upon the principles of public credit. The ground of confidence -there, and the only security for all the paper they issued, were the -funds appropriated for the payment of the interest of the public debts. - -It is for the sake of order and method, that I propose to explain the -principles of banking, according to this distribution. I must however -confess, that although I represent each of them as having a cause of -confidence peculiar to itself, to wit, either private, mercantile, or -public credit; yet we shall find a mixture of all the three species of -credit entring into the combination of every one of them. - -Banking, in the age we live, is that branch of credit which best -deserves the attention of a statesman. Upon the right establishment of -banks, depends the prosperity of trade, and the equable course of -circulation. By them [6]_solid property_ may be melted down. By the -means of banks, money may be constantly kept at a due proportion to -alienation. If alienation increases, more property may be melted down. -If it diminishes, the quantity of money stagnating, will be absorbed by -the bank, and part of the property formerly melted down in the -securities granted to them, will be, as it were, consolidated anew. -These must pay for the country the balance of their trade with foreign -nations. These keep the mints at work; and it is by their means, -principally, that private, mercantile, and public credit, is supported. -I can point out the utility of banks in no way so striking, as to recall -to mind the surprizing effects of Mr. Law’s bank, established in France, -at a time when there was neither money or credit in the kingdom. The -superior genius of that man produced, in two years time, the most -surprizing effects imaginable; he revived industry; he established -confidence; and shewed to the world, that while the landed property of a -nation is in the hands of the inhabitants; and while the lower classes -are willing to be industrious, money never _can_ be wanting. I must now -proceed in order, towards the investigation of the principles which -influence this intricate and complicated branch of my subject. - -Footnote 6: - - Solid property, here, is not taken in the strictest acceptation. In - countries of commerce, where banks are generally established, every - denomination of good personal security, may be considered as solid - property. Those who have personal estates may obtain credit from banks - as well as landed men; because these personal estates are secured - either on lands, or in the funds, or in effects which contain as real - a value as lands, and these being affected by the securities which the - proprietors grant to the bank, may with as much propriety be said to - be melted down, as if they consisted in lands. In subjects of this - nature, it is necessary to extend our combinations, in proportion to - the circumstances under which we reason. - - ------------------------------------------------------------------------- - - - CHAP. IV. - _Of Banks of Circulation upon Mortgage or private Credit._ - - -Banks of circulation upon mortgage or private credit, are those which -issue notes upon private security, payable to bearer on demand, in the -current coin of the nation. They are constituted in the following -manner. - -A number of men of property join together in a contract of banking, -either ratified or not by public authority, according to circumstances. -For this purpose, they form a stock which may consist indifferently of -any species of property. This fund is engaged to all the creditors of -the company, as a security for the notes they propose to issue. So soon -as confidence is established with the public, they grant credits, or -cash accompts, upon good security; concerning which they make the proper -regulations. In proportion to the notes issued in consequence of those -credits, they provide a sum of coin, such as they judge to be sufficient -to answer such notes as shall return upon them for payment. Nothing but -experience can enable them to determine the proportion between the coin -to be kept in their coffers, and the paper in circulation. This -proportion even varies according to circumstances, as we shall -afterwards observe. - -The profits of the bank proceed from the interest paid upon all the -securities which have been granted to it, in consequence of credits -given, and which remain with it unretired. - -Out of which must be deducted, first, the charge of management; -secondly, the loss of interest for all the coin they preserve in their -coffers, as well as the expence they are put to in providing it; and -thirdly, the expence of transacting and paying all balances due to other -nations. - -In proportion, therefore, as the interest upon the bank securities -exceeds the loss of interest on the coin in the bank, the expence of -management, and of providing funds abroad to pay balances, in the same -proportion is their profit; which they may either divide, accumulate, or -employ, as they think fit. - -Let it be observed, that I do not consider the original bank stock, or -the interest arising from _that_, as any part of the profits of the -bank. So far as regards the bank, it is their original property; and so -far as regards the public, it serves for a collateral security to it, -for the notes issued. It becomes a pledge, as it were, for the faithful -discharge of the trust reposed in the bank: without such a pledge, the -public could have no security to indemnify it, in case the bank should -issue notes for no permanent value received. This would be the case, if -they thought fit to issue their paper either in payment of their own -private debts, for articles of present consumption; or in precarious -trade. - -When paper is issued for no value received, the security of such paper -stands alone upon the original capital of the bank, whereas when it is -issued for value received, that value is the security on which it -immediately stands, and the bank stock is, properly speaking, only -subsidiary. - -I have dwelt the longer upon this circumstance, because many, who are -unacquainted with the nature of banks, have a difficulty to comprehend -how they should ever be at a loss for money, as they have a mint of -their own, which requires nothing but paper and ink to create millions. -But if they consider the principles of banking, they will find that -every note issued for value consumed, in place of value received and -preserved, is neither more or less, than a partial spending either of -their capital, or profits on the bank. Is not this the effect of the -expence of their management? Is not this expence paid in their notes? -But did ever any body imagine that this expence did not diminish the -profits of banking? Consequently, such expence may exhaust these -profits, if carried far enough; and if carried still farther, will -diminish the capital of the banking stock. - -As a farther illustration of this principle, let me suppose, an honest -man, intelligent, and capable to undertake a bank. I say that such a -person, without one shilling of stock, may carry on a bank of domestic -circulation, to as good purpose as if he had a million; and his paper -will be every bit as good as that of the bank of England. Every note he -issues, is secured on good private security; that security carries -interest to him, and stands good for the notes he has issued. Suppose -then that after having issued for a million sterling, all the notes -should return upon him in one day. Is it not plain, that they will find, -with the honest banker, the original securities, taken by him at the -time he issued them; and is it not true, that he will have, belonging to -himself, the interest received upon these securities, while his notes -were in circulation, except so far as this interest has been spent in -carrying on the business of his bank? Large bank stocks, therefore, -serve only to establish their credit; to secure the confidence of the -public, who cannot see into their administration; but who willingly -believe, that men who have considerable property pledged in security of -their good faith, will not probably deceive them. - -This stock is the more necessary, from the obligation of paying in the -metals. Coin may be wanting, upon some occasions, to men of the greatest -landed property. Is that any reason to suspect their credit? Just so of -banks. The bank of England may be possessed of twenty millions sterling -of good effects, to wit, their capital; and the securities for all the -notes they have issued; and yet that bank might be obliged to stop -payment, upon a sudden demand of a few millions of coin. - -Runs upon a bank well established, betray great want of confidence in -the public; and this want of confidence proceeds from the ignorance the -greatest part of men are in, with regard to the state of their affairs, -and of the principles upon which their trade is carried on. - -From what has been said, we may conclude, that the solidity of a bank -which lends upon private security, does not so much depend upon the -extent of their original capital, as upon the regulations they observe -in granting credit. In this the public is nearly interested; because the -bank securities are really taken for the public, who are creditors upon -it in virtue of the notes which circulate through their hands. - - ------------------------------------------------------------------------- - - - CHAP. V. - _Such Banks ought to issue their Notes on private, not mercantile - Credit._ - - -Let me, therefore, reason upon the example of two bankers; one issues -his notes upon the best real or personal security; another gives credit -to merchants and manufacturers, upon the principles of mercantile -credit, which we have explained above; the notes of the one and the -other enter into circulation, and the question comes to be, which are -the best? If we judge by the regularity of the payment of notes on -presentation, perhaps the one are as readily paid as the other. If we -judge by the stock of the two bankers, perhaps they may be equal, both -in value and solidity; but it is not upon either of these circumstances -that the question depends. The notes in circulation may far exceed the -amount of the largest bank stock; and therefore, it is not on the -original stock; but on the securities taken at issuing the notes, that -the solidity of the two currencies is to be estimated. Those secured on -private credit, are as solid as lands and personal estates; they stand -upon the principles of private credit. Those secured on the obligations -of merchants and manufacturers, depending upon the success of their -trade, are good or bad in proportion. Every bankruptcy of one of their -debtors, involves the bank, and carries off either a part of their -profits, or of their stock. Which way, therefore, can the public judge -of the affairs of bankers, except by attending to the nature of the -securities upon which they give credit[7]. - -Footnote 7: - - It must be observed, that in this example, the banker who issues his - notes upon mercantile security, is supposed to grant a permanent loan - to the merchant or manufacturer, as he would do to those who pledge a - personal security. This is totally repugnant to the principle of banks - secured on mercantile credit. Such banks never grant loans for - indefinite duration, upon any security whatsoever. They will not even - discount a bill of exchange, when it has above two months to run. - - ------------------------------------------------------------------------- - - - CHAP. VI. - _Use of subaltern Bankers and Exchangers._ - - -Here it may be urged, that the great use of banks is to multiply -circulation, and to furnish the industrious with the means of carrying -on their traffic: that if banks insist upon the most solid sureties -before they give credit, the great utility of them must cease; because -merchants and manufacturers are never in a situation to obtain credit -upon such terms. - -This argument only proves, that banks are not, alone, sufficient for -carrying on every branch of circulation. A truth which no body will -contravert. But as they are of use in carrying on the great branches of -circulation, it is proper to prevent them from engaging in schemes which -may destroy their credit altogether. - -I have observed above, that this method of issuing notes upon private -security, was peculiarly well adapted to countries like Scotland, where -trade and industry are in their infancy. - -Merchants and manufacturers there, have constant occasion for money or -credit; and at the same time, they cannot be supposed to have either -real or personal estates to pledge, in order to obtain a loan directly -from the banks, who ought to lend upon no other security. - -To remove that difficulty, we find a set of merchants, men of substance, -who obtain from the banks very extensive credits upon the joint real and -personal security of themselves and friends. With this assistance from -the bank, and with money borrowed from private people, repayable on -demand, something below the common rate of interest, they support the -trade of Scotland, by giving credit to the merchants and manufacturers. - -To this set of men, therefore, are banks of circulation upon mortgage to -leave that particular branch of business. It is their duty, it is the -interest of the country, and no less that of banks, that they be -supported in so useful a trade; a trade which animates all the commerce -and manufactures of Scotland, and which consequently promotes the -circulation of those very notes upon which the profits of the banks do -arise. - -These merchants are settled in all the most considerable towns: they are -well acquainted with the stock, capacity, industry, and integrity of all -the dealers in their district: they are many; and by this are able to go -through all the detail which their business requires; and their profits, -as we shall see presently, are greater than those of banks, who lend at -a stated interest. - -The common denomination by which they are called in Scotland, is that of -bankers; but to avoid their being confounded with bankers in England -(whose business is very different) we shall, while we are treating of -the doctrine of banks, call them by the name of exchangers, since their -trade is principally carried on by bills of exchange. - -As often as these exchangers give credit to dealers in any way, they -constantly state a commission of ½ _per cent._ or more, according to -circumstances, over and above the interest of their advance; profits -which greatly surpass those of any bank. One thousand pounds credit -given by a bank, may not produce ten pounds in a year for interest: if -given by a banker, to a merchant, who draws it out, and replaces it -forty times in a year, there will arise upon it a commission of 20 _per -cent._ or 200_l._ - -This set of men are exposed to risks and losses, which they bear without -complaint, because of their great profits; but it implies a detail, -which no bank can descend to. - -These exchangers give way, from time to time; and no essential hurt is -thereby occasioned to national credit. The loss falls upon those who -lend to them, or trust them with their money, upon precarious security; -and upon merchants, who lay their account with such risks. In a word, -they are a kind of insurers, and draw premiums in proportion to their -risks. - -To this set of men, therefore, it should be left to give credit to -merchants, as the credit they give is purely mercantile; and to banks -alone, who give credit on good private security, it should be left to -conduct the great national circulation, which ought to stand upon the -solid principles of private credit. - -From this example we may discover the justness of the distinction I have -made between _private_ and _mercantile_ credit: had I not found it -necessary, I would not have introduced it. - - ------------------------------------------------------------------------- - - - CHAP. VII. - _Concerning the Obligation to pay in Coin, and the Consequences - thereof._ - - -In all banks of circulation upon mortgage, the obligation in the note is -to pay in coin, upon demand: and in the famous book of Mr. Law, there -was a very necessary clause added; to wit, that the coin was to be of -the same weight, fineness, and denomination, as at the date of the note. -This was done, in order to prevent the inconveniencies which might -result to either party, by an arbitrary raising or sinking the -denominations of the coin; a practice then very familiar in France. - -This obligation to pay in coin, owes its origin to the low state of -credit in Europe at the time when banks first began to be introduced; -and it is not likely that any other expedient will soon be fallen upon -to remove the inconveniences which result from it in domestic -circulation, as long as the generality of people consider all money, -except coin, to be false and fictitious. - -I have already thrown out abundance of hints, from which it may be -gathered, that coin is not absolutely necessary for carrying on domestic -circulation, and more will be said on that subject, as we go along. But -I am here to examine the nature and consequences of this obligation -contracted by banks, to discharge their notes in the current coin of the -country. - -In the first place, it is plain, that no coin is ever (except in very -particular cases) carried to a bank, in order to procure notes. The -greatest part of notes issue from the banks, of which we are treating, -either in consequence of a loan, or of a credit given by the bank, to -such as can give security for them. The loan is made in their own notes; -which are quickly thrown back into circulation by the borrower; who -borrowed, because he had occasion to pay them away. In like manner, when -a credit is given, the bank pays (in her notes) the orders she receives -from the person who has the credit: in this manner are notes commonly -issued from a bank. - -Coin, again, comes to a bank, in the common course of circulation, by -payments made to it, either for the interest upon their loans, or when -merchants and landed men throw the payments made to them into the bank, -towards filling up their credits; and by way of a safe deposit for their -money. These payments are made to the bank in the ordinary circulation -of the country. When there is a considerable proportion of coin in -circulation, then the bank receives much coin; and when there is little, -they receive little. Whatever they receive is laid by to answer notes -which are offered for payment; but whenever a draught is made upon them -for the money thrown in as above, they pay in paper. - -As we are here searching after principles, not after facts, it is out of -our way to inquire what may be the real proportion of coin preserved by -banks of circulation, for answering the demand for it. - -Mr. Megens, a very knowing man, and a very judicious author, lately -dead, who has writ a small treatise in the German tongue, translated -into English, under the title of _The Universal Merchant_, delivers his -sentiments concerning the proportion of coin preserved in the bank of -England, which I shall here transcribe in the translator’s words. Sect. -60. - -The bank of England consists of two sorts of creditors, the one of that -set of men, who, in King William’s time, when money was scarce and dear, -lent the public 1,200,000 pounds, at 8 _per cent._ interest, and 4000 -pounds were allowed them for charges, amounting in whole to 100,000 -pounds a year, an exclusive right of banking as a corporation for 13 -years, under the denomination of the proprietors of the bank; and which, -for obtaining prolongation of their privileges, has been since increased -by farther loans to the public at a less interest, to near the sum of -11,000,000 pounds, which if we compute the interest at 3 _per cent._ (as -what they have more on some part answers incident charges) it produces -330,000 pounds a year; and as they divide annually 5 _per cent._ to -their proprietors, which, is 550,000 pounds, it is evident that they -make a yearly profit of 220,000 pounds, _out of the money of the people -who keep cash with them_, and these are the other sort of creditors: and -as for what money the bank lends to the government, they have for the -most part but 3 _per cent._ interest, I conclude that _the credit cash -they have in their hands_ may amount to 11,000,000 pounds, and thereout -is employed in loans to the government, discounting of bills, and in -buying gold and silver 7,333,333⅓ pounds, which at 3 _per cent._ -interest or profit, will amount to the above 220,000 pounds, and remains -3,666,666⅔ pounds in cash, sufficient for circulation and current -payments. And experience has evinced, that whenever any mistrust has -occasioned any run upon the bank for any continuance, and the people not -finding the treasure so soon exhausted as they surmised, it flowed in -again faster on the one hand than it was drawn out on the other. - -This gentleman lived long in England. He was very intelligent in matters -relating to commerce; and his authority may, I believe, be relied on as -much as on any other, except that of the bank itself; which, it would -appear, has some interest in keeping those affairs a secret. - -We see by his account, that the bank of England keeps in coin ⅓ of the -value of all their notes in circulation. With this quantity, business is -carried on with great smoothness, owing to the prosperity of that -kingdom, which seldom owes any considerable balance to other nations. - -But the consequence of the obligation to pay in coin, is, that when the -nation comes to owe a balance, the notes which the bank had issued to -support domestic circulation _only_, come upon it for payment of a -foreign balance; and thereby the coin which it had provided for home -demand only, is drawn out. - -It is this circumstance, above all others, which distresses banks of -circulation. Were it not for this, the obligation to pay in coin might -easily be discharged; but when in virtue of this pure obligation, a -heavy national balance is demanded of the bank, which has only made -provision for the current and ordinary demand at home, it requires a -little combination to find out, at once, an easy remedy. - -This combination we shall, in the following chapters, endeavour to -unfold: it is by far the most intricate, and at the same time the most -important in the whole doctrine of banks of circulation. - -Another inconvenience resulting from this obligation to pay in coin, we -have explained in the third book. It is, that the confusion of the -English coin, and the lightness of a great part of it, obliges the bank -of England to purchase the metals at a price far above that which they -can draw back for them after they are coined. We have there shewn the -great profit that might be made in melting down and exporting the heavy -species. This profit turns out a real loss to the bank of England, which -is constantly obliged to provide new coin, in proportion as it is -wanted. This inconvenience is not directly felt by banks, in countries -where there is no mint established. - -Here then is another bad consequence of this obligation to pay in the -metals, which a proper regulation of the coin would immediately remove. -In countries which abound in coin, banking is an easy trade, when once -their credit is well established. It is only when either a foreign war, -or a wrong balance of trade has carried off the metals, that the weight -of this obligation to pay in coin is severely felt. - - ------------------------------------------------------------------------- - - - CHAP. VIII. - _How a wrong Balance of Trade affects Banks of Circulation._ - - -It is commonly said, that when there is a balance due by any nation, -upon the whole of their mercantile transactions with the rest of the -world, such balance must be paid in coin. This we call a wrong balance. -Those who transact the payment of this balance, are those who regulate -the course of exchange; and we may suppose, without the least danger of -being deceived, that the course is always higher than the expence of -procuring and transporting the metals; because the overcharge is profit -to the exchanger, who without that profit could not carry on his -business. - -These exchangers, then, must have a command of coin; and where can they -get it so easily, and so readily, as from banks who are bound to pay in -it? - -Every merchant who imports foreign commodities, must be supposed to have -value in his hands from the sale of them; but this value must consist in -the money of the country: if that be mostly bank paper, he must give the -bank paper to the exchangers for a bill, whose business it is to place -funds in those parts upon which bills are demanded. The exchanger again -(to support that fund which he exhausts by his draughts) must demand -coin from the banks, for the notes he received from the merchant when he -gave him the foreign bill. - -Besides the wrong balances of trade transacted in this manner, which -banks are constantly obliged to make good in coin, every other payment -made to foreigners has the same effect. It is not because it is a -_balance of trade_, but because it is a payment which cannot be made in -paper currency, that a demand is made for coin. Coin we have called the -money of the world, as notes may be called the money of the society. The -first then must be procured when we pay a balance to foreigners; the -last is full as good when we pay among ourselves. - -It is proper, however, to observe, that there is a great difference -between the wrong _balance of trade_, and the general _balance of -payments_. The first marks the total loss of the nation when her imports -exceed the value of her exports; the second comprehends three other -articles, viz. 1. the expence of the natives in foreign countries; 2. -the payment of all debts, principal and interest, due to foreigners; 3. -the lending to other nations. - -These three I call the general balance of foreign payments: and these -added to the wrong balance of trade may be called the _grand balance_ -with the world. - -Now as long as the payment of this _grand balance_ is negotiated by -exchangers, all the coin required to make it good, must be at the charge -of banks. - -How then is this coin to be procured by nations who have no mines of -their own? - - ------------------------------------------------------------------------- - - - CHAP. IX. - _How a grand Balance may be paid by Banks, without the assistance of - Coin._ - - -Did all the circulation of a country consist in coin, this _grand -balance_, as we have called it, would be paid out of the coin, to the -diminution of it. - -We have said that the acquisition of coin, or of the precious metals, -adds to the intrinsic value of a country, as much as if a portion of -territory were added to it. The truth of this proposition will now soon -appear evident. - -We have also said, that the creation of symbolical money, adds no -additional wealth to a country, but only provides a fund of circulation -out of solid property; which enables the proprietors to consume and to -pay proportionally for their consumption: and we have shewn how by this -contrivance trade and industry are made to flourish. - -May we not conclude, from these principles, that as nations who have -coin, pay their _grand balance_ out of their coin, to the diminution of -that species of their property, so nations who have melted down their -solid property into symbolical money, must pay their _grand balance_ out -of the symbolical money; that is to say, out of the solid property of -which it is the symbol? - -But this solid property cannot be sent abroad; and it is alleged that -nothing but coin can be employed in paying this _grand balance_. To this -I answer, that in such a case the credit of a bank may step in, without -which a nation which runs short of coin, and which comes to owe a _grand -balance_ must quickly be undone. - -We have said that while exchangers transact the balance, the whole load -of providing coin lies upon banks. Now the whole solid property melted -down, in their paper, is in their hands; because I consider the -securities given them for their paper, to be the same as the property -itself. Upon this property, there is a yearly interest paid to the bank: -this interest, then, must be engaged by them to foreigners, in lieu of -what is owing to them by the nation; and when once a fund is borrowed -upon it abroad, the rest is easy to the bank. This shall be further -explained as we go along. - -I do not pretend that the common operation of providing coin, when the -_grand balance_ is against a nation, is as simple as I have represented -it. I know it is not: and I know also, that I am not in any degree -capable to explain the infinite combination of mercantile operations -necessary to bring it about; but it is no less true, that these -combinations may be shortened: because when the whole of them have been -gone through, the transaction must land in what I have said; to wit, -that either the _grand balance_ must be paid out of the national stock -of coin, or it must be furnished by foreigners upon a loan from them; -the interest of which must be paid out of that part of the solid -property of the nation which has been melted down into paper. I say -farther, that were not all this solid property, so melted down, in the -hands of banks, who thereby have established to themselves an enormous -_mercantile_ credit; there would be no possibility of conducing such an -operation: that is to say, there would be no possibility for nations to -run in debt to nations, upon the security of their respective landed -property. - - ------------------------------------------------------------------------- - - - CHAP. X. -_Insufficiency of temporary Credits for the Payment of a wrong Balance._ - - -I have said, that when the national stock of coin is not sufficient to -provide banks with the quantity demanded of them, for the payment of the -_grand balance_, that a loan must take place. To this it may be -objected, that a credit is sufficient to procure coin, without having -recourse to a formal loan. The difference I make between a loan and a -credit consists in this, that, by a credit we understand a temporary -advance of money, which the person who gives the credit expects to have -repaid in a short time, with interest for the advance, and commission -for the credit; whereas by a loan we understand the lending of money for -an indefinite time, with interest during non-payment. - -Now I say, the credit, in this case, will not answer the purpose of -supplying a deficiency of coin; unless the deficiency has been -accidental, and that a return of coin, from a new favourable _grand -balance_, be quickly expected. The credit will indeed answer the present -exigency; but the moment this credit comes to be replaced, it must be -replaced either by a loan, or by a supply of coin; but, by the -supposition, coin is found to be wanting for paying the _grand balance_; -consequently, nothing but a loan, made by the lenders either in coin, in -the metals, or in a liberty to draw, can remove the inconvenience; and -if recourse be had to credit, instead of the loan, the same difficulty -will recur, whenever that credit comes to be made good by repayment. - -Upon the whole, we may conclude, that nations who owe a balance to other -nations, must pay it either with their coin, or with solid property; -consequently, the acquisition of coin is, in this particular, as -advantageous as the acquisition of lands; but when coin is not to be -procured, the transmission of the solid property to foreign creditors is -an operation which banks must undertake; because it is they who are -obliged either to do that, or to pay in coin. - - ------------------------------------------------------------------------- - - - CHAP. XI. -_Of the Hurt resulting to Banks, when they leave the Payment of a wrong - Balance to Exchangers._ - - -We have seen in a former chapter, how exchangers and banks are mutually -assistant to one another: the exchangers by swelling and supporting -circulation; the bank by supplying them with credit for that purpose. -While parties are united by a common interest, all goes well: but -interest divides, by the same principle that it unites. - -No sooner does a nation incur a balance against itself, than exchangers -set themselves to work to make a fortune, by conducting the operation of -paying it. They appear then in the light of political usurers, to a -spendthrift heir who has no guardian. The guardian should be the bank, -who, upon such occasions, (and upon such only) ought to interpose -between the nation and her foreign creditors. This it may do, by -constituting itself at once debtor for the whole balance, and by taking -foreign exchange into its hand, until such time as it shall have -distributed the debt it has contracted for the nation, among those -individuals who really owe it. This operation performed, exchange may be -left to those who make that branch their business, because then they -will find no opportunity of combining either against the interest of the -bank or of individuals. - -When a national bank neglects so necessary a duty, as well as so -necessary a precaution, the whole class of exchangers become united by a -common interest against it; and the country is torn to pieces, by the -fruitless attempt it makes to support itself, without the help of the -only expedient that can relieve it. - -Those exchangers having the _grand balance_ to transact with other -nations, make use of their credits with the bank, or of its notes, to -draw from it their coin, in order to export it. This throws a great load -upon the bank, which is constantly obliged to provide a sufficient -quantity for answering all demands; for we have laid it down as a -principle, that whatever coin or bills are necessary to pay this _grand -balance_, in every way it can be transacted, it must ultimately be paid -by the bank; because whoever wants coin for any purpose, and has bank -notes, can force the bank to pay in coin, or stop payment. - -It cannot, therefore, be said, that exchangers do wrong; nor can they be -blamed, in drawing from the bank whatever is wanted for the purpose of -paying to foreigners what is their due; that is, what is justly owing to -them. If they do more, they must hurt themselves; because whatever is -sent abroad more than is due, must constitute the rest of the world -debtors to the country which sends out their coin. The consequence of -this is to turn exchange against foreigners, and to make it favourable -for the nation which is creditor. In this case, were the creditors still -to continue sending coin abroad, they would _lose_ by that operation, -for the same reason that they _gain_, by sending it out when they are -debtors. - -It is very common for banks to complain, when coin is hard to be -procured, and when large demands are made upon them; they then allege -unfair dealings against exchangers; they fall to work to estimate the -balance of trade, and endeavour to show that it is not in reality -against the country. - -But alas! this is nothing to the purpose; the _balance of trade_ may be -very favourable, although the _balance of payments_ be greatly against -the country; and both must be paid, while the bank has a shilling of -cash, or a note in circulation. So soon again as the _grand balance_ is -fairly paid off, it is impossible that any one can find an advantage in -drawing coin from a bank; except in the single case of melting down the -heavy species, in nations which give their coinage gratis. Of this we -have treated at sufficient length in another place. - -Banks may indeed complain, that men of property are sometimes sending -their money out of the country, at a time when it is already drained of -its coin; that this raises exchange, and hurts the trading interest. - -Exchange must rise, no doubt, in proportion as the grand balance is -great, and difficult to be paid: But where does the blame lie? Who ought -to provide the coin, or the bills for paying this grand balance? Have we -not shewn that it is the bank alone who ought to provide coin for the -ready answering of their notes? Have we not said, that the method of -doing this is by sacrificing a part of the interest due upon the -obligations in their hands, secured upon the solid property of the -country, and by the means of foreign loans upon that fund, to procure -either the metals themselves, or a power to draw on those places where -the nation’s creditors reside? - -Which of the two has most reason to complain, the bank, because the -inhabitants think fit to send their effects out of the country, being -either forced so to do by their creditors, or choosing so to do for -their private advantage; or the creditors of the bank, and the country -in general, when, from the obstructions the bank throws in the way, when -required to pay its notes, exchange is forced up to an exorbitant -height; the value of what private merchants owe to strangers is raised; -and when, by discouraging trade in their hands, a general stop is put to -manufactures and credit in general? - -In a word, the bank has no reason to complain, unless they can make it -appear, how any person, exchanger or other, can find an advantage in -sending coin out of the country, at a time when there is no demand for -it; or when there is no near prospect of it, which is the same thing? To -say that a principle of public spirit should prevent a person from doing -with his property what is most to his advantage, in favour of saving -some money to a bank, is supposing the bank to be the public, instead of -being the servant of the public. - -Another argument to prove that no profit can be made by sending out -coin, except when the balance is against a country, is, that we see all -runs upon banks stop, the moment exchange becomes favourable. Were there -a profit to be made upon sending off coin, independently of the debts to -be paid with it, which cannot be paid without it, the same trade would -be profitable at all times. As this is not the case, it follows, that -the principle we have laid down is just; to wit, that the balance due to -foreigners _must_ be paid by banks, while they have a note in -circulation; and when once it is fairly paid by them, all extraordinary -demands _must_ cease. - -We now proceed to another point, to wit, What are the consequences to -circulation, when a great balance draws away a large quantity of coin -from the bank, and sends it out of the country? - - ------------------------------------------------------------------------- - - - CHAP. XII. - _How the Payment of a wrong Balance affects Circulation._ - - -That I may communicate my ideas with the greater precision, I must here -enter into a short detail of some principles, and then reason on a -supposition. - -It has been said, that the consequence of credit and paper-money, -secured on solid property, was to augment the mass of the circulating -equivalent, in proportion to the uses found for it. - -These uses may be comprehended under two general heads. The first, -payment of what one owes; the second, buying what one has occasion for: -the one and the other may be called by the general term of ready-money -demands. - -Whoever has a ready-money demand upon him, and property at the same -time, ought to be furnished with money by banks which lend upon -mortgage. - -Now the state of trade, manufactures, modes of living, and the customary -expence of the inhabitants, when taken all together, regulate and -determine what we may call the mass of ready-money demands, that is, of -alienation. To operate this multiplicity of payments, a certain -proportion of money is necessary. This proportion again may increase or -diminish according to circumstances; although the quantity of alienation -should continue the same. - -To make this evident, let us suppose the accounts of a whole city kept -by one man; alienation will go on without any payment at all, until -accounts are cleared; and then nothing will be paid, but general -balances upon the whole. This however is only by the bye. The point in -hand is to agree, that a certain sum of money is necessary for carrying -on domestic alienation; that is, for satisfying ready-money demands: let -us call this quantity (A). - -Next, in most countries in Europe, (I may say all) it is customary to -circulate coin, which, for many uses, is found fitter than paper, (no -matter for what reason); custom has established it, and with custom even -statesmen must comply. - -The paper-money is generally made payable in coin; from custom also. -Now, according to the manners of the country, more or less coin is -required for domestic circulation. Let it be observed, that hitherto we -have not attended to foreign circulation, of which presently: and I say, -that the manners of a country may make more or less coin necessary, for -circulating the same quantity of paper; merchants, for instance, -circulate much paper and little coin; gamesters much coin, and little -paper: one example is sufficient. - -Let this quantity of coin, necessary for circulating the paper-money, be -called (B), and let the paper be called (C); consequently (A) will be -equal to the sum of (B) and (C). Again, we have said, that all balances -owing by nation to nation, are paid either in coin, in the metals, or in -bills; and that bank paper can be of no use in such payments. Let the -quantity of the metals, coin, or bills, going out or coming into the -country for payment of such balance, be called (D). - -These short designations premised, we may reason with more precision. -(A) is the total mass of money (coin and paper) necessary at home: (A) -is composed of (B) the coin, and of (C) the paper, and (D) stands for -that mass of coin, or metal, or bills, which goes and comes according as -the _grand balance_ is favourable or unfavourable with other nations. - -Now, from what has been said, we may determine, that there should at all -times remain in the country, or in the bank, a quantity of coin equal to -(B); and if this be ever found to fall short, the bank does not -discharge its duty. It is unnecessary to determine what part of (B) -should be locked up in the bank, and what part should remain in -circulation: banks themselves cannot determine that question: all we -need to say is, that it is the profit of banks to accustom people to the -use of paper as much as possible; and therefore they will draw to -themselves as much coin as they can. - -When a favourable balance of trade brings exchange below par, and brings -coin into the country, the consequence is, either to animate trade and -industry, to augment the mass of payments, to swell (A), and still to -preserve (C) in circulation; or to make (A) regorge, so as to sink the -interest of money below the bank lending price; and then people will -carry back the regorging part of (C) to the bank, and withdraw their -securities; which is consolidating, as we have called it, the property -which had been formerly melted down, for want of this circulating -equivalent (money). - -This is constantly the consequence of a stagnation of paper, from an -overcharge of it, thrown into circulation. It returns upon the bank, and -diminishes the mass of their securities, but never that of their coin. - -From this we may conclude, that the circulation of a country can only -absorb a determinate quantity of money (coin and paper); and that the -less use they make of coin, the more use they will make of paper, and -_vice versa_. - -We may also conclude, that when trade and alienation increase, _cæteris -paribus_, so will money; that is, more solid property will be melted -down; and when trade and alienation diminish, _cæteris paribus_, so will -money; that is, some of the solid property formerly melted down, will -consolidate, as we have called it. - -These vicissitudes in the mass of circulation are not peculiar to paper -currency. In countries where nothing circulates but the metals, the case -is the same; only the operation is more aukward and expensive. When coin -becomes scarce there, it is hardly possible, in remote provinces, to -find any credit at all: and in the center of circulation, the use of it -(interest) must rise very considerably, and stand high for some time, -before even intelligent merchants will import bullion to the mint; which -is the only bank they have to fit it for circulation. When the metal is -coined, then men of property are enabled to borrow, or to sell their -lands. On the other hand, when a favourable balance pours in a -superfluity of coin, and at the same time cuts off the demands of trade -for sending it abroad, it frequently falls into coffers; where it -becomes as useless as if it were in the mine; and this clumsy -circulation, as I may call it, prevents it from coming into the hands of -those who would have occasion for it, did they but know where to come at -it. Paper, on the other hand, when banks and trade are well established, -is always to be found. Thus, in an instant, paper-money either creates -or extinguishes an interest equal to its value, in favour of the -possessor. No part of it lies dead, not for a day, when employed in -trade: it is not so of coin. - -We must now suppose a bank established in a country which owes a balance -to other nations. - -In this case, the bank must possess, or be able to command, a sum of -coin or bills equal to (B) and (D); (B) for domestic, and (D) for -foreign circulation. - -Those who owe this balance (D), and who are supposed to have value for -it, in the currency of the country, in order to pay it, must either -exhaust a part of (B), by sending it away, or they must carry a part of -(C) to the bank, to be paid for in coin. If they pick up a part of (B) -in the country, then the coin in circulation, being diminished below its -proportion, the possessors of (C) will come upon the bank for a supply, -in order to make up (B) to its former standard. Banks complain without -reason. If they carry part of (C) to be changed at the bank, for the -payment of (D), they thereby diminish the quantity of (C); consequently -there will be a demand upon the bank for more notes, to support domestic -circulation; because those which have been paid in coin are returned to -the bank, and have diminished the mass of (C); which therefore must be -replaced by a new melting down of solid property. - -Now I must here observe, that this recruit, issued to fill up (C) to the -level, is an addition made to the mass of securities formerly lodged -with the bank; and represents, not improperly, that part of the landed -property of a country which the bank must dispose of to foreigners, in -order to procure from them the coin or bills necessary for answering the -demand of (D). - -When notes, therefore, are carried to the bank for payment of debts due -to the bank, they then diminish the mass of solid property melted down -in the securities lodged in the bank: but when notes are carried to the -bank, to be converted into coin or bills, for foreign exportation, they -do not diminish the mass of the securities: on the contrary, the -consequence is, to pave the way for the augmentation of them; because I -suppose that the notes, so given in to the bank, and taken out of the -circle, are to be replaced by the bank to domestic circulation, to which -they belonged; and the bank must be at the expence of turning the value -of these additional securities granted for them into coin or foreign -bills. - -Is not this quite consistent with reason, fact, and common sense? If a -country contracts debts to foreigners, is it not just the same case as -when one man contracts a debt to another in the same society? Must not -the ultimate consequence of this debt be, that it must be paid, either -with the coin, with the moveables, or with the solid property of the -debtor, transferred to the creditor, in lieu of the money owing? - -When a nation can pay with its coin, or with its effects, (that is to -say, with its product and manufactures) the operation is easily and -mechanically performed by the means of trade: when these objects are not -sufficient; or when land, or an annual and perpetual income out of it, -must make up the deficiency; then more skill and expence is required; -and this expence falling upon banks, makes their trade less lucrative -than in times when commerce stands at par, or is bringing in a balance. - -Were trade to run constantly against a country, the consequence would -be, that the whole property of it would, by degrees, be transferred to -foreigners. This the bank of St. George at Genoa has operated with -regard to Corsica, as has been observed. But in that case, banks never -could neglect laying down a plan whereby to avoid the loss they casually -sustain, when such a revolution comes suddenly or unexpectedly upon -them. - -The method would be, to establish an annual subscription _abroad_, for -borrowing a sum equivalent to the _grand balance_; the condition being -to pay the interest of the subscriptions out of the revenue of the -country. - -If the security offered be good, there is no fear but subscribers will -be found, while there is an ounce of gold and silver in Europe. - -The bank of England has an expedient of another nature, in what they -call their _circulation_; which is a premium granted to certain persons, -upon an obligation to pay a certain sum of coin upon demand. This is -done with a view to answer upon pressing occasions. But England being a -prosperous trading nation, which seldom has any considerable _grand -balance_ against her, (except in time of war, when the public borrowings -supply in a great measure the deficiency, as shall be afterwards -explained) this bank circulation is turned into a job; the subscriptions -being lucrative, are distributed among the proprietors themselves, who -make no provision for the demand; and were it again to come, (as has -been the case) the subscribers would, as formerly, make a call on the -bank itself, by picking up their notes, and pay their subscriptions with -the bank’s own coin. - -To obviate this inconvenience, which was severely felt in the year 1745, -the bank of England should have opened a subscription in some foreign -country; Holland, for example; where she might have procured large -quantities of foreign coin: such a seasonable supply would have proved a -real augmentation of the metals; the supply they got from their own -domestic subscribers was only fictitious[8]. - -Footnote 8: - - At this time there was another circumstance, besides the demand of a - balance to be paid abroad, which distressed the bank, viz. a suspicion - which took place, that if the rebellion had succeeded, the credit of - the bank would have totally failed. This very case points out the - great advantage of banks upon mortgage of private credit. - - We have said, that the credit of such banks ought to be established - upon the principles of private securities only. If their notes be - issued upon solid property, then no rebellion can influence them: but - of this more hereafter. - -But banks in prosperous trading nations sit down with casual and -temporary inconveniencies; and exchangers carry on a profitable trade, -whether the nation be gaining or losing all the while. For such nations, -and such only, are banks advantageous. Were banks established in Spain, -Portugal, or any other country which pays a constant balance from the -produce of their mines, they would only help on their ruin a little -faster. - -In the infancy of banking, and in countries where the true principles of -the trade are not well understood, we find banks taking a general alarm, -whenever a wrong balance of trade occasions a run upon them. This terror -drives them to expedients for supporting their credit, which we are now -to examine, and which we shall find to have a quite contrary tendency. - -The better to explain this combination, we must recall to mind, that the -payment of the _grand balance_ in coin or bills is unavoidable to banks. -We have said that this balance is commonly paid by exchangers, who pick -up the coin in circulation; a thing the bank cannot prevent. This we -have called exhausting a part of (B): the consequence of this is, to -make the proprietors of (C) come upon the bank, and demand coin for -filling up (B): to this the bank must also agree. But by these -operations (C) comes to be diminished, below the level necessary for -carrying on trade, industry, and alienation: upon which I have said -there commonly comes an application to the bank to give more credit, in -order to support domestic circulation, which if complied with, more -solid property is consequently melted down. - -This swells the mass of securities, and raises (A) to its former level. -But here the bank has an option to refuse more credit: in the former -operations it had none. Now if the bank, from a terror of being drained -of coin, should refuse to issue notes upon new credits, for the demands -of domestic circulation; in this case, I say, they fail in their duty to -the nation, as banks, and hurt their own interest. As to their duty to -the nation, I shall not insist upon it; but I think I can demonstrate -that they fail in point of combination, with respect to their own -interest, and that is enough. - -I say, then, that as long as there is one single note in circulation, -and any part of a grand balance owing, that note will come upon the bank -for payment, without a possibility of its avoiding the demand. Refusing -therefore credit, while any notes remain in the hands of the public, is -refusing an interest which may help to make up the past losses: but of -this more hereafter. - -In the next place, I think I have demonstrated, that so soon as the -_grand balance_ is paid, it is impossible that any more demands for coin -can come upon the bank for exportation. Why then should a bank do so -signal a prejudice to their country, as to refuse to lend them paper, -which the ready-money demands of the country must suspend in -circulation? And why do this at so great a loss to themselves? It has -been said above, and I think with justice, that this recruit, issued to -fill up circulation, adds to the mass of bank securities, and very -properly represents that part of the income of the solid property of the -country, which the bank must dispose of to foreigners, in order to -procure from them the coin or bills necessary for answering the demand -of payment of a _grand balance_. - -In this light nothing can appear more imprudent, than to refuse credit. - -A bank is forced to pay to the last farthing of this balance; by paying -it, the notes that were necessary for circulation are returned to them; -and they refuse to replace them, for fear that their supplying -circulation should create a new balance against them! This is -voluntarily taking on themselves all the loss of banking, and rejecting -the advantages. - -Such management can only be prudent when the circulating notes of a bank -are very few, and when the balance is very great. In that case, indeed, -were the thing possible, it might be prudent to give over banking for a -while, till matters took a favourable turn. But if we suppose their -notes to exceed the balance due, then all the hurt which can be done is -done already; and the more notes are issued, and the more credit is -given, so much the better; because the interest upon all that is issued -above the balance, must be clear profit to the bank. - -To bring what has been said within a narrower compass, and to lay it -under our eye at once, let us call the domestic circulation of a -country, where a bank is established, (A). - -The specie itself, to carry it on, (B). - -The balances to other nations, (D). - -The bank must have a command of credit and coin equal to the sum of (B) -and (D). If they have the value of (D) in any foreign place, where a -general circulation of exchange is carried on; then they have only -occasion for (B) at home, and can furnish bills to the amount of (D). - -If (D), in consequence of bills drawn, shall come to be exhausted, the -bank must replace it again, by new contracts, to strangers. - -But as soon as (D) is paid, either in coin or in bills, then whatever -coin is drawn from the bank, and sent away by private people, -(exchangers, &c.) must form a balance due to the country; which balance -will render exchange favourable, and will occasion a loss to those who -sent away the coin. In this case, the more credit the bank gives, so -much more will their profits increase. - -To conclude: Let banks never complain of those who demand coin of them, -except in the case when it is demanded in order to be melted down, or -for domestic circulation, which may as well be carried on with paper. - -And so soon as a demand for coin to pay a foreign balance begins, it is -then both the duty and interest of all good citizens to be as assistant -as possible to banks, by contenting themselves with paper for their own -occasions, and by throwing into the bank all the coin which casually -falls into their hands. As to duty, I shall offer no argument to enforce -it. But I say it becomes a national concern to assist the bank; because -the loss incurred by the bank in procuring coin, falls ultimately on -every individual, by raising exchange; consequently, prices, by raising -the interest of money to be borrowed; and last of all, by constituting a -perpetual interest to be paid to foreigners, out of the revenue of the -solid property of the country. Upon such occasions, a good citizen ought -to blush at pulling out a purse, when his own interest, and that of his -country, should make him satisfied with a pocket book. - - ------------------------------------------------------------------------- - - - CHAP. XIII. - _Continuation of the same Subject; and of the Principles upon which - Banks ought to borrow Abroad, and give credit at Home._ - - -In every question relative to this subject, we must return to -principles. This is the only sure method of avoiding error. The -intelligent reader, therefore, must excuse short repetitions, and -consider them as a sacrifice he is making to those of slower capacities, -to whom they are useful. - -The principle of banking upon mortgage, is to lend and give credit to -those who have property, and a desire to melt it down. This is -calculated for the benefit of trade, and for an encouragement to -industry. If such banks, therefore, borrow, it must be done consistently -with the principles upon which their banking is founded. If the -borrowing should tend to destroy those advantages which their lending -had procured, then the operation is contrary to principles, and abusive. -So much for recapitulation. - -While trade flourishes and brings in a balance, banks never have -occasion to borrow; it is then they lend and give credit. This, I -believe, we may take for granted. - -When the country where the bank is established begins to owe a balance -to other nations, the bank, as we have seen in the last chapter, is -obliged to pay it in coin or in bills. We have there shewn, that in such -cases it is inconsistent with their principles and interest, to withhold -lending and giving credit, so far as is necessary for keeping up the -fund of circulation to that standard which alienation and ready money -demands require. - -To refuse credit, and at the same time to borrow _at home_, must then, -at first sight, appear to be doubly inconsistent. But in order to set -this point in the clearest light I am capable, I shall reason upon a -supposition analogous to the situation of the Scotch banks, and by that -means avoid abstraction as much as I can. - -Let me then suppose that Scotland, during the last years of the war -ended in 1763, and ever since (I write in 1764) from the unavoidable -distress of the times, was obliged, 1. to import considerable quantities -of grain in some bad years; 2. to refund the English loans of money -settled there in former times; 3. to furnish some of the inhabitants -with funds, which they thought fit to place in England; 4. to pay the -amount of additional taxes imposed during the war; while, at the same -time, several of the ordinary resources were withdrawn; such as, 1. a -great part of the industrious inhabitants who went to supply the fleets -and armies; 2. the absence of the ordinary contingent of troops; and 3. -the cutting off several beneficial articles of commerce. Let me suppose, -I say, that from a combination of these losses incurred, and advantages -suspended, Scotland has lost annually, for eight years past, two hundred -thousand pounds. I am no competent judge of the exactness of this -estimate, it is of no consequence to the argument; but I think I am far -beyond the true computation. - -On the other hand, let me suppose, that the sum of currency in paper, -sufficient (with the little coin there was) to circulate the whole of -the alienations in Scotland, (that is to say, the whole domestic -circulation, supposing no balance to be owing to England or other -countries) to be one million sterling. I am persuaded I am here below -the true estimate, but no matter. - -Is it not evident, from this supposition, and from the principles we -have been deducing, that unless the banks of Scotland had alienated -annually in favour of England, a fund for paying the interest of two -hundred thousand pounds capital, and either brought down the coin, or -given bills on London for the sum of that capital every year; that the -million of Scots currency would have been diminished in proportion to -the deficiency; and would not the consequence of that be, _cæteris -paribus_, to bring the currency below the demand for it; and, -consequently, to hurt trade, industry, and alienation? - -Now supposing the banks, instead of providing, in England, a fund equal -to this grand balance, (as I have said they should do) to remain in -consternation and inactivity, giving the whole of their attention to the -providing coin and bills to supply the demand of exchangers, whose -business it is to send out this annual balance; what will the -consequence be? - -I answer, that if the banks, in such a case, do not follow the plan I -have proposed, the consequence will be, that two hundred thousand pounds -of their paper will be, the first year, taken out of the domestic -circulation of Scotland; will be carried to the bank, and coin demanded -for it. If the coin is found in the bank, it is well; it goes away, and -leaves the paper circulation of Scotland at 800,000_l_. This void must -occasion applications to the bank for credits to supply it. Is it not -then the interest of the bank to supply it? We have said in the former -chapters that it is. But now let us suppose it objected, that if banks -should issue notes at such a time, their cash having been exhausted, -they would be obliged to stop altogether, upon a return of those notes -issued upon additional credits. - -To this I repeat again, because of the importance of the subject, that -notes issued to support the demand of circulation never can return upon -the bank, so as to form a demand for coin; and if they do return, it -must be in order to extinguish the securities granted by those who have -credit in bank (I except always that regular demand for coin, at all -times necessary for circulating the paper for domestic uses) and if -those notes return of themselves, without being called in, this -phænomenon would be a proof that circulation is diminishing of itself: -but supposing such a case to happen, it is plain that such return can -produce no call for coin; because when the notes return it is not for -coin, but for acquitting an obligation or mortgage, as has been often -repeated. - -Notes are paid in, I say, because circulation has thrown them out. Now -if circulation has thrown them out as superfluous, it never can have -occasion for coin in their stead; because coin answers the same purpose. - -But then it is urged that they do not return, because circulation has -thrown them out, but because coin is wanted: be it so. Then we must say, -that circulation is not diminished, as we at first supposed; but that -the return of another year’s balance, makes a new demand for coin -necessary. - -Now I ask, how the withholding this 200,000_l._ from circulation, after -the first year’s drain, can prevent the balance from returning? There -are by the supposition still 800,000_l._ of notes in the country; will -not exchangers get hold of two hundred thousand out of _this_ fund, as -well as out of the million? For he who owes, _must pay_, that is, _must -circulate_. It is only the circulation of the industrious, of the rich, -in short _buying_, that is to say, _voluntary circulation_, which is -stopped for want of currency: _paying_, that is, _involuntary -circulation_, never can be stopped; debtors _must_ find money, as long -as there is any in the country, were they to give an acre for a -shilling, or a house for half a crown. Now those who owe this foreign -balance are debtors; consequently, they must draw 200,000_l._ out of -circulation, the second year as the first, whether the standard million -be filled up or not. The withholding, therefore, the credits demanded -upon the first diminution, has not the least effect in preventing the -demand for coin the year following: it only distresses the country, -raising exchange, and the interest of money, by rendring money scarce; -and what is the most absurd of all, it deprives the bank of 10,000_l._ a -year interest, at 5 _per cent._ upon 200,000_l._ which it may issue -anew. - -Suppose again, that a second year’s demand for a balance of 200,000_l._ -comes upon the bank: if the coin is out, as we may suppose that after -such a drain it will not be in great plenty, expedients must be fallen -upon. In such a case, if the bank does not at once fairly borrow at -London (without any obligation to repay the capital) a sum of -200,000_l._ and pay for it a regular interest, according to the rate of -money, with an obligation to pay, as government does, quarterly[9], on -the change of London, it will be involved in expedients which will -create a monstrous circulation of coin in the bank, perhaps double of -the sum required, and all those operations will land in the end (as to -the bank) in paying the interest of this sum out of the mass of its -securities or stock. If the bank should borrow this 200,000_l._ in -London, in the manner we have said, the circulating fund of coin will be -nowise diminished; there will be no call extraordinary, no rising of -exchange; the bank will have _this_ in its hands; and if it rises, it is -the bank, not the exchangers who will profit by it. - -Footnote 9: - - Although the interest or dividends on government securities be paid - every half year only, yet by purchasing partly in one fund, and partly - in another; for instance, half in Old South Sea annuities, and half in - New, purchasers may have their interest paid quarterly. - -But let us suppose that instead of this, it should have recourse to -temporary credits upon which the capital is constantly demandable, or to -other expedients still less effectual for answering the call which is to -come upon it for the second year’s balance: what will be the -consequence? To this I answer, that those merchants, or others who owe -the balance, will apply to exchangers for bills, for which they must pay -a high exchange: these bills will be bought from the exchangers with -notes, (taken out of circulation) and will reduce this to 600,000_l._ -the exchangers will carry these to the bank and demand coin. If the bank -should make use of an optional clause, to pay in six months, with -interest at 5 _per cent._ the exchangers will obtain six months credit -at London, and in consequence of that, their bills will be honoured and -paid. This credit costs them money, which is added to the exchange: the -bank, at the end of six months, pays in coin, which in the interval it -must provide from London. It pays also six months interest upon the -paper formerly presented by the exchanger: add to the account, that -bringing down the coin must cost the bank at least 12 shillings _per_ -hundred pounds, and as much more to the exchanger who receives it in -order to send it back again; and after all these intricate operations -which have cost so much trouble, ill blood, stagnation and diminution of -circulation, expence in exchange to the debtors of the balance, stress -of credit upon exchangers for procuring so large advances with -commission, &c. expence to the bank in providing coin, expence to the -exchangers in returning it; after all, I say, the operation lands in -this: that 200,000_l._ of notes, taken out of the circulation of -Scotland, returns to the bank who must have provided, at last, either -coin, or credit at London for them. This return of 200,000_l._ of notes -does not diminish the mass of those obligations lodged in the bank, in -virtue of which they are creditors upon the proprietors of Scotland: -consequently, the bank has constituted itself debtor to England for -those funds which have been _torn from it_ in the manner above -described: consequently, had it, by a permanent loan, constituted itself -voluntarily debtor to England from the beginning, it would have paid no -more, nay less than it has been obliged to pay; circulation would not -have lost 200,000_l._ and the bank would have had the interest of -200,000_l._ added to its former securities, which would compensate (_pro -tanto_ at least) the expence of borrowing that sum in England upon a -permanent fund. Instead of which it compensates the interest of a -temporary loan, with the same sum of interest taken out of the -securities in its hand. If, therefore, from an ill grounded fear of -issuing as much paper as is demanded, it shall withhold it, there -results to itself a loss equal to the interest of what it refuses to -lend; that is to say, there is a _lucrum cessans_ to the bank of the -interest of this 200,000_l._ at 5 _per cent._ or at 10,000_l._ a year; -which other banking companies will fill up, and thereby extend their -circulation. - -If, besides refusing credits, it should call in any part of those -already given, it still diminishes circulation: but then by that -operation it diminishes the mass of its securities, and so diminishes -the sum of the interest annually paid to itself. If it goes farther and -borrows money at home, such loans will be made in its own paper, which -will diminish farther the mass of circulation; and if it goes on -recalling the credits and mortgages, it will soon draw every bit of its -paper out of circulation, and remain creditor upon Scotland only for the -balance it has paid to England on her account. Such are the -consequences, when a bank which lends upon private security withholds -credit, at a time when a national balance is due, and when applications -are made to it for new credits, to fill up the void of circulation -occasioned by the operations used for the payment of the balance: such -also are the additional fatal consequences, when to this it adds so -inconsistent an operation as that of borrowing in its own notes, or -recalling the credits it had formerly given. - -By the first step it only appears passive in allowing natural causes to -destroy both the bank and the nation, as I think has been proved. - -By the second, it is active in destroying both itself and the country. - -What benefit can ever a bank which lends upon private security reap by -borrowing within the country of which it is the center of circulation; -nay, what benefit can it ever reap from withholding its notes from those -who can give good security for them! - -Every penny it borrows, or calls in, circumscribes its own profits, -while it distresses the country. After all the combinations I have been -able to make, I can discover but one motive which (through a false -light) may engage a bank to this step, to wit, jealousy of other banks. - -As this speculation is designed to illustrate the principles of -circulation, from circumstances relative to the present state of the -Scotch banks, let us call things by their names. - -The banks of Edinburgh resemble, more than any other in Scotland, a -national bank. Let me then suppose all that can be supposed, viz. that -the abundance of their paper has given occasion to lesser banks to pick -up from _them_ every shilling of coin which these lesser banks have ever -had; and that these have had the address also to throw the whole load of -the balance upon those of Edinburgh: let this be supposed, more cannot, -and let us allow farther, that this must ever continue to be the case. -In these circumstances, what motive can the banks of Edinburgh have for -withholding credit from those who are able to give security? What motive -can they have for borrowing up their own notes? - -Indeed I can account for this plan of management in no other way than by -supposing, that disgusted at the long continuance of an unfavourable -balance of trade against their country, and vexed to find the whole load -of it thrown upon themselves, they have taken the resolution to abandon -the trade, and are taking this method of recalling their paper -altogether. - -Let me suppose the contrary, and I shall not be able to discover how it -is possible that such a conduct can turn to their own advantage, -throwing out all consideration of the public good, which for some time, -no doubt, must be greatly hurt by it. - -As long as any considerable quantity of their notes is in circulation, -and that the principal exchangers reside at Edinburgh, they never can -avoid the loss of paying the balance; and by refusing to fill up the -void occasioned by the return of their notes, they deliver the whole -profit of replacing them to the other banks, their rivals. - -Let me next estimate the losses they sustain by furnishing coin to the -other banks, and for the payment of the balance; and then compare these -with what they lose by not keeping circulation full. - -I shall suppose the balance to cost them two hundred thousand pounds -_per annum_; and I shall suppose that all the lesser banks put together -have occasion for two hundred thousand pounds in their chests: Is not -this computation far above what can possibly be supposed? - -Will it be allowed that if the banks of Edinburgh willingly submit to -pay the whole of the bills of exchange demanded on London, for this -balance, they will have at least the preference in replacing that sum to -circulation? - -If they pay the balance of 200,000_l._ a like sum of their notes must -come in to them, without diminishing one shilling of the interest paid -upon the securities lodged in their banks; consequently, the only loss -incurred is the difference between the interest they receive, which is 5 -_per cent._ and what it would cost them to borrow a like sum in London, -and to remit the interest of that sum four times a year. - -Now the value of a 4 _per cent._ is at present about 96; so in paying -20_s._ _per_ quarter on the change of London, the Edinburgh banks may -have at London a capital of 96_l._ Let me call it only 94_l._ supposing -their credit not to be quite so good as that of the funds. I think it as -good to the full; and I am sure it is so. At this rate, the 200,000_l._ -will cost them an interest of 8510_l._ instead of the 10,000_l._ which -they will receive for the like sum added to their former securities. Now -I suppose that they have recourse to exchangers to remit this interest, -and that they pay for it 5 _per cent._ (which is an absurd supposition, -as they will have the exchange entirely in their own hands) and that -they give all the bills for the 200,000_l._ at par, (also a ridiculous -supposition) the 5 _per cent._ on 8510_l._ is 425_l._ 10_s._ which added -to the interest, makes 8935_l._ 10_s._ so that after all, they will have -upon the whole transaction 1064_l._ 10_s._ of profit. - -Next, as to the loss incurred in furnishing 200,000_l._ to the other -banks: If this coin be demanded of them by those banks, the demanders -must, for this purpose, draw 200,000_l._ of Edinburgh notes out of the -circulation of Scotland; which I have supposed may be replaced in some -little time by the Edinburgh-banks; consequently, if this sum also be -borrowed at London, there will result upon this operation, as well as -upon the last, a profit of 1064_l._ 10_s._ But then indeed they must be -at the expence of bringing down the coin borrowed, at 12_s._ _per_ -100_l._ because those banks will insist upon having coin, and refuse -bills on London. This will cost 1200_l._ from which deduct the profit of -1064_l._ 10_s._ gained by the first operation, remains of loss upon this -last transaction 135_l._ 10_s._ no great sum[10]. Does it not follow -from this reasoning, that the banks of Edinburgh will have the whole -business of exchange in their own hands? What exchanger then will enter -into competition with them? The domestic transactions with the merchants -and manufacturers of Scotland will be their only business. Farther, - -Footnote 10: - - We are not to suppose that this yearly balance of 200,000_l._ is - always to continue. We have seen how it has been occasioned by a - course of unfavourable circumstances, which have run Scotland in debt; - we have seen how the banks may interpose their credit, in order to - assist the country in paying it; and we shall see, before we dismiss - this subject, how they will be enabled to repay it, and set Scotland - free, by a return of a favourable balance upon their commerce. Let it - then be remembred, that all those contractions in England are properly - the debts of Scotland, not of the banks. Scotland, therefore, and not - the banks, must be at all the expence thereby incurred. These points - shall be explained as we go along. - -What prevents the banks of Edinburgh to have offices in every trading -town in Scotland, where their notes may be regularly paid on -presentation, and new credits given as circulation demands them? - -The only objection I can find to this plan of banking, is the difficulty -of finding credit at London to borrow such large sums. - -This, I think, may also be removed, from the plain principles of credit. -If the banks of Edinburgh enter into a fair coalition, as they ought to -do, I think, in order to form really a national bank, totally -independent of that of England; may they not open a subscription at -London, and establish a regular fund of their own, as well as any other -company, such as the India, or South Sea? By borrowing in the beginning -at a small advance of interest above the funds, and paying as regularly -as government does, will not all those who make a trade of buying and -selling stock fill their loan, rather than invest it in any other -carrying a less interest? And if the whole land securities, and stocks -of those banks at Edinburgh be pledged for this loan, will it not stand -on as good a bottom as any fund upon earth? And can it be doubted but -parliament will encourage such a scheme, upon laying the affairs of -Scotland and the banks properly before them? - -By this means they will really become a national bank: because England -seems at present to be to Scotland, what all the rest of the world is to -England. Now, the bank of England has no such fund of credit on the -continent, that I know; and were that country to fall into as great -distress, by a heavy balance, as Scotland has been, she would find as -many difficulties in extricating herself by domestic borrowings, bank -circulation, &c. as Scotland has found by the like domestic expedients. -She would then be obliged, for her relief, to have recourse to a fund -opened in Holland, Spain, or Portugal, like to what I propose for -Scotland with respect to England. - -I have heard it alledged, that the whole distress occasioned to the -banks and circulation of Scotland, was occasioned by a false step taken -by them, some years ago; at the time when the lowness of the English -funds, and a prospect of a peace, occasioned great remittances from -Scotland, and a withdrawing of the large capital of, perhaps, 500,000 -_l._ owing in Scotland to English persons of property. - -At that time, it is said, the banks imprudently launched out in giving -extensive credits to the debtors of those capitals, and to those who -wanted to remit the funds they had secured in the hands of people who -could not pay them; that this threw a load of paper into circulation, -which it could not suspend, being far beyond the extent of it; and that, -consequently, the paper came back upon the bank, produced a run for -coin, which soon exhausted, in a manner, all that was in Scotland; and -that the country has never been able to recover itself since. - -This representation is plausible, and has an air of being founded on -principles: in order therefore to serve as a further illustration of the -subject of circulation, I shall point out where the fallacy lies. - -It is said the banks did wrong in giving those credits. I say, they did -right; but they did wrong in not providing against the consequences. - -Had they refused the credits, the English and other creditors would have -fallen directly upon their debtors, and obliged them to pay, by a sale -of their lands, at an under value; which, I think, would have been an -infinite loss to Scotland. In this way the price would have been paid in -bank paper, taken out of circulation; for we have said, that _he who -owes must pay_, be the consequence what it will. This paper would have -come upon the banks at any rate; and being a balance due to strangers, -must have been paid by the banks. The banks therefore did right to -supply the credits demanded; but then they might have foreseen that the -whole load of paying those debts would fall upon them; which they being -in no capacity to do, should have immediately pledged in England, the -interest of the credits they had given out, after supplying the want of -Scots circulation, and when the notes came in, they would have had at -London the capital of that interest prepared for paying them off, and no -inconvenience would have been found. - -The only thing then the bank seem to have misjudged, was the granting -those credits too hastily, and to people who perhaps would not have -invested their funds in England, had it not been from their facility in -giving credit. - -Banks therefore should well examine the state of circulation, and of the -grand balance, in difficult times, before they give credit. If -circulation be full, they may, with justice, suspect that the credits -are demanded with a view of expediency, to transport property out of the -country, which otherwise might have remained. But in favour of -circulation, or in favour of what might be exacted by foreign creditors, -banks never can misjudge in giving credit; because, if they should -refuse to do it, they in the first place incur a loss themselves; and in -the second place, they diminish the fund of circulation, and thereby -hurt the country. Now when, at such times, a credit is asked or given, -that demand is a warning to banks to prepare; and by preparing they are -ready, and no loss is incurred. - -Upon the whole, it is an unspeakable advantage to a nation to have her -foreign debts paid by her bank, rather than to remain exposed to the -demands of private foreign creditors; because, when a bank pays them, I -suppose her to do it upon a loan in the funding way, where the capital -is not demandable by the creditor; whereas when private citizens are -debtors to strangers, the capitals are always demandable; and when a -call comes suddenly and unexpectedly, the country is distressed. What -would become of Great Britain, if all her debts to strangers were -demandable at any time? It is the individuals who owe, in effect, all -that is due to foreigners; because they pay the interest: but they pay -this interest to the public; and the public appears as the debtor to all -strangers, who have no right to exact the capital, although the state -may set itself free whenever it is convenient. - -I have said above, that after all the combinations I had been able to -form, I could discover but one motive to induce a bank to withhold -credit at a time when it was demanded for the use of domestic -circulation, viz. jealousy of other banks. What my combinations could -not then discover, my inquiries have since unfolded. - -It is said, that the banks finding so great a propensity in the -inhabitants of Scotland to consume foreign manufactures and produce, -fell upon this expediency of calling in the old, and of refusing new -credits, in order to cut off such branches of hurtful luxury and -expence. - -Could the execution of such a plan prove a remedy against the vice -complained of, this circumstance alone would more clearly demonstrate -the utility of banks upon mortgage, than all I have been able to say in -favour of that establishment. - -Let us therefore have recourse to our principles, in order to discover -what influence a bank can have in this particular. - -We have distinguished between _necessary_ and _voluntary_ circulation: -the _necessary_ has the _payment of debts_; the _voluntary_ has buying -for its object. - -We have said that he who owes is either a bankrupt, or _must pay_, as -long as there is a shilling in the country. - -But he who buys, or inclines to buy, _must have money_, or he can buy -nothing; for if he buys on credit, he then falls immediately into the -former category, and _must pay_. - -By withholding money for the uses of circulation, which banks may do for -some time, buying _may_ be stopped; paying _never can_. - -Now if the mass of money in circulation is brought so low, that the -_higher_ classes of the people, who consume foreign productions, cannot -find money to buy with, what are we to suppose will be the case with -manufacturers, and with the merchants who buy up _their_ work? Could -this operation of the bank affect the _higher classes_ only, by curbing -their anti-patriot expences, without affecting the _lower classes_, by -curbing their industry, I should think it an admirable discovery. If it -even could be made to affect those merchants and shop-keepers only, who -deal in foreign commodities, so as to discourage them from carrying on -that business, there would result from it a notable advantage. - -But alas! wherein are they hurt? They trade in such commodities, not -because they are bad citizens, but because they are freemen, and seek -profit wherever the laws permit. - -Perhaps, they find more difficulty than other people in forcing coin -from the bank, as matters stand: perhaps, they are loaded with -opprobrious appellations for extorting such payments from the bank: -perhaps, their credits with the bank are recalled. But must not those -who buy from them, pay them? And must not the bank give coin, or bills, -for the notes they receive, when presented for payment? Why, therefore, -throw difficulties in the way? All the world knows, that no human engine -can prevent a merchant from laying all the expences of his trade upon -the consumer. Correct the taste of the consumers, and you may stop the -trade: no other restraint will be of any consequence. But in order to -correct the taste of consumers, do not deprive them absolutely of money; -because the money the landlord receives, comes from the farmer, for the -price of his grain, &c. Would it be a good scheme for preventing -soldiers from drinking brandy, to cut off their subsistence-money? Give -a drunkard but a penny a day, it will go for liquor; and those who are -fond of foreign clothing, will take the price of it from their bellies, -to put it on their backs. - -If this scheme of the bank’s withholding credit, proves, at present, any -check to those dealers in English goods, it will be but for a very short -time. They have been taken by surprize; and, perhaps, thrown into -inconveniencies from an unexpected change of bank management; but as -long as there is a demand for such commodities, there will be a supply; -and when people owe, they _must pay_. No operation of a bank can prevent -this. - -I must, therefore, according to principles, disapprove of this -public-spirited attempt in the banks of Edinburgh; because, if it should -succeed, it will have the effect of ruining all the trade and industry -of Scotland, in order to prevent the sale of English goods: and if it -does not succeed, which is more than probable, from the assiduity of -other banks in supplying credit, it will have the effect of ruining the -banks of Edinburgh themselves. - -This step, of calling in the bank credits, and opening a subscription -for a loan, is represented by others in a light somewhat different. - -By these it is alledged, that in the beginning of the year 1762, when -the Edinburgh banks withdrew ¼ of all their cash accompts, and opened a -subscription for borrowing-in their own notes, at an interest of 4, and -even 5 _per cent._ the demand for money, to send to England, was not -occasioned by the great balance owing by Scotland, but to the high -premium money then bore at London; because, says the author of a letter -to J... F...... Esq; published at that time, - -“This demand arises from a profit on carrying money to London, _as a -commodity_, and not as a balance of trade.” - -It is not easy to comprehend how there could be much profit in carrying -money to London at 3 _per cent._ loss by exchange, from Scotland, where -it bore 5 _per cent._ interest. - -It is true, that at certain times, there were considerable profits made -upon stock-jobbing; by which some won, and others were ruined. I agree, -that the country was greatly hurt by the folly of those who played away -their own property, and by the roguery of others, who borrowed that of -their neighbours, with an intention of gaming at their risk. But is this -a vice which any bank can correct, while it has a note in circulation? - -If, therefore, it was a sentiment of patriotism which moved the banks to -such a plan of conduct, I say they thereby did more hurt to industry, by -contracting circulation, than good to Scotland, by attempting a thing -which was beyond their power to accomplish. - -If they were moved to it by a principle of self preservation, I say they -lost their aim, by cutting off their own profits, which would have done -much more than indemnify them for the loss of borrowing at London, at -the time when money there was hardest to be got: for whatever exorbitant -expence of exchange gamesters may incur, to procure ready money to play -with, the rate of the stocks at that time never was so low, as to afford -a profit upon money remitted at 3 _per cent._ loss by exchange, while -that money was bearing 5 _per cent._ interest at home. - -The lowest rate of stocks was in January 1762. Towards the end of that -month 3 _per cents._ fell to 63¼: this makes the value of money to be -about 4_l_. 12_s._ _per cent._ In these funds, certainly, no body could -invest, with profit, money sent from Scotland. - -After the new subscription had been open for some time, scrip indeed, or -4 _per cent._ fell in this month so low as 74½, that is, money rose to -5.4 _per cent._ whereas had scrip stood at the proportion of the 3 _per -cents._ it should have been worth about 84: but at the beginning of a -war with Spain, when the minds of men were depressed, and filled with -apprehensions, and when a new loan was perhaps expected at a higher -interest than ever government had given, was it natural for people to be -fond of investing in a 4 _per cent._ stock, which was to fall to 3 _per -cent._ in a few years? - -Besides, let us examine the profit to be made by investing even in that -fund. 100_l._ produced in Scotland 5_l._ interest, that capital remitted -to London at 3 _per cent._ exchange, was reduced to 97_l._: now if -74.5_l._ produced 4_l._ the produce of 97_l._ would be about 5_l._ 4_s._ -Would any man for the sake of ⅕ _per cent._ advance of interest on money -remitted, ever think of sending large sums to London to be invested in a -falling stock? - -I allow that, upon opening subscriptions, great profit was sometimes -made by those who contracted with government, and who received the -subscriptions at prime cost. But this profit depended entirely upon the -subsequent rise of the subscription, when the original subscribers -brought it first to market; as also from the small sums they had -advanced: this operation was over before the end of January 1762. The -smalness of the sum advanced, upon which the profit was made, and the -ministerial interest which was necessary to obtain a share in those -subscriptions, rendred it extremely difficult for people in Scotland to -share in the profit by remitting large sums in the proper point of time. - -Farther, might not the banks, in the short period during which such -large profits were made, had they had the exchange in their hands, have -raised it so high as to frustrate the attempts of our Scots gamesters? -If it be said, that exchangers would have disappointed them, by giving -it lower; I answer in the negative: because to that set of men exchange -will rise, of itself, in proportion to the value of money _in the place -to which people incline to remit it_. And could money at any time bring -in, at London, 20 _per cent._ interest, exchange upon that place would -rise universally in proportion. - -The only motive, not already mentioned, for sending money to London at -this time, under so great disadvantages, was the prospect of a great -rise upon the stocks, in the event of a peace. Upon which I observe, -that the value of that probability was included in the then price of -stock; and had the probability of a peace, in January 1762, been great, -stocks would have risen in proportion: he, therefore, who vested his -money in stock, by remitting from Scotland at that time, upon an -expectation peculiar to himself, I consider as a gamester, and as an -ignorant gamester too; because he was giving odds upon an equal bett. -This every man does, who, without any prospect of a profit peculiar to -himself, pays a high exchange to bring money to a market, where he buys -at the same price with those who pay no exchange at all. - -From these considerations, I am led to differ from the ingenious author -of the letter to J. F. Esq; who says, “That in the present case” (the -circumstances operating in January 1762,) “the demand” (for money to -remit to London) “is unlimited, and no provision the banks can make can -be of use; on the contrary, could they find a treasure, suppose of a -million, it would only serve to increase it; because this demand arises -on a profit on carrying money to London as a commodity, and not as the -balance of trade.” - - ------------------------------------------------------------------------- - - - CHAP. XIV. - _Of optional Clauses contained in Bank Notes._ - - -As we are examining the principles upon which banks of circulation upon -mortgage, which issue notes payable in coin, are established in -Scotland, it is proper to take notice of every circumstance which may -arise from the extensive combination of the interests of trade and -circulation, especially when we find such circumstances influencing the -political welfare of society. - -An optional clause in a bank note is added to prevent a sudden run upon -banks, at a time when more coin may be demanded of them than they are in -a capacity to pay. - -Banks not regulated by statute, are private conventions, in which the -parties may include what conditions they think fit. Banks, therefore, -may insert in their notes, the conditions they judge most for their own -advantage. Thus, they may either promise peremptory payment in coin upon -demand, or they may put in an alternative, that in case they do not -choose to pay in coin, they may pay in bills, or in transfer of their -stock, or in other circulating paper not their own; or they may -stipulate a certain space of time after the demand, with interest during -the delay. All these alternatives are inserted, in order to avoid the -inconvenience of running short of coin, and of being obliged to stop -payment altogether. - -We have said above, that the profits of banks consist in their enjoying -the same interest for the notes they lend, as if the loan had been made -in gold or silver. This is a very great object, no doubt; but the policy -of nations has established it, and therefore we shall suppose it to be -an uncontroverted principle. - -In which ever way, therefore, an optional clause is inserted, it should -be such as to cut off all profit from the bank, upon all paper presented -for payment, from the time of presentation; and every artifice used to -suspend the liquidation of the paper, to the advantage of the bank, and -prejudice of the bearer, should be considered as unfair dealing in the -bank, and prohibited by law. - -When the optional clause has no tendency to procure advantage to the -bank, in prejudice of the holder of the paper (except so far as the -holder is thereby deprived of the use of coin, which on certain -occasions cannot be supplied by the paper) it becomes the duty of a -statesman to examine how far it is expedient to suffer such stipulations -to be inserted, in a money which is calculated to carry on the -mercantile interest of the nation. - -Banks, we have said, are the servants of the public, and they are well -paid for their services. Although the notes issued by them are not -commonly made a legal tender in payment; yet the consequence of a well -established bank, is to render them so essential to circulation, that -what is not a legal obligation becomes one, _in fact_, from the force of -custom. - -Let us therefore examine the advantages which result to banks from this -optional clause, and the loss which results to a nation from their use -of it, and then compare the advantages with the inconveniencies, in -order to determine whether or not it is expedient to permit such -obstructions in the circulation of paper. - -The advantages which banks reap is confined to that of gaining time, at -the expence of paying interest. The interest paid by them is an aukward -operation. They receive interest for the note; because they have in -their possession the original security given for the notes when they -were first issued; and they begin to refund this interest to the holder -of the note from the time they make use of the optional clause. Could -the banks, therefore, borrow coin in a moment, and pay the same interest -for the coin which they pay to the holder of the note, they would -certainly never make use of this optional clause. But this coin is not -to be found in a moment; and the banks, to save themselves the trouble, -and the expence of augmenting the fund of coin, or of procuring a fund -out of another country, upon which they might draw for the payment of -that national balance, which, by becoming banks, they tacitly engage to -pay for the nation, render the credit of individuals precarious with -strangers, and raise a general distrust of the whole society which they -ought to serve. Here then is a very great loss resulting to a nation -from the establishment of banks. Were no bank established, no merchant -would contract a debt to strangers, without foreseeing the ready means -of discharging it with the coin circulating in the country. In -proportion as this coin came to diminish, so would foreign contractions -of debt diminish also. Thus _credit_, at least, might be kept up, -although trade might be circumscribed, and manufactures be discouraged. -Now when, in order to advance trade and encourage manufactures, a -statesman lends his hand towards the melting down of solid property, and -countenances banks so far as to leave that operation to them, with the -emolument of receiving interest for all their paper; and when, in order -to facilitate the circulation of this paper, the very inhabitants concur -in throwing all their specie into a bank, is it reasonable to indulge -banks so far as to allow them to add an optional clause, which -disappoints the whole scheme, which stops trade, ruins manufactures, -raises the interest of money, and renders the operation of melting down -property quite ineffectual for the purposes which it was intended to -answer? Farther, - -The loss a bank may be at, in providing coin, is susceptible of -estimation, let it be brought from ever so distant a country; because we -know that the quantity to be provided, never can exceed the value of the -_grand balance_. But who can estimate the loss a nation sustains, when -an interruption is put to carrying on trade and manufactures? When the -industrious classes of inhabitants are forced to be idle for a short -time, the consequences are hardly to be repaired: they starve, they -desert; the spirit of industry is extinguished; in short, all goes to -ruin. - -Besides, when banks do not lay down a well digested plan for paying -regularly, and without complaining, this _grand balance_ due to -strangers, they are forced to have recourse to expedients for preserving -their credit, more burdensome, perhaps, than what is required of them; -and not near so effectual for removing the inconveniences complained of. - -The expedients they fall upon to obtain credit, coin, and bills, are so -various, and so complicated, that they alone are able to explain them. - -Sometimes we see them entring into contracts with private merchants and -exchangers, (_living among themselves!_) who engage for a certain -premium to furnish coin as it is demanded. The consequence of this, is, -to expose the bank to a new demand for coin, from the very contractors, -in order to fulfil their engagements; an abuse we have taken notice of -above in speaking of the _bank circulation_ of England. - -Let us suppose that these undertakers for coin do really set out by -doing _in part_ what banks should _effectually_ do themselves, that is, -by bringing from another nation, the coin which they are to supply. What -is the consequence? The banks pay the undertaker for this coin in their -own notes. Did they only engage to pay a certain interest for the coin -so provided, then the end would be accomplished, with the additional -expence to them of paying the undertaker for his expence, trouble, and -profit. But if they, instead of paying interest for the coin so -furnished, shall issue their notes for the full value of it, such notes -can never enter into domestic circulation, so as to be suspended in it -as it were; because it is not domestic circulation which has demanded -them: they must then return upon the bank, either from the very hand who -received them, or at least, after a short circulation; and thus draw out -again the whole coin furnished by the undertaker. This produces a -prodigious circulation of coin, and induces people to imagine that -either the _grand balance_ is inexhaustible, or that the premium upon -money at London is very high, or that people can contrive a fictitious -balance, as a means of profiting upon coin, after the balance has been -actually paid[11]. - -Footnote 11: - - The directors of the bank of England have had recourse to a like - expedient with as little success. They used, during the war, to buy - up, with their paper, the coin brought in by privateers; and after - they had been at this trouble, the notes they had given for it - returned upon them, and drew it out again. - -This method of providing coin is absolutely delusive, and opens a door -to infinite abuse. Those who furnish the coin to the bank, are either in -the combination against the bank, and draw it out as fast as they throw -it in; or they are not in the combination: if they are in the -combination, they profit by it; if they are not, they are hurt by their -contract, and other exchangers draw the advantage; but the bank is -equally a loser in both cases. - -Let me suppose that they are not in the combination, and that they -honestly procure the coin at their own expence. If they are paid in -notes for the coin they furnish, we must suppose that the coin they have -procured, is not in consequence of a loan, but of a _credit_ given them -in the place from which the coin is sent: for I never can suppose that -any merchant will borrow coin upon a _loan_, and lie out of so large a -capital while he has bank notes in his hand to pay up what he has -received. If he has procured this coin upon _credit_, will not this, -when it comes to be replaced, augment the grand balance against the -nation in favour of the country or city which granted that credit? And -must not that balance be paid by exchangers out of the coin received by -the bank? If, therefore, we suppose that the undertaker does not draw -out the very coin he had just delivered into the bank, will not -exchangers do it for him; will not they be ready with notes, as soon as -the coin is lodged in the bank, to draw it out, and send it off, in -order to furnish the undertaker with bills to fill up his credit, for -the coin he had received from people residing in the place to which the -exchangers have sent coin, to be ready to answer their draughts? Does -this differ in the least from what is called drawing and redrawing, -which is sufficient to ruin any man, and must not a like practice ruin a -bank, by raising exchange to a monstrous height? - -This being the case, the shortest and the best method of preventing such -abuses, is to oblige banks to pay upon demand, in coin or bills, at the -option of the holder of the note. This will force them into the method -of providing them; to wit, fairly borrowing money from nations to whom -we owe, and paying a regular interest for it, without an obligation to -refund the capital, until the grand balance shall take a favourable -turn; in which case, the banks will regorge with coin drawn from -strangers, and these strangers will then find as great an interest in -being repaid, as the bank found in borrowing from _them_, while the -balance was in _their_ favour. - -We have said, that a statesman should oblige all public banks to pay -regularly upon demand, in coin or bills, at the option of the holder of -the note. But then he must facilitate to them the means which he has in -his power, of providing themselves with the coin, or bills demanded. - -For that purpose, he must, first, provide them with a mint, for how, -without a mint, can a bank convert into coin the metals it may provide -from other countries? Next, he must put that mint under such regulations -as to cut off all profit from money-jobbers, who will be ready to draw -coin out of the bank the moment they find the least advantage in -tampering with it. In order to prevent this abuse, a reasonable rate of -coinage should be imposed, according to the principles laid down in the -third book; and when banks have occasion to pay a balance out of the -nation’s coin, a drawback for part of the coinage should be given them. -This drawback will support the value of the coin, and the loss of the -remainder will engage them to export bullion preferably to coin, when it -is to be found: and if no drawback were given, the coinage would be -totally lost to the bank. - -When this deduction is given, the coin must be melted down, and stamped -in bars at the mint; both in order to prevent frauds in the drawbacks, -and to disappoint strangers who receive it at the price of bullion, from -gaining the price of coinage when they return it back. And in the last -place, all light coin should be banished out of circulation, and made to -pass by weight for bullion, at the current price of the market. All -banks should both receive and deliver coin by weight, when the sums are -so considerable as to require full bags of coin to pay them. It is not -here necessary to repeat what has been said upon this subject at so much -length in another place. - -The method of facilitating to banks the means of providing bills for the -payment of foreign balances, is, secondly, to assist them in procuring -loans beyond the district of their own circulation. If government shall -be satisfied that the intention of demanding such loans, is to enable -the bank to interpose their credit in favour of the trade and industry -of those who circulate their paper, and who have no way of paying such -balances, but with their solid property; in that case, government will, -undoubtedly, assist the bank in obtaining loans for so national a -purpose, by declaring the security upon which they desire the loan to be -good, and by becoming answerable to the public for the solidity of it. - - ------------------------------------------------------------------------- - - - CHAP. XV. - _Of subaltern Banks of Circulation, and of their Competition with one - another._ - - -We have hitherto treated of the principles which influence national -banks of circulation, we now come to examine some peculiarities -attending banks of a subaltern nature, which for the most part trust to -the national bank for all supplies of coin; and when this resource fails -them, they are thereby involved in difficulties which are not easily got -the better of. Besides this inconvenience, to which all subaltern banks -are subject, they are frequently exposed to competition with one -another. - -A national bank enjoys such great advantages from the stability of its -credit, and the regularity of its operations, that it is not easy for -any other private company to establish themselves upon the same solid -system. - -When any banking company is established, which draws its support from a -national bank, the facility of carrying on the business by so great an -assistance, naturally engages other companies to imitate their example. -From thence arises a competition. All such banks begin to consider the -circulation of their own district as their undoubted property, and they -look with an eye of jealousy upon every note which does not carry their -own mark. - -The great point of their ambition is to gain credit with the national -bank; and could they obtain of that company to receive their notes, or -to give them credit for their draughts, in cases of necessity, they -would be at their ease; because the national bank would then be at the -whole expence of providing coin and bills, and they would have nothing -to think of, but to extend the sphere of their own circulation. - -With respect to all these subaltern societies, the national bank will no -doubt steer an equal course. I suppose every one to be settled upon good -security; without which they do not deserve the name of banks. - -In proportion to their stocks, and according to the state of the -national balance, they may, as well as any private person, on many -occasions, draw considerable supplies of coin from the national bank, -without lying under any obligation to it; because when exchange is low, -they can realize any part of their stock into coin, out of the national -bank, at very little loss, excepting the interest of it: for interest -must always be reckoned upon every guinea which lies in their chest. - -Did these banks consider one another in a proper light, they must see in -an instant that the solidity of every one is equally good; because I now -suppose them all standing upon the principles of private, not mercantile -credit, as above explained. - -What benefit then can they possibly reap from their mutual jealousies, -from gathering up each other’s notes, and coming with a run upon one -another from time to time? The consequences of this will be, to oblige -themselves and others to preserve for _domestic circulation_ a larger -quantity of coin than is necessary, and thereby to diminish their own -profit: to take up their attention in providing against their own -reciprocal attacks, and thereby neglect the providing a supply for that -demand which is indispensable; to wit, the payment of the grand balance -due to other nations; at which time the resource of the national bank -will certainly fail them. The managers of every one of them will pretend -that it is they who are saddled with this burden; but the nature of the -thing speaks for itself. - -Wherever this grand balance is transacted, the exchangers residing in -the place will have recourse to the bank there established; and if there -be more than one, that which pays with the greatest readiness will have -the best credit, the most notes in circulation, and the largest profits -upon the whole. If any one is found slow, or difficult in paying its -paper, exchangers will be the more punctual in making their demand for -payment, and they will even be averse to receiving such notes from their -correspondents. - -Every man who has occasion for credit from a bank, will apply to that -whose notes are the most esteemed. In short, there will be profit, in -the main, to the bank which pays the best, although I allow that at -particular times there may be some additional inconveniences, unless a -regular plan be laid down on the principles above deduced. - -This however is a vague reasoning; because the matter of fact is not -known. All that can be said with certainty, is, that while no public -regulation is made with regard to banking, every one will carry on the -trade according to his views of profit; and private animosities between -different companies, will only tend to distress the nation and -themselves, as experience has, I believe, discovered. - -If, as matters stand, a very great inconvenience results to Scotland -from the want of a communication of paper credit with England, and if -thereby an exchange of 4 and even 5 _per cent._ has been paid for bills -upon London, because all the coin of the country is locked up in banks; -I ask what would be the consequence, if banks had their will in -banishing from the circulation of their own district, every other notes -but their own? In that case, we might, in a short time, find an exchange -of 4 and 5 _per cent._ between Fife and Lothian, between Glasgow and -Ayr, and so of the rest. What would then become of manufacturers, who -could not dispose of their work at the distance of a few miles, without -having recourse to exchangers for their payment? If such an abuse were -once allowed to creep in, there would be no other remedy but to destroy -banks altogether, and throw the little coin there is into circulation. - -On the other hand, when banks are in a good understanding, when they are -established on solid principles, when their paper is issued on proper -security, the public is safe; and in every little district, under the -wings of their own bank, there will arise a set of exchangers, who will -give credit to merchants and manufacturers, and who will have recourse -to their own bank for the coin or bills necessary for their occasions. -This will naturally divide the payment of the grand balance among them, -in a due proportion to their circulation. - -I shall now consider the principles which may direct a statesman to -settle banking upon mortgage on a proper footing, to serve every -national purpose. - - ------------------------------------------------------------------------- - - - CHAP. XVI. - _Of some Regulations proper to be made with regard to national Banks._ - - -From what has been said, we may conclude, that were a national bank upon -mortgage, established on a plan calculated to answer the purposes of the -most extensive domestic circulation, it might be regulated in the -following manner. - -1_mo_, Let a large stock of property, of one species or other, be -provided, in order to gain the confidence of the public, and let it be -pledged for the payment of all the notes. - -2_do_, Let all solid property intended to be melted down into paper -money, be first constituted in such a manner as to be easily sold, and -in the mean time secured to the company, for their advance, preferably -to every other person, and let it be of a revenue fully sufficient to -acquit the interest for ever. - -3_tio_, The capitals due to the bank must not be demandable by the bank, -as long as the interest is regularly paid. - -4_to_, Every one who constitutes his property according to the -regulations, must be entitled to a proportional credit from them. - -5_to_, All bank securities must be pledged in the hands of government -for the interest of whatever money the bank may borrow with their -consent, beyond the district of their own circulation. - -6_to_, Government must support the bank in proportion to the extent of -their funds. - -7_to_, Let bank notes be payable to bearer, either in coin, or in inland -bills to the value, or in a transfer of a corresponding interest at — -_per cent._ all in the option of the holders. - -Were such regulations established, the borrowing from banks would become -very easy; any man who is master of his property, though incumbred with -debts, might put it into bank regulation, might raise upon it what sum -he thought fit, with which all his debts might be paid off; he might -even give credit upon it to those who otherwise are not in a situation -to obtain it: for which credit given, a profit in the rate of interest -might be allowed to him. Were a plan concerted consistently with the -principles which have suggested this general sketch, all borrowing and -lending of money would soon center in the bank. Securities would be -easy, and expence greatly avoided. - -A national bank, when rightly constituted, may however be safely -indulged in more extensive methods of circulating their paper than upon -land security. The bank of England is allowed by charter to issue notes -for discounting bills of exchange, it may trade in gold and silver, may -advance money to government upon the security of taxes imposed and -levied within the year. But it is in general debarred commerce, and -every precarious object of traffic. The reason is plain. The paper it -issues becomes the property of the nation, and may form in a short time -the greatest part of the currency of it. In such a case, were the bank -exposed to losses by trade, or insolvency of debtors for great sums, the -whole credit of the nation might be ruined, and all the lower classes of -the manufacturing inhabitants undone, before such a blow could be -repaired. - -Under proper regulations, bank paper might be made a legal tender in -every payment: in which case it is hardly possible that any considerable -demand for coin should ever be made upon them, except for the payment of -the _grand balance_. - -This national bank may have different offices, in different cities -within the kingdom, and these will make subaltern banks both useless and -unprofitable. It might even be stipulated, that a certain proportion of -bank stock, in the name or for the behoof of any city, should entitle -that city to a proportional part of the administration within their own -district. As these are only speculations, not plans, I need not set -about removing objections, which are constantly many and well grounded, -whenever any new establishment or innovation is proposed. All I aim at -is to set this principle in a clear light, to wit, that it is the -interest of every trading state to have a sufficient quantity of paper, -well secured, to circulate through it, so as to facilitate payments -every where, and to cut off inland exchanges, which are a great clog -upon trade, and are attended with the risk of receiving the paper of -people whose credit is but doubtful. - -For this purpose, I have proposed that inland bills should be demandable -from the bank at par, as well as specie. - -It would be an admirable improvement upon this scheme, to make a like -regulation as to foreign bills. However, this speculation is reserved -for another opportunity. All I shall say, at present, upon that head, -is, that as we have seen how the whole national balance must be paid by -banks (who circulate paper payable in coin on demand, and who -consequently must, on some occasions, draw the metals from abroad for -that purpose, in order to fill up the void made by exchangers, who send -them out) and it would, I think, be shortning, in some measure, that -operation, and be a means, at the same time, of indemnifying the bank in -this respect, to regulate matters so, that all foreign exchanges might -be transacted there at fixed rates, according to the place where the -exchange is to be made, without erecting any monopoly for that purpose -in favour of the bank, or depriving any one of the liberty to deal in -exchange, who can afford it at more reasonable terms than the bank; but -of this more when we come to the doctrine of exchange. - - ------------------------------------------------------------------------- - - - CHAP. XVII. - _When and in what case Banks should be obliged to keep open Books._ - - -If no national bank be established under proper regulations, and entire -liberty allowed to every one to take up the trade who can issue his -notes, I think it would be against all principles of good policy not to -oblige such banks to keep open books, to be inspected regularly by some -authority or other; in order to see upon what security that paper -stands, which is the instrument of commerce, a part of every man’s -private property, and which, if any part of it should once fail, either -through the knavery, misconduct, or misfortune, of a particular company, -would cast a general discredit upon all paper, and be a means of -bringing on those calamities which we have so often mentioned. - -I know the ordinary objection against this, is, the inconvenience of -throwing open the secrets and mysteries of trade. As to the mysteries of -trade, this point shall be examined in another place. But here, I say, -there is no question of trade in which any risk is implied: and if any -one can suppose, that, at any time, the affairs of a bank are in so -ticklish a situation as not to bear inspection, that very supposition -shews how necessary it is not to permit such a bank to continue this -circulation. The only inspection, in which the public is interested, is -to know the quantity of notes issued, and the extent and nature of the -securities pledged for them. They have no business to examine the state -of their cash, or of particular people’s credit. They may be without a -shilling in their coffers, and still their paper be as good as if they -had a million. Such an inspection, as I propose, would rather confirm -than shake their credit, but it would be a means of preventing them from -launching out into speculations in matters of commerce, which is not -their district; and from gaming with national property. - -If it be said, that this inspection would lay open the affairs of many -private men, debtors to the bank, I answer in the negative; because no -man’s credit is hurt by his having a cash account, and no inspection is -requisite, as to the state of that accompt with the bank. The credit may -be either quite full, or quite exhausted; this particular interests no -body but the parties themselves; but it is essential to know upon what -security the credit has been given; because every man who has a note of -such a bank in his possession, has a very good title to be informed -concerning the security on which it stands. - -It is not sufficient to say, that the holder of the note, if he doubts -of the security, may demand payment. It is not here the interest of any -individual, but that of the public which is attended to: and if, -according to the principles of common reason, it be just, that a -creditor should have it in his power to watch over the abilities of his -debtor, so as to secure his payment; certainly it is equally just, that -the public (which I consider here as the creditor) should be made -certain, that what is circulating with as great facility as the King’s -coin, contains a real value in it. Would it be a good answer from any -man who held a piece of false money in his hand, for the use of -circulation, to skreen himself, by alleging that if it be false, no body -need to take it. It is the right of every man to detect false coin; but -it is the right of government _only_ to detect false paper: because law -only can authorise such an inquisition. Does not the charter of the bank -of England establish this right in government? If the bank be confined -to certain particular branches of solid trade, where little risk is -incurred, might not government examine, when necessary, whether these -regulations have been observed; and how can this be done without such an -inspection as is here recommended? - - ------------------------------------------------------------------------- - - - CHAP. XVIII. - _Is it the Interest of Banks to grant Credits and Cash Accompts to - Exchangers and others, who make a Trade of sending Coin out of the - Country?_ - - -The answer to this question is very short. - -From the principles we have deduced, it is plain, that it is both the -office and interest of banks to give credit to all who can give good -security for it. - -The cause of doubt upon this question, arises only from certain -inconveniences which have been of late experienced in Scotland; but -which never would have been felt, had banks attended to their true -interest, in providing funds to answer the demands of those who are -either obliged, or who find an interest in paying off what the nation -owes upon the grand balance to foreigners. - -To set this matter in a clear light, let me suppose that, some time ago, -the banks had at once withdrawn all the credits granted to exchangers; -and opened a subscription for a loan of money, equal to what they might -estimate the sum borrowed by that set of men within the country, for the -sake of carrying on their business. - -According to principles, these two operations should go hand in hand: -the recalling the credits would, no doubt, have greatly distressed -exchangers; but as long as they could find money to borrow from private -hands, that inconvenience would have been lessened. Besides, I apprehend -that the late custom among exchangers, of borrowing at 4 _per cent._ -owes its existence to the difficulty they felt in obtaining extensive -credits from the bank; and if this be the case, then there has been a -_lucrum cessans_ to the bank of 5 _per cent._ upon the amount of all -these borrowings; because exchangers, I apprehend, would prefer a credit -from the bank at 5 _per cent._ to a loan at 4 _per cent._ payable on -demand, according to the occasions of those who keep their money with -them. - -The most effectual method, therefore, to hurt exchangers, would have -been to have recalled all their credits, and offered to borrow, upon the -same terms, what was lent to them. - -The execution of such a plan would, I think, have been, 1. diametrically -opposite to the interest of the banks; 2. would have occasioned such a -run upon exchangers, as to throw them into great distress; and 3. would -have ended in the total ruin of the trade of Scotland. - -That such a plan is diametrically opposite to all principles of banking, -I suppose, is by this time sufficiently understood. - -That it would have occasioned a run upon exchangers, is pretty certain: -because however good their credit might be, it must be acknowledged to -be inferior to that of the banks; and therefore no body would prefer -them for debtors, to the bank, upon the same terms. - -The third consequence is as evident, upon a short reflection, as the -other two. The run upon the exchangers would have obliged them to make a -call upon all the merchants and dealers in Scotland, to whom they gave -credit: for which purpose, and for which alone, they find an interest in -borrowing at so high an interest as 4 _per cent._ - -The call, then, made by the exchangers upon their debtors, is neither -more or less than a call upon the money employed in the trade of -Scotland. - -Now we have said, that whoever owes _must pay_. The merchants of -Scotland owe to exchangers; the latter are pressed by their creditors, -and _must pay_ with what they have, which consists in money only: when -that is exhausted, they must shut up shop. _They_ again call upon the -merchants, who _must pay_ with what they have. This consists in goods, -and in the manufactures of Scotland; and these they _must_ sell at any -price. There may not be time sufficient to export with advantage. To -whom then must they sell? To people within the country, who have no -money to buy with; because credit is withheld by that body which only -can give it. I conclude with the old saying of the law, - - _Unum quodque eodem modo solvitur quo colligatum est._ - -The best method to establish credit in an industrious nation, is a bank -properly regulated: and the best methods to ruin it effectually, when -established, are the inconsistent operations of such a bank. - - ------------------------------------------------------------------------- - - - CHAP. XIX. -_Application of the Principles above deduced, towards forming the Policy - of Circulation._ - - -From the principles above deduced, there arise three principal objects -of attention. - -The first, the circulation of paper for domestic uses. - -The second, the method of providing coin for that purpose. - -The third, the method of paying foreign balances. - -These three objects are absolutely different in their nature, and they -are influenced by different principles. The consequence of blending them -together, is to render the subject, which is abundantly intricate in its -own nature, still more dark and perplexed. What is to follow has no -relation to any plan proposed for execution; it is only intended as a -farther illustration of the general principles which influence this -branch of my subject. - -1_mo_, As to the circulation of paper for domestic use. - -It has been said, that the great utility of banks of circulation upon -mortgage, was to facilitate the melting down of solid property; in order -to enable every one who has property, to circulate _the capital_ of it -for the advancement of industry. - -For this purpose he comes to a bank, pledges the capital he wants to -melt down, and receives for his obligation, bearing interest, paper -money which bears none. - -This paper money, I suppose to be as solidly secured as the principles -of private credit can make it. I suppose the bank to be established by -authority, according to the regulations already mentioned, and the notes -made a legal tender in every payment of _domestic debts_; by which I -understand _debts_ payable within the country. - -From these data, I say, that the regular method by which the bank should -acquit the obligation in the notes, is by restoring the security granted -at issuing the notes, if they be returned by the debtor in it; or by a -transfer of a sum of interest equivalent to the notes, if they are -presented by any other. All farther obligations laid upon banks to pay -in coin, or inland bills, is only an equivalent expected from them in -lieu of their great profits[12]. - -Footnote 12: - - It must here be observed, that in every country where there is a - national coin established, it is absolutely necessary to connect with - it the denominations of the paper; in order to affix a determinate - value to these denominations. This may easily be done without - implying, as at present, an obligation on the bank to realize into - coin every bit of paper in circulation. - - The _interest_, therefore, of the credits given by the bank, may be - demandable from the debtors in coin; and the transfers of interest - made by the bank, to those who bring in notes for payment, may also be - demandable in coin from the bank. - - These payments will bear a small proportion to the paper in - circulation, as interest must be very low; and coming at fixed terms - of payment, provision will easily be made for them. - - This regulation will support the coin of the country, and as the - _interest_ of all the paper becomes demandable in coin, the intrinsic - value of the _interest_ will effectually support the value of the - _capital_. - -When paper issued for domestic circulation returns to a bank, were it -not for the profits on their trade, I see no reason why a bank should -pay in any other species of property than what it received; and if, by -the interest they receive for their notes, they are abundantly -indemnified for all the difference between paying in coin and in -transfer, I think the public would be a gainer to dispense with that -obligation in lieu of an abatement of interest; which would be an -advantage to commerce, not to be counterbalanced by the other. - -Farther, the business of providing coin is totally different from that -of supporting domestic circulation: it is founded on different -principles: it requires men of a particular genius to conduct it: the -difficulties to be met with are not constant; and therefore cannot form -a regular branch of bank administration. - -2_do_, The method of providing coin for domestic circulation is the -business of mints, not of banks. - -I have, in the third book, treated very fully of the doctrine of coin, -and of mints. I have shewn the difference between money, which _is the -scale for reckoning value_, and coin, which _is certain denominations of -money, realized in a proportional weight of the precious metals_. I have -shewn how necessary a thing it was to impose the price of coinage upon -the metals manufactured into coin: and I have said, that it was -inconsistent with all principles, to allege that the metals, when -coined, should thereby acquire no additional value. - -The expence, therefore, of providing the metals should be thrown upon -those who want coin; and the mint should be obliged to convert gold and -silver into coin, upon the demander’s paying the coinage. - -This coin loaded with the price of coinage, never will be sent abroad to -pay a foreign balance; never will be locked up in banks, which will have -little occasion for it. It will, therefore, remain in circulation, and -serve those purposes for which the inhabitants think fit to employ it. - -This coin, I say, never will be exported, as long as any uncoined metals -can be found in the country: and if upon a national distress it is -thought fit to facilitate the exportation of it, the state may (as we -observed above) appoint the mint to receive it back, in order to melt it -down into ingots, stamped with the mark of sterling, repaying to the -bearer —— _per cent._ of the coinage. - -3_tio_, The trade of paying off foreign balances will then become a -particular branch of business: of which we shall treat more at large, -when we come to examine the principles of exchange. - -All that is necessary to be said in this place, is to recal the -principle we have mentioned above, viz. that when a nation cannot pay in -her metals, manufactures, and natural produce, what she owes to -strangers, she must pay in her solid property; that is, she must -mortgage the revenue of such property, for a capital _borrowed out of -the country_, which capital she must employ for the payment of her -foreign debts. - -This operation then should be performed by a regular and systematic -plan. - - ------------------------------------------------------------------------- - - - CHAP. XX. - _Objections to this Doctrine._ - - -That bank notes can never be received as specie, but from a persuasion -that they may be exchanged for it on demand. - -To this I answer, that it is sufficient they be received as value; and -that they answer every purpose in carrying on alienation. The use of -_money_ is to keep the reckoning between parties, who are _solvendo_; -the use of specie or coin is to avoid the inconvenience of giving credit -to persons who perhaps may not be so. - -When merchants make delivery in accompt, they then give credit to their -customers: when they sell for bank bills, they give credit to the bank: -when they are paid in coin, they give credit to no body; because they -receive the real value in the coin. Where then is the difference between -receiving the real value, and receiving an obligation for it, concerning -the validity of which every one in the country is perfectly satisfied? - -Is there a merchant, in any country in the world, who will sell one -farthing upon an hundred pounds cheaper to a person who pays in coin, -than to another who pays in good paper; unless the extrinsic -circumstances of the country should, at that time, give an advanced -price to the _metal_ of which the coin is made. - -Money, we have said, ought to be invariable in its value: coin never can -be so, because it is both _money_ and _merchandize_: money, with respect -to the denomination it carries by law; merchandize, with respect to the -metal it is made of. - -But it is urged, that if I have coin I may pay any where within the -commercial world, at the expence of transportation, and insurance. I -grant this to be true. - -But I answer, that the principal use of coin, is, not to send it out of -the country; but to keep accompts clear among inhabitants within the -country. If there be a variation in the value of coin, according to -circumstances, that variation must affect the inhabitants in their -transactions. No one can gain upon this coin, without supposing a -relative loss to some other, whether they perceive it or not. Must not -this disturb all reckoning? Must it not disturb prices? Since at -different times, I may be paying the same denominations of coin for the -same commodity; and yet be paying, really, more value at one time than -at another. Is not then the most invariable money the best calculated -for the interest of trade, and prosperity of manufactures? Whence arise -complaints against paper money, and regrets for want of coin? They issue -from those who both wish to profit of the rising value of the metals -contained in the coin, and who endeavour to persuade the public, that -its interest, and not their own, is their object. - -What a trifle is a foreign balance, let it be ever so great, compared -with the whole alienations of a country! Is it reasonable to disturb the -harmony of all domestic dealings, in order to furnish an opportunity to -a few clear-sighted people, who can, upon some occasions, profit of the -fluctuating value of the substance of which the coin is composed, to the -prejudice of the ignorant? If the country owes a balance to other -nations, let it be paid: nothing so just; nothing so essential to the -interest of the country which is the debtor. If the precious metals are -the most proper vehicles, as I may say, for conveying this value, let -them be procured and sent off; but never let us say, that because _some_ -of our money _may_ be made of that metal, that all our money should be -made of it; in order that those who transact the balance may have an -opportunity of sending our metals away with greater ease, and thereby of -depriving us of the means of carrying on alienations among ourselves. -Let every one that has coin send it away: nothing can be more just; -nothing more consistent with principles: but let him send it away as a -_manufacture_; carrying in its bosom the price of making it, which he -has paid, and for which his foreign creditors will make him no -allowance. - -Exchangers run to the coin of the nation, for paying, with the least -expence to themselves, the balance they are about to transact. When that -resource is cut off by the imposition of coinage, the nation will -preserve at least her darling specie; and then exchangers will be -obliged, by the best of all compulsions, their own interest, to think of -other expedients; bullion, manufactures, and natural produce. And when -all these come to fail, a regular plan must be laid down, and authorised -by government, for obtaining credit in other countries, by mortgaging -the revenue of the solid property of the kingdom; according to the -principles we shall discover when we come to treat of exchange. - - ------------------------------------------------------------------------- - - - CHAP. XXI. -_How by a return of a favourable Balance the Bank may be enabled to pay - off the Debts due to Foreigners, and thus deliver the Nation from that - Burthen._ - - -We have said, that the banks in contracting debts, and mortgaging the -property of Scotland to strangers, for the payment of a grand balance, -really acted as the guardians of the public, by interposing their -credit, and by constituting themselves as debtors for the whole; taking -for their relief, proportional securities upon the effects of -individuals. - -We have also pointed out how, by this operation, the mass of bank -securities comes to be greatly augmented. - -Before the payment of any balance for the behoof of Scotland, the -securities in the hands of the bank can only be equal to the notes in -domestic circulation, and accumulated profits thereon. Let this be -called (A). In proportion as these notes come back upon the bank, in a -demand for bills to pay balances, in the same proportion is there a sum -of securities added to the former mass (granted upon new credits given -for filling up the void thereby occasioned to circulation) which -quantity I shall call (B). - -(A) then represents the securities equivalent to the notes in -circulation. - -(B) represents the securities equivalent to the debts contracted by the -bank in favour of strangers. - -Now let us suppose trade to become favourable; or that the interest of -the money, which the natives had sent abroad, to invest in foreign -countries, begins to flow back: what will be the effect of this? - -I say, that this balance will be paid to Scotland, either in coin, or in -the metals, or in produce, or in manufactures, or in bills. - -In every case, it must be supposed to be beyond the consumption of -Scotland; otherwise it will not be a balance in their favour. Whatever -part of it, therefore, proves to be beyond the consumption of Scotland, -will be turned into money. This money must either consist in the metals, -or in foreign bills. If it consist in the metals, it will, if coined, -fill up, _pro tanto_, a part of circulation; this will make a -proportional part of bank paper return upon the bank, and extinguish a -proportional part of their securities; which we have called (A). But -then there will be more coin in circulation than formerly; consequently, -more coin will enter into payments made to the bank than formerly. But -we must suppose, that before this favourable turn of commerce, there was -coin enough both in the bank and in the country for the uses of domestic -circulation; consequently, the bank will send off this superfluity of -coin, and with it they will refund a part of the debt they formerly -contracted. - -Through all this chain of reasoning, we must always suppose the money in -circulation to be _a determinate sum_; otherwise the superadding this -foreign balance in coin will not occasion, as we have said, a return of -a proportional part of the bank paper. - -In the next place, let us suppose this favourable balance to consist in -foreign bills, upon London, Amsterdam, &c. These will be discounted by -the bank, and notes issued for them. The bills will be sent off by the -bank, in order still to extinguish a part of what is owing to -foreigners. These notes, again, being superfluous to circulation, which -we suppose to be full, will return upon the bank and still diminish the -mass of (A). - -By these operations we see how (A) will be constantly diminishing; but -then in the same proportion we see how the mass of foreign debts will -also be diminishing: consequently (B), which was engaged for them, will -be returning to be the free property of the bank; and as we suppose no -variation upon the sum in circulation, we may consider this as a sort of -conversion of (B) into (A), and when all (B) shall be thus converted -into (A), then the debt formerly contracted by the bank, in favour of -Scotland, will be totally paid off by the same method (only inverting -the operations) by which it was contracted. - - ------------------------------------------------------------------------- - - - CHAP. XXII. - _Of Banks of Circulation established on mercantile Credit._ - - -I have examined, with all the care I am capable of, the nature of banks -calculated for the melting down of solid property, and converting it -into paper for the use of circulation. - -The nature of such banks is but little known in countries where they -have not been established, and a distinct account of them may suggest -hints, which in time may prove useful. - -People who do not employ their thoughts on the theory of trade and -credit, are apt to overlook objects of real utility; and those who do, -have seldom the opportunity of being informed of the customs of -different nations. Were my experience greater, or had I more -opportunities to dive into the recesses of this great object, the work I -now present to the public would better deserve its attention. - -I now proceed to a deduction of the principles upon which are founded -those banks which are principally calculated for the use of commerce; -and as the ground-work of my inquiry, I shall trace some of the -principal operations of the bank of England. - -The establishment of this great company was formed about the year 1694. -Government at that time having great occasion for money, a set of men -was found who lent to it about 1,200,000_l_. sterling, at 8 _per cent._ -for the exclusive privilege of banking for 13 years; with this -additional clause, that 4000_l._ sterling, _per annum_, should be given -them to defray the expence of the undertaking. This sum of 1,200,000_l._ -sterling, was the original bank stock. It has been since increased to -11,000,000_l._ by farther loans to government, for the prolongation of -their privileges; as has been taken notice of in the 16th chapter of the -second part. - -This stock, as in banks of circulation upon mortgage, is only to be -considered as a subsidiary security to the public for the notes they -issue: were it the principal and only security for their paper, this -bank would then be founded on the principle of public, not of mercantile -credit; under which last denomination we are going to point out in what -the nature of it differs from those we have already explained. - -It is a rule with the bank of England to issue no notes upon mortgage, -permanent loan, or personal security. The principal branches of their -business may be comprehended under four articles, viz. 1. The -circulation of the trade of London: 2. The exchequer business of Great -Britain: 3. The paying the interest of all the funds transferable at the -bank: 4. Their trade in gold and silver. I shall now shortly explain the -nature of these four great operations; and first as to the circulation -of the trade of London. - -When we speak of the circulation of trade, we understand the circulation -of money paid on the account of trade. - -The great occupation of the London merchants engages them to simplify -their business as much as possible. For this, they commit to brokers -every operation which requires no peculiar talents or ingenuity in the -merchant himself; and, for a like reason, they commit to the bank and -private bankers the care of their cash. - -A Scots merchant begins by drawing money from the bank, for which he -pays interest: a London merchant begins by putting money into the bank, -for which he draws no interest at all. - -A London merchant, therefore, can give no order upon the bank, unless at -a time when he has money lodged in it. - -If he has occasion for money at any time, he sends to the bank the bills -he has, before they become due, and the bank discounts them at certain -rates, according to their nature. - -If it be a foreign bill, the bank in discounting it, retains of the sum, -at the rate of 4 _per cent. per annum_, for the time the bill has to -run; but if the bill be at a longer day than 60 days, they will not -discount it. So in this case, the merchant must keep his bill until it -is within 60 days of the term of payment. - -The reason for this is evident: the security upon which such bills -stand, is purely mercantile. The nearer, therefore, the payment is, the -less risk the bank incurs from the failure of those who are bound in it. - -The intention of this operation of discounting bills, is plainly to -employ the cash in the bank in a way to draw an interest for it; but as -merchants allow their money to lie dead for as short a time as they -possibly can, the bank must have quick returns for what they advance -upon discount, in order to be constantly ready to answer all demands. -This is no loss to the bank, and a prodigious advantage to trade, as I -shall briefly explain. - -The bank is constantly receiving cash from every person who keeps their -cash with it. This occasions a constant fluctuation of payments, which -of course must leave at all times a considerable sum of other people’s -money in the bank; because it never is in advance to any one. - -By long practice in the trade, this sum of money becomes determinate: -let us call it the _average-money_ in the hands of the bank. It is then -with this average-money alone, that the bank can discount bills. Now if -the trade of London does afford bills to be discounted at different -dates within 60 days, sufficient to absorb the whole average-money of -the bank, appropriated for discounting; this branch of business would -not go forward with the celerity required for the trade of London, did -the bank indulge merchants so far as to discount at a longer day. - -From this we learn another reason why the bank of England discounts no -bill which has more than 60 days to run. The first, mentioned already, -is for the greater security of payment; and the second, which we now -discover, is in order to be able to discount more bills than otherwise -they could do, did they discount at a longer day. - -As I am here upon the subject of discounting bills of exchange by the -bank of England, an operation it has in common with all the private -bankers in the capital, I must answer a question I have frequently heard -proposed. - -How it happens, that in a city of so great trade as London, it is -possible that people should be found even among merchants, who allow -their money to remain in the hands of bankers without interest; when in -Scotland, a place of so little trade, interest may always be got for -money for the shortest time? - -The answer to this question is to be derived from the very principles of -trade itself. - -The money which merchants have either in the hands of the bank, or of -bankers, though very considerable at all times, is in perpetual -fluctuation: it cannot then be lent to any but a banker, who would -consent to pay interest for the sums in hand. But no such banker can be -found, nor ever will be found, until all the bankers in London consent -to such a regulation. The reason is plain. One principal use the bankers -make of the average-money in their hands, is the discounting of bills. -Who then could pay interest for money, and discount, in competition with -others of the same trade, who have it for nothing? - -But suppose the bank, and all the bankers in town, should come to the -resolution of giving interest for the money in their hands, what would -be the consequence? - -I answer, that upon such an alteration, discount would rise above the -present rates, to the great prejudice of the trade of the nation; and -bankers would lend the money in their hands upon a more precarious -security for the sake of a higher interest. - -All the landed men who reside in London, and many other wealthy people, -not concerned in trade, constantly keep their money either in the bank, -or in some banker’s hand, without interest: this enables bankers in -general to discount foreign bills at 4 _per cent._ as has been said, -even when the rate of interest is rather above that standard. This is, -as it were, a contribution from the rich and idle, in favour of the -trade of the nation. - -Let, therefore, gentlemen who have much idle money, think of any other -expedient than that of obtaining interest for it, from those who -discount bills in London. Not one of them can afford to do it, and -thrive by his business; and the hurt which would result to trade in -general, will constantly be a sufficient bar against a general -resolution for that purpose. - -What has been said, will, I hope, prove satisfactory as to the -resolution of the question above proposed, so far as regards London. It -remains to be answered, how those who supply the place of bankers in -Scotland, and even the banks themselves, can afford to pay interest for -any sum put into their hands for a short time. - -I answer, that as to the Scotch exchangers, as we have called them, the -profits on their trade admit of borrowing money at interest, which that -of the bank of England and private bankers cannot do. If these last can -gain 4 or 5 _per cent._ by discounting of bills, it is all they can -honestly expect: every other employment of the money in their hands is -precarious, either as to the security or promptitude of calling it in, -to answer the demands which are made upon them. - -As to the Scotch banks, we have seen how directly contrary to all -principles it is, to borrow money in Scotland. How it diminishes the -profits upon their own trade, and hurts the circulation of the country; -but although it diminishes their profit, it carries along with it no -positive loss to them, as would be the case with a London banker, who -would pay interest for all the money in his hands, when he never can -draw any back, except for that part which we have called the average. - -Every London banker is obliged to have a certain sum of cash constantly -in his chest, the interest of which would be all lost, did he pay for -it: whereas the exchangers in Scotland never have a shilling by them; -and when any demand is made upon them, they draw the money from the -banks, in consequence of their credit by cash accompts. - -Besides foreign bills, which the bank of England discounts at 4 _per -cent._ they also discount inland bills, and notes of hand between -merchants in London, at 5 _per cent._ - -The inland bills to be discounted at the bank must all be payable in -London. The bank calls in no money from any distant quarter of the -kingdom. - -As the discounting of notes of hand between London merchants might -operate the same effect, as if the bank should advance them money upon -personal security, in case the notes were drawn for obtaining credit, in -place of paying money really due between the merchants, in the course of -business, the clerks of the bank keep a watchful eye over this branch of -management, and, by examining the reciprocal draughts of merchants -between themselves, they easily acquire a knowledge of the state of -their affairs, and are thereby enabled to judge how far it is expedient -to launch out in discounting either the notes or bills wherein they are -concerned. - -I shall not pretend to assign a reason why, in the price of discount, -the bank makes a difference of 1 _per cent._ between foreign and inland -bills of exchange. It may either be an indulgence and encouragement to -foreign trade; or it may be upon the consideration of the better -security of foreign bills, which commonly pass through several -indorsations before they are offered to be discounted at the bank. - -I come next to the circulation between the bank and the exchequer. - -The bank of England is to the exchequer, what a private person’s banker -is to him. It receives the cash of the exchequer, and answers its -demands. - -Cash comes to the exchequer from the amount of taxes. The two great -branches of which are the excise and customs. To explain this operation -with the more distinctness, I shall take the example of the excise. - -The excise is computed to bring in annually from London, and the fifty -two collections over all England, nett into the exchequer, above four -and a half millions sterling. - -The fifty two collectors send the amount of their collections to London -eight times a year, _almost entirely in bills_. As the same may be said -of the remittances of all the other taxes, we may from this circumstance -observe by the way, that London alone must constantly owe to the country -of England a sum equal to all the bills drawn upon it; that is to say, -to all the taxes which the country pays: a circumstance not to be -overlooked, from which many things may be learned, as will be taken -notice of in the proper place. - -The bills sent by the fifty two collectors, are drawn payable to the -commissioners of excise; they indorse them to the receiver general; he -carries them to the bank as they fall due, and gets a receipt for the -amount; this receipt he carries to the exchequer, who charge it in their -account with the bank, and deliver tallies to the receiver general for -the amount of his payments; these tallies he delivers to the -commissioners of excise, who enter them in their book of tallies. This -operation is performed once every week, and serves as a discharge from -the commissioners to the receiver general. - -The bank, again, keeps an account with the exchequer, which is settled -once every day, by two clerks, who go from the bank to the exchequer for -that purpose. When coin is wanted by the exchequer, for payments where -bank notes will not answer, the coin is furnished by the bank; when -paper will serve the purpose, paper is issued. - -Besides this operation in the receipt of taxes, the bank advances to -government, that is to the exchequer, the amount of the land or other -taxes imposed, which are to be levied within the year. This we see is a -loan upon _government security for a short term_, quite consistent with -the principles upon which the bank is established. The large sums the -bank is constantly receiving of public money, and the great assistance -it obtains from thence in carrying on the other branches of their trade, -enable it at present to make advances of money to government at 3 _per -cent._ It observes the same rule with respect to the great companies of -the East Indies, and South Sea, for the same reason: but no advances are -made to private people; and in discounting of bills and notes of hand, -the regulations above mentioned are adhered to. - -Thus the whole amount of taxes is poured into the bank, in the manner we -have been describing. - -The bank also keeps the transfer books of all the funds negotiated at -the bank; and out of the public money in its hand, it pays the interest -of those debts, for which government allows to the bank a sum -proportionate to the expence of that branch of management. - -When the bank, as a company, lends to government upon a permanent fund, -the capital whereof is not demandable, this operation is foreign to -their business as a bank, and is conducted by the company, as an article -of management of their private property. - -Let us now examine by what channels their notes enter into circulation, -and the security upon which they stand. - -When issued in the discount of bills, they stand upon the principles of -mercantile credit, and depend upon the goodness of the bills discounted. -When issued upon the faith of taxes to be paid within the year, they -stand upon the security of that payment, which is of a very complex -nature, as any one may perceive. As long as the inhabitants of England -consume exciseable goods, the excise will be paid: as long as trade goes -on, customs will be paid: and as long as government subsists, the -collateral security of the state will serve to make up all deficiencies -in the amount of taxes. No security, therefore, can be better than the -notes of the bank of England, while government subsists. The losses that -great company meet with from bad debts, I am informed, are very -inconsiderable. - -The greatest risk the bank runs, is in discounting bad bills; but by the -extent of their business in this branch, and by circulating the cash of -all the merchants who keep accounts with them, they acquire so perfect a -knowledge of the state of their affairs, that it rarely happens that any -one can fail for very considerable sums, without the bank’s having a -previous notice of it. A sudden loss may no doubt happen, without a -possibility of being foreseen; but the matter of fact proving that their -losses upon bad bills are inconsiderable, we may thence infer, that -there is but little mystery to the bank, with regard to the credit of -London merchants. - -I come now to the last branch of their management, to wit, their trade -in gold and silver. - -For the circulation of bank notes, coin is necessary. We have seen, in -treating of the Scotch banks, how coin is brought in: to wit, in -consequence of all the payments made to the bank, in which there must be -a proportion of coin equal to what is found in common circulation. What -is not paid in coin, comes in, in their own notes, which are thereby -taken out of the circle; and consequently make place for a subsequent -supply, which issues in the manner we have described. - -In times of peace, and a favourable balance of trade, the bank suffers -little by the obligation it is under to pay in coin, except so far as -the great confusion of the present currency affords an occasion to -money-jobbers to melt down the new guineas. The extent of this traffic I -am no judge of, and the bank no doubt has an interest in preventing it -as far as the laws have provided a remedy against it. - -But when large payments are to be made abroad, the distress of the bank -is no doubt very great. - -In Scotland, the banks, upon such occasions, are totally drained of -coin. They have no market for the metals; because they have no mint to -manufacture them into coin. It is different with respect to the bank of -England; their distress proceeds from another cause. - -The exportation of the heavy guineas in time of war, and of a wrong -balance upon the trade of England, leaves circulation provided with a -light currency, in which the bank is obliged to pay their notes; and the -intrinsic value of the gold in which they pay, regulates the price of -the metals they are obliged to buy at market. If they provide them -themselves from abroad, they must pay the price of them in bills of -exchange. But then the lightness of the currency at home, sinks the -value of the pound sterling, as it raises the value of the ounce of gold -and silver. So the only considerable loss they incur, is in providing -the metals, which must ever be considerable, so long as the old guineas -remain in circulation. - -The loss upon coining silver is still greater than upon gold; because, -besides the loss incurred by reason of the lightness of the gold, the -metals in the silver and gold coin of Great Britain, are not -proportional to the value they bear in the London market, where they -have been bought, as has been sufficiently explained already in another -place[13]. - -Footnote 13: - - See Book III. Chap. 21. Quest. 7. - -It is with great diffidence that I propose an expedient to a company so -knowing in the arts and science of trade, for preventing, in a great -measure, this loss in providing the metals for the use of circulation. -The bank is directed by long experience, and by a knowledge of many -facts and circumstances hid from me; and which, therefore, I cannot -combine into a theory founded chiefly upon reason. - -The expedient I propose has been pointed out in the preceeding parts of -this inquiry, and I only recapitulate it briefly in this place, to recal -it to mind while we are on the subject of the bank of England. - -First, then, while the coin is of unequal weight, the value of the -currency never can be permanently the same. Did the bank seriously set -about forming a plan for the reformation of the coin, I have no doubt -but government, as well as the voice of the nation, would go along with -it in forwarding the execution of so noble a design. - -The second step I would recommend, is that government should enable the -bank to establish a fund in Holland, Antwerp, Hamburg, and perhaps at -Cadiz and Lisbon, for borrowing (though at a high interest) sums of -money equal to what may be due by England to the continent upon certain -emergencies. - -I cannot pretend to lay down any plan for this operation; but I proceed -upon this principle: that if on like occasions the British government -can find credit to borrow so large sums for the uses of war, at a very -moderate interest, surely the bank of England may imitate her example -for the uses of trade; and had she a credit abroad, upon which she could -draw, I think it must follow, that the coin of the nation might be kept -at home. - -I have been an eye witness to large sums in new English guineas thrown -into the melting pots of the Dutch mints, for the small profit of less -than 1 _per cent._ gained by coining them into ducats. A small duty -imposed upon coinage in the English mint, would prevent this practice -abroad; and then British coin would come safe back again, upon every -return of a favourable balance on their trade. At present it comes home -in bullion, which the bank must buy dear; the state must coin at a -considerable expence; and the bank after all must give it to circulation -at the mint price, which is many _per cent._ below prime cost, as -matters have stood for several years. - -From this review of the constitution of the bank of England, and of the -principles upon which it is founded, we may discover how impossible it -is, that banks upon mortgage and private credit, can ever receive any -considerable assistance from it; and how groundless all insinuations -concerning its jealousy of such companies must be. - -A more natural object of its jealousy is that of the London bankers, who -carry on a trade similar to its own, in many respects, and who, in the -course of their business, draw from it very large quantities of coin. - -This, however, occasions no ill will on the part of the bank. The trade -of London requires the assistance of all the bankers there, as well as -of the bank. Were it otherwise, the bank, by discounting bills at a less -profit, might soon oblige them to shut up shop. In this view of the -matter, the drawing coin from the bank cannot be prevented. - -The bankers call for no more than their business requires. Could the -bank, therefore, circulate the whole trade of London, the consequence -would be, to issue as much coin as at present: and the coin which issues -from bankers, like to that which issues from the bank, if it be for the -uses of domestic circulation, returns to the bank in proportion as it -issues: and if it be for payment of a foreign balance, the bank knows -well that the expence of providing for _that_, must land upon it, in -spite of every method to prevent it. - -I must now explain the difference between the effects produced upon the -circulation of coin, by the operations of banks established upon -mortgage and private credit, and by those of the bank of England, which -we have said to be established upon mercantile security. - -The consequence of a bank upon mortgage, is to fill the nation with -paper money, and to reduce the quantity of coin to the lowest sum -possible. For the truth of this proposition, I appeal to the experience -of Scotland, and of Rome, where banks upon mortgage, and moveable -pledges, are found established. From these facts, and from the -principles of their constitution, which is to melt down property into -money, it follows, that when the credit of such money is well -established, the coin, which is the money of the world, will be employed -in trading with the world, and the paper, which is the money of the -society, will be employed in trading with the society. - -The consequence of this, is, that when the balance of trade runs against -a country where banks upon mortgage are established, the coin first goes -out; and when, by borrowing, it can be brought back, the interest paid -for the coin borrowed, adds an additional balance against the country, -until the whole revenue of it becomes the property of other nations. -From this we may conclude, that the establishment of such banks is as -dangerous a weapon in the hands of an idle nation, as an extensive -credit is to the family of a young spendthrift. - -But let us consider the consequences of such banks to an industrious -people, who preserve, upon the average of their trade, a favourable -balance with other nations. - -The coin, then, goes out to return, and serves as a check upon the -course of exchange. I here suppose proper regulations in the mint, and -an entire liberty to export coin. Permitting the exportation of coin -where you have a mint, for paper to supply its place, and a favourable -balance on your trade to bring it back, is like establishing two shops -for the course of exchange. If the exchanger will not serve trade at the -price of transportation and insurance, the coin will do it for him. - -In such a country, a bank, properly established, will find great profit -upon the interest of their notes, notwithstanding of the obligation to -provide, at all times, the quantity of coin necessary for circulation. -All the great objects of trade will then be fulfilled; the rest must be -left to the operation of political causes. - -If the balance of the trade of such a country should have the effect of -bringing in an addition of coin, which, because of the paper, would -become unnecessary for circulation; this coin, or the value of it, will -either be added to their stock in trade, or will be lent to other -nations. This is the case of the Swiss: they are an industrious and a -frugal people; they receive annually from their trade, and from the -service of their citizens in many countries in Europe, a constant -addition to their wealth, more than their trade demands, which they lend -to their neighbours; by these means they increase the revenue of the -society; and this increase has effects almost similar to an extension of -their territory; because it is a means of increasing their population -beyond the proportion of the natural produce of their lands; and the -food they import from Germany and other countries, is paid with the -money which arises from the interest of what they have lent abroad. All -these operations are the consequences of credit and circulation. - -In a country where a mercantile bank is established, the melting down of -property is greatly circumscribed; and consequently coin becomes more -necessary. - -We have often said, that a circulating value (money) must constantly -bear a proportion to alienation. Circumstances will determine what -proportion of coin and what proportion of paper will be necessary for -carrying it on. These circumstances, under banks of circulation upon -mortgage, multiply paper so much that little coin is required. - -Let us now examine how far the paper of a mercantile bank, like that of -England, tends to supply the demand of circulation. - -Were no bank established at London, all bills would be paid, or -discounted in coin. - -The bank, therefore, melts down into paper money all the bills -discounted by them, and throws it into circulation. - -It also melts down into paper all the sums it advances either to -government, or to the great trading companies. In this respect it acts -upon the principle of banks upon mortgage. - -It also melts down into paper all the interest upon the public funds -discounted at the bank. All this sum of paper issues from the bank into -the city of London, and proportionally supplies the circulation of that -great capital. - -Let us next examine how this paper can find its way into the country of -England, there to supply the use of coin. - -The whole consumption of London for meat, beer, fire, and an infinity of -articles of manufacture for domestic use and foreign exportation, comes -from the country of England. - -Did the country owe nothing to London, the sums due for those -commodities would be sent into the country in the current circulation of -London, which, by what we have seen, absorbs a very large quantity of -paper. - -But we have said above, that the whole amount of taxes, almost, is -remitted to London in bills: this could not be the case, were not the -capital constantly indebted to the country. This circumstance confines -the circulation of bank notes chiefly to London, and some other cities, -to which the inhabitants of London resort, and whither they carry in -their pockets the money of the capital, viz. bank notes. For these -reasons, bank notes can never be common in the country: and if, at any -time, a scarcity of currency _there_, proves hurtful to industry, the -defect cannot be remedied but by establishing banks of circulation upon -mortgage in the principal towns of England. - -It may be here objected that such a regulation in England, where there -is already so great a bank settled on different principles, might draw -along with it the following hurtful consequences, viz. - -1_mo_, By multiplying the circulation of paper it would send off the -coin. - -2_do_, The taxes would be paid in this paper, which could not be -received at the bank of England, and that would throw the whole nation -into confusion. - -To which I answer, 1. That if the coin were sent off, it would return, -as has been said, while the trade of England flourishes: and 2. That -this new bank paper coming in place of the coin, would no more be sent -to London than coin is sent now. The debts due by the country for taxes, -would be compensated by the reciprocal debts due by London for -subsistence, &c. and the compensation would go on as at present by -bills: but were the case otherwise, and did a change of circumstances -oblige the country to make delivery in coin to London, the holders of -the country notes would constantly, as is the case in Scotland, have -recourse to the bank established in the district, for the coin wanted to -be sent to London. - -When I accidentally, as at present, happen to apply a principle to a -particular case, whereby an innovation is implied, I constantly fear a -secret rebuke from many impatient readers. I therefore beg a little -indulgence upon account of my good intention, which is only to support -ideas to be approved of, or rejected by those who have the capacity to -form plans upon them, and power to put them in execution. - - ------------------------------------------------------------------------- - - - CHAP. XXIII. - _Of the first Establishment of Mr. Law’s Bank in France, in the Year - 1716._ - - -In deducing the principles of credit, I have it chiefly in view, to set -in a fair light, the security upon which paper-money is established: and -as I imagine, this important branch of my subject will still be rendered -more intelligible, by an example of the abuse to which this great engine -of commerce is exposed, I now propose to give my reader a short account -of the famous bank of circulation first established in France by Mr. -Law; but afterwards prostituted (whether by design, or by fatality, I -shall not here determine) to serve the worst of purposes; the defrauding -the creditors of the state, and a multitude of private persons. - -So dreadful a calamity brought upon that nation, by the abuse of paper -credit, may be a warning to all states to beware of the like. The best -way to guard against it, is to be apprised of the delusion of it, and to -see through the springs and motives by which the Missisippi bank was -conducted. - -After the death of the late King of France, Louis XIV. the debts -contracted by that Monarch were found to extend to 2000 millions of -livres, that is, to upwards of 140 millions sterling. - -It was proposed to the Duke of Orleans, regent of the kingdom, to -expunge the debts by a total bankruptcy. This proposal he rejected -nobly; and instead of it, established a commission (called the _Visa_) -to inquire into the claims of such of the nation’s creditors as were not -then properly liquidated, nor secured by the appropriation of any fund -for the payment of the interest. - -In the course of this commission, many exorbitant frauds were -discovered; by which it appeared, that vast sums of debt had been -contracted, for no adequate value paid to the King. - -After many arbitrary proceedings, this commission threw the King’s -debts, at last, into a kind of order. - -Those formerly provided for were all put at 4 _per cent._ The creditors -to the amount of six hundred millions, which had not been liquidated, -nor provided for, had their claims reduced, by the commission, to two -hundred and fifty millions; for which they obtained notes of state, -(_Billets d’etat_, as they were called) bearing an interest of 4 _per -cent._ also. - -These operations performed, the total debts of the late King were -reduced to the sum above mentioned; to wit, two thousand millions; -bearing an interest of 4 _per cent._ or eighty millions _per annum_. - -From the necessities of government, and the distressed situation of the -kingdom, this interest was ill paid: and there hardly remained, out of -an ill paid revenue, wherewith to defray the expence of the civil -government. - -About this time Mr. Law presented to the Regent the plan of a bank of -circulation. - -For the better understanding this affair of Mr. Law’s bank, and the -views he had in establishing it at that time, I must give a short -account of the most material variations of the French coin, before and -after the King’s death, 1st September 1715; which I shall make as short -as possible, consistently with perspicuity. - - ------------------------------------------------------------------------- - - - CHAP. XXIV. - _Account of the variations of the French coin, some time before and - after the death of Louis XIV._ - - -In 1709, there was a new general coinage in France; by which operation -the King gained 231⁄13 _per cent._ upon all the specie coined. (Dutot, -vol. i. p. 104.) - -Out of the marc of standard gold were coined 30 louis d’ors, of 20 -livres denomination each. Out of the marc of standard silver, 8 crowns, -of 5 livres denomination each: so that the silver was put at 40 livres -the marc.—But, - -By edict of the month of September 1713, the old King appointed a -diminution of the denomination of silver and gold coins; by which, after -eleven successive changes, the coin of France was ordered to be brought -down, from 40 livres the marc, to 28: so that the 8 crowns, which were -_called_ 40 livres in the month of September 1713, by the 2d day of -September 1715, (the day after the King’s death) were to be _called_ -only 28 livres. I say _called_, because certainly the crowns had -suffered no variation but in their name. - -On the 13th of August 1715, (a few days before the King’s death) he -issued a declaration; ordering that for the future the coin should -remain at 28 livres _per_ marc. - -From this I conclude, that his intention was to leave, at his death, the -coin of his kingdom of the same standard he had found it to be at the -beginning of his reign, and at which he had preserved it invariably, -during the flourishing state of his kingdom, for the space of 46 years; -that is, until the year 1689. - -He could not fail to be sensible of the infinite prejudice occasioned to -debtors and creditors by the variations he had practised upon the coin -from 1689. - -To this standard, then, it was brought the very day after his death, and -no sooner: therefore his debt of two thousand millions of livres should -regularly be estimated according to that rate; or at about 40 shillings -sterling for every 28 livres: 40 shillings being, within a trifle, the -value of 8 ounces or one marc of standard silver, Paris weight. - -At this rate of conversion, the two thousand millions were equal to -142,857,140_l_. sterling. - -Soon after the King’s death, on the 2d of January 1716, the new ministry -issued an edict, which totally destroyed all. This was the most -extraordinary operation, I believe, ever invented; and to it was owing -the establishment of Mr. Law’s bank: I must therefore explain it. - -There had been no general coinage since 1709; the louis d’or had then -been coined at 20 livres, and the crowns at 5, as has been said. The -edict of 2d January 1716, ordered a new general coinage, on the same -footing, both as to weight, fineness, and denomination, as that of 1709: -the only difference was, that the first had an old man’s head upon it; -the other had that of a child of six years old. - -By this first operation, there was an end put to the former diminutions -on the denomination of the coin; which was now raised again to 40 livres -the marc, as in 1709[14]. This is nothing: - -Footnote 14: - - Here is also an operation upon debts. The day before this edict, that - is, the 1st of January 1716, the value of the King’s debts was (as has - been said) above 142 millions sterling: but an edict comes, raising - the coin to 40 livres _per_ marc; and consequently, reducing the debts - to the value of 100 millions sterling. - -There being no difference between the old coin and the new, except the -stamp, the old coin was called in, and a new face was stamped on the -very same pieces. But when the louis d’ors were called in, they were -received at the mint at no more than 16 livres; and by a stroke of the -wheel, they were, in an instant, converted into 20 livres, the -denomination of the new coin. - -Thus a person who brought 20 old louis d’ors to the mint, received back -16 of his own 20, new stamped, and no injustice was said to be done, -from this demonstration of ministerial algebra, viz. 16 × 20 = 20 × 16. -Can any thing be more clear and instructive! Some of my readers may not -give credit to this; but it is true nevertheless. - -Under these circumstances, it was natural for the inhabitants to wish to -dispose of their old coin, at any other market than at the King’s mint. -They did what they could to smuggle it to Holland; where the industrious -Dutchman stamped a 16 livre piece with the head of a child, as well as -the King of France could do, and sent it back to France for a 20 livre -piece. These operations were prevented as well as government could; and -every method was tried to force in the old coin to the mint. - -Mr. Law judged this a very proper occasion to form the plan of a bank of -circulation, upon the principles we have already explained. - -He gave in his scheme to the Duke of Orleans; by whom it was approved -of; and the bank was established the 2d of May of the same year 1716. - -The first thing Mr. Law did, was to buy up with bank notes this old -coin, at a price above what the mint gave, but many _per cent._ below -the proportion of its value: his paper (payable in the new coin at 40 -livres _per_ marc) was run upon for this, as well as other reasons; and -an immense profit ensued. - -This anecdote, I think, is curious, and tends to unfold Mr. Law’s -combinations, in the proposal he made to the Duke of Orleans for -erecting a bank at this period of time. - - ------------------------------------------------------------------------- - - - CHAP. XXV. - _Continuation of the Account of Law’s Bank._ - - -The bank accordingly was established in favour of Law and Company, by -letters patent, of the 2d of May 1716. The Company was called, the -General Bank; and the note run thus: - -The bank promises to pay to the bearer at sight — livres, in coin of the -same weight and fineness with the coin of this day, value received at -Paris. - -The first fund of this bank consisted in 1200 actions (or shares) of one -thousand crowns, (or 5000 livres) bank money; in all six millions; the -crown being then 5 livres, 8 to the marc; silver coin at 40 livres _per_ -marc, as has been said; which makes this livre just worth one shilling -sterling: consequently, the shares were worth 250_l._ sterling, and the -bank stock worth 300,000_l_. sterling. - -By the clause in the note, by which the bank was obliged to pay -according to the then weight and fineness of the coin, those who -received their paper were secured against the arbitrary measures common -in France of raising the denomination of the coin; and the bank was -secured against the lowering of it. In a short time, most people -preferred the notes to the coin; and accordingly they passed for 1 _per -cent._ more than the coin itself. - -This bank subsisted, and obtained great credit, until the 1st of January -1719: at which time the King reimbursed all the proprietors of the -shares, and took the bank into his own hand, under the name of the Royal -Bank[15]. - -Footnote 15: - - Here the bank departed from the principles of private and mercantile - credit, upon which Law had formed it, and proceeded upon those of - public credit. Public credit in France is the credit of the Sovereign; - the solidity of which depends upon the maxims which he follows in the - course of his administration. - -Upon this revolution, the tenor of the note was changed. It ran thus: -The bank promises to pay to the bearer, at sight, — livres, _in silver -coin_, value received at Paris. - -By this alteration, the money in the notes was made to keep pace with -the money in the coin; and both were equally affected by every arbitrary -variation upon it. This was called, rendring the paper _monnoie fixe_; -because the denominations contained in it did not vary according to the -variations of the coin: I should have called it _monnoie variable_; -because it was exposed to changes with respect to its real value. - -Mr. Law strenuously opposed this change in the bank notes. No wonder! it -was diametrically opposite to all principles of credit. It took place, -however; and no body seemed dissatisfied: the nation was rather pleased: -so familiar were the variations of the coin in those days, that no body -ever considered any thing with regard to coin or money, but its -denomination: the consequences of the variations in the value of -denominations, upon the accompts between debtors and creditors, were not -then attended to; and the credit of the notes of the royal bank -continued just as good as that of Mr. Law; although the livres in _this_ -contained a determinate value; and the livres in _that_ could have been -reduced at any time to the value of halfpence, by an act of the King’s -authority, who was the debtor in them. Nay more, they in fact stood many -variations during the course of the system, without suffering the -smallest discredit. This appears wonderful; and yet it is a fact. - -Political writers upon the affairs of France at this period, such as De -Melon, Savarie, Dutot, and others, abundantly certify the incredible -advantage produced by the operations of Mr. Law’s bank; and the chain of -events which followed, in the years 1719, and 1720, when it was in the -King’s hands, shew to what a prodigious height credit arose upon the -firm foundation laid by Mr. Law[16]. - -Footnote 16: - - Dutot, speaking of the great value of paper in notes and actions, - throws out several reflections, in the passage I am now to transcribe - from him, which, at the same time that they prove the great advantages - resulting to France from the establishment of credit among them, - abundantly evince how lame this author’s ideas were concerning the - principles of paper credit, and of circulation. He says, (vol. ii. p. - 200.) “_This paper_ was indeed just so much real value, which credit - and confidence had created, in favour of the state: and by this sum - was circulation augmented, independently of all the coin which was - then in France.” - - "Upon this revolution, Plenty immediately displayed herself through - all the towns, and all the country. She there relieved our citizens - and labourers from the oppression of debts, which indigence had - obliged them to contract: she revived industry: she restored that - value to every fund, which had been suspended by those debts: she - enabled the King to liberate himself, and to make over to his - subjects, for more than fifty-two millions of taxes, which had been - imposed in the years preceeding 1719; and for more than thirty-five - millions of other duties, extinguished during the regency. This plenty - sunk the rate of interest; crushed the usurer; carried the value of - lands to eighty and a hundred years purchase; raised up stately - edifices both in town and country; repaired the old, which were - falling to ruin; improved the soil; gave a value to every fruit - produced by the earth, which before that time had none at all. Plenty - recalled those citizens, whom misery had forced to seek their - livelihood abroad. In a word, riches flowed in from every quarter. - Gold, silver, precious stones, ornaments of all kinds, which - contribute to luxury and magnificence, came to us from every country - in Europe. Whether these prodigies, or marvellous effects, were - produced by art, by confidence, by fear, or by whim if you please, one - must agree, that that art, that confidence, that fear, or that whim, - had operated all these _realities_ which the antient administration - never could have produced. - - "What a difference in the situation of France at the beginning of the - regency, and the situation in which she was in November 1719! - - “Thus far the system had produced nothing but good: every thing was - commendable, and worthy of admiration.” These are the sentiments of - Dutot, concerning this system of paper credit. - -But alas! the superstructure, then, became so far beyond the proportion -of the foundation, that the whole fabric fell to ruin, and involved a -nation, just emerging from bankruptcy and inanition, into new -calamities, almost equal to the former. - -As long as the credit of this bank subsisted, it appeared to the French -to be perfectly solid. The bubble no sooner burst, than the whole nation -was thrown into astonishment and consternation. No body could conceive -from whence the credit had sprung; what had created such mountains of -wealth in so short a time; and by what witchcraft and fascination it had -been made to disappear in an instant, in the short period of one day. - -Volumes have been since writ in France, by men of speculation, in order -to prove, that it was a want of confidence in the public, and not the -want of a proper security for the paper, which occasioned this downfal. - -This, if we judge by what has been writ, has been the general opinion of -that nation to this day: and since it was found impossible, in France, -to create confidence in circulating paper, which had no security for its -value, many people there, and some even among ourselves, conclude, that -a great part of the wealth of Great Britain, which consists in paper, -well secured, is false and fictitious. - -I shall now proceed to set before my reader the great lines of the royal -Mississippi bank of France, from the 1st of January 1719, to the total -overthrow of all credit, upon the fatal 21st day of May 1720. This was a -golden dream, in which the French nation, and a great part of Europe was -plunged, for the short space of 506 days. - - ------------------------------------------------------------------------- - - - CHAP. XXVI. -_Account of the Royal Mississippi Bank of France, established on Public - Credit._ - - -In order to unravel the chaos of this affair in a proper manner, it will -not be amiss to begin by giving the reader an idea of the plan which -naturally might suggest itself to the Regent of France, from the hint of -Mr. Law’s bank. By the help of this clue, he will be the better able to -conduct himself through the operations of this _system_, as the French -call it. - -The Regent perceived, that in consequence of the credit of Law’s bank, -people grew fond of paper-money. The consequence of this, he saw, was, -to bring a great quantity of coin into the bank. The debts of France -were very great, being, as has been said, above 2000 millions. The coin, -at that time, in France, was reckoned at about 1200 millions, at 60 -livres the marc, or 40 millions sterling. The Regent thought, that if he -could draw either the whole, or even the greatest part of this 1200 -millions of coin into his bank, and replace the use of it to the -kingdom, by as much paper, secured upon his word, that he should then be -able to pay off, with it, near one half of all the debts of France: and -by thus throwing back the coin into circulation, in paying off the -debts, that it would return of itself into the bank, in the course of -payments made to the state; that credit would be thereby supported, as -the bank would be enabled to pay in coin the notes as they happened to -return, in the course of domestic circulation. - -This was both a plausible and an honest scheme, relatively to a Duke of -Orleans, whom we cannot suppose to have been master of the principles of -credit; and very practicable in a country where there was so great a -quantity of coin as 40 millions sterling, and a well established credit -in the bank, which prevented all runs upon it from diffidence. Nothing -but a wrong balance of trade could have occasioned any run for coin; -because, for the reason already given, the paper bore for the most part -a premium of 1 _per cent._ above it. - -Accordingly, during the whole year 1719, the credit of the royal bank -was without suspicion, although the Regent had, by the last day of -December of that year, coined of bank paper, for no less a sum than 769 -millions, reckoning in 59 millions of paper, which had been formerly -issued by the _general bank of Law and company_; for which he had given -value to the proprietors, when he took the bank into his own hands, as -we have said above. - -I must here observe, that by this plan of the Regent, there was, in one -sense, a kind of security for the notes issued. So far as they were -issued for coin brought in from the advanced value of the paper, this -coin was the security: in the second place, when the coin was paid away -to the creditors of the state, the Regent withdrew the obligations which -had been granted to them; and although I allow that the King’s own -obligation withdrawn, was no security to the public, who had received -bank notes for the payment; yet still the interest formerly paid to the -creditors, was a fund out of which, upon the principles of public -credit, the annual interest for the notes was secured. Had, indeed, the -French nation perceived upon what bottom the security for the paper -stood, during the year 1719, perhaps the credit of the bank might have -been rendred precarious; but they neither saw it or sought after it: and -the men of speculation were all of opinion, that as long as there was no -more paper issued by the bank _than there was coin in the kingdom_, -there could be no harm done. Of this any person who has read Dutot, de -Melon, Savarie, and others, will be perfectly satisfied[17]. And I -desire no farther proof of the total ignorance of the French in matters -of this kind, than to find them agreeing, that bank paper is always -good, providing there be coin in the nation to realize it, although that -coin be not the property of the bank. [Dutot, p. 132, 133.] On the -contrary, it is very evident from what has been said, that although -there should be a thousand times more coin in a country than the bank -paper, still that bank paper must be a mere delusion, and, in fact, of -no value whatsoever, except so far as the bank is possessed of the value -of it in one species of property or another. - -Footnote 17: - - It is astonishing to find how gravely Messrs. de Melon and Dutot - reasoned concerning the nature of paper money, and the effects of - changing the value of the coin. They both seemed to agree that a livre - was a livre whether it was the 28th or the 50th part of a marc of - silver, whether it was a denomination upon paper, well or ill secured, - no matter which. - - The whole reasoning turned merely on the question, who were robbed, - and who fantastically enriched by such absurd operations upon the coin - of a country? - - The jargon of such men certainly contributed a great deal to darken - the understandings of the ministry at this time; and to make them - believe that the affairs of money were infinitely more obscure and - more difficult to be understood than they really are. - - There are thousands of examples where mankind, with their learning and - reasoning, have turned common sense into inextricable science; this I - think is a famous instance of it: and it is rendring no small service - to the world, to destroy, in a manner, what others have been at so - much pains to establish. This is restoring common sense to its native - dress, in which it becomes intelligible to every one. - - I know very well that the ministry of France have now very different - notions concerning paper credit; but these notions have not as yet - reached the press, except in some of the King’s answers to the - remonstrances of the parliament of Paris in 1760. These answers were - dictated upon sound principles, and do great honour to the ministry. - - The old notions still prevailed in the remonstrances of the - parliament. This plainly appears from the proposal they made to the - King, at that time, to issue paper to the amount of 200 millions, - which the parliament was to make good. An expedient to avoid doing - that which right reason demanded of them, viz. first to secure a fund - for the paper, and then to borrow upon that fund. This proposal from - the parliament, and the King’s rejecting it, proves that credit was - then better understood in the cabinet than in the _palais_. - -And on the other hand, let the bank paper exceed the quantity of coin in -the proportion of a thousand to one, yet still it is perfectly good and -sufficient, providing the bank be possessed of an equivalent value in -any species of good property. This I throw in here to point out how far -the French were, at least at that time, and many years after, when Dutot -and Melon wrote, from forming any just notion of the principles of -banking. And, I believe, I may venture to say, that the only reason why -banks have never been established in France, is, because the whole -operation is still a mystery to them. I ground this conjecture upon an -opinion of M. de Montesquieu, who thinks that banks are incompatible -with pure monarchy; a proposition he would never have advanced had he -understood the principles upon which they are established. - -The next remarkable and interesting revolution made upon this famous -bank, was by the _arret_ of February 22, 1720; which constituted the -union of the royal bank with the company of the Indies. - -By this _arret_, the King delivered to that company the whole management -of the bank with all the profits made by him since the first of January -1719, and in time coming. Notwithstanding this cession, the King -remained guarantee for all the notes, which were not to be coined -without an order of council: the company was to be responsible to the -King at all times for their administration; and, as a security for their -good management, they engaged to lend the King no less than sixteen -hundred millions of livres. - -Here is the æra and beginning of all the confusion. From this loan -proceeded the downfal of the whole system. - -But before I proceed to explain the scheme of the Regent in these -operations upon credit, I think it will contribute to the clearing up of -the subject in general, to premise some short account of the rise and -progress of this great company of the Indies: and to give a short -abstract of some of the most memorable transactions during the -Missisippi scheme, in the order of time in which they followed one -another. - - ------------------------------------------------------------------------- - - - CHAP. XXVII. - _A short Account of the French Company of the Indies._ - - -Cardinal de Richlieu, that great minister to Louis XIII. was the first -who established trading companies in France, anno 1628, about the time -of the siege of Rochelle. - -He then set on foot the companies of the West and East Indies. - -Several others, viz. one for Canada, one for the Leeward Islands, and -another for Cayenne, were successively established in the beginning of -the reign of Louis XIV. - -These companies, before 1664, had frequently changed their forms, and -had succeeded very ill. - -At that time the great Colbert was in the administration of the King’s -affairs. He engaged his master to think seriously of establishing the -trade of his kingdom upon solid principles; for which reason all the -undertakers of the former projects of commerce to the new world were -reimbursed; and a new establishment was made, called the _Compagnie des -Indes Occidentales_. - -This exclusive trade comprehended that of Canada, the Caribbee Islands, -Acady, Newfoundland, Cayenne, the French continent of America, from the -river of the Amazons to that of Oronoko, the coasts of Senegal, Goree, -and other places in Africa; the whole for 40 years. - -The same year, 1664, there was another company formed for the East -Indies, of which we shall speak afterwards. - -The greatest encouragement was given to these new establishments. Large -sums were advanced by the King for several years, without interest, and -upon condition, that if, at the end of that term, any loss was found on -the trade, it should fall upon the money due to the King. - -On examining into the West India company’s affairs, after ten years -administration, that is to say, in the year 1674, it was found, that -instead of profiting of their extensive privilege, by carrying on a -regular trade themselves, they had sold permissions to private people to -trade with them. - -This abuse in the company had, however, inspired a taste for trade among -the French; which the King wishing to improve, he reimbursed to the -company all their expences, added their possessions to his domain, and -threw the trade open to his subjects. - -Thus ended the first company of the West Indies, called by the French, -the _Compagnie d’Occident_. - -After the suppression of this company, the French trade to America was -carried on and improved by private adventurers, some of which obtained -particular grants, to enable them to form colonies. Of this number was -Robert Chevalier de la Sale, a native of Rouen. It was he who first -discovered the river Missisippi, and who proposed to the King, in 1683, -to establish a colony there. He lost his life in the attempt. - -Hiberville, a Canadian, took up the project; but soon died. He was -succeeded by Antony Crozat, in 1712, who had better success; but the -death of the King in 1715, and the rising genius of Mr. Law, engaged the -Regent of France to make Crozat renounce his exclusive privilege of -trading. Upon which, by edict of the 6th of September 1717, was formed -the second _Compagnie d’Occident_, in favour of Mr. Law: to which was -added the fur trade of Canada, then in the hands of private adventurers, -and the farm of the tobacco, for which he paid 1,500,000 livres a year. - -I now come to the East India company. - -I have already mentioned the establishment of it by the great Colbert in -1664. - -After his death, want of experience in those who succeeded him, abuse of -administration, carelesness in those who carried on the company’s -business, competition between different companies, and, in short, every -obstacle to new establishments, concurred with the consequences of the -long and expensive wars of Louis XIV. to render all commercial projects -ineffectual; and all the expence bestowed in establishing those -companies was in a manner lost. - -In 1710, the merchants of St. Malo undertook the East India company. It -languished in their hands until 1719, and their importations were not -sufficient to supply the demand of France for India goods: for this -reason it was taken from them, and incorporated with Mr. Law’s company -of the West Indies, in May 1719. - -By this incorporation was established the great _Company of the Indies_, -which still subsists in France: the only monument extant of the famous -and unfortunate Law. - -For the better understanding, therefore, what is to follow, let us -attend to some historical and chronological anecdotes, relative to the -wonderful operations of this Missisippi bank, and company of the Indies. -These I shall set down according to the order of time in which they -happened, that my reader may have recourse to them as he goes along. - -Without the help of this table, I should be involved in a history of -those events, which however amusing it might be to some readers, would -be quite inconsistent with the nature of this inquiry. - - ------------------------------------------------------------------------- - - - CHAP. XXVIII. - _Chronological Anecdotes._ - -[Sidenote: 1709.] - -A general coinage in France: the marc of standard silver, worth two -pounds sterling, put at 40 livres denomination. - -September 1713. The late King reduces the denomination of the silver -coin to 28 livres the marc, and the gold in proportion. - -These reductions were made gradual and progressive, and were finally to -take place no sooner than the 2d of September 1715. - -August 1715. The King declares, that in time coming, the coin was to -remain stable at 28 livres the marc of fine silver. - -September 1715. The King dies. - -January 2, 1716. The Regent of France orders a new general coinage: -raises the silver coin to 40 livres the marc, and calls down the old -King’s coin (though of the same weight, fineness, and denomination) 20 -_per cent._ - -May 1716. Mr. Law’s bank established: bank notes coined; and the old -coin bought up at great discount. - -September 6, 1717. Mr. Law’s company of the West established. - -September 4, 1718. He undertakes the farm of tobacco. - -September 22, 1718. The first creation of actions of the company of the -West to the number of 200,000, subscribed for in state billets, at the -rate of 500 livres _per_ action. - -January 1, 1719. The bank taken from Law, and vested in the King. At -this time the number of bank notes coined amounted to 59 millions of -livres. - -April 22, 1719. A new coinage of 51 millions of notes; in which the -tenure of the note was changed, and the paper declared _monnoie fixe_. - -May 1719. Mr. Law’s company of the West incorporated with the company of -the East Indies; after which it was called the _Company of the Indies_. - -June 1719. Created 50,000 new actions of the incorporated company; sold -for coin at 550 livres _per_ action. - -June 10, 1719. Coined of bank notes for 50 millions of livres. - -June 1719. The mint made over to the company for 50 millions. - -July 1719. Created 50,000 actions as above, sold, for notes, at 1000 -livres _per_ action. - -July 25, 1719. Coined of bank notes for 240 millions. - -August 1719. The company obtains the general farms: promises a dividend -upon every action of 200 livres: agree to lend the King sixteen hundred -millions at 3 _per cent._ and have transferred to them 48 millions _per -annum_ for the interest of that sum. - -September 12, 1719. Coined of bank notes for 120 millions. - -September 13, 1719. Created no less than 100,000 actions; price fixed at -5000 livres _per_ action. - -September 28, 1719. Created 100,000 more actions, price as the former, -fixed at 5000 livres each. - -October 2, 1719. Created 100,000 more actions, price as the former, at -5000 livres each. - -October 4, 1719. Coined by the Regent’s private order, not delivered to -the company, 24,000 more actions, which compleated the number of 624,000 -actions; beyond which they never extended. - - October 24, 1719. Coined of bank notes for 120 millions. - December 29, 1719. Coined of bank notes for 129 millions. - January 1720. Coined of bank notes for 21 millions. - February 1720. Coined of bank notes for 279 millions. - -February 22, 1720. Incorporation of the bank with the company of the -Indies. - -February 27, 1720. A prohibition by which no one was to have in his -custody more than 500 livres of coin. - -March 5, 1720. The coin raised to 80 livres _per_ marc. - -March 11, 1720. The coin brought down to 65 livres _per_ marc; and gold -forbid to be coined at the mint, or used in commerce. - - livres. - March 1720. Coined of bank notes for 191 803 060 - April 1720. Coined of bank notes for 792 474 720 - May 1, 1720. Coined of bank notes for 642 395 130 - -May 21, 1720. The denomination of the paper diminished by _arret_ of -council, which, in an instant, put an end to all credit, and made the -bubble burst. - -At this period had been coined of bank notes to the immense - - livres - sum of 2 696 400 000 - Of which had been issued 2 235 083 590 - ————————————— - Remained in the bank 461 316 410 - - Dutot, Vol. I. p. 144. Vol. II. p. 207. - -May 27, 1720. The _arret_ of the 21st of this month recalled, and the -paper restored to its full denomination. - -May 29, 1720. The coin raised to 82 livres 10 sols _per_ marc. - -June 3, 1720. 400,000 actions belonging to the Regent are burnt; and the -24,000 more, which were created October 4, 1719, suppressed; also 25 -millions of the interest formerly granted to the company for their loan -of 1600 millions, retroceded by the company, and constituted again upon -the town-house of Paris. - -October 10, 1720. All bank notes are ordered, by _arret_ of this day, to -be suppressed, if not brought to the bank before the 1st of December -following, in order to be paid in manner therein specified. - - ------------------------------------------------------------------------- - - - CHAP. XXIX. -_Continuation of the Account of the Royal Bank of France, until the time -that the Company of the Indies promised a Dividend of_ 200 _Livres_ per - _Action_. - - -These things premised, what follows will, I hope, be easily understood. - -So soon as the Regent of France perceived the wonderful effects produced -by Mr. Law’s bank, he immediately resolved to make use of that engine, -for clearing the King’s revenue of a part of the unsupportable load of -80 millions of yearly interest, due, though indeed very irregularly -paid, to the creditors. - -It was to compass this end, that he bestowed on Mr. Law the company of -the West Indies, and the farm of the tobacco. - -To absorb 100 millions of the most discredited articles of the King’s -debts, 200,000 actions or shares of this company were created. These -were rated at 500 livres each, and the subscription for the actions was -ordered to be paid in _billets d’etat_, so much discredited by reason of -the bad payment of the interest, that 500 livres, nominal value in these -billets, would not have sold upon change for above 160 or 170 livres. In -the subscription they were taken for the full value. As these actions -became part of the company’s stock, and as the interest of the billets -was to be paid to them by the King, this was effectually a loan from the -company to the King of 100 millions at 4 _per cent._ - -The next step was to pay the interest regularly to the company. Upon -this the actions which had been bought for 170 livres, real value, -mounted to par, that is, to 500 livres. - -This was ascribed to the wonderful operations of the bank; whereas it -was wholly owing to the regular payment of the interest. - -In May following 1719, the East India company was incorporated with the -West India company: and the 200,000 actions formerly created, were to be -entitled to a common share of the profits of the joint trade. - -But as the sale of the first actions had produced no liquid value which -could be turned into trade (having been paid for in state billets) a new -creation of 50,000 new actions was made in June 1719, and the -subscription opened at 550 livres payable in effective coin. - -The confidence of the public in Mr. Law, was at this time so great, that -they might have sold for much more: but it was judged expedient to limit -the subscriptions to this sum; leaving the price of the actions to rise -in the market, according to demand, in favour of the original -subscribers. - -This money amounting to 27 500 000 livres in coin, was to be employed in -building of ships, and other preparations for carrying on the trade. - -The hopes of the public were so much raised by the favourable appearance -of a most lucrative trade, that more actions were greedily demanded. - -Accordingly in a month after (July 1719) another creation was made of -50,000 actions; and the price of them fixed at 1000 livres. - -It must be observed, that all actions delivered by the company of the -Indies, originally contained an obligation on the company for no more -than 4 _per cent._ upon the value of 500 livres, with a proportion of -the profits on the trade; so that the rise of the actions proceeded -entirely from the hopes of those great profits, and from the sinking of -the rate of interest; a consequence of the plenty of money to be lent. - -But besides the trade, what raised their value at this time, was, that -just before the last creation of actions, the King had made over the -mint to the company for a consideration of 50 millions of livres; and -this opened a new branch of profit to every one interested. - -The sale of the last coined actions taking place at 1000 livres each, so -great a rise seems to have engaged the Regent to extend his views much -farther than ever. To say that he foresaw what was to happen, would be -doing him the greatest injustice. He foresaw it not, most certainly; for -no man could foresee such complicated events. But had he conducted -himself upon solid principles; or by the rules which, we now say, common -honesty required, he certainly never would have countenanced the -subsequent operation. - -The fourth creation of actions was in the beginning of September 1719. - -In the interval between the third and the fourth creation, the Regent -made over the general farms to the company, who paid three millions and -a half advanced rent for them. And the company obliged themselves to -lend the King (including the 100 millions already lent upon the first -creation of actions) the immense sum of 1600 millions at 3 _per cent._ -that is, for 48 millions interest. Now it is very plain, that before the -month of September 1719, it was impossible they could lend the King so -great a sum. - -They had already lent him, in September 1718, 100 millions, by taking -the _billets d’etat_ for the subscription of the first creation of -actions; the second creation had produced coin, laid out in mercantile -preparations; and the third creation of actions, at the standard value, -was worth no more than 50 millions of livres: this was their whole -stock. Where then could they find 1500 millions more to lend? - -I therefore conclude, that at this time, the combination which I am now -to unfold, must have, more or less, taken place between the Regent and -this great company. - -The public was abundantly imbibed with the notion of the prodigious -profits of the company, before they got possession of the general farms. -No sooner had they got that new source of riches into their hands, than -they promised a dividend of no less than 200 livres on every action, -which was ten times more than was divided on them when at first created. - -The consequence of this was, that (supposing the dividend permanent and -secure) an action _then_ became as well worth 5000 livres as at _first_ -it was worth 500 livres; accordingly to 5000 did it rise, upon the -promise of the new dividends. - -But what could be the motive of the company to promise this dividend, -only three months after their establishment? Surely, not the profits -upon a trade which was not as yet opened. Surely, not the profits upon -the King’s farms; for these profits it was greatly their interest to -conceal. - -Their views lay deeper. The Regent perceived that the spirit of the -nation was too much inflamed, to suffer them to enter into an -examination of the wonderful phænomena arising from the establishment of -the bank, and company of the Indies. If the company promised 200 livres -dividend, the public concluded that their profits would enable them to -pay it; and really in this particular the public might be excused. - -The plan, therefore, concerted between the Regent and the company seems -to have been, to raise the actions to this great value, in order to -suspend a greater quantity of notes in circulation. - -This was to be accomplished, 1. by the Regent’s purchasing the actions -himself from the company; 2. by borrowing back the notes he had paid for -them, in order to fill up the loan which the company had agreed to make; -3. to pay off all the public creditors with those notes so borrowed -back; and 4. when the nation was once filled with bank paper, to sell -the actions he had purchased from the company, to withdraw his own -paper, and then destroy it. - -By this operation the whole debts of France were to be turned into -actions; and the company was to become the public debtor, instead of the -King, who would have no more to pay but 48 millions of interest to the -company. - -By this operation also, the Regent was to withdraw all the bank notes -which he had issued for no other value but for the payment of debts; -which notes were demandable at the bank; and for the future, he was to -issue no more (I suppose) but for value preserved. - - ------------------------------------------------------------------------- - - - CHAP. XXX. -_Inquiry into the Motives of the Duke of Orleans in concerting the Plan - of the Missisippi._ - - -Now if we examine the motives of the Regent, with regard to this plan, -and suppose that he foresaw all that was to happen in consequence of it; -and if we also suppose that he really believed that the company never -could be in a situation to make good the dividend of 200 livres, which -they had promised upon their actions; in a word, if we put the worst -interpretation upon all his actions, we must conclude that the whole was -a most consummate piece of knavery. - -But as this does not appear evidently, either by the succeeding -operations, or ultimate consequences of this scheme, I am loth to -ascribe, to that great man, a sentiment so opposite to that which -animated him, on his entrance upon the regency, when he nobly rejected -the plan proposed to him for expunging the debts altogether. - -I may therefore suppose, that he might believe that the company to whom -he had given the mint, the tobacco, the farms, and the trade of France, -and to whom he soon after gave the general receipt of all the revenue, -might by these means be enabled to make good their engagements to the -public. I say, this _may be supposed_; in which case justice was to be -done to every one; and the King’s debts were to be reduced to 48 -millions a year, instead of 80 millions. - -That this is a supposeable case, I gather from Dutot, who gives us an -enumeration of the revenue of the company, Vol. I. p. 162. as follows: - - Revenue of the Company of the Indies. - - Interest paid to the company _per annum_ 48 000 000 - Profits upon the general farms 15 000 000 - Ditto upon the general receipt of other taxes 1 500 000 - Ditto upon the tobacco 2 000 000 - Ditto upon the mint 4 000 000 - Ditto upon their trade 10 000 000 - —————————— - In all of yearly income 80 500 000 - -Now if we suppose the interest of money at 3 _per cent._ this sum would -answer to the capital of 2664 millions, which was more than all the -debts of the kingdom, for which they were to become answerable. - -Upon this view of the matter, I say, _it was possible_, that the Regent -might form this plan, without any intention to defraud the creditors; -and more I do not pretend to affirm. - -I have said that he purposely made the company raise the price of their -actions, in order to draw more notes into circulation. - -To this it may be objected, that he might as well have paid off the -creditors with bank notes, without going this round-about way to work; -and have left them to purchase the actions directly from the company. - -I answer, that such an operation would have appeared too bare-faced, and -might have endangered the credit of the bank. Whereas in buying the -actions, which were run upon by every body, the state only appeared -desirous of acquiring a share of the vast profits to be made by the -company. Farther, - -As the company appeared willing to accept of bank notes from the state, -in payment of their actions, this manœuvre gave an additional credit, -both to the actions, and to the notes; a thing very necessary to be -attended to, in a scheme which was calculated to bring about a total -transformation of the security for the King’s debts. - -I must however observe, that at the period concerning which we are now -talking, (viz. at the time the company promised the dividend of 200 -livres _per_ action) the plan we have been describing could not have -been carried into execution. - -There were at that time only 400,000 actions created, rated at 777 -millions: of these were disposed of at least 250,000, to wit, the -original 200,000; and the second creation of 50,000, sold for coin. -Besides, there were then only coined in bank notes for 520 millions. So -there was not a possibility of executing the plan I have mentioned, as -matters then stood. - -It is from the subsequent operations of the system, that it appears -evident that this and this only could be the intention. - -We shall see how the number of actions were multiplied, without any -other view than to make the public imagine, that the funds necessary for -carrying on the trade of the company were immense. - -The number of the actions sold to the public was very inconsiderable, -compared with those sold to the Regent, and found in his hands at the -blowing up of the system. - -Besides, at the period when the number of actions was carried to the -utmost, viz. to 624,000, the bank notes bore no proportion to their -value; for, on the 4th of October 1719, when the last creation of -actions was made, the bank notes did not exceed the sum above specified, -to wit, 520 millions. - -But in tracing the progress of the system upon the table, we perceive, -that after the actions were once carried to their full number, (October -4th, 1719) then the coining of bank notes began at a most prodigious -rate; in so much, that by the month of May 1720, they were increased -from 520 millions, to above 2696 millions; and all this sum, except 461 -millions, were found in circulation. - -Farther: We shall see, that when the Regent and the company made out -their accompts, there were found in the Regent’s hands no less than -400,000 actions, which were burnt; and 25 millions of interest upon the -sum of money due by the King to the company, extinguished. - -These facts prove beyond a doubt, that these 400,000 actions had been -bought with the notes coined posterior to the 4th of October 1719; -otherwise the actions could not have become the property of the state. - -Besides, it was acknowleged publicly, that the notes were coined for -that purpose. (See Dutot, Vol. I. p. 144.) In the next place, it is -evident, that the notes which had been given in payment for those -actions, had been borrowed back, to fill up the loan of 1600 millions of -livres; which the company never could have otherwise lent to the King. -And in the last place, it is certain that the public debts were paid off -with these notes, so borrowed back from the company: because we shall -find the notes in circulation at the blowing up of the system, in May -1720; and we shall see how they were paid and withdrawn in October -following. - -This detail I own is a little long, and perhaps too minute: but I -thought it necessary to prove the solidity of my conjectures concerning -the Regent’s motives in concerting this plan; which no French author, -that ever I saw, has pretended to unfold, except by hints too dark to be -easily comprehended. - -What is now to follow, will still set my conjectures in a fairer light. -We have seen already from the table, with what rapidity the creation of -actions went on from the 13th of September to the 4th of October 1719. -No less than 324,000 were created in that interval. - -Yet Dutot, vol. ii. p. 169, _et seq._ positively says, that on the 4th -of October, the company had not sold for more than 182,500,000 livres of -their actions. Now the total value, as they were rated when created, -extended to 1,797,500,000; so there was little more than one tenth part -of the value sold off. - -Why therefore create such immense quantities of actions, and so far -beyond the demand for them, but to throw dust in the eyes of the public; -to keep up the spirit of infatuation; and to pave the way for the final -execution of the plan? - -The actions being brought, by four successive creations, of the 13th and -28th of September, the 2d and 4th of October, to their full number, the -company, during that interval, obtained the general receipt of the whole -revenue. Thus, says Dutot, vol. ii. p. 197. the company was intrusted -with the whole revenue, debts and expences of the state, and all -unnecessary charge was avoided in collecting and administring it. - -In the month of November 1719, the credit of the bank, and of the -company, was so great, that the actions rose to 10,000 livres. -Notwithstanding, says Dutot, vol. ii. p. 198. that the company did what -they could to keep down the price, by throwing into the market, in one -week, for no less than 30 millions. He assigns seven different reasons -for this, which, all put together, are not worth one; to wit, that the -Regent was ready to buy up every one that lay upon hand, in concert with -the company. - -If the company had been inclined to keep down the price of the actions, -they had nothing more to do than to deliver part of the vast number they -still had unsold, at the standard value of 5000 livres, at which they -were rated when created; and this would have effectually prevented their -rising to 10,000 livres. - -But it was the interest of the Regent, who was at that time well -provided with actions, to stock-job, and to buy with one hand, while he -was selling with the other: these operations were then as well known in -the street called Quinquempoix, as now in Change-alley. - -As a proof of the justness of my allegation, that the Regent was doing -all he could to raise the price of the actions, Dutot informs us, in the -place above cited, that the bank, at this very time, was lending money, -upon the security of actions, at 2 _per cent._ If that was the case, how -was it possible that an action, with 200 livres dividend, should sell -for less than 10,000 livres, which is the capital corresponding to 200 -livres, at 2 _per cent._? - -This is evident; and were it necessary, it may be proved to -demonstration, that the rise of the actions was the consequence of a -political combination. - -But _if_ money, at that time, came to bear no more than 2 _per cent._ -and if the company was able to afford 200 livres upon the action; where -was the inequity of raising the actions to 10,000 livres? I confess I -can see none, nor do I perceive either the impossibility or -improbability of the two postulata, had matters been rightly conducted. - -As to money’s falling to 2 _per cent._ any man of 20 years old may -expect to see it, without a _Mississippi_: and as for the payment of the -dividends, there never were in the hands of the public, nor ever could -be, had all the creditors of the 2000 millions of public debts invested -in actions at 10,000 a-piece, one half of 624,000 actions disposed of: -consequently, the 200 livres dividend would not have amounted, upon -312,000 actions, to more than 62,400,000 livres; and the revenue of the -company, as we have seen, exceeded 80 millions a year. - -This still tends to vindicate the Regent from the gross imputation of -fraud, in the conduct of the Missisippi. - -But what should still more exculpate that prince, in the eyes of every -impartial man who examines the whole conduct of the affair, is the -uniform sentiments of the most intelligent men in France concerning the -doctrine of money and credit. - -When we find Dutot, who wrote against the arbitrary change of the coin; -and De Melon, the Regent’s man of confidence and secretary, who wrote -for it, two persons considered in France as most able financiers, both -agreeing, that during the operations of the system, money never was to -be considered but according to denominations; that there was nothing -against good policy in changing the value of these denominations; and -that paper-money, whether issued for value, or for no value, or for the -payment of debts, was always good, _providing there was coin enough in -France_ for the changing of it, although that coin did not belong to the -debtors in the paper; when these principles, I say, were adopted by the -men of penetration in France; when we find them published in their -writings, many years after the Regent’s death, as maxims of what they -call their _credit public_; I think it would be the highest injustice to -load the Duke of Orleans with the gross imputation of knavery, in the -Missisippi scheme. - -Law no doubt saw its tendency. But Law saw also, that credit supported -itself on those occasions, where it stood on the most ticklish bottom: -he saw bank notes to the amount of more than two thousand millions, -issued in payment of the King’s debts, without occasioning any run upon -the bank, or without suggesting an idea to the public that the bank -should naturally have had some fund, to make them good: he saw people, -who were in possession of a value in paper exceeding 6000 millions of -livres, 60 to the marc, (Dutot, vol. i. p. 144.) look calm and -unconcerned, when, in one day, the coin was raised in its denomination -to 80 livres in the marc; by which operation, the 6000 millions of the -day before lost 25 _per cent._ of their real value. He saw that this -operation did not in the least affect the credit of the bank paper; -because people minded nothing but denominations. - -He saw farther, that by the operation proposed, the whole debt of the -King would be transferred upon the company. He saw that these debts, -being turned into bank notes, would not be sufficient to buy above -200,000 actions, at the value they then sold for. He knew that the -Regent, who had bought 400,000 of these actions at 5000 livres apiece, -that is, at half price, would remain in possession of 200,000 actions, -after selling enough to draw back the whole of the bank notes issued for -the payment of the debts; and he saw that the company of the Indies had -a yearly income of above 80 millions to enable them to make good their -engagements: besides, he saw a power in the King to raise the -denominations of the coin at will, without shocking the ideas of his -people, by which means he might have paid the 2000 millions with one -louis d’or. Put all these circumstances together, and I can imagine that -Law’s brain was turned; that he had lost sight of all his principles; -and that he might believe that his former common sense, was, at that -time, become absolute nonsense _in France_. - -That common sense may become nonsense, is a thing by no means peculiar -to France, but quite peculiar to _man_. - -I shall offer but one argument more, to prove that the Duke of Orleans, -and Law, could have no premeditated design of defrauding the public, by -these wonderful operations; which is, that admitting the contrary, would -be allowing them an infinite superiority of understanding over all the -rest of Europe. - -Until the bubble burst, no body _could_ know where it was to end: every -thing appeared very extraordinary indeed; and the fatal catastrophe -might have been expected from the greatness of the undertaking, merely. -But if there had been any roguery in the plan itself, it must have -appeared palpable long before; because the whole of the operations in -which only _it could_ consist, were public. - -All the notes were created by public act of council; so were the -actions: the loan of 1600 millions to the King, by the company, was a -public deed; so was the alienation in their favour, of 48 millions for -the interest of that sum. Notes were avowedly coined in order to -purchase actions, (Dutot, Vol. I. p. 144.) the creditors were avowedly -paid with bank notes, at a time when it was forbid to have 500 livres in -coin in any person’s custody; consequently, it was also forbid to demand -coin for bank notes. - -Now all this was going on in the months of February, March, April, and -the beginning of May 1720; and no suspicion of any failure of credit. -The coin also was sometimes raised, sometimes diminished in its value, -and still the fabric stood firm. - -Under these circumstances, to say there was knavery, is to say that all -the world were absolutely blockheads, except the Regent and John Law: -and to that opinion I never can subscribe. - -It may seem surprising that I should take so much pains to vindicate the -two principal conductors of that scheme. My intention is not so much to -do justice to their reputation, which has been grossly calumniated by -many, who have written the history of those times, as to prove, that an -ill concerted system of credit may bring ruin on a nation, although -fraud be out of the question: and if a nation be plunged into all the -calamities which a public bankruptcy can occasion, it is but a small -consolation to be assured of the good intentions of those who were the -cause of it. - - ------------------------------------------------------------------------- - - - CHAP. XXXI. - _Continuation of the Account of the royal Bank of France, until the - total Bankruptcy on the 21st of May 1720._ - - -I now resume the thread of my story. We left off at that period when the -credit of the company and of the bank was in all its glory, (November -1719) the actions selling at 10,000 livres; dividend 200 livres a year -_per_ action; and the bank lending at 2 _per cent._: all this was quite -consistent with the then rate of money. - -In this state did matters continue until the 22d of February 1720, when -the bank was incorporated with the company of the Indies. - -The King still continued guarantee of all the bank notes, none were to -be coined but by his authority: and the controller-general for the time -being, was to have, at all times, with the _Prevot des marchands_ of -Paris, ready access to inspect the books of the bank. - -As the intention, at the time of the incorporation, was to coin a very -great quantity of notes, in order to buy up the actions; and to borrow -back the money, in order to pay off the creditors; it was proper to -gather together as much coin as possible, to guard against a run upon -the bank: for which purpose the famous _Arret de Conseil_, of the 27th -of February 1720, was published, forbidding any person to keep by them -more than 500 livres in coin. - -This was plainly annulling the obligation in the bank paper, _to pay to -the bearer on demand the sum specified, in silver coin_. - -Was it not very natural, that such an _arret_ should have, at once, put -an end to the credit of the bank. No such thing however happened. The -credit remained solid after this as before; and no body minded gold or -silver any more than if the denomination in their paper had had no -relation to those metals. Accordingly, many, who had coin and -confidence, brought it in, and were glad to get paper for it. - -The coin being collected in about a week’s time, another _Arret de -Conseil_, of the 5th of March, was issued, raising the denomination from -60 livres to 80 livres the marc. Thus, I suppose, the coin which the -week before had been taken in at 60 livres, was paid away at 80: and the -bank gained 33⅓ _per cent._ upon this operation. Did this hurt the -credit of the bank paper? Not in the least. - -So soon as the coin was paid away, which was not a long operation, for -it was over in less than a week; another _Arret de Conseil_, of the 11th -of the same month of March, came out, declaring that, by the first of -April, the coin was to be again reduced to 70 livres the marc, and on -the first of May to 65 livres. Upon this, the coin, which had been paid -away the week before, came pouring into the bank, for fear of the -diminution which was to take place the first of April. In this period of -about three weeks, the bank received about 44 millions of livres; and -those who brought it in thought they were well rid of it. - -It was during the months of February, March, and April 1720, that the -great operations of the system were carried on. - -We may see by the chronological anecdotes in the 36th chapter, what -prodigious sums of bank notes were coined, and issued during that time. -It was during this period also, that a final conclusion was put to the -reimbursing all the public creditors with bank notes: in consequence of -which payment, the former securities granted to them by the King, under -the authority of the parliament of Paris, were withdrawn and annulled. - -Here then we have conducted this scheme to the last period. - -There remained only one step to be made to conclude the operation; to -wit, the sale of the actions, which the Regent had in his custody to the -number of 400,000. - -These were to be sold to the public, who were at this time in possession -of bank notes to the value of 2 235 083 590 livres. See the foregoing -table. - -Had the sale of the actions taken place, the notes would all have -returned to the bank, and there have been destroyed: by which operation, -the company would have become debtor to the public for the dividends of -all the actions in _their_ hands, and to the King for all those which -might have remained in the hands of the Regent. These proportions we -cannot bring to any calculation, as it would have depended entirely on -the price of the actions during so great an operation; and on the -private conventions between the parties, the Regent and the company. - -But alas! all this is a vain speculation. The system which hitherto had -stood its ground in spite of the most violent shocks, was now to tumble -into ruin from a childish whim. - -In order to set this stroke of political arithmetic in the most -ludicrous light possible, I must do it in Dutot’s own words, uttered -with a sore heart and in sober sadness. - -He had said before, that the coin of France was equal to 1200 millions -of livres at 60 livres the marc. This marc was now at 65 livres (in May -1720, as above) so the _numerary_ value, as he calls it, (that is the -denomination) of the coin was now risen to 1 300 000 000; but the bank -notes circulating in the month of May were carried to 2 696 400 000; -then he adds, - -"The 1300 millions of coin _which were in France_, were very far from -2696 millions of notes. In that case, the sum of notes was to the sum of -coin, nearly as 22⁄27 are to 1; that is to say, that 207 livres 8 sols -1⅞ denier in notes, was only worth 100 livres in coin; or otherwise, -that a bank note of 100 livres, was only worth 48 livres 4 sols 5 -deniers in coin, or thereabouts." Would not any mortal conclude from -this, that the whole sum of 1300 millions had been in the bank, as the -only fund for the payment of the paper? - -This is a laboured equation, and from it we have a specimen of this -gentleman’s method of calculating the value of bank paper: but let us -hear him out. - -“This prodigious quantity of money in circulation, says he, had raised -the price of every thing excessively: so in order to bring down prices, -it was judged more expedient to diminish the denomination of the bank -notes, than to raise the denomination of the coin; because _that_ -diminished the quantity of money, _this_ augmented it.” - -This was the grand point put under deliberation, before the famous -_arret_ of the 21st of May was given, viz. whether to raise the value of -the coin, _which did not belong to the bank, but to the French nation_, -to double the denomination it bore at that time, that is, to 130 livres -the marc, by which means the 1300 millions would have made 2600 -millions, or to reduce the 2600 millions of bank notes to one half, that -is, to 1300 millions, the total denomination of the coin. - -To some people it would have appeared more proper, to allow matters to -stand as they were, as long as they would stand, at least until the -actions had been all sold off; but this was not thought proper. After a -most learned deliberation, it was concluded to reduce the denomination -of all the paper of France, bank notes as well as actions, instead of -raising the denomination of the coin; and this because prices were in -proportion to the quantity of the denominations of money. - -The _arret_ was no sooner published than the whole paper fabric fell to -nothing. The day following, the 22d of May, a man might have starved -with a hundred millions of paper in his pocket. - -This was a catastrophe the like of which, I believe, never happened: it -is so ridiculous that it is a subject fit only for a farce. - -Here Dutot’s lamentations and regrets are inimitable. - -In one place he says, “Credit was too far stretched to be solid. It was -therefore proper to sacrifice one part, to give a solidity to the other. -Even this was done; but the consequences did not correspond to the -intention. Confidence, which is the soul of credit, eclipsed itself, and -the loss of the bank note, drew on the loss of the action.” - -In another place he says, “This _arret_ of the 21st of May, which -according to some _blessoit l’equité_” (a very mild expression!) -“destroyed all confidence in the public; because the King had diminished -one half of that paper money (the bank notes) which had been declared -fixed.” - -Is it not a thousand pities that confidence should have disappeared upon -so slight a wound given to equity, only in the opinion of some? For -Dutot thought the operation perfectly consistent with the principles of -public credit. - -He tells us, that a letter was writ to calm the minds of the people, and -to shew them how absurd it was, to allow the paper to be fixed, while -the coin varied: but, says he, “as there was a revenue attached to the -action, the value of that paper did not depend so much upon the capital, -as on the sum of the interest.” Very just. But were the dividends to -stand at 200 livres, without suffering the same diminution as the -action? And how was confidence to subsist in a country, where the -denominations of both the paper and the coin were at the disposal of a -minister? - -The diminution upon the paper, by the _arret_ of the 21st of May, raised -a most terrible clamour; and Law became the execration of France, -instead of being considered as its saviour. He was banished, and reduced -to beggary the same day. - -What profit could either the Regent, or Law, have reaped from the -success of such an operation? Had the coin been raised to 130 livres the -marc, no hurt would probably have ensued, and the same effect would have -been produced. - -Had matters been left without any change at all, no bad consequences -would have followed: these existed only in the heads of the French -theorists. There was, indeed, twice as much money in bank notes as in -coin, in the whole kingdom of France: and what then? - -When the Regent saw the fatal effects of his _arret_ of the 21st of May, -he revoked it on the 27th of the same month. On the 29th, he raised the -coin to 82 livres 10 sols in the marc, and re-established all the paper -at its former denomination: but, as Dutot has said, confidence was gone, -and was no more to be recalled. Nothing surprises me, but that she lived -so long under such rough management. - -Dutot, in talking of this augmentation of the coin, on the 29th of May, -to 82 livres 10 sols, says, “This operation was consistent with the -principles of public credit, and advantageous. They would have done -better had they pushed the augmentation to 135 livres the marc; which -would have made the specie of France equal to the sum of bank notes.” -These are his words, p. 165. - -Are not these very sensible principles, coming from a man who has writ a -book, which indeed few people can understand, in order to prove the -great hurt of tampering with the coin of France? - - ------------------------------------------------------------------------- - - - CHAP. XXXII. - _Conclusion of the Missisippi Scheme._ - - -The Regent, persuaded that the blunder of the 21st of May was absolutely -irreparable, fell to work next to clear accompts with the company. - -He owed them 1600 millions capital, and 48 millions a year of interest -upon it. - -On the other hand, he had in his possession no less than 400,000 -actions, which at 200 livres dividend, which the company was obliged to -pay, amounted to 80 millions a year. - -How the Regent and the company settled matters, I do not know precisely. -This, however, is certain, that by the _arret_ of the 3d of June 1720, -the number of 400 000 actions, belonging to the Regent, were burnt; and -24 000 more which had been created by his particular order, the 4th of -October 1719, and never delivered to the company, were suppressed. - -On the other hand, the company ceded 25 millions a year, of the 48 -millions which had been transferred to them. - -That sum was constituted anew upon the town-house of Paris, as a fund to -be subscribed for by the proprietors of bank notes, at the rate of 2½ -_per cent._ or as the French call it at the 40th penny. (Dutot, p. 168.) -In consequence of this, 530 millions of bank notes were subscribed for, -and paid in, in the month of June 1720. - -After the destruction of the 400,000 actions, the credit of the bank -notes languished until the 10th of October 1720. - -The object for which they were created was now gone. The whole scheme of -transferring the King’s debts upon the company vanished in the -conflagration of the actions. What was then to be done? - -The bank was at an end: 2235 millions of discredited bank notes in -circulation, and a small sum of coin to make them good, was a situation -which no authority could long support. - -The resolution then was taken to put a final conclusion to this great -affair; to bid a long farewel to credit and confidence; and to return -upon the old system of rents upon the town-house of Paris; and of coming -at money in the best way they could. - -We shall now see how this was accomplished; and from that form a pretty -good guess at the extent of the fraud committed, with respect to the -creditors of France; not so much, I think, from any intrinsic defect in -the Missisippi scheme, as from the distress the nation was thrown into, -by the ignorance of those who over-ruled John Law in conducting it. - -We have seen how the actions were reduced to the number of 200,000; we -must now give an account of the deplorable fate of the bank notes. - -By the _arret_ of 10th of October 1720, all bank notes were entirely -suppressed; and it was declared, that after the 1st of December -following, they were to have no course whatsoever. - -Here follows the arrangement of this great affair, viz. the liquidation -of 2 696 400 000 livres of bank notes as regulated by this _arret_. - - 1_mo_, Of the above total of notes coined, 707 327 460 livres. - there remained in the bank at that time, for - 2_do_, Subscribed for at 2½ _per cent._ in 530 000 000 - June 1720 - 3_tio_, Carried to the bank by private people 200 000 000 - as a fund of credit there - 4_to_, Paid in coin by the bank 90 000 000 - ———————— - -This sum of notes was ordered to be burnt by the _arret_ of the 10th of -October. - -The remainder still in the hands of the public, says the _arret_, was to -the amount of 1 169 720 540 livres, and the King declares, that the -holders of them might employ them as follows: - - 1_mo_, In purchasing the remainder of the 470 000 000 livres. - subscription of 25 millions of rents on the - town-house of Paris, at 2½ _per cent. inde_ - 2_do_, In purchasing a farther sum constituted 00 000 000 - on the town-house of Paris, of 8 millions of - perpetual annuities, at the rate of 2 _per - cent._ or at the 50th penny - 3_tio_, In purchasing a farther sum constituted 100 000 000 - on the town-house of Paris, of 8 millions of - life-rent annuities, at 4 _per cent._ or at the - 25th penny - ———————————— - These sums amounted to 970 000 000 - Sum above 1 527 327 460 - —————————————— - Together 2 497 327 460 - -There still remained outstanding about 200 millions of bank notes. - -These were ordered to be disposed of in several different ways, -mentioned in the _arret_ of the 10th of October; which it would be -needless to mention, as it would require a long explanation to make the -thing understood: let it suffice that there was an outlet provided for -them, which brought in between 2 and 3 _per cent._ - -Thus we see the conclusion of the whole affair. - -At the beginning, the King’s debts stood at 2000 millions capital, and -80 millions interest very ill paid. - - At the end of the scheme there had been coined of 2696 millions. - notes about - Of which in the bank, October 10, 1720 707 mil. - And paid in coin 90 - —— - This substracted 797 millions. - —— - There remained outstanding in bank 1899 millions. - notes[18] - Add to this 100 millions still due by the King to 100 millions. - the company for the _billets d’etat_ withdrawn in - constituting the first 200,000 actions which still - subsisted, and for which the company was to receive - 5 _per cent._ - So the capital of the King’s debts remained at 1999 millions. - Balance gained by the whole operation 1 million. - —— - Consequently there was little or no fraud as to the 2000 millions. - capital - -Footnote 18: - - There are, however, in France at this day, many persons who are still - in possession of large sums of those notes. This makes some people - believe, that all the paper was called down without any equivalent - given. The reason of those notes remaining, is, that either the - proprietors neglected the occasion offered by the _arret_ of the 10th - of October, or that they were in hopes that perhaps the bank might - again recover its credit. They were mistaken, and the notes are lost. - -Let us next examine the state of interest. - -The interest at the last was, - - 1_mo_, Of rents constituted in June 1720, on the - town-house, at 2½ _per cent._ or at the 40th penny 25 millions. - 2_do_, Ditto of the 10th of October 1720, at 2 - _per cent._ or at the 50th penny 8 millions. - 3_tio_, Ditto at ditto upon lives at 4 _per - cent._ or at the 25th penny 4 millions. - 4_to_, Due to the company upon the original - stock of 100 millions still paid them at this day - at 5 _per cent._ 5 millions. - 5_to_, For the 200 millions of credit at the - bank, suppose at the rate of 3 _per cent._ 6 millions. - 6_to_, For the last 200 millions provided for in - different ways, suppose at 2½ _per cent._ 5 millions. - 7_to_, Allowed to the company to indemnify them - for the loss they sustained by these arbitrary ways - of reckoning with them, 80 millions at 5 _per - cent._ still paid them 4 millions. - —— - 57 millions. - The interest at first was 80 millions - The interest at last was 57 millions - —— - Defrauded by the scheme 23 millions a year. - -This is (as near as I can guess at it) the state of the French -bankruptcy in 1720. - -The creditors were _robbed_ of 23 millions a year. I call it _robbed_, -because the interest due to them was diminished by that sum, without -their consent, and in consequence of the most arbitrary proceedings; -whereas, had the system been conducted with ability, the whole of the -debts would have been brought to an interest of 48 millions, instead of -57, and no body would have complained of injustice. - -Money likewise might have been brought to 2 _per cent._ The 1600 -millions borrowed of the company at 3 _per cent._ would then have been -reduced to two; which would have brought the 48 millions of interest, -upon the whole, to 32 millions: and France, from being reduced to -beggary by the King’s wars, would have become the most flourishing state -in Europe. - -Let us next guess at what may reasonably be supposed to have been the -largest sum of coin ever collected in this bank. - -I imagine that the far greater part of all the coin supposed to be in -France during the Missisippi scheme, remained in private hands, without -ever coming into the bank. My reason for being of this opinion is, - -Law never could have had more than the value of his original stock, and -all the value of notes he had in circulation. - -It is absurd to imagine he ever should have had the half, or near it; -but let me suppose it, - - The bank stock was 6 millions. - The notes he issued were 59 millions. - —— - In all 65 millions. - -This is a trifle compared with 1200 millions. - -Next for the united bank. The time at which the greatest quantity of -coin was collected, must have been when all credit failed, that is, on -the 21st of May 1720. - -At that time coin was taken out of commerce: every one was forbid to -have above 500 livres in possession; and every operation had been used -to call it in. - -At this time, we know that all the notes coined were issued, except to -the value of 461 316 410 livres. - -Now we have seen that on the 10th of October following, there were in -the bank to the value of 707 327 460 livres. - -Let me, therefore, suppose, that from the 21st of May to the 10th of -October, the bank paid away in coin, the difference between these - - two sums; to wit, 246 011 050 livres. - Add to that sum what was then in the bank, viz. 90 000 000 - ————————— - Sum 336 011 050 - -This sum is all we possibly can suppose to have been in the bank on the -21st of May, when credit failed. - -We must reckon this sum of coin at 82 livres 10 sols _per_ marc, the -then value; which makes about 8 146 600_l._ sterling. A large sum, no -doubt; but little more than ⅕ of 40 millions sterling, the value of 1200 -millions of livres, at 60 to the marc, as has been said. Consequently, -either those 40 millions sterling were not then in France, or the -greatest part of the sum had remained in private hands during this whole -operation. - -In this light I see the Missisippi scheme. I may, no doubt, be mistaken -in many things: the lights, or rather the glimmerings, by which I have -been conducted through this inquiry, must plead my excuse. - -But it is not so much facts as principles, I have been investigating -through this whole disquisition; and the imperfect account I have been -able to give of the _former_, will at least point out, I hope, the -notions which the French nation, at that time, had of the _latter_. If -the contrast between French principles, and those I have laid down, tend -to cast any light upon the subject of paper credit in general, my end is -accomplished: if they ever prove of use to mankind, I shall not think my -labour lost. - - ------------------------------------------------------------------------- - - - CHAP. XXXIII. - _Why Credit fell, and how it might have been supported._ - - -I shall now make a few general observations upon the total and sudden -fall of credit in France in May 1720: and I shall suggest the means by -which, I think, it might have been sustained, even after all the -preceeding mismanagement. - -Was it any wonder that the French should be astonished at this -prodigious revolution, at this immense value of paper on the 21st of -May, and at the total discredit of every bit of it the day following? - -If there was a value, said they, what is become of it? If there never -was any value, how could a nation be so deceived? This phænomenon has -puzzled many a head; but the nature and principles of credit furnish an -easy solution of it. - -In deducing the principles of credit, we have shewn _that a permanent -and well secured fund of interest is always equal in value to a -corresponding capital_. - -The difference between a _permanent_ and _well secured fund_, and a -_precarious_ and _ill secured fund_, consists in this, that the first -never can disappear, and the other may. - -Now the fund, in this case, was at first _real_ and did exist; but it -was rendred precarious, by a blundering administration: then credit -failed, and in that convulsion, the fund of interest was fraudulently -diminished by an act of power. - -Had the true principles of credit been understood in France, the bank -notes and actions might have been supported, even after the _arret_ of -the 21st of May: and all the monstrous value of paper, raised so high by -the low rate of interest, might have been preserved: consequently that -value, in capital, _really existed_ relatively to the rate of interest. - -As the object of the present disquisition into the principles upon which -the Missisippi scheme was conducted, is only intended as an illustration -of the principles of credit in general; I shall first account for the -wonderful phænomenon above mentioned, and then shew how, in the greatest -of all the French distress, their credit might have been re-established -in a more solid manner than ever. - -As to the wonderful phænomenon of the prodigious _wealth_ created by the -system, and annihilated in one day, I answer, that there had been no -creation of wealth at all, except in consequence of the fall of -interest. - -1_mo_, We have seen that at the death of the late King of France, the -interest of his debts amounted to 80 millions. Was not this a fund which -ought to have been made solid and permanent? Will any man say, that a -regular plan of paying this interest was a means of creating new wealth? -Certainly not. - -2_do_, These debts were secured by _contracts of constitution of annual -rents upon the town-house of Paris_: a security taken in the name of a -particular creditor, which requires a form of law to transfer. - -By the scheme we have been explaining, all these securities were -changed: and instead of constitutions of rent, bank notes, in which the -King was equally debtor, were given. - -Will any man say, that this was the means of either increasing or -diminishing the wealth of France? Certainly not. A man who has a good -bond in his pocket is as rich before it is paid with bank notes as -after: but he has not so much money in his hands; because the bond is -not _money_, and the notes are. - -3_tio_, We have said that the interest of the King’s debts amounted to -80 millions a year, at 4 _per cent._ - -We have seen how the company of the Indies were provided with a fund -equal to this sum, arising from the 48 millions which the King paid for -the loan of the paper with which the debts were to be paid, and from -many other lucrative branches of revenue; which instead of being -burthensome to the King, were, on the contrary, a means of augmenting -his income, by the advanced rent the company gave for the different -farms which produced them. - -Had the public creditors, therefore, vested their claims in actions, -they would, in consequence of that operation, have become sharers in the -fund of 80 millions a year, administred by themselves, (and they would -then have been the company) open to be improved by trade abroad, and by -a good administration at home. - -Had this system been carried on in a plain easy way, consistently with -common sense, the public creditors would have been paid; the King’s -revenue augmented; and it would have been put under a good and a cheap -administration. - -But when, by the absurd operations of changing the denominations of coin -and paper, and wantonly playing with every man’s property, the creditors -saw themselves standing on the brink of a precipice; and finding, -instead of a good contract on the town-house of Paris, a bank note put -into their hands, which might be diminished in its value by one half -every month, while at the same time the coin might be raised to double, -it was very natural to suppose, that the intention of the King’s -ministers was to withdraw from them totally these 80 millions, less or -more, to which they were entitled: in which case, there was an -annihilation indeed of all the notes; but there was no annihilation of -wealth: for in that case, the wealth was still the same, only it was -transferred from the creditors to the King the debtor: that is, the -creditors were defrauded. - -On the other hand, stood the proprietors of the actions sold. These were -in use to make a traffic of buying and selling the 200,000 actions which -had been in their hands ever since September 1717, when they were first -created. For we have shewn, that the posterior creation of actions by -the united company, was a mere delusion, as they were all found in the -custody of the Regent. The actions, I say, were immediately put into a -state of stagnation; because of the discredit cast upon the bank notes, -with which it had been usual to buy them. - -4_to_, I must observe, that the stagnation of a paper which carries no -interest, is equal to a temporary annihilation. The holder then is -deprived of the use of his money; and he is not paid for the loss he -sustains. - -If, therefore, it had been possible to have given a new activity to this -bank paper, without allowing it to die away, as it were, in this -temporary fit of fainting, credit would have revived: all accompts would -have been kept clear, for this is the use of paper money, and so short a -shock would hardly have been felt. - -But the great damage resulting to the public, upon every occasion of -this kind, proceeds from the _delay_ in applying the proper remedy. When -any paper is discredited, it immediately falls in its value. The person -then who is the original and real creditor for the whole value, and in -whose hands the paper is when it suffers the discredit, sells at -discount: this is an irretrievable loss to him; and when the paper -recovers its credit again, either in part, or on the whole, the profit -then belongs to the person who had bought it at discount, and does not -go to indemnify the real sufferer. - -This was the case with respect to the notes of the French bank: they -were allowed to languish from the 21st of May that they were -discredited, until the 10th of October, when their fate was decided, as -has been said. - -Farther, we have seen, that this whole movement of credit had for its -basis 80 millions a year, originally paid to the creditors for their -interest. This sum answered to the capital of 2000 millions; because at -the old King’s death, interest was fixed at 4 _per cent._ - -When, by the operations of the system, all this capital was turned into -money, that is, bank notes, the regorging plenty of it made interest -fall to 2 _per cent._ consequently, the capital, which constantly draws -its value from the interest paid for it, rose to 4000 millions. We have -said that the total value of the paper rose to 6000 millions; but we -must reflect, that above 2000 millions of these 6000 millions was in -bank notes, and employed in buying of actions. So that both the notes -and the actions must not be reckoned as existing together. - -Had the Regent sold the actions, he would have burnt 2000 millions of -bank notes, and thus the value in paper would have remained at 4000 -millions, so long as interest remained at 2 _per cent._; and had -interest fallen still lower, and dividends remained at 200 livres _per_ -action, the value of actions, and consequently of this capital of 4000 -millions, would have risen in proportion, just as the value of the -capital of the debts of Great Britain rises and falls according to the -rate of money; although the same sum of interest be paid to the -creditors at all times. - -This augmentation, therefore, upon the value of all capitals, during the -Missisippi, of lands as well as actions, was in consequence of the fall -of interest, and from no other artifice whatever. Lands in France, at -that time, sold at 80 and 100 years purchase. [Dutot, Vol. II. p. 200.] - -When credit failed, and when all the circulating paper was thrown into a -state of stagnation, interest rose, in proportion to the deficiency of -the supply for the demands of borrowers. The value of capitals then -diminished. But this might have happened from another cause, had there -been no bankruptcy, or intention to defraud the creditors: a war might -have produced it; or any circumstance which might have raised the rate -of interest. - -The rise, therefore, upon capitals, from the fall of interest, I -consider here as no acquisition of wealth: I reckon wealth to be that -which is the annual produce of the capitals. - -So much for the resolution of this wonderful phænomenon. - -I must now shew that in the height of the distress, the confidence of -the public was still to be regained, and credit recovered, even after -the fatal _arret_ of the 21st of May 1720. - -I lay it down as a principle, _that whoever has a sufficient fund, and -pays interest regularly for the money he owes, runs no risk of losing -his credit_. - -So soon, therefore, as the Regent found that by his _arret_ of the 21st -of May, all credit had disappeared; had he, upon the 27th of the same -month, or at the time he raised the coin to 82 livres 10 sols _per_ -marc, ordered all bank notes presented to the bank, either to be paid in -coin, or marked in the books of the bank as bearing interest at 2 _per -cent._ I say, credit would not have suffered in any comparison to what -it did. No body then would have sold a note at discount; and had it been -necessary, he might have ordered the interest to be paid monthly. - -The authority I have for this opinion is Dutot, who says, that upon -opening the subscription of 25 millions in the month of June, the notes -fell in their value 11½ _per cent._ only. - -Now the rate of this subscription was at 2½ _per cent._ as we have seen; -consequently, if 100 livres of notes lost but 11½ _per cent._ they were -worth 88½ livres in coin; but these 100 livres in notes were worth 2½ -_per cent._ because the subscription was open at that rate: consequently -88½ livres in coin was also worth 2 livres 10 sols _per annum_: -consequently interest, at that time, was at 2.825 _per cent._ that is, -below 3 _per cent._ even after the bankruptcy. - -Where then was the great harm? Where was the occasion to fly immediately -to the destruction of actions, which were in the Regent’s own hand? A -little patience, and good management, would have set all to rights. - -I would, therefore, have left the notes in circulation under this -regulation, viz. that such as should be presented to the bank should -have had a transfer of 2 _per cent._ paid quarterly; or a value, in -actions, at 10,000 livres _per_ action; which is the capital answering a -dividend of 200 livres at 2 _per cent._ at the option of the holder: and -in case interest had come to fall still lower, the price of actions -might have been augmented. - -I would have set before the public a full and exact account of the -company’s funds. I would have banished all mystery from the affairs of -credit. I would have registred a declaration in parliament, setting -forth, - -1_mo_, That all future changes either upon the denominations of paper or -coin, were contrary to the maxims of good government. - -2_do_, That all stipulations between the King and his creditors were to -be inviolable. And, - -3_tio_, That the parliament of Paris should for ever remain invested -with an exclusive right to watch over those regulations in time to come; -and I would have bound the parliament by a special oath for that -purpose. I would even have had the King to take the same oath: and he -might have ratified it at his coronation in 1725. - -By these steps I should have vested a new power in the Kings of France -which they never had before: a power of having money from their -subjects, from their allies, and from their enemies: a power they have -not, nor ever will have, until the principles of credit be better -understood among them. - -Had such a plan been followed, I have not the least doubt, but that, 1. -The actions would have been sold at a very great advanced value above -the standard of 5000 livres, at which the Regent had bought them: 2. -That money would have come back to 2 _per cent._ and then, 3. Had banks -been established upon a proper plan, ease, with industry, would long ere -now have appeared in every corner of that kingdom. - -How infinitely more easy would it have been to establish such a plan in -1720 than at present? At that time the most difficult part of the whole -was executed. The creditors had taken notes for their claims: the credit -then was given. There was nothing to be done but to support it. The -creditors were then at the mercy of the state: at present the state is -at the mercy of the creditors. Were such operations on coin to take -place at present, as were then familiar; were the King at present to -attempt to turn the constitutions of rent, perpetual and life-annuities, -into any other form than what they have, the credit of France would be -undone for a long time; and who knows what views of ambition a situation -so deplorable might not stir up in certain courts of Europe. - -What state would pay its debts, if it _durst_ do otherwise? And what -state can diminish its debts in any other way than by lowering the -interest upon them? But of this more in the proper place. - - ------------------------------------------------------------------------- - - - CHAP. XXXIV. - _How the diminishing the Denomination of the Paper in Circulation, by -the arret of the 21st of May 1720, destroyed the Credit of France, when -the same arbitrary Measures taken, with regard to the Coin, had produced - no such Effect._ - - -This question is curious, and I shall endeavour to resolve it in the -best way I can, before I conclude this subject. - -The first thing to be done is to point out the immediate effects which -resulted upon diminishing the denomination of the paper; because the -destruction of the credit of France was not the immediate consequence of -this _arret_; but the ultimate effect of a chain of consequences which -followed indeed very quick upon one another. - -The paper had been declared, against the opinion of Mr. Law, by an -_Arret de Conseil_ of the 22d of April 1719, _une monnoie fixe_, as has -been said. Consequently, any diminution of its denomination was a plain -infraction of the public faith. From this declaration in the _arret_ of -the 22d of April 1719, the public reaped one notable advantage, which -was, that in borrowing and lending paper, every one was sure that the -obligations contracted could be dissolved by restoring the very same -species of property which had been received; but by diminishing the -denomination of it, by the _arret_ of the 21st of May 1720, all such as -were debtors, became obliged to discharge their debts at the expence of -double the sum of paper borrowed. - -The immediate consequence, therefore, of touching the denomination of -the paper, was, to shew the public that their fortunes in paper were -liable to the same inconveniences as fortunes in specie; that is, that -they might be increased or diminished at pleasure. Upon this it was very -natural for every one to endeavour to realize his paper, and put it into -coin: since, _in pari casu_, it was better to have it in that which had -some intrinsic value, than in that which had none at all. - -Of all the French paper, the notes were the most easily realized; -because there was contained in them a direct obligation upon the bank to -pay them in coin. The actions again were more difficult to be converted; -because in order to realize them, it was necessary to find people who -were willing to give either notes or coin for them. - -A run upon the bank, therefore, taking place, upon the _arret_ of the -21st of May, it was obliged to stop payment: this occasioned a general -alarm, and _destroyed the confidence which the public had had in the -state_, which is what we mean by _public credit_. - -This point explained, it remains to shew why the augmentations and -diminutions upon the specie should not have ruined the credit of the -paper. - -1_mo_, The operations upon the specie affected the paper only -indirectly; but the diminution upon the paper affected it directly. - -The operations upon the specie only affected that part of the paper -which was made to circulate as an equivalent for the specie; or in other -words, that part which people realized, either, 1. with an intention to -withdraw their funds altogether out of the scheme; or 2. to profit of -the operations upon the specie; or in the last place, to procure small -sums of money for common expences. - -Now as to the first, the number of those who wished to withdraw their -stocks were inconsiderable, in proportion to the stock-jobbers; and -therefore their interest could not affect the general credit; and the -last was inconsiderable in every respect. - -As to the second, the government made it very difficult for the -proprietors of notes to profit of the operations upon the coin. When it -was to be diminished, the diminutions were advertised some time before -they took place, and the diminution went on always by degrees. Thus -people who had paper, with which they could trade in buying actions, -constantly rising in their value, by the intrigues of the state, when at -the same time the denominations of the coin were diminishing, did not -carry their notes to the bank for two reasons. - -The first, that the paper really gained by every diminution upon the -denomination of the specie, in an exact proportion to the diminution. A -livre in a bank note, while the specie was diminishing by intervals from -80 livres the marc to 65 the marc, gained regularly in the hands of the -possessor; whereas had he realized at any period but the last, the -subsequent diminutions upon the specie he had acquired with his paper -would have affected the value of it. - -The second was, that by realizing he deprived himself of the profit of -stock-jobbing. - -The only way, therefore, for the proprietors of the paper to gain by the -operations of the state upon the coin, was to guess the time when the -coin was to be raised in its value: but this was impossible; for the -rising was sudden and unexpected; whereas notice was constantly given of -the fall, at some distance of time. - -For example, the money was suddenly raised the 5th of March 1720, from -60 livres to 80 livres the marc; and the 11th of the same month, notice -was given, that on the 1st of April following, it was to be brought down -again to 70 livres _per_ marc; and on the first of May following, to 65 -livres. The consequence of this was, that from the 11th of March, people -were glad to carry money to the bank for notes, which were to stand at -the same denomination, whereas the silver was to diminish on the 1st of -April. - -Accordingly a great sum, above 44 millions, was brought in during this -interval. - -When the 1st of April came, and that the silver was brought to 70 livres -the marc, those who were in possession of the paper, were still -prevented from realizing; because of the future diminution which was to -take place. When this term was come, people had reason to imagine that -the silver would for some time stand at 65 livres the marc; -consequently, there was more to be gained in stock-jobbing with the -notes, than in realizing them in specie, which, in order to make profit -of it, must have lain dead until a new augmentation; which was a very -uncertain event. In short, there was no run upon the bank from the 1st -to the 21st of the month of May, when the famous _arret_ in question was -given. Then indeed the run came on with violence, and payment was stopt. - -2_do_, The second reason why the effects were different when the state -changed the denomination of the coin, from what they proved to be when -the denomination of the paper was changed, I take to be this, - -That in France the operations upon the coin had been familiar; and were -expected by every body: and, perhaps, the very making the paper a -_monnoie fixe_, had for this reason added to the credit of it. A most -surprizing thing! The state took care always to gain, whether they -raised, or whether they diminished the value of the coin. The -stock-jobbers, therefore, never minded the coin at all. If they could -profit by an augmentation by foreseeing it, they realized; if they could -see a diminution before notice was given of it, then they bought paper. - -The operations on the coin principally affected such as were either -respectively debtors or creditors, to people who were obliged to pay, or -to receive their debts in specie; or who had a fixed revenue specified -in a number of livres. There the disorder was great, as has been -frequently observed. - -3_tio_, The operations upon the specie never could destroy the intrinsic -value of it, however they might prevent the circulation of it for a -fixed legal denomination; therefore it remained under all combinations -of circumstances, a thing valuable to be acquired; and it still remained -a commodity, desireable by all, and was therefore constantly demanded. - -But a discredit cast upon the paper had a different effect. The value -_there_ depended entirely upon the will of the state, and every body saw -that it was as easy to annihilate it, as to reduce it to one half. The -discredit, therefore, had the effect of stopping _the demand for it_, -that is, the currency; consequently, a run upon the bank immediately -took place. - -4_to_, The rendring the value of the paper precarious, made every -possessor of it seek to realize it without delay. The proprietors of the -bank notes ran to the bank; and a run upon the bank, at a time when it -could offer payment for the notes in no other value than actions, was a -declaration of bankruptcy. Now it was the run upon the bank; it was this -claim which the subjects had a right to make upon the bank, for which -the King was guarantee, which destroyed the credit of France; and it is -very evident that no operation upon the specie could possibly produce -any such effect[19]. - -Footnote 19: - - It was a capital mistake in this diminution upon the paper to make it - gradual. Was it not evident that every mortal would seek to realize a - note which was to diminish in its value progressively every month? A - note worth 10,000 livres, for example, the 22d of May, was immediately - reduced to 8000 livres, and the 1st of July, was to be worth only - 7500. This was plainly solliciting a run upon the bank. The stroke - should have been struck at once. - -In short, had this operation upon the paper been suspended for a few -months; had the people of France been indulged in a little more time, -their infatuation in favour of the actions would have carried them to -employ all their bank notes in the purchase of those which remained in -the hands of the state. By this operation the far greater part of the -notes might have been withdrawn and destroyed, and when the bank found -themselves in a situation to answer the call of all those which -afterwards remained in circulation, then the state might have boldly -ventured to diminish the price of actions: because if that stop had -occasioned a run upon the bank for the outstanding notes, there would -have been coin enough to answer them at their full value; and this would -have confirmed the credit of the bank more than any thing. - - ------------------------------------------------------------------------- - - - CHAP. XXXV. - _How a Bank may be safely established in France, as Matters stand at - present._ - - -The prerogative of the Kings of France is limited by no written law, -because he is acknowledged to be the legislature of his kingdom; and the -exercise of his power is only limited by maxims of state. The first of -which is, that he is to govern according to his laws, and not according -to his ambulatory will. - -Now, in making of laws, the parliament have a sort of negative, _de -facto_; because the whole regular and legal execution of every law is -committed to them: and if they refuse to register it, they refuse to -execute it; and a law without _execution_ is, in fact, no law at all. - -When the King’s will can be carried into execution by a single act of -power, the authority of parliament is of no effect in preventing it. -When this requires a train of systematical administrations, the -concurrence of parliament, who hold the whole regular execution of the -laws, is absolutely necessary. - -Banks of deposit and of circulation, stand, it must be confessed, upon a -very precarious footing, under such a government. - -An order from the King is at any time sufficient to command any deposit -of specie which can be made within the kingdom. While this is the case, -no paper can have any solidity, which draws its security from such -deposit. - -Coin, therefore, must be banished from all banks in France: and the use -of them should be entirely limited to that of an office, for the keeping -of reckonings between people who have solid property, and who may want, -on a thousand occasions, to melt it down in favour of consumption, -trade, industry, agriculture, or the like. - -In this light, a general bank may be established at Paris; and branched -out over the whole kingdom. The stock of it should consist in land -property, engaged unalienably, to make good the engagements of the bank. - -Notes should be issued upon solid security, bearing no interest while -they circulate as money; and when they return upon the bank, either the -original securities may be withdrawn, or payments might be made by the -transfer of a corresponding perpetual interest. - -Every province, every considerable city in the kingdom, should be -allowed to be interested in such a bank: and in every considerable city, -there should be an office for transacting such credits, and for -regularly receiving all payments of interest. If the King should think -fit to allow his mint to supply coin, or bullion, for bank notes -presented, at a determinate premium, he might by this operation advance -the commercial interests of his kingdom, in facilitating the payments of -a wrong balance of foreign commerce: but without that regulation, the -bank will be perfectly sufficient for promoting and supporting domestic -circulation. Every one who is able to give security for a certain -interest, will be sure to find money: and as the expence of conducting -such a bank will be very small, the interest for money will be very low. - -As I said before, a bank of this kind would be no more than an office, -appointed for keeping accounts between people who are possessed of any -paper secured upon real and solid property: and farther, in the -beginning, at least, I would not advise to carry it. - -The general accompt of the bank would appear in a few articles, viz. -Credits given, so much; _inde_ of interest to be received, so much. - -Notes returned, so much; _inde_ of interest to be paid, so much; balance -in favour of the bank, so much. - -A bank of this nature would answer every purpose for promoting industry -and domestic circulation. - -Such a bank must neither issue, or ever receive coin in payment. - - ------------------------------------------------------------------------- - - - CHAP. XXXVI. - _Of Banks of deposit and transfer._ - - -I now dismiss the subject of banks of circulation. The unspeakable -advantages drawn from this institution, when properly regulated, in -supplying money at all times to those who have property, for the -encouragement of industry, and for improvements of all sorts, and the -bad consequences which result to society, from the abuse they are -exposed to, has engaged me, perhaps, in too long a discussion of -particular combinations of circumstances relating to them. - -I now come to treat of banks of deposit or of transfer of credit: an -institution of the greatest utility for commerce. - -These two species of banks differ essentially in two particulars. - -1_mo_, That those of circulation serve the purpose of melting down -unwieldy property into money; and of preserving the quantity of it at -the proportion of the uses found for it. Those of deposit, are -calculated to preserve a sum of coin, or a quantity of precious -moveables, as a fund for carrying on the circulation of payments, with a -proportional value of credit or paper money secured upon them. - -2_do_, In the banks of circulation, the fund upon which the credit is -built, is not _corporeally_ in the custody of the bank; in the other it -is. - -The fundamental principle, then, of banks of deposit, is the faithful -preservation of the fund delivered to the bank, upon which credit, in -money, is taken for the value. - -If at any time a bank of deposit should lend, or should, in any wise, -dispose of any part of this fund, which may consist of coin, bullion, or -any other precious moveable, once delivered to them, to the end that a -credit in money may be writ down for it in their books of transfer, in -favour of the depositor, and his assigns; by that act, the bank departs -from the principles upon which it is established. And if any bank is -established which, by their regulations, may so dispose of the fund of -their credit, then such a bank becomes of a mixed nature, and -participates of that of a bank of circulation. - -These things will be better understood by reasoning from an example of a -true bank of deposit. - - ------------------------------------------------------------------------- - - - CHAP. XXXVII. - _Of the Bank of Amsterdam._ - - -Many authors have written concerning this great bank of deposit: -particularly, Davenant, Sir William Temple, Ricard, in his _Traité de -Commerce revu par Struyk_, the author of the _Essay sur le Commerce_, -and Mr. Megens, in his book, which has been translated into English, -under the title of _The Universal Merchant_. - -In these authors we find a number of facts, which I shall combine with -my own informations, and here apply principles to them; in order to -communicate a distinct idea of this establishment. A detail of its -particular operations regards practice, and falls not within my subject. - -The original intention of the States of Holland, in establishing the -bank of Amsterdam, was to collect a large capital in coin within that -city, which might there perpetually remain, buried in a safe repository -for the purposes which we are now to explain. - -In order to accomplish this plan, they established the bank upon the -31st day of January 1609. - -The method they fell upon to collect the coin, was to order, that all -bills of exchange, for any sum exceeding 300 florins, should be paid in -specie to the bank; and that the holder of such bills should, instead of -receiving the coin, have the value of it writ down in the books of the -bank to his credit, at his command, to be transferred to any person he -should appoint; but never more to be demandable from the bank in specie. - -By this operation, the mass of coin circulating constantly from hand to -hand, between the merchants of Amsterdam, began, by degrees, to be -heaped up in the bank; and as the heap augmented, so did the sum of -credit augment upon the books of the bank. - -It is evident, from this change in the mode of circulation, that no loss -could be incurred from the locking up of the coin. - -As long as coin is in a state of constant circulation, it can produce no -interest to any person. Interest commences from the moment the coin -begins to stagnate; that is to say, so soon as it comes into the hands -of one who has no ready money demand upon him. When this happens the -proprietor lends it at interest. - -Now the credit in the books of the bank, which is every day transferable -at the bank, answers every purpose of coin, either for _payment_ or -_loan_: and the proprietor has neither the trouble of receiving the -species, nor any risk from robbery, or false coin. - -The first advantage the city reaped from this institution, was, to -secure the residence of trade in that place. - -Capitals transferable only at the bank, laid the proprietors under a -necessity of fixing their dwelling where their funds were, and where -only they could be turned to accompt. - -It had another excellent effect in commerce: it pointed out the men of -substance. A credit in bank is no wise equivocal: it is a fund of -undoubted security. - -From the constitution of this bank we may form an estimate of the extent -of the deposit. - -It can only swallow up a sum equal to what is necessary for circulating -the payments of the city of Amsterdam. Were a sum exceeding that to be -shut up in the bank, and were the credits written in the books of the -bank to exceed that proportion, it is plain, that the value of the bank -money would sink immediately. The reason is obvious: the credits -transferable are of no use to those who have no occasion to transfer; -that is, to pay, lend, or exchange at Amsterdam. So soon, then, as all -the demand of Amsterdam is satisfied, the proprietors of the overplus -will seek to realize their superfluous credit, in order to invest the -value arising from it, in some other place where a demand may arise. - -In order to realize, they must sell their bank credit for coin; because -the bank pays only in transfer. Coin then would be demanded preferably -to credit in bank; consequently, coin would rise in its proportional -value to bank money, or bank money would lose, which is the same thing. -This fluctuation between bank money and coin, leads me to explain what -is called the agio of the bank. - - ------------------------------------------------------------------------- - - - CHAP. XXXVIII. - _Of the Agio of the Bank of Amsterdam._ - - -We have pointed out one motive for establishing a bank of deposit at -Amsterdam, viz. that of fixing the residence of trading men in that -city. - -Another was, to prevent the inconveniencies to which a small state was -exposed, by the introduction of bad coin, from all the neighbouring -countries in Europe, with whom they traded. - -In the territory of Holland there are no mines of gold and silver; -consequently all they have comes from other countries, as the return of -a favourable balance upon their commerce. - -At the time the bank was established, the republic was in a state of -infancy; and any coin they had, was that of their old masters the -Spaniards. This was unequally coined; many pieces were light; many had -been clipped and washed. As they extended their traffic, they were -obliged to receive great quantities from Germany, which was still worse. - -In order then to prevent the circulation of such coin, and the -perplexities occasioned by it in all accounts, they established a bank, -and fixed the standard upon a silver coin called the ducatoon, to which -they gave the denomination of 3 florins or guilders bank money. - -But as this coin also was unequal, like all the rest of the specie in -Europe, before the introduction of milled coin, and the policy of -weighing piece by piece at the mint, the bank appointed the ducatoons to -be received in bags of 200 pieces, weighing together 26 marcs 5 ounces -10 engles of Amsterdam troes, or gold weight; which being reduced to -aces, (the lowest denomination in this weight) make 136,640 aces. This -divided by 200, gives, for the weight of 1 ducatoon, 683.2 aces. - -Let us now convert these aces into troy grains, according to the -proportion established between Dutch aces and troy grains, in the last -chapter of the third book. - -The equation will stand thus, - -5192.8 aces, being equal to 3840 troy-grains, 683.2 aces, therefore, -will equal 505.21 troy-grains; which, consequently, is the weight of a -ducatoon, or of 3 florins bank money of Amsterdam. - -Next as to the fineness of this coin: - -The ducatoon was coined, according to the imperial standard, of 14 loots -16 grains fine: that is to say, it is 268⁄288 parts fine, and 20⁄288 -parts alloy. - -To find, therefore, the number of Hollands aces, and of troy grains of -fine silver in the ducatoon, state the two following proportions: - - 288 : 268 :: 683.25 : 635.75 aces fine. - 288 : 268 :: 505.21 : 470.13 troy-grains fine. - -In the last place, if we divide the number of aces, and troy grains fine -in the ducatoon, by 3, we shall see the exact weight of fine silver in 1 -florin of Amsterdam bank money. - - 635.75⁄3 = 211.91 aces, and 470.13⁄3 = 156.71 troy-grains fine. - -These calculations premised, it would be an easy thing to fix the exact -par of the metals, between sterling and bank money of Amsterdam, were -the British coin of legal weight, and were the metals there rightly -proportioned. But is it to be supposed, that any person who has bank -money of Amsterdam, would exchange, at the par of the metals, with -sterling silver, which is many _per cent._ too light, or against English -bank notes paid in gold, always overrated with regard to the silver, and -often too light also? - -While, therefore, the coin of Great Britain stands upon the present -footing, all calculations of the par of exchange, as it is commonly -computed, upon the intrinsic value of the coins of other nations, must -be delusive and of no utility whatever. - -For the sake of giving an example, however, here is the real par of the -two currencies, upon silver sterling coin of full weight. - -One pound sterling should contain, as has been said, of fine silver -1718.7 troy grains, and contains 240 pence sterling: state, therefore, -the following proportion, and you will find how many pence sterling one -florin of Amsterdam banco should be worth. - - 1718.7 : 240 :: 156.71 : 21.883. - -Thus 21.883 pence sterling is exactly the real par of an Amsterdam -florin banco, supposing sterling money to be silver, at the full weight. - -The florin bank money being regulated upon the ducatoon, an old species -not now coined, the fineness of the silver was determined; and the -weight of the 200 ducatoons being determined also, this regulation -determined the weight of single pieces, and fixed the standard of the -florin banco, in weight and fineness. - -The current money in Holland, coined by the state, is the florin of -200.21 aces fine, as we have seen in the last chapter of the preceding -book. - -So soon as the state coined their current florins at 200.21 aces, it is -evident, that the ducatoon, which contains three times 211.91 aces, must -rise in its value. Accordingly, the piece which was in bank money, 3 -florins, became 3 florins 3 stivers current money. - -This difference is what is called the agio of the bank of Amsterdam. - -From this it appears, that the advanced value of the bank money above -the current money of Holland, is not owing to the great credit of the -bank, as some imagine, but to the superior intrinsic value of the coin -upon which the standard of the bank money is fixed. - -Let us next determine the exact difference between the bank and the -current money, which difference I shall call the _intrinsic agio_: for -this purpose state this proportion; - - 200.21 : 211.91 :: 100 : 105.84 - -From which it appears, that the bank money is 5.84 _per cent._ -intrinsically better than the current money of Holland. - -We have seen in the chapter referred to, in what a confused state the -Dutch coin is at present, and how it becomes a science to comprehend any -thing concerning it. For this reason it is, that the regular agio of the -bank money of Amsterdam is always supposed to be 5 _per cent._ Farther, - -The ducatoon, upon which it is regulated, passes for 3 florins 3 -stivers, which is just 5 _per cent._ better than 3 florins, at which it -was rated when the bank was established; but most of the coins which -circulate are light. - -Those who conduct the affairs of the bank, have now lost sight of this -original coin, which is rarely found circulating, in considerable sums; -and they consider the florin according to its intrinsic worth of 211.91 -aces of fine silver; and as the value of silver varies, they publish -regulations for receiving coin, such as Spanish dollars, French crowns, -&c. according as they find the proportion of their worth in bank money: -and compounding the value of gold with the value of silver, they make -the same regulations as to gold. - -I have insisted too long already upon the subtilties of the variations -in the proportion between gold and silver, to take it up again in this -place. My intention is to explain the principles upon which this great -bank of deposit is established, and not to descend into a detail of the -mechanism of their adapting the variable coins of Europe to their own -standard. - -I have said, that the sum of credit, written in the books of the bank, -is in proportion to the quantity of bank money necessary for circulating -the trade of Amsterdam. - -Consequently, as this circulation increases, the demand for bank money -increases also. - -Again; in proportion as the demand for bank money increases, the agio -rises; and on the other hand, as the demand for current money increases, -the agio falls. - -Thus we saw in the last war, _ann._ 1760, 1761, 1762, that agio was -below 5 _per cent._ The reason was plain. The great circulation carried -on in Amsterdam was considerably directed towards the uses of the war. -_There_ bank money was of no use; coin only could serve the purpose. -Accordingly agio fell to —— _per cent._ and as gold was much more easily -transported than silver, that metal rose ¼ _per cent._ above the -ordinary proportion of 1 to 14½. - -Demand regulates every thing; and this demand makes the agio fluctuate; -sometimes rising above, and sometimes falling bellow 5 _per cent._ - - ------------------------------------------------------------------------- - - - CHAP. XXXIX. - _Continuation of the same Subject; and concerning the Circulation of - Coin through the Bank of Amsterdam._ - - -Hitherto we have represented this bank as a gulf, which is calculated to -swallow up the coin of Europe; without having pointed out any faculty of -throwing up a part of the treasure so secured, in case of an overcharge. - -This has appeared a mystery to many, and a defect in the constitution of -the bank. - -But when the principles upon which it is established come to be compared -with some branches of their administration, which are publicly known, -perhaps the mysterious part may be unravelled. And although I do not -pretend to give an entire satisfaction as to every minute particular, I -think I can shew how, and to what extent, the treasure may circulate, so -as to occasion no abuse, either from the hoarding it on one hand, or -from the dissipation of it, for the service of the state, on the other: -and if all these conjectures shall be found to hang together, and appear -consistent with principles, without being contradicted by any known -fact, then I may conclude, that such a system of banking as I describe, -is at least a possible supposition, whether it exactly coincides with -that of Amsterdam, or not. And who knows but my speculations may enable -some person of more knowlege and more sagacity than I am possessed of, -to render this curious operation of credit still more generally -understood than hitherto it has been. - -I have shewn how the agio rises and falls, according to the demand for -bank money. - -So long, therefore, as the agio does not fall below the difference -between the value of the two currencies, it is a proof that all the -credit writ in the books of the bank does not exceed the uses for it: -consequently, the coin locked up, which never can exceed the credit on -the transfer books, and which, were it not locked up, could be of no -more service than the credit itself, in circulating the trade of -Amsterdam, does not exceed its due proportion: consequently, it is not -hurtfully withdrawn from commerce; consequently, no abuse is implied -from the hoarding of it. - -But let me suppose a case, which may happen; to wit, that for a certain -time, the trade of Amsterdam may demand a larger supply of credit in -bank, than is necessary upon an average. Will not this raise the agio? -No doubt. If the agio rises so high as to afford a premium upon carrying -coin to the bank, upon the footing of their own regulations, this will -augment the sum of bank credit; because the money so carried to the -bank, becomes incorporated with the bank stock; the value is writ in the -books of the bank; and when this is done, the coin is locked up for -ever. - -If then it should happen, that the trade of Amsterdam should afterwards -diminish, so as to return to the ordinary standard, will not this -overcharge of credit depress the rate of bank money, and sink the agio -too much below the par of the intrinsic value of the two currencies? - -To these difficulties I answer, like one who, being ignorant of facts, -which I never could get ascertained by any person in Holland to whom I -had access for information, and which remained hid from most people in -the deep arcana of Amsterdam politics, must have recourse to -conjectures, founded upon natural sagacity. - -First then, The city of Amsterdam knows, from long experience, the rate -of demand for bank money; and it is not to be supposed, that upon any -sudden emergency, which may _heighten_ that demand for a time, they -should be such novices as to increase the credit upon their books so -far, as to run any risk of overstocking the market with it; especially -as, on such occasions, the deficiency of bank credit might be supplied -with coin, constantly to be found in the city of Amsterdam, as we shall -explain presently. - -Farther, Who will say, that there does not reside a power in the -managers of this bank, to issue coin for the superfluous credit, in case -that, in spite of all precautions to prevent it, a redundancy of bank -credit should at any time be found upon their books? - -It is very true, that no person, having credit in bank, can demand coin -for such credit; and as no demand of that sort can ever be made, it is -very natural to suppose, that a redundancy of coin and credit can never -be purged off. - -During my stay in Holland, I was at great pains, to no purpose, to -discover whether ever the bank issued any part of their credit cash upon -any such occasions. Every one I conversed with was of opinion, that if -ever any coin had been taken from the treasure of the bank, it must have -been by authority of the states, for national purposes: a step conducted -with the greatest secrecy; and the matter of fact, I found, was -extremely doubtful. But this is nothing to the present purpose. That the -coin may be disposed of, I allow, though I do not believe it; but how is -the superfluous credit, writ in the books, to be disposed of? There lies -the difficulty. - -The popular opinion is, that coin has been taken out for the service of -the state: the opinion of many intelligent men is quite contrary. - -I am now to give my opinion, not only as to this point, but upon the -main question; and this not from information, but from conjecture; which -I shall humbly submit to the better judgment of my reader. - -My opinion then is, 1_mo_, That every shilling written in the books of -the bank, is actually locked up, in coin, in the bank repositories. - -2_do_, That although, by the regulations of the bank, no coin can be -issued to any person who demands it in consequence of his credit in -bank; yet I have not the least doubt, but _that both the credit written -in the books of the bank, and the cash in their repositories which -balances it, may suffer alternate augmentations and diminutions, -according to the greater or less demand for bank money_. If I can prove -this, all difficulties will be removed. - -My reasons for being of this opinion are, - -1_mo_, From principles, I must conclude, that if, upon any occasion -whatever, even when the smallest demand for bank money, and the greatest -demand for coin takes place, there was an impossibility of producing the -least diminution of bank credit, or of procuring any supply of the -metals from the bank, the consequence certainly would be felt, by an -extraordinary fall in the value of bank money; or which is the same -thing, in other words, by an extraordinary rise in the value of the -metals, when compared with bank money. - -Now, this is a case which never happens. Variations upon the rate of -agio, of 2 or 3 _per cent._ perhaps more, are frequent and familiar. The -demands of trade, for coin or credit, are so fluctuating, that such -variations are unavoidable; but were there an overcharge of bank credit, -which no power could diminish, that overcharge would quickly be -perceived; because the fluctuations of the agio would entirely cease; as -the balance of a scale, nearly in equilibrio, ceases from a total -overcharge on one side. - -2_do_, My second reason is founded upon a matter of fact, which I must -now apply. - -There are upon the square before the town-house of Amsterdam, (the place -de Dam) between 10 and 11 in the morning, a number of cashiers, whose -business it is to buy and sell bank credit, for current coin. They -bargain with all those who have occasion either to buy or sell; and -according to the demand for specie, or bank credit, the agio rises or -sinks: and as these cashiers must constantly gain, whether they furnish -bank credit or current coin, since they are never the demanders in -either operation, it is commonly found, that there is in their favour -about 1⁄16 _per cent._ or perhaps ⅛ _per cent._ according to the -revolutions in the demand: that is to say, one who would first buy -specie, and then sell it, would lose ⅛, or perhaps but 1⁄16 upon his -operation. - -From this circumstance of buying and selling of bank credit with coin, -and _vice versa_, I think I can resolve the mystery mentioned above, -viz. how the constant accumulation of coin in the bank of Amsterdam, -should never have the effect of depreciating their bank money, by -augmenting, beyond the demand for it, the quantity of their deposit, and -of the credit written in their books. - -It is a matter of fact, that the bank lends both coin and credit to the -brokers, cashiers, or lombards, who are constantly found on the place de -Dam. - -Whenever, therefore, the bank finds that agio falls too low, with -respect to the coin; and when, in consequence of that, the demand for -coin _increases_; then they lend _coin_ out of their repositories to the -brokers; and when it _rises_, they lend _credit_. - -This coin the brokers dispose of to those who have bank money, and who -want to convert it into coin. They sell the coin for bank credit: the -purchaser writes off the transfer in favour of the broker, and he again -repays the value of the coin to the bank, by transferring the credit he -obtained for the coin, in favour of the bank. - -This done, the bank may expunge this credit from their books; by which -means their deposit of coin is diminished, and also the sum of credit -which was found superfluous. - -If, on the other hand, the circulation of the trade of the city should, -in a short time afterwards, begin to increase, those who have coin, -which in that case would not so well serve the uses of circulation as -the bank credit, come with it to the brokers, who sell them bank credit -for it; this coin the brokers deliver to the bank, which writes off the -credit lent to the broker, in favour of him who has paid his coin for -it. - -This is, as far as I can guess, the nature of the circulation of the -coin in the bank of Amsterdam. - -It is a curious method of preserving an exact proportion between the -coin in deposit, the credit written in their books of transfer, and the -demand for bank money. - -The plan is quite consistent with principles, and checks exactly with -those matters of fact which are known to all the world. Whether the -operation be conducted exactly in the way I have represented it, or not, -is a matter of small consequence to us, who aim at nothing more than the -investigation _of the principles_ upon which such operations _may_ be -conducted. - -When we compare this operation with those of the bank of circulation, -which we have already explained, we find a great analogy between them. - -We have seen how the notes issued by banks of circulation increase and -diminish according to demand: and now we see how the same principle -operates in banks of deposit, which issue no coin on demand. In the -first case, the mass of securities, or coin of the bank, is diminished, -without the consent of the bank, by the act of their creditors; that is, -the holders of the notes. In the last case, the creditors, or persons -who have credit in bank, cannot, by their own act, diminish the quantity -of the coin deposited, nor of the credit written; but the bank itself, -by the help of those interposed persons, the brokers on the place de -Dam, is enabled to preserve an exact balance between bank money and the -demand for it; augmenting it as it is demanded, and diminishing it when -it is found to regorge. - -From this I conclude, that the treasure of the bank of Amsterdam is not -near so great as some authors, from mere conjecture, have asserted. - -The author of the Essay on commerce, reckons it at four hundred millions -of guilders; and the Amsterdam edition carries in the margin a -correction, which gives us to understand, that it amounts to between -eight and nine hundred millions. Davenant esteems it at 36 millions -sterling. Mr. Megens, an author of great judgment and sagacity, esteems -this treasure at no more than about 60 millions of guilders, or about -5,500,000_l._ sterling; a sum (says he) wherewith great things may be -done. Univers. Merchant, sect. 61. I agree entirely with him, that for -the ready-money demands of the trade of Amsterdam, that sum, constantly -in circulation, may go a great length. - -What has misled most people in their estimation of this treasure, is the -appearance of a constant accumulation, without any restitution: but that -there is a constant egress, as well as ingress of coin to this bank, I -think I have rendred pretty evident. - -Besides the permanent credit written in the books of transfer, -concerning which we have been speaking, the bank of Amsterdam receives, -in deposit, vast sums of coin every year, which are not incorporated -with the bank treasure, but remain in the bags in which they are -delivered, under the joint seals of the bank and of the person who -delivers them. - -This operation comes next to be explained. - -The trade of Holland draws a constant flux of coin and bullion into the -country; and that trade sends a constant flux out of it. The -establishment of the bank of Amsterdam renders the use of this coin and -bullion, upon many occasions, superfluous, as money. - -It therefore remains as a commodity, the value of which rises according -to exigencies, or the demand for it. - -When the precious metals come from Spain, Portugal, and other nations, -who owe a balance to the Dutch, they are lodged in the bank of Amsterdam -in the following manner. - -The proprietors carry them to the bank in sacs composed of a determinate -number of pieces, and the sac must be of a determinate weight, according -to the regulations of the bank, from time to time; for which the bank -writes off credit in bank, at certain rates, according to the coin -lodged, to the account of the proprietor. - -But as this coin is received, upon condition that it may be drawn out -again, so soon as the depositor shall demand it; instead of writing off -the _whole value_ upon the books of the bank, they only write off a -_certain part_, (suppose 90 _per cent._) and for the remaining 10 _per -cent._ they deliver what they call a _recipisse_, which is an obligation -by the bank to re-deliver, upon demand, the individual sacs, sealed with -the seals of the bank and of the depositor. This _recipisse_ is -transferable at the will of the person to whom it is delivered. Farther, - -He who has put his coin so in deposit, becomes bound to pay to the bank -½, ¼, or ⅛_per cent._ every six months, according to the coin: that is, -upon gold ½ _per cent._ on pieces of eight and rix-dollars ¼; on -ducatoons ⅛ _per cent._ and in case he neglects so to do, then the coin -becomes consolidated with the treasure of the bank, and can no more be -drawn out, in virtue of the _recipisse_. - -This being performed, the depositor may transfer, at will, all the 90 -_per cent._ of his credit, in the course of his business; and so soon as -the _value of coin_ rises in the market, he must fill up his credit in -bank to the full value of the 90 _per cent._ and then presenting his -_recipisse_, he receives back his own individual coin, sealed with his -own seal, as when at first delivered. - -If he finds that it is either inconvenient for him to fill up his -credit, or that he has no occasion for his coin, upon the rise in its -value, he may then sell his _recipisse_ to another, who has credit in -bank equal to the value of the deposit; and he, in virtue of the -_recipisse_ transferred to him, withdraws the coin, as the person might -have done who put it in deposit. - -The _recipisse_ itself, which is what gives a right to the coin to any -one who is the proprietor of that paper, and who has credit in bank for -the sum contained in it, rises and sinks in its value, according to the -price of the coin to which it carries a right. - -In this manner coin, which otherwise would be dead in a warehouse, is -made to circulate, in favour of the owner, during the deposit, remaining -at the same time always at his command; and the keeping of the coin -brings into the bank a small profit, but which, by constant -accumulation, becomes considerable. - -I have said above, that the bank of Amsterdam puts forth, from time to -time, what regulations they think fit, as to the rate at which they -receive the different species of coin. These regulations are formed -according to the fluctuation of the value of the metals. When silver -rises above the proportion it had before, with respect to gold, then the -silver species is received at a higher rate than formerly. When gold -rises in proportion to silver, then the gold coins are received at a -higher rate than formerly. - -This regulation produces the same effect as that, which I formerly -recommended in the third book, would do, in fixing a standard for the -unit of the money of Great Britain, according to the mean proportion of -the metals: and it was for this reason, that [Book III. part I. chap. -1.] I asserted the bank money of Amsterdam to be an invariable unit, -which the art of man had invented; that it stood like a rock in the sea, -immoveable by the fluctuating proportion between the metals. - -It is no objection against this, to allege the variation of the agio, -and the fluctuation of the value of bank money according to demand. -These variations ought to be referred to the coin, not to the bank -money: the bank money is to be considered as fixed, because it has all -the characters of invariability. - -If, indeed, the affairs of the bank came to be ill administred, and that -the credit written in the bank were allowed to swell so far beyond the -demand for it, as to sink the value of bank money so far below the rate -of coin as to make it impossible to recover itself; then I should allow -that the bank money was no longer an invariable standard: but in this -case, I should consider the bank as in a kind of political disease, -because it would then be withdrawn from under the influence of its own -principles, which hitherto has never been the case. - -It has been imagined by many, that the treasure of the bank of Amsterdam -has been, upon certain occasions, made use of for the public service. -This is a conjecture merely; and perhaps it has been owing to the -opinion which commonly prevails, that the treasure far exceeds all the -uses which it can serve for. But as I am persuaded, 1_mo_, That this -opinion is void of all foundation; 2_do_, That the treasure never can -exceed the credits written; and, 3_tio_, That the credits never can -exceed the uses those merchants have for them: so I am of opinion, that -a value, in coin, to the full extent of those credits, actually exists -in the repositories of the bank; because if I should suppose the -contrary, it would imply a notorious infidelity in the bank -administration: an infidelity, which, if ever it should be discovered, -would overturn the whole credit of the bank, and, at one stroke, destroy -the whole trade of that city. Now the use of three or four millions -sterling, to the states of Holland, which they can procure when they -will, at a very moderate interest, is not an object in the eyes of that -sagacious government, sufficient to engage them to tamper with the bank -treasure: and the rather, that were they driven to the necessity of -having recourse to the bank, I make not the least doubt but that so -great a company would be of more service to the state in writing off -upon an occasion a _temporary, untransferable credit at interest_, which -might afterwards be expunged, in order to procure coin within the -country, than by delivering the coin corresponding to the credit of -private merchants, which they must look upon as a most sacred deposit. - -If we compare the credit of the bank of Amsterdam, with the credit of -the bank of England, we shall find the first infinitely inferior to the -latter as to extent, though not one bit inferior with respect to the -solidity of it. - -The extent of the credit of the bank of Amsterdam is limited to the sum -of the credits written in their books, either in permanent transfer, as -I shall call it, or in credit on cash deposited upon _recipisse_. All -this credit put together, cannot extend beyond the limits of the -circulation of the city of Amsterdam, in their domestic dealings, and in -their exchange business; which last is indeed very great. - -But the credit of the bank of England is equal (in a manner) to all the -circulation and exchange business of London, and all the taxes paid in -Great Britain. This bank, in circulating its paper, is not limited to -the weight of coin in England. The whole interest of the national debt, -and expence of the state, may be paid in the paper of the bank, and be -perfectly well secured, although their treasure in coin may seldom -amount to above four millions sterling. - -We must however allow, that banks of circulation, when ill conducted, -are liable to great abuse; as has been abundantly explained in treating -of the Missisippi. But how is abuse to be prevented, while men conduct? -And disasters may happen to a bank of deposit, to which the other is not -so much exposed. May not the treasure of the bank of Amsterdam be lent -out on bad security? May not the state lay hold of it? May not an -earthquake swallow up the stadthouse? May not the sea break in, and -demolish it? May not another invader, like the late King of France, in -1672, be more successful, and carry off the bank? - -These are abuses and calamities to which the bank of Amsterdam is -exposed; and from many of which the bank of England is in a great -measure protected. - -Besides the banks I have mentioned, not so much with a view to give an -historical account of their operations, as to illustrate the principles -on which they are established, there are many others in Europe of great -and extensive credit; such as that of Hamburg, Venice, Genoa (until the -state spent the treasure deposited) Nuremberg, &c. Every one of these -participate more of the nature of that of Amsterdam, than of those in -Great Britain. They are more calculated for preserving the standard of -their bank money, against the adulterations of coin, and for providing a -fund of cash, transferable in bank credit, than for the assistance of -government, or the melting down of solid property, which are the great -advantages peculiar to _banks of circulation_. - -These last are also infinitely more lucrative to the bankers than those -of deposit, from the interest they draw from credits given, discount of -bills, and loans to government. - -The profits on the bank of Amsterdam are very trifling. They are -confined to the small emoluments of 2 stivers for every transfer; -besides the interest they draw from the brokers on the place _de Dam_, -for the coin and credit they furnish them with; and, in the last place, -the ½, ¼, or ⅛ _per cent._ every six months, for the coin deposited, in -order to be afterwards drawn out. But on the other hand, they are freed -from the enormous expence of providing coin for the payment of foreign -balances, and from the great detail of business which the circulation of -paper implies. - - - END OF THE SECOND PART. - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- - - AN - - INQUIRY - - INTO THE - - PRINCIPLES OF POLITICAL OECONOMY. - ------------------------------------------------------------------------- - - BOOK IV. | OF CREDIT AND DEBTS. - - PART III. - OF EXCHANGE. - ------------------------------------------------------------------------- - - CHAP. I. - _Of the first Principles of Exchange._ - - -Having ended what I had to say of banks, in which most of the principles -of private credit have been sufficiently deduced, I now proceed to the -doctrine of exchange, which is the principal operation of mercantile -credit. - -The security which merchants commonly take from one another when they -circulate their business, is a bill of exchange, or a note of hand: -these are looked upon as payment. When they give credit to one another -in account, or otherwise, the cause of confidence is of a mixed nature; -established partly upon the security of their effects, partly on the -capacity, integrity, and good fortune, of the person to whom the credit -is given. - -No man but a merchant has any idea of the extent and nature of this kind -of credit. It is a thing to be felt, but cannot be reduced to -principles; and merchants themselves can lay down no certain rules -concerning it. It is an operation which totally depends upon their own -sagacity. - -But when they deal by bills of exchange, the case is very different. The -punctuality of acquitting those obligations is essential to commerce; -and no sooner is a merchant’s accepted bill protested, than he is -considered as a bankrupt. For this reason, the laws of most nations have -given very extraordinary privileges to bills of exchange. The security -of trade is essential to every society; and were the claims of merchants -to linger under the formalities of courts of law, when liquidated by -bills of exchange, faith, confidence, and punctuality, would quickly -disappear; and the great engine of commerce would be totally destroyed. - -A regular bill of exchange is a mercantile contract, in which four -persons are concerned, viz. 1. The drawer, who receives the value: 2. -His debtor in a distant place, upon whom the bill is drawn, and who must -accept and pay it: 3. The person who gives value for the bill, to whose -order it is to be paid: and 4. The person to whom it is ordered to be -paid, creditor to the third. - -By this operation, reciprocal debts, due in two distant parts, are paid -by a sort of transfer, or permutation of debtors and creditors. - -(A) in London, is creditor to (B) in Paris, value 100_l._ (C) again in -London, is debtor to (D) in Paris for a like sum. By the operation of -the bill of exchange, the London creditor is paid by the London debtor, -and the Paris creditor is paid by the Paris debtor; consequently, the -two debts are paid, and no money is sent from London to Paris, nor from -Paris to London. - -In this example, (A) is the drawer, (B) is the accepter, (C) is the -purchaser of the bill, and (D) receives the money. Two persons here -receive the money, (A) and (D), and two pay the money, (B) and (C); -which is just what must be done when two debtors and two creditors clear -accounts. - -This is the plain principle of a bill of exchange. From which it -appears, that reciprocal and equal debts only can be acquitted by them. - -When it therefore happens, that the reciprocal debts of London and Paris -(to use the same example) are not equal, there arises a balance on one -side. Suppose London to owe Paris a balance, value 100_l._ How can this -be paid? I answer, that it may either be done with or without the -intervention of a bill. - -With a bill, if an exchanger, finding a demand for a bill upon Paris, -for the value of 100_l._ when Paris owes no more to London, sends -100_l._ to his correspondent at Paris in coin, at the expence, I -suppose, of 1_l._ and then, having become creditor on Paris, he can give -a bill for the value of 100_l._ upon his being repaid his expence, and -paid for his risk and trouble. - -Or it may be paid without a bill, if the London debtor sends the coin -himself to his Paris creditor, without employing an exchanger. - -This last example shews of what little use bills are in the payment of -balances. As far as the debts are equal, nothing can be more useful than -bills of exchange; but the more they are useful in this easy way of -business, the less profit there is to any person to make a trade of -exchange, when he is not himself concerned, either as debtor or -creditor. - -When merchants have occasion to draw and remit bills for the liquidation -of their own debts, active and passive, in distant parts, they meet upon -change; where, to pursue the former example, the creditors upon Paris, -when they want money for bills, look out for those who are debtors to -it. The debtors to Paris again, when they want bills for money, seek for -those who are creditors upon it. This is a representation of what we -have frequently called the money market, in which the _demand_ is for -_money_, or for _bills_. - -This market is constantly attended by brokers, who relieve the merchant -of the trouble of searching for those he wants. To the broker every one -communicates his wants, so far as he finds it prudent; and by going -about among all the merchants, the broker discovers the side upon which -the greater demand lies, for money, or for bills. - -We have often observed, that he who is the demander in any bargain, has -constantly the disadvantage in dealing with him of whom he demands. This -is no where so much the case as in exchange, and renders secrecy very -essential to individuals among the merchants. If the London merchants -want to pay their debts to Paris, when there is a balance against -London, it is their interest to conceal their debts, and especially the -necessity they may be under to pay them; from the fear that those who -are creditors upon Paris would demand too high a price for the exchange -over and above par. - -On the other hand, those who are creditors upon Paris, when Paris owes a -balance to London, are as careful in concealing what is owing to them by -Paris, from the fear that those who are debtors to Paris would avail -themselves of the competition among the Paris creditors, in order to -obtain bills for their money, below the value of them, when at par. A -creditor upon Paris, who is greatly pressed for money at London, will -willingly abate something of his debt, in order to get one who will give -him money for it. - -It is not my intention to dip into the intricacies of exchange: all -intricacies must here be banished; and instead of technical terms, which -are very well adapted for expressing them, recourse must be had to plain -language, for pointing out the simple operations of this trade. It is by -this method that principles must be deduced, and from principles we -shall draw the consequences which may be derived from them. - -From the operation carried on among merchants upon Change, which we have -been describing, we may discover the consequence of their separate and -jarring interests. They are constantly interested in the state of the -balance. Those who are creditors on Paris, fear a balance due to London; -those who are debtors to Paris, dread a balance due to Paris. The -interest of the first is to dissemble what they fear; that of the last, -to exaggerate what they wish. The brokers are those who determine the -course of the day: and the most intelligent merchants are those who -dispatch their business before the fact is known. - -Now I ask, how trade, in general, is interested in the question, who -shall outwit, and who shall be outwitted, in this complicated operation -of exchange among merchants? - -The interest of trade and of the nation is principally concerned in the -proper method of paying and receiving the balances. It is also concerned -in preserving a just equality of profit and loss among all the -merchants, relative to the real state of the balance. Unequal -competition among men engaged in the same pursuit, constantly draws -along with it bad consequences to the general undertaking, as has often -been observed; and secrecy in trade will be found, upon examination, to -be much more useful to merchants in their private capacity, than to the -trade they are carrying on. - -Merchants, we have said, in speaking of the bank of England, endeavour -to simplify their business as much as possible; and commit to brokers -many operations which require no peculiar talents to execute. This of -exchange is of such a nature that it is hardly possible for a merchant -to carry on the business of his bills, without their assistance, upon -many occasions. When merchants come upon Change, they are so full of -fears and jealousies, that they will not open themselves to one another, -lest they should discover what they want to conceal. The broker is a -confidential man, in some degree, between parties, and brings them -together. - -Besides the merchants, who circulate among themselves their reciprocal -debts and credits, arising from their importation and exportation of -goods, there is another set of merchants who deal in exchange; which is -the importation and exportation of money and bills. - -Were there never any balance on the trade of nations, exchangers and -brokers would find little employment: reciprocal and equal debts would -easily be transacted openly between the parties themselves. No man -feigns and dissembles, except when he thinks he has an interest in so -doing. - -But when balances come to be paid, exchange becomes intricate; and -merchants are so much employed in particular branches of business, that -they are obliged to leave the liquidation of their debts to a particular -set of men, who make it turn out to the best advantage to themselves. - -Whenever a balance is to be paid, that payment costs, as we have seen, -an additional expence to those of the place who owe it, over and above -the value of the debt. - -If, therefore, this expence be a loss to the trading man, he must either -be repaid this loss by those whom he serves, that is, by the nation; or -the trade he carries on will become less profitable. - -Every one will agree, I believe, that the expence of high exchange upon -paying a balance, is a loss to a people, no way to be compensated by the -advantages they reap from enriching the few individuals among them, who -gain by contriving methods to pay it off: and if an argument is -necessary to prove this proposition, it may be drawn from this -principle, to wit, whatever renders the profit upon trade precarious or -uncertain, is a loss to trade in general: this loss is a consequence of -high exchange; and although a profit does result from it upon one branch -of trade, the exchange business, yet that cannot compensate the loss -upon every other. - -We may, therefore, here repeat what we have said above, that the more -difficulty is found in paying a balance, the greater is the loss to the -nation. - -This being admitted, I shall here enumerate all the difficulties which -occur in paying of balances. Most of them have been already mentioned -from their relation to subjects already discussed; and could it be -supposed, that every reader has retained the whole chain of reasoning -already gone through, a repetition in this place would be superfluous: -but as that cannot be expected, I shall, in as short and distinct a -manner as possible, recapitulate, under four articles, what I hope will -be sufficient to refresh the memory upon each of them. - -1_mo_, The first difficulty which occurs in paying a balance, is to -determine exactly the true and intrinsic value of the metals or coin in -which it is to be paid; that is to say, the real par. - -2_do_, How to remove the domestic inconveniences which occur in paying -with the metals or coin. - -3_tio_, How to prevent the price of exchange from operating upon the -whole mass of reciprocal payments, instead of affecting only the -balance. - -The remedies and palliatives for these three inconveniencies once -discovered, comes the last question, viz. How, when other expedients -prove ineffectual for the payment of a balance, the same may be paid by -the means of credit, without the intervention of coin; and who are those -who should conduct that operation. - - ------------------------------------------------------------------------- - - - CHAP. II. - _How to determine exactly the true and intrinsic value of the Metals, - Coin, or Money, in which a Balance to foreign Nations is to be paid._ - - -This first question regards the whole mass of reciprocal payments, as -well as that of the balance. - -Every payment to be made of a determinate and fixed value; that is to -say, of a liquidated debt, must be paid in a value equally determinate -in its nature. - -This I suppose to be the case, whether payment be made in the precious -metals unmanufactured, bullion, or in a nation’s coin, or in -denominations of money of account. All payment in merchandize, except -bullion, must suffer conversions of value before the debts can be -liquidated. - -Money of accompt, which is what we understand by denominations, we have -defined to be a scale of equal parts, calculated to determine the value -of things, relatively to one another. It must, therefore, be by the -money of accompt of different nations, that the value of bullion and of -coin can be determined. - -When coin is introduced, the denominations of money are realized in a -determinate quantity of the precious metals, and the fabrication of the -bullion into coin, raises the value of that commodity, bullion, like the -manufacturing of every other natural production. - -When coin, therefore, is employed in paying sums according to the legal -denomination which it carries, it is money, not merchandize; but when it -is given at any other rate than its denomination, it is merchandize, not -money. - -In the third book, we have shewn how utterly impossible it is to realize -with exactness, the denominations of money of accompt, in the metals -which are constantly varying in their value, and exposed to waste in -circulation. - -We have shewn, by many examples, how, in fact, the value of the pound -sterling has been subject to great vicissitudes of late, from the great -disorder of the coin. - -The coin of France is, indeed, upon a better footing in point of -uniformity of weight, than ours; and the proportion of the metals in it -comes nearer their present value in the market: but then as oft as the -balance turns against France, the high imposition upon her coinage, -exposes the coin to great fluctuations of value, when compared with -bullion in the Paris market. This is also to be ascribed to the -imperfection of the metals when used as money, while they are -merchandize at the same time. - -This being the case, the way to calculate the real par of exchange -between nations, who have in common no determinate and invariable money, -exclusive of coin, is to consider fine gold and silver as the next best -standard. - -This is a merchandize which never varies in its quality. Fine gold is -always the same in every mass; and weight for weight, there is no -difference in its value or quality any where. - -This standard being once adopted, the calculation of the real par -becomes an easy operation to those who know the course of the bullion -market in the two places exchanging. - -If, by the exportation of all the heavy coin of London, bills must be -paid in a worn out currency, the rise in the price of gold in their -market, above mint price, will mark pretty nearly how far it is light. - -If, on the other hand, the wars of France, or an unfavourable balance -upon her trade, shall oblige her to export her coin, that operation will -_sink_ the value of it, or _raise_ the price of bullion, which ever way -you choose to express it. - -It is not here a proper place to resume the question, which of the two -expressions is the most proper: we are here considering the value of the -bullion as what is fixed, because it answers the purpose. But whether we -say that bullion _rises_ in the markets of Paris and London; or that the -value of their currencies _sink_, though from very different causes, the -calculation of the real par will proceed with equal accuracy. An example -will illustrate this. - -When _fine_ gold is at the lowest price to which it can ever fall at -Paris, that is to say, at the mint price, it is worth 740 livres 9 sols, -or 740.45 livres _per_ mark, in decimals, for the ease of calculation. -The mark contains eight ounces Paris weight. - -Were the ounces of Paris equal to those of troy weight, ⅛ of this sum, -or 92.5562 livres, would be the value of that ounce by which gold is -sold at London. - -But the Paris ounce is about 1½ _per cent._ lighter than the troy ounce; -and the exact proportion between them is unknown, from the confusion of -weights, and the want of a fixed standard in England. - -By the best calculation I have been able to make, a Paris ounce should -contain 473 grains troy, which makes the proportion between the two -ounces to be as 473 is to 480, which is the number of grains in the troy -ounce. - -Gold bullion at Paris is regulated by the mark _fine_, at London by the -ounce _standard_. - -When standard gold bullion is at the lowest price it can be at London, -it is worth the mint price, or 3_l._ 17_s._ 10½_d._ _per_ troy ounce, -which, expressed in decimals, is 3.8937_l._ sterling. Standard is to -fine, as 11 is to 12; consequently, the ounce fine is 4.2476_l._ -sterling: and if the Paris ounce of _fine_ bullion be worth, as has been -said, 92.5562 livres, the ounce troy, according to the above proportion, -will be worth 93.926 livres. Divide then the livres by the sterling -money, and the quotient will give you the real par of exchange of the -pound sterling, while bullion remains at that value in Paris and in -London, viz. 4.2476⁄93.926 = 22.112 livres for the pound, or 32.56_d._ -sterling for the French crown of 3 livres. - -Gold bullion never can rise in the Paris market, at least all the last -war it never _did_ rise, above the value of the coin; that is, to 801.6 -livres the mark fine, or 100.2 livres _per_ ounce Paris, and 101.7 -livres the troy ounce. - -How high the price of gold bullion may rise at London no man can say; -but the highest it rose to, during the last war, was, I believe, 4_l._ -0_s._ 8_d._ _per_ ounce standard, or to 4.3999_l._ sterling _per_ ounce -fine. By this divide the value of the ounce troy fine in French livres, -the real par at this rate of the metals in both cities will be -4.3999⁄101.7 = 23.11 livres for the pound sterling, or 31.155 pence -sterling for the French crown of 3 livres. But suppose two cases which -may happen, viz. 1. That gold bullion at Paris should be at the price of -coin, while at London it may be at mint price: or, 2. That at Paris it -may be at mint price, when at London it is at 4_l._ 0_s._ 8_d._ what -will then the real par of exchange be? - -I answer, that on the first supposition, it will be one pound sterling, -equal to 23.939 livres, and the crown of 3 livres equal to 30.076 pence -sterling. In the other, equal to 21.34 livres for the pound sterling, -and for the crown of 3 livres 33.728. A difference of no less than 8.9 -_per cent._ - -Is it not evident that these variations _must_ occur in the exchange -between London and Paris? And is it not also plain, that they proceed -from the fluctuation of the price of bullion, not from exchange? - -We have, I think, demonstrated, in the third book, that a wrong balance -upon the French trade raises bullion to the price of coin; and that a -right balance brings it down to mint price. The price of coinage is -above 8 _per cent._ So that 8 _per cent._ of fluctuation in the price of -bullion is easily accounted for in the Paris market, without combining -the variations in the English market. - -In London, where no coinage is paid, were all the coin of full weight, -and exportation free, coin and standard bullion would constantly stand -at the same price: but when the heavy coin is exported, and the currency -becomes light by the old remaining in circulation, the price of bullion -rises in proportion. - -Is it surprizing that, at London, gold in bullion should be worth as -much as gold of the same standard in guineas, weight for weight? It is -worth as much at the mint, why should it not be worth as much at market? -Any man may offer to pay _for the ounce_ of all the guineas coined by -Charles II. James II. and William III. now in circulation, the highest -market price that ever was given for standard gold bullion in London, -and gain by the bargain. - -This, I hope, will be sufficient to satisfy any body that there is a -mistake in ascribing the high price paid for the French crown in the -London exchange, to a wrong balance upon the trade of England with -France. - -From this new light in which I have placed the question, I hope the -arguments used in the 16th chapter of the first part of the third book, -will acquire an additional force; and that thereby the eyes of this -nation may be opened with regard to the interests of the French trade; a -point, I should think, of the highest concern. - -To calculate, as every body does, the par of the French crown, either by -the gold or the silver in the English _standard_ coin, when no such -_standard_ coin exists; and to state all that is given for the crown -above 29½_d._ if you reckon by the silver, or 30¼_d._ if you reckon by -the gold, for the price of a wrong balance, is an error which may lead -to the most fatal consequences. - -If government should think fit to impose, in their own mint, a coinage, -equal to that of France, and make all their coin of equal weight, and at -the due proportion, it will take off all the loss we suffer by paying -coinage to France, which we at present impute to the exchange, while she -pays none to us. But then it will occasion nearly the same fluctuations -upon the real par of exchange as at present; only from another cause on -the side of Great Britain. At present our exchange becomes favourable -from the weight of our own currency, and the balance against France upon -her trade; which, in Paris, raises the price of the bullion with which -we pay our French debts. On the other hand, our exchange becomes -unfavourable from the lightness of our own currency, from the coinage we -pay to France, and balance against us; which last carries off all our -new guineas; and in the Paris market, sinks the value of that bullion in -which we pay our French debts. - -Were matters put upon a right footing, we should gain from France the -price of our coinage, when our balance is favourable, and pay coinage to -France when their balance is favourable; instead of seeing our exchange -turn more in our favour, only from the additional weight of the coin in -which we pay. - -If French coinage should appear too high a price for the interest of -other branches of British trade, a question I shall not here determine, -let us impose at least as much as to keep our guineas out of the melting -pot, and banish all the old coin which throws us into such confusion. - -What has been said is undoubtedly too much upon this subject for the -generality of readers. The number of those who can go through a chapter -like this with pleasure is very small. But if the idea I have been -endeavouring to communicate, be found just by one man of capacity, whose -opinion shall have weight in the deliberations of Great Britain, the -consequences may be great to this nation; and this consideration will, I -hope, plead my excuse. - -I shall now set this question in another point of view, from which the -stress of my arguments will be felt, and all intricate combinations will -be laid aside. - -Does not the price of exchange, or what is given above the par, proceed -from the expence of sending the metals from one place to the other, the -insurance of them, and the exchanger’s profit? If this be true, which I -believe no body will deny, must not what is paid for the bill, over and -above these three articles, be considered as the real par, relative to -exchange? Now does the price of the bullion which the exchanger pays in -his own market, or the price he gets for that bullion in the market to -which he sends it, at all enter into the account of the transportation, -risk, and profit, which the exchanger has on the operation? Certainly -not. May there not be a very great difference between the buying and -selling the very same bullion in different markets at one time and -another? Ought we not to charge that to some other accompt than to the -price of exchange, which is confined to the expence of transporting _the -balance only_, and when two objects totally different are included under -the same term, does it not tend to perplex our notions concerning them? - -The great variation in the price of bullion in France, for example, and -the expence of procuring it, proceeds from three causes. The first is, -the coinage imposed in France, while none is imposed in England. What, -therefore, is paid upon this account, is profit to France, and loss to -England. - -The second cause of variation, is the debasement of the value of the -pound sterling, when the heavy gold has been sent abroad. That loss -affects the nation, and every man in England, in the quality of creditor -for sums specified in pounds sterling, to the profit of all debtors. - -The third cause of variation, is from the great expence exchangers are -put to, in procuring the metals from other countries, when they cannot -be got at home: the consequence of this shall be explained in a -succeeding chapter. - -As all these causes are combined in the exchange upon bills when they -come to market, I think it is proper to analize them, before the -doctrine we are upon can be distinctly understood. - -I shall therefore conclude my chapter with this proposition: - -That the best method of determining exactly the true and intrinsic value -of the metals, coin, or money, in which the balance due to or from a -foreign nation is to be paid, is to compare the respective value of fine -bullion with the respective denominations of the coin in the one and the -other; and to state the difference as the price paid for the -exchange[20]. - -Footnote 20: - - There occurs another considerable difficulty to be removed, before the - real par of exchange can be exactly determined from the price of - bullion, to wit, the uncertainty of weights, and the multiplicity of - them. - - Every nation in Europe has a different weight, I might almost say - every city. This has proceeded, in a great measure, from the - inaccuracy with which they have been made formerly. I think it is - highly probable, that many, at least, of the principal weights in - Europe, have derived their origin from the same standard; although - they are now considerably different. Those I am best acquainted with - are the following, of which I shall here set down a short table, - reduced to troy grains, according to the best calculation I have been - able to make. - - One ounce troy contains 480 troy grains. - One ounce Paris, or _poids de marc_, 473 - One ounce Holland troes 473.27 - One ounce Colonia 449.33 - - These are the weights used in the mints of England, France, Holland, - and Germany. - - If therefore we should call the troy ounce 100, the proportion of the - rest will be as follows: - - Troy 100 - Paris 98.541 - Holland 98.597 - Colonia 93.61 - - I have chosen to reduce to ounces; because it is the denomination in - which the proportion of weights is best preserved. - - These ounces I apprehend to have been originally taken from the old - Roman pound, which was the weight adopted by the Emperor Charles the - Great, who applied himself much to the establishing a general standard - of weights in his dominions. - - In the examples I have given, we see how the Colonia ounce deviates - more than any other from the average on the whole. - - This ounce is very near equal to the old Saxon ounce, established in - the English mint at the Norman conquest, and there preserved, until - Henry VIII. substituted in its place, the troy weight. This - circumstance makes it probable that the Saxon ounce came originally - from Charles the Great, who first conquered the Saxon nation, and drew - them from a state of absolute barbarity. The rude manners of the - Saxons may have occasioned this great deviation. - - The difference, therefore, in those ounces, I ascribe to the - progressive error of those who have made weights, and from the neglect - of preserving a proper standard. - - The best remedy for this inconvenience, would be, for any one mint to - form a weight, _ad libitum_, and to send a most accurate copy of it to - every mint in Europe: to mention, at the same time, the exact - proportion between the weight sent, and that observed at their own - mint: to beg of the other mints an equal communication of the - proportion between the weight sent, and their several standards: and - last of all, to publish in the news-papers of all commercial towns, - every market day, as is done at Amsterdam, the price of _fine_ gold - and silver, according to this new weight made for the purpose. This - weight may be called the mint-weight of Europe; and from the universal - utility which would follow upon such a regulation, it probably might - be followed: were this to happen, it might be a step towards - establishing an universal conformity of weights every where. - - While matters stand on the present footing, it is necessary to be - informed of three particulars. First, Of the proportion of the - different mint weights. Secondly, Of the regulations by which the coin - is made. And lastly, Of the exactness of the mints in following the - regulation. Every mistake in any one of these three articles, is an - impediment to the just determination of the real par. - - I acknowledge that, in fact, exchange business goes on smoothly, - notwithstanding all the difficulties we have been enumerating. It may - therefore be asked, in what would consist the great advantage of so - scrupulous a nicety? - - My answer is, that exchange business will always go smoothly on, as - long as exchangers gain, and that trade is not interrupted. - - But trading men consider their own interest only; and I am configuring - the interest of an intelligent state, which wants to promote the good - of the whole community, without occasioning any hurt to the interest - of individuals. - - ------------------------------------------------------------------------- - - - CHAP. III. - _How to remove the inconveniences which occur in paying Balances with - the Metals or Coin of a Nation._ - - -The inconveniences which occur when balances are to be paid in bullion -or coin are these: - -First, The want of secure and ready transportation, from the -obstructions government throws in the way to prevent it. - -Secondly, The difficulty of procuring the metals abroad when they are -not to be found at home. - -When we speak here of balances to be paid from one country to another, -we understand, that the general amount of the whole payments to be made -to the world, exceeds the sum of all that is reciprocally due from it. -So far as a balance due to one country is compensated with a balance due -by another, they may be mutually discharged by bills of exchange, -according to the principles already laid down. All compensations being -made by bills drawn for reciprocal debts, we must here suppose a balance -due by the country whose interest we are considering. This, like debts -between private people, must either be paid in intrinsic value, or by -security for it; that is, by contracting a permanent debt bearing -interest. The first is the question here before us; the second will be -examined in the succeeding chapter. - -The first difficulty mentioned, to wit, the want of secure and ready -transportation of the metals, proceeds in a great measure from the -obstruction government throws in the way, to prevent the exportation of -them. To remove which difficulty, it is proper to shew how far it is the -interest of government to obstruct, how far to accelerate the -transportation of the metals. - -We have said that it is the advantage of every state, in point of trade, -to have balances paid with the least expence. If then we suppose that it -is either necessary or expedient that this balance should be paid in the -metals, government, in that case, should facilitate by every method the -sending them off in the cheapest and securest way. - -But since governments do not follow that rule, we must examine the -reasons which engage them to prefer a contrary conduct. - -The principal, the most general, and most rational objection against the -exportation of the metals, is, that when it is permitted, without -restriction, it engages the people, when they go to foreign markets for -articles of importation, to run to the coin, instead of carrying thither -the product and manufactures of the country. From which a consequence is -drawn, that as long as coin and bullion are fairly allowed to be -exported, the rich inhabitants will employ them for the purchase of -foreign commodities, to the hurt of domestic industry. - -This is an objection of great weight, relative to the situation of many -nations. The Spaniards and Portuguese feel it severely. Many individuals -there are very rich; the numerous classes of the people are either lazy -or not properly bred to industry. In that situation the alternative to -government is very disagreeable. Either the rich must be deprived of -every enjoyment with which their industrious neighbours alone can supply -them, until, by very slow degrees, the lowest classes of their -countrymen can be engaged to change their way of living, and be inspired -with a spirit of industry; or they must be allowed to gratify the -desires which riches create, at the expence of the nation’s treasure, -and the improvement of their country. - -From this alternative we discover the principle which directs the -conduct of a statesman under such circumstances, viz. - -To forbid the importation of every foreign manufacture whatsoever; to -submit to the hardships necessarily implied in the circumstances of the -nation; and to pay freely what balance may be owing upon natural produce -imported for the uses of subsistence, or manufacture. - -This is a plan more rational and more easily executed, than a general -prohibition to export the metals; because with good regulations, -properly executed, you may prevent the importation of manufactures; but -it is hardly possible to prevent the exportation of the metals necessary -to pay for what you have bought from strangers, by the permission of -government: and on the other hand, suppose you do effectually prevent -the exportation of the metals, the consequence will be, to put an end to -all foreign trade even in natural produce. What nation will trade with -another who can pay only by barter? All credit will then be cut off; for -who will exchange by bills, with a place which cannot pay, either in -their own currency, or with the metals, the debts which they -reciprocally owe? - -The maxim therefore, here, is to prevent the contracting of debts with -strangers; but when you allow them to be contracted, to facilitate the -payment of them. - -This reasoning is only calculated to direct a statesman who finds -himself at the head of a rich luxurious nobility, and an idle or ill -instructed common people, surrounded by industrious neighbours, whose -assistance may be necessary upon many occasions, to provide subsistence, -or the materials of manufacture, to his people; and this while he is -forming a scheme of introducing industry at home, as a basis for -afterwards establishing a proper foreign commerce. - -But in this subject combinations are infinite, and the smallest change -of circumstances throws the decision of a question on a different -principle. - -I will not therefore say, that in every case which can be supposed, -certain restrictions upon the exportation of bullion or coin are -contrary to good policy. This proposition I confine to the flourishing -trading nations of our own time. - -To set this matter in a fair light, and as an exercise upon principles, -I shall borrow two combinations, one from history, and another from a -recent example in France, in which a clog upon the exportation of the -metals and coin were very politically laid on. - -We learn from the history of Henry VII. of England, a sagacious Prince, -that he established very severe laws against the exportation of bullion; -and obliged the merchants who imported foreign commodities into his -dominions, to invest their returns in the natural produce of England, -which at that time consisted principally in wool and in grain. - -The circumstances of the times in which that Prince lived, must -therefore be examined, before we can justly find fault with this step of -his political oeconomy. - -In Henry the VIIth’s time, the foreign trade of England was entirely in -the hands of foreigners, and almost every elegant manufacture came from -abroad. - -Under such circumstances, is it not plain, that the prohibition of the -exportation of bullion and coin was only a compulsion, concomitant with -other regulations, to oblige foreign merchants, residing in his kingdom, -to buy up the superfluity of the English natural produce of wool and -grain? Had not the King taken those measures, the whole money of the -nation would have been exported; the superfluous natural produce of -England would have lain upon hand; the abundance of these would have -brought their price below the value of the subsistence of those who -produced them; agriculture would have been abandoned; and the nation -would have been undone. - -I allow that nothing is so absurd as a desire to consume foreign -productions, and to forbid the exportation of the price of them. I also -allow, that every restraint laid upon exporting silver and gold, falls -upon the consumer of foreign goods, and obliges him to pay the dearer -for them; but this additional expence to the consumer, does not augment -the mass of foreign debts. The debt due abroad will constantly be paid -with the same quantity of coin, whether the exportation of it be allowed -or forbidden; because the loss of those who pay the balance arises from -the risk of confiscation of the money they want to export against law; -or from the high exchange they are obliged to pay to those who take that -risk upon themselves. In both cases, the additional expence they are put -to remains in the country, and is repaid them by the consumers; -consequently, can never occasion one farthing more to be exported. -Prohibitions, therefore, upon the exportation of specie, are not in -every case so absurd as they appear at first sight. It is very certain -that no body gives money for nothing; consequently, a state may rest -assured that the proprietors of the specie, their subjects, will take -sufficient care not to make a present of it to foreigners. The -intention, therefore, of such prohibitions, is not to prevent the -payment of what people owe; but to prevent that payment from being made -in coin or bullion; and also to discourage the buying of such foreign -commodities as must be paid in specie, preferably to others which may be -paid for with the returns of home produce. - -When a statesman, therefore, finds the balance of trade, upon the main, -favourable to the country he governs, he need give himself no trouble -about the exportation of the specie, from this single principle, to wit, -that he is sure it is not given for nothing. But when the balance turns -against them, in the regular course of business, not from a temporary -cause, then he may lay restraints upon the exportation of specie, as a -concomitant restriction, together with others, in order to diminish the -general mass of importations, and thereby to set the balance even. - -In a trading nation, I allow, that no restriction of that kind ought to -be general; because it then affects the useful and the hurtful branches -of importation equally: but in Henry’s days, the sale of corn and wool -was sufficient to procure for England all it wanted from abroad; and the -interests of trade were not sufficiently combined, to enable the state -to act by any other than the most general rules. Forbidding the -exportation of coin was found to promote the exportation of English -productions, and this was a sufficient reason for making the prohibition -peremptory. In this view of the matter, did not Henry judge well, when -he obliged the merchants who imported foreign goods, to invest the price -they received for them in English commodities? Once more I must say it, -he was not so much afraid of the consequences of the money going out, as -of the corn and wool remaining at home; had he been sure of the -exportation of these articles to as good purpose another way, the -prohibition would have been absurd; but I am persuaded that was not the -case. - -The example taken from France is this. - -After the fatal bankruptcy in 1720, by the blowing up of the Missisippi, -the trade of France languished from the effects of the instability of -their coin, until the year 1726, when it was set upon that footing on -which it has remained ever since. - -Upon that last general coinage, the same principles of enriching the -King by the operation, directed the conduct of the minister. - -The old specie was cried down, and proscribed in circulation: but it was -thought, that as it was the King’s coin, he had a liberty to set a price -upon it, at a different rate from any other bullion of the same -fineness; and that he had also a right to command the proprietors of it -to bring it to the mint at his own price. - -The consequence was, that those who could were very desirous to send it -to Holland, in order to draw back the value they had sent in bills upon -Paris. - -Under such circumstances, were not prohibitions upon the exportation of -this coin most consistent with the plan laid down? We shall, in the next -chapter, examine the consequences of this operation upon the exchange of -France. - -What has been said, will, I hope, suffice to explain some of the -principal motives which statesmen may have, when they lay restrictions -on the exportation of the metals, with a view to favour the trade of -their nation. - -But besides the interests of trade, there are other reasons for laying -prohibitions on the exportation of the national coin, although that of -bullion be left free under certain restrictions. - -As often as it happens, from whatever cause it may proceed, that the -value of a nation’s coin falls to par with bullion of the same fineness, -that coin, if exported, may be melted down. This is a loss; because it -puts the nation to the expence of coining more for the use of -circulation. - -When nations give coinage gratis, or when they allow the coin of other -nations the privilege of passing current under denominations exactly -proportioned to its intrinsic value, then coin never can be worth more -than any other bullion of the same standard; consequently, will be -exported or smuggled out upon every occasion. - -If, therefore, a nation does really desire to avoid an expence to the -mint, they must make it the interest of merchants to export every other -thing preferably to their own coin. This is done by imposing a duty upon -the coinage; and this will either prevent its going out unnecessarily, -or if it be necessary to export it, the coin will return in the payments -made to the nation, in consequence of its advanced value above any other -bullion which can be sent. - -The forbidding the exportation of coin, implies a restriction upon the -exportation of bullion; because, unless the bullion be examined at the -custom house, and the stamps upon it looked at, it may happen to be -nothing but the nation’s coin melted down, with an intention to avoid -the law. For this reason, whoever brings bullion to be stamped, whether -it be for exportation or not, must declare that it is not made of the -nation’s coin. How slender a check are all such declarations! The only -one effectual is private interest; and as no man will take his wig to -stuff his chair, when he can get cheaper materials equally good, so no -man will melt down coin which bears an advanced value, when he can -procure any other bullion. - -On the whole, we may determine, that a flourishing commercial state, -which has, on the average of their trade, a balance coming in from other -countries, should lay it down as a general rule, to facilitate the -exportation of their coin, as well as bullion: and if a very particular -circumstance should occur, which may continue for a short time, they may -then put a temporary stop to it, and facilitate the payment of the -balance in the way of credit. - -I have enlarged so much upon the methods of removing the first -difficulty of paying a balance, with the coin or bullion found in a -nation, that what remains to be said upon the second difficulty, to wit, -the procuring them from other nations, need not be long. - -Were the mint weights of all countries sufficiently determinate; were -the regulations concerning the standard of bullion exactly complied -with; and were the current market prices of that important commodity, -considered as a valuable piece of intelligence every where, the bullion -trade would be much easier than it is. - -We have said, that when the reciprocal debts of two nations are equal, -there is no occasion for bullion to discharge them. But trading nations -are many; and from this it may happen, that one who, upon the whole, is -creditor to the world, may be debtor to a place which is also creditor -to the world; and in this case bullion is necessary to pay the debt. - -If a man owes money to a person who has many creditors, the person -owing, may buy up a claim against him, and pay what he owes in that way: -but if the person to whom he owes money be indebted to no body, then the -debt must be paid with ready money. Just so of nations. For instance, -when bullion is demanded to be exported to Holland, the English -merchants, who are creditors on Spain and Portugal, take from thence -their returns in bullion, for the sake of paying a balance to Holland, -which is, upon the whole, creditor to the world. - -But as it seldom happens, that he who deals with Holland is the person -who has credit in Spain or Portugal, he is obliged to apply to Portugal -merchants to procure bullion. They again who trade thither, having -profit on the returns of the commodities they bring from thence, will -expect the same profits upon the bills they give to the man who wants to -take his return in bullion. This plainly raises the price of bullion in -the English market; because it is brought home in consequence of a -demand from England. On the other hand, when the demands of England for -Portuguese commodities is less than the value of what Portugal owes her, -the Portugal merchants in London are obliged to take the balance in the -metals. These come to the London market, and are offered to sale to -those who want them: then the price of bullion falls; because the demand -comes from the other side. - -To go through all the operations which merchants employ to abbreviate -the process I have been describing, would, indeed, better explain the -practical part of exchange, than what I have said; but I write, not to -instruct merchants, but to extract from their complicated operations, -the principles upon which they are founded. - - ------------------------------------------------------------------------- - - - CHAP. IV. - _How the Price of Exchange_, in a prosperous trading Nation, _may be -prevented from operating upon the whole Mass of reciprocal Payments, in - place of affecting the Balance only_. - - -We have taken it for granted, that the price of exchange is a hurt to -trade in general. - -In this chapter, we shall inquire more particularly than we have done, -in what that hurt consists. The point of view of every man, whether he -be a merchant or not, is first honestly, and as far as law and fair -dealing permit, to consult his own private interest; and in the second -place, to promote that interest with which his own is most closely -connected. - -According to this rule, every merchant will endeavour to manage his -exchange business to the best advantage to himself. If the balance be -against his country, he will sell his bills on the country creditor as -dear as he can; that is, he will endeavour to raise the price of -exchange as high as he can against his country, whatever hurt may -thereby result to the general trade of it; and in so doing, he only does -what duty to himself requires; because it is by minding his business -only, that he can trade upon equal terms with his neighbours, every one -of which avail themselves of the like fluctuations, when they happen to -be in their favour. - -From this I conclude, that since the loss upon high exchange against a -country, affects principally the cumulative interest of the whole, -relative to other trading nations; it is the business of the statesman, -not of the merchants, to provide a remedy against it. - -The whole class of merchants, no doubt, exchangers excepted, would be -very glad to find the course of exchange constantly at par. This is also -greatly the interest of the state; because it is from the _balance_ in -its favour, not from _the profit made in drawing that balance_ from the -debtor, that the state is a gainer. This must be explained. - -I am to shew how it happens, that a nation is only benefited or hurt by -the net balance which it receives from, or pays to her neighbours: and -that the whole expence of paying or receiving that balance, is not -national, but particular to individuals at home; consequently, it would -be the interest of all states, that balances, both favourable and -unfavourable, were paid by the nation debtor, at the least expence -possible. - -The great difficulty in communicating one’s thoughts upon this subject -with distinctness, proceeds from the ambiguity of the terms necessary to -express them. This may be avoided by adopting the technical terms of -merchants; but these are still more difficult to be comprehended by any -one not conversant in commerce. I shall acquit myself of this difficult -talk the best way I can. - -When we speak of a balance between two nations, we shall call the nation -who owes the balance the _nation-debtor_; the other to whom it is owing, -the _nation-creditor_. - -Balances imply reciprocal debts; consequently, reciprocal debtors and -creditors. To avoid, therefore, confusion in this particular, we shall -use four expressions, viz. the debtors to the nation-creditor; the -debtors to the nation-debtor; the creditors to the nation-creditor; the -creditors to the nation-debtor. - -Let me suppose that Paris owes a balance to London, no matter for what -sum. The reciprocal debts between Paris and London are all affected by -the consequence of this balance: that is to say, some pay or receive -more than the real par; some pay or receive less. To discover where the -profit centers, we are now to inquire who are those who receive more, -who are those who receive less. And as profit and loss are here only -relative, that is to say, the profit of the one is compensated by the -loss of the other; we must see whether or not, upon the whole, the price -of the exchange in this case be favourable to London, to which, by the -supposition, the balance is due, and unfavourable to Paris, which is the -debtor. - -The question thus stated, let us examine the operations of exchange at -London and Paris, and the state of demand in both, for money or bills. - -In the London market, the demand will be for money in London for bills -on Paris; and he who demands, must pay the exchange; consequently, the -London merchants, creditors to the _nation-debtor_, will pay the -exchange; that is to say, they will sell their bills on Paris below par; -and the London merchants, debtors to the nation-debtor, will buy them, -and gain the exchange; that is, they will buy bills upon Paris below -par. - -Now as this negotiation is carried on at London, I must suppose it to -take place amongst Englishmen; one part of whom will gain exactly what -the other loses; consequently England, in this respect, neither gains or -loses by the exchange paid in London. - -Let us next examine the interest of the merchants, and the interest of -the nation’s trade. - -The creditors to the nation-debtor, who have lost by the exchange, are -those who have exported English commodities to France. Upon this -profitable branch of commerce the exchange occasions a loss, the -consequence of which is, to discourage exportation. - -The debtors to the nation-debtor, who have gained by the exchange, are -those who have imported French commodities to England. Upon this hurtful -branch of commerce, the exchange occasions a profit; the consequence of -which is, to encourage importation. - -This is not all. The merchants exporters, who have lost, cannot draw -back their loss upon the return of their trade; because the return of -their trade is the _money_ due by France, the balance included. Whereas -the merchants importers may draw back their loss upon the return of -their trade; because that return is _merchandize_, which they can sell -so much the dearer to their own countrymen. - -If the balance be in favour of London, importers gain, as we have seen; -when it is otherwise, and when they are obliged to pay the exchange, -they indemnify themselves, by the sale of their goods so much the -dearer. High exchange, therefore, _may_ hurt exporters, but never _can_ -hurt importers. - -Let us next examine the operation of exchange at Paris. - -In the Paris market, the demand will be for bills upon London for money -in Paris; and he who demands must pay the exchange. The debtors, -therefore, to the nation-creditor, must pay the exchange, and the -creditors to the nation-creditor will receive it; and as both are -Frenchmen, the profit and loss to Paris exactly balance one another. - -But the debtors to the nation-creditor are here the importers of English -goods; consequently, this trade, hurtful to France, would be hurtful to -the importer, could he not indemnify himself by selling them so much the -dearer to his countrymen. - -The creditors, again, to the nation-creditor, who gain the exchange, are -the exporters of French goods to England; so that here the exportation -meets with an encouragement from a balance against the country. - -From the advantage found upon exchange in favour of exporters, and the -loss upon it to the prejudice of importers, in the case of a wrong -balance, it has been believed, that a wrong balance produced upon -importations and exportations are effects equal and contrary, which -destroy one another, and thereby bring the balance even. - -In answer to this, I have two short arguments to offer. - -The first is, that were the argument conclusive, it would hold good in -reversing the proposition; to wit, that the consequence of a favourable -balance would be to destroy the difference also, and bring the balance -even. This I never heard alleged. - -My second argument is the strongest: that the enhancing of the prices of -importations will not so effectually discourage the sale of them at -home, as the enhancing the prices of exportations will discourage the -sale of them abroad; for the reasons I shall give presently. But in the -mean time, - -If the compensation be considered only in relation to the merchants -importers and exporters, there, indeed, I agree, that _their_ profit and -loss upon the exchange is most exactly balanced; because what the one -party gains the other loses; and the country loses the balance only, as -has been said. - -The reciprocal debts thus transacted by bills of exchange, we see that -no profit can be made, nor loss incurred, either to London, or Paris, by -that operation. - -The profit to Frenchmen is compensated by the loss to Frenchmen; the -same may be said of the English merchants: but the balance due after -those operations are over, and the more remote consequences of high -exchange, affect the relative interest of the two nations. - -This balance is generally sent by the country-debtor, either to the -country-creditor, or to their order in a third country, to which they -are indebted. - -The transportation and insurance of this balance is an expence to those -who owe it, and the profit, if any there be on that operation, naturally -falls to exchangers of the same nation, who conduct it. So whether -exchange be paid upon bills drawn, or expence be incurred in the -transportation of balances, no profit can accrue upon that to the -nation-creditor, to the detriment of the debtor: it must, therefore, do -hurt to both, relatively to nations where, upon the average of trade, -exchange is lower. - -I come now to the method of transporting balances in the metals. - -We have seen how the creditors of the nation-debtor pay exchange upon -the sale of their bills on Paris, which owes the balance. If by the -operations of exchangers, this exchange should rise, to their detriment, -higher than the expence, trouble, and insurance, of bringing the balance -from Paris, then they will appoint some factor at Paris, to whose order -they will draw bills upon their debtors in that city; and as what the -Paris-debtors owe to London is stated in pounds sterling, the -London-creditors will value the pound sterling, according to the rate of -exchange, in their favour; and in their bills upon their Paris-debtor, -they will convert the sum into livres, including the exchange. - -By this operation, we see how the transportation of the balance may -become the business of the creditors to the nation-debtor: which is a -combination we have not as yet attended to: a few words will explain it. - -When the creditors of the nation-debtor sell their bills, they must pay -the exchange, as has been said. When they draw bills to the order of a -friend in the place where the balance is owing, they superadd the -exchange. This their debtors pay: but then they themselves must be at -the trouble and expence of bringing home the money. - -It is from this alternative which both parties have of either sending -what they owe to their creditors in bullion, or of allowing them to draw -for it at the additional expence of paying the exchange, that a check -upon the extravagant profit of exchangers arises: and from this -combination arises all the delicate operations of drawing and remitting. - -Into these we shall not inquire: the principle on which they depend -appears sufficiently plain, and this is the principal object of our -attention. - -I proceed now to consider how far those reciprocal profits and losses, -between merchants in the same country, affect the trade of it in -general. - -When the balance is favourable, we have said that the exporters lose the -exchange, and the importers gain it; and both being citizens, the -country would not be concerned in their relative interests, were it not -that these interests are connected with that of the country, which reaps -great benefit from the trade of those who deal in exportations, and loss -from the other. - -If, therefore, exchange is found to hurt exportation, when the balance -is favourable, in this respect the country has an interest in bringing -it as low as possible. But as it may be said that since the return of an -unfavourable balance hurts in its turn the interests of importation, and -favours the other, exchange thereby operates a national compensation; it -will not be improper, in this place, to throw out one reflection more, -in order to destroy the strength of that argument. - -Were this proposition admitted, as I am afraid it cannot, from what we -have already said, it affords no argument against doing what can be -done, to render exchange as little hurtful as possible to exportation, -during the favourable balance. But as to the question itself, of -national compensation, I cannot allow that even _exporters_ and -_importers_ are thereby brought on a level in point of trade: for this -reason, that the exchange affecting the exporters, in proportion as it -augments, discourages manufacturers, who must have regular, and even -growing profits, according to the increase of demand. These the merchant -exporter cannot afford; because he _cannot_ draw back from his foreign -correspondents, any advance upon manufactures at home, arising from -domestic circumstances. But when the merchant importer is affected by -the exchange against him; this additional expence he _can_ draw back; -because he sells to those who are affected by all domestic -circumstances. - -Let us therefore determine, that it is the interest of a state to -disregard that compensation which is given to exportation by a wrong -balance, which does so much harm; and to avoid the discouragement given -to it by a right balance, which does so much good. The only way to -compass those ends, is to keep exchange as near to par as possible. - -Could reciprocal debts be always exchanged at par, and could the expence -of bringing home, and sending a balance abroad, be defrayed by the -state, I think it would prove a great advantage to the trade of a -nation. I do not pretend to say that, as matters stand, the thing is -practicable; but as it is a question which relates to my subject, and -seems both curious and interesting, I shall here examine it. - -At first sight, this idea will appear chimerical; and some readers may -despise it too much, to be at the trouble to read what may be said for -it. I shall therefore set out by informing them that the scheme has been -tried, in a great kingdom in Europe, under a great minister; I say it -was attempted in France, in the year 1726, under the administration of -Cardinal Fleuri, and produced its effect; although it was soon given up, -from a circumstance which, I think, never can occur in Great Britain. - -After the last general coinage in France, 1726, exchange became so -unfavourable to that kingdom, that there was a general outcry. The -Cardinal, to put a stop to the clamour, and set trade to rights, as he -thought, ordered Samuel Bernard, at that time a man of great credit, to -give bills on Holland at par, to all the merchants. To enable him to -place funds in Amsterdam, for the payment of his bills, the Cardinal -supplied this exchanger with sufficient quantities of the old coin, then -cried down, and paid for the exportation of it to Holland. - -Upon this exchange on Holland came to par; and all exchangers at Paris -looked on the operation with amazement. The minister, however, in a -short time discovered, that by this he was undoing with one hand, what -he wanted to establish with the other. He therefore stopped in his -career, after having paid, perhaps, ten times the balance due to -Holland. - -By unfolding the combination of this operation, I shall be better able -to cast light on the question before us, than in any other way. - -When the general coinage was made in France, by the arret of the month -of January 1726, all the old coin was cried down, and ordered to be -recoined. The mint price of fine gold _per_ marc was fixed at 536 livres -14 sols 6 deniers; and the silver at 37 livres 1 sol 9 deniers. These -were the prices at which the mint paid for bullion, when offered to be -coined. But the King, as if he had a right upon the metal in the old -coin, commanded it to be delivered at the mint at no higher rate than -492 livres for the marc of fine gold, and at 34 livres for the marc of -fine silver: and to compel the possessors of it to bring it in, all -exportation and melting down was made highly penal; the avenues from -France were beset with guards to prevent the going out; and the melting -pots were strictly watched. Upon this, the possessors of the old coin, -rather than sell it to the mint at so great an undervalue, had recourse -to exchangers for bills upon Holland for it: and these being obliged to -send it thither at a great expence and risk, exacted a very high -exchange, which, consequently, affected the whole trade of France. - -Politicians persuaded the Cardinal, that exchange had got up so high, -not from the discredit cast on the old coin, but because of the wrong -balance, and the alteration which had been made at that time upon the -denomination of the new: and that so soon as the balance against France -was paid, exchange would return to par. Upon this the Cardinal set -Bernard to work, but he soon discovered his mistake; and by arret of the -15th of June the same year, raised the mint price of the old coin, and -then exchange became favourable. - -These are all facts mentioned by Dutot, and yet he never will ascribe -the rise of exchange in France to any other cause than to the tampering -with the denominations of their coin: an operation which may rob one set -of people in favour of another; but which has very little effect upon -exchange, when other circumstances do not concur, as in the case before -us. - -Now had the high exchange against France been owing to a wrong balance -upon her trade, is it not evident that the Cardinal’s operation would -have succeeded, that all demands for bills at Samuel Bernard’s office -would have been confined to the exact extent of that balance; that the -reciprocal debts would have been negotiated between the merchants at -par; and, consequently, that all expence upon exchange would have been -saved to individuals, at the small charge to government of transporting -the balance paid for the bills by the merchants at Paris? - -Were prosperous trading states, therefore, conducted by statesmen, -intelligent, capable, and uninfluenced by motives of private interest, -they would make it a rule to be at the expence of sending off, and -bringing home all balances, without the charge of exchange to traders: -but the consequence of either neglect, or incapacity in the man at the -helm, would then become so fatal that it might be dangerous to attempt, -at once, so great a change in the present method of paying balances: but -I never make allowances for the defects of a statesman, while I am -deducing the principles which ought to direct his conduct. - -I shall next slightly point out the bad consequences which, _upon an -unfavourable state of commerce_, might result from such a plan; and -without recommending any thing to practice, leave the reader to judge of -the expediency. - -We see, that by a statesman’s giving bills at par, _on all occasions_, -and being himself at the expence of transportation and insurance, in -bringing home and sending off all balances, exchange would of itself -come to par. - -The first consequence of this would be, the total annihilation of the -exchange business; and if, after that, any interruption should happen by -neglect in the statesman, trade might suffer considerably. - -Another consequence is, that the most destructive trade would go forward -without a check, as long as merchants could pay the par of the bills -they demanded upon foreign parts: and this they would constantly be -enabled to do, while there was either coin or paper in circulation, as -has been explained in treating of banks of circulation upon mortgage. - -The consequence of this would be, to oblige the state to pledge the -revenue of the country to strangers, in proportion to the balance owing, -over and above the extent of the metals to discharge it. - -Now the question is, and this I shall leave to the sagacity of my reader -to determine, whether, as matters stand, there be any check proceeding -from high exchange which can prevent the bad consequences here set -forth. I suspect there is not. We see the most enormous sums lent by -nations to nations; raising the exchange against the lenders; turning it -in favour of the borrowers, but never preventing the loan from going -forward. Does not Great Britain, as well as France, owe amazing sums to -other nations, at the expence of paying the interest out of their -revenue? And have not all those sums been transacted by exchangers, who -have made great fortunes by it? Are not the most unfavourable balances -paid in the ordinary method? Are there not, therefore, already, -instruments in the hands of all nations, sufficient for their undoing? -How could their ruin be accelerated by this alteration in the mode of -performing the same thing? - -But let it be observed, that our business, in this chapter, is to search -for methods to advance the prosperity of flourishing nations, who have a -balance owing to them; and here we have been setting forth the bad -consequences which result from _these_, to others who are in decay. -Every argument, therefore, drawn against this scheme, in favour of the -idle or prodigal, is an argument in favour of it, with respect to the -industrious and frugal. As all nations are liable to alternate -vicissitudes of prosperity and adversity, the principles here laid down -require to be carefully combined with domestic circumstances, before -they be applied to practice. - -It was with a view to this distinction, that, in the title of this -chapter, I pointed out the question there proposed, as relative to the -state of it in a _prosperous trading nation_; and I am not quite clear -how far it might not be advantageous in every case: but this question I -shall not here enlarge upon. What has been said, will, I hope, be -sufficient to point out the principles upon which the decision depends; -and if any statesman inclines to try the consequences of it by an -experiment now and then, nothing is so easy as to do it, without any -detriment. This is proved from the operation performed by the French -cardinal, on the occasion of a very unfavourable and high exchange. - - ------------------------------------------------------------------------- - - - CHAP. V. - _How, when other expedients prove ineffectual for discharging of - Balances, the same may be paid by the Means of Credit, without the -Intervention of Coin or Bullion; and who are those who ought to conduct - that Operation._ - - -We have now applied the principles formerly laid down, towards -discovering the most proper expedients for removing or palliating the -three inconveniences to be struggled with in regulating exchange. 1. How -to estimate the value of a balance due: 2. How to pay it with the coin -or bullion of the country: and lastly, How to prevent the price of -exchange from affecting any thing more than the balance to be paid, -after all reciprocal debts have been compensated. - -It remains to inquire, what are the most proper methods to acquit what a -nation may owe, after it has done all it can to pay the value of their -balance in the other way. - -At first sight, it must appear evident that the only method here is to -give security, and pay interest for what cannot be paid in any other -value. This is constantly done by every nation; but as the ordinary -methods are very perplexed, and are attended with expences which raise -exchange to a great height, and thereby prove a prodigious -discouragement to trade in general: it would be no small advantage, -could all this loss on exchange be equally thrown upon every class -within the state, instead of being thrown entirely upon its commerce. - -As this is the expedient to be proposed, it will not be amiss to -observe, that foreign balances arise chiefly upon four articles. 1. The -great importation and consumption of foreign productions. 2. The payment -of debts and interest due to foreigners. 3. The lending money to other -nations. And 4. the great expence of the state, or of individuals, -abroad. - -Could all the bad consequences arising from these four causes, and the -high exchange occasioned by them, be cast upon that interest alone which -occasions them, I would not propose to lay the whole body of the nation -under contribution for repairing the loss. - -But if from the nature of the thing, as matters stand, the whole be -found to fall upon trade, without a possibility of preventing it, in -this case, I think, it is better for the nation, _in cumulo_, to lend -its assistance, and share the burdens, than to allow it to fall upon -that part of the body politic from which the whole draws its vigour and -prosperity. - -It cannot be denied, that when a heavy balance is due by a nation, it -has the effect of raising exchange upon every draught or remittance. -When bills are demanded to pay a foreign claim, it cannot be determined -from what cause the claim has arisen. Whether for national purposes or -not, the exchange is the same, and equally affects the whole interest of -trade. - -If this be a fair state of the case, I think we may determine, that such -balances are to be paid by the assistance and intervention of a -statesman’s administration. - -The object is not so great as at first sight it may appear. We do not -propose that the value of this balance should be advanced by the state: -by no means. They who owe the balance must, as at present, find a value -for the bills they demand. Neither would I propose such a plan for any -nation who had, upon the average of their trade, a balance against them; -but if, on the whole, the balance be favourable, I would not, for the -sake of saving a little trouble and expence, suffer the alternate -vibrations of exchange to disturb the uniformity of profits which tends -so much to encourage every branch of commerce. - -We have abundantly explained the fatal effects of a wrong balance to -banks which circulate paper; and we have shewn how necessary it is that -they should perform what we here recommend. There is therefore nothing -new in this proposal: it is only carrying the consequences of the same -principle one step farther, by pointing out, as a branch of policy, how -government should be assisting to trade in the payment of balances, -where credit abroad is required; and this assistance should be given out -of the public money. - -The greatest, and indeed, I think, the only objection to this scheme, -is, that by it the condition of our foreign creditors will be bettered, -for no value received from them. This I allow will be the case when the -balance is against England: but it will be compensated to the creditors -by the loss they will sustain when the balance is in her favour. But -supposing there should be a benefit to foreign creditors, will not this -circumstance raise the confidence of all the world in the English funds? -If there was a proposal made for lowering the rate of money, by -refunding the debts which bear a higher interest than what money can be -procured for, were the continent to pour her wealth into our -subscription, might we not then more readily expect a supply from that -quarter? Besides, is not all the interest due to foreign creditors paid -in bank paper? Is not this demandable in coin, and will not this coin be -exported, if credit be not found? Were the bank of England to keep a -subscription open, at all times, in Amsterdam, for money to be borrowed -there, on the payment of the interest in that city, who doubts but loans -might be procured at much less expence than at present, when we beat -about for credit every where, until by the return of a favourable -balance upon the trade of England, she shall be enabled to fill up the -void. - -I feel my own insufficiency to unfold the many combinations which such -an operation must imply. I therefore shall not attempt what, at any -rate, I must leave imperfect. What has been said, combined with what has -been thrown out on the same subject, in treating of other matters, is -sufficient to give a hint, as to the expediency of the plan in general. -And as to the objection which arises from the payments to the public -creditors abroad, I shall reserve the more ample discussion of it till I -come to consider the doctrine of public credit. - - - END OF THE THIRD PART. - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- - - AN - - INQUIRY - - INTO THE - - PRINCIPLES OF POLITICAL OECONOMY. - ------------------------------------------------------------------------- - - BOOK IV. | OF CREDIT AND DEBTS. - - PART IV. - OF PUBLIC CREDIT. - ------------------------------------------------------------------------- - - CHAP. I. - _Of the various Consequences of Public Debts._ - - -The principles which influence the doctrine of public credit are so few, -and so plain, that it is surprising to see how circumstances could -possibly involve them in the obscurity into which we find them plunged -on many occasions. - -For the better clearing the way towards the main object, I shall shew, -from experience, and from the progress of public credit in some nations, -that the true principles have been overlooked, and confounded so with -extraneous objects, as to be entirely lost. - -The true method of decyphering, as it were, the complicated operations -of statesmen with respect to this branch, is to bring back to their -native simplicity such plans of administration, as, from the infinite -perplexity of them, make people believe, that the principles which -influence this district of science lie so involved, as to require a -peculiar force of genius even to comprehend them. - -By proceeding in this plain track, and by keeping the principles -constantly in view, the most perplexed systems of borrowing, funding, -stock-jobbing, coining and re-coining of money, changing the weight, -fineness, and denominations of specie, circulating paper in conjunction -with it, imposing upon mankind with bubbles and bankruptcies, and -calling them operations of public credit, may be rendred intelligible to -the most slender capacity. - -Many of these topics have been already explained, and dismissed. This -will enable us to contract the plan of what remains in proportion to the -objects it is to comprehend. - -Public credit we have defined to be, the confidence reposed in a state, -or body politic, borrowing money, on condition that the capital shall -not be demandable, but that a certain proportional part of the sum shall -be annually paid, either in lieu of interest, or in extinction of part -of the capital; for the security of which payment, a permanent annual -fund is appropriated, with a liberty, however, to the state to set -itself free, by repaying the whole, when nothing to the contrary is -stipulated. - -In this definition I have put in an alternative, of paying a perpetual -interest for the money borrowed, or of paying annually a sum exceeding -the interest; which excess is intended to extinguish the capital in a -certain number of years. In both cases, the annual payment is called an -annuity. When it is exactly equal to the interest agreed on, it is -called perpetual; and determinate, when granted either for life, or for -a certain number of years. - -The solidity of this security is essential to the borrowing upon the -cheapest terms: let me suppose it to be as solid as land-property, and -as permanent as government itself: what will the consequence be? - -If we suppose government to go on in increasing, every year, the sum of -their debts upon perpetual annuities, and appropriating, in proportion, -every branch of revenue for the payment of them; the consequence will -be, in the first place, to transport, in favour of the creditors, the -whole income of the state, of which government will retain the -administration. The farther consequences of this revolution will furnish -matter for a chapter by itself. - -If the borrowings of a state be only in proportion to the extinction of -the old capitals, or of what I have called determinate annuities, then -the debts will not increase. - -When a statesman, therefore, establishes a system of public credit, the -first object which should fix his attention is to calculate how far the -constitution of the state, and its internal circumstances, render it -expedient to throw the revenue of it into the hands of a money’d -interest. I say, this is the most important object of his deliberation; -because the solidity of his credit depends upon it. - -If, all the interests of the state duly considered, that of trade be -found to predominate, less inconvenience will be found in allowing the -money’d interest to swell: but in monarchies, where the landed interest -is the most powerful, it would be dangerous to erect so formidable a -rival to it. In political bodies every separate interest will consult -its own; and in the contest between those who pay, and those who receive -the taxes, under the denomination of creditors, the security of public -credit becomes precarious. - -From this we may conclude, 1_mo_, That in governments where the swelling -of a money’d interest is found to threaten the tranquillity of the -state, care should be taken either to establish a sinking fund, for -paying off, in times of peace, what may have been borrowed in times of -war, or the plan of borrowing upon determinate annuities must be -established. - -2_do_, If natural causes be left to work their own effects, without a -systematical plan of borrowing, the consequence will be a bankruptcy, -and a total failure of public credit, at least for some time. - -3_tio_, If a state should find the mass of their debts to amount to so -great a sum as to be insupportable, they might have recourse to a total, -or partial abolition of them by an act of power. - -4_to_, If they allow their debts to swell without limitation, and adhere -to the faith of their engagements, the whole property of the state will -be in constant circulation, from one class of men to another. - -5_to_, If the debts contracted be the property of foreigners, these will -either remove into the country, where their funds arise, or the -property, that is, the _dominium utile_ of the country, will be -transferred from the natives. - -These and many other combinations will arise from the extension of -public credit; and an examination of the most natural consequences upon -every supposition, will be the best way to acquire a distinct idea of -the subject in general. To pretend to foretell any one certain chain of -consequences, which may, in fact, result from any combination, is, I -apprehend, impossible; because every one of them will depend upon -circumstances totally unknown. These, in our way of examining matters of -this kind, are all to be founded upon supposition. To supply therefore, -in some measure, this defect, I shall first have recourse to examples of -what has happened in the hitherto infant state of public credit; and as -to cases which have not as yet taken place, we must have recourse to -ingenuity, and endeavour to form the most rational combinations we can. - - ------------------------------------------------------------------------- - - - CHAP. II. - _Of the Rise and Progress of Public Credit._ - - -While the policy of Princes directed them to form treasures, there was -no occasion for public credit. This policy prevailed until the rise of -the Roman empire. Then all the treasures of the world were plundered, -and nations were inslaved. On this revolution, the exigencies of that -great empire were supplied from the annual tributes paid by conquered -nations. Under good reigns, this annual supply swelled the public -treasure, until a prodigal Emperor squandered it away; and took to -rapine and extortion, to fill up the void. - -Upon the total dissolution of that great empire, Europe was overrun by -barbarous nations, who, with as little industry as ever, supported their -power by the military services of the whole people. - -After the establishment of the feudal kingdoms under their chiefs who -first laid the foundation of them, arose the Barons, or principal -vassals, who, in imitation of their chief, erected small principalities, -which by degrees grew independent. - -This distribution of power into many hands had the effect of destroying -all systematic plans of government. Princes were obliged to act -according to the perpetual fluctuation of circumstances, until by a -revolution in their favour, the power of the vassals was swallowed up, -and confined within the limits of a more regular authority. - -In proportion as this revolution took place among the nations of Europe, -the system of their government resumed a more permanent form. Justice -was administred with more uniformity; and from this arose a body of -laws, which, in some countries, were called customs: in others, as in -England, common law. Wars then became less frequent; and the military -services not being necessary on all occasions, insensibly became -converted into taxes, proportioned to the exigencies of the time. - -During this period, the coin and precious metals of Europe were lodged, -in a great measure, in private coffers. If wars brought them forth for a -short time, they soon found their way back again. Princes were generally -extravagant, and spent money as fast as they got it. In proportion as -industry and alienation increased, the coin came abroad; the inhabitants -became easy in their circumstances; the state flourished, and acquired -reputation. The riches and power of a state began then to be estimated, -as they ought to be, not by their treasures locked up, but by what was -found in circulation; that is, by their industry. Venice, Genoa, and the -Hans-towns, set the example. The Jews, banished from France, on account -of their extortions in the time of the holy wars, fled, as it is said, -into Lombardy, and there invented the use of bills of exchange, for -drawing their riches from countries to which they durst not resort to -bring them off. Interest for money began to be considered as lawful in -many cases: merchants were protected by Princes, for the sake of the -consequences of trade and industry: and from such small beginnings has -that mighty engine of public credit sprung. - -While Princes mortgaged their lands and principalities, in order to -obtain a sum of money, they acted upon the principles of private credit. -This was the case in the more early times, before government acquired -that liability which is necessary to establish a firm confidence. In -proportion as it drew towards a regular system, the dawn of credit put -on appearances analogous to the solidity of the fund upon which it was -established. - -The second step was to raise money upon a branch of taxes assigned to -the lender, for the reimbursement of his capital and interest. We shall -shew the consequences of this plan of credit from some examples, which -will fully point out all its inconveniencies. - -This plan of administration was attended with so much abuse, and so much -oppression, that statesmen began to despair of carrying on public -affairs by such expedients; and therefore concluded that the only way to -obtain money at the least expence, was to raise it on the subject within -the year, or upon what they called short funds. - -At length public credit assumed its present form. Money was borrowed -upon determinate or perpetual annuities: a fund was provided for that -purpose: and the refunding of the capital was, in many cases, left in -the option of government, but was never to be demandable by the -creditor. - -This is a short view of the progress of public credit. The principles -upon which it is built are so few, that were I to confine myself to a -bare deduction of them, little new or interesting could be said. I shall -therefore steer another course: I shall collect the sentiments of some -eminent politicians, who have either writ upon, or acted in the -administration of this branch of government; and by applying principles -as we go along, I shall be enabled to point out the extraneous -circumstances which are so apt to involve this subject in obscurity. Had -we not before our eyes the numberless examples of this kind, it would -hardly be possible to conceive how so great a confusion, and so many -calamities, could have followed upon the operations of public credit. - - ------------------------------------------------------------------------- - - - CHAP. III. -_Of Anticipations, or borrowing Money upon Assignments to Taxes for the - Discharge of Principal and Interest._ - - -I have already observed, that by the cessation of the constant wars, in -which all Europe was engaged during the feudal government of the barons, -nations began to enjoy some sort of tranquillity. Upon this the military -services became insensibly converted into taxes; and as Princes extended -their jurisdictions over the cities, which had been formerly more under -the protection of the bishops who resided in them, taxes were augmented. -These impositions were very inconsiderable, with respect to what they -brought into the King’s coffers. The policy in raising them was bad; the -frauds in collecting them were great. - -These considerations engaged Princes to begin by contracting debts, and -to pay afterwards by temporary assignments to the taxes imposed. - -From this again ensued the most terrible extortions on the side of the -tax-gatherers, so often complained of by those who have writ on the -affairs of France, as we shall see in the following chapter. - -Philip _le bel_, King of France, was the first who, in 1301, admitted, -with great policy, the inhabitants of cities to have a seat in the -states of the kingdom. He formed them into a distinct body, and called -them _tiers etat_, or the third estate, after the clergy and the -nobility. His view was to facilitate thereby the jurisdiction he wanted -to establish over those cities, and to engage them to consent to the -imposition of taxes for carrying on his wars in Flanders, and for -opposing the ambitious views of Boniface VIII. Accordingly, the people -began to pay willingly, when once they found that they had a vote in -what concerned them. - -I take it for granted, that every tax, about that time, was imposed for -a particular purpose, and assigned either to creditors, or to people who -advanced money upon it: because we are told that the first imposition -granted by the states to a King of France as a permanent branch of -revenue, was an excise upon spirituous liquors granted to Philip de -Valois, in the year 1345; at which time, however, according to Mr. -d’Eon’s _Memoires pour servir à l’Histoire generale des Finances_, there -were not less than twenty two different taxes known in France, which he -enumerates as follows: - -_Tailles_, _complaintes_, _charges_, _redevances_, _coutumes_, _peages_, -_travers_, _passages_, _centiemes_, _cinquantiemes_, _ôtes_, -_chevaucheês_, _subventions_, _exactions_, _chevaleries_, _aides_, -_mariages_, _toultes_, _impositions_, _prisons_, _servitudes_, and -_nouvellettes_. - -That all these impositions must have been mere trifles, I gather from a -circumstance in the Political History of France, mentioned by the author -just cited, which being itself exceedingly curious and tending greatly -to confirm many things which I have advanced concerning the small -circulation in former times, I shall here briefly mention it. - -In 1356, John, King of France, applied to the States for 50,000 livres, -about 9165_l._ sterling, to pay his army. The States, besides several -other taxes imposed to pay this sum, granted him 8 deniers on the livre, -or 3⅓ _per cent._ upon all meat, drink, and merchandize, sold in France -within the year; that is to say, upon the whole alienations of France. -The tax was levied, but fell so far short of the sum required, that it -was made up by a poll-tax. - -Can any example be better calculated for forming a notion of the -circulation of France at that time? - -It may be here alleged that the prices of every thing were then so very -low, that no judgment can be formed concerning the _quantity_ of -alienation from the smallness of the sum. This objection is of no force, -as I shall presently shew. - -We know from the records of the selling price of grain in France, which -was then remarkably cheap in proportion to the years which followed and -which had preceeded, that in 1356, the septier of wheat, or 4 Winchester -bushels, sold for 17 sols 8 deniers of the then currency, which was 12 -livres to the marc fine silver, and a French soldier’s allowance for -bread, to this day, is 3 septiers, or 12 Winchester bushels a year. Now -let me suppose, that the whole 50,000 livres had been raised by this -imposition of 3⅓ _per cent._ or 1⁄30 of the total value of the single -article of corn sold at market, which was far from being the case, and -then compare that with the number of men who could have been subsisted -with all the corn sold in France at that time. - -If 1⁄30 of the price was the tax, then by multiplying 50,000 livres by -30, we have the value of the corn sold; to wit, 1 500 000 livres: divide -this sum by the value of what a man consumes in a year, to wit, 3 -septiers at 17 sols 8 deniers, which make 2 livres 13 sols, and the -quotient will be the number of portions for a man, to wit, 566 037. So -the whole alienation of France, at that time, fell far below the value -of as much wheat as would have fed 566 037 men. - -What a poor idea does this communicate of the state of Europe only 400 -years ago! It would be in vain to seek for examples to illustrate any -principle of our complicated modern oeconomy in the histories of those -times: their taxes, their credit, and their debts, resembled ours in -nothing but the name. - -I now come nearer home, and give an account of the ideas of public -credit formed by Davenant, who flourished about the time of the -revolution in 1688, which I may take to be the æra of public credit in -England. - -No person at that time, whose writings I have seen, appears to have so -thoroughly understood those matters as Davenant. He was a man of theory, -as well as knowledge of facts: he had an opportunity which few people -have, to be well instructed in the one and the other; and he turned his -talents to the best advantage for promoting the interest of his country. -He has writ many tracts on political subjects, which, when carefully -read and compared with what experience has since taught us, cast great -light upon many questions relative to the subject of this inquiry. - -Davenant, like other great men of his time, was of opinion that -borrowing money upon what he calls short funds, was much preferable to -that upon perpetual interest; and he thought the most adviseable plan of -all, could it be accomplished, was to raise the money wanted within the -year. - -Men, at that time, had a terror upon them in contracting debts for the -public: they considered the nation as they would a private man, whose -interest is one, uncompounded, and relative to himself alone: in this -light, creditors appeared as formidable as enemies; they were looked -upon by ministers as such; and this general opinion on one side, -contributed, no doubt, to make the monied people less interested in the -distress of government, and more ready to lay hold of every opportunity -of improving such occasions, for their own advantage. - -Government was in constant war with creditors: when ready money failed -in England, it had nothing to pay with but exchequer tallies, upon the -taxes imposed; these were much more easily issued than acquitted. When -the first year’s amount of a tax was engaged, people considered the -security of what was to follow as very precarious; consequently, the -value of it diminished. - -This method, however, succeeded far better in paying off debts already -contracted, than in contracting new ones; and the hardships put upon -those who had advanced money to government, and who were paid by -assignments upon taxes previously engaged, made people afterwards very -diffident, except upon proper security. The limited form of the English -government, prevented the violent proceedings between ministers and -public creditors, which were common in France; and this circumstance -contributed, no doubt, to establish the credit of the former upon the -better footing. But still the long expectation of payment of the capital -and interest, upon a distant fund, made Davenant acknowledge that -700,000_l._ in ready money, would at any time go farther than a million -in tallies; and yet he thought it was better for the state to borrow the -million upon a plan of discharging the debt in three or four years, than -to obtain the 700,000_l._ at the expence of a perpetual interest of 8 -_per cent._ - -There were many more considerations which moved Davenant to prefer what -he calls short funds to perpetual interest. - -It was the general opinion in his time (not his own indeed, for he -endeavoured to shew the fallacy of it) that money borrowed upon the -anticipation of a fund, _raised and appropriated for the discharge of -it_, was not a debt upon the state; because it did not diminish the -former revenue. We have a remarkable instance of the prevalence of this -opinion, in the famous memorial presented by M. Desmaretz to Philip Duke -of Orleans, after the death of the late King of France; wherein he -advances, that during seven campaigns, from 1708 to the peace of Rastad, -while he had been at the head of the King’s finances, he had not -increased the public debts by more than nine millions of livres capital: -and yet when he came into the administration, in 1708, the King’s debts -did not amount to 700 millions; and we have seen, that at the time of -his death, they were upwards of 2000 millions. But Desmaretz did not -reckon the difference of about 1300 millions; because he had settled -them upon funds of his own creation. This was so much the language of -the times, that no criticism was made upon it. - -It is remarkable, that Davenant, in giving an account of the debts of -England, during the period of which he writes, that is, from the -revolution down to the peace of Ryswick, hardly ever takes notice of the -sums paid for interest upon them. The minds of men at that time were -totally taken up with the payment of capitals; and providing these could -be discharged in a few years, it was no matter, they thought, what they -cost in the mean time. - -As long as nations at war observe the same policy in their methods of -raising money, the ways in which they proceed are of the less -importance: but when any one state makes an alteration, by which more -money is thrown into their hands than they could formerly obtain; this -circumstance obliges every other state to adopt the same method. Thus -while Princes made war with the amount of their treasures and annual -income, the balance of their power depended on the balance of such -resources: when they anticipated their income on both sides, for a few -years, the balance was in proportion still: when, afterwards, they -adopted long funds and perpetual interest, the supplies increased; but -still the balance was determined as formerly. - -The usefulness, therefore, of an inquiry into the principles of public -credit, has not so much for its object to discover the interest of -states in adopting one mode of credit preferably to another, as to -discover the consequences of every one; and to point out the methods of -making them severally turn out to the best account for the state, -considered as a body politic by itself, and for the individuals which -compose it. - -When so many different relations are taken in, the subject becomes much -more complex, and therefore the consequences _which can only be guessed -at_ must be less determinate: but on the other hand, it opens the mind, -and suggests many hints which with time may be improved for the good of -society. - -People who barely relate political facts, only afford an exercise to the -memory: those who deduce principles, and trace a chain of reasoning from -them, give exercise to the understanding; and as a small spark may raise -a mighty flame, so a hint thrown out by a slender genius may set all the -great men of a nation on a plan of general reformation and improvement. - -Let us now take a view of the state of public credit in England, at the -peace of Ryswick; in order to shew how Davenant came to be so great an -enemy to long funds, and more especially to perpetual interest. We shall -at the same time point out from what causes the great change of -sentiments at present proceeds. - -At the peace of Ryswick, the debts of England, according to Davenant, in -his fifth discourse upon the public revenues and trade of England, stood -at 17 552 544_l._ sterling; call it 17 millions and a half, as we have -no occasion to calculate with exactness. - -Of this debt the capital of 3½ millions was sunk, as he calls it; -because 1 300 000_l._ was on lives at 14 _per cent._ and what was over -to make up the 3½ millions, was intended to remain a perpetual burthen -on the nation. - -For paying the interest of this sum, no less than 400 000_l._ a year was -necessary, which makes on the whole above 11 _per cent._ - -But then it must be observed, that more than one third of the sum was -upon lives at 14 _per cent._: the debt due to the bank, of which we have -spoken in another place, was 1 200 000_l._ for which was paid 100 -000_l._ a year, including 4000_l._ allowed for the charge of management: -the remaining million was upon lottery tickets, bearing about 8 _per -cent._ the price at which the bank had lent. - -The second branch of debts was near 11 millions, which, he says, were in -course of payment; because they were secured upon branches of revenue -engaged for discharging them. A part of this class of debts was to be -extinguished in the year 1700: and whenever that was done, then a -proportion of the appropriated taxes, amounting yearly to above a -million sterling, was immediately to be taken off. - -The third class of debts were those not provided for at all; which in -the place referred to, he makes to amount to no more than 3 200 000_l._ -but he afterwards finds his mistake, and that they in fact amounted to -above 5 millions and a half, which makes the debts of England at the -peace of Ryswick, to have been near 20 millions. - -Was it then any wonder, that a man who wished well to his country, -should prefer borrowing upon short funds at any expence whatever in the -mean time, rather than at perpetual interest, when he found that -parliaments could not be prevailed upon to allow any tax to subsist one -instant after the discharge of the debts for the payment of which it had -been appropriated? - -Besides, there was very little to be gained by borrowing upon long funds -and perpetual interest, as long as the lenders considered their -advantage to consist principally in getting their capitals refunded. - -The plain matter of fact was, that trade at that time was only beginning -to take root in England, and demanded funds to carry it on. The use of -banks had not then been discovered, for turning property into money. -Circulation, consequently, was confined to the coin; and profits on -trade were very great. All these circumstances rendred capitals of -essential use; and the consequence was, to raise interest to an -excessive height. - -Compare this situation with the present. Were the capital of 140 -millions sterling thrown by Great Britain, in a few years, into the -hands of the present creditors; were France, on the other hand, to throw -in as much, what trade could absorb it? Capitals now are only of value -in proportion to the interest they bring; and so long as the interest -paid on public debts is sufficient to keep circulation full, and no -more, interest will stand as it is: when that ceases to be the case, as -in time of war, we see interest begins to rise; and when, on the other -hand, the interest paid, proves more than sufficient for the uses of -circulation, as upon a return of peace, then, from the same principles, -interest must diminish. - -Davenant, like an able politician, who had the state of facts before -him, reasoned according to actual circumstances. Whatever was borrowed -on long funds, was charged on the standing revenue of the state, which -parliament was very unwilling to increase in proportion to the charges -laid upon it. This, of itself, was argument sufficient with him to cast -his view upon short appropriations, or upon his favourite object, of -raising money within the year, to supply the exigencies of the state. - -But in this operation he found great difficulties. In his treatise of -ways and means, article _excises_, where he is searching for expedients -to provide money for the war, he plainly shews a thorough knowledge of -that imposition. It had taken place in England as far back as the great -civil war, and formed at the revolution about ⅓ of all the revenue: but -what is very extraordinary, and which at present will hardly be -credited, the excise had at that time the effect of sinking the price of -the subject excised, instead of raising the price of what was produced -from it. Thus the excise upon malt, after the revolution, had the effect -of lowering the price of barley, instead of raising the price of beer. - -This effect of excises Davenant saw; from which he, and since him many -more have concluded, that all excises fall ultimately upon the land. - -This circumstance, together with a feeling for the interest of the great -number of _idle_ poor at that time, who must constantly suffer by -excises, engaged Davenant to propose having recourse to the -land-property and poll-taxes, for raising, within the year, the sums -required for carrying on the war. - -According to his proposal, there was to be no less than 3 millions -raised by a land tax, besides half a million by a quarterly poll, which -was, at that time, above 100,000_l._ more than all the permanent taxes -of England put together. - -A proposal of this kind coming from Davenant, shews the difference of -situation between those times and the present. On this subject more is -to be learned by comparing facts, than by all the reasoning in the -world. - -We have seen how credit stood in England during the reign of William -III. It was then in its infancy, and was set upon the principles of a -free and limited authority, exercised by ministers of state at all times -responsible to parliament at the risk of their heads, in case of any -open violation of the public faith. This is the best of all securities -against the bad exercise of power. - -Whoever reads the admirable writings of Davenant, and compares his ideas -with what experience has since taught us, concerning the nature of taxes -and public credit, will plainly discover that the great distress of -England at that time, proceeded from the following causes. - -The enterprize they were engaged in, was far beyond their power to -support, although they had the greatest part of Europe to assist them. - -The bravery of the British nation was ill supported with money, the -sinews of war. - -The coin soon after the revolution fell into the greatest disorder, -which sent it away; and no expedient was found to supply its place for -the uses of domestic circulation; and, consequently, the fixed revenue -could not be paid, nor industry carried on. - -The people were unaccustomed to taxes: tunnage and poundage, the branch -with which they were best acquainted, and which they bore with the least -murmuring, because it was little felt by individuals, together with the -excise upon beer and ale, the hearth money, the post-house, and -wine-licences, composed the whole of the permanent revenue of the state, -and amounted to about one million and a half sterling: besides which, -the parliament had granted new customs (all to cease before 1690) to the -amount of about half a million more, upon wines, tobacco, sugar, and -French linnen. This was the state of the revenue at the revolution. - -One would imagine that England, under so small a burthen, might have -been able to make the greatest efforts. - -Were we now to grapple with France, under such circumstances, what -sanguine hopes would we not form of success! The case turned out widely -different: the first benefit the nation expected in consequence of their -liberty restored, was an abolition of the hearth money; a tax which -raised over the whole kingdom, 245,000_l._ and was considered as an -insupportable burthen. - -Such sentiments and dispositions in the English nation, might have been -a sufficient indication of what was to be expected from the war; the -consequences of which had, before 1695, produced the following changes -in the revenue. - -The tunnage and poundage, which at the revolution produced 600,000_l._ -was by this time reduced to 286,687_l._ - -The excise upon beer and ale, from 666,383_l._ was reduced to -391,275_l._ - -The hearth money was abolished. - -The post-house, from 65,000_l._ was reduced to 63,517_l._ - -The wine-licences, from 10,000_l._ to 5000_l._ - -The temporary customs which subsisted at the revolution, were now -expired, and had been either continued by new grants, or by others of -the same nature introduced in their stead. The former had produced -415,472_l._ the new produced 373,839_l._ - -The last and most important grant of all, was an additional excise upon -beer and ale, which produced 450,000_l._ - -The revenue at the revolution produced, clear of all charges, 2 001 -855_l._ sterling. A revenue established at pretty much the same rate, -and nearly on the same objects, with an addition of a new excise, which -produced 450,000_l._ produced net in 1694, no more than 1 570 318_l._ so -that, deducting the new excise, the old revenue was diminished in its -produce, no less than 1 081 527_l._ or above one half, in five years -time. - -In a country like England, at that time, taxes were of little use to the -state, and were an excessive burthen on the people. - -What could they be paid out of? Not out of the value in the hands of the -people; because there was no way provided for turning that value into -money. The whole of the money coined before the end of the war in 1697, -did not amount to 8½ millions. It was not to be expected that during the -war, foreign coin was to come in, except in consequence of borrowing; -and we may be very certain, that all that was borrowed, and a great part -of what had been coined at home, had gone out from the year 1695 to -1697. Under these circumstances, the exchequer issued tallies of wood, a -notable expedient for facilitating circulation! And the bank of England -lent not one farthing upon mortgage: all that was possible to be raised -on the land and on the people, by pound-rate, assessment, and poll-tax, -was imposed. - -Now let us recall our principles concerning circulation, alienation, and -banking upon mortgage, and combine these with what we have so frequently -repeated, and I think demonstrated, viz. that in proportion to the -extent of alienation, and the demands for money, a circulating -equivalent should be provided, so as to be ready at the hand of every -person who has property to pledge for it; and then decide whether it was -any wonder that credit in England should have been at so low an ebb at -the peace of Ryswick; that taxes should have diminished in their -produce; that interest should have risen to such an extravagant height; -that the people should have groaned under a load from which they could -not relieve themselves. - -Under such circumstances, England appears to me in the light of a dumb -man put to the torture in order to extort a confession. - -Were eight or nine millions sterling in coin, and a few wooden sticks, -the tallies, constantly sold at a great discount, a circulating value -sufficient to supply the exigencies of a state which was spending -annually at the rate of five or six millions? - -The consequence of this total drain of money, was, that people could -neither consume exciseable commodities, or pay the taxes laid upon their -persons and solid property. - -The excises failed, because the body of the people, who paid them, were -interrupted in their industry, for want of money to carry on alienation. -Those who were liable to the arbitrary impositions, such as the -landlords, could not pay; because what they had, their land, could not -be given in payment. - -From what I have here laid together, we may determine, that as -alienations among individuals cannot exceed the proportion of the -circulating equivalent of a country, so a statesman when he intends -_suddenly_ to augment the taxes of his people, without interrupting -their industry, which then becomes still more necessary than ever, -should augment the circulating equivalent in proportion to the -additional demand for it. - -This, according to my notions, cannot be so well compassed as, 1. by -establishing banks of circulation upon mortgage: 2. by relieving those -companies of the load of paying foreign balances by giving bills at par, -or at a small exchange: and 3. by providing funds abroad for the payment -of them, according to the principles above deduced. - -Such expedients will work their effect, in a nation where the public -faith stands upon the solid security of an honest parliament, and upon -that responsibility which is fixed upon those who are trusted with the -exertions of the royal authority. - -I think I may illustrate this operation by a simile. - -A gentleman chooses to form a cascade of the water which serves to turn -his corn-mill; consequently, the mill stops: but in its stead, he -immediately erects another which turns with the wind. Coin is the water, -bank paper is the wind, and both are equally well calculated for the use -they are put to. - - ------------------------------------------------------------------------- - - - CHAP. IV. -_Of the State of public Credit in France before the reign of Louis XIV. - and of the Sentiment of the great Richlieu upon that Subject._ - - -Having laid before my reader the sentiments of Davenant on the subject -of public credit, which were analogous to the then state of England, it -may be instructive to compare them with those of another very great man, -in a rival nation; I mean the Cardinal de Richlieu. - -The constitution of Great Britain at present, is pretty much what it was -in Davenant’s time: and that of France does not differ widely from what -it was at the death of Louis XIII. - -Britain and France are two nations, rivals in every thing worthy of -emulation, and similar in those distresses which are the inseparable -concomitants of modern ambition, debts and taxes. - -As long as the constitution of the two governments shall stand as at -present, Britain will constantly have the advantage in borrowing: France -will have it in paying off her debts. It is this contrast which engages -me to enter into the following detail. I consider it not only as a piece -of historical curiosity, but as a subject of profound reflection, from -which much instruction may be gathered. - -The fate of kingly power was decided, both in Britain and in France, -much about the same time. In France, it was supported by Cardinal de -Richlieu; in Britain, it was broken to pieces under Charles I. - -Before that time there was no fixed form of government established in -either country; nor can ever a regular constitution take place any -where, until the mechanism of a state becomes so complex as to render -changes extremely difficult. This is becoming the case more and more -every day; and upon this and nothing else will depend the stability of -our present forms. - -Let us now take a view of the sentiments of a great minister, delivered -in writing by himself, in his political testament; the authority of -which would never have been called in question, had the matter it -contains been properly attended to, and well understood. - -It is in the 7th paragraph of the 9th chapter of the testament, where -the Cardinal shews his ability in paying off the debts of France: and in -going through the subject, he casually has thrown out several things, -which enable us to form a judgment of the state of taxes, and of the -effects they were found to produce in his time. - -“It is pedantry,” says he, “to maintain that a prince has no right to -draw money from his subjects, and that he ought to content himself with -the possession of their hearts. None, however, but flatterers, the pest -of society, can maintain, that he may draw from them, justly, whatever -he thinks fit; and that his right extends, in this particular, as far as -his will.” - -The taxes of France at this time had been augmented far beyond heir due -proportion; and this had produced many strange and contradictory -phænomena; which, as we shall now see, misled the Cardinal in many -respects; because his experience was not sufficient to discover the -causes of them. - -“The augmentation of impositions on the people,” says he, “does the King -_so much_ hurt by raising prices, as to compensate all he can gain.” If -we suppose that the King gained by the augmentation; that is to say, -that the tax, when increased, really produced more than before, and -raised prices proportionally; then the King could only lose his -proportional part, but never the whole. If the tax, by being augmented, -produced less than before, which was the case often, then he lost by a -diminution upon his income, not by the rise of prices. But this was not -the case; because deficiencies of that kind could not fall upon the -King, but upon his farmers. - -The true reason was, that the King paid most of his expences by -assignments upon the taxes; and then, no doubt, the higher they were -raised, and the more difficult to recover, the dearer every undertaking -would cost the King. - -This reasoning upon the effect of taxes shews, that at that time the -doctrine of them was not well understood. No wonder: theory is not -sufficient to lay open political consequences, even to the greatest -genius. All our information as to these matters arises from experience, -and all our instruction from our attention and reflection. - -As a proof of this, he mentions, almost in the same place, an effect of -the increase of taxes, which is quite contrary to the former. - -“Consumption,” says he, “diminishes, as taxes augment.” - -This is a contingent, but not a necessary consequence, as we have seen, -and has the effect of lowering prices. - -I mention these particulars, only to shew how little this great man had -studied the principles of taxation, or combined the causes of those -phænomena which he saw arising from them. - -Such contrary effects could not fail to be felt, when taxes were raised -in the manner usual at that time, and when no method was contrived for -augmenting the currency. - -In Richlieu’s time the custom was to treat with the _partisans_, as they -were called, or undertakers for the farm of taxes; and for a sum of -money, valued at a certain interest, to give them a right to levy -certain impositions on the people, esteemed equivalent to the rate -agreed upon; some in one province, some in another, as the parties could -agree. Then the partisans fell to work with the people, and committed -the most horrid extortions. In the 4th §. of his 4th chapter, he says, -“The abuse is carried such a length, as to be quite insupportable, and -must end in the ruin of the state; the people are plundered, not taxed; -fortunes are made by rapine, not industry: using the partisans like -spunges is very just; but liable, on the other hand, to great abuse, -when not conducted with moderation and justice.” This is a very -different system of taxation from that carried on in England in -Davenant’s time, and must have produced effects very dissimilar. - -But it may be asked, if these partisans in France had found out means of -raising money, far beyond the King’s intention; what prevented the -Cardinal from examining into such means, and using them in a gentle and -equitable manner, to the extent only of satisfying the creditors for the -money borrowed from them? - -In those days several difficulties occurred, which rendered this -expedient impracticable. - -1_mo_, The partisans would lend in no other way; they would have nothing -to do with the King as a debtor: his credit was not well established; -and by having the direct administration of a tax, they considered -themselves as more secure. - -2_do_, Had the King levied the money on the people, and been paymaster -to the creditors himself, there would have been no gains to the -partisans but what were stipulated: had they exacted more than legal -interest, they exposed themselves to great danger; and consequently -would not lend. So, by delivering up the people to be plundered, the -King made a better bargain, he thought, than any other way; and if the -partisans plundered the people, the Cardinal plundered them in his turn. - -3_tio_, At this time there were not, as now, merchants of extensive -credit, and fair character, who serve as interposed persons for the -whole money’d interest in Europe, and who can fill a subscription for -millions with a single name. - -The partisans themselves, as the Cardinal observes, had often neither -money or credit at setting out: but by parcelling their undertaking into -many hands, they got together what was necessary. Thus the subaltern -associates were in a moment, like locusts, spread over the whole face of -the country, and plundering went on in every quarter. - -This represents a quite different system of credit from what we see -established, even in France, at present; where the tax-gatherers are -still loudly complained of, though much more than they deserve. The mode -of raising the taxes is now most exactly specified by the King; and -nothing more can be exacted than according to the plan laid down; but in -every case severe penalties are imposed upon frauds, and when levied, -are accounted for to the farmers; but when compounded for under-hand, -sink into private men’s pockets. - -In a country where taxes are rightly established, industrious people -have no occasion to indemnify themselves by fraud for the taxes they -pay; they have a more certain method of being refunded. This shall be -explained in its proper place. - -By this method of oppression in the Cardinal’s time, a great part of the -odium was removed from the King, and cast upon the partisans. The people -resembled a dog who bites the stick with which he has been struck, -instead of biting him who holds it[21]. - -Footnote 21: - - Thus were taxes established in France, in spight of the great aversion - of that nation to them. The exigencies of the state were apparent; - Princes were considered as under an absolute necessity to find money - at any rate; they appeared to be in the hands of unrelenting usurers, - who became the execration of the people, to whose fury they were - sometimes delivered over, when stripped of their wealth: the people - were now and then relieved of a part of their burthen; the tax - remained under milder management; formed an addition to the King’s - revenue, and served as a fund for future emergencies. - - But the nature of man is such, that the more he grows in wealth, the - more the desire of spending it increases. Thus the fund provided for - unforeseen emergencies, is insensibly incorporated with that which is - appropriated for the current service of the state. - - Nothing however is more certain than that in time of war, far greater - sums are required than any people can pay, without contracting debts. - - Is it not then indispensibly necessary, either, 1_mo_, To have a sum - locked up in treasure? Or, 2_do_, A fund appropriated, to borrow upon - in time of war, which may serve to pay off the debts in time of peace? - Or, 3_tio_, To borrow upon the stipulation of an annual payment, which - may, in a certain number of years, acquit both interest and principal? - The first is the plan of the King of Prussia; the second that of - England; the third is, in a good measure, that of France: Holland - borrows no more, and pays as she can what she owes; Spain lives on her - income; and Austria remained in the old way till very lately, without - credit, and consequently without much debt. - -I have now said enough to point out the method of borrowing money in -France at this time, from which the nature of the security may easily be -gathered. - -The Cardinal, upon the supposition of an approaching peace, enters into -the plan of paying off what had been contracted. He was resolved to -preserve credit; for even at that time, the consequence of that great -engine was sufficiently felt by this great man, to relieve the people, -and to get rid of the debts. - -After a long detail of all the branches of the revenue, and after -shewing how they might be improved, he draws out a general state of -them, and of the debts affecting them; and then adds, “The total revenue -of the kingdom amounts to near 80 millions;” (the silver was then at 27 -livres 10 sols the marc fine, which, valued at 2_l._ 4_s._ sterling, -makes the 80 millions worth above 6 millions sterling) “of which there -is above 45 millions engaged for the debts. By good management I pretend -that this immense load of debts, which seems to be the ruin of the King, -shall turn out to his ease and opulence. Some imagine it would be a -right measure to free the state entirely of her burthen, (a general -spunge) but as she cannot, certainly, support all the burthen, so -neither does reason dictate that she should be entirely set free.” No -modern statesman could form a better judgment of things. The Cardinal’s -ideas are just and profound; and it is astonishing how a man -uninstructed by our experience should see so far into remote -consequences. - -He next lays down different schemes for paying the debts, upon the -return of peace and tranquillity. They are all arbitrary, more or less, -according to the standard of English ideas of credit. But if we abstract -from one expedient lately discovered, to wit, the diminishing the -interest, and allowing the capitals to remain, I doubt if any modern -statesman could discover any other than those which the Cardinal has -proposed. - -A preliminary step to all his schemes was, _by an act of power_, to -reduce the debts which bore a higher interest, to that of the 16 penny, -or to a little more than 6 _per cent._ This method of reduction has -constantly been and is still practised in France. - -Then he proposes to enter into an account with the creditors for the -sums they had received; and to consider whatever they had obtained above -the legal interest, as payments in part of the capital. - -This scheme however he rejects, upon examination. He says it is -agreeable to equity; but that it would have the effect of totally -destroying all credit for the future. - -The second expedient was, to reimburse the creditors the sums which they -really paid for the annuities assigned to them: but that he found -impossible to verify; because they had had the address to specify, in -their contracts, sums far exceeding what they really paid. For this -reason he rejects the second expedient also; and adopts a third, as the -best plan of any for paying off the debts. This was, to value the -capitals at what they then sold for in the market, before the peace was -concluded. - -This method appeared to the Cardinal the most equitable, at least he -says so, and the only one practicable; but in my opinion it was the most -arbitrary of the three; the most liable to abuse, and the most opposite -to the principles of public credit, as at present established: and yet -it is a thought, which, when conducted with justice, may upon some -occasions answer excellent purposes, as I shall observe in a proper -place. - -Had he adopted the first expedient, of ascertaining the value of the -real advance, there was an appearance of justice; because the creditors -were thereby represented as usurers; and by repaying them what they had -advanced, by the enjoyment of an income above the legal interest, he -treated them with more indulgence than the laws allow between private -persons: but when money was borrowed in time of war, a higher interest -should have been allowed for it than in time of peace, when it was to be -paid off; and therefore to take the standard of peace, in reckoning with -the creditors who had lent in time of war, was an evident injustice. - -Could he, according to the second scheme, have discovered exactly the -sums which had been paid for the annuities given, and offered -reimbursements upon that footing, less could have been said against it; -because the mentioning more in the contract than what had been paid, was -a palpable fraud against the King. - -The third method, which the Cardinal approves of, contains this piece of -great injustice, that the antient creditors of the state who had paid 12 -years purchase for their contracts, that is, those who had lent at about -8 _per cent._ might by this scheme be paid off with one half of what -they originally paid. If it be answered, that nothing is worth more than -what it can bring; I answer, that it may be worth more than what it can -bring _at a particular time_. During a war, an annuity which had been -bought at 12 years purchase in time of peace, will fall to five, -providing annuities can then be bought at that rate. The new loans -constantly regulate the value of the old capitals; but upon a return of -peace, they will rise to the original value. - -Another injustice here was, that a minister, by borrowing a sum at a -very high interest, at a time he wanted to set a value on the capitals, -might sink this value. And, in the third place, the greatest injustice -of all consisted in this, that the Cardinal had no thoughts of any -reimbursement, as we shall see by what follows. - -There was, at this time, one class of annuities constituted at 8 _per -cent._ These he proposed to reduce to 6 _per cent._ as above, by his -preliminary operation. Such annuities sold at that time for five years -purchase. These, says the Cardinal, _we must fix at that value_; and by -allowing the proprietors to enjoy them for 7½ years, the capital and -interest will be paid off. - -Other annuities constituted upon the _taille_ sold for six years -purchase, which, by the same rule, were to be paid off in 8½ years. - -The annuities and other debts charged at this time upon the _taille_ -alone, amounted to 26 millions a year; and by this scheme, the whole was -to be paid off in 8½ years. - -Besides these, there were engagements upon other branches of the -revenue, which sold at different prices. All were to be set upon a -proportional footing. The annuities which sold the dearest, were at 7½ -years purchase, which were to be paid in 11½ years. - -Thus, by the Cardinal’s scheme, the debts of France, which at this time -bore an interest of about 45 millions, were entirely to be paid off, in -about 12 years, without any new imposition; and when that was concluded, -the lands were to be discharged of 26 millions of yearly _taille_, near -two millions sterling, and the King was to have a clear revenue of 53 -millions, or about 4 millions of our money, which with the 26 millions -taken off the _taille_, make 79 millions; the total amount of the French -revenue at that time. - -I shall now point out the characteristic differences between the -principles upon which the credit of England and France were established, -at the two periods of which we have been speaking. - -Had two such writers as Davenant and Richlieu been to be met with in the -same age, and at a time when England and France were engaged in -contracting debts, the contrast would have been stronger; but as it is, -it suits our purpose. The debts contracted in France from 1708, when -credit fell, to the end of the war in 1714, were in consequence of -rapine and extortion, as in Richlieu’s time: and the operations upon -them, after the peace of Utrecht, resemble those of Richlieu in some -very material circumstances. Such as, 1_mo_, That all the debts were -then, by an act of power, put at 4 _per cent._ without any regard to the -original stipulations. 2_do_, That what the Cardinal despaired of -accomplishing, the Regent undertook, and executed, at a great expence to -the King, and with great injustice to many individuals. - -He established a commission, called the _visa_, to inquire into the -unfunded debts, which amounted to 600 millions. His intention was, to -discover the effective sums which had been paid for the grounds of debt. -The most favourable classes of these debts consisted in arrears of pay -to the army, indemnities for pillage, and the like, constituted by notes -issued from the office called the _extraordinaires des guerres_, which -were diminished ⅕; the second class was diminished ⅖; the third class ⅗; -and the last of all, sums due to brokers, usurers, &c. were diminished -⅘. - -But alas! there was not the least shadow of justice in this operation; -because long before the _visa_ was established, most of the grounds of -those debts had circulated from hand to hand, under the greatest -discredit: so that the real sufferers were then beyond the reach of the -indemnity offered; and the usurers and brokers who had bought them up, -were those who made fortunes by them. The Cardinal’s plan of paying at -the selling price, would have proved, _in this particular case_, more -rational, and more according to equity, than any other: so greatly do -circumstances influence our decisions in all political matters! - -By the _visa_, the 600 millions were reduced to 250 millions, and put at -4 _per cent._ like all the other debts. No plan was proposed at first -for paying off the capitals; but a sum was appropriated, though very ill -paid, for discharging the interest. We have discussed sufficiently the -famous operations of the Missisippi; by which an attempt was made to -throw the whole national debt on the company of the Indies; and we have -seen how it succeeded. - -The distance, therefore, of Richlieu’s time, from Davenant’s, occasions -very little deception in comparing the principles of French and English -credit: and when we come to examine the present state of that question, -I am afraid we shall find, in France, enough of the old system still -remaining, to verify my observation, that the French have the advantage -in paying their debts; the English, in contracting them. Where the -balance of advantage may lie, will be the subject of more speculation. - -The first essential difference I find between the credit of France and -that of England, in the two periods we are considering, relates to the -_coin_. In the first, the value of _it_ had been very well preserved: no -considerable alteration had been made upon _it_, from 1602 to 1636, that -the Cardinal raised the denomination of the marc of fine silver, from 22 -livres to 27 livres 10 sols, as has been said. Whereas from the -revolution, until the establishment of the bank in 1695, the _coin_ had -suffered in England a debasement, from clipping, of near 50 _per cent._ -This circumstance, more than any other, affected the credit of England, -and increased the expence of King William’s war. In Richlieu’s time, -circulation and trade had made more progress in France than in England -at the time Davenant lived. The revenue left by Henry the Fourth was -double to that of England at the revolution: and, in general, the income -of the Kings of France had far exceeded that of the Kings of England, -for many reigns before that of the great Henry. Borrowing also, upon a -fixed and permanent interest, had been known in France so far back as -Francis the First. - -That Prince was the first, I find, who contracted a regular debt, at -perpetual interest, upon the town-house of Paris, at about 8 _per cent._ -when the legal interest in England, under his contemporary Henry the -Eighth, was 10 _per cent._ - -The predecessor of Francis, Louis XII. had of gross revenue, charged -with his debts, which eat up near one half, above 2,500,000_l._ -sterling. Dutot, Reflex. Pol. Vol. I. p. 204. Francis I. left to his -successor in 1546, a gross revenue of 2,685,314_l._ sterling, and of -nett income 2,287,998_l._ according to Dutot and M. de Sulli. - -Under Henry II. and Francis II. the gross revenue stood at about -2,618,000_l._ sterling. - -Under Charles the IXth, I have not been able to discover any thing which -can be relied upon: but his successor Henry III. according to Sulli, -had, in 1581, a revenue of 3,250,000_l._ sterling, and left only about -16 millions of livres of debt, which was no great sum. - -To this Henry IV. succeeded; and by the capacity and unwearied -application of his great minister M. de Sulli, it was raised to above -six millions sterling, at the beginning of the reign of Louis XIII. This -revenue, by his wars and expences, was left greatly incumbered; but -still the taxes were established which brought it in; and so early in -the reign of his successor Louis XIV. as the year 1683, his revenue -extended to no less than 9,182,914_l._ sterling, according to Dutot. -Reflex. Pol. Vol. II. p. 256[22]. - -Footnote 22: - - These sums are all converted into sterling, according to the value of - the French livre at the different periods here mentioned. - -Let any man, acquainted in the least with the history of England, -examine the fixed revenue there, under Henry VII. and VIII. Edward, -Mary, and Elizabeth, and their successors, down to the revolution; and -they will evidently see the great disproportion of wealth, proceeding -from taxes, in the one and the other kingdom. - -From these facts I conclude, that debts and taxes in France were much -more familiarly known in Richlieu’s time, than possibly they could be in -England when Davenant wrote. - -Public credit had long grown up in that kingdom, under the hard -influence of regal power: whereas in this it had sprung up lately, under -the protection of liberty, and a most limited authority. - -To that cause I ascribe the difference we find between the principles of -English and French credit; and to an effect similar to the cause I -ascribe the gigantic steps by which Britain has outstripped her powerful -rival in the establishment of her credit, since the beginning of this -century. - -It is folly to prophecy, I know; but I may be allowed to conjecture, -that the same causes which have raised the credit of this nation to such -an amazing height, will either force the French from their old -principles, or they will, some time or other, bury her credit in the -dust. - -Had one half of the acts of power been exerted with us, which have been -so familiar in France: had half the liberties been taken, in tampering -with the claims of creditors; a total bankruptcy would long ere now have -been the consequence: but in Britain credit is young; and has been -tenderly reared. In France she is old, and has been accustomed for many -ages to rougher usage. But example works wonderful effects, especially -when nations live together in this great European society; and the -advantages of a security to be depended on will every day more and more -engage the money’d interest to prefer this to any violent and precarious -profits. - -How nicely does not Davenant employ political arithmetic, in order to -make true estimates of the taxes to be imposed, and appropriated for a -term of years, for extinguishing principal and interest? How exactly has -not the account between the state and the bank been carried on from -1695, to this day? How faithfully have not all parliamentary engagements -been observed? When, in 1749, a most natural operation was performed, to -reduce the interest of the debt of Great Britain, by gentle steps, from -4 to 3 _per cent._ what an outcry did it not make, although an -alternative was left to the creditors, either to receive an actual -reimbursement, or to accept of the new terms? The credit of Great -Britain must have appeared to France in the light of a pettish child, -educated in the house of a too indulgent parent: her own is not treated -with such gentleness; and when our money-jobbers try their hand at -Paris, and meet with disappointments from unexpected acts of council; to -prevent the laugh going against them, for trusting to the credit of -France, they turn it off by a jest, and pretend that they were only -playing as at the Groom-Porter’s, or in Change-Alley. - -In a word, what would totally ruin the credit of England, does not -equally affect that of France. An act of power there, no doubt, throws a -damp upon it for a time; and if that act of power takes place at a -critical juncture, it may cost her very dear; as it has lately cost her -the continent of North America; which, I think, was sold for 32 -millions, withheld from her creditors, for a short time, in the end of -1759. But this act of power, and many others since, have not ruined the -credit of France: many trust her still; only those who purchase in her -funds, at present, take about 2 _per cent._ off from their interest, as -a premium for the insurance of her good faith, until she recovers her -mercantile reputation[23]. - -Footnote 23: - - Money invested in the French funds, _anno_ 1766, will bring the - purchaser 6 _per cent._ This I consider as 4 _per cent._ for the - interest, and 2 _per cent._ premium for the risk; and were she now to - borrow any considerable sums, I suppose the insurance would rise in - proportion. - - ------------------------------------------------------------------------- - - - CHAP. V. - _Of the present state of public Credit in Great Britain._ - - -We have, in a preceeding chapter, given a general view of the state of -public credit in England, at the end of the last century. In this, I -shall briefly run through the most remarkable revolutions, both in -sentiments and events, which have succeeded since that time. - -At the revolution the revenue of England was about two millions -sterling, affected by two debts. The first was called the bankers debt, -contracted by Charles II. and, by letters patent, charged upon his -hereditary excise, to the amount of upwards of 1 300 000_l._ This debt -was reduced to one half, in the last years of King William, and put at 6 -_per cent._ perpetual annuity, to commence from 1706. The other was a -debt of 60,000_l._ due to that Prince’s servants, neglected to be paid -by his successor, and discharged after the revolution. - -At the peace of Ryswick, the national debt amounted to about 20 -millions. The branches of taxes subsisting at the revolution, and -continued till then, produced no more than about 800,000_l_.; but by -additional taxes laid on in the reign of King William, the whole revenue -extended to 3 355 499_l._ of which above one million was to cease before -1700, as has been said. This reduced the revenue, at the beginning of -Queen Anne’s reign, to nearly what it had been at the revolution: out of -which if we deduct the interest of the national debt then subsisting, -and the expence of the civil list, we shall discover the extent of the -funds prepared for engaging in the war with France; and then by -comparing the state of the nation at her succession, with what it was at -her death, we shall form a general notion of the progress of credit, -debts and taxes in England during that period. - - The revenue of England at the accession of - Queen Anne may be stated at about £2 272 000 - The debts subsisting on the 31st of - December 1701, were £6 748 780 - ————————— - Upon which the annual interest was 566 165 - Queen Anne’s civil list[24] 600 000 - ————————— - Which two sums amounting to 1 166 165 - Being deducted from the revenue, there will remain —————————— - for the current service of the state 1 105 835 - -Footnote 24: - - The Queen got from parliament 700,000l. for her civil list; but she - immediately ordered 100,000l. to be annually paid to the uses of the - war. - -What the exact amount of the revenue of England was at the death of the -Queen, I cannot justly say. But as it may be comprehended under the -three general branches of customs, excises, and other inland duties, we -may form a guess at it, though imperfectly I allow, from the number of -articles in each. - -At her accession, the customs comprehended fifteen articles; at her -death they amounted to thirty-seven: at her accession, the excises -comprehended ten articles; at her death, they amounted to twenty-seven: -at her accession, the other inland duties comprehended eight articles; -at her death, they amounted to sixteen, including the land tax, then -become in a manner perpetual, although laid on from year to year. - -At her accession, the public debts amounted (as above) to near seven -millions, at her death they exceeded fifty millions. - -In fourteen years, from the revolution to her accession, the money -granted by parliament, partly raised on the subject, and partly -borrowed, or taken credit for, according to the custom of the times, -amounted to above fifty-five millions. During the 13 years of Queen -Anne, the money granted by parliament raised on the subject, or borrowed -as above, amounted to upwards of 80 millions. - -By this general sketch I do not mean to enter into exact details: facts -must be sought for in books which treat of facts; our chief object is to -examine the principles upon which the public credit was supported, let -the exact sum of money raised be what it will. - -The expences of the French war first engaged the nation to revive those -taxes which had been suppressed; and to impose many others for a -considerable number of years, in proportion to the money borrowed upon -them, according to the principles of the former reign. - -In 1702, interest was so low, that government got money at 5 _per cent._ -It continued so till 1704, when some loans began to be made at 6 _per -cent._ and at this rate it stood during the war. - -But in 1706, the exigencies of government were far greater than what all -the money to be borrowed, or raised on the subject, could supply. This -opened a door to the abuse of paying the growing deficiencies upon the -taxes with exchequer bills, chargeable on distant funds. These fell -constantly to great discount; and the unhappy servants of the state, who -received them in payment, were obliged to dispose of them to people who -could wait for an usurious reimbursement by parliament. - -When those exchequer bills had once got into the hands of the monied -people, they had interest with government to engage the bank to -circulate them at 6 _per cent._ interest: but as the funds upon which -they were secured happened at that time, 1706, to be engaged for -discharging debts previously contracted, the bank, during that interval, -could receive no payment of this interest of 6 _per cent._ so the -expedient fallen upon, was to pay the bank compound interest for all the -tallies and bills they were to discount, until the funds appropriated -should be relieved. - -This expedient, bad as it was, and burdensome to the state in the -highest degree, proved of infinite service, both in establishing the -credit of exchequer bills, and relieving those who received payment in -them. - -This operation was quite similar to those of banks of circulation upon -mortgage. The bank of England was here employed in converting into money -exchequer bills, secured upon the faith of government. Banks upon -mortgage convert into money the property of individuals, upon private -security. Had, therefore, banks upon mortgage been established in -England at this time, all those who had property would have got credits -from them, and would have been enabled thereby to pay their taxes, and -carry on their industry, without diminishing their consumption. The -exchequer would then have had no occasion to issue discredited bills and -tallies for making up deficiencies; because taxes would have been -productive, and the state would have been relieved of this excessive -burden of interest at 6 _per cent._ accumulated quarterly in favour of -the bank. - -What extraordinary profit must have accrued to the bank by this -operation, every one must perceive. They were not here procuring funds -to lend at a great expence; all they did was to augment the quantity of -their paper upon government security; which they knew well would be -suspended in the common circle of payments within the country; and the -public borrowings were sufficient to furnish credit for the sums sent -out of the country. In this view we may conclude, that almost the whole -accumulated interest paid, was pure profit to the bank, and a great -augmentation of the national debt. - -This operation of the bank in 1706, did not prevent subsequent -deficiencies, in the payment of the navy, army, ordnance, and of many -other articles. In 1710, they amounted to above nine millions sterling. -This was too great a sum to be borrowed; and the bank durst not venture -to discount more than what domestic circulation could suspend: so that -after this great debt had circulated upon the discredited obligations -which had been issued for it, and in that way had fallen again into the -hands of monied people, at 30 and 40 _per cent._ below par, the new -proprietors of it were all incorporated into one great company, with a -governor and directors, who got 6 _per cent._ for the whole capital, -with an allowance of 8000_l._ a year for charges of management. - -Thus all the real creditors for these deficiencies lost the discount; -the monied people gained it, and the public paid for all. - -When credit is in this languid state, every expence of government rises -in proportion to the discredit of the paper with which they pay, till at -last the whole sum, with interest, accumulation, and expence, falls upon -the state, as if every farthing of it had been frugally expended in -ready money. - -This is a general view of the state of credit in Queen Anne’s reign. - -Government had not, as in the former war, the inconveniences flowing -from the disorder in the coin to combat with. These contributed more -than any other circumstance, to raise the capital of the debts at the -peace of Ryswick. Circulation, too, was considerably augmented, in -consequence of the increase of taxes, public debts, and the operation of -the bank in circulating exchequer bills and tallies. Yet money was still -scarce, in comparison of what it might have been, had proper methods -been contrived to preserve it upon a level with the occasions for it. - -The incorporation, also, of nine millions capital in the hands of a -corporation, which afterwards was called the South Sea Company, was an -assistance to public credit, by increasing a monied interest, the -principal view of which was to fill the government loans, on the -lucrative conditions offered for them. And last of all, the strictly -adhering to the public faith of engagements, without seeking, by acts of -power, to indemnify the state for the losses it had been obliged to -incur, from the circumstances of the times, laid the solid basis of -national credit for the future. - -Although the many additional taxes added to the former revenue, did not -increase it in any proportion to the load laid upon the subject during -this war, they served, however, as a good foundation for improvement, as -soon as the effects of peace restored them to their full production. But -the charges laid upon them having become every year greater, government -was obliged to engage certain funds for thirty two years to come, and -sometimes longer; and many branches of taxes, which formerly had been -granted for short terms, were then made perpetual. After the peace of -Utrecht, the expences of the state were greatly diminished, and money -began to regorge: so that in the year 1716, the first foundation of the -sinking fund was laid, by opening a subscription for paying off about -ten or eleven millions sterling, at that time, charged upon several -branches of taxes, the produce of which amounted annually to 724 849_l._ -sterling. - -The proprietors of these debts were allowed to subscribe into this new -fund, at an interest of 5 _per cent._ redeemable by parliament: and in -case the whole subscription should not fill at that rate, the bank and -South Sea company became bound to make it up, upon receiving a like -annuity in proportion to their subscriptions. - -The bankers debt, of which we have spoken, the only public debt owing at -the revolution, made part of those which were to be subscribed for. - -The taxes which had been appropriated for the discharge of those -capitals, from temporary, were made perpetual; with a clause added, that -when the surplus of the fund, after payment of interest, had discharged -the capitals of all the national debt due the 25th of December in that -year, the whole produce of the fund itself should remain at the disposal -of parliament. - -After this first operation in reducing the interest, the bank was -satisfied with a reduction to 5 _per cent._ of that paid to them; and -they began to circulate exchequer bills at a more moderate interest than -formerly. - -Public credit was now daily gaining ground. In 1719, the South Sea -company, whose capital was then swelled to eleven millions at 5 _per -cent._ with a sum of 9397_l._ sterling for the expence of management, -enlarged their views; and finding great profits to arise from such a -fund under one administration, formed a project of acquiring a large sum -of the public debts, which remained outstanding upon the original funds -appropriated for them. - -For this purpose they proposed to government to acquire, 1. The property -of above 16 millions of redeemable debts, bearing then 4 and 5 _per -cent._ interest; and to reduce the whole to 4 _per cent._ at midsummer -1727. 2. To acquire a sum of 794 000_l._ of annuities upon lives, and -for long terms, as they should agree with the proprietors, at 5 _per -cent._ upon the purchase-money, until 1727; and at 4 _per cent._ -afterwards. Annuities were then valued at fourteen and twenty years -purchase, according to their length: they rose, however, during the -operations of the South Sea, to 25 and 30 years purchase. 3. They were -to have a sum added to their former allowance for the charge of -management, in proportion to this augmentation of their stock. 4. That -for the advantage which might follow upon this agreement with -government, they were to pay into the exchequer above seven millions -sterling, toward discharging other national debts outstanding. And in -the last place, they engaged to circulate a considerable sum of -exchequer bills, and to pay the interest of 2 pence _per cent. per -diem_, which should grow upon them during seven years[25]. - -Footnote 25: - - After the long and particular account I have given of the Missisippi, - I shall not enter into a like detail, concerning a scheme which - proceeded upon the very same principles; to wit, the artificial - raising the value of a stock, by promising dividends, out of funds - which were nowise proportioned to them. I shall therefore, in a very - few words, compare some of the operations of the South Sea scheme, - with those of the Missisippi; and in doing it, point out the principal - differences between them. - - The great profits upon the Missisippi were expected from the interest - paid by government for the great loan, the farms of the revenue, and - the profits upon their trade. - - Those of the South Sea were, at setting out, 1. The profits upon their - trade: 2. The allowance made them: 3. The difference of receiving 5 - _per cent._ for the money they laid out in purchasing the public - debts, when money was at 4 _per cent._ as it was when the scheme was - set on foot: and 4. The surplus money subscribed into the stock above - par, in consequence of the artifices used to enhance the value of it. - - The seven millions they were to pay to the state, seemingly for no - value received, were a sort of compensation for receiving the 5 _per - cent._ for 7 years, at a time when money was worth no more than 4 _per - cent._ - - These advantages raised, at first, the value of the original stock of - eleven millions. The consequence was, that the proprietors of the 16 - millions of the redeemable debts, which were to be bought in when they - came to subscribe their capitals into the new stock, transacted them - at a proportional discount; which discount, being good against the - government in favour of the company, served to discharge - proportionally the seven millions the company was to pay. This gave an - additional value to the stock; and so it rose, greatly indeed above - that proportion. Then the company promised a dividend of 10 _per - cent._ for one half year, upon their capital, at midsummer 1720; this - dividend was to be paid in stock, which was constantly rising in its - value; but no information was ever given the public concerning the - funds which were to produce this dividend; so every one concluded that - there were hidden treasures in their hands, which enabled them to - promise such large dividends. Accordingly, stock rose from 300 _per - cent._ to 375; then to 400, and at last to 1000 _per cent._; and in - proportion as it rose, the wealth of the former subscribers augmented - from the surplus above par, paid by the latter, and those who - subscribed last, bore all the loss upon the blowing up of the scheme. - - But one great difference between the South Sea and Missisippi, was - this: That in France there was abundance of money in the hands of the - public, for purchasing the actions, at the exorbitant price to which - they rose; but in England there was not: consequently, in France, the - rate of interest fell to 2 _per cent._ and in England, the great - demand for money to borrow, raised it beyond all bounds. - - Those who subscribed in money, paid down no more than 10 _per cent._ - at subscribing; but became bound to pay up the remainder. But when the - stock tumbled, people were better pleased to lose the 10 _per cent._ - they had paid, than to pay up the remaining 90 _per cent._ according - to the terms at subscribing. Those indeed who subscribed their former - capitals at a vast discount, did not labour under the same - inconvenience of want of money; but that discount became as real a - loss to _them_, as the cash subscribed became a loss to the money - subscribers, the moment that those who were in the secret, and who, by - the most infamous chain of artifices, had blown up the public frenzy, - began to realize and sell out, and that the whole was discovered to be - a cheat. So that upon the whole, the English scheme had much less - foundation than the French. The first blew up from an absolute - necessity, and for want of any bottom at all; the last from - misconduct, and rather from folly than knavery. I return to an account - of the scheme. - - The original capital of the South Sea company, was 11 750 000_l._: the - redeemable debts they were to purchase in, amounted to 16 750 000_l._; - and the value of the irredeemable, or what were called the _absolute - terms_, was computed at 15 058 000_l._ together 31 808 000_l._ - sterling. - - The proprietors of this original capital of 11 750 000_l._ consulted - their own advantage only, in purchasing in this large sum of debts, - which were to be converted into additional stock; and therefore - sounded very high the great advantages of such a transformation of - them; 1_mo_, From the profits of the trade, which they were to enjoy - exclusively. And, 2_do_, From the great addition to their wealth, from - the constant rising in the price of their stock. They carried their - views to nothing less than obtaining a majority in the house of - commons, by the weight of their wealth, and of becoming the absolute - rulers of the nation. - - The public being from the beginning intoxicated with such ideas, - subscriptions for stock were opened at 200 _per cent._ above par; and - some of the proprietors of the 31 808 000_l._ subscribed at first - their capitals at a proportional discount; that is, they made over a - debt of 100_l._ for 33⅓ in South Sea stock; and successively, the - subscription rose to 1000 _per cent._ These immense profits being - incorporated into the gains of the general stock, were proportionally - shared by the subscribers themselves, who became proprietors; and the - higher the stock rose, the more these gains augmented. This influenced - the infatuation; and the dividends augmenting in proportion to the - price of subscription, there appeared no end of the rising of the - stock. - - The first dividend offered, as has been said, was 10 _per cent._ - half-yearly, in stock: this was afterwards converted into no less than - 30 _per cent._ in money, for that half-year: and when stock rose to - 1000, a dividend of no less than 50 _per cent. per annum_, in money, - was promised for twelve years to come. - - Had stock risen to 2000 _per cent._ the dividend could have as easily - been carried to 100 _per cent. per annum_, as it had been to 50 _per - cent._ when at 1000. - - But whence was this dividend to be paid? The company and the directors - took good care never to give to the public any light as to that - particular. - - To prevent, therefore, such abuses in the rising of the South Sea, it - ought to have been provided by parliament, that in taking in - subscriptions, and offering dividends, the directors should have - informed the public, 1_mo_, Of the money owing to them by government. - 2_do_, Of the money gained by the subscriptions above par. And 3_tio_, - Of the profits upon their trade. And, on the other hand, of the debts - due by them; and of the nett balance upon their books, in their - favour. - - This would have been fair dealing. But to pretend the necessity of - secrecy, in a point where a nation is interested, was in itself a mere - pretext; and had it been otherwise, it might have been answered, that - a company which is obliged to have recourse to such secrets, ought to - be prevented from dealing with those who were to remain ignorant of - _them_, however deeply interested. - -From the operations we have been describing, we perceive, that the point -of view in England, from the peace of Utrecht, has always been to reduce -the interest of the national debt; but never to leave in the hands of -the creditors, any part of the savings made; in order to diminish the -capital. These savings have constantly been thrown into a sinking fund, -_supposed_ to be intended for extinguishing the capital; and were it -employed for that purpose for a few years only, and not diverted to -other uses, I am persuaded the consequence would be, to reduce interest -in England lower than ever perhaps it has been seen in any nation. That -interest may be reduced, by making money regorge in the hands of the -lenders, is, I think, an uncontroverted principle: that by regorging in -France, _anno_ 1720, it reduced interest to 2 _per cent._ is a fact -indisputable. I shall not pretend to say positively, that the total -appropriation of the sinking fund, and an augmentation upon annual -grants, to make up the void, would in Great Britain work this effect in -a few years; but I think it is very probable that it would: and if the -domestic creditors, in any state, where debts, _due to strangers_, are -swelled to such a height as to exceed the whole profits made upon trade, -shall by their influence, and from a motive of present advantage, -obstruct a scheme of this nature; the consequence will prove, in the -first place, to discourage, and then totally to extinguish commerce, and -in a little time to occasion an unavoidable bankruptcy; as shall be -farther explained in a succeeding chapter. I return to the South Sea -company. - -The proposal of the South Sea company, mentioned above, was accepted of, -and ratified by act of parliament, 6 Geo. I. chap. 4th. But the disaster -which befel credit, in consequence of the ambitious views of those who -were in the administration of that company, prevented the nation from -reaping all the advantages which might have proceeded from it. - -The reign of K. George I. though little disturbed by foreign wars, -produced not the smallest diminution upon the capital of the public -debts; and those which subsisted at the peace of Utrecht, stood, at his -death, at 50 354 953_l._ The same taxes subsisted; and every one almost -was by this time made perpetual, except indeed the land tax and malt -duty, which to this day continue to be annual grants. - -But alas! this apparent revenue, arising from a multitude of taxes, was -of no use towards defraying the smallest _extraordinary_ expence of -government. Every article of it was engaged for debts; and the -operations for reducing the interest were calculated only to produce a -fund for discharging the capital. The civil list, indeed, that is to -say, the expence of civil government, exclusive of army, navy, ordnance, -and incidental articles, was paid from the permanent taxes, and -considered as a charge upon them. But were not armies and navies then -become as regular an expence upon every state in Europe as judges and -ambassadors? Undoubtedly they were. Yet after the peace of Utrecht, in -laying down the plan which has constantly been followed ever since, for -defraying the regular expence of British government, these two great and -unavoidable expences were considered as contingent only, and provided -for by annual grants: and because armies, in time of peace, in former -reigns, had proved dangerous to liberty from the abuse of power, they -were still considered in the same light, at a time when liberty and -trade were continually threatened from their armed enemies and rivals -abroad. - -When the continuance of peace, in the reign of George the First, had -produced the effect of reducing interest, on many occasions, to 3 _per -cent._ the sinking fund began to gather strength. The land tax, from the -year 1722, had not exceeded two shillings in the pound; and the -_extraordinary_ expence of government, according to the annual grants of -the 13 years of his reign, did not exceed 34 800 000_l._ or 2 670 -000_l._ a year. - -Public tranquillity was very little disturbed during the first twelve -years of the succeeding reign; and all the _extraordinary_ expence did -not much exceed three millions _per annum_: yet that expence, small as -it was, compared with what it has been since, was almost every year made -out, by taking one million at least from the sinking fund; and in the -years of the least expence, such as 1731 and 1732, the land tax was -reduced to one shilling in the pound, at the expence of taking two -millions and a half from the sinking fund. - -These steps of administration I neither censure, or approve of. I must -suppose every statesman to have good reasons for doing what he does, -unless I can discover that his motives are bad. May not the landed -interest, who composed the parliament, have insisted upon such a -diminution of their load? May not the proprietors of the public debts -have insisted on their side, that no money out of the sinking fund -should be thrown into their hands, while the bank was making loans upon -the land and malt duties at 3 _per cent._? Might not the people have -been averse to an augmentation of taxes? When three such considerable -interests concur in a scheme, which in its ultimate, though distant -consequences, must end in the notable prejudice of perpetuating the -debts, although opportunities offer to diminish them, what can -government do? They must submit; and which is worse, they cannot well -avow their reasons. - -Such combinations must occur, and frequently too, in every state loaded -with debts, where the body of the people, the landlords, and the -creditors, find an advantage in the non-payment of the national debt. It -is for this reason that I imagine, the best way to obviate the bad -consequences of so strong an influence in parliament, would be, to -appropriate the amount of all sinking funds in such a manner, as to put -it out of a nation’s power to misapply them, and by this force them -either to retrench their extraordinary expences, or to impose taxes for -defraying them. - -The second period of George IId’s reign, was from the breaking out of -the Spanish war in 1739, to the peace of Aix-la-Chapelle in 1748. During -these ten years, (1748 being included) the extraordinary expence was, -upon an average, very near seven millions; and at the end of the year -1738, the public debts amounted to 46 661 767_l._ bearing 1 962 053_l._ -interest. - -The first expedient for borrowing money during the war, was to continue -the duty on salt for seven years; and to mortgage it at once for 1 200 -000_l._ according to the old plan. To this was added, the expedient of -lotteries, and loans upon indeterminate annuities, according to the -current value of money. - -An additional excise upon spirituous liquors, brought in wherewithal to -compensate these additional sums of interest; and the East India -company, for lending one million at 3 _per cent._ upon this occasion, -had their charter continued from 1766 to 1780. This operation I also -consider as an anticipation; and as it was to commence at the distance -of 23 years from the time of the grant, could not fail of being very -burdensome to the nation, however convenient it might be at that -particular time. - -Were the India company now, 1766, to purchase the renewal of their -charter for 14 years, what a sum might be expected from it! Yet the -value given for the grant they then obtained did not exceed 30 000_l._ -because the other annuities of 3 _per cent._ were sold at that time for -97_l._ or, in the language of the funds, at 3_l._ premium for every -100_l._ subscribed; and this so early in the war as 1743. - -The practice of borrowing upon premiums had taken place in Queen Anne’s -reign, and has of late years been very common. The credit of Great -Britain is so firmly established, that in whatever way government -inclines to borrow, the money’d men are willing to lend, provided the -loan be made at the then rate of interest. - -To avoid therefore the establishment of funds at different rates, in -proportion to the fluctuations of money, the bargain is made at one -determinate interest. Suppose, for an example, 3 _per cent._ Then, -according as it is found to rise above that rate in the market, a -premium is paid out of the money subscribed; as in this case 3_l._ was -paid out of the 100_l._ subscribed; that is, the subscriber retained it, -and obtained his 3_l._ annuity, for the payment of 97_l._ so this -remained a 3 _per cent._ loan, instead of being, as it really was, at -39⁄97 _per cent._ and was sold and transferred as every other 3 _per -cent._ without occasioning any perplexity. - -As the war continued, interest rose, from the demand for money, when the -supplies became deficient. - -The year following, viz. 1744, this manifested itself, by the conditions -offered by government, which were: That, of two millions to be borrowed -at 3 _per cent._ as before, upon the whole sum, 1 500 000_l._ should be -formed into perpetual annuities, and the remaining 500 000_l._ into a -lottery, consisting of 50,000 tickets, to be sold at 10_l._ each. The -original subscribers to this loan subscribed therefore 10_l._ for the -ticket, and 30_l._ for the annuity, in all 40_l._; for which they were -to receive 3 _per cent._ But the premium consisted in this; that every -subscriber for 10 tickets, that is, 400_l._ of the total fund, had an -annuity for life given to him of 4_l._ 10_s._ - -This made five thousand annuities on lives, of 4_l._ 10_s._ each, or 22 -500_l._ a year to be added to the interest of 3 _per cent._ on the two -millions, that is, to 60 000_l._ a year of perpetual annuities. So that -the whole loan of two millions this year cost government 82 500_l._ of -interest, or 4⅛ _per cent._; 22 500_l._ of which was to extinguish with -the lives of the subscribers. - -Now, if we suppose these life-annuities worth 20 years purchase[26], -this was the same thing as if government had given a deduction of 90_l._ -out of the 400_l._ subscribed; consequently the remainder, which was -310_l._ produced 12_l._ This makes the rate of interest upon the loan to -have been 3.87 _per cent._ And as government inclined that the loan -should be made in that way, the lenders were willing that it should be -so; and the difference between 3.87 _per cent._ (the then rate of money) -and 4⅛ interest, which was paid by government, was a sinking fund, as it -were, for the gradual extinction of the capital of the lottery for -500,000_l._ during the lives of the annuitants. - -In 1746, perpetual or indeterminate annuities were constituted at 4 _per -cent._ and the premium upon the ten lottery tickets was raised to 9_l._ -life-annuity. - -It would be unnecessary to trace the various methods of contriving the -premiums given in the succeeding years of this war. The principle upon -which they were regulated was always to proportion them to the rate of -interest at the time; and the motive was, I suppose, that by this method -of borrowing, a part at least of the debt would become extinguished with -the lives of the subscribers. There might perhaps be another, to wit, -that by swelling the capital, for value not received, there was an -appearance of borrowing at a lower rate of interest than what in reality -was the case. Thus in 1747, when 6 300 000_l._ were borrowed, instead of -giving not quite 4½ _per cent._ for this sum, they gave 4 _per cent._ -upon 6 930 000_l._ which capital, although money should return to 3 _per -cent._ was still to stand at its full value; whereas, had 6 300 000_l._ -been borrowed at 4½ _per cent._ there would have been a saving of 600 -000_l._ upon the capital; and at the peace, the interest of 4½ _per -cent._ would equally have come down to 3 _per cent._ with the other -funds. - -Footnote 26: - - This may seem a high valuation, and is, in fact, far beyond what any - of those annuities sold for: but as the interest of money cannot be - estimated, for a constancy, at more than 3 _per cent._ and that - probably the best lives were chosen, the value to government of such - annuities may well be estimated at 20 years purchase. By De Moivre’s - tables, annuities for the most favourable ages, interest being at 3 - _per cent._ are valued at 19.87 years purchase; and his valuations are - generally allowed not to be too high. - -During this first war of George the Second, the land-tax was constantly -at 4_s._ in the pound; and new branches of customs, excise, or other -inland duties, were created in proportion to the swelling of the -national debts, which, on the 31st of December 1748, amounted to 78 293 -313_l._ sterling, bearing 3 005 325_l._ interest; and the sinking fund, -or surplus of all permanent taxes then imposed, after paying the civil -list, and the interest upon this capital, amounted to 1 060 948_l._ -sterling. During this war, the debts were increased above what they were -at the end of 1738, by 31 631 546_l._ sterling capital, and by 1 043 -272_l._ of interest or annuities. - -The war was no sooner over, and the national expence diminished, than -money began to regorge in the hands of the monied interest: an -infallible consequence of such a violent revolution, when extraneous -circumstances, such as occurred after the peace 1763, do not prevent it. - -To profit of this conjuncture, government, early in 1749, proposed that -all the public creditors upon capitals bearing 4 _per cent._ interest, -redeemable by parliament, and amounting to upwards of 57 millions, who -should accept of 3 _per cent._ from December 1757, should have their -debts made irredeemable until that time; and in the interval should -continue to have 4 _per cent._ till December 1750; and 3½ _per cent._ -from thence, until the total reduction to _per cent._ in December 1757. - -This bold undertaking had the desired effect. Many obstacles were thrown -in the way; but the regorging capitals in the hands of many, made every -one fear the reimbursement for himself; and the credit of France was -then so low, that very few chose its funds as an outlet for their -superfluous money. - -But an outlet, unfortunately, was not wanting at the end of the last war -in 1763, as we shall shew in its proper place. - -Here then is a notable instance of the effects of regorging money. A -small sum, when compared with a nation’s debt, operates upon the whole -capital; as a small balance upon trade affects the whole mass of -reciprocal payments. - -The reimbursement of 57 millions offered by government, in 1749, was, to -the conviction of all the world, an impracticable scheme; but the -stockholders seeing a large sum ready to be subscribed, at the interest -offered, and feeling the effects which that regorging money must, in all -events, have produced, willingly, and wisely perhaps, consented to the -offer made them. Had they refused, and had the scheme proposed become -abortive thereby, perhaps the nation might have been so far animated -against the creditors, from the disappointment, as to have consented to -be at the expence of defraying the service of the following years, -without encroaching upon the sinking fund. What effect this would have -produced upon the rate of interest, in that conjuncture, no man can -tell, nor will the real consequence of such a measure ever be known, -until the happy trial be made. That it would have brought interest below -3 _per cent._ in December 1757, is, I think, evident: for as matters -stood, had the creditors of 57 millions been able to hold out, I must do -them the justice to believe, they would not have consented to the -proposal made to them; and an addition of all the sinking fund thrown -among them annually, at a time they could not dispose of what they had, -upon better terms than those offered them, would undoubtedly then, as at -all times, operate a very great national relief, in bringing down the -interest. - -During the tranquillity which continued from the peace of -Aix-la-Chapelle, in 1748, to the commencement of hostilities in 1755, -the money expended for extraordinary services amounted on an average to -above four millions _per annum_. The expence of government was then -increased, by supporting the colonies, and by several great and uncommon -outgoings at home, for purposes mentioned in the supplies of those -years. - -A little before the breaking out of the last war, that is to say, on the -5th of January 1755, the national funded debt was reduced to 72 289 -674_l._ upon which was paid an annuity of 2 654 500_l._ and the sinking -fund amounted to 1 308 814_l_[27]. At the end of 1763, the year of the -peace, the funded debt amounted to 130 586 789_l._ 10_s._ besides above -9 millions not provided for. So that at the end of last war the national -debt exceeded 140 millions; besides the value of the annuities granted -in 1757, 1761, and 1762. Hence it appears, that the war occasioned an -augmentation of upwards of 58 297 116_l._ upon the funded national debt; -besides the difference between the unfunded debts at the beginning and -end of the war; and also the value of those annuities[28]. - -Footnote 27: - - To this funded debt must be added the unfunded debt, which I do not - know exactly; and the value of the annuities granted in 1745, and - 1746. - -Footnote 28: - - The annuities of 1757, are estimated, by the author of the - Considerations on Trade and the Finances, at 472 500_l._ or at 14 - years purchase; and the annuities of 1761, 1762, at 6 826 875_l._ or - at 27½ years purchase. But this valuation seems too low, for the - reasons given in the note, p. 394. - -I shall, before I conclude this chapter, present a short scheme of the -state of the nation at that time: but first let us take a view of the -methods used to borrow so large a sum in the short period of eight -years. - -Until 1757, money was borrowed by government, at a little above 3 _per -cent._ but then a loan of 5 millions being necessary, government -consented to create annuities of 4½ _per cent._ irredeemable for 24 -years. By this expedient the monied people eluded the operation of -reducing the interest of this fund, upon the return of peace. How far -this expedient was to be preferred to the former, of increasing the -capital beyond the money paid; or whether it would not have been still -better to have paid for the money wanted, according to the current rate -of interest in the market at the time, waiting until a peace might -afford a favourable opportunity of reducing it, I shall not take upon me -to determine. - -I have observed how rash it is for any one to censure acts of -administration, when the motives of a statesman’s conduct are unknown. -This, however, I have sometimes ventured to do, in speaking of things -which happened many years ago; but we ought to be more cautious as we -come nearer to our own times, because not having, as in this case, a -course of experience to point out the errors, we must entirely rely upon -our own sagacity, and reason only from analogy. - -During the last war, as in that preceeding it, taxes were increased in -proportion to the interest of the money borrowed; and new impositions -were now laid on the articles of great consumption, which produced -abundantly. The new malt-duty of 3_d._ _per_ bushel, and the new -beer-duty of 3_s._ _per_ barrel, bring in net into the exchequer near -820 000_l._ _per annum_, and discharge the interest of above 27 millions -sterling, at 3 _per cent._ Such a sum raised at the end of a war so very -expensive, and at the very time when the credit of France was totally -fallen, must have operated in the strongest manner, and did in fact -operate more, perhaps, than any other consideration to put an end to -that war, the most glorious that Europe has beheld since the beginning -of this century, or perhaps in any age whatever: advantageous to Great -Britain, notwithstanding all the expence, providing that the -consequences happen to correspond to what may be reasonably expected. - -I shall now set before my reader a short state of the taxes, debts, and -public funds of Great Britain, at this bright period of her history. - -From the best authority I have been able to procure, the revenue of the -state, considered under the three general branches of customs, excise, -and other inland duties, which comprehend the whole permanent income of -this kingdom, was then as follows: - - Customs net into the exchequer, about £2 000 000 - Excise in all its permanent branches net, about 4 600 000 - Other inland duties net 1 000 000 - Land tax at 4_s._ in the pound 2 000 000 - Annual malt tax net 613 000 - —————————— - In all 10 213 000 - -Let us next state the annual charges and appropriations settled upon -this fund. - - First then the civil list, to the amount - of £800 000 - 2_do_, The interest of about 131 - millions of funded debts at different - rates of interest, about 4 500 000 - 3_tio_, The interest of nine millions - not then provided for, supposed to be - at 4 _per cent._ 360 000 - —————————— - In all of regular and permanent annual charge 5 660 000 - —————————— - So there remains free, about 4 553 000 - - From which if we deduct the annual grants of land and - malt-taxes, which extend together, as above, to 2 613 000 - —————————— - There will remain as the produce of the sinking - fund[29] 1 940 000 - -Footnote 29: - - I find that the sinking fund is now estimated at 2 100 000_l._ by the - author of the Considerations on Trade, &c. above cited. I am also - informed that the net produce of the customs exceeds 2 000 000_l._ - considerably: but 4 600 000_l._ is rather the gross than the net - produce of the _permanent_ duties of excise; that is, of all the - excise duties, excepting the annual malt-duty. It must also be - observed, that the annuities payable to the national creditors, - amounted, the 5th January 1764, to more than 4 720 000_l._ But on the - other hand, the interest of the unfunded 9 millions is rated too high, - as appears from the author above quoted. I cannot pretend to give - exact details. The general sketch here stated is sufficient for my - purpose. - -In that state, nearly, stood the affairs of Great Britain after the -conclusion of the peace in 1763. - -It now only remains to offer some conjectures why, after this period, -money was not found to regorge, as after the peace of Aix-la-Chapelle, -so as to furnish an opportunity of reducing the rate of interest upon -all redeemable debts, and by that of raising the amount of the sinking -fund, and more firmly establishing the national credit. - -After the fall of the credit of France towards the end of 1759, Great -Britain had the command of all the money to be lent in Europe; and -accordingly amazing sums were borrowed in 1760, 1761, and 1762. Of the -sums borrowed, a great part, no doubt, was the property of strangers; -but they, not being so well acquainted with the affairs of this nation -as the English themselves, instead of subscribing to the loans, lent the -money to our own country people, who, in hopes of a great rise upon the -return of peace, filled the subscriptions with borrowed money. - -The consequence was, that no sooner did the funds begin to rise after -the peace, than every creditor demanded his money of those who had -invested it in the public funds. This obliged the latter to bring their -stock to market, and this again had naturally the effect of keeping the -funds very low. Some, more prudent than the rest, had borrowed upon a -long term of repayment; which had the effect of putting off still longer -the settlement of the funds in the hands of the real proprietors, and of -taking them out of those who only held them nominally. - -Besides this accidental cause of the low price of the funds, other -circumstances, no doubt, greatly contributed to produce the same effect. - -However great the balance of trade, that is, of exportations above -importations, may have been of late in favour of England, still the -mighty sums drawn out by strangers have certainly, upon the whole, -prevented much money from coming home on the general or grand balance of -payments. While that remains the case, it is impossible money should -regorge at home in the hands of the natives, and until this happens, -there is no hope of seeing the 3 _per cents._ above par. But then the -rise, small as it is, since the peace, may encourage us to hope that -that time is not far off: for had the profits of our trade been quite -unable to balance the loss upon our foreign debts, the funds would -undoubtedly still continue to fall, which is demonstrably not the case -from the circumstances of the loan in April 1766, obtained by -government, with the assistance of a lottery indeed, at 3 _per -cent._[30] - -Footnote 30: - - The loan of 1766, was 1 500 000_l._ at 3 _per cent._ Every subscriber - for 100_l._ had an annuity of 3 _per cent._ on 60_l._ and 4 lottery - tickets, valued to them by government at 10_l._ each, in all 100_l._ - The prizes and blanks in the lottery amount to 600 000_l._ and bear 3 - _per cent._ paid by government. The annuities amount to 900 000_l._ - and bear also 3 _per cent._ The number of tickets are 60 000. Hence, - at 10_l._ each, they amount to 600 000_l._ - - The advantage government reaps by this way of borrowing, is, that the - desire of gaming, raises the lottery tickets above their value, when - thrown into the hands of the public; and this advanced value being a - profit to those who receive them in part of their subscription, that - profit they share with government. Example. In April 1766, when - government borrowed 1 500 000_l._ at 3 _per cent._ the 3 _per cents._ - were only at 89: consequently, the difference between 89 and 100, - which is 11_l._ must have been supposed to be the sum which the - subscribers, from the propensity of people to game, had a reasonable, - or rather a certain expectation of gaining upon the sale of 4 lottery - tickets, that is, 2_l._ 15_s._ upon every one. - - To know therefore the real par of a lottery ticket, you must proceed - thus: it costs the subscribers 10_l._ for which they receive from - government 3 _per cent._ This 10_l._ as 3 _per cents._ stood at 89, is - worth at that rate no more than 8_l._ 18_s._ add to this sum what the - public must pay for the liberty to play, which we have stated above at - 2_l._ 15_s._ and you have the exact par of a lottery ticket at 11_l._ - 13_s._ - - Whatever they sell at above 11_l._ 13_s._ is profit to the - subscribers, whatever they sell below 11_l._ 13_s._ is a loss to them. - - This profit, though small in appearance, is greatly increased from - another circumstance, viz. That the subscribers may sell their - subscriptions at a time when they have really advanced but a small - part of it. The first payment is commonly of 15 _per cent._ on their - subscription: when they sell, they make this profit upon the whole - capital. Suppose then 15 _per cent._ paid in: if the profit upon - selling be no more than 1 _per cent._ upon the capital, that 1 _per - cent._ turns out no less than 6⅔ _per cent._ upon the money they have - advanced. Thus a person who is possessed of 1500_l._ only, may - subscribe for 10 000_l._ in this loan: he pays in his 1500_l._ and - receives his subscription; when he sells he sells 10 000_l._ - subscription, upon which he gains 1 _per cent._: 1 _per cent._ of 10 - 000_l._ is 100_l._ so (in one month suppose) he gains by this means - 100_l._ for the use of 1500_l._ But as a counterbalance for this - profit, he runs the risk of the falling of the subscription, which - involves him in a proportional loss if he sells out; or in the - inconvenience of advancing more money than he had to employ in that - way, in case he should prefer keeping his subscription for a longer - time, in hopes of a rise in the public funds. By this mode of - borrowing, government profits by the disposition of the people to - game. But this propensity has its bounds, and at present it is found - by experience not to exceed 60 000 lottery tickets, or 600 000_l._ - Were, therefore, a subscription of 3 millions taken in upon the same - plan with the present of 1 500 000_l._ the regorging number of tickets - would so glut the market, that the whole would fall below the par of - their supposed value. - -Here then was an outlet provided for more money than all that could -regorge at home, viz. the payment of those foreign creditors, to whom -the stock-holders were indebted. Besides this, the sale by government, -of such tracts of land in the new acquired islands in the West Indies, -provided another; money was even placed in the funds of France soon -after the peace, until the adventurers were checked by the operations of -the King’s council, in reducing both capitals and interest upon them, -contrary to the original stipulations with the creditors. A lucky -circumstance for Great Britain, as it forces, in a manner, all the money -of the continent into the English funds, which equally remain a debt -upon the nation, whether high or low in the market. - - ------------------------------------------------------------------------- - - - CHAP. VI. - _State of the public Credit in France, their Debts, Funds, and - Appropriations, at the Peace 1763._ - - -Were it as easy to get information of the political state of France as -of Britain, one might attempt to give such a sketch of their affairs as -we have now done of the other; but when we consider the lame accounts -given by French authors who have made researches of that kind their -particular study, it would be inconsiderate in a stranger ever to -undertake a task so difficult. - -In France, the finances are considered as a political arcanum, of great -consequence to the state to conceal from vulgar eyes. It is not long -ago, since the farmers of the greatest part of the revenue used -regularly to burn their books at the end of the year, to prevent the -King’s servants from knowing the state of the most essential part of his -affairs. Cardinal de Fleuri abolished this custom, and obliged them to -lay every thing open to his eyes. - -I shall now endeavour to communicate, in as short and distinct a manner -as I can, an idea of the present state of the French revenue; of the -taxes from which it proceeds; of the manner they are administred; of the -purposes to which they are appropriated; and of the state of the King’s -debts at the end of the last war. - -From this view we shall form a general notion of their public expences; -of their public debts; and of what is most material, of the resources of -that kingdom in time to come. - -For this purpose, I shall divide the whole revenue of France, that is, -all that is raised on the people, to whatever purpose it may be applied, -into five branches; and after having first explained the nature of each, -I shall give a general detail of them in their order. - -The first branch is what is called the King’s ordinary revenue. This is -composed of about twelve articles of permanent taxes, supposed to be -sufficient for defraying the whole expence of government, civil and -military, in time of peace. - -The second is composed of all the extraordinary impositions which were -laid upon the people, in consequence of debts contracted in the former -war, ended in 1748. - -The third, what was imposed during the last war, for the service of the -state, and for paying off the debts then contracted. - -The debts of France, contracted in periods anterior to those two wars, -are charged on the ordinary revenue, as we shall presently see. - -The fourth branch consists of two articles. The first comprehends -certain perpetual taxes appropriated for certain state expences, not -charged upon the ordinary revenue. The second, what is computed to be -the expence of levying all the taxes, and also the profit of the -farmers: or in other words, what the people pay more than the public -receives from the hands of the tax-gatherers. - -The fifth and last branch, comprehends the taxes paid to the court of -Rome, to the clergy, and to the poor; with other duties belonging to -private persons. Under one or other of these five branches, may be very -properly arranged all the taxes paid by the French nation. - - First general branch. - - The King’s ordinary revenue, with the charges upon it for the year 1761. - - Articles of revenue. Fr. money. Sterling ditto. - livres. l. s. d. - 1. Domain (the King’s landed - estate) 6 000 000 266 666 13 4 - 2. Taille (the land-tax) 56 600 000 2 515 555 11 1¼ - 3. Double capitation (the - poll-tax) 53 200 000 2 364 444 8 10½ - 4. Ditto upon such as have - civil employments, - pensions, &c. 6 700 000 297 777 15 6½ - 5. 2s. in the pound on all - civil employments. 6 800 000 302 222 4 5¼ - 6. The mint, or coinage 2 400 000 106 666 13 4 - 7. Decimes and capitation of - the clergy 12 400 000 551 111 2 2½ - 8. Free gifts from the - states of Burgundy, - Provence, Languedoc, and - Brittany 10 000 000 444 444 8 10½ - 9. Paulette, or annual tax - upon hereditary offices 2 600 000 115 555 11 1¼ - 10. Tax on the Lutheran - clergy of Alsace 200 000 8 888 17 9¼ - 11. Regale, or the - sovereign’s right on - ecclesiastical benefices 1 400 000 62 222 4 5¼ - 12. General farms 112 500 000 5 000 000 — — - ——————————— ———————————————————— - Total of the ordinary - revenue 270 800 000 12 035 555 11 [31]1¼ - - - Of this total the livres. l. s. d. - general farms - amount to 112 500 000 5 000 000 — — - And the other 158 300 000 7 035 555 11 1¼ - branches to - - - The farms were increased - _anno_ 1762 by 11 500 000 511 111 2 2½ - ——————————— ———————————————————— - Total ordinary revenue at the } - end of the war } 282 300 000 12 546 666 13 4 - ——————————— ———————————————————— - Articles of Expence. - Houshold of the King and royal - family 9 400 000 417 777 15 6½ - Ditto, their personal expence 4 600 000 204 444 8 10½ - King’s stables and stud 2 500 000 111 111 2 2½ - Hunting equipages 1 600 000 71 111 2 2½ - Alms 600 000 26 666 13 4 - Pay of the palace guards, - (_gardes de la porte_) &c. 3 300 000 146 666 13 4 - King’s buildings 6 600 000 293 333 6 8 - ——————————— ———————————————————— - Total expence of the court 28 600 000 1 271 111 2 2 - ——————————— ———————————————————— - Pay of all the houshold troops 8 000 000 355 555 11 1¼ - Pay of all the other troops of - France 48 000 000 2 133 333 6 8 - Fortifications 6 000 000 266 666 13 4 - Artillery for land service 6 600 000 293 333 6 8 - Military gratifications, over - and above the pay 10 000 000 444 444 8 10½ - Pay of general officers - commanding in provinces and - fortresses 2 000 000 88 888 17 9¼ - Pay, &c. of the marechaussée 2 200 000 97 777 15 6½ - Expence of prisoners of state 1 200 000 53 333 6 8 - Ordinary expence of the navy 25 000 000 1 111 111 2 2½ - ——————————— ———————————————————— - Total regular military expence - by land and sea 109 000 000 4 844 444 8 10 - ——————————— ———————————————————— - Royal pensions 9 000 000 400 000 — — - The appointments of the King’s - ministers 310 000 13 777 15 6½ - Ditto of the first presidents - of all the parliaments in - France, expence of criminal - prosecutions, and many other - articles of that sort 22 000 000 977 777 15 6½ - Appointments of the venal - employments, of the robe, - treasurers, receivers, - comptrollers, &c. 10 000 000 444 444 8 10½ - Bridges, highways, dykes, &c. 4 000 000 177 777 15 6½ - For the royal academies 1 400 000 62 222 4 5¼ - To the King’s library and - archives of France 1 800 000 80 000 — — - Extraordinary and casual - expence upon the two last - articles 400 000 17 777 15 6½ - For lighting and cleaning the - city of Paris 840 000 37 333 6 8 - Appointments of the secretary - of the cabinet council, for - couriers, and other expence 1 400 000 62 222 4 5¼ - Ditto of ministers at foreign - courts 1 800 000 80 000 — — - ——————————— ———————————————————— - Total sum of this branch 52 950 000 2 353 333 6 8 - ——————————— ———————————————————— - Interest at 2½ _per cent._ - upon 990 000 000 livres, or - 44 000 000_l._ sterl. of the - late King’s debts, - constituted after the - bankruptcy 1720 24 750 000 1 100 000 — — - Interest at 2½, upon 94 - millions due to the company - of the Indies, upon their - old accompts 1720 2 350 000 104 444 8 10½ - Farther allowed to the - company, for paying their - dividends 2 400 000 106 666 13 4 - Annuities on lives constituted - during the last war 16 000 000 711 111 2 2½ - ——————————— ———————————————————— - Total interest of debts 45 500 000 2 022 222 4 5 - ——————————— ———————————————————— - -Footnote 31: - - These reductions of French money to sterling, are computed at the rate - of 22½ livres to the pound sterling. Hence 270 800 000 livres make 12 - 035 555_l._ 11_s._ and 1½_d._ sterling, or nearly 1¼_d._ as stated, - though the amount of the partial sums differs by 1_d._ - -This article of 16 millions of annuities on lives is the only charge -cast upon the King’s ordinary revenue, in consequence of the last war. - - Articles of revenue. Fr. money. Sterling ditto. - livres. l. s. d. - Recapitulation of the expences. - Expence of the court 28 600 000 1 271 111 2 2½ - Fixed military ditto, by sea - and land 109 000 000 4 844 444 8 10½ - Justice, pensions, &c. 52 950 000 2 353 333 6 8 - Interest of debts 45 500 000 2 022 222 4 5¼ - ——————————— ———————————————————— - Total expence 236 050 000 10 491 111 2 2½ - Total ordinary revenue at the - end of the war 282 300 000 12 546 666 13 4 - ——————————— ———————————————————— - The first deducted from the } - latter, Remains free } 46 250 000 2 055 555 11 1½ - ——————————— ———————————————————— - -Besides the articles of expence here stated, there are many others, to -which no limit can be set. The _comptant_, or the King’s private orders -for secret service, and many different expences, form a great article. -Subsidies also to foreign courts: in short, much more, in all human -probability, is spent, than all the produce of this permanent revenue -can answer. So that from this no relief from debts can be expected, -except so far as it may be augmented by the falling in of the annuities -on lives. But public debts are to be paid only by funds appropriated for -that purpose: and were this revenue to be relieved of the whole 45 -millions of interest charged upon it, I have little doubt but the King’s -expence would augment in proportion. - -I shall delay making any observation upon the nature of the impositions -which produce this revenue, until we come to the subject of taxes, to -which it naturally belongs. - -Besides this ordinary revenue of the Kings of France, which (if we -except 26 600 000 livres, or 1 182 222 _l._ 4 _s._ 5¼ _d._ upon the -capitation, added on account of the war only for a time) may be -considered as their civil list; there are other branches of revenue, -which are to be looked on as extraordinary supplies, imposed for raising -money in time of war, and for paying off the debts contracted, upon the -return of peace. Of this nature are _dixiemes_ and _vingtiemes_; taxes -very contrary to the spirit of the French nation, and to which they -never have submitted without the greatest reluctance, and only on very -urgent occasions. - -The credit of France fell very low towards the end of the former war, -which began in 1744, and ended in 1748. The parliament registred with -great unwillingness every edict imposing new burthens. The _dixieme_ was -a great augmentation of revenue, for the time it lasted; but being an -imposition which the Kings of France never have been able to make -perpetual, it could not be pledged for such large sums as are required -in time of war, and which no nation, however wealthy, can furnish -annually, as they are demanded. - -To supply, therefore, the want of a fund to be mortgaged, and -consequently the want of public credit, the King’s banker M. de -Monmartel, with other men in business, joined their credit, and supplied -the King’s extraordinary occasions. They opened a sort of bank _anno_ -1745, where they received money at ½ _per cent._ _per_ month, the -principal payable on demand. This fund gained credit; payments being -regularly made as soon as demanded. - -Upon settling accounts after the peace, _anno_ 1748, the King was found -indebted to this bank for a vast sum of money. In order to pay it, -lotteries were set on foot. The tickets were given to the bankers, and -they by the sale of them withdrew their own paper, which was circulating -with very good credit on the exchange of Paris. In order to furnish a -fund for this lottery, the King had interest with the parliament to get -a twentieth penny established, or one shilling in the pound, upon all -the revenues of private people in France, except the clergy, and some -hospitals. The same was charged upon the industry of all corporations of -trades and merchants; and to these was added a capitation upon the Jews. - -This was thrown into what they call the _caisse d’amortissement_, or -sinking fund; and appropriated for paying off the lotteries, and some of -the antient debts which were to be drawn, for this purpose, by lot; and -for other extraordinary expences incurred in consequence of the war. -This tax was to subsist, I believe, till 1767. It was this _caisse -d’amortissement_ which was shut up in 1759, by which step a mortal blow -was given to French credit. - -Besides this first twentieth penny, there were five other taxes imposed, -and appropriated during a determinate number of years, not exceeding 15 -in some, 12 in others, for paying off the debts contracted in the war -ended 1748, and for some extraordinary expences of government. - -These shall be specified in the following general view of this branch of -the French revenue. - - Second general branch. - -Extraordinary taxes established after the peace of Aix-la-Chapelle, with -their appropriations. - - Articles of revenue. Fr. money. Sterling ditto. - livres. l. s. d. - The first twentieth penny on - all income 23 800 000 1 057 777 15 6½ - Ditto upon tradesmen and - merchants incorporated 6 500 000 288 888 17 9¼ - Ditto upon the Jews 1 400 000 62 222 4 5¼ - —————————— ————————— - Total of the twentieth penny, - which formed a sinking fund, - shut up in 1759 31 700 000 1 408 888 17 9¼ - The farm of the posts and - _relais_ of France 6 000 000 266 666 13 4 - Two shillings in the pound of - the capitation added to it 5 520 000 245 333 6 8 - The farm of stamp-duties on - leather, and duties on - tanners bark 2 960 000 131 555 11 1¼ - The farm of duties upon - gunpowder and saltpetre 2 988 000 132 800 — — - Two shillings in the pound of - the twentieth penny added 3 170 000 140 888 17 9¼ - Total of this second branch - of } - French taxes } 52 338 000 2 326 133 6 8 - —————————— ————————— - Appropriations of this fund, as follows: - 1. For paying, during 10 - years, a part of the 990 - millions, of livres, of old - Annuities, charged above on - the King’s ordinary revenue, - and bearing an interest of - 2½ _per cent._ the yearly - sum of 5 000 000 222 222 4 5¼ - 2. To the India Company, in - discharge of a debt due to - them: for 12 years 2 000 000 88 888 17 9¼ - 3. For paying the prizes of - the bankers lotteries every - year as they are drawn: for - 12 years 3 800 000 168 888 17 9¼ - 4. Towards making good - deficiencies upon the funds - appropriated for the war, - yearly, till paid 18 700 000 831 111 2 2½ - 5. Ditto upon the funds - appropriated to the new - _Ecole militaire_ 1 200 000 53 333 6 8 - 6. For payment of perpetual - annuities created during - last war 14 500 000 644 444 8 10½ - 7. For making good - deficiencies upon the - artillery and magazines, - during the war 1744: for 12 - years, the annual sum of 1 800 000 80 000 — — - 8. Ditto upon the article of - foreign affairs 8 690 000 386 222 4 5¼ - Total appropriation 55 690 000 2 475 111 2 2½ - —————————— ———————————————— - -This branch of revenue appears, by this state, to be totally -appropriated to certain purposes. - -Were appropriations adhered to in France, and could one be certain that -debts are actually discharged, at the period appointed, in consequence -of the appropriation for that purpose, we might form a better judgment -of the _actual_ amount of the debts of France, than in fact any man can -do who is not in the administration. - -Of this second branch of taxes I consider the twentieth penny, the two -shillings in the pound augmentation upon it, and a like augmentation -upon the double capitation; amounting in all to above 40 millions a -year, as a resource which France may have at all times, in cases of -necessity; although I do not suppose it will be possible to establish -them as a fixed revenue. They will probably, however, as matters stand, -be continued, either in whole or in part, until the great load of debts, -recently contracted, shall be considerably diminished. - -As for the remaining sum, arising from the posts, leather, and -saltpetre, these I consider as perpetual; because by their nature they -are not burdensome to the people. - -We are not to understand that the annual sum of five millions of livres, -appropriated for paying off the capital of 990 millions of the old -annuities, bearing 2½ _per cent._ stated in art. 1st, was intended to be -applied to these capitals, at the rate they stand. In France it is -supposed that he who gets 20 years purchase of the interest of his debt, -is always fairly paid off; and people there are so fond of -reimbursements, even at this rate of making them, that when, about the -year 1755, a like scheme of paying off those old annuities was -suggested, it was upon condition that every one having, for instance, an -annuity of 100 livres, should, in order to be intitled to this -reimbursement, pay to the King 20 years purchase of it, or 2000 livres -ready money; and that being complied with, his contract was to be put -into the lottery wheel, with all the rest subscribed for, and if it -happened to be drawn, he was to receive 4000 livres; to wit, the 2000 he -had paid down, and the other 2000 as the value of a capital of 4000 -livres, at 2½ _per cent._ - -This every body must allow procures a wonderful facility in paying off -debts. If the English creditors could be engaged to enter into the -spirit of such reimbursements, government, I am persuaded, would not -apply so closely as they do, to reduce the interest upon them; whereby a -great distress comes upon poor widows and orphans, who have their all -vested in the funds. This inconvenience is avoided in France: the poor -are cherished by the comfort of high interest; the state is set free; -and the creditors rejoice in getting back their money, in any shape -whatever. - -The war of 1756 breaking out, obliged the King to think of every -expedient to increase his income. Had he set out by borrowing upon -annuities for lives, at 10 _per cent._ and by mortgaging his ordinary -revenue for the payment of them, his credit would have been more solid, -and the plan of running in debt more systematical: but in the end, it -would have involved him in the terrible dilemma of either making a -bankruptcy, in order to re-instate himself in the possession of his -ordinary revenue, or of making him depend more than he inclined upon his -parliament; whose authority is absolutely necessary for laying a -perpetual and regular imposition, which alone can form a solid basis of -national credit. - -He was therefore resolved, in one way or other, to increase the -impositions on the people in the time of war, in order to avoid the -consequences he foresaw from the loss of his fixed revenue. - -The King’s ministers at this time could not convince the parliament of -Paris, that in order to borrow money upon the best terms, it was -necessary to have a sure fund for paying the interest of it. - -It had been usual to borrow money, on pressing occasions, from the -farmers of the revenue, bankers, and financiers, as they are called, at -7 and even 10 _per cent._ They understanding the chain of the affairs of -France, used to obtain credit both abroad and at home, from people who -would not lend directly to the King; although they knew at the time of -the loan that the money was borrowed for his use. The reason was, that -the King was under an absolute necessity to keep faith with this set of -men, upon whom the credit of France has depended for many ages: and as -the profits they used to make were very great, ministers knew, by a sort -of instinct, when they had gained enough; and in clearing their accounts -in the usual way, a sufficiency was left to them, to repay what they had -borrowed from others. - -Perhaps the parliament thought, and perhaps with reason, that in the -main it was cheaper to borrow in this way, at 10 _per cent._ than in the -English way, at 3 _per cent._ because of the great facility in paying -off the debts which attended it; but this is only a conjecture. That -there was however a contrast of sentiments between the parliament, and -the minister of the finances at that time, who had contracted English -ideas of credit, is most undoubted; and it was this contrast which -brought on the bankruptcy in 1759, when the sinking fund was shut up -against the creditors by an act of power. To judge of the sentiments of -both parties with candour, let us then examine the plan of borrowing -proposed by the one, and by the other. - -The minister, M. de Silhouëtte, proposed to the King, to levy, as a -solid fund of credit to borrow upon, a general subvention, as it was -called, over all France; or in other words, to make the repartition of a -large annual payment, over all the cities, towns, villages, and suburbs -in France. - -This was to be divided according to the supposed wealth and quantity of -circulation every where. Every district was ordered to report to the -King’s council their opinion concerning the particular mode of raising -their proportional part of it, in the best way relative to their -situation. This report the council was to examine, and to approve or -amend the proposal given in, according to information. - -This was perhaps the best plan of taxation, if properly executed, that -ever has been thought of, for a nation already under a regular -administration of government, and accustomed to pay considerable -impositions. - -It removes the inconvenience attending all general taxes, which never -fail to affect unequally different places and districts. It admits of a -prudent mixture of excises, with taxes upon possessions, according to -the internal circumstances of every place. It confines them to towns, -where alone all excises at least can be levied with propriety. It -lightens the oppression of tax-gatherers; because the corporation may -employ whom they will for that purpose. In a word, it is a tax -administred with all the advantages of a farm. - -This tax, the general subvention, after it had been imposed by edict, -registred in a Bed of justice September 1759, fell to the ground, from -the nature of the French constitution; because it could not be levied -without a systematic administration, supported by the authority of the -courts of law, to which the parliament would not give their concurrence, -for a very plain reason. - -The general subvention being very extensive, and calculated for a fund -of credit to borrow upon, was, by its nature, of a species proper to -become a perpetual tax, as all excises are. The parliament of Paris -seemed to think it agreeable to the constitution, which they are sworn -to maintain, to preserve at all times in their hands a certain power -over the King’s purse, in order to prevent an extravagant minister from -impoverishing the King and the kingdom at once, or running them into the -inextricable confusion of an infallible bankruptcy. - -This circumspection of the parliament was represented in another light -at court; and odious parallels were drawn between what had happened in -England about the middle of the last century, and what soon might be -expected in France. - -Upon such topics every one judges as he is affected. The minister was -railed at by the parliament-party, in the most virulent manner. Who was -in the right, and who was in the wrong, upon the general question, of -the propriety of raising so large an imposition, to serve as a fund of -credit, under a government like that of France, I shall not here -examine. But that a solid fund should be provided, in one way or other, -proportional to the actual deficiency of the annual supplies, and to -what could not be raised within the year, for the uses of the war, was, -I think, entirely agreeable to principles. - -This the minister had proposed in the subvention, though perhaps the -plan was too great; and the parliament, when they rejected the proposal, -sensible that the exigencies of the state demanded a supply of money, -proposed in their turn, as an equivalent for the general subvention, to -coin for 600 millions of notes, which were to have the sanction of -parliament for their fund of payment; but no provision was made for the -ready circulation of them in the interim. - -Here then is an example where the sentiments of the French nation were -divided upon the principles of public credit. And this affords a good -opportunity of reconciling them, and of confirming the doctrine we have -been endeavouring to establish. - -The minister felt the disadvantage of the King’s borrowing upon a lame -security; he therefore proposed a solid and permanent fund of credit for -performing the obligations to be contracted with the creditors. - -The parliament, on the other hand, examined the situation of the people, -who, they thought, were no longer in a capacity to pay the taxes already -imposed; and therefore concluded, that it was unnecessary to establish -any new one. They therefore proposed to augment circulation, by -providing a means whereby alienations might be carried on, and by that -they expected to render the taxes already imposed more productive. - -Both parties were in the right, as commonly is the case in such -disputes; but they did not perceive how their opinions could be -reconciled. - -Had circulation been facilitated by the establishment of a bank upon -true principles, perhaps the taxes already imposed, might have produced -a sufficient fund for carrying on the war, without the expedient of the -general subvention. - -But the manner proposed by the parliament to increase circulation, by -paying with paper money, and not providing a fund for realizing it when -it came to stagnate, was an expedient entirely delusive. The paper would -soon have fallen to a great discount: the remembrance of the Missisippi -would probably have been revived, which would have occasioned the -locking up of the coin; and the kingdom might have been involved in the -greatest distress and bankruptcy. - -The minister should therefore have concurred with the parliament in a -scheme for establishing a bank: the King might safely have entrusted the -administration of it to parliament, and even have supplied coin from the -royal treasury for circulating the paper. But the minister, I suppose, -took it for granted, that taxes _would_ be paid, providing they were -imposed; and the parliament, that the paper _would_ circulate, providing -it was issued. - -The reasonings I have ascribed to each party in this dispute, are not -founded upon information: they are only natural conjectures which I form -from the opposition of sentiments between men who were all, I suppose, -well acquainted with the situation of France, and who respectively took -part according to the combinations which occurred to them. - -The remonstrances of the parliament at that time were filled with an -enumeration of distresses, all of which are the necessary effects of a -scanty circulation. In the King’s edicts there is strong reasoning upon -the principles of public credit. The candour I feel in my breast, while -I examine the merits of this important dispute, will I hope serve as an -apology for all mistakes in point of exact information. - -The result upon the whole was what might have been expected. The -subvention was dropt, and the proposal of the paper was rejected by the -King. - -The middle term adopted by the parties, shewed however, I think, that in -the main the minister had been in the right; because the taxes were -increased and paid: had the paper been issued, the success, I am -persuaded, would not have been favourable in proportion. - -But instead of a permanent subvention, a tax of the most odious nature -was established, which, from this very circumstance, there was little -danger of seeing long continued. - -In the preceeding year, a second twentieth penny upon possessions had -been imposed, to which had been added 2 shillings in the pound of the -tax itself; a new poll-tax upon certain classes of the people in -proportion to the number of their servants; an additional duty upon the -stamps upon silver and gold plate; higher duties on foreign manufactures -imported; and 20 _per cent._ on all former duties on consumption. The -second twentieth was to continue until two years after the peace; the -other duties for eight years longer. - -Notwithstanding this heavy load already laid upon property, the -parliament, rather than consent to the subvention, agreed to impose a -third twentieth penny upon possessions; and to render this tax more -productive, additional poll-taxes upon place-men, &c. were comprehended -in that edict. Thus ended the dispute: the minister was dismissed, and -the edict for the general subvention was withdrawn. - -Besides the second and third twentieth penny, several augmentations of -revenue were obtained during the last war, which I shall presently -mention, two of which, for their peculiarity, I shall briefly explain. - -The clergy of France, strongly pressed by the King, supported by his -parliaments, to give in a declaration of their income, in order to be -taxed at so many shillings in the pound, like other subjects, after many -evasions, at last succeeded in disappointing the scheme. They offered an -extraordinary free gift equivalent to the two twentieths, to be paid -annually until 1765, and this was accepted. - -The ordinary free gift of the clergy is at the rate of a million and a -half of livres a year; this they doubled and paid at the rate of three -millions a year, which we may consider as two shillings in the pound of -all the clergy possess in France, which makes their revenue to be about -thirty millions a year, and I believe it does not far exceed it. - -The other branch of revenue is something analogous to a circumstance in -the history of English taxes: it was called an extraordinary free gift -to be paid by every corporation in France. Charles I. had a very exact -valuation put upon all England, when he proposed to levy ship-money. -This was found so correct that it served for a basis to regulate the -distribution of the sum of 100 000_l._ a year paid to Charles II. for -his courts of wards and liveries[32]. - -Footnote 32: - - Davenant’s Ways and Means, Article of Monthly Assessments. - -In like manner the King of France had a very accurate estimate made of -all France, when he formed his edict for a general subvention, which had -pretty much the fate of the ship-money. And though the parliament -refused their consent to the great subvention, they agreed to establish -the epitome of it in August 1759: which see in the note[33]. - -Footnote 33: - - This free gift was imposed upon all cities, towns, buroughs, villages, - and suburbs, in France. And those lying within the jurisdiction of - every Intendant were joined in one sum, leaving the repartition of - them to those magistrates, as the custom is. - - For the generality of Amiens 153 300 - For the generality of Orleans 356 000 - For the generality of Paris 1 578 000 - For the generality of Chalons 200 900 - For the generality of Poitiers 265 200 - For the generality of Soissons 60 700 - For the generality of Tours 34 434 - For the generality of Rochelle 131 800 - For the generality of Bourges 105 600 - For the generality of Moulin 91 770 - For the generality of Riom 165 628 - For the generality of Lyons 397 454 - For the generality of Artois 150 000 - ——————— Sterling. - Sum total 3 690 786 £164 034 18 8 - - The duties imposed by this arret are to be levied upon all classes of - the people, nobility, commons, clergy, even nuns and monks; no - exception is made except in favour of hospitals for their own - consumption only. - -This tax, small as it is, may be of infinite consequence in times to -come. The great difficulty of raising taxes is in the beginning; and if -the levying of this trifle in every city, town, village, and suburb, in -France, be carefully conducted, with a view to subsequent augmentations, -and if it be properly distributed upon every branch of consumption and -revenue, nothing will be so easy to the King as, by his own private -authority, to enforce a gradual augmentation of it, and perhaps in time -to absorb in it, the whole, or at least the greatest part of the revenue -of his kingdom. - -Besides the two twentieths, and the free gift of the cities, several -other taxes of less moment were either imposed, renewed, or continued -for a longer term, and then sold for raising money for the service of -the year, viz. - -1_mo_, Five years of the free gift of the clergy of France, amounting to -15 millions, were paid down at once by that body. - -2_do_, That of the clergy of Alsace, paid in the same way, for the same -term, produced 3 millions. - -3_tio_, A duty on firewood, &c. in the city of Paris, valued at 3 400 -000 a year, sold for 7 years, for 10 millions. - -4_to_, Another duty upon the consumption of eggs, butter, &c. valued at -2 400 000, sold for 15 years for above 30 millions. - -5_to_, A like sum got from the farmers general, for allowing them to -raise the price of their tobacco 10 _per cent._ for 10 years. The annual -amount of this I do not know. - -6_to_, And in the last place, the third twentieth penny, which produced -36 270 000 a year, was sold for the two years for which it was imposed, -for 60 millions. - -Thus, of all the impositions raised during the last war, the second -twentieth, and an epitome of the subvention raised in all cities, towns, -villages, and suburbs, in France, remain unalienated. - -In order to throw all the light I possibly can upon the present state of -that nation, I shall next briefly recapitulate the extent of the annual -supplies raised for the service of the different years of the war, from -1756 to 1762 inclusive; in which I shall point out, as well as I can, -how this third branch of revenue was appropriated. - -It is in this manner only I can communicate to the reader what I can -guess concerning the present state of that nation. Could we know, as -with us, the amount of taxes, and outstanding debts at every period, -that detail would be unnecessary. - -The extraordinary grants of 1756, amounted to 121 millions, 5 377 -777_l._ sterling. - -In October 1755, the farms of almost all the taxes were renewed. Upon -such occasions, it is usual for the farmers to advance sums in -proportion to the extent of their farms, for security of the lease; for -which advances the King, at that time, allowed them an interest out of -their yearly farm-rent of 5 _per cent._ and the sums advanced were -appropriated for the service of the year 1756. Here follow the sums -advanced upon the several farms. - - Fr. money. Sterling ditto. - livres. l. s. d. - 1. Upon the general farms, - after repaying what had been - advanced upon the former - lease, nett into the royal - treasure 40 000 000 1 777 777 15 6½ - 2. Upon the farm of the posts - of France 3 000 000 133 333 6 8 - 3. Upon the farm of the stamps - upon leather 1 000 000 44 444 8 10½ - 4. Upon the farm of the - _paulette_ 1 000 000 44 444 8 10½ - 5. Upon the farm of duties on - gun-powder and salt-petre 1 000 000 44 444 8 10½ - 6. The farm of the market of - Poissi was sold for seven - years, for 15 000 000 666 666 13 4 - - This sum was the price of the - total alienation of the - duties collected in that - market for the whole time; - which duties should be - marked as a branch of - revenue; but as the annual - amount of them cannot be - ascertained, it is here - thrown in as an - extraordinary means of - supply arising from the sale - of a tax. - 7. Besides those casual supplies - from the new farms, there was - levied this year, for the sale - of five years revenue of the - free gift of the clergy of - France, to 1761 exclusive 15 000 000 666 666 13 4 - 8. And for that of Alsace 3 000 000 133 333 6 8 - 9. Raised by a lottery, for which - the annual sum of 3 800 000 was - set apart for 11 years 32 000 000 1 422 222 4 5¼ - 10. And for the sale of the - duties upon firewood, &c. in - Paris, for 7 years 10 000 000 444 444 8 10½ - ———————————— ——————————————————— - Total extraordinary supplies } - for 1756 121 000 000 5 377 777 15 5¾ - - The supplies for 1757, amounted - to 136 millions, £6 044 444 - sterl. - 1. Two lotteries, for which - were appropriated, for the - first, 3 800 000 during 12 - years; and for the second, 4 - 000 000 during 11 years. - These sums were annually to - be drawn, and paid every - year; for which was paid to - the King, for the first, 36 - millions; for the second, 40 - millions; together 76 000 000 3 377 777 15 6½ - 2. The ordinary revenue was - charged with 6 millions of - life annuities, at 10 _per - cent._ sold for 60 000 000 2 666 666 13 4 - ———————————— ——————————————————— - 136 000 000 6 044 444 8 10½ - - The supplies for 1758, amounted - to 135 millions, £6 000 000 - sterl. - 1. The first was a loan of 40 - millions, upon a perpetual - annuity of 5 _per cent._ - proposed to be paid off by way - of lottery, at the rate of 3 - 200 000 yearly — — 40 000 000 1 777 777 15 6½ - 2. The King obliged those who - have hereditary offices - proportionally to purchase - additional salaries, to the - extent of 1 million a year, - at the rate of 20 years - purchase, or forfeit what - they had 20 000 000 888 888 17 9¼ - 3. The additional 10 _per - cent._ upon the price of - tobacco, was sold this year - to the farmers, for 30 000 000 1 333 333 6 8 - 4. The ordinary revenue was - charged with 3 600 000 - livres, life-annuities, upon - two lives, at 8 _per cent._; - sold for the sum of 45 000 000 2 000 000 — — - ———————————— ——————————————————— - 135 000 000 5 999 999 19 11¾ - - The supplies for 1759, amounted - to upwards of 194 millions, £8 - 652 923 sterl. - 1. The first supply for this - year was the epitome of the - general subvention, called - an extraordinary free gift - from all the cities, towns, - burgs, villages, and suburbs - in France 3 690 786 164 034 18 8 - 2. 3 600 000 livres of - perpetual annuities, - borrowed upon the general - farms, at 5 _per cent._ - until reimbursement, sold - for 72 000 000 3 200 000 — — - These are called the contracts - upon the farms; each one - thousand livres capital. - 3. The free gift of the - clergy, for five years from - 1761 inclusive, sold at once - for 16 000 000 711 111 2 2½ - 4. The second twentieth penny - produced for this year 35 000 000 1 555 555 11 1¼ - 5. Sold to the magistrates and - heads of colleges in some - towns in Flanders, some - branches of their own taxes, - for 8 000 000 355 555 11 1¼ - 6. The ordinary revenue was - charged with 3 millions of - annuities, called - _tontines_, sold for 60 000 000 2 666 666 13 4 - ———————————— ——————————————————— - 194 690 786 8 652 923 16 5 - - The supplies for 1760, - amounted to above 251 - millions, £ 11 186 430 - sterling. - 1. The Paris-duties above - mentioned sold for 15 years 30 283 900 1 345 951 2 2½ - 2. The 3d shilling in the - pound sold for two years, - for 72 340 000 3 215 111 2 2½ - 3. The 2d shilling produced - this year 35 000 000 1 555 555 11 1¼ - 4. Raised by perpetual - annuities, at 3 _per cent._ - secured on the King’s - ordinary revenue[34] 60 000 000 2 666 666 13 4 - 5. The free gift of the - cities, &c. 3 690 787 164 034 19 6½ - 6. By a lottery at 5 _per cent._ - where the discredited paper - (the payment of which was - stopt, when the sinking fund - was shut up in 1759) was taken - in payment for one half, was - raised 50 000 000 2 222 222 4 5¼ - 7. Borrowed from the officers of the town-house of Paris, at 5 _per - cent._ - secured on the ordinary revenue 380 000 16 888 17 9¼ - ———————————— ——————————————————— - 251 694 687 11 186 430 10 7¼ - - The supplies for 1761, exceeded - 120 millions, £5 364 034 sterl. - 1. Charged upon the ordinary - revenue, 200 000 livres a - year upon lives and other - annuities, at 10 _per cent._ - in favour of the order of - the Holy Ghost, sold for 2 000 000 88 888 17 9¼ - 2. Borrowed on the duties upon - leather, at 3 _per cent._ 30 000 000 1 333 333 6 8 - - These were the annuities which - were ordered to be reimbursed - after the peace of 1763, at 20 - years purchase; and which, I - suppose, had been subscribed - for, partly, in discredited - paper. - 3. Charged on the ordinary - revenue, 4 millions a year, - for annuities at 8 _per - cent._ upon two lives, sold - for 50 000 000 2 222 222 4 5¼ - —————————— ——————————————————— - 82 000 000 3 644 444 8 10½ - 4. Besides these sums, there - was the amount of the 2d - twentieth, and the small - subvention, or free gift, - which continued to be - applied to the current - service, as they had not - been sold off; _inde_ 38 690 787 1 719 590 10 8 - ———————————— ——————————————————— - Total 120 690 787 5 364 034 19 6½ - - The supplies for 1762, - exceeded 159 millions, £7 - 076 923 sterl. - 1. The farms which had been - lett in 1755, came to be - again renewed this year; - from which arose a sum for - the security of them, of 83 200 000 3 697 777 15 6½ - 2. There was no borrowing this - last year of the war. The - second twentieth, which - never had been sold; the - third twentieth, which this - year became free, as it was - imposed a-new for two years - more; and the little free - gift by all the towns of - France; made together an - additional sum of 76 030 787 3 379 146 1 9¼ - ———————————— ——————————————————— - 159 230 787 7 076 923 17 4¾ - ———————————— ——————————————————— - -Footnote 34: - - When the bad consequences of shutting up the sinking fund were - discovered, the King opened subscriptions, such as were the _tontines_ - of the last year, this of 60 millions, and one the next year of 30 - millions; in which the discredited paper was received, in part payment - of the sum. This I suppose is the reason why the supplies of 1759 and - 1760 appear so high, and also why money appears to have been borrowed - at so low a rate as 5 _per cent._ upon tontines, and 3 _per cent._ on - article 4th of this year; because the interest of that part only which - was paid in specie is stated; not the interest upon the discredited - paper subscribed, which was paid out of the first twentieth. - -Recapitulation of the expence of the seven years of the war.[35] - - Fr. money. Sterl. ditto. - livres. l. - For 1756 121 000 000 5 377 778 - For 1757 136 000 000 6 044 444 - For 1758 135 000 000 6 000 000 - For 1759 194 690 786 8 652 924 - For 1760 251 694 687 11 186 431 - For 1761 120 690 787 5 364 034 - For 1762 159 230 787 7 076 924 - ———————————— ——————————— - Total 1 118 307 047 49 702 535 - ———————————— ——————————— - -Footnote 35: - - The Sterling money, in this recapitulation, is reduced to the nearest - integer, neglecting fractions of a pound. - -Having gathered together, from the best information I can, the amount of -all the extraordinary supplies raised in France, for the service of the -last war, let us suppose, that at the peace, no part of any capitals -borrowed had been paid off, according to the plan laid down for that -purpose at the time of contracting. Let us suppose, I say, that all the -lottery funds and life-annuities, as well as those annuities which were -intended to be paid off by way of lottery, stood at their full extent, -without diminution, at the peace, and then calculate what sum of debt -should have remained upon France in consequence of the war. - -As for the sums raised, either upon renewing the farms of the revenue, -the amount of new taxes imposed, or such branches of them as were sold -at once for a sum of money, they remain no debt upon the King; and are -therefore to be considered (as they really were) extraordinary resources -drawn from the people, without any recourse to credit or borrowing. - - Fr. money. Sterling ditto. - livres. l. s. d. - These sums collected from the - above supplies, and laid - together, amount to 520 926 948 23 152 308 16 — - ———————————— ——————————————————— - Let us then state the whole of - the supplies as above 1 118 307 047 49 702 535 — — - - And from thence deduct the - extraordinary resources - drawn from the people, as - above, to wit 520 926 947 23 152 308 16 — - ———————————— ——————————————————— - - There will remain a capital of } - borrowed money } 597 380 100 26 550 226 4 — - ———————————— ——————————————————— - Of this the life-annuities - (charged upon the ordinary - revenue) form a capital of 217 000 000 9 644 444 8 10½ - - The lotteries form a capital - of 108 000 000 4 800 000 — — - And the perpetual annuities, a - capital of 272 380 100 12 105 781 15 6½ - ———————————— ——————————————————— - In all, as above 597 380 100 26 550 226 4 5 - ———————————— ——————————————————— - -Let us next see the amount of annual payments for discharging either the -capital or the interest. - - Fr. money. Sterling ditto. - livres. l. s. d. - For the life-annuities until - extinguished, paid out of - the ordinary revenue 16 200 000 720 000 — — - - To discharge the lottery fund, - in 12 years at most 11 600 000 515 555 11 1¼ - - Suppose the perpetual - annuities all at 5 _per - cent._; _inde_ 13 619 000 605 288 17 9¼ - ———————————— ——————————————————— - Annual sum of interest 41 419 000 1 840 844 8 10½ - ———————————— ——————————————————— - - -Let me now draw up a state of the taxes raised for defraying the -expences of this war. In that I shall only comprehend such articles as -existed at the peace, unsold: as for the other, we may consider them -only as expedients for raising money for the current service; but which, -in time to come, may serve to augment the revenue. - - Third general branch. - - Fr. money. Sterling ditto. - livres. l. s. d. - - 1. The 2d twentieth, never - alienated 35 000 000 1 555 555 11 1¼ - - 2. The 3d twentieth, imposed - for the years 1762 and 1763, - not alienated 30 000 000 1 333 333 6 8 - - 3. The free gift of the - cities, towns, &c. never - alienated 3 690 786 164 034 18 8 - ———————————— ——————————————————— - 68 690 787 3 052 923 16 5¼ - ———————————— ——————————————————— - - -Let me now proceed to the fourth general branch of taxes, or of money -raised upon the people of France: 1_mo_, To the profit of the farmers: -2_do_, Towards defraying the expence of collecting the three foregoing -branches of revenue, which amount to about 403 millions: And 3_tio_, To -pay what is appropriated to certain purposes within the country, here to -be specified. - - Fourth general branch. - - Fr. money. Sterling ditto. - livres. l. s. d. - 1. First then, the net profits - of all the farmers of the - revenue are calculated to - amount to about 17 240 000 766 222 4 5¼ - 2. The expence of levying all - the revenue is calculated to - amount to about 10 _per - cent._ of the whole; _inde_ 40 300 000 1 791 111 2 2½ - 3. There is a revenue - appropriated for keeping up - the water-works at all the - royal palaces 1 200 000 53 333 6 8 - And to the invalids, St. Cir, - and the _hotel militaire_ 7 300 000 324 444 8 10½ - There are taxes imposed for - clothing the militia, to the - amount of 3 800 000 168 888 17 9¼ - All the towns in France have - particular branches of taxes - appropriated to themselves, - for pavement, buildings, &c. - and for maintaining the - police; which amounts to 15 000 000 666 666 13 4 - And the duties levied in the - courts of law for sentence - money, emoluments to the - judges (_epices_), and - expence of registrations, - the vast sum of 27 000 000 1 200 000 — — - ———————————— ——————————————————— - 111 840 000 4 970 666 13 3½ - -Formerly, all the officers of the courts of justice had salaries paid -out of the King’s revenue. These were insensibly diminished in every -reign, and those court-fees were augmented in order to fill up the void; -from which the greatest oppression ensues. - -If to the sum in this last article we add 22 millions above stated as a -charge upon the ordinary revenue for salaries to first presidents, &c. -and other expences of the law, we shall find that the article of justice -alone costs near 50 millions of livres, a year, to the public. The -greatest part of this sum should be considered as the interest of money -borrowed by the Kings of France, the capitals whereof are still -outstanding; and if the capitals were paid off, a great augmentation of -income would arise from it. But the bad footing upon which their credit -stands, renders even this burden expedient on some occasions; because -the King can oblige all those who have such hereditary offices, to lend -money upon an augmentation of their salaries. - -To conclude this enormous catalogue of taxes paid by the kingdom of -France, we must not omit the last branch, which comprehends the heads -following: - - Fifth general branch. - - Fr. money. Sterling ditto. - livres. l. s. d. - 1. What is paid for bulls, - dispensations, baptisms and - burials, to the pope, - bishops, and inferior - clergy, very near 10 000 000 444 444 8 10½ - 2. For the support of - hospitals, a sort of poors - rates 11 500 000 511 111 2 2½ - 3. To branches of impositions, - of various kinds, belonging - to private people, peers of - France, governors of - provinces, and officers of - all the royal jurisdictions - within the kingdom 20 000 000 888 888 17 9¼ - ———————————— ——————————————————— - 41 500 000 1 844 444 8 10¼ - ———————————— ——————————————————— - -General recapitulation of all the money raised in France by public -authority, for whatever purpose employed. - - Fr. money. Sterling ditto. - livres. l. s. d. - 1. The King’s ordinary - revenue as it stood at the - peace 1762 282 300 000 12 546 666 13 4 - - 2. The extraordinary revenue - raised at the peace 1748 52 338 000 2 326 133 6 8 - - 3. The extraordinary revenue - raised on account of last - war, and for the payment of - debts then contracted, not - sold at the peace 68 690 787 3 052 923 17 4 - - 4. The expence of raising the - taxes, and emoluments of - the farmers, with other - branches perpetually - appropriated for defraying - regular expences 111 840 000 4 970 666 13 4 - - 5. Taxes paid to the church, - poor, and private persons 41 500 000 1 844 444 8 10½ - ———————————— ——————————————————— - Sum total raised annually in - France 556 668 787 24 740 834 19 6½ - ———————————— ——————————————————— - - Charges, or appropriations of it. - - 1. Charges upon the ordinary - revenue _per_ list above 236 050 000 10 491 111 2 2½ - - 2. Ditto upon the second - general branch _per_ ditto 55 690 000 2 475 111 2 2½ - - 3. Ditto upon the third - general branch for - lotteries and perpetual - annuities constituted - during the war: the - life-annuities being - already charged in article - 1st 25 219 000 1 120 844 8 10½ - - 4. Ditto upon the fourth - general branch totally - exhausted _inde_ 111 840 000 4 970 666 13 4 - - 5. Ditto upon the fifth - general branch ditto 41 500 000 1 844 444 8 10 - - There remains - (unappropriated) for all - extraordinary expences of - state, which compleats the - sum total of what is - raised in France 86 369 787 3 838 657 4 — - ———————————— ——————————————————— - 556 668 787 24 740 834 19 6 - ———————————— ——————————————————— - -In this light does the state of the French affairs appear, from the -sketch I have been able to give of it. - -Had the sum of 86 millions, remaining as unappropriated at the peace, -been any way sufficient for paying off claims which have not appeared -upon the state we have given, and for all extraordinary expences, the -credit of France would not have been so low as it then was, and still -continues to be. - -The expence of a kingdom must constantly exceed the amount of all -regular and permanent income. - -At the end of a war what great sums of debts unprovided for are -constantly found! Taxes also, when stretched as they were, and imposed -in so great a proportion upon possessions, in respect of what was raised -upon consumption, must always diminish in their produce; but the expence -and charges never fall short. This is more especially the case in a -country where paper credit is not established. - -The constant complaints for want of money to carry on circulation in the -time of war, is a proof of it. When peace returns, and money is kept at -home, then all taxes are readily paid in France, and half the burden of -them is not felt, although they be more productive than before. - -As I said in setting out, I do not pretend that the account I have given -of this dark affair, is in any degree so correct as to satisfy a French -minister; but it is a rough sketch, which contains the general state of -their affairs; and if it be worth any man’s while, who is better -informed, he may correct it, and thereby bring on a farther inquiry into -the true state of the question. - -What interest a nation, which is not in an actual state of bankruptcy, -can have in concealing its affairs, I cannot find out. How much more -then is it not the interest of a mighty kingdom, which possesses such -amazing resources, to expose its situation in a fair light to the world, -to which it must, upon all occasions, have recourse for assistance in -point of credit? - -Of the many branches which compose this great national revenue of above -550 millions, there are several articles which must of necessity be cut -off, so soon as the debts are brought into a regular form. The double -poll-tax is most oppressive on the poorer sort, and therefore was -imposed only for a time: the three twentieths, as they are levied, are -no less so upon the higher classes of the people. - -These four articles amount, however, to 116 millions. If we deduct this -from the revenue, as we have stated the account of it, it will not only -exhaust the balance of 86 millions, but it will create a deficiency, -upon the whole, of 30 millions, which can only be compensated by -discharging a corresponding part of the burden of debts, while those -branches do subsist. - -But then the same resources are open upon every new emergency; and as -they have now begun to be collected, they will be more easily paid at -another time. - -Besides, what an acquisition will be made to the revenue by the -extinction of 16 millions of life-annuities, and by the expiration of so -many anticipations of taxes for terms of years! - -On the other hand, it is not to be supposed that the King will continue -to demand of the clergy, above 1 500 000 livres a year, or one shilling -in the pound upon their benefices. That body is becoming daily more and -more indebted, by the practice introduced of late, of making payment of -their free gifts to the King, by borrowing the money, instead of paying -every one’s proportion out of his benefice. This in time may oblige them -to accept of pensions for their benefices, and to make over their -revenue in tithes to the King: they will, at least, in one way or other, -become entirely at his mercy, and at that of their own creditors. - -Before I conclude, I must say a word concerning the method of levying -the taxes in France. - -The most general distribution I can make of this, is to reduce it under -four principal heads. - -The first comprehends the general _receptes_; to wit, the _taille_, or -land-tax, the _capitation_, or poll-tax, and all the twentieths. These -are administred by the intendants of the provinces, who both make the -distribution of them upon the subjects, and who levy them by officers -under their direction; and for the expence of levying, is superadded to -the taxes, 10 _per cent._ upon the whole. When they are collected, they -are paid in to the receivers general at Paris, who deliver them in, and -account for them to the royal treasury. - -The second comprehends all the taxes which are farmed. The farmers are -vested with the King’s authority for raising the duties let to them, -according to certain regulations; and as they are obliged to keep open -books, the expence of management is known, and at every new lease a -reasonable profit is allowed to them over and above. - -The third branch comprehends all free gifts of determinate sums of -money, imposed according to certain regulations prescribed to those -bodies politic who pay them; into which may be comprehended all taxes -upon the clergy; because they levy them themselves. - -The fourth comprehends retentions which the King makes out of the -salaries he pays. This needs no explanation. - -What farther observations may be made on this head will find a place -when we speak of taxes. - - ------------------------------------------------------------------------- - - - CHAP. VII. -_Comparative View of the Revenue, Debts, and Credit of Great Britain and - France._ - - -In comparing the state of credit in the two nations, I must first -observe, that it is not so essential to compare the _extent of the -revenue_ of both countries, as the _resources_ they have for obtaining -extraordinary supplies in case of need. - -Whatever be the permanent revenue of a state, we may be very certain -that the exigencies of it will be in proportion; and whenever any -extraordinary expence is to be incurred, it must be provided for by -extraordinary means. - -In examining the state of Great Britain and France, we have found this -observation verified. If the expences of the year do no more than absorb -the revenue of it, and if the sinking funds appropriated for paying off -incumbrances be properly applied, the state has no reason to complain. - -This distribution evidently points out how necessary it is not to -confound those branches of revenue which are appropriated to state -expences, with those which ought to be set apart for the payment of -debts and interest. This however I apprehend is too much neglected in -both kingdoms. - -If times of tranquillity be not made use of, to disengage those funds -which necessity had opened, it cannot be denied, that future exigencies -must then seek for a supply, from resources as yet undiscovered. - -That nation, therefore, which has certain branches of revenue lying -dormant in time of peace, has the advantage in point of resources. - -In this respect the advantage hitherto has lain on the side of France; -she has had her _dixiemes_, _vingtiemes_, and double poll-tax, which -have never been imposed except in cases of necessity. - -But on the other hand, Great Britain has a noble and opulent branch of -permanent taxes, which composes her sinking fund. Were this employed in -times of peace, as it ought to be, it would prove in time of war a more -ready fund of credit than any France can boast of. - -Those extraordinary resources of France cannot be mortgaged. They are -supplies for the current service; but they are no fund of credit. -Whereas the sinking fund of Great Britain is always ready in the mean -time to supply urgent demands. While this subsists, there is no danger -of being obliged to break faith with all the public creditors, upon a -demand for a million and a half sterling, as was the case with France in -1759. The one resembles a credit in bank; the other the rents of a great -estate. The sinking fund affords time to raise new supplies, in -proportion to the debts contracted; and if these, when new, and raised -in time of war, prove sufficient to answer the interest of the loan, -they will probably do more as they continue to be levied, and upon the -return of peace. - -One very remarkable difference between the state of credit in the two -nations is, that in Britain the object of attention is the rate of -interest; in France it is the speedy repayment of the capital. The great -care of a British minister is to support the price of the funds: the -meaning of which is, to keep the interest of money low. Did not the -price of the funds regulate the rate of money, the state would be nowise -concerned in the price of them. - -Now the credit of Great Britain is so firmly established, that she may -command money at all times, providing she will give the interest -required. - -The case is totally different in France. Her credit is not well -established; that terrible Missisippi-monument, of near a thousand -millions, standing fixed upon the ordinary revenue to this day at 2½ -_per cent._ first reduced from the most exorbitant interest, by -successive acts of power, after the late King’s death, and afterwards -from a moderate interest to 2½ _per cent._ in the year 1720, is reason -sufficient to deter monied men from lending to France upon perpetual -interest. - -In borrowing upon life-annuities at 10 _per cent._ and upon lotteries at -nearly the same rate, for 11 or 12 years, France obtains credit for -large sums. She also borrows with tolerable success at 5 _per cent._ -when there is a lottery-clause put in, which stipulates a large sum to -be annually paid for extinguishing the capital. The reason is, she is -more punctual to such engagements: they remain constantly under the eye -of the public: the stock-holders consider their money as constantly -coming in; and any interruption in the payment gives a general alarm. -But when funds are settled at perpetual interest, people lose sight of -the capital altogether. The contracts by which they are commonly -constituted, are not so easily transferred as other funds: in a word, it -is not the taste of the French nation to lend their money in that way, -and far less the taste of strangers; and the reason is, that as matters -have hitherto been conducted, it has by no means been their interest. - -Before the commencement of the late war, no security in France was -looked upon as better than the actions of the company of the Indies. -This was a fund of perpetual interest. They brought in to purchasers -little more than 4 _per cent._ and every body wished to have them. Every -action bore a dividend of eighty livres a year; and the action itself -sold from eighteen to nineteen hundred livres. The war had not lasted -four years, when the dividends were reduced to one half, and the capital -fell to about 700. - -In short, all perpetual funds in France, whether upon government or -company-security, are very precarious; and while this is the case, we -may decide that the credit they are built on is precarious also. - - ------------------------------------------------------------------------- - - - CHAP. VIII. - _Contingent Consequences of the Extension of Credit, and Increase of - Debts._ - - -Having applied the principles of public credit to the state of facts in -Great Britain and France, such as I have been able to collect, I must -observe, that all short sketches of this kind are intended only to -satisfy a general curiosity which mankind has, to know a little of every -thing. Although they may appear superficial and incorrect, to persons -thoroughly instructed in those matters, they still are for our purpose; -which is only to take them as something approaching nearer to truth than -bare suppositions can do; and they sufficiently answer the purpose of -illustrating the subject we are upon. - -I now proceed to inquire what may be the consequences of this mighty -change produced upon the policy of industrious and trading states, from -the establishment of credit, debts, and taxes. - -I have, from the very beginning of this inquiry, occasionally taken -notice of the influence that such a change must make upon the spirit and -manners of a people. The lower classes, who are slow in forming -combinations, do not soon comprehend the necessary consequences of such -revolutions. Even ministers have been often at a loss to judge of the -consequences which might follow upon some steps of their own conduct -relative thereto, although taken upon mature deliberation. - -When public credit is employed for raising money upon a plan of -refunding the capital, either by uniform annual payments exceeding the -interest, or by funds established for sinking the capital, no contingent -consequences can happen, providing the plan be executed: the debts -contracted will be paid, and matters will return to their former state. - -When public credit is employed for raising money upon payment of a -perpetual interest; or if, whatever be the plan laid down, capitals -should not happen to be discharged, and that the debts should swell -continually; in this case, the contingent consequences are many and -various, far exceeding any man’s sagacity to investigate. - -If we judge of them from what past experience teaches us, we may -conclude, that, in one way or other, all debts contracted will in time -disappear, either by being paid, or by being abolished: because it is -not to be expected that posterity will groan under such a load any -longer than it is convenient; and because in fact we see no very old -public debts as yet outstanding, where interest has been regularly paid. - -This is a very rational conclusion from past experience; but it is only -relative to the circumstances of past times. While the debtors are the -masters, there is no difficulty of getting clear of debts: but if the -consequence of this new system should be to make the creditors the -masters, I suppose the case might be different. Farther, - -In former times public debts were contracted between the state and its -own subjects; but at present we see that in such loans, foreigners, even -enemies, are invited to concur: and the better to engage them to it, a -total immunity is promised from all taxes upon the interest to be paid -by the borrowers. - -This circumstance has already drawn the attention of Princes, in the -discussion of their reciprocal concerns. We saw how, in the treaty of -Dresden, which took place after the King of Prussia’s invasion of Saxony -in 1745, it was provided by the 6th article, that all debts due by the -bank of the _Steuer_ to that Prince’s subjects, were to be paid, on -presentation of their contracts. - -We have not indeed as yet seen wars carried on for the payment of debts; -but the case may happen, and kingdoms may be carried off upon such -pretensions, as well as private property. What a chain of contingent -consequences arises from this single combination, were this a proper -place to introduce them! - -But without going to the supposition of Princes or nations becoming -reciprocally engaged in debts, and thereby involving such mighty -interests in the support of public faith, we may easily conceive, that a -monied interest, of a long standing, may have influence enough to -operate a change upon the spirit and manners of a people. - -Let me here take the example of Great Britain. Do we not see how the -spirit of that nation is totally bent upon the support of public credit? -And do we not see how absolutely their commercial interest depends upon -it? Can it be supposed, that every one has combined all the consequences -which may flow from the constant swelling of their debts? Or indeed is -it possible to determine what will be the consequences of them? This -however we may suppose at least, because we see the progress of it -already, that the interest of the creditors will daily gather strength, -both in parliament and without: and if from small beginnings it has -arrived at the pitch we now see, it is very natural to conclude, that, -in time, it may become stronger, and at last, that the creditors of the -nation may become the masters of it. - -When any one interest becomes too predominant, the prosperity of the -state stands upon a precarious footing. Every interest should be -encouraged, protected, and kept within due bounds. The following -speculations are intended for the application of principles to new and -unexperienced combinations; where natural causes _may_ work their direct -and immediate effects, and thereby prove prejudicial to the general -welfare, unless they be foreseen in some degree, and proper remedies be -prepared against them. - -Europe was possessed by our ancestors free from taxes; our fathers saw -them imposed, and we see how fast they become mortgaged for our debts. -We can as little judge of the extent of our credit, as they could of the -possibility of contributing so large a fund for the support of it. - -As the plan of imposing taxes has been extended, we see the public -coffers every day receiving a vast flux of money, and like the heart in -the human body, throwing it out again into circulation. Happy state, -could it be lasting, and were this flux and reflux preserved in a due -proportion to all the uses for which it is intended! But states have -their vices, as well as private people. Public opulence should be -proportioned to public exigencies: but how often do we see ambition -putting on the face of public spirit, and animating the resentment of a -nation, under colour of providing for her security? Hence wars, from -wars expence: recourse is had to credit, money is borrowed, debts are -contracted, taxes are augmented; all this increases circulation, which -demands a supply of currency: this is procured by melting down the solid -property. These operations performed, the public money is either sent -abroad, or remains at home. If sent abroad, more property must be melted -down, in order to fill up the void. If it remains at home, it will -animate every branch of circulation; and when the exigency, which -required this additional quantity of money, is over, what circulation -finds superfluous, will stagnate in the hands of the monied interest, -and will either form a new fund for contracting more debts, or it will -be laid out in the purchase of the property formerly melted down, which -produced it; and thereby will be consolidated a-new. - -Every interest in a state must influence the government of it, in -proportion to its consequence and weight; and every government must -influence the spirit of the people who live under it. - -Now, as we have seen how industry creates wealth; how wealth and -confidence create credit; how credit creates debts and taxes; how these -again occasion an augmentation of money, by the melting down of -property; and how this property is transferred to a new set of men, who -were once the monied interest, and who afterwards acquire the lands, and -consolidate this additional circulation; does not this chain of -consequences represent a kind of circle, returning into itself? And is -it not plain, that without the intervention of this engine, the money -created in proportion to the demand for it, the chain would be cut off, -before it could reach the link from which it first set out? Will not -this conversion of a monied interest into a landed interest, insensibly -inspire the bulk of the landlords with sentiments analogous to a monied -interest? Is not that evidently more and more the case every day in -England? And from this may we not prognosticate the solidity of public -credit in that nation? - -If on the other hand we find, as in France, industry in times of peace -drawing wealth from other nations, and thereby increasing the coin, upon -which alone credit is circulated through the kingdom; and then foreign -expence sending it away in times of war; must not circulation keep pace -with the coin, that is to say, be circumscribed within the proportion of -it? - -If the solidity and extent of the French King’s free revenue should -afford credit to borrow this coin; and if, instead of providing a -proportional supply of currency to fill up this new loan, the coin -borrowed be sent out of France; how will the ordinary circulation be -carried on? - -Let us here recal to mind what was said in the 22d chapter, upon banks, -where we distinguished voluntary circulation, which is buying, from -_involuntary_ circulation, which is paying: we there observed how -_paying_ must always take place of _buying_; consequently, we may here -determine that taxes must be paid before buying, that is consumption, -can go on. The deficiency therefore of coin for circulation, will, -first, proportionally affect the trade, manufactures, and consumption of -France, and afterwards the revenue which arises from them. Is not this -the constant complaint in France, when war carries off their coin? The -remonstrances of all their parliaments are filled with it. - -In times of peace, the amount of what comes from the people is greater -than in time of war: but then there is coin sufficient for all the -payments; and when they are made to the royal treasury, they immediately -return into circulation, and no hurt is felt. - -I insist the more upon this principle, and I introduce it in so many -different ways, and under such a variety of views, because I take it to -be one of the most important considerations in the whole doctrine of -credit, and one which I have never seen suggested by any French, or -English writer upon this subject. Many are the complaints for want of -money; but no method have I ever seen proposed for obtaining it from -solid property; the easiest and safest of all operations, when conducted -with honesty, and according to principles. - -As money therefore is the means of closing the chain of consequences -already mentioned, and forming it into a circle, as has been said, we -plainly see how, when it is wanting, the same effects cannot be -produced; and consequently the country of France, when money is confined -to the coin, will be very long in adopting the sentiments of a monied -interest; whether for its profit or loss, in the end, is not here the -question. - -We have now traced the contingent consequences of public credit so far -as to shew how it _may_ tend to influence the spirit of a people, and -make them adopt the sentiments of a monied interest. - -The allurement of acquiring land-property is very great, no doubt, -especially to monied men. The ease and affluence of those, on the other -hand, who have their capitals in their pocket-books, is very attracting -to the eyes of many landlords, especially at a time when they are paying -the heavy taxes laid upon their possessions. - -The firm establishment of public credit tends greatly to introduce those -reciprocal sentiments of good-will among the two great classes of a -people, and thereby preserves a balance between them. The monied -interest wish to promote the prosperity of the landlords; the landlords, -the solidity of credit; and the well-being of both depends upon the -success of trade and industry. - -Let us now suppose what is actually the case in Great Britain, that from -the swelling of public debts an enormous fund of property is created. -This is formed out of the income of the whole nation; and as it has been -purchased by those who have lent money to the state, in common language -it is included in what we call the monied interest: it is however very -distinct from it, as will be understood from what is to follow. - -The capital of the public debts is the price which was paid for the -annuities due to the creditors, and is now no more money to them than -land is money to the landlord. It may be turned into money, no doubt; -but so may land. - -By the monied interest, properly, should be understood, those who have -money, not realized upon any fund, and who either employ it in the way -of trade, in the way of industry, in jobbing in land, in stock, or in -any way they please, so as to draw from it an annual income. While it is -fixed, that is, given for any permanent value, it ceases to be money; -when it is called in, it becomes money again. Let stock, therefore, -suffer ever so many alienations from hand to hand, it still continues -stock: it never can become land, it never can become money, until it be -paid off. I hope this idea is clear, and understood. Stock, therefore, I -here consider as one great branch of solid property; so far as the -security of government is solid and good; and as such, may be melted -down into money by banks, as well as any other thing. - -Now I have said that this fund is formed out of the income of the whole -nation; consequently by _fund_, here, I do not understand the capital, -which exists no more, but the interest which is drawn for it: it is this -interest, I say, which arises from the land, money, trade, industry, &c. -From the land, out of the amount of the taxes charged upon it; from the -money, trade, industry, &c. out of the amount of proportional taxes, -such as excises, customs, salt-tax, stamp-duties, and the like. - -The more the debts increase, by the monied interest realizing into this -branch of solid property, the more the taxes must augment; and -consequently, the more the solid property of the funds themselves will -be affected, as well as the land. - -From this exposition of the matter, I think it appears pretty evident, -that as proportional taxes affect every man’s income, according to his -consumption; the landlord, _cæteris paribus_, who pays a land tax, as -well as his proportion upon his consumption, is more hardly dealt with -than the proprietor of the other branch of solid property, the funds, -who only pays the proportion of the last. - -But the condition of the stockholder is not equal to that of the -landlord, for two very plain reasons. The first is, that the income of -his stock cannot increase; that of the land may. The second is, that the -swelling of this great capital of stock has the effect of sinking the -interest upon it, and consequently of diminishing the income of the -stockholder; and in proportion to that diminution, the value of land is -augmented. Now I readily allow that the augmentation upon the _value_ of -lands is no inducement to a landlord to turn them into money; because he -would then lose upon his money, what he gains upon the additional price -received. But it is a great advantage in this respect, that he thereby -diminishes the interest he pays upon his debts, if he has any; and if he -has none, it enables him to borrow at a lower rate for the future; and -by improving his lands with the money borrowed, he augments his income -much beyond the proportion of the interest paid. - -It is therefore necessary, in imposing land taxes, rightly to combine -every circumstance; that the load of all impositions may be equally -distributed upon every class of a people who enjoy superfluity, and upon -no other. If, after a fair deduction of principles, this shall appear a -thing possible to be done, we may expect to see statesmen engaged to -depart from the old maxim of grasping at what is readiest and nearest at -hand, to wit, the landed property, with a view to spare a class of -people, which, in a well regulated state, never can be made to feel the -burden of any proportional tax whatsoever; I mean the industrious poor. - -I now proceed in my inquiry into the nature and consequences of the -swelling of this great branch of property, the public funds. - -As to the nature of it, we have said already, that it is formed by -realizing money into stock. When government borrows, the lenders must be -people who have money. If the loan is made at home, the money is no -sooner paid in, than it is spent; and as we may suppose that it would -not have been lent, had either the lenders found it necessary for their -current expence, or had they found a more profitable way of realizing it -than by lending it to government, we consider it as in a state of -stagnation; but being lent to government, it is thrown into a new -channel of circulation. - -Farther, this money stagnating in the hands of the lender, either -proceeded from his income, which exceeded his expence, or from the -profits of his industry. In either case, the country is neither poorer -or richer, when considered in a cumulative view, than if the same sum -had been lent to private people at home. - -Let us next suppose the money to have been borrowed for the exigence of -a foreign war. In this case, if it be borrowed at home and sent abroad, -it must first be converted into the money of the world, gold and silver, -and then sent off, to the diminution of this kind of property; or it -must go abroad in the money of the country, credit, to the diminution of -the annual income upon which the credit is established. As this last -operation may not be so clear, an example will explain it. - -Government borrows a million; it is paid in paper, and must be sent to -Holland. If at that time a balance be due by Holland for a million, -bills will readily be found for it. In this case, the balance of trade -is borrowed by government, and is converted into a capital of a million -in the public funds, the interest of which will remain at home, and -continue to be the property of the nation. But as the value of this -balance is sent to Holland and spent abroad, it is, upon the whole, to -the nation, as if the balance had not been due to them. This I call a -_lucrum cessans_ to the country. - -But suppose no balance due at the time the million comes to be sent off, -I say the consequence will be, to alienate in favour of foreigners a -part of the annual income, proportional to the whole interest paid for -the loan, whether it has been subscribed for by foreigners, or by -natives. - -If the subscription comes from foreigners, the consequence is evident: -it is equally so in the other case, upon a little reflection. - -Suppose then the million subscribed for, and paid in London. Bills are -sought for; none are found, I mean in the way of reciprocal -compensation, does not this sum immediately become a balance against -London? And as a country loses all such balances, and that the country -to which they are due gains them, this million is lost to England, and -forms what I call a _damnum emergens_; that is to say, her former -property or income is so far diminished, or comes to be transferred to -strangers. - -From this we may conclude, that in all matters of public borrowing, it -is of no consequence whether the subscription be filled by natives, or -by foreigners, when the value of it is to be sent abroad. - -Let us next examine the state of the question when the loan is made in -order to be spent at home, as is the case after a war, when the unfunded -debts come to be paid off. - -We have said that loans are filled by money stagnating, which the owner -desires to realize: if he cannot do better, he lends it to government; -if he can do better, he will not lend it. - -While the uses of domestic circulation absorb all the money in the -country, that is to say, when there are private persons ready to borrow -all the money to be lent, at this time government cannot borrow at home; -and if they did, by offering a high interest for it, the borrowing would -do harm to circulation; because it would raise interest at home, or -disappoint those who would gladly borrow it, for little more than the -interest offered by government. - -Let us next suppose that after a war, when the unfunded debts are either -bearing a high interest, or selling at discount, government shall find -an advantage in opening a subscription, which may be filled from abroad, -at a lower rate than the then actual value of money. Suppose, I say, the -Dutch should be willing to lend at 3 _per cent._ while money in England -stood at 4 _per cent._ I ask if, in this case, government ought to -borrow from Holland, at the expence of sending the interest out of the -country, rather than suffer such debts to sell at discount; or to -continue paying a higher interest at home for what they owe? - -It is my opinion that still they ought to borrow, for the following -reasons. That if the high interest at home proceeds from want of money, -that is to say, from circulation not being full enough, it is their -interest to borrow, were it for nothing else than to supply circulation; -because unless this be full, all industry must languish. But suppose it -should be said that circulation is full enough, that industry suffers no -check from that quarter, but that there being no superfluity of money, -interest stands 1 _per cent._ higher than it would do were there -considerable stagnations. In that case also, I think it is their -interest to borrow, were it for no other reason than to produce such -stagnations. - -It is a general rule every where, that there is no having enough without -having a superfluity; at least there is no certainty of one’s having -enough without finding a superfluity. Borrowing, therefore, in small -sums, at such a time, will produce stagnations at home, from which -succeeding loans may be filled, after circulation is sufficiently -provided: and even in case more should be borrowed from strangers than -is necessary, and that in consequence of it, too much should come to -stagnate at home, after the demand of government is over, in that case, -the monied interest would lend, in their turn, to other states, where -interest is higher; and the annual returns from that quarter would more -than compensate what must be sent away, in consequence of the former -borrowing. - -From these combinations, let us draw some conclusions. - -1_mo_, That the effect of public borrowing, or national debt, is to -augment the permanent income of the country, out of stagnating money, -and balances of trade. - -2_do_, That this income so created, may be either the property of -natives, or of strangers. - -3_tio_, That when money is found to stagnate, in a country where -circulation is not diminishing, it may be supposed to proceed from the -coming in of a right balance of trade. - -4_to_, If stagnations in one part are found to interrupt circulation in -another, public borrowing, for domestic purposes, has the good effect of -giving vent to the stagnation, and throwing the money into a new channel -of circulation. - -5_to_, That the sum of interest paid by any nation to strangers, shews -the general balance due by the nation, after deducting all the profits -of their past trade out of all the expence of their foreign wars. - -But here it must be observed, that as on one hand we are comprehending -all that is paid to foreign creditors, on account of the funds they have -in England, for example, so on the other hand, must be deducted from -this, all the like payments made to Englishmen by other nations. - -6_to_, From this last circumstance we discover, that the lending to -other nations by private hands, produces the same effect to a nation as -if the state were actually paying off the debts due to strangers. -Consequently, when Moses permitted the Jews to lend to strangers at -interest, and forbade such loans among themselves, his view was to -establish a foreign tribute, as it were, in favour of his own nation, -instead of establishing luxury at home. - -7_mo_, As the balance due to a nation upon her trade, is found to -compensate, _pro tanto_, the money she spends abroad, we may from the -same principle conclude, that so soon as she ceases to expend money -abroad, the balance of trade in her favour, if not realized at home in -some new improvement, will diminish, _pro tanto_, the interest, or -capitals due to strangers. This is evident from the nature of balances, -of which we have treated already. - -8_vo_, The consequence, for example, of England’s owing large sums to -strangers, will, from the same principle, constantly prevent exchange -from rising very high in her favour, when the balance of her trade is to -be paid to her: because on every such occasion, her foreign creditors -will be glad to disappoint exchangers, by furnishing bills for their -interest, or capitals, to those who owe the balance; the consequence of -which is plainly to diminish the foreign debts[36]. - -Footnote 36: - - We must always carefully avoid confounding the grand balance of - payments with the balance between importation and exportation, which I - consider as the balance of trade. - -This circumstance implies no loss to the nation which is creditor in the -balance of trade, and debtor upon the capitals; because we have proved -that the price of exchange never affects a nation, but only certain -individuals, who pay it to others. - -This is sufficient, I think, to point out in some degree the nature of a -national debt. I come next to examine the consequences of its constant -augmentation, without proper measures being taken, either to pay it off, -or to circumscribe it within certain bounds. - -In what is to follow, I shall throw all consideration of capitals -totally out of the question; and as to the amount of taxes, it is quite -indifferent whether the money proceeding from them be in consequence of -an improvement made upon those already established, or from new -impositions: such combinations will come in more properly afterwards. - -If the interest paid upon the national debt of England, for example, be -found constantly to increase upon every new war, the consequence will -be, that more money will be raised on the subject for the payment of it. -The question then comes to be, 1. How far may debts extend? 2. How far -may taxes be carried? And 3. What will be the consequence, supposing the -one and the other carried to the greatest height possible? - -I answer to the first, that abstracting from circumstances which may -disturb the gradual progress of this operation, before it can arrive at -the _ne plus ultra_, debts may be increased to the full proportion of -all that can be raised for the payment of the interest. As to the -second, How far taxes may be carried, I shall not here anticipate the -subject of the following book, any farther than is necessary to resolve -the question before us. - -Taxes, we have said, either affect income, or consumption. The land-tax -of England is now at 4 shillings in the pound, upon a supposed value of -the property affected by it, which is all real and personal estates, the -stock upon lands, and some few other particulars excepted. - -This tax may be carried to the full value of all the real estates in -England. As for personal estates it never can affect them -proportionally; and that part of the statute of land-tax which passes -every year, and imposes 4 shillings in the pound on personal estates, -carries in it a vestige of our former ignorance in matters ©f taxation. - -The notion of imposing (_facto_) 20 shillings in the pound upon the real -value of all the land-rents of England, appears to us perfectly -ridiculous. I admit it to be so; and could I have discovered any -argument, by which I could have limited the rising of the land-tax to -any precise number of shillings under twenty, I should have stated this -as the maximum, rather than the other. - -The second branch of taxes comprehends those upon consumptions, excises, -and the like. The maximum as to this class must be determined by foreign -trade; because this is affected in a certain degree by the price of -domestic industry. Other taxes have not this effect, as we shall shew in -its proper place. - -But as foreign trade is not essential to the domestic industry, -consumption, circulation, &c. of any nation, as has been proved in the -second book, but only to their increasing in wealth proportionally to -other nations; if foreign communications should be cut off entirely, I -perceive no limit to which I can confine the extent of proportional -taxes. Let me therefore suppose a term beyond which impositions of all -kinds must come to a stop, and then ask, in the third place, what will -the consequence be? I answer, that the state will then be in possession -of all that can be raised on the land, on the consumption, industry and -trade of the country; in short, of all that can be called income, which -they will administer for the creditors. - -When this comes to be the case, debts become extinguished of course; -because they come to be consolidated with the property: a case which -commonly happens when a creditor takes possession of an estate for the -payment of debts equal to its value. - -Then government may continue to administer for the creditors, and either -retain in its hand what is necessary for the public expence of the year; -or if it inclines to shew the same indulgence for this new class of -proprietors as for the former, it may limit the retention to a sum only -equal to the interest of the money wanted; and in that way set out upon -a new system of borrowing, until the amount of taxes be transferred to a -new set of creditors. This is the endless path referred to in the ninth -chapter of the second book, which after a multitude of windings returns -into itself. - -A state, I imagine, which would preserve its public faith inviolable, -until a period such as I have been supposing, would run little risk of -not finding credit for a new borrowing. The prospect of a second -revolution of the same kind would be very distant; and in matters of -credit, which are constantly exposed to risk, such events being out of -the reach of calculation, are never taken into any man’s account who has -money to lend. - -The whole of this hypothesis is, I readily agree, destitute of all -probability; because of the infinite variety of circumstances which may -frustrate such a scheme. I only introduced it to shew where the constant -mortgaging of a public revenue may end; and to disprove the vulgar -notion, that by contracting debts beyond a certain sum, _a trading -nation which has a great balance in its favour_, must be involved in an -unavoidable bankruptcy. To say that a _nation_ must become bankrupt to -itself, is a proposition which I think implies a contradiction. - - ------------------------------------------------------------------------- - - - CHAP. IX. - _Of Bankruptcies._ - - -In the last chapter we have been running through a chain of consequences -relative to the increase of public debts, which appear as extravagant to -us at present, as it would have appeared to Davenant, to have supposed -the debts of this nation to grow up to their present height, without the -risk of involving the nation in a general bankruptcy. - -But those consequences are only contingent. The present debts may either -be paid off, or the nation may be involved in a general bankruptcy. In -either case, the vast property in the funds, this great article of -permanent income, belonging to natives and to foreigners, must wither -and decay, and at last disappear altogether. - -We may therefore decide, that one of three events must happen, viz. -either, 1. Debts will swell to such a pitch as at last to pay -themselves: or, 2. The nation will be involved in a bankruptcy: or, 3. -They will be fairly paid off. - -The first supposition we have examined; the second we are now to -consider; the last will be the subject of the following chapter, with -which I shall conclude this book. - -I shall advance no argument to prove that the scheme of a public -bankruptcy is either lawful, honourable, or expedient, if voluntarily -gone into by a state; because I think it is diametrically opposite to -every principle of good government. It is a maxim uncontroverted, that a -contract is binding between the parties contracting, and that it ought -to be fulfilled in every article. If the public good be alleged as an -overruling principle, to which every other must give way, I readily -admit the exception. There is another of equal force, the impossibility -of performance. When such arguments are used to engage a nation to -commit a deliberate act of bankruptcy, two things must be examined: the -first, is the interest which the public has in adopting the scheme: the -second, the consequences of it. What reasons a state may have, I shall -consider afterwards; at present, I shall enquire what might be the -consequences of a general and total bankruptcy in England; from which we -may gather what difference it would make, were it only partial; and by -such an inquiry, we may be led to discover the proper method of breaking -faith, in case it should become unavoidable. This is what in another -place I called bringing credit decently to her grave; when after being -overstretched, it cannot longer be supported. - -A bankruptcy may take place in two ways: either as a consequence of -circumstances which cannot be prevented; or by a deliberate act of -government. - -Were the trade and industry of England to decay, the amount of taxes -might so far diminish, as to prove insufficient to pay the interest of -the national debt, and defray the expence of government. Were the people -to be blown up into a spirit of revolt against taxes, the same event -would probably happen. In either case, the natural and immediate -consequences of the bankruptcy would probably follow one another in this -manner: - -1_mo_, Every creditor of the state would become poorer in proportion to -the diminution of his income. - -2_do_, Consumption and the demand for work would diminish in proportion -to the part of that income withheld, which the creditors annually expend -for these purposes. - -3_tio_, Trade would _directly_ suffer, in proportion to that part of the -said revenue yearly thrown into it by the public creditors at present; -and it would _consequently_ suffer, in proportion to the hurt resulting -to private credit, from the consequences of the bankruptcy. - -The creditors then would lose all, the trade of England would be undone, -and the multitudes who live in consequence of the demand for their -industry from the one and the other, would be reduced to misery. These -immediate effects would first manifest themselves in the capital. The -consequences would soon be felt all over England: a diminution upon the -consumption of the fruits of the earth; a stagnation of that commerce -which is carried on between London and the country (which we have seen -to be equal to the amount of all the taxes and land-rents spent in -London) would soon throw every thing into confusion. But taxes would be -abolished: of that there is no doubt. Let a deliberate bankruptcy take -place without any abolition of them by law, they would soon sink to -nothing, from the utter impossibility there would be found to pay them. - -A total bankruptcy, therefore, coming upon England, either from a decay -of her trade, or a disturbance in collecting the public revenue, would -have the effect of plunging the nation into utter ruin at home: what -might be the consequences from abroad, I leave to the reader’s sagacity -to determine. - -Let me now suppose a bankruptcy to take place from a deliberate act of -power, with a view of expediency. - -The difference between the two consists only in this; that in the first, -all the consequences we have mentioned would follow one upon another, -without a possibility of preventing them: in the other, a plan to -prevent them might be concerted. - -Let me then suppose, that government shall find it expedient, at any -time, to use a spunge for the public debts; that they shall fear no -external bad consequences, either from the resentment of those states -who may be hurt by it, or from the ambition of others who may profit by -it; that they shall cooly resolve to sacrifice the interest of all the -creditors in favour of the whole body; and that they shall deliberate -upon the plan to be followed, in order to bring about so great a -revolution, without essentially hurting any interest in the state, that -of the creditors alone excepted. - -In that case, I imagine, they would begin by ordering the amount of all -that is paid to the creditors, to be set apart as a fund for the -execution of the plan. - -They would purchase all over England, every article of produce and -manufacture which might remain upon hand for want of a market: they -would feed all those who would be forced to be idle for want of -employment: they would instantly put proper employments into their -hands; one week’s delay in the execution of this part of the plan would -throw the manufacturing interest into such confusion, as to be past all -remedy: they would furnish credit to all the merchants subsisting, in -proportion to what they had lost by the extinction of the funds: they -would establish offices every where, to supply the wants of those who -would be totally ruined, until by degrees they could re-establish -confidence, the parent of trade, the mother of industry. By such -precautions, properly taken, and properly executed, none would suffer -but the unhappy creditors and their families, who, from great opulence, -would be reduced to poverty. - -As far as human prudence is insufficient for going through so great a -detail all at once; so far would the effects of a general bankruptcy add -hurtful consequences to those which in every case are unavoidable. - -Were a statesman endowed with the supernatural gift of turning the minds -of a nation at his will, and of foreseeing every consequence before it -happened, such a plan might be executed. Another who, with the greatest -capacity ever man was endowed with, would, for expediency, not for -necessity, deliberately undertake a general bankruptcy, I should -consider as a madman. - -I should rather prefer to submit to the natural consequences which might -result from an accidental bankruptcy, than endeavour to avoid them by a -plan too complicated for human wisdom to execute. - -Let us next suppose the scheme to be fairly executed from a view of -expediency, no matter how, and all inconveniences prevented during the -execution, what would be gained by it? - -If by the supposition all taxes be kept alive, for at least a certain -time, in order to prevent a total confusion, certainly no body could -gain during that period; even the state itself would lose, because every -branch of consumption would infallibly diminish. But that time elapsed, -and taxes reduced to the lowest, who would be the gainers? We shall see -when we come to the doctrine of taxation, that a sudden abolition of -them, in consequence of a bankruptcy, would be advantageous to no body, -but to creditors upon mortgage, and to the idle: not to landlords; -because their incomes would diminish more than in the proportion of the -present land-tax, at least their improvements would be interrupted, and -their rents ill paid: not to the manufacturing classes; because at -present they pay no taxes, but in proportion to their idleness or -extravagance, as shall be proved: the monied interest, not secured on -land, would I suppose be extinguished; trade and credit at an end. The -gains then would be confined to those who have money secured upon land, -where the capital is demandable. In such a situation, interest would -rise beyond all bounds; and a debt which might have been considered as a -trifle before, might then carry off an estate. The idle also who live -peaceably upon a very moderate income, would find a great advantage from -the fall of prices for want of consumption, and from the distress of the -industrious; but the indigent poor, who are supported from charity, -would suffer: all the great establishments for labour and industry, -would fall to the ground: the numbers of poor who are there maintained, -would come upon a society, which is beginning to lose those tender -feelings of compassion, which are more common in countries of idleness, -in proportion as misery is more familiarly before them. - -To say all in one word, a total bankruptcy, and abolition of taxes, -would bring this nation back to the situation it was in before taxes and -debts were known. - -Does any body imagine that our present situation is not analogous to our -present policy, and that it is possible that independently of the same -circumstances we should long continue to enjoy the advantages we feel? -No: were we in the same situation as formerly, we should feel as our -fathers felt. They had as good understandings to improve their -circumstances as we have; but they had to do with an idle, we with an -industrious common people. Trade and credit have been long at work to -perform this great revolution: the operation is not as yet compleated, -and a total bankruptcy now would destroy every good effect for a long -time. - -Were taxes made to cease, the large sums which proceed from them would -disappear entirely. Money would not, as some imagine, be equally -distributed among those who now pay the taxes, and so proportionally -increase every man’s income. The reason is plain: the money paid for -taxes, circulates; because it is demanded. Were taxes suppressed, people -having less occasion for money than formerly, would circulate less in -proportion. It is the necessity of paying taxes, which _creates_ this -money for the payment of them; and when this method of _creating_ is not -contrived, the taxes cannot be paid, as has been often said. Now it is -this great flux of money from taxes which animates the trade of England: -take them out of the circle, what becomes of the whole? - -To suppose, therefore, so great a revolution in the circulation of a -country, as that produced by the cessation of taxes; and to suppose no -interruption from it upon the state of industry, and the employment of -the people of this nation, is a proposition I must reject, as being -contrary to all principles; and to this among the rest, that it would be -a most sudden, and a most violent revolution; which throughout the whole -course of this inquiry, we have found to involve inconveniencies beyond -the power of any theory to extricate. - -Upon the whole we may determine, that the fatal consequences of a -bankruptcy would be many; and that the good resulting from a total -abolition of taxes, would be confined to two objects. 1. A relief to -those who pay them upon their possessions, or persons. 2. A diminution -of prices in favour of the idle at home, and of trade abroad: great -objects, no doubt, could they be obtained at less expence than the -consequences of a total failure of public credit and domestic industry. -Perhaps when we come to examine the principles of taxation, we shall -find that taxes do not raise prices so much as is generally believed; -and those which influence the application of public money, will point -out better expedients than a bankruptcy for comparing those great -national purposes. - -But let us suppose a case, which may possibly happen, as matters seem to -go on. Suppose, I say, that by continuing to carry on long and expensive -wars, the sum of interest paid to strangers should exceed all that the -nation can gain by her trade. In this case, there must be a general -balance of payments against her every year, which very soon would -manifest itself by the most fatal consequences. - -The bank of England would be the first to feel them, by the departure of -all the coin and precious metals. Trade would feel them next, and then -indeed they would become universal. - -In such a situation, I fairly acknowlege, that I cannot discover any -expedient to avoid a bankruptcy. Engaging the foreign creditors to -become citizens, by the allurements of the greatest privileges, and -bills of naturalization, are vain speculations. Unless some resource, -hidden from me, should, upon such an occasion, open itself, in the deep -recesses of future events, I believe the nation would soon be driven -upon the fatal rock of bankruptcy. The idea of a nation’s becoming -bankrupt to itself, I have always looked upon as a contradiction; but -that it may become bankrupt to the rest of the world, is quite -consistent with reason and common sense. - -I shall not take upon me to suggest what mode of bankruptcy would in -such a case be the best; a total, or a partial one. The partial, I am -afraid, would, in England, work effects almost as hurtful as the other. -But if ever the case should happen, the only way will be, to watch over -every symptom of the approaching catastrophe, and to improve -circumstances to the best advantage. - -Of what infinite consequence is it then for a British statesman to -inquire into the amount of debts owing to strangers, and into the state -of the balance of trade? In speaking of exchange, I threw out many -things concerning the idea of putting that branch of business into the -hands of the bank, in conjunction with the exchequer. Were the state -brought into the dilemma of either submitting to this gradual decline of -trade, from a cause which could not be removed; or of being pushed to -the necessity of leaping into the terrible gulph of a deliberate -bankruptcy; in such a dilemma, I say, what infinite advantages might not -be drawn from the management of exchange? - -I have heard it said, that the debt owing to strangers was a great -advantage to England; because it drew people to that market where their -funds are settled. I allow all the force any one can give to this -proposition: But alas! what would it avail, whenever England becomes -incapable to furnish goods equivalent to all her imports from abroad, -added to all she owes to her foreign creditors? - -I am very far from supposing the present situation of England to -forebode the approach of any such disaster; but it is good to represent -to one’s self some determinate object, by which we may judge of our -situation in times to come. - -Debts have increased far beyond the imagination of every mortal. Great -men have uttered prophecies, which have proved false, concerning the -consequences of a debt of one hundred millions. From this most people -conclude, that they will go on until some unforeseen accident shall dash -the fabric to pieces. I have been pretending to shew how they may go on -in a perpetual chain. But alas! one fatal combination was there omitted; -and now that it has been taken in, I think it serves as a datum, to -resolve the most important problem of this science, viz. How to -determine the exact extent of public credit. The solution of which is, -That it is not necessary that public credit should ever fail, from any -augmentation of debts whatever, due to natives; and that it must fail, -so soon as the nation becomes totally unable either to export -commodities equal to all their imports and foreign debts, or to pay off -a proportional part of their capital, sufficient to turn the balance to -the right side. - -From this proposition two corollaries may be drawn. - -1_mo_, That the most important object in paying off debts, is to get -quit of those due to strangers. - -2_do_, That whatever circumstance has a tendency towards diminishing the -burden of foreign debts, should be encouraged. - -If it be said, that whenever our foreign debts exceed the balance of our -trade, the best way would be to break faith with strangers, and keep it -with the subjects of the state: I answer, that were the thing possible, -which I apprehend it is not, the consequence might prove equally -hurtful. - -The greatest of all the inconveniencies proceeding from a bankruptcy, is -the ruin of industry, and the stop put to circulation. Can it then be -supposed, that a country might execute so glaring a scheme of treachery -to all her neighbours, and still continue her correspondence with them -in the open way of trade? Certainly not. Were all foreign trade to be -stopt at once, what a revolution would it occasion! The circulation of -foreign trade, in the city of London only, exceeds perhaps the amount of -all the taxes. A stop put to that would occasion such a stagnation, as -would ruin the nation as much as if the bankruptcy were to become -universal. I do not here pretend minutely to trace consequences, which -are infinite: all that can be done, is to suggest hints, which every one -may pursue, in proportion to the extent of his combinations. - -The intention of touching upon this subject at all, is to shew, that the -expedient of a spunge, which is frequently talked of as a remedy against -the consequence of debts, is, perhaps, more dangerous than any thing -that can be feared from them. The reason is, that the spunge implies a -more sudden bankruptcy than any one brought on in a gradual way, by -natural causes. - -Were natural and irresistible causes to operate a total failure of all -profit upon the trade of Britain, one cannot say how far the other -nations of Europe might not find it their interest to assist _us_, -providing we did our utmost to preserve our good faith to _them_. And as -I think I have made it sufficiently evident that nothing can be gained -by openly violating such engagements, the best resolution a nation can -take, is to adhere to them to the last extremity, and to banish from -their thoughts every idea which may be repugnant to them. - - ------------------------------------------------------------------------- - - - CHAP. X. - _Methods of contracting and paying off Public Debts._ - - -We are now to collect together, in one view, the several methods of -contracting and paying off the debts of a nation. Such methods may be -deduced, either from principles, or from what practice has pointed out. - -The foundation upon which public credit is built, is the existence of a -sure and sufficient fund for performing the engagements contracted. - -When, in the early times of public credit, the repayment of the capital -was the chief object of the lender, a much more extensive fund was -necessary than at present, when no more is required than the payment of -the interest. As such funds never can be formed but from taxes, or -general contributions from the people, the greater they are, the larger -must the contribution be. Whenever therefore there is occasion to -contract debt, the chief object of a statesman’s care should be, to -model the spirit of his people so as to dispose them to concur in the -proper resolutions to render the plan proposed as easy as possible in -the execution. - -In the first place, the body of the people must be made sensible that -the consequence of contracting debts must imply a diminution upon the -income of some individuals; but that the fewer the obstacles thrown in -the way of the loan are, the less will that diminution be. - -In the second place, he must gain the confidence of his people, so far -as to impress them with a firm belief that he will consult _their_ good, -and nothing else, in what he undertakes. - -And in the last place, he must gain the confidence of those from whom he -is to borrow; and convince them that all covenants between the public -and them will be religiously performed. - -In a limited and free government, these three requisites are essential -to the firm establishment of public credit. - -Where the power of the statesman is unlimited, he may substitute his -authority over the people, in the place of confidence; but with respect -to those who are to lend, he will find no room for any such -substitution: confidence _here_ is the only expedient. - -All therefore that is required as to the people, is to _enable_ them to -do what he requires of them. - -For that purpose he must establish credit with them, for finding the -contributions he is to exact of them; because they will have as much -occasion for it, in paying what is demanded of them by authority, as he -himself has in paying what he is obliged to in consequence of his -engagements. - -If this general plan be not followed, the consequence will be, that -taxes will fail on one hand, and public credit on the other. - -If all this operation cannot be previously concerted, the plan of -borrowing must be circumscribed to funds previously established. - -When money is borrowed before the fund is prepared, every obstacle which -occurs in establishing it is a drawback upon the confidence of those who -lend, and renders the conditions less favourable to the state which -borrows. - -In the contract of loan, the first article to be agreed upon is the rate -of interest. We have, in the beginning of this book, examined the causes -of its rise and fall; and have in general determined, that when the -demand is for borrowing, interest rises; when for lending, interest -falls. - -As the object of the borrower is to have interest low, the statesman who -intends to borrow, must use all possible means to increase the quantity -of money in circulation. - -But if coin alone be used as money, and if this coin be sent out of the -country, when borrowed, and if what is sent away cannot be replaced at -will, the scheme of augmenting money becomes impracticable: it will -daily become more scarce, more difficult to procure, and interest must -rise higher every day. Symbolical or paper money, that is credit, must -then be established at home, upon the firmest basis: this will enable -every one to pay what he owes; consequently, the taxes will be paid, the -creditors will receive what is due to them regularly, money will every -year augment in proportion as debts are contracted; and if borrowing do -not augment beyond that proportion, interest will not rise; and if -borrowing should fall below that proportion, interest will sink. - -Is not this whole doctrine verified in the strongest manner by the -operation of the Missisippi? At the death of the late King of France, -money had disappeared. Some years before, he had, for seven millions in -coin, engaged his kingdom for thirty-two millions; upon a distant fund -indeed, but still it became a debt to be paid. Paper money had not been -introduced three years, when interest fell to 2 _per cent._ The paper -indeed was a bubble _in fact_; but we have shewn that it became so from -bad management only. - -By the augmentation of money, capitals cease to be so valuable. By the -melting down of property, the very capital, though in the hands of the -state, may be turned into money by the creditor, whenever he has -occasion for it; in the same way as the coin which is buried in the -vaults of the town-house of Amsterdam, is constantly performing all the -uses of circulation. - -The method, therefore, of borrowing money to the best advantage, is -previously to establish a fund of credit, arising from annual taxes; to -provide the people who are to pay them with money in proportion to their -property or industry; and to prevent the latter from ever failing for -want of the medium, money, for carrying it on. - -So long as interest stands high, relatively to other states with which -you are at war, throw as much money as possible into the hands of your -creditors, in payment of the debts already contracted; because the more -you throw in there, the more you will draw out, if you have occasion to -borrow more; and if you have no occasion to borrow more, the lower you -will reduce the interest, by augmenting the fund of money to be lent. - -From these principles I conclude, that every nation which sets out by -contracting debts with its own citizens, must _begin_ by borrowing upon -condition of repaying the capital in a short term of years. This is also -the best method to engage the people to contribute largely without -murmuring. The reason is, that when taxes begin to be imposed, the mass -of circulation becomes proportionally augmented; and the paying back -considerable sums to the creditors, prevents, on the one hand, the debts -from increasing so fast, and supplies circulation, and facilitates new -borrowings on the other. While this plan of augmenting circulation is -carrying on, the statesman must prevent his expence abroad from -diminishing it proportionally at home. This is to be accomplished by -opening loans for foreign expence in foreign countries, and by paying -the _interest only_ of such loans, with the greatest punctuality. - -The difficulty of performing this, is no argument against it. It must -either be done, or credit will be hurt; because without obtaining credit -abroad, it is impossible to defray any expence incurred abroad, beyond -what the metals of your country and the exports from it can pay: that -is, in other words, beyond the quantity of metals exported, and general -balance in your favour upon all reciprocal payments with the world. - -If it be said, that nations never pay the interest of their debts any -where but at home, I answer, that it is so much the worse for them; -because wherever the debts or interest is to be paid, the lender always -states his account as if the payment were made in his own house. All the -expence to him of sending his money to the place of subscription, and of -drawing back his returns, are compared with the interest offered by the -borrower; and if upon the whole the lender finds his account in the -bargain, he subscribes; otherwise not. Since therefore the money -borrowed must in this case be sent abroad, it is an advantage for the -borrower to be under an obligation to provide a method of sending it; -and by that means he will borrow cheaper than he can do, when he refunds -to every lender all his expence and trouble in getting his interest -remitted to him. - -I am now deducing principles, and therefore shall not enter into a -discussion of the many objections which occur against this plan, from -foreign considerations; such as the facility it might procure to a -statesman of defrauding his foreign creditors, and several others which -might be formed: all I say is, that this is a cheaper and more -systematical way of borrowing, and it has this good effect, that it -constantly points out the state of the external debt, from which alone a -bankruptcy is to be feared. - -Were a favourable balance to return after an expensive war, the payment -of this foreign debt would be the consequence, as much as now when the -payment is made at home, and rather more so; because who ever owed a -balance (to England, I suppose) would then pay his debts at London, with -money due by England, payable at Antwerp, for example; consequently, he -would transfer at discount; and when he transferred in favour of an -Englishman, the debts may be considered as discharged upon the foreign -fund, and stated a-new upon the funds payable in London. Could the -payment of the interest of the public debts be rendred susceptible of -such transfers upon all occasions, it would, I imagine, have a -remarkable effect in favour of public credit. - -This thought suggested itself, while I was considering the situation of -a country where borrowing is in its infancy; and it occurred as an -expedient _for preventing foreign expence from draining the country of -the money necessary for circulation at home._ _This_, in every -combination of circumstances, is the most important object of a -statesman’s care, while he is engaged in wars abroad. - -Now whether the money of a country be paper or coin, it is equally taken -out of circulation, by every foreign payment. When it is coin, it goes -out of the country, as well as out of circulation: when it is paper, it -does not go out of the country, certainly, but by coming upon the debtor -in it for payment, it is equally taken out of circulation; and what the -debtor gives for it (viz. a bill of exchange upon another country) goes -out of the country. And unless that bill of exchange can be paid with -value exported in merchandize, it will remain a debt upon the country, -contracted in favour of some other nation. - -This I hope will be sufficient to recall to mind what has been so fully -explained in the 13th chapter upon banks; where the same question was -stated with regard to the payments Scotland was obliged to make to -England, towards the end of last war. The same principles operate in the -case before us, and may be applied to every circumstance of it; with -this difference only, that here the statesman’s interest is more closely -connected with that of his banks than was the case during the distress -in Scotland: because if he does not support them by a systematical chain -of conduct, he will drain the fund of circulation by his remittances; -his credit will fail; his taxes will not be paid; and his people will be -oppressed. But if he pursues his plan systematically, circulation will -be kept full; his credit will be supported; his taxes will be paid; his -people will be easy: because no check will be put either to industry or -to consumption for want of money; a great part of the former solid -property will be melted down into money; whatever part of that money is -lent to the state will be, by that operation, consolidated into a new -species of property, the public funds; and if after the borrowing scheme -is over (that is, when peace is restored) circulation should be -contracted, a part of the money will stagnate in the hands of -individuals, and will, in their favour, be realized in that part of the -solid property which was melted down in order to produce it. That is, -lands will be sold by the former proprietors, and will be acquired by -those who have money not realized in stock; and for which circulation -has no farther demand. This is the reason why, at the end of every war -which has run the nation in debt, lands have constantly risen in their -value, even when considerable quantities of them have been offered to -sale. - -If it be said that the stock-holders are those whom we commonly see -buying the lands, and not those who have sums not realized: - -I shall, in answer, observe, that the stock-holders can only buy lands -by selling their stock, to those who have money not realized; so it is -still the money not realized which is employed in buying every article -of solid property: and even after that operation, the money still -remains in circulation; because it is impossible to realize even paper -money itself, except when the creditor in it becomes proprietor of the -property upon which it is secured; and if the money be coin, it is plain -that this cannot be realized any farther than it is by nature. When -therefore we say, that a man realizes his money, we do not mean any -thing farther, than that he gives his money to another in exchange for -solid property. Thus when an estate is bought in a country where banks -upon mortgage are established, a part of the price is commonly taken out -of circulation altogether; because in consequence of the price paid, the -bank is refunded what it had melted down of the land sold; consequently, -that paper becomes consolidated a-new, as it were, with the lands which -are relieved of the mortgage. - -But when lands are sold in a country where there is no paper, the price -remains in circulation as before; and if the quantity of coin in -circulation should exceed the uses for it, a case which seldom happens -in these days, it would be exported, and realized abroad. - -When this complicated and systematical scheme of credit is not -established, the infallible consequence is, that money disappears: -consequently, interest rises. The taxes formerly imposed cannot be paid: -consequently, it is in vain to seek to augment them; because in -proportion as they are augmented, they become less productive. If money -be borrowed upon remote funds, engaged for other debts previously -contracted, and if public faith be at all events to be preserved, the -consequence must then be, that the public will be eat up by usurers. - -This was the case in England during the wars of Queen Anne. - -So early as 1706, government, as has been said, began to borrow at 6 -_per cent._ upon funds already engaged. What was the consequence? The -exchequer having no money to pay the interest as it fell due, paid with -tallies; these fell to great discount, and had they remained long in -that discredited situation, lending would have stopt, or interest would -have risen, as in France, so high as to lose the name of interest -altogether. This was the case, in the example above cited, when seven -millions ready money, borrowed by the late King of France, became a debt -of thirty-two millions on the state. - -Upon the occasion above mentioned, government availed themselves of the -bank of England, as I say every private citizen should have a power to -do, on every occasion, when his credit is good, though money should fail -him. They engaged the bank to discount all tallies issued for interest -of debts; that is, in other words, to turn those sticks into money: but -as public credit was so low that money could not be found to discharge -even the interest of the advance made by the bank, the government -consented, that all advances of that kind should bear compound interest -quarterly, at 6 _per cent._ What a monstrous profit to the bank! what a -charge upon the state! Had banks of circulation upon mortgages been -established at that time, money would have come in at a moderate simple -interest to individuals, who would have availed themselves of them, for -the payment of all public burdens. Instead of which, industry was made -to suffer; the public money did not come in; taxation stopt; expences -went on, and deficiencies were paid by the public at this monstrous -charge. - -On the other hand, had it not been for the assistance the bank then gave -the state, in circulating those exchequer tallies, bills, &c. it is very -certain that credit would have failed as totally in England as it had -done in France in 1708, when Desmaretz undertook the finances. This -minister had no bank to avail himself of, and accordingly he run France -in debt at the rate of two hundred millions of livres _per annum_, -during seven campaigns; of which, I am persuaded, he did not receive one -half, or near it, in effective value. - -What I have said will, I hope, be sufficient to shew that the only way -for any state to borrow, is previously to provide a fund for making good -what is agreed upon with the lenders; and that all expedients to supply -the want of it will in the end bring great expence upon the people, -either by involving them in an excessive burden of debts, in case public -engagements should be held sacred, as has constantly been the case in -Great Britain; or by driving the state to a bankruptcy, as was the case -in France upon the death of the late King. I call it a bankruptcy, -because _all_ that was owing was not paid. A man who pays no more than -19_s._ 11¾_d._ in the pound, is a bankrupt, as well as he who cannot pay -one farthing. - -I now come to the methods of paying off debts when already contracted. - -Public debts may be divided into two classes, redeemable and -irredeemable. Redeemable debts may be paid off in several ways, which we -shall briefly enumerate before we compare their several advantages. - -First then, such _debts_ may be paid off at once, by refunding to the -creditors the whole capital, with all arrears of interest. - -2_do_, _They_ may be paid off yearly, according to a certain rule to -determine the preference, and order of payment: for this purpose, a -determinate sum must be set apart as a sinking fund. - -3_tio_, _They_ may be paid off cumulatively and proportionally every -year, by incorporating the sinking fund into the money appropriated for -discharging the interest, and by placing all that is paid beyond the -interest, as payment in part of the capital. - -4_to_, _They_ may be paid in one sense, as shall be farther explained, -by reducing the interest upon the capitals, without diminishing them. - -5_to_, _They_ may be paid off by converting them into annuities for -lives. - -6_to_, And lastly, _they_ may be paid off under the value of the -capitals, by the means of lotteries; where the state may gain what the -creditors choose to lose from a desire of gaining. - -To one or other of these methods may be reduced all the fair and honest -expedients which a state may employ to get rid of their debts, without -any breach of public faith, or without proceeding to the extremity of -prescribing conditions of payment, which the creditors are forced to -accept against their will. - -As for the irredeemable debts, I apprehend, that, without consent of the -creditors, no change upon the condition of loan can justly be made. - -I shall next point out the advantages and disadvantages of the several -methods of discharging debts, as they may affect the separate, or -cumulative interest of a state. - -Were large debts which have subsisted for a long time to be paid off all -at once, it would occasion a sudden and a violent revolution, which is -always attended with inconveniences. - -Were, for example, the proprietors of lands to consent to sell off a -part of their estates for the payment of the public debts, the quantity -of land brought to market, would sink the price of it very considerably; -from which would arise a great detriment to landlords. I shall not here -inquire from whence such a sum of money could come. - -Could a treasure be brought from India (let me suppose) sufficient at -once to discharge the debts of Great Britain, circulation would become -so glutted with money, that interest would fall to nothing. This would -be a temporary loss to all the former creditors, until they had time to -lend to the other states of Europe, who would, in consequence of the -revolution, sink the rate of interest upon their own debts. Something -like this was the consequence of paying off all the debts of France with -bank notes in 1720, upon which interest fell, as we have observed above, -to 2 _per cent._ - -When, in the second place, debts are paid off partially every year, -according to a certain rule, it is expedient to have the capitals -reduced into shares of a determinate value, as is the practice in -France, that they may be drawn out as in a lottery. The lots drawn may -then be paid, and no detriment will follow to any particular creditor, -more than to another: because if by being paid there be either profit or -loss to the creditor, it will affect the value of the whole stock in -proportion. If, upon the establishment of such a plan, the stock be -found to rise, it will be a proof that either the interest formerly paid -was below the common rate, or that the credit of the state was looked -upon as precarious: if it should sink, contrary conclusions may safely -be drawn. - -This is a common method of paying off debts in France, where funds are -more commonly divided into shares than in Great Britain. - -In 1759, the King opened a subscription for seventy-two millions of -livres upon the general farms: this sum was divided into seventy-two -thousand actions, bearing 5 _per cent._ and it was stipulated, that upon -the renewal of the farms in 1762, twelve thousand actions should be -drawn by lot, and paid off monthly; so that in six months the whole debt -was to be discharged. - -The third method of applying what is annually paid above the interest, -in extinction of the capital, is the measure proposed by Cardinal -Richlieu for discharging the debts of France; only the Cardinal went to -work in a very arbitrary way, both in determining the interest, and in -fixing a value upon the capital, equally detrimental to the creditors. - -To apply this to an example. Had England at the time government first -established a sinking fund, arising out of the savings which were made -upon reducing the rate of interest, from time to time, continued to pay -to the creditors the same annual sums as formerly; and thereby applied -what was paid beyond the interest, to the payment of the capital, there -could not have been any misapplication of the sinking fund; and the -debts by this time would have been greatly diminished. Whereas by -applying the sinking fund to the service of the year, for the ease of -the people and advantage of the creditors, the consequences _may_ prove -exceedingly inconvenient. - -The fourth method of reducing debts is that adopted by Great Britain, -viz. by reducing the interest paid upon them. From this we discover the -reason why taxes, even in time of war, are seldom augmented in this -kingdom much above the proportion of the interest of the money borrowed. - -We have, in the second chapter of the first book, boldly declared this -to be against principles, and the authors of such a scheme were there -stigmatized as men of no foresight: we now see how much people may be -mistaken in their conclusions in political matters, when they are formed -upon too narrow combinations. - -Were capitals intended _ever_ to be paid, no doubt the conclusion would -be just; but if it be resolved, that capitals shall never be considered -as the object of attention, and that the interest alone shall be looked -upon as the real burden, then all payment of capitals is unnecessary, -except so far as by paying a part of them, it may serve to reduce the -interest upon the rest, by making money regorge in the market beyond the -uses found for it. - -This plan cannot be carried on while a nation is engaged in an expensive -war, which absorbs all the money to be lent: but it becomes the object -of a statesman’s care, after peace is restored, and when trade begins to -bring in a balance upon exportations. - -We have seen how that balance tends every year to diminish the capitals -due to strangers, and to keep money at home. Then is the time to extend -taxation beyond the uses found for money to pay the interest. Two or -three millions extraordinary, raised at the close of a war, and thrown -into the hands of the creditors of Great Britain, in extinction of their -capitals, would soon engage them to cry for mercy. They would find no -outlet but France for such sums; and it is precisely after a war, that -France is busy in playing off the arbitrary operations on her debts, -which reduces her credit too low for any one to trust her with money. -Let peace continue for a few years, confidence will there advance apace, -and then it will become more difficult to make money regorge in England. - -To say that taxes are already beyond all bounds, is, in other words, to -say the nation is no more in a state of defence: because should Britain -be again involved in an unavoidable war, the consequence will be, either -to render more taxes indispensable, or to oblige the nation to submit to -any terms demanded by her enemies. - -If it be therefore true, that taxes may still be augmented, the most -proper time for augmenting them, is, at the very close of a war; because -then every circumstance favours the scheme, as we shall now explain. - -We have said above, and experience proves the truth of it, that at the -end of a war circulation becomes too full for domestic uses; and that -the superfluity of money is realized upon property. This is the -consequence of a sudden stop in national expence. Were taxes at such a -time augmented, part of this regorging money would find a vent by the -augmentation upon domestic circulation which taxes would occasion; which -augmentation would circulate into the exchequer, instead of becoming -consolidated with property, as has been said, and coming into the hands -of government, would be poured into those of the creditors, in payment -of part of their capitals. There it would regorge a-new; because it is -observed, in general, that those who have property in the funds are not -apt to squander money when unexpectedly thrown into their hands; on the -contrary, they are commonly found to live very much within their -income[37]. - -Footnote 37: - - Experience shews, that when the debts of a nation have come to a - height, the public creditors become people of great consequence, upon - account of the ease and affluence of their circumstances. They are not - exposed to the many hidden expences incident to land proprietors. They - are a class in the state but lately known; the capital of their wealth - is hid; and opinions concerning their figure and rank are as yet - unformed. Whereas the family of a land proprietor is known; his - expence _may surpass_ that of his predecessors without much - observation; but if it should _fall below_ it, he commonly sinks in - the estimation of his neighbours, who seldom combine circumstances - which can only be guessed at. An heir to a landed estate, is bred up - from his infancy with the notion of living like his father: the son of - a monied man has commonly very different sentiments; and even when any - of this class takes a turn to expence, the lustre of it is all - displayed round their own bodies; that is, in their own house, and in - their own families: no country seats, hounds, horses, servants in - every quarter, family interest to keep up, little oeconomy in - spending. In a word, every one feels better than I can describe, that - landed men commonly exceed, and monied men commonly live within their - income. - -But suppose it should not immediately regorge, it would then increase -expence and consumption; consequently, would advance industry, and -render every branch of excises more productive. In every combination we -can form, public opulence would be augmented: money would regorge at -last; and then the creditors would come with their application to -government to suspend the reimbursement of capitals, and to accept, in -lieu of that, a diminution upon the interest. - -This is the golden opportunity for diminishing the public burden -occasioned by debts; and this method of compassing so desirable an end, -is far preferable to that of compelling creditors to submit to a -diminution, by offering a sudden reimbursement, which was put in -practice in Britain in the year 1749, as has been observed. Had the -public waited with patience one year longer, and then thrown in a few -millions more than they did into the hands of the creditors, the -proposal of reducing the interest would have come from the other -quarter; which in all bargains with creditors is of the greatest -consequence to the debtor. - -The sum of interest thus diminished, upon an obligation to suspend the -reimbursements of capitals for a limited time, three questions will -naturally occur: 1. Whether the taxes should be diminished in -proportion: or 2. If they should be allowed to subsist with a view to -apply the overplus of them to national purposes: or 3. Whether it may -not be most adviseable to turn such a part of the debts into annuities -for lives, as may absorb the saving upon the former interest paid. The -first two questions I reserve for the following book, where they will be -fully examined; the last is the fifth expedient proposed for acquitting -the public debts. As the nature of it is abundantly evident, I shall -only repeat what I formerly observed, that this method of establishing a -sinking fund, has the advantage of being less exposed to misapplications -than any other. - -The last expedient of paying off capitals, below the original value, by -the means of lotteries, should only take place after interest is brought -so low as to cut off any near prospect of reducing it still farther. - -I shall not pretend to guess at the lowest point to which the rate of -interest may be brought, by the expedients of increasing money at will, -by the means of banks upon mortgage. I have in the seventh chapter of -the first part of this book, thrown out a hint of a land-bank, which -opens a very wide field of speculation; but in this place, it would be -unnecessary to enlarge upon that subject. - -Let me suppose the rate of interest brought lower in Britain than -anywhere else, it will nevertheless be subject to periodical risings, on -many occasions. - -Upon every such emergency, capitals will sink in the market below par. - -It is then _only_ that a state can have recourse to this last expedient -of opening lotteries, and taking in subscriptions at the market price of -the funds subscribed into them. And although the annuities to be paid -upon the lottery fund be regulated by the rate of interest at the time, -and consequently considerably above the standard of the other debts; yet -the same methods of reducing it afterwards will constantly produce their -effects, and thereby diminish the capital by degrees. - -In like manner, in time of war, when the public funds fall greatly in -their price, government may open new subscriptions, and receive payment -for them in their own paper at the market price, allowing a small -premium in the rate of interest. If the creditors willingly subscribe -upon these conditions, no violation of public faith can be alledged. By -this operation, the capitals will be diminished, and the advanced rate -of interest paid during the war, will return upon the peace to where it -was: then the new subscriptions may be paid off, or subscribed for again -at a lower rate than before. - -Suppose it then resolved, that in time of war, the nation’s creditors -should be allowed, at certain times, to subscribe their capitals in -books opened at the bank for that purpose, one quarter _per cent._ above -the selling price. Would not this have the good effect of supporting the -price of stocks on one hand, and of reducing the capital of the national -debt upon the other? Example. - -Let me suppose that in time of war, the 3 _per cents._ sell at 74¾, -might not government receive them at 75, and constitute the new -subscription at 4 _per cent._? What interest could any one have not to -subscribe, who at such a time intends to sell his stock? His 3 _per -cent._ sold to government at 75, and turned into a 4 _per cent._ would -afterwards, when sold in the market, produce ¼ _per cent._ more than if -it had not been subscribed into the new fund. - -Perhaps in Change alley, where calculation is carried to the utmost -pitch of refinement, even this eventual advantage to government might -sink the value of the new 4 _per cents._ Let this be allowed. The answer -is, that when people compute with such nicety, and comprehend in their -calculations every circumstance the most minute, it is, I think, the -interest of a state (whose views should extend far beyond the period of -human life) to grant a premium upon such subscriptions more than -sufficient to indemnify the subscribers, according to the most rigid -calculation concerning their present advantage. - -The smallest profit to be discovered by the nicest pen will engage the -monied man to subscribe; consequently, the capitals of debts may be -diminished, at a loss to the public almost imperceptible. And for this -imperceptible loss in the mean time, the greatest national advantage may -be obtained at a distant period. - -It is now full time to close this book, which has swelled far beyond its -due proportion. The subject of credit and debts is so connected with -many questions relating to taxes, and to the application of their -amount, that the connection of the subject would have suffered little in -blending them together. But as I find it is a great relief to the memory -to interpose, now and then, a pause; and as taxes were intended to be -treated of by themselves, according to the plan I at first proposed, I -shall make no alteration in it. - -At the end of the first and second books, I subjoined a chapter of -recapitulation; in the third book, this was supplied by a very full -table of contents; here, because of the intimate connection of the -subject of this and the following book, I shall refer the reader to the -end of the volume, for a full recapitulation of both. - -END OF THE FOURTH BOOK. - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- - - AN - - INQUIRY - - INTO THE - - PRINCIPLES OF POLITICAL OECONOMY. - ------------------------------------------------------------------------- - - BOOK V. - OF TAXES, AND OF THE PROPER APPLICATION - OF THEIR AMOUNT. - - ------------------------------------------------------------------------- - - - INTRODUCTION. - - -The subject of taxes is so closely connected with every branch of -political oeconomy, that I have not been able to avoid anticipating a -subject, which, according to my plan, is left for the conclusion of this -work. - -What has been hitherto introduced concerning taxation, in treating of -industry, trade, money, credit, and debts, relates principally to the -effects of taxes upon circulation, prices, and several other things -relatively to those subjects. - -What therefore remains, not as yet touched upon, chiefly concerns the -principles which determine the nature of every tax, relatively to the -interest it is intended to affect. - -To investigate the different consequences of taxes when imposed upon -possessions, and when upon consumption, are questions which relate -directly to the principles of taxation. But in this book I shall also -have occasion to trace out, farther than as yet I have done, certain -combinations concerning the effects which taxes have in multiplying the -fund of circulation: and as the augmentation of taxes tends greatly to -increase money, I am thence led to examine, how far the advantage gained -by the suppression of taxes may not be more than compensated to a -nation, by the inconveniences proceeding from so great a diminution of -circulation. - -Taxes have all along been supposed to enhance the price of living; we -shall therefore have an opportunity of investigating the proper extent -to be allowed to that general proposition. - - CHAP. I. - _Of the different Kinds of Taxes._ - - -Taxes have been established in all ages of the world, under different -names of tribute, tithe, tally, impost, duty, gabel, custom, subsidy, -excise; and many others needless to recapitulate, and foreign to my -subject to examine. - -Though in every species of this voluminous category, there are certain -characteristic differences; yet one principle prevails in all, upon -which the definition may be founded. - -I understand therefore by _tax_, in its most general acceptation, _a -certain contribution of fruits, service, or money, imposed upon the -individuals of a state, by the act or consent of the legislature, in -order to defray the expences of government_. - -This definition may, I think, include, in general, all kinds of burdens -which can possibly be imposed. By fruits are understood either those of -the earth, of animals, or of man himself. By service, whatever man can -either by labour or ingenuity produce, while he himself remains free. -And under money is comprehended the equivalent given for what may be -exacted in the other two ways. - -I have no occasion to consider the nature of such taxes as are not in -use in our days. Tributes of slaves from conquered nations are as little -known in our times, as contributions of subsistence from the subjects of -the state. - -I divide, therefore, modern taxes into three classes. 1. Those upon -alienation, which I call proportional: 2. Those upon possessions, which -I call cumulative or arbitrary: and 3. Those exacted in service, which I -call personal. These terms must now be fully explained, that I may use -them hereafter without being misunderstood. - -A proportional tax presents a simple notion. - -It is paid by the buyer, who intends to consume, at the time of the -consumption, while the balance of wealth is turning against him; and is -consolidated with the price of the commodity. - -Examples of this tax are all excises, customs, stamp-duties, postage, -coinage, and the like. - -By this definition, two requisites are necessary for fixing the tax upon -any one: first, he must be a buyer; secondly, he must be a consumer. Let -this be retained. - -A cumulative or arbitrary tax, presents various ideas at first sight, -and cannot well be defined until the nature of it has been illustrated -by examples. - -It may be known, 1_mo_, By the intention of it; which is to affect the -possessor in such a manner as to make it difficult for him to augment -his income, in proportion to the tax he pays. - -2_do_, By the object, when instead of being laid upon any determinate -piece of labour or consumption, it is made to affect past and not -present gains. - -3_tio_, By the circumstances under which it is levied, which imply no -transition of property from hand to hand, nor any change in the balance -of wealth between individuals. - -Examples of cumulative taxes are land-taxes, poll-taxes, window-taxes, -duties upon coaches and servants, that upon _industrie_, in France, and -many others. - -A personal tax is known by its affecting the person, not the purse of -those who are laid under it. Examples of it are the _corvée_, in France; -the six days labour on the high roads, and the militia service before -pay was allowed, in England[38]. - -Footnote 38: - - The _corvée_ in France is the personal service of all the labouring - classes, for carrying on public works. Were they paid for in money, it - is computed they would amount to no more than 1 200 000 livres a year. - This tax was omitted in the account of the French revenue. - -Having thus explained what I mean by proportional, cumulative, and -personal taxes, it is proper to observe, that however different they may -prove in their effects and consequences, they all agree in this, that -they ought to impair the fruits and not the fund; the expences of the -person taxed, not the savings; the services, not the persons of those -who do them. - -This holds true in every denomination of taxes. In former days, when -annual tributes of slaves were paid, and even at present among the -Turks, where it is customary to recruit the seraglios of great men by -such contributions, I consider the young women who are sent, as part of -the fruits of the people who send them. This is a fundamental principle -in taxation; and therefore public contributions, which necessarily imply -a diminution of any capital, cannot properly be ranged under the head of -taxes. Thus when the Dutch contributed, not many years ago, the -hundredth part of their property towards the service of the state, I -cannot properly consider that in the light of a tax: it was indeed a -most public spirited contribution, and did more honour to that people, -from the fidelity with which it was made, than any thing of the kind -ever boasted of by a modern society. - - ------------------------------------------------------------------------- - - - CHAP. II. - _Of proportional Taxes, and their proper Object._ - - -Whatever exists for the use of man, so far as it is considered as a fund -for taxation, may be classed under the following heads: 1. The produce -or fruits of the earth; 2. the produce of the industry of man; or 3. his -personal service. Farther, - -Fruits cannot be obtained without the necessary labour of man and -cattle. As this labour presupposes all the necessary consumption of -maintenance, &c. the produce of the land must be understood, with regard -to taxes, to be that part of the fruits only which remains after -deducting an equivalent for all necessary expences in making the earth -produce them. The net produce alone of the earth is to be considered as -a fund liable to taxation; and every contribution which bears not a just -proportion to that quantity, is wrong imposed, as shall be shewn as we -go along. - -Again, as to the produce of work: this cannot be brought into existence -without some expence, viz. the maintenance of the workman; that is to -say, his food, raiment, fire, lodging, and the expence he is at for -tools, and every other necessary. This we shall, for the future, call -his physical-necessary. The value of the work, over and above an -equivalent for these articles, is the only fund to be taxed with regard -to the workman. - -As to work itself, we have seen above (Book II. chap. 26.) in the -general distribution of things which may be purchased with money, how it -was ranged under the class of things incorporeal. For that reason, the -work performed cannot come under taxation; and therefore the person -working, who by work acquires a balance in his favour, is brought to be -affected by proportional taxes upon the articles of his consumption; and -when it is found that these articles suffer no alienation before they -are consumed by him, and consequently escape taxation, then he may -either be laid under the cumulative taxes, which will affect his wealth, -or under the personal, which are paid in work itself, and in that -respect may be considered as the fruit of the man. - -Nothing would be so easy as a general rule for imposing proportional -taxes, did the labourers of the ground actually consume a part of the -fruits of the earth, and the other industrious classes a part of their -own work, in lieu of this physical-necessary. In that case, nothing but -what remained of fruits and work, not already consumed by the immediate -producers, would come to market for the use of those who do not work; -but who have an equivalent to give for it, out of the produce of past -industry. Were that, I say, the case, then at the time of alienation -(or, as we expressed it in the 26th chapter of the second book, at the -time when the balance of wealth is going to turn in favour of the -industrious, against the idle consumer) a tax proportional to the value -of the alienation might, with the greatest propriety, be imposed, as we -shall presently discover. - -This, I hope, will recall to mind the principles deduced in the chapter -above cited, where we made it appear, how the industrious classes, who -furnish consumable commodities for the price of their overplus, must -constantly have the balance of wealth turning in their favour: and when -once they arrive at a certain degree of ease, proportional to their -ambition, then they give over working, and become incorporated into the -class of those who have enriched them. - -Thus matters go on in a perpetual circle. The industrious become easy, -and the public lays the consumers under a perpetual contribution in -proportion to their expence. - -The hypothesis we have made, is not entirely agreeable to matter of -fact; because the operation of taxes is far more complex than we have -described it to be; but by simplifying it, as I have done, it serves to -give an idea of the result, or general consequence of proportional -taxes, which, when properly imposed, do affect the idle only, but never -the industrious. - -Were, I say, the operation of taxation as simple as we have represented -it, nothing would be more easy than to deduce its principles. Nothing -would come to be refunded to the labourer or workman, at the sale of his -surplus. This surplus would be equal to the whole produce of the earth, -and whole industry of the country, deducting the physical-necessary of -all the industrious; and this physical-necessary need not then be -deducted; because it is supposed to be consumed in the very production -of the surplus, as the aqueous part of sea water is consumed before you -can have the salt. - -This illustrates what has been said, viz. that the fruits of the earth -are only to be reckoned to exist, after deducting the necessary expence -of providing them. For though in fact a farmer possesses all his crop -after harvest, yet part of it, _as to him_, is virtually consumed out of -his own stock, or that of others who have furnished him food and -necessaries all the time it was coming forward: consequently, that part -neither belongs to the ground, or to the farmer. - -If it be urged still, that the whole must be supposed to exist with -regard to the state, I agree to the proposition; but according to our -argument, it must not be supposed to exist in favour of the state, to -the prejudice of the farmer; for this reason, that the total of the -farmer’s expence must be understood to have been taken from the surplus -of other people’s industry, and therefore if the crop be supposed to -exist with respect to the state, because it is in the farmer’s yard, the -surplus of industry which he has consumed must not be supposed to exist -in favour of the state, at the same time. But as the farmer is supposed -to have paid the tax upon what he has borrowed and consumed, he must -_draw it back_ from those who, in their turn, are to consume his crop: -and if he draws it back, he cannot be said to pay it, although the state -profits of it as much as if he did. - -Does it not appear from this analysis, that a state can only take -gratuitously and proportionally out of the surplus of fruits and -industry? Now what is here called surplus, relatively to the -industrious, is the necessary fund of consumption for all the rich and -idle; consequently, were the state to diminish any part of the -_quantity_, the idle and the rich would be deprived of a sufficiency: -but in regard that those who do not work give money, which is the price -of all things, in exchange for what they consume, there the state steps -in, and says, we ask nothing of those who have nothing but their -physical-necessary, this they have been allowed to take; we take none of -their surplus from them, this we allow them to sell to you: but as for -you, who do not work, and have in your coffers wherewithal to purchase -the labours of your industrious brethren, this labour you shall not -profit of, unless you give the state a certain value out of your wealth, -in proportion to the work and fruit you are going to consume, although -you have contributed nothing towards the production of it. - -Hence it appears evident, that without _money_ there could be no tax -imposed: for were the state to take their proportion of the real -surplus, and dispose of it out of the country, a part of the inhabitants -would be starved. But by an equivalent’s being found, quite different -from the surplus itself, of no use for subsistence, the whole produce of -industry is left for the use of those who have it; the state takes what -part of the equivalent they please from the idle; and no body starves, -but such as have not money, nor industry, nor the talent of exciting the -compassion of the charitable. - -By this simple representation of a most complicated operation, I have -been able to deduce the capital principle of proportional taxation. If -the reasoning be found solid, it may be retained; because we shall have -occasion to recur to it, at almost every new combination. - - ------------------------------------------------------------------------- - - - CHAP. III. -_How proportional Taxes are drawn back by the industrious, and how that - drawing back is the only reason why Taxes raise the Prices of - Commodities._ - - -What perplexes our notions in the theory of proportional taxation, is, -that the industrious man, instead of bringing his surplus to market, is -obliged to bring the whole of his work. - -Let me, therefore, suppose him to be creditor upon one part of his work, -and proprietor of the other. This will divide it, as it were, into two -parts, which I shall call (A) and (B). - -(A) represents that part upon which he is creditor, and answers to all -the expence he has already been at; that is, to his physical-necessary, -as we have called it. This we have said ought to be considered as -virtually consumed by the workman, and if a tax be raised upon it, it -must not affect _him_; that is, he must draw it totally back from the -person to whom he disposes of it. (B) on the other hand, represents that -part of which he is proprietor, to wit, his profit; and therefore may -either be taxed or not, as the state shall think it. - -If it be taxed in the hands of the industrious man, without suffering an -alienation, the tax will be of a cumulative nature. If it be left free -to him, and taxed to the person who buys it, it will be of the -proportional kind, as we shall see afterwards. Again, - -In the first case, it will check the growing wealth of the industrious -man; in the second, it will accelerate the dissipation of the buyer. - -Taxes, therefore, of the first kind, are proper to be imposed in -countries where the state is jealous of growing wealth, as we have -observed in the 25th chapter of the second book. If the tax, again, be -laid upon the buyer, then the balance turns in favour of the industrious -man, in proportion to the full amount of (B), and produces no other -effect than to accelerate the dissipation of the buyer. - -Let us now take in a new combination. - -If, when the work is brought to market and sold, the price shall not -exceed the value of the industrious man’s (A), then he is of the class -of those we call _physical-necessarians_, who accumulate no profits. If -the price of it be less than (A), he becomes a load upon the state, a -bankrupt to those who have fed him upon credit, and will die for want, -unless he be supported by charity. - -So far with regard to the seller: next as to the buyer. - -The buyer appears at market with his money. When he comes there he must -give, first, an equivalent for the prime cost of the merchandize; that -is, he must refund every expence necessarily incurred in producing it; -or he must refund the value of (A). Next, the industrious man has a -claim upon him for his profits, viz. his (B). Then comes the state, who -claims a part of his wealth, in regard that he is going to purchase what -his own industry has not produced. This is the tax; I shall call it (C). -This tax will be found of the proportional kind. It will not affect the -growing wealth of the seller, but it will accelerate the dissipation of -the buyer; and will pull down the scale against him, in favour of the -industrious. This is a proper tax, in countries where the state observes -the maxim of sharing the wealth of those who dissipate. - -Let us now take in another combination. Let us suppose this buyer to be -an industrious person, and the thing bought to be a necessary material -for the manufacture in which he is employed. Is it not plain, that when -the second industrious man comes to market to sell his work, which I -also suppose composed of his (A) and his (B), that his (A) is a still -more compounded body? It first includes his own physical-necessary, as -above: 2. the (A) and (B) of the man from whom he bought the materials: -and 3. the (C) which he paid to the state for the liberty of acquiring -what he himself had not produced. - -Whoever therefore buys from the second industrious man, must, in like -manner, refund to him his full (A); he must also pay him his (B); and -then he will find the state claiming their (C), as in the former -operation. - -This being done, let us examine the interests of all parties. The first -industrious man has no reason to complain of the tax; because he was -paid his necessary expence (A), and also his (B) for his profit; and the -state realized the tax at the expence of the second industrious man, who -paid it. Now we said that the dissipation of his wealth was accelerated -in proportion to the value of what he paid for (C); but as he is none of -the idle, and as the thing bought was a material necessary for his -manufacture, the second buyer finds himself obliged to refund the whole -amount of the first (A), (B), (C); because the sum of them make a part -of the second man’s (A). Now it is the refunding of this (C) to the -industrious man which is the only circumstance, from which proceeds the -rise in the price of commodities, in consequence of proportional taxes. -Moreover, the second buyer must pay the second industrious man’s (B), in -favour of the balance which is going to turn against him; and last of -all, he must pay the second (C), which is the share the state requires -of him, in order to accelerate his dissipation. - -Now let us observe, that if the commodity bought by the second -industrious man, be not necessary for the existence of his manufacture, -it cannot enter into his (A), and therefore must be diminished upon his -(B); and if his (B) cannot pay it, then he will owe it to some body, and -for the future must either abstain from such expences, or leave off -working, in favour of those who can live without them. - -Let me illustrate all this by an example. - -A tanner sells his leather to a shoemaker; the shoemaker in paying the -tanner for his leather, pays the tanner’s subsistence and profit, and -the tax upon leather. - -The man who buys the shoes for his own consumption, refunds all this to -the shoemaker, together with his subsistence, profit, and the tax upon -shoes; consequently, the price of shoes are raised, only by refunding -the taxes paid by the industrious. - -But if the shoemaker’s subsistence shall happen to include either tavern -expences, or his consumption on idle days, he will not draw these back; -because other shoemakers who do not frequent the tavern, and who are not -idle, will undersell him: he must therefore take his extraordinary -expence out of his profits; and if his profit be not sufficient, he must -run in debt to the tavern-keeper. - -The extravagance and idleness, therefore, of particular workmen does not -check industry, nor raise prices; for these will always be in proportion -to demand, and there is no reason why demand should either rise or fall, -because a particular workman is extravagant, or consumes a commodity not -necessary for his manufacture or subsistence. - -From this example there arises a new combination: that in proportion as -the industrious do not consume of the produce of their own industry, but -come to market with the whole, and then purchase the work of others, -they are considered, as to taxes, in the light of idle consumers, who do -not work, but purchase with money the fruits of the industry of others. -By this operation, the taxable fund is augmented beyond the extent of -the general surplus called (B). The reason is plain. Whatever is brought -to market is supposed to be surplus, as it _may_ there be bought by the -idle, as well as the industrious. The only difference is, that the first -do not draw back the tax, and that the second do, as we have already -shewn. - -From this reasoning we may conclude, that the way to carry proportional -taxes to their utmost extent, is to draw all commodities to market, to -engage every one to carry thither the whole produce of his industry, and -buy whatever he stands in need of. - -But which way will you engage either a farmer to sell his crop, and buy -subsistence from another; or a shoemaker to sell his own, and buy his -neighbour’s shoes? The thing is impracticable; and were it attempted, it -would prove an arbitrary proceeding, and a cumulative tax laid upon -their industry: a tax which, by the nature of it, they cannot draw back, -as we shall presently see, and from this circumstance alone proceeds the -whole oppression of it. - -Let me next analize the price paid by the last buyer, whom we have -called the rich and idle consumer of the manufacture, who can draw -nothing back from any body. - -Is it not composed of the whole value of the subsistence, of the work, -of the profits, of the tax? The whole reimbursement of all former -payments and repayments lands upon him. Those who have been at all the -expence, appear in the light of his servants and agents, who have only -advanced money upon his account. - -How absurd, therefore, is it either to say, that all taxes fall -ultimately upon land; or as others, for no better reason, pretend, that -they fall upon trade. I say, that this category of taxes which I have -now been describing, and which I shall still more fully explain in a -subsequent chapter, never can either fall upon, or affect any person but -the idle; that is to say, the not industrious consumer. If there be -found a possibility for any consumer to draw back the tax he has paid, I -say he is of the class of the industrious, in one way or other: and I -farther say, that such a tax raises the price of the commodity. But by -drawing back, I understand, that the repayment is an inseparable -consequence of his having paid the tax. I do not, for example, say that -a place-man draws back his taxes by the emoluments of his office: but I -say a brewer draws back his excise by the sale of his beer. - -Let this principle also be retained, that with respect to the -consumption of superfluities by the manufacturing classes, they must be -considered as being of the class of the rich and idle, as much as the -first Duke in England. When therefore the extravagance of the -manufacturing classes becomes general, and when the rate of the market -can afford them great wages, relatively to the price of necessaries, -such profits consolidate into the price of the manufacture, according to -the principles laid down in the 10th chapter of the second book. The -statesman then must endeavour to create a competition, by introducing -fresh and untainted hands into such branches. This will be a sure check -upon the industrious, and, if rightly applied, will prevent all frauds, -all pretences for the rise of the price of labour on account of taxes: -and, if carried to the full extent, will prevent any industrious person -from enjoying either a day’s idleness, or the smallest superfluity; -except in consequence of his peculiar dexterity, or extrinsic -advantages. - - ------------------------------------------------------------------------- - - - CHAP. IV. - _Of cumulative Taxes._ - - -I shall not repeat what I have already said concerning the -characteristics of this kind of imposition; but after citing some -examples, I shall examine it more closely, as to its nature and -consequences. - -The most familiar examples of it to an Englishman, are tithes, land-tax, -window-tax, and poors-rates. - -The most familiar examples to a Frenchman, are the _Taille_, _Fourage_, -and _Ustencil_, (which go commonly together) also the _Capitation_, the -_Dixieme_, the _Vingtieme_, and the _Industrie_[39]. - -Footnote 39: - - The _Taille_ is properly a land-tax, to which men called _noble_ are - not subjected. The reason of which is, that it was originally imposed - in lieu of such personal military services as were peculiar to the - lower classes. - - The _Fourage_ and _Ustencil_ are laid upon all those who pay the - _taille_, and are in proportion to it. The first is appropriated for - the subsistence of the cavalry, when they are in quarters; the last - for kettles and small utensils for the infantry. - - The _Capitation_ is the poll-tax. The _Dixiemes_ and _Vingtiemes_ have - been already explained, and tithes are well known to every one. - - The _Industrie_ is that imposition arbitrarily laid on by the - Intendants of provinces, upon all classes of industrious people, in - proportion to their supposed profits in every branch of business. - -The nature of all these taxes, is, to affect the possessions, income and -profits of every individual, without putting it in their power to draw -them back in any way whatever; consequently, such taxes tend very little -towards enhancing the price of commodities. - -Those who come under such taxes, do not always consider that their past -industry, gains, or advantages of fortune, are here intended to suffer a -diminution, in favour of the state; for which outgoing they have, -perhaps, made no provision. - -When people of the lower classes, instead of being subjected to -proportional taxes, are laid under such impositions, there results a -great inconvenience. They are allowed to receive the whole profit of -their industry, which in the former chapter we called their (B), the -state however reserving to itself a claim for a part of it: this, -instead of being paid gradually, as in a proportional tax, is collected -at the end of the year, when they have made no provision for it, and -consequently, they are put to distress. - -Besides, how hard is it to deprive them of the power of drawing back -what they pay? And how ill judged to trust money with those who are -supposed only to gain an easy physical-necessary? An equivalent for -procuring the articles of ease and luxury, should not be left in the -hands of those who are not permitted to enjoy them. - -From this we may conclude, 1. That the more such taxes are proportional -to the subject taxed, 2. the more evident that proportion appears; and -3. the more frequently and regularly they are levied, the more they will -resemble proportional taxes, and the less burden will be found in paying -them. Let me illustrate this by some examples. - -The stoppage upon a soldier’s pay, either for the invalids, or Chelsea, -is a cumulative tax; but the method of levying it gives it all the -advantages of one of the proportional kind. 1st, It bears an exact and -determinate proportion to the value of his pay. 2_dly_, This proportion -he knows perfectly. And 3_tio_, Instead of receiving the whole into his -own possession, and paying the hospital at the end of the year, it is -regularly and gradually retained from him at every payment. - -Tithes are a cumulative tax; but they are accompanied with all the three -requisites to make them light; although in other respects they are -excessively burdensome. 1_st_, They bear an exact proportion to the -crop. 2_dly_, This proportion is perfectly known. 3_dly_, Nature, and -not the labourer, makes the provision. But they fall upon an improper -object: they affect the whole produce of the land, and not the surplus; -which last is the only fund that ought to be taxed. - -The land-tax in Scotland bears, 1_st_, a very determinate proportion to -the valuation of the land; and has, 2_dly_, the advantage of being well -known to every contributor; so that provision may easily be made for it. -But the third requisite is wanting: the proprietor having the public -money in his hands, often applies it to private purposes; and when the -demand is made upon him, he is put to distress. - -The _taille_, in many provinces of France, bears, first, a very exact -proportion to the value of the land[40]. - -Footnote 40: - - This sort of _taille_ is called _tariffée_; because it is imposed - according to a valuation of the land. It is a late improvement; but - still is exposed to numberless inconveniences, which are mentioned in - the text. - -But in the second place, the proportion is entirely unknown to the man -who pays it; being nowhere to be seen but in the offices of the -intendant and his deputies. - -And in the last place, the whole payment comes at once. - -What hides, and consequently destroys this proportion, is, that after -the distribution is laid on, as in Scotland, at so many shillings in the -pound of valuation, the full sum intended to be raised does not come in; -either because the intendant has given exemptions to certain parishes, -on account of the accidents of sterility, hail, mortality among the -cattle, and the like; or because the property of a part of the parish -has fallen into the hands of people exempted from the _taille_; or that -others, who were really bound to pay part of it, are become insolvent. -The intendant must then make a second, and perhaps a third general -distribution of the deficiency upon all the contributors, in the most -exact proportion to the first, but yet by their nature impossible to be -foreseen. It is for these reasons chiefly that the _taille_ in that -kingdom is so grievous. - -These second distributions of the tax, 1_st_, destroy the proportion -between the tax and the revenue taxed. _2dly_, They make it impossible -to judge of the amount of them. And lastly, the demand comes at once, -when, perhaps, the money has been otherwise applied. - -The French tax upon industry is more grievous still; because none of the -three requisites above-mentioned are allowed to operate. - -This tax is supposed to be proportional to the profits made upon trade, -and other branches of industry, not having the land for their object. -All merchants and tradesmen, in cities, and in the country, pay the tax -called _Industrie_; and the reason given for establishing this tax, as I -have said in another place, is in order to make every individual in the -state contribute to the expence of it, in proportion to the advantages -he reaps. Nothing would be more just, could it be put in execution, -without doing more hurt to the state, than the revenue drawn from it can -do good. - -I shall now shew how, in this tax, all the three requisites we have -mentioned are wanting. - -1_mo_, By its nature, it can bear no exact proportion to the profits of -the industrious man; since nobody but the person taxed can so much as -guess at their extent. - -2_do_, It cannot possibly be provided for, as no check can be put upon -the imposer, unless so far as general rules are laid down for each class -of the industrious; and from these again other inconveniences flow, as -shall be observed. - -3_tio_, It comes at once upon poor people, who have been frequently -forced to beg for want of employment before the tax-gatherer could make -his demand; and those who remain, frequently become beggars before they -can comply with it. - -I say, that from the general rules laid down for regulating this tax, as -to every class, a workman who has a large family to maintain, is no less -taxed than one who has no charge but himself: and it will be allowed, I -believe, that the profits of one industrious person of the lower -classes, is in no country sufficient to pay any considerable tax, and -maintain a large family, much less a sickly one. I therefore imagine, -that cumulative taxes never should be raised upon such classes of -inhabitants as have no income but their personal industry, which is so -frequently precarious. - -Merchants also ought not to be subjected to any tax upon their industry. -They ought to be allowed to accumulate riches as fast as they can: -because they employ them for the advancement of industry; and every -deduction from their profits is a diminution upon that so useful fund. - -When cumulative taxes are laid upon any of the industrious classes, they -tend to check growing wealth; and are most familiarly imposed in -monarchical states, where riches are apt to excite jealousy, as has been -observed. - -But as to the class of land proprietors, that is to say, the more -wealthy inhabitants, who live upon a revenue already made, the -impropriety of cumulative taxes is much less. They are however -burdensome, and disagreeable in all cases, and ought to be dispensed -with, when the necessary supplies can be made out by proportional taxes, -without raising the prices of labour too high for the prosperity of -foreign trade. - -From the examples I have given of this branch of taxation, I hope the -nature of it may be fully understood, and that for the future no -inconvenience will arise from my employing the term of _cumulative tax_. -I shall now subjoin its definition. - -A _cumulative tax_, is _the accumulation of that return which every -individual, who enjoys any superfluity, owes daily to the state, for the -advantages he receives by living in the society_. As this definition -would not have been understood at setting out, I thought it proper, -first, to explain the nature of the thing to be defined. - - ------------------------------------------------------------------------- - - - CHAP. V. -_Of the Inconveniences which proceed from proportional Taxes, and of the - Methods of removing them._ - - -A proportional tax, as I have said, is that which is levied upon the -idle consumer, at the time he buys the commodity; and while, by -consuming it, the balance of wealth is turning against him, in favour of -the seller. This tax is consolidated as it were with the price of the -commodity, and must of necessity raise it. - -I say, it is levied at the time of buying, and affects the buyer, in -consequence of his consumption; because we have seen, that when the -commodity is not consumed by the purchaser, then upon a subsequent -alienation he is refunded all he paid. I consider him therefore, in that -case, not as _paying_, but as _advancing_ it for another; and while any -part of the commodity remains unconsumed, there still remains the -equivalent of a proportional part of the tax in the hands of him who -advanced it. - -I shall now proceed, as in the former chapter, by giving some examples -of such impositions; and in examining them, endeavour to shew their -nature and consequences. - -The most familiar to an Englishman are, _excises_, _customs_, -_malt-tax_, _stamp-duties_, and the like. - -To a Frenchman the _gabelle_, the _traittes_, the _aides_, _tobacco_, -&c.[41] - -Footnote 41: - - The _gabelle_ is a branch of the general farms, and consists of an - excise upon salt. The manufacture of the commodity is in the hands of - the farmers; and they, for a liberty to sell salt at a certain price, - far above the expence of the manufacture, pay to the King an annual - revenue of 28 millions of livres. - - This I call a proportional tax, relatively to consumers; although in - reality no tax-gatherers are employed for the collection of it, - contrary to what is the case of all excises; which are never farmed by - government to the manufacturers of the commodity taxed. - - The _traittes_, or, as they are otherwise called, the five great - farms, were established by Colbert, when he took away a multitude of - customs paid upon the transportation of goods from one province to - another. They answer very much to our customs, or to the duties of - tunnage and poundage, and are let to the farmers general for the sum - of 12 millions. - - The _tobacco_ is of the same nature with the salt tax. The farmers - general have the exclusive privilege of selling it at a price fixed by - the King. - - For the farm of the tobacco is paid 15 millions. The _aides_ resemble - our excises more than those we have mentioned. They consist in duties - upon liquors, either brought into towns, or sold by retail in public - houses; and upon all articles of food sold in corporations, except - grain of every kind, which is free. They comprehend also a multitude - of other duties superfluous to enumerate. They are collected by - tax-gatherers at the gates of every town, who also have access to all - public houses, where retail is laid under additional rates. The - _aides_ are farmed at 38 600 000 livres. These were the rates in the - farms let in 1755. They have been since augmented in 1762, as has been - observed. - -In all kinds of this imposition we find the tax regularly reimbursed -from hand to hand; it adheres so closely to the commodity, that it -becomes as essentially a part of the value, as carriage, packing, and -the like incident charges, enter into the prices of goods. It never can -affect the industrious person who does not consume; and never can be -avoided by him who does. Such taxes therefore necessarily raise the -price of the commodity taxed. - -Having already pointed out the principal advantages of proportional -taxes, which is to throw the whole of the burden upon the rich, whom we -have called the idle consumers, the better to distinguish them from the -opulent class of the industrious; I must now enumerate the principal -inconveniences complained of, from this mode of taxation, and trace out -the principles from which they may be ascertained and removed. - -The principal inconveniences alledged against proportional taxes may be -reduced to three: - -1_mo_, That they have the effect of raising the price of labour, and the -produce of industry, and thereby prove hurtful to the prosperity of -foreign trade. - -2_do_, That they discourage consumption, by carrying the prices of many -things too high for people of a middling rank in life. - -3_tio_, That they are both expensive in the collection, and oppressive, -from the many restrictions put upon liberty, in order to prevent frauds. - -In analyzing every one of these inconveniences, it will be proper to -inquire, how far the conclusions against those taxes are drawn from -matter of fact; how far from plausible appearances only; and so far as -they are real, not imaginary, to discover the methods of removing them. - -As the first inconvenience lies in raising the price of all kinds of -labour, and consequently of manufactures, I must distinguish between the -consequence of raising prices at home, and of raising them upon articles -of exportation; and I must consider the one and the other relatively to -the collective body of a state, and not to some few individuals in it. - -High prices at home are no discouragement to the industrious, most -certainly, however disagreeable they may prove to consumers; and while -they stand high, it is a proof that the demand of the consumers does not -diminish. - -High prices upon goods to be exported, are to be judged of by the -proportion they bear to those in other countries. - -Now the price of a manufacturer’s wages is not regulated by the price of -his subsistence, but by the price at which his manufacture sells in the -market. Could a weaver, for example, live upon the air, he would still -sell his day’s work according to the value of the manufacture produced -by it, when brought to market. As long as he can prevent the effects of -the competition of his neighbours, he will carry the price of his work -as high as is consistent with the profits of the merchant, who buys it -from him in order to bring it to market; and this he will continue to -do, until the rate of the market is brought down. - -It is therefore the rate of the market for labour and manufactures, and -not the price of subsistence, which determines the standard of wages. -Were proportional taxes to raise the price of subsistence, and by that -circumstance to discourage manufactures, we should see the generality of -workmen living with sobriety, depriving themselves of superfluity, -confining themselves to the plain but sufficient physical-necessary, -working with all the assiduity that a man can support, and still not -able to supply the market at the ordinary rates. - -When in any country the work of manufacturers, who live luxuriously, and -who can afford to be idle some days of the week, and still live upon -their wages, finds a ready market, this circumstance alone proves beyond -all dispute, that subsistence in that country is not too dear, at least -in proportion to the market prices at home; and if taxes on consumption -have, in fact, raised the price of necessaries, beyond the former -standard, this rise cannot, in fact, discourage industry: it may -discourage idleness; and idleness will not be totally rooted out, until -people be forced, in one way or other, to give up both superfluity and -days of recreation. - -People are very apt to draw conclusions from what they think ought to -be, according to the particular combinations they form to themselves; -and for this reason it is generally thought, because taxes are higher in -England than in some other countries, that foreign trade should -therefore be hurt by them. But the sloth and idleness of man, and the -want of ambition in the lower classes to improve their circumstances, -tends more, I suspect, to circumscribe the productions of industry, and -thus to raise their price, than any tax upon subsistence which has been -hitherto imposed in that kingdom. - -The whole of this doctrine is proved by experience, and is confirmed by -our natural feelings. Many have been amazed to see how well the -manufacturing classes live in years of scarcity, which frequently have -the effect of doubling the price of the most necessary articles of -subsistence. Are they not found, in bad years, more assiduous in their -labour? Do they then frequent ale-houses, as in the years of plenty? Are -they found idle one half of the week? Why should a tax laid on by the -hand of nature prove such a spur to industry; and another, similar to it -in its effect, laid on by the hand of man, produce such hurtful -consequences? Were a tract of bad years, I dare not say an increase of -taxes, to continue long enough to bring manufacturers to a habit of -sobriety and application, a return of plenty, and low prices, would -throw into their coffers, what many of them dissipate in riot and -prodigality. - -Even this conclusion will be too general, if every combination be taken -in. Manufacturers there are, who work hard, and live soberly six days of -the week, and who at the end find little superfluity, notwithstanding -the high price of labour. Alas! they have many mouths to feed, and only -two hands to supply the necessaries. This is the fatal competition so -much insisted on in the first book, and by which a door is opened to -great distress. Either the unmarried gain what the married should, and -become extravagant, or the married gain no more than the unmarried can -do, and become miserable. - -The average between the two ought to determine the rate of wages in -every modern society. - -The remedies for this unequal competition, flowing from the happy -liberty we enjoy, have been considered in another place. - -The inconvenience here under examination will not be removed by an -abolition of taxes; nor will it increase by the augmentation of them, as -long as manufacturers, upon an average, enjoy superfluity and idle days. - -Under these circumstances I conclude, that if foreign trade suffers by -the high prices of commodities in our markets, the vice does not proceed -from our taxes, but from our domestic luxury, which swells demand at -home. Were we less luxurious, and more frugal in our management in -general, all classes of the industrious, from the retailer down to the -lowest manufacturer, would be satisfied with more moderate profits. Let -not, therefore, a statesman regulate his conduct upon suppositions, nor -conclude any thing from theory, nor from arguments _à priori_, drawn -from the supposed effects of taxes; but let him have recourse to -information and experience concerning the real state of the matter. - -Let him inquire what are the prices abroad; what are the prices at home; -how those who work in exportable commodities live; what superfluities -they enjoy; and what days of idleness they indulge in. - -If he finds that goods are not exported, because of high prices, while -manufacturers are enjoying superfluity, and indulging themselves in -idleness, let him multiply hands, and he will reduce them all to their -physical-necessary; and by thus augmenting the supply, he will also -reduce the prices in his markets at home. - -If he wants to reduce prices still lower, in favour of exportation, but -finds that he has occasion for the amount of certain taxes, which -enhance the value of this physical-necessary, to which he has reduced -his industrious classes, then let him grant a bounty upon the quantity -exported, more than equivalent to all the taxes paid by those who -provide it; and let the people at home continue to pay dearer than -strangers, in favour of the state. If you only want to promote -exportation by lowering prices, there will be no occasion to lower them -universally, any more than there is occasion to put a large plaister -over the whole body, to cure a small pimple on a particular part of it. - -I have said, that while the rate of the market remains the same, so will -the prices of every part of labour and industry, which enters into the -composition of the thing brought to market. This is consistent with -reason, and experience proves the truth of it; because we do not see -wages fluctuate with the price of living. If they do not fluctuate in -that proportion, how can we conclude that a rise in the price of -subsistence, occasioned by taxes, should raise wages more than when the -price is raised by a natural scarcity. It may be answered, that the -imposition of a tax gives a general alarm; the effect it must have upon -prices is immediately felt; and manufacturers then insist upon an -augmentation: whereas, when nature either produces the same, or even a -greater effect, people submit to what they think comes from the hand of -God, and content themselves with the hopes of better times. I shall -allow this argument all its force. But I must observe, that when -manufacturers can thus capitulate with their employers, and insist upon -an augmentation of their wages, the demand of the market must be greater -than the supply from their work. This is the circumstance which raises -the price of labour. Let the demand of the market fall, the prices of -labour will fall, in spite of all the reasons which ought naturally to -make them rise. The workmen will then enter into a hurtful competition, -and starve one another, as has been often observed. Let the demand of -the market rise, manufacturers may raise their wages in proportion to -the rise of the market; they may, in the cheapest years, enjoy the -highest wages; drink one half of the week, and laugh at their employer, -when he expects they should work for less, in order to swell his profits -in the rising market. - -I have endeavoured to throw this question into different shapes, the -better to apply different principles to it; and upon the whole, I must -determine that proportional taxes will, - -1_mo_, Undoubtedly raise the price of every commodity upon which they -are properly and immediately imposed; and if they be laid upon bread, -and other articles of nourishment, they will directly raise the price of -these articles in proportion; but the price of labour will be raised -consequentially only, and according to circumstances. - -That if taxes be laid upon the day’s labour of a man, they will raise -the price of that day’s labour. What I mean by this, is, that if every -one who employs a man for a day, were obliged to pay a penny to the -state, for a permission to employ him, the employer would charge a penny -more at least upon the day’s work performed by the labourer. Were a tax -equivalent to it laid on the labourer by the year, it would be of a -cumulative and arbitrary nature, and would not raise the price of his -wages in proportion; but were it laid upon the workman at a penny a day, -and levied daily, in this case, he might raise his wages in proportion. -But this is not the practice any where. - -2_do_, The price of subsistence, whether it be influenced or not by the -imposition of taxes, does not determine the price of labour. This is -regulated by the demand for the work, and the competition among the -workmen to be employed in producing it. - -3_tio_, If wages rise beyond the physical-necessary of the workman, they -may be brought down by multiplying hands, but never by lowering the -price of necessaries; because every man will make a profit of the low -price, but will regulate his gain by the rate of demand for his labour. - -4_to_, If, therefore, the price of his physical-necessary be raised upon -him by the effect of taxes, he must work the harder to make it up. - -5_to_, If hands increase, after he is reduced to his physical-necessary, -the whole class of the manufacturers will be forced to starve. - -6_to_, The increase of hands means no more than the augmentation of the -quantity of work produced. If, therefore, the same hands work more than -formerly, it is the same thing as if their numbers were increased. - -From these positions it seems to result, that whenever it is found that -manufacturers enjoy wages more than in proportion to their -physical-necessary through the year, reckoned upon the general average -of married men and batchelors, the method of reducing them to the proper -standard, is either to multiply hands, if you want to reduce prices in -your own market, or to augment the price of their physical-necessary, if -you incline they should remain the same. When the hands employed are -really diligent, and prices still too high, then it may be expedient to -increase their numbers, providing they enjoy considerable profits. This -will cut them off, and reduce the price of commodities; because it will -augment the supply. - -When the hands employed are not diligent, the first expedient is to -raise the price of their subsistence, by taxing it. By this you never -will raise their wages, until the market can afford to give a better -price for their work. If, when they are brought to be fully employed, -you incline to sink the price of labour universally, you must take off -some of the impositions which affect subsistence, and at the same time -gradually throw in fresh hands, in order to promote competition, which -alone will force them to lower their prices in proportion. The whole -delicacy of this operation is to prevent competition from taking place -after the industrious are reduced to moderate profits; and to promote -competition, or to raise the price of their subsistence, until they be -brought to the proper standard. Having insisted so fully upon these -principles in the xviiith chapter of the second book, I here refer to -it. - -1 have said, that the price of work is not regulated by the price of -subsistence, but by the price of the market for the work. Now I say, -that the price of the market may in a great measure be influenced by the -price of subsistence. This is a new combination. - -The first proposition is undeniable. The price of the market at all -times _regulates_ the price of work; because it regularly makes it -fluctuate, in proportion to its own fluctuations. The price, again, of -subsistence only _influences_ it; because two circumstances may destroy -that influence. A high demand for work will raise the price of wages in -years of plenty: a low demand will sink the price of wages in years of -scarcity. When therefore it is said, that the price of subsistence -_influences_ the rate of markets, we only mean, that the average price -of subsistence, when good and bad years are taken together, have a -certain influence in regulating prices. But this average price of -subsistence cannot every where _regulate_ the value of work, as the -average price of a ship’s cargo can regulate the price of every part of -it; because the variations there are at too great a distance of time, to -be able to compensate one another with respect to all the manufacturing -classes of a people. - -Could a plan be concerted, either to preserve the price of grain at one -uniform standard, or within the limits of 15 or perhaps 20 _per cent._ -at all times; and were this to be executed by the assistance of a tax at -one time, and a bounty as it were at another; it would certainly have an -admirable effect in every industrious nation. It would in a manner take -away the difference between good and bad years. The industrious finding -themselves subsisted at all times nearly at the same expence, would not -feel those alternate motives to be idle and extravagant at one time, and -diligent and sober at another. - -I have enlarged so much upon the nature of this first inconvenience -proceeding from proportional taxes, that I have left myself very little -to say as to the second, which is, - -2_do_, That they discourage consumption, by raising prices too high for -people of a middling rank in life. - -In answer to this, I must observe, that all the amount of proportional -taxes is refunded to the industrious consumer, so far as they are raised -on articles _necessary_ for his subsistence; and when he is either idle, -or consumes a superfluity, he is classed along with the idle and rich. -Now if the rate of market prices be high, relatively to the income of -certain individuals, it can only be because the supply of the things -they want to consume is not above the proportion of the demand of those -who are richer. - -If, therefore, the rate of the market affords such profits to -manufacturers as to render them idle and luxurious, how can the -augmentation of these profits, by the abolition of taxes, and consequent -diminution of the price of subsistence, ever diminish the competition of -the rich, unless the supply be augmented? - -But if the high prices of our own markets cut off the demand of -strangers, then every principle laid down in the 10th and 18th chapters -of the second book, must be applied to bring them down: and so far as -taxes, which are imposed either to supply the exigencies of the state, -or to cut off consolidated profits, enjoyed by manufacturers in -consequence of our own extravagance, have contributed either to raise -them, or to support them when raised, above the foreign standard, a full -equivalent, in the way of bounty, must be given for them, in order to -bring the exportation price of goods below the level of foreign -competition. - -I come now to the last inconvenience alleged against proportional taxes, -to wit, the expence of collecting them, and the oppression which is a -consequence of the many restrictions laid upon liberty, in order to -prevent frauds. - -As to the expence of collection, it is entirely in proportion to the -disposition of the people to defraud the public. - -In France, the collecting the branches of cumulative taxes, such as the -general receipts, comprehending the taille, poll-tax, &c. costs the -state no less than 10 _per cent._ or two sols in the livre, which is -superadded to those impositions, in order to defray that expence. -Whereas in England the expence of collecting the excise, administred by -commissioners, who act for the public, not by farmers who act for -themselves, does not cost above 5_l._ 12_s._ 6_d._ in the 100_l._ - -This matter of fact is sufficient to prove, that excises, when under a -proper administration, are not so very expensive in the collection as is -generally imagined; and they would still be attended with less expence, -were some proper alterations made in the present method of imposing -them. This will appear as we go along. - -The _oppression_ of levying excises does not, in any proportion, so much -affect those who really _pay_ them, as those who only advance them for -the consumers. - -This distinction which we have already made, will appear well founded, -upon examining the complaints which are commonly made against the -collectors of this duty. - -We have seen that in the taxes upon salt and tobacco in France, there -are no duties collected upon the people; the farmers of the salt have -all the salt marshes and salt pits assigned to them by the King; no -person, not privileged, is allowed to make salt for the consumption of -those provinces which are subjected to the Gabelle. - -In like manner the distribution and sale of tobacco is exclusively in -the hands of the farmers: they buy it either from Great Britain, or from -the Dutch at second hand; they manufacture it themselves, and sell it -over all France, at the price set upon it by the King; and we saw, that -during the last war, they paid thirty millions down for a permission to -raise the price of it 10 _per cent._ during ten years. This price fixed -upon the sale of tobacco, answers exactly to what we know under the name -of assize, which ought constantly to attend all excises[42]: for want of -observing exactly that regulation, the publicans and victuallers in -England raised the price of their strong beer one halfpenny _per_ quart, -in consequence of an additional duty of three shillings _per_ barrel -imposed _anno_ 1761, which is at the rate only of one farthing _per_ -quart[43]. - -Footnote 42: - - When excises are imposed upon any commodity, it is contrary to all - principles in fixing the assize, not to superadd the whole duty - imposed to the former selling price. This however is sometimes - omitted, with an intention to make part of the duty fall upon the - manufacturer, to the ease of the subject. The consequences are, - - 1_mo_, The manufacturers blow up the spirit of the people against the - tax, who never would think of making an outcry, were they not excited - to it by the interested motives of the manufacturers. Were high - profits allowed on imposing the tax, manufacturers would be quiet: and - if the profits were afterwards found to be too high, it would then be - a popular measure to reduce the selling price, and also a means of - setting people on the side of government, against the manufacturers, - who are their real tax-gatherers. - - 2_do_, It is impossible to compass the end proposed. A proportional - tax, rightly imposed, must be drawn back; and all attempts to prevent - it, only occasion a multiplication of frauds, and a bad manufacture. - - In fixing assizes upon the manufacture of goods, which in different - years vary in their price, regard should be had to such variations; - otherwise the manufacturer is distressed, and the public is ill - served: and the one or the other happening, the people are animated - against such duties. - - The only expedient to share the profits of the manufacturers of - exciseable commodities, is to lay them under some cumulative tax which - they cannot draw back, such as making them pay for a licence. - -Footnote 43: - - It must, however, be observed, that the price of beer was not raised, - either by the brewers, or by the victuallers, on account of the - additional malt-duty, _anno_ 1760. - -When the sale of an exciseable commodity is vested in a company who -manufacture it, by exclusive privilege, the whole oppression of -collection is avoided; because the company itself then pays the duty, -and they draw their reimbursement from proportional profits on the sale -of the goods. - -This is the greatest advantage of the farm above the public management -of a tax. - -When excises are levied upon those who manufacture the commodity -excised, the oppression of the laws falls upon the manufacturers, -although they only advance the tax, and draw it back from the consumers -upon the sale of the commodity. - -It is greatly for the advantage of every consumer in the kingdom, that -no fraud in the collections should pass unobserved; because all the -profits arising from frauds belong to the manufacturer, who in reality -is the tax-gatherer, as much as the farmers in France, when they sell -their salt and tobacco. But as the farmers appear in the light of King’s -officers, and that the collectors seem to bear hard on those with whom -they live, people foolishly imagine, that were brewers, for example, -more gently dealt with, beer would come the cheaper to themselves. This -is a mere delusion; because no brewer whatever will sell his beer -cheaper than either an assize, or the ordinary rate obliges him to do, -let his profit, from frauds, be ever so great, and his address in -committing them ever so successful; and the less productive the tax -turns out to be, the more the other impositions upon the people must be -augmented, in order to make up the deficiency. - -If we compare therefore the oppression of excise-laws felt by those who -only _advance_ these impositions, with the ease which the consumers find -who really _pay_ them, we may judge of the advantages which the -proportional taxes have over the cumulative. - -The excise, as paid by the brewer, is really of the cumulative kind. The -exciseman demands money of him, at a time when no alienation takes -place, and perhaps when he is not prepared to make the advance for his -customers, who must refund it to him with profit: besides the hopes of -being able to defraud is disappointed, and it is always disagreeable to -be disappointed in what we either wish or hope. - -Were all mankind honest, the inconveniences of levying such taxes would -be less; but as that is not the case, methods must be fallen upon to -disappoint the intention of committing fraud. The only way to accomplish -this, is, to render it difficult and dangerous. While every individual -has a liberty to manufacture an exciseable commodity in whatever place -he thinks fit to enter for that purpose, when every one has a liberty to -sell liquors, which, upon retail only, are subjected to excise (as is -the case in France) must not collectors be multiplied in proportion to -the occupation which such policy implies? And will not these collectors -oppose frauds to frauds, in order to profit by them, at the expence of -the merchant or manufacturer? This will sow discord and hatred between -two classes of the same society, and thereby the state is hurt. All -discord hurts a state, as it does a private family. - -It is out of my way to lay down plans for preventing such -inconveniences. It would require an intimate knowledge of every -circumstance relating to the country for which the remedy is intended. - -I shall therefore endeavour only to throw out some useful hints, by -mentioning the impositions where the inconveniences in levying are the -least; and by comparing these with other impositions, where the -oppression in levying appears to be greater, the contrast of -circumstances will suggest the principles upon which a plan might be -formed. - -There are many more frauds and difficulties in collecting excises in the -country than in cities, from the number of manufacturers employed in -them. It is just so with the _aides_ in France, from the number of -retailers. There are very few frauds and little difficulty in gathering -the malt-tax; because the object is unwieldy, and the places of -manufacture are fewer. - -The frauds upon tobacco and salt in France, do not proceed from those -who manufacture them, but from those who introduce foreign goods to -supply the place of those manufactured by the company. This shews that -excises should be made as general as possible over a country; because -local exemptions introduce, as it were, a foreign country into the -center of a state. - -Stamp-duties are seldom defrauded by forging the stamp; but in France, -where they extend to almost every _deed_ of alienation, the public is -defrauded by private bargains. - -Customs are defrauded by the liberty given to trade in every port; and -from the want of convenient public magazines, as a proper repository for -all goods brought by sea. - -It may be said, in general, that frauds are most frequent upon the new -establishment of taxes; that those who complain most of the oppression -of them, are precisely those who have the least reason for it; and that -the cause of their complaint proceeds rather from the inconvenience in -paying when they are not prepared, and the disappointment in defrauding, -than from any real oppression arising from the laws of excise: the -hardships of these laws are owing to the necessity of general rules to -prevent frauds; and such rules would be unnecessary, could the liberty -of committing frauds be circumscribed. - -One very good method of raising proportional taxes, without great -expence or oppression, when the situation of a country will admit of it, -is to levy no such duties, but at the gates of towns and villages, which -in this light appear to be political inclosures. At those gates every -produce of the lands, and every manufacture not made in the town, might -pay a tax upon coming in; every manufacture made in the town, might pay -a tax on going out: all fruits consumed in the country might be free; -all manufactures made and consumed in the towns might be free also. If -we consider the quantity of exchange between the inhabitants of towns -and those of the country, and between town and town; that fund, I -believe, would be found sufficient to raise more by proportional taxes -than what is raised in any country in Europe. - -A second method of diminishing the expence, and also the burden of -proportional taxes, is to exact nothing of the manufacturers, but to -prohibit the delivery of the manufacture to any one who does not present -a permit from the excise office, signifying that the tax has been paid. -This is the method observed in the Austrian low countries, where excises -are carried to a very great height. There the transporters or carriers -of exciseable goods, are formed into a corporation, and none else dare -to transport them. - -Whoever has seen the execution of those regulations will not be very -fond of them; but the inconveniences which occur proceed from the -political situation of all those towns, the public debts of which are so -enormous, that to pay the interest of them excises have been carried so -high as to banish manufacturers into the country, where few excises are -levied. It is from the country and many considerable villages, which -have not the privilege of running in debt, that the manufactures of that -country are carried on. No industrious man can afford to live in the -towns of the Austrian Netherlands, except he who supplies their -consumption; and in no place, I know of, is work so dear as there. - -Were great excises levied upon the furnishers of the goods, as is the -case in Great Britain, and were as little restraint laid upon their -frauds, those duties would not produce what they do; and the oppression -would be intolerable; whereas by the policy established, nothing but the -high price of goods is complained of. A third method of avoiding both -expence and oppression in levying proportional taxes, would be to -confine the fabrication of all articles charged with them to certain -places properly inclosed. Were those undertakings few and large, were -spacious magazines of all sorts prepared, at the public expence, in all -sea-port towns, and surrounded with walls, an entire liberty might be -allowed within the inclosures, and no questions would be asked, but on -going in and coming out. Under such regulations a state would reap great -benefit. 1_st_, There would be considerable savings in collecting. -2_dly_, There would be great savings on the number of hands employed in -manufacturing: forty men, in a large brew-house, make more beer than an -hundred disposed as they are in country villages. This resembles the -introduction of machines into manufactures. - -The objection from the infringement of liberty is more a pretext, in -order to facilitate fraud, than any thing else. Are not those who -manufacture exciseable commodities, the servants of the state? Are they -not even the collectors of the public revenue? With what face then can -they pretend to be indulged in the means of defrauding their customers -of those taxes which they wish to put into their own pockets, by -withholding them from the public. Has liberty any other meaning, but an -entire permission to do whatever is not forbid by general and wholesome -laws, calculated for the universal good of the society; and shall this -class of men, who are enriching themselves as much by the profits they -have in advancing the taxes, as by their industry, be considered in as -favourable a light as another who is paying a cumulative tax out of his -income, one farthing of which he never can draw back? - -If any should misinterpret the doctrine of this chapter, I must put them -in mind of my original plan, which was to keep constantly in view those -virtuous statesmen who think of nothing but the good of their subjects. -Taxes and impositions in their hands, are the wealth of the father of -the family; who therewith feeds, clothes, provides for, and defends -every one within his house. The increase of taxes on this supposition is -national oeconomy, as shall be afterwards shewn; frauds are the thefts -of servants impairing the public good, and particularly the means o£ -self-defence against the incroachments of ambitious neighbours. - -As it is the duty of every statesman to make his people happy and -flourishing, perhaps the speculations of one whose only interest in -throwing them upon paper is to fill up his leisure agreeably, may some -time or other tend to promote so glorious a purpose. - - ------------------------------------------------------------------------- - - - CHAP. VI. - _Cumulative and proportional Taxes compared with one another, and - farther examined._ - - -After examining separately the nature and effects of cumulative and -proportional taxes, it remains, for the more fully understanding this -subject, to take a view of them together; the better to find out wherein -they really differ, and how far the difference is only apparent. - -It has been observed, that the payment of taxes diminishes no part of -the produce of either land, or industry; the whole amount of these -remains entire to the subjects of the state. - -The taxes are paid out of the money which circulates in the alienation -of them: from which we have concluded that they must constantly be -confined within a certain proportion to alienation. We have also -observed, that the imposition of taxes augments the mass of circulation, -and makes it requisite for a statesman to contrive some method of -increasing money in proportion to their increase. I hope these -propositions have acquired an additional confirmation, from what has -been already said in the preceeding chapters. - -We have also seen how the amount of proportional taxes is ultimately -taken from the superfluity of the rich, whom we have called the idle -consumers: and how they are advanced by one set of the industrious, and -refunded by another, until at last they fall upon those who cannot draw -them back from any body. These last have been said to _pay_ the taxes, -the others only to _advance_ them. - -If therefore we suppose all desire of defrauding out of the way, we -shall find the whole burden of proportional taxes confined to the -inconvenience of advancing their amount by the industrious, and to the -payment of them by the rich, which proportionally diminishes their -income. Where credit therefore is well established, where payments are -regularly made by buyers to sellers, and where people proportion their -expence to their free income, the weight of proportional taxes will be -very small. I appeal to experience for the truth of this. - -Let us next examine the nature of cumulative taxes, as we have called -them, in order to distinguish them from the others. - -In these, alienation is not necessary at the time they are paid; from -which it follows, that, in many cases, they cannot be drawn back. When a -man pays his land-tax out of his rent, what remains to him will not buy -more of any thing than if he had paid nothing. Nay, were the state to -indulge him and take his tax in corn, the corn which remains to him -would not bear an advanced price, unless the state should export the -quantity he had given; and then indeed, by diminishing the supply, it -might raise the price of grain in general; but every one having grain to -sell would profit of the rise upon the price, as well as the landlord, -whose share does not commonly amount to one third of the crop. - -But were a tax laid on in so regular a proportion to the value of any -property, as to prevent the proprietor from making use of that part -which the public intends to take from him, those who pay cumulative -taxes would thereby acquire one very great alleviation of their burden. - -I have said that when a brewer pays the excise, the tax, as to him, is -of the cumulative nature. It is so in a certain degree, no doubt, as may -be seen without farther explanation; but it still so far retains its own -nature as to be easily drawn back from the consumer. But how can a -soldier draw back the tax he pays to Chelsea? - -From this material distinction between the two impositions, I conclude, -that no objection can lie against proportional taxes, so far as they -affect the industrious; because they draw them compleatly back: and that -great objections lie against cumulative taxes, when they affect the -industrious, because they cannot draw them back; and consequently, they -may affect the physical-necessary of the contributor, in case no profit -should remain to him upon his labour. On the other hand, I think little -objection can be made to cumulative taxes, when they are imposed upon -possessions, which produce a visible annual revenue, clear to the -proprietor. This is the nature of the _dixiemes_ and _vingtiemes_ in -France; where the whole amount of the person’s income is taken upon -proper proof, and taxed in proportion to it, without any subsidiary or -second levy’s taking place, to make up a determinate sum. - -Cumulative taxes would also be far less burdensome to the lower class, -could they be levied, so as, first, to preserve the proportion of them -to the actual profits on industry: secondly, to make that proportion -sensible to the people: and in the last place, to _retain_ the tax, -instead of allowing them first to receive it, and afterwards obliging -them to refund it. - -In proportion as these three requisites do not take place, such taxes -become grievous to all who have no fixed income. - -To put a tax upon a man’s dwelling house, in proportion to its windows, -or hearths, when the house produces no fixed income to him, and when he -has none independent of it, may take away a part of his -physical-necessary. To put a tax upon him because he has a head, is more -grievous than to put a tax upon his hands, in proportion to what they -daily gain. - -If cumulative and proportional taxes be compared, with respect to the -different effects they are found to have upon our opinions as to taxes -in general, we find that both of them deceive the contributors, but in -different ways. - -In the cumulative taxes, the person who pays does not always perceive -the reason of his paying. He imagines that he is taxed only because it -is known that he is able to pay a certain sum. - -In the proportional, the deceit is of another nature. When a person buys -a consumable commodity, which has paid an excise, he does not perceive -that the price he pays for it comprehends a tax upon his past gains, in -favour of the public; but he concludes the whole to be necessary, in -order to procure what he has an inclination to consume. An example will -make this plain. - -Suppose a tax laid upon wheel carriages, and that every person in the -state were liable to pay a certain sum in proportion to the number of -carriages he has for his convenience. The tax-gatherer comes at the end -of the year and demands the sum. The person complains that he is not at -liberty to have a coach or a chaise without paying duty for it; and that -while he has occasion for one carriage only, and has but one pair of -horses, he is obliged to pay for several sets of wheels. - -Now, suppose this cumulative tax were turned into a proportional one, -and that wheels were to pay a stamp-duty, or the like, in the hands of -the wheelwright. The price would immediately rise; but this rise would -soon become familiar to the man who has the carriage; and he would then -be no more hurt by this additional expence, than if it had proceeded -from some new and expensive fashion of wheels: in short, wheels would -generally begin to bear an advanced price, and very soon no body would -inquire how it came about, nor once complain of the tax. - -To set this in another light, the difference between the two impositions -resembles that between long and short accounts, which to poor people is -very great. When the expence of living is insensibly and universally -augmented, by the effect of proportional taxes, then the industrious -man, who enjoys neither superfluity or idleness, may and can augment the -price of his work in proportion. This augmentation forms then a part of -what has been called his (A), which he draws fully back when he comes to -market. But if the same, or even a less sum be raised upon him by a -cumulative tax, it comes upon him at the end of the year, or at the end -of the quarter, and let him be ever so provident, he cannot draw it -back, or raise the price of his work, because of the unequal competition -of other people of his own class, who, from a variety of circumstances, -cannot all be so equally loaded by the cumulative as by the proportional -taxes. Besides, they may not be so provident as himself, and may work -for subsistence, without making any allowance for what they are to pay -the state at the end of the year. Thus a double inconvenience ensues. -The industrious poor are oppressed by the tax-gatherers, and the tax is -ill levied. In the other case, the first never see a tax-gatherer, and -the money is paid. Besides these advantages in favour of proportional -taxes, there is still another, that if this tax be improperly laid on, -the defect will manifest itself by checking consumption only; whereas in -the other case, it will be known by the distress of individuals. - -If the liberty not to consume be taken away, as in the gabelle in some -provinces in France, then the imposition changes its nature and becomes -a cumulative tax, as may be easily perceived[44]. - -Footnote 44: - - The _gabelle_, or salt-tax in France, is not levied in every province; - because of certain privileges of exemption, which some have all along - enjoyed. - - This opens a door to the greatest abuse, by smuggling salt from places - where it is free, into places where the tax is imposed, at many 100 - _per cent._ above the value; and obliges the King to use great - severity upon those who are loaded with this duty. - - The consumption of every family is fixed to a certain quantity; and if - it be found that they have not bought, from the King’s granaries, to - the full extent of what is reckoned necessary for them, it is supposed - that the deficiency has been made up from contraband salt, and the - deficiency is exacted. - -It has been said, that so far as the three inconveniences of the -cumulative taxes can be prevented, they cease to be oppressive. From -which we see the reason why excises are so easily paid when those who -manufacture the commodities charged with them, are contented to compound -for them. This changes the tax into one of the cumulative kind; but -gives it every requisite to make it easy. Let me take an example. - -A brewer who pays excise for all he brews, is exposed to the daily visit -of the excise-man, to whom he pays the duty. Here the brewer’s -imposition participates of several of the inconveniences attending -cumulative taxes. But let me suppose that after a certain time he finds -that 100_l._ is the annual amount of his excise. If he makes a -composition for it at that rate, he comes under a regular cumulative -composition, with every advantage. He thinks no more of frauds; he no -more grudges what he pays; and becomes in a manner collector of that -imperceptible duty paid by all his customers. - -The easy method of transforming those taxes into one another, shews -their resemblance sufficiently, and the differences which we have -pointed out, shew the principles which regulate the proper manner of -imposing them. - - ------------------------------------------------------------------------- - - - CHAP. VII. - _Consequence of Taxes when the amount of them is properly applied._ - - -We have now seen the objects affected by taxes, and the inconveniences -which result to those who are obliged to pay them. - -It comes next to be examined, whether or not taxes of all kinds be a -great load upon a people, a grievous infringement of their liberty, a -means of bringing many honest and industrious people to great distress, -and a great discouragement to marriage. I answer without hesitation, -that taxes may be, and most commonly are accompanied with all these and -many more inconveniences; but I must add, that they proceed from the -abuse, and not from the nature of taxes. - -In my inquiries, I have constantly in my eye, how man _may_ be governed, -and never how _he is_ governed. How a righteous and intelligent -statesman may restrain the liberty of individuals, in order to promote -the common good; never how an ignorant and unrighteous statesman may -destroy public liberty, for the sake of individuals. - -Raising money by taxes must always be burdensome, less or more, to those -who pay it; and the advantages resulting from taxes can only proceed -from the right application of the money when raised. - -When individuals only make a profit of the inconvenience of taxes, the -public loses, no doubt; because they are paid for the advantage of the -public, not for that of private people. If the money raised be more -beneficially employed by the state, than it would have been by those who -have contributed it, then I say the public has gained, in consequence of -the burden laid upon individuals; consequently, the statesman has done -his duty, both in imposing the taxes, and in rightly expending them. - -Taxes, in this last view, may be considered as a saving out of every -private fortune, in order to procure a public fund to be expended for -the public benefit. - -I have frequently recourse to the familiar examples of private oeconomy, -in order to make applications from it to the political; which, however -different it may appear, will be found easily deducible from the same -principles. - -Let me suppose two persons, (A) and (B), living in the same -neighbourhood, of the same rank and fortune, enjoying great superfluity, -but spending yearly the whole of their income in different ways. - -Let the income of both be supposed to be 2100_l._ sterling; and let the -branches of their expence be ranged under six different heads. Let (A) -be supposed to spend upon the first 100_l._ on the second 200_l._ on the -third 300_l._ on the fourth 400_l._ on the fifth 500_l._ on the sixth -600_l._ in all 2100_l._ - -Let us suppose (A) to enjoy in every one an ample sufficiency. - -(B), on the other hand, spends upon his first article 1600_l._ and upon -each of the other five, no more than 100_l._ Here the first article of -(B’s) expence is sixteen times greater than any of the rest; and by the -supposition, 100_l._ is supposed to denote an ample sufficiency upon -each article. - -I come to (A), and I say to him, you disapprove of the extravagance of -your neighbour (B) upon his first article of expence, where he spends -sixteen parts of his income, and where you spend but one; and yet you -must allow that upon every other article of his expence, he is a better -oeconomist than you. Would it not be for your interest to bring the -other articles of your expence down to his standard, without increasing -any thing upon your first article, which is already within the compass -of what may be called sufficient. - -To what purpose, says (A), would you advise me to so strict an oeconomy? -And what should I do with so great a saving on my annual income? Be in -no pain about that, I shall lay it out for you in discharging your -debts; in providing for your children, and giving them a good education; -in improving your estate; repairing your house; making up your -inclosures; all shall be usefully spent; and out of 600_l._ a year, you -shall have every thing necessary for your family. - -Here is the representation of a scheme between a good statesman, and a -people whose interest he consults. - -After the imposition of taxes, the individuals of a state, whose income -is already formed, begin to pay greatly more than they used to do for -every thing they consume. A great part of this additional price goes to -the public, and is thereby laid out for national purposes. The whole of -such expences are thrown into circulation, as much as if the rich -proprietors had laid it out upon articles entirely adapted to their own -taste. - -Is it not evident, that in this way of appropriating the income of a -country, it must produce a more extensive encouragement to industry of -all kinds, than if the proprietors only had spent it? They never would -have thought of becoming merchants, or of setting up manufactures for -the supply of foreign markets: their whole expence would have been -calculated to supply their own wants; and it would have been indifferent -to them whether these were supplied by natives or by strangers. - -Let us apply this doctrine to common experience. Let us compare the -nature of circulation in a trading town, with that of a country place, -where many gentlemen of large fortunes reside. How extensive the objects -of the first! how contracted those of the latter! - -Let us compare again the exigencies of government, with those of a -trading city, what a variety of _new_ wants here occur to be supplied, -which the city never could have occasion for? - -I have shewn that the great amount of taxes is taken from the income of -those individuals whose fortune is already made, or whose daily profits -are considerable: I have suggested how circumscribed the expence of this -class must be, when considered with respect to the employment it -procures to the body of a people. Does not the experience of former ages -show how apt private opulence is to sink into treasures, when a taste -for industry does not animate the lower classes to create new objects of -desire in the wealthy? Wherein is a state benefited by the luxurious -gratifications of the rich, unless it be by the employment they procure -for those who provide the objects of luxury? Those very gratifications -are, in one sense, taxes upon the rich in favour of the industrious: -they increase expence, and throw money into circulation. In Spain and -Portugal, where industry is not introduced among the lower classes, it -is the strangers who in effect levy such taxes upon them. Were the taxes -they pay, properly applied to the encouragement of the arts, instead of -being appropriated to private purposes, and to enriching private men, -whose taste for expence is always circumscribed to the objects of their -own wants, how soon should we see them vying with us in every market of -Europe, and supplying themselves as far as their country is calculated -for it. - -The reciprocal wants of industrious nations, resemble the reciprocal -wants of tradesmen; all may be employed in supplying one another, as -well as themselves. - -When the amount of taxes is properly laid out in premiums, for the -encouragement of the industrious, the prices of labour upon articles of -exportation, may be brought so low, that all nations who do not follow -the example, must languish and decay. Luxury at home will then cease to -hurt the trade of the nation. In her treaties of commerce, she may throw -open her ports to many articles of foreign consumption, without running -any risk by such allowances; and on the other hand, she will reap the -greatest advantages from a reciprocal permission. - -The example I have given, by which I have illustrated the nature of -public contributions, must not be understood to tally with respect to -proportion. It would be both ridiculous and impossible to reduce all the -expences of rich men to the purely sufficient. All I meant was, to shew -how taxes, when properly applied, _may_ be considered as public -oeconomy; and how the levying of them has no direct tendency to hurt a -nation in point of ease and prosperity. - - ------------------------------------------------------------------------- - - - CHAP. VIII. - _Of the extent of Taxation._ - - -One good way to discover the nature of taxes, is, to examine how far it -may be possible to carry them. This is my intention in this chapter. - -I have said that the object of taxes was income, and not stock. I have -shewn how those of the proportional kind affect the income of stock -already made, and persons who enjoy large profits upon their daily -industry. I have pointed out the impropriety of cumulative taxes, when -imposed upon such as draw nothing more from their industry than an easy -subsistence; and I have given a general preference to those of the -proportional kind; because they constantly imply both alienation and -consumption: alienation in those who _advance_ the taxes, _consumption_ -in those who pay them. - -Could, therefore, taxes be levied upon every alienation, where -consumption is implied, and that in proportion to the whole superfluity -of those who are to consume, proportional taxes would be carried to -their utmost extent. - -I shall now analize this subject, in order to discover how far that -extent may reach; and by this inquiry, the principles of taxation will -be the better understood. - -The objects of alienation comprehend all that is in commerce among men, -moveable and immoveable. - -What is moveable is generally consumable, what is immoveable is -generally not so. - -As consumption is a requisite, together with alienation, in order to -form a proper basis for proportional taxes, we see how contrary to -principles it would be, to tax the alienation of lands, houses, &c. in -the same proportion as consumable commodities. These are _funds_, not -_income_; and the money with which they are purchased, must be -considered in the light of a fund, while it is in the hands of the -buyer. When once it comes into the hands of the seller of the immoveable -objects, it frequently, indeed, partakes of the nature of income; that -is to say, it is spent in the consumption of fruits, and of the labour -of man; and then it will be affected by taxes. - -This may suffice to recal to mind the principles we laid down in the -26th chapter of the second book, concerning the effects of the vibration -of the balance of wealth between the members of a modern state. - -The next thing we are to consider, is the state of circulation. As to -that, we have frequently observed, how it must be in proportion to -alienation. - -This proportion is not determined by the value, or denominations of the -money circulating; but by that value combined with the frequency of -transitions from hand to hand; as the force of a cannon ball is -estimated by the weight of the ball, and the swiftness of the motion at -the time it strikes. - -Let us now lay aside the consideration of immoveable property; and -examine the nature of consumption, alienation, and sale, with respect to -other things. - -Consumption comprehends every thing produced by the earth, or by man; -alienation is confined to that part which is exchanged between men; and -sale to that part of alienation which is exchanged for an equivalent in -money. - -Whatever part is consumed without alienation, ought, I think, to be out -of the reach of proportional taxes, unless, by some circumstance or -other, it can be made to fall under the eye of the public, in a manner -_resembling_ its coming to market. Thus a tax upon malt is levied at the -malt-house, as if it were sold to the maltster, although it be made for -the consumption of the grower of the barley. In like manner, a tax upon -corn for bread may be levied either at the mill where it is ground, or -at the oven where it is baked[45]. - -Footnote 45: - - Examples of these kinds of taxes were familiar in former times. - Vassals were obliged to grind in their Lord’s mill, bake in his oven, - press their wine in the public press of the territory, &c. - - This was found very useful, in ages when alienation and sale were - little known; but now they are considered as oppressive, and so I - think they are, when compared with proportional taxes, which only take - place upon the sale of the commodity: but still they are far - preferable to many taxes of the cumulative kind. - -The worst kind of proportional taxes are those which are levied upon -_private_ manufacturing, and upon unmanufactured consumption, where no -alienation takes place. An example of the first we have in the excise -upon malt, cyder, candles, &c. made in private houses for private use: -the last is known in Holland, where a man cannot kill his own pig, or -his own calf, without paying a tax. Were taxes of that nature extended -to the making of bread, cooking of victuals, &c. I apprehend they would -become of a nature more burdensome than any hitherto invented, unless -public cooks were established, as public ovens are in many parts of -France; in such cases, taxes might be levied upon every part of -consumption. - -Investigations of this nature are so disagreeable, that it is with -reluctance I mention them; but when, in fact, such taxes are found -established in different countries, it is highly proper, that the nature -of them should be inquired into. - -Taxes in Holland are so multiplied, as to descend to this category, in -many places, as we have seen by the example just given; but even these, -however oppressive they may appear to those who are not accustomed to -them, are still less so than many of the cumulative kind we have -mentioned, particularly the tax upon industry and the capitation in -France. They approach nearer to proportional taxes, and derive every -alleviation of their burden from that circumstance. He who pays such -taxes, sees that he can avoid them, by retrenching his consumption; and -when they fall upon the necessaries of life, he may draw them back, -providing he be an industrious man, and that every one who enters into -competition with him for employment, be equally subjected to the same -burden. But they are more burdensome than those where sale takes place; -because when a poor man, who wishes to consume, wants money, he -considers himself in the same light as if the thing were not to be sold; -but when he has that which he has acquired by his labour, and cannot -consume it for want of money to pay for a permission, as it were, he -must either starve for hunger in the midst of plenty, or be reduced, -perhaps, to beggary, for having preserved his life by defrauding the -tax. - -What has been said, is, I think, sufficient to shew the varieties which -occur, when taxes are imposed upon bare consumption, where no alienation -takes place: they must, in every respect, be ranged under those of the -proportional kind, although some principal requisites be wanting to -engage any one to approve of their institution. - -It appears still more difficult to establish a proportional tax upon -barter, or the exchange of commodities one for another, unless sale be -understood. This would be the case were a private person, not subject to -the excise upon malt made in his own house, to pay in that commodity. He -would not there escape the imputation of fraud; and might, with -propriety, be considered as a retailer. I do not, however, doubt but -examples of taxes upon barter might be found; some even occur to myself; -but they are almost too trifling to mention[46]. - -Footnote 46: - - Two gentlemen in France exchange casks of their wine, they are both - obliged to pay a tax upon removing the wine from their cellar. This - duty is called _Remuage_. - -The last and principal requisite, to render proportional taxes easy and -light, is sale. There the burden must be proportional to the buyers -purse; and if it prevents the consumption of the thing taxed, the defect -will manifest itself. - -Of these taxes we may say, that they are in proportion to circulation; -and accordingly, we see how difficult it was to raise them, so long as -circulation remained confined to the small quantity of coin in the -country. As money increased, both by the increase of trade and -alienations, they became more productive; and were the nature of them -rightly understood, and were they properly imposed, they would soon be -more generally adopted. - -In treating of public credit, I have said that it is the duty of a -statesman to augment the quantity of money, in proportion as he intends -to multiply taxes on his people. I shall now, before I conclude this -chapter, explain the meaning of what was there thrown out relatively to -another subject. - -The money of a country, we have said, bears no determinate proportion to -circulation; it is the money circulating, multiplied by the number of -transitions from hand to hand. Again, we have said, that the prices of -all things are determined by demand and competition. The meaning of -this, as it concerns the present question, is, that in proportion to the -competition of those who appear with money, in order to acquire what -comes to market, a larger or a smaller sum is brought into circulation. - -Now, according to the principles laid down in the first chapter, we saw -how the full value of the industrious seller’s expence and profit were -made up to him in the sale of his work; and if he even advanced any tax -upon any part of his work or consumption, that it was refunded to him by -the buyer, who, if he consumes in the light of an idle man, pays for the -whole. - -Farther, when a proportional tax is imposed, we said it was, in a -manner, as if the state interposed at the time of alienation, and -exacted of the purchaser a certain value in money, in proportion to the -commodity, as the price of the permission to acquire what his own -industry had not produced. From this I draw the following consequence, -that in proportion to the tax an additional sum of money is drawn into -circulation, which would otherwise have remained in the pocket of the -purchaser; consequently, on imposing proportional taxes, they cannot, at -first, exceed that proportion of money which is found in the pockets of -the consumers, over and above what they used to pay for what they -consumed. - -The truth of this proposition is established upon many facts. First, in -countries where people keep their money locked up, proportional taxes -are very well paid. Hence the great amount of the _alcavala_ and -_cientos_ in Spain, which amount together to 14 _per cent._ upon every -consecutive alienation of the commodities, chiefly indeed for the -consumption of the rich. - -Secondly, When excises were augmented in England, in the reign of King -William, Davenant tells us, that the price of the goods excised fell. - -Thirdly, When a war has lasted any time in France, taxes cease to be so -productive. - -Are not all these, and many other appearances, resolved upon the same -principle, viz. that taxes must come out of that money which exceeds -what was necessary for carrying on alienation before they were imposed? - -In Spain they draw money from the chests of the hoarders, and increase -circulation for a while. - -In England, during King William’s wars, the quantity of money being very -small, and trade being very low, the tax upon malt could come out of no -other fund than the price usually given for barley. - -In France, people are better acquainted with taxes, and the great bulk -of excises are administred by the farmers, who never lower their price; -so that the diminution of the mass of coin diminishes consumption. - -But when methods can be fallen upon to increase money according to the -uses found for it, taxes will continue to produce, consumption will not -diminish, and circulation will keep pace with them. - -Could we suppose, that before the imposition of taxes, every person in a -state had laid it down as a rule, to spend the whole of his income, but -none of his treasure, in the consumption of what is brought to market, -it is plain, that in a luxurious nation, taxes might be carried so high -as to draw the last farthing of the treasure into circulation, even -though it were supposed to exceed the value which demand had fixed for -all that was brought to market. But without a luxurious turn this would -not be the case. There are countries abounding with coin, which it is -impossible to come at by proportional taxes. The reason is plain: the -value which demand fixes upon the total of the articles of consumption -exposed to sale in the country, bears but a trifling proportion to the -coin which remains locked up. This was the case in ancient Greece. In -that case, proportional taxes can never exhaust the treasure; because -were they to be made high upon articles of the first necessity, all the -poor would starve; if upon articles of superfluity, demand would stop. - -Proportional taxes, therefore, can only be raised in proportion to the -desire of spending money; and as this desire depends upon the spirit of -the people, so must the extent of taxes. - -Let me now trace a little the progress of money brought into circulation -by proportional taxes in a luxurious nation. I shall call the value, -fixed by demand, for all that comes to market (Y). The sum levied in -consequence of the alienation of it, or in other words, the sum of the -proportional taxes (X). And the whole money of the country (Z). This -premised, it will follow, from what has been said, that so soon as all -the money of the country is brought into circulation, then (Z) will be -exactly equal to the sum of (Y) and (X). - -Let us next suppose the whole alienation to be made at once. Will not -(Z) then immediately appear divided into (Y) and (X)? What then will -become of those two sums which we suppose to enter into circulation at -the same time? I answer, that (Y) will go entirely free to the -industrious seller: that it is, or should be, nearly equal to the former -value of what came to market before taxes were imposed: and that (X) is -an additional sum drawn from the idle consumers, who live upon an income -already made. But suppose (X) to be augmented, until it exceeds the -quantity of money formerly superfluous for carrying on alienation: then -I say, that either taxes will become proportionally less productive, or -consumers must melt down the capital of their funds into paper money, to -the amount of the deficiency of (X); and this will supply circulation -with the additional sum required in consequence of the imposition of -taxes. - -Now, I think, it is a lucky circumstance, that the additional sum of -taxes should be paid by those very people who are the best able to -borrow it upon their funds. - -Let us proceed to examine the progress of (Y) and (X) as they continue -in circulation. (Y) is no sooner come into the hands of the industrious -seller, but he has occasion to go to market: that moment I consider him -as one of the rich; and the money which, at the time he sold, had -acquired the denomination of (Y), now resumes that of (Z). When he comes -to buy a commodity with what was formerly his (Y), there is immediately -a part of it converted into a new (X), and the remainder keeps the -denomination of (Y) in the hands of him from whom he buys. By this -progress it is plain, that after a certain number of alienations, or -transitions from hand to hand, the whole quantity (Y) will be converted -into (X). - -Experience shews this to be the fact; because the amount of taxes, in a -short time, far exceeds the value of all the money of a country. - -Let us next follow the progress of (X). - -Upon the first alienation of any part of what comes to market for the -consumption of the proprietors of (Z), a proportional part of (Z) is -transformed into (X), and is carried into the public coffers. Were it -there to be locked up, and not thrown back into circulation, it is -plain, that in a short time the whole of (Z) would be converted into -(X), and would be shut up in the exchequer. - -When the amount of taxes, therefore, is sent out of the country in time -of war, must not this produce a similar effect? Has not the exporting -that amount the same effect with the locking it up, since the one and -the other equally take it out of circulation? Does it not then follow, -that if more money be not obtained, either by borrowing it back from -strangers, or by melting down more solid property, that selling must -stop, and (Y) disappear as well as (X). The rich, therefore, must give -over buying, and the proprietors of all that comes to market must deal -by barter with one another. - -How naturally do all these consequences follow one upon the other! and -how exactly do they correspond to the principles which run through that -part of the last book where we treated of banks and public credit! - -Taxes are not raised, at this time, to remain in treasures, but to -answer the exigencies of the state. The moment, therefore, that the -money arising from them comes out of the public coffers, it loses the -character of (X) and resumes that of (Z), in the same manner that (Y) -was transformed into (Z), by being brought to market to buy a commodity. -This new (Z), as we may call it, no sooner returns into circulation, -than it becomes again converted into (Y) and (X), with this difference, -however, that what came from the exchequer, so far as it is converted -into (X), returns directly into it again. - -Hence it follows, that states commonly pay their servants the full of -their salaries, and make them refund a part in consequence of cumulative -taxes, instead of proportionally diminishing what is due to them. And -when the salaries themselves are intended to be laid under poundage, -which in fact is an actual diminution of them, they choose that the tax -should appear to be a deduction out of what is supposed due; because it -seems less arbitrary to impose a tax, than to diminish a salary, without -assigning any reason for it; but indeed, besides this reason, it -commonly happens, that the particular appropriations and administration -of the revenue render that method easier. - -With respect to proportional taxes they affect the expences of the state -in the same manner as those of individuals; with this difference, as we -have said, that the part (X) returns into the exchequer; but the part -(Y) is fairly spent by the state, as by the idle consumer. - -From what has been said, we may gather the principles which lead to the -most extensive establishment of proportional taxes, viz. either to draw -by particular regulations, the whole real and gross produce of land and -work to market; or at least to bring it under the eye of the state, in -consequence of some modification or manufacture performed upon it, as -was observed with respect to malt-houses, mills, and public ovens. When, -by such contrivances, the whole gross produce falls under taxation, the -proportional taxes must be gently laid on, and gradually raised until -they begin to interrupt consumption; then they must be diminished for a -while, until dissipation increases; a case which will probably happen, -as it commonly keeps pace with industry. - -If we suppose the rich to set out on a plan of living upon their -capitals, instead of living upon their incomes, as we have hitherto -supposed, then indeed taxes may augment to a degree not to be estimated. -This combination has already found a place in the 26th chapter of the -second book, where we examined it with regard to the progress of -industry. In that place it was said, that in proportion to credit and -industry, it might be possible in the compass of a year, to produce -commodities to the value of the whole property of the most extended -kingdom. Were that the case, to what a height might not taxes be -carried? - -(Y) then would represent the whole value of the country, and -consequently, (X) would swell in proportion, according to the -competition among the inhabitants, to purchase every particular article. -Subsistence and necessaries might be taxed low in proportion to the -abilities of those of the lower classes; articles of luxury might be -taxed in a higher proportion, in order to draw the more into the -exchequer. - -Were taxes thus carried to their utmost extent, still every person in -the state must be left at liberty to save, or to spend the whole, or any -part of his stock, or income; which is not the case when cumulative -taxes are imposed. Proportional taxes, tho’ carried to their utmost -extent, will not deprive an industrious man of his physical-necessary, -nor of the reward of his ingenuity, nor of that rank in wealth, to which -his birth or expence entitles him[47]. - -Footnote 47: - - A man’s rank, in a modern society, seems to be determined more - according to his birth, or to his expence, than according to his - stock, or income. - -When taxes have the effect of interrupting this harmony of expence, of -restraining the liberty of squandering, or of saving, or of oppressing -one set of men more than another, in all such cases, they are improperly -imposed; and instead of being too high, as it is commonly supposed, I -think it is a demonstration that they are really lower than they need to -be. The classes of men in a modern state, resemble the horses in a team. -When every horse draws fairly and equally, the whole force is exerted; -but if any one happens to be strained by an overcharge thrown upon him, -the force of the team is greatly diminished. - -When proportional taxes are carried to their full extent, I then presume -every one will be obliged to pay as much as possible; I do not mean that -every one will be forced to pay to the extent of his abilities, but I -say, that the generality will; and therefore, were cumulative, or -personal taxes, to be superadded on those who already pay all they can, -they would, by affecting them unequally, deprive many of their -physical-necessary, or small profits; and consequently destroy the -proper balance of their competition. The setting the lower classes free -from cumulative taxes, will only have the effect of putting the growing -wealth of the penurious and saving part of the industrious inhabitants -out of the reach of taxation. This ought in good policy to be done, as -has been shewn in another place. But, farther, we have observed, that -taxes can only be increased in proportion to the spirit of dissipation -in the people. To force money, therefore, out of the hands of those who -do not incline to spend it, is forcing the spirit of the people; and if -not tyranny, is at least great severity. Besides, we shall presently -shew, how these savings cannot escape being taxed, whenever they begin -to produce an income; and allowing that they may be greatly accumulated, -and thrown into trade, yet still they must in one way or other appear in -alienation, and become subject to the proportional taxes. The only part, -therefore, of the savings not affected by taxes, will be confined to -that which is locked up. This in a prodigal nation should never be -touched. The inconveniencies resulting to the state from so small an -inequality of taxation, is too trifling to be attended to, and too -difficult to be prevented. - -I come next to examine the extent of cumulative taxes. - -If we suppose the proportional taxes to be carried to their full extent, -there will be little place found for the cumulative, as has been said. -The only objects left for them are the savings locked up, and the pure -profits upon trade. - -But let us suppose proportional taxes out of the question, as they must -be when contrary to the spirit of a particular nation; and then inquire -into the principles which regulate the imposition of cumulative taxes, -in order to discover to what extent they may be carried, and what -consequences may follow when they are brought to a height. - -This branch has two objects; first, income, which is determinate; -secondly, profits from industry, which are and must be very uncertain. - -Income, I divide into two sorts; that which proceeds from every branch -of solid property, capable of producing it: Land, houses, even cattle, -furniture, &c. all may, in some respects, produce an income, more or -less permanent according to circumstances. This sort of income is -established by lease. The second sort is the interest of money, -constituted by the contract of loan. - -In imposing cumulative taxes upon income, it is very proper to consider -the nature of every species of it, with respect to stability. Landed -property is fixed, and can not escape taxation, were the tax to be -carried to the extent of the full income, as has been observed. Were the -same proportion to be laid on houses, they would soon fall to ruin, -because the annual proprietor would not keep them up. Like circumstances -must be attended to, in taxing every other article of revenue. - -The method of ascertaining the value of this kind of property, is to -oblige all leases to be recorded, under a sufficient penalty. This is -the method in France, for the sake of the _controle_, which is exacted -upon recording them; and this, no doubt, facilitates the raising of the -twentieth penny, which operates upon all such incomes. - -The value once ascertained, the whole income is at the mercy of the -state, in proportion to the impossibility of avoiding it, by any change -on the nature of the fund. It is from this circumstance that I call all -such taxes arbitrary impositions. And I call them also cumulative; -because the reason given by the statesman for imposing them, is, that it -is just every one should pay a general tax, for the support of the -state, in proportion to his abilities. - -As these taxes cannot be carried beyond the value of the income which -the proprietor cannot withdraw from under the burden, we see the -impossibility of establishing them upon that income which proceeds from -money. If a tax of so much _per cent._ be imposed upon money lent at -interest; the lender may immediately call in his capital from his -debtor, and send it away beyond the reach of the tax. If the calling it -in be prohibited, then all credit is destroyed for the future, and no -more money will be lent. If the statesman should incline to profit of -the advantage found in securing money upon land-property; and if, -trusting to the desire monied-people have of settling their capitals in -that way, he should take one or more per cent. upon capitals so secured; -it will still have the effect of hurting the credit of landed men, who -have frequently no good security but their land to give. - -It was formerly the practice to allow the landlords to retain a part of -the interest, in consideration of the tax they paid upon that part of -their land, which was pledged for the security of the money borrowed; -but when credit is once established, that regulation has no other -effect, than to oblige them to borrow so much dearer than other people, -who have no retention to claim. Where indeed credit is precarious, such -a regulation would be a premium for good security. - -In general, I believe, we may safely determine, that all attempts to lay -a tax upon the income of so fluctuating a property as money, where the -capital is demandable, will prove unsuccessful. - -The case is different, when the capital is not demandable, as has been -observed in the end of the 8th chapter upon public credit; where we were -suggesting a reason for taxing the interest of national debts, when -grown up to the full amount of all the income of a country. But a -material distinction was there made, between those debts which were -supposed to be consolidated into a permanent property, and new contracts -which were to be considered as debts upon that property. - -We see, therefore, the extent of cumulative taxes upon possessions which -produce an income. Let us next examine how they may be made to affect -other articles. - -We have observed how improper, and how contrary to principles it is, to -impose proportional taxes upon those branches of sale, which do not -change the balance of wealth between the contracting parties. Yet -cumulative taxes may then take place; because there is no reason to make -them general, or proportional. - -When lands, for example, carry titles along with them, as is the case in -many countries; and when, as with us in Scotland they carry a right to -vote for a member of parliament, a very heavy tax might be imposed upon -the alienation of them. The same may be said of every other estate which -requires a feudal investiture to compleat the right. Thus the _Lods et -vente_ in France, which is a portion of the price of such lands due to -the superior or lord-paramount of the fee, amounting in many cases to -the sixth part of the price, is a hint for a cumulative tax to be raised -upon the alienation of this kind of property. - -Were cumulative taxes properly laid upon personal service, a regularity -in levying them at short intervals, and according to some determinate -proportion, would do a great deal towards communicating to them all the -advantages of those of the proportional kind. - -Thus a tax laid upon those who work by the day, may be levied in such a -manner as to be tolerably easy. A penny a day (or more if necessary) -paid by every industrious man, regularly, once a week, would soon enable -him to raise his price in that proportion. But then deductions must be -allowed for all accidental impediments; and were a plan to be concerted, -many other considerations would enter into it, which it would be -superfluous here to mention, and which, perhaps, may occur in another -place. - -The two articles which, in analizing the extent of proportional taxes, -we observed had escaped that imposition, to wit, money locked up, and -the pure profits on trade constantly accumulated into the stock, are -equally ill adapted to bear a cumulative tax. I can see no way of taxing -money locked up, any more than money lent, without opening a door to the -greatest oppression. And as to the pure profits on trade, although they -appear to be income, I rather consider them as stock, which, according -to principles, ought not to be taxed. My reason for not considering them -as income, is because we have supposed them to be accumulated by the -merchant into his trading stock. They resemble the annual shoots of a -tree, which augment the mass of it, but are very different from the seed -or fruit which is annually produced, and is annually separated from it. -If they are spent by the merchants, then they are undoubtedly income, -and will be affected by proportional taxes; but as they may also not be -spent, and become stock, the cumulative tax will affect them in both -cases. - - ------------------------------------------------------------------------- - - - CHAP. IX. - _The consequences of an Abolition of Taxes._ - - -Having endeavoured to deduce the principles of taxation, by examining -the combinations which occur when we suppose it augmented to the highest -degree, I must now look for new combinations, which will suggest -themselves upon examining the consequences of a total, or a partial -abolition of taxes. - -So far as taxes are absolutely necessary for the support of government, -no body, I suppose, can wish to see them abolished. The object, -therefore, of a statesman’s attention in levying taxes for indispensable -national purposes, should turn upon the principles we have been -examining. What now follows relates to the consequences of abolishing -taxes once established, so far as it proves a revolution in the oeconomy -of a state. This will lead us to examine the consequences of taxes, -considered as voluntary public contributions, independently of the -absolute necessity of raising them to supply the exigencies of the -state. We are therefore to examine the consequences of so great a change -to the whole body of the society, considered as a nation, which requires -a public stock, to which it may have recourse upon every extraordinary -occasion. - -When the interest of a whole people is examined with respect to taxes, -they may very properly be divided into the following classes. - -1_mo_, Those who receive the amount of taxes, viz. the creditors and -servants of the state, and those to whom they give employment. - -2_do_, Those who advance the taxes, viz. all the different classes of -the industrious. - -3_tio_, Those who pay the taxes, viz. all the rich and idle; or, in -other words, all those who cannot draw back what they have paid. - -In these classes are comprehended those who pay the taxes, and those who -receive the amount of them; consequently, in whatever concerns taxes, -the common interest of the whole taken together is what must regulate -the conduct of the statesman. - -In order to determine this first and general question, viz. the -consequence of abolishing taxes relatively to the cumulative interest of -a whole state, it is proper to inquire, - -1_mo_, What will be the consequence of abolishing taxes, relatively to -those who now receive the amount of them, viz. the creditors and -servants of the public, and those to whom they give employment. - -2_do_, What will be the consequences of abolishing taxes relatively to -trade, industry, and manufactures: that is, whether these great objects -are carried on to most advantage, when every individual contributes -largely in providing a fund to be administred by a statesman; or when no -body contributes any thing, but when every one retains the whole of his -income, and the profits of his industry, and disposes of them as he -thinks proper. - -3_tio_, What will be the consequence of abolishing taxes, relatively to -that part of the people who now complain that they are forced to -contribute to every tax, although by their exclusion from the emoluments -of lucrative employments, they bear a greater burden than others not -better entitled to exemption, who thereby profit at their expence? - -To determine so intricate a question, several combinations of -circumstances must here be examined, and from the particulars resulting -in every case, we shall, towards the end of this chapter, endeavour to -point out the general conclusion. I begin by examining the consequences -arising to the creditors, and to those who serve the state, from the -cessation of those expences which flow from the produce of taxes, either -in paying the interest of debts, or in defraying the whole _actual_ -expence of government. - -As to the creditors, this question has been already discussed. We have -seen that the withholding the interest due to them would have the -consequence of bringing on such a convulsion in the state, by the breach -of faith, and ruin of public credit, as would throw every thing into -confusion. But with respect to the servants of the state, we must -inquire, whether the raising taxes for defraying this article of expence -be more hurtful to the people in general, than the consequences of such -a revolution in circulation and employment, which would follow, if the -taxes were to be suppressed, and the servants employed by the state -dismissed. - -When the necessity of raising taxes is out of the question, the hurt -they do in general to a country is when, by the imposition, the money is -taken out of those hands who would have employed it for the advancement -of the prosperity of the state, in order to throw it into those who will -employ it otherwise. From this let us now draw some conclusions. - -1_mo_, That if money be taken from those who would have employed it in -feeding themselves, and in continuing their industry, the cessation of -such a tax is in a manner giving bread to those who are starving. - -2_do_, If money were to be taken from those who, having more than bare -necessaries, would, by its use, increase the demand for domestic -industry, and were that money bestowed on a set of men who would employ -it in the purchase of foreign commodities; the cessation of taxes, in -such a case, would, so far, take the bread out of the mouths of -foreigners, and give it to our own countrymen. - -The abolition of the first species of taxes is advantageous to a state -in every combination, let the money arising from it be ever so well -employed. As to the second species, the abolition is not necessary; -because the vice lies only in the misapplication of the amount. - -Let us then suppose taxes to become unnecessary, and all those of the -hurtful kind, depriving the industrious of bread, and enriching -foreigners at the expence of citizens, to be taken off. - -Suppose that after all, there should still remain more taxes than are -sufficient for supplying all the necessary charges of government, when -administred with prudence and with oeconomy, and that this surplus is -bestowed in gratifying individuals, beyond the value of all the services -they do the state: I ask whether this superfluous expence is immediately -to be cut off, and taxes diminished in proportion; or whether it would -not be more proper to let the taxes subsist, and to think of a better -method of applying the amount of them? - -I answer, that according to the state of the question, the body of the -people, who are all made to contribute towards the enriching of a few of -their number, may justly complain of the inequality of their condition, -and have a title to demand an abolition of their taxes, unless it can -evidently be made appear, that by granting their request, there would -follow a prejudice to the state, which would affect their own interests -as individuals. - -To discover how far this may be the case, let us form as many -combinations as we can, relative to the effects of diminishing taxes, -and candidly examine the most natural consequences of every one. If we -find that the mass of a people gain, in general, more than they lose by -paying taxes imposed with moderation and propriety, and still more if it -appears that their ease and prosperity depend upon the levying and -expending of such taxes; I think we may conclude, that all diminutions -of them which hurt the interest of the greater body, are in general -hurtful to the society. - -Let me first suppose a general reform of all unnecessary expence to take -place at once, and a proportional abolition of taxes to go hand in hand -with it. Would not all those who at present subsist by the superfluous -expences of government, be reduced to misery? Would not all those who -supply unnecessary wants, equal to the whole amount of the taxes -suppressed, be forced to be idle in proportion? The millions who -contribute in paying those sums would be differently affected. Those who -pay out of a fixed and certain income, would feel an immediate benefit -from it; those who contribute by proportional taxes would also be -gainers, providing they be of the idle class; but all the industrious -would lose in proportion, if the prices of subsistence should not fall -with the diminution of their taxes. All the manufacturers of exciseable -goods, who had been used to _advance the taxes_, as we have observed, -would gain considerably. For the diminution of the taxes would be total -as to them, though not to their customers; because traders would never -want pretences for keeping up the price of their commodities beyond the -proportion of what it ought to be, when duties are taken off. - -I decide with the greater certainty as to this particular, from the -analogy it bears to the consequence of changing the denominations of the -coins in France, which long experience shews never to have the immediate -effect of regulating prices proportionally. - -But as we are here considering the consequences of a sudden abolition of -taxes, let us, for a moment, consider, with an eye of humanity, the -scenes which would unavoidably open to our view, both in the formerly -opulent habitations of those who were wont to wallow in public money, -and in the comfortable dwellings of many others of every denomination, -who, either as the reward of merit, or as the recompence of painful -industry, had supplied the wants of useless armies, navies, arsenals, -dock-yards, &c. formerly paid out of taxes, now abolished, and who -thereby had subsisted and brought up their families. - -Are not all these children of the state? Have they not had fathers and -mothers who have been greatly relieved by procuring such outlets for -them? Have they not children who are educated and brought up with the -amount of their salaries, and profits of their service? Have they not -had people of every class of industry, who have gained their bread by -providing for their wants, while they were supplying those of the state, -now become superfluous? In one word, does not the money they receive, -circulate and return to the grand river, as I may call it, in the same -manner as that of other members of the state? - -For these reasons, I say, that taxes once properly imposed, and brought -to circulate through a certain channel for a long time, cannot, -_suddenly_, be suppressed, without occasioning far greater misery and -distress than can arise from them, when levied with any degree of -intelligence. This is nowise peculiar to the suppression of taxes; it is -equally the same, in every sudden revolution of property. When the -Templers were universally rooted out of Christendom, who doubts of the -afflictions, misery, and distress, which followed to every class of -inhabitants employed by them, in every kingdom in Europe? Could so large -a consumption as that of so great an order cease at once, without -drawing along with it numberless inconveniences? Did not the reformation -itself, otherwise so great a blessing, starve a multitude of poor who -were fed by the monastries? Did not the secularization of so many -ecclesiastical benefices do great prejudice to many families, by -blotting out an infinity of ways of procuring an easy livelihood for -their children? Let those who do not feel the truth of what I here -advance, examine the state of the protestant nobility in Germany, where -you find the same hardships still subsisting, though in a degree much -inferior to what it must have been at the time of this sudden -revolution, which took bread from thousands of the younger sons of noble -families. - -Such revolutions have happened; such inconveniences have been felt: but -they were not the deliberate act of any particular statesman. They were -the effect of those convulsions which the human passions occasion. No -body can justly impute them as necessary consequences of a reformation -in religion. But let any statesman now, from a cool reflection upon the -unnecessary load of employments in church, state, army, navy, finances, -and law, and from a principle of distributive justice, abolish _at once_ -all that is superfluous, and the taxes, at the same time, out of which -the emoluments arise, he will very soon set before the eyes of his -people, such a scene of compassion, as will quickly blot out the -remembrance of the favour. - -We should not then find some individuals reduced to want, but numerous -families; not a parcel of beggars starved, but industrious -manufacturers; not a set of ecclesiastics, who from their state of -celibacy and retreat, appeared already, in a manner, separated from the -commonwealth, but a multitude of people connected by marriage, by -society, and by all the tender bonds which unite mankind. Such a scene, -I say, would not fail to excite compassion in the heart of those very -men in whose favour the desolation was to be brought on; and the -statesman would thereby lose the whole merit of his ill judged zeal for -distributive justice, and be considered in the most unfavourable light -that passion or prejudice could suggest. - -This is a digression introduced with no intention to favour a -misapplication of public money, but to point out how far a reformation -in this particular is a delicate operation. - -A good physician never attacks a disease by violent remedies, when mild -ones, with time, may be made to produce the same effect. Nothing can -resemble an ingrained disease in a human body, more than an ingrained -vicious habit in a state. The spirit of a nation is influenced, as has -been said, by the administration of its government. So large a sum of -misapplied money creates a political disease, which must be purged away -by degrees; and new doors must be opened to receive those whose former -method of subsistence is thereby intended to be cut off. - -Let me next examine the consequence of a gradual and insensible -reduction of taxes, relatively to trade, industry, and manufactures. - -It would be both tedious and superfluous to trace the steps by which -such an operation ought to be conducted. Let me suppose it compleat; but -let it not be so very gradual as to blot out all remembrance of the age -of taxes, and of their effects. - -We have sufficiently analized the whole progress of circulation; we have -shewn how it must constantly be in proportion to alienation, and how, -when deficient, industry suffers a check. Even when peace is restored -after an expensive war, we have shewn how circulation diminishes, from -the abatement of public expences, how money stagnates, and how it is -consolidated upon property of a more permanent nature. - -Let us now apply these principles to the question before us. Let taxes -be abolished ever so gradually, the circulation of the exchequer must -cease in proportion; consequently, the whole alienation, and the whole -industry which is the object of that alienation, must cease also. The -money issued from thence at present, continues its progress from hand to -hand, and all is found necessary for circulation, in this age of -taxation, as we have called it. What a deal of industry is implied in -the circulation of a sum equal to all the taxes! Let those who choose to -calculate, state the following proportion, because I will not here -interrupt my subject. - -As the whole money of the country is to all the alienations performed by -it, so is the sum of taxes to that part of alienation which will fall -with them. - -If a gradual diminution of taxes must have the effect of extinguishing -so much industry, it will have the effect of starving the industrious -who lived by it. But before they starve, the price of work must fall -below the price of the narrowest subsistence: because the never failing -foreign demand for subsistence, will keep it above the rate of their -slender abilities, as long as any trade remains. - -To imagine a foreign outlet for cheap manufactures, while the -subsistence of workmen is at par with other nations, is against all -principles; as it is against experience, to see a country without -revenue, and without taxes, carrying on with success the operations of -industry and foreign trade. - -Compare, therefore, the situation of such manufacturers with those in -the age of taxes. Compare those who would augment a supply far beyond -all the demand for it, with those who are paying large taxes, and as -regularly drawing them back, either upon the sale of their work, or in -consequence of wages which enable them to be idle two or three days in a -week. - -In such a situation, how ardently would the former wish to see the idle -consumers furnishing again a copious supply of money to government, for -removing such inconveniences. They would then quickly perceive that they -had not been of that class which had felt the load of taxes; they would -recal to mind the joyful hours they had spent in public houses; the -fortunes which every industrious man might hope to accumulate, while -every branch of industry was kept alive, by the means of a copious -circulation. - -If, therefore, the industrious classes of a people cannot be benefited -by an abolition of taxes; let us next inquire, to whom the advantage -would accrue. - -It has been said, that the idle consumers pay all taxes of the -proportional kind; the proprietors of lands, houses, &c. bear every -where a very large share of taxes both proportional and cumulative. This -class of men, therefore, are those who bid the fairest to reap a benefit -from an abolition of them. But the proprietors of lands are by no means -included in the class of idle consumers, in every respect; altho’ they -may be considered in that light, with respect to such taxes upon their -consumption as they do not draw back from their direct industry, in -producing some manufacture which they may sell again, with a profit -proportional to the tax they paid. They are masters of a property, -which, in a country of industry, is daily augmenting in its value. Their -fortunes, often swell faster than those of any one class of the -industrious; but they augment by annual income; the fortunes of all the -rest, increase by the capital. Every penny raised in a landlord’s rent, -is equivalent to half a crown gained by a merchant. - -If it be true that taxes, rightly imposed, do no prejudice to any of the -manufacturing, or any-wise industrious classes of a people; and if it be -true, that an abolition of those taxes, by contracting circulation, -would discourage industry; then we may determine that the landlords -would lose much more in finding the improvement of their lands -interrupted, than all they can gain by adding their taxes to their -present fortunes. - -Combinations of this sort are so involved, that I cannot pretend to -unfold them step by step, as might be done in cases of a more simple -nature. The conclusions therefore drawn from researches of this kind, do -not command that assent, which we find in a manner extorted from us upon -other occasions. In this chapter, I have not undertaken to demonstrate -that the judicious imposition of taxes is advantageous to a country in -every respect. My view is to point out the advantages they actually -have. The common opinion is that they are hurtful. Our feelings, -however, have raised doubts with many great men concerning the truth of -that proposition. If my investigations, however imperfect, and however -liable to objections, should facilitate to others the clearing up a -point, which is beyond the reach of my capacity to extricate, this -consideration will be a sufficient encouragement for me to proceed. - -Let me, therefore, lay aside the thoughts of analizing the effects of -taxes, with such accuracy as to form a demonstration of their being more -beneficial than hurtful to an industrious nation, and that the throwing -them back into circulation does more good, than the raising them does -harm. But let me shew, in general, that the interest of landed men, who, -I think have, beyond all doubt, been proved to be those who, in the -first place, pay a considerable part of proportional taxes, does by no -means require an abolition of them. - -The proprietors of lands, whom we have hitherto considered as being of -the class of the idle consumers, advance their rents by the great demand -produced for subsistence, in consequence of industry. This, if it does -not raise the price of subsistence, keeps it, at least, at an equal -standard; and that standard must bear a proportion to what it is worth -in other nations, as long as trade subsists. But let trade decay, let -domestic industry fail, it will not be the foreign price which will then -support the rate of our markets. What a multitude of circumstances -contribute to the exportation of our superfluity! I can send from -Charing-cross, any parcel whatever, to the distance of fifty miles, -cheaper than from my own country habitation, where I can have a man, -with a cart, for two shillings a day. From Charing-cross, I can send, at -an hour’s warning, many thousand tuns weight: here I could not do the -same in many weeks. Near London, an extended common may be inclosed and -improved in a season: here, the improvement of a small field is the -business of a man’s life. Let me even consider how matters are changed -within these fifty years. Undertakings which now are executed with -little difficulty, were then absolutely impracticable. An army was -necessary thirty years ago to make a road of a hundred miles, and the -inhabitants were astonished at the execution of it[48]. - -Footnote 48: - - Wade’s road through the highlands of Scotland. - -Were it necessary, at this time, to do as much every year, if money be -but provided, hands will not be wanting, either to conduct or execute -the plan. - -The number of people, _well employed_, makes the prosperity of a state; -and the profits of the opulent classes, by the augmentation of industry, -more than compensates all the burden of their taxes. They grow in -relative wealth; and the acquisitions they make, are commonly exempted -from the cumulative taxes raised upon their possessions. In proportion -to their industry in improving their lands, their fortunes augment. The -present system of taxes does not interrupt their operations. Were any -great change in that particular to take place, which might sink the -market prices of subsistence, even allowing that it would prove an -advantage to foreign trade, they, I am sure, would be the first who -would feel the inconvenience. - -It may be wondered, why I have not suggested, as a consequence of taxes, -the increase upon the price of the earth’s productions, which is a -direct indemnification to all the landed interest, more than equivalent -to the taxes they pay. But taxes upon land, do not augment the price of -grain, as they raise the price of exciseable goods. The reason is plain. -The tax upon land affects only the proprietor’s share of the produce of -his lands: were he to attempt to raise the price of his grain, in -proportion to the tax he pays, his farmer, who pays no land-tax for his -portion, would undersell him in the market. A tax never can raise a -price, except when it is laid on so universally, as to make it -impossible for any person to avoid it, who sells in competition with -another who pays the duty. It is from this principle that smuggling -often ruins fair traders: the smuggled goods are sold cheaper than those -which pay duty, and the fair trader is thereby forced to sell below what -he can afford. - -On the whole, I believe that when this question is thoroughly -understood, it will be found, that taxes affect prices far less than any -one could imagine; except in the case of excises, rightly imposed, and -levied without fraud. There indeed they have their effect; but in every -other mode of imposing them, I am apt to believe that they do not -produce the consequences commonly ascribed to them. I have already -suggested the reason in a former chapter upon this subject; where the -influences of competition in the markets where commodities are sold, has -been proved to work more irresistible effects in regulating the price of -work in general, than any thing that taxes, not immediately imposed upon -the very article of consumption, can produce. But if in spite of all -that has been said, it should be urged that the prices of labour and -manufactures rise in proportion to taxes, I answer, that the -difficulties resulting upon this hypothesis, would be many more than -could be objected to the other theory. Could, for example, any man -assign a reason why a pound of the best snuff in England should be sold -dearer than in France, where it pays a duty of above two shillings -sterling; why many articles of manufacture can be afforded cheaper in -England, than in Scotland, where taxes are certainly lower, and although -a day-labourer in the first be paid a shilling, and in the last little -more than eight pence; why subsistence should be absolutely dearer in -Scotland than in England, taken upon an average; why universal -experience should prove, that when the price of subsistence is raised by -scarcity, work instead of rising, is constantly lower than at other -times? - -From all these appearances, added to the arguments I have used to prove -that taxes are not prejudicial to industry, I conclude, that the theory -I have attempted to give is just in the main; and that when taxes are -judiciously imposed, and actually levied without oppression, they enrich -a nation. - -1_mo_, By putting into the hands of a good statesman, the means of -removing every abuse; of rendering the state respected by its enemies; -of supporting every class of industrious inhabitants, when their -particular branch falls under distress; of providing an outlet for many -young people, who in time become ornaments to their country, and -instruments of her defence; of supporting foreign trade by bounties on -exportation; of encouraging the improvement of lands, the establishment -of colonies, the extension of fisheries, and every other scheme for -augmenting the production of subsistence and manufactures. - -2_do_, That the multiplication of taxes, exclusive of the encouragements -just mentioned, which are bestowed gratuitously on trade and -manufactures, do, of themselves, and independently of the proper -application of their amount, augment, demonstratively, the mass of -circulation, alienation and industry; and in this respect may be -considered as a voluntary contribution, in the first place at least, -from the rich who pay them, to the industrious who directly draw them -back. - -3_tio_, As to that part of the people, who pay their taxes without -sharing the advantages of those who serve the state in lucrative -employments, I say the industrious part of them pay nothing; and the -demand for what they produce, is greatly increased by the expence of -those very men who are the objects of their envy: and farther, that if -an alteration were to be made on the revenue, by any abolition of taxes, -those who imagine themselves hurt at present, might find, by sad -experience, a much greater, and much more real hurt, from what would -disturb the harmony of the present system. - -To conclude, we have a tolerable notion of the state of industry in -former times, when taxes were little known: we may see the progress it -is making in countries where, at present, impositions are comparatively -lower than elsewhere; and we may compare the state of those countries -with our own, as to ease and happiness. From such inquiries, nothing, I -apprehend, can be concluded in favour of the progress of industry, from -an abolition of taxes. - -That such an abolition may produce some good effect, as yet unknown, I -shall not pretend to deny: we have not lived long enough to see any -experiment of this kind put in practice. - -From the exposition I have given of this matter, there arises a great -difficulty to be solved. - -Taxes are paid, no doubt, and no body according to this theory seems to -pay them. The industrious draw them back; the proprietors of land and -solid property are said to be indemnified; prices, it would appear, are -not to fall by a diminution of taxes, in favour even of the most idle -consumer; they are not made to rise in consequence of an augmentation on -them: Whence then do taxes proceed? From what fund do they arise? What -interest do they affect? I can solve all these difficulties, by an -answer to another question. From whence arises the value of a small -parcel of flax, when wrought into fine lace? It arises from the price -paid for time well employed; which produces nothing when spent in -idleness. This is the fund out of which the greatest part of taxes is -paid; it is a fund created by the industrious Britons, which I hope will -increase for many centuries, tho’ taxes should increase in proportion. -It is worth more than ten times all the taxes which could be raised, and -all the landed property without it. Let that time be spent in idleness, -and the whole produce of this island would not supply the expences of -government for a month. - - ------------------------------------------------------------------------- - - - CHAP. X. - _Are taxes a spur to industry, as some pretend?_ - - -It is not easy to find out, _a priori_, how taxes should prove a spur to -industry. What makes several people adopt this opinion is their -feelings, in consequence of many circumstances arising from experience, -rather than what reason, or the nature of the thing has pointed out. But -as nothing can be produced without an adequate and natural cause, it is -proper to examine this political problem, by an application of the -principles we have laid down in the former chapters. If these be just, -we shall discover by them, how it happens that in countries where taxes -are high, where living is dear, and where every circumstance seems to -render the means of subsistence difficult to obtain, people live in the -greatest plenty, are best and most easily subsisted, and that industry -there makes the greatest progress. - -For the solution of this question, let us call to mind the principles -which influence the multiplication of mankind, and the increase of -labour and industry, laid down in the first book. We there explained how -the wants of mankind promote their multiplication. - -Money, the instrument of alienation, was represented as the primum -mobile in this operation; a desire in the rich of acquiring every thing -with money, that is _demand_, was shewn to be the spur to industry in -the poor. It was said, that if riches did not inspire a taste for -luxury, that is for the consumption of the labour of man, these riches -would not circulate; and that they would then be adored rather as a god, -than made subservient to the uses of men. - -Connect herewith that the imposition of taxes is a method of bringing -money into circulation; that those of the proportional kind have the -effect of drawing from the rich, an additional price upon every thing -they buy, which goes for the use of the state, and which otherwise would -not have entered into circulation at that time. - -From these principles, I conclude, that taxes promote industry; not in -consequence of their being raised upon individuals, but in consequence -of their being expended by the state; that is, by increasing demand and -circulation. - -From the principles above laid down, I cannot discover the shadow of a -reason, to conclude that the taking arbitrarily away from some -individuals, a part of their gains by cumulative taxes, or -proportionally from others, by augmenting the price of what they buy and -consume, must in any respect imply an incitement in the consumers to -demand more; and without this it never can excite the industrious to -augment the supply. - -I readily allow that every one who has been obliged to pay a tax, may -have a desire to indemnify himself of the expence he has been put to, by -augmenting his industry; but if on the other hand, taxes have put every -one to a considerable additional expence, in proportion to his estate, -it would be absurd to allege this diminution of his fortune, as the -cause of a desire to augment his consumption. - -Examine on the other hand, the use made by the state of the money -raised, and you will easily perceive the justness, I think, of the above -mentioned principles. This money belongs to the public, and is -administred by private people. Public expence is defrayed with a full -hand; they who bestow the money, bestow it for the public, not for -themselves; and they who work for the public, find, or ought to find, -the greatest encouragement to be diligent. - -Every application of public money implies a want in the state; and every -want supplied, implies an encouragement given to industry. In -proportion, therefore, as taxes draw money into circulation, which -otherwise would not have entered into it at that time, they encourage -industry; not by taking the money from individuals, but by throwing it -into the hands of the state, which spends it; and which thereby throws -it directly into the hands of the industrious, or of the luxurious who -employ them. - -It is no objection to this representation of the matter, that the -persons from whom the money is taken, would have spent it as well as the -state. The answer is, that it might be so, or not: whereas when the -state gets it, it will be spent undoubtedly. Besides, had it been spent -by individuals, it would have been laid for the supply of private wants, -which are not near so extensive as those of the public: and farther, -when money is so taken from rich individuals, it obliges them to find -out a way of procuring more, out of their solid property; and when this -facility is not procured for them by their statesman, we see how taxes -become both oppressive and ill paid. On the contrary, when it is -provided, either by the returns of foreign trade, which greatly augment -the coin of a country; or by banks, which melt down property into paper -circulation; we see taxes augmenting constantly, without creating any -impediment to consumption, or discouragement to industry. All these -consequences hang in a chain, and hence the solidity of the principles -upon which they depend may be gathered. - -After this solution of the question proposed, let those who are versed -in history combine circumstances, and examine whether facts do not prove -the truth of what I have said. - -During the time of the Roman empire, when the riches of Asia flowed into -the coffers of Rome, and were constantly exhausted by the prodigality of -the emperors, we perceive, from many circumstances, to what a degree the -consumption of superfluities augmented. The price of certain commodities -rose to an excessive height; industrious people, of the lowest -extraction, were daily seen to amass prodigious fortunes: these are -proofs of circulation. But when we consider the expences of a Lucullus, -or of a Crassus, who consumed, it is said, the work of ten thousand -slaves, and compare the consequence of that consumption with the expence -of a modern, who should consume the industry of ten thousand freemen, we -shall find a wonderful difference in the effects of the one and of the -other, with respect to circulation, and the encouragement given to -industry. - -There was no alienation between Crassus and his ten thousand slaves, -notwithstanding all the work consumed; consequently, the only -circulation implied by this consumption was in proportion to the -necessaries which the master was obliged to purchase for so great a -multitude: and if we still suppose all those necessaries to have been -produced by their own labour, then the state of Rome could not, but by -an arbitrary imposition laid upon Lucullus and Crassus, draw one -farthing out of their coffers; consequently, industry could not increase -in proportion to the loads of wealth brought from Asia by those -generals. Whereas were Lucullus now at London, or at Paris, he would not -be able to spend a shilling, without giving a penny, and perhaps more, -out of his treasure to the state, which would immediately throw it back -into circulation. - -As we are now on the subject of circulation among the ancients, let me -briefly trace the progress of it in Europe, through different -modifications, to our own times, and so close this chapter. - -When the seat of empire was translated to Constantinople, and all the -Asiatic provinces attached to the Emperors of the East, a stop was put -to the augmentation of coin and bullion in the empire of the West. A -considerable part of what had formerly been there returned to -Constantinople, and the remainder fell a prey to the barbarous nations -which overran it. This may be called the first period. - -These barbarians, by enslaving all the ancient inhabitants, and by -forcing them to perform every kind of service, must have had little use -for coin. What they coined appears to have been broad and thin. - -Let any one reflect upon the insensible waste of silver plate, and the -still greater loss on coin which circulates; the vast sums carried off -in the time of the Croisades; the quantities buried or thrown into -rivers in times of devastation; and add to these circumstances, that -from the fifth century after Christ, till the discovery of the Indies, -there was, probably, little or no silver or gold brought into Europe; -and it will appear very natural, that coin should have been at that time -much more scarce than formerly. - -How contracted circulation was during the 13th and 14th centuries, may -be gathered from the anecdote concerning alienation in France, mentioned -in the third chapter upon public credit. - -But farther, the great subordination established by the feudal form of -government, and the military services to which such numbers were bound, -had the effect of preserving the ancient simplicity of manners, so -unfavourable to industry. The consequence was, that Princes could raise -no taxes; and that all the money the people had was locked up in their -chests. We know there were in those days abundance of wealthy people; -but their wealth inspired them with no disposition to consume at the -expence of ready money. - -The discovery of the Indies opened a third period, and threw great -riches into the hands of the Spaniards: the house of Austria was the -first enriched, and appeared with great splendor for some time. Charles -V. by his extensive dominions, had an opportunity of distributing this -new gotten treasure among his subjects in Flanders, his native country: -this set industry to work in that quarter. The Portugueze discovered the -East Indies: a new enticement to luxury; a new motive to become -expensive. The Hollanders became a trading people, and with the money -which their industry had drawn from the magnificent Spaniard, they shook -off his yoke. Money insensibly began to circulate. Princes immediately -found, as has been said in the second book, that it was necessary for -them also to augment their revenue, in order to maintain a proper -superiority over their subjects in point of riches. The increase of -circulation among individuals made it more easy to raise taxes; and the -throwing the amount of them back again, in gratifications to the chief -people of the state, engaged those who came by money in a manner -gratuitously, to expend it as freely as they received it. No wonder, -then, if Princes found it an easy matter to load their subjects. They -were supported in this scheme by the great men of the state, who found a -benefit from it. This revolution has totally changed the face of affairs -in the present period of circulation. Courts are splendid; armies are -numerous; buildings, in cities and in the country, are magnificent; an -old city, compared with a new one, appears hideous; all public works are -carried on with that solidity which we admire in those of ancient -Princes and states, when nations led into captivity were employed to -perform them. In those days the magnificence of Princes was in -proportion to the groans of their subjects; now they are in proportion -to their wealth and ease. Whence proceeds the difference, the effects -are the same? From good government, and a well regulated political -oeconomy. - - ------------------------------------------------------------------------- - - - CHAP. XI. - _Considerations upon Land-Taxes, with some Observations upon those of - England and France._ - - -Of all the kinds of cumulative taxes, that which is properly imposed -upon lands seems the best: that is, it implies the fewest inconveniences -to the persons paying, and to the state in raising it. That it is an -unequal imposition is plain and certain: this character is unavoidably -attached to every species of cumulative taxes, in one way or other. It -has also the effect of casting a general discredit upon the purchase and -improvement of land; because the proprietors are naturally exposed to -augmentations, which may, almost with the same ease, be carried to the -total amount of the income, as to any proportional part of it. This has -been mentioned in a former chapter, where the interest of a nation’s -debts was supposed to increase so as to equal the value of all the -land-rents, and the whole revenue of individuals. - -Land-taxes are imposed in various forms in different countries, and all -are supposed to bear a determinate proportion to the rent. This, -however, is never, nor indeed can it ever be the case. The value of land -is varying perpetually, from the industry of the inhabitants. Besides -this inequality, there are other inconveniences proceeding from the -unequal distribution of property. In Scotland, for instance, land is -divided into large portions; very few small lots are to be found. The -class of farmers, for the most part, labour the lands of others, who -have large possessions. This is less the case, I believe, in England, -and still less in France and in Germany. A land-tax, therefore, being -supposed universal, would, in Scotland, do little harm: in England, it -falls heavier upon the small proprietors; because the sum exacted bears -a greater proportion to the supposed superfluity of the proprietor. In -France, it is still worse; for there the exemptions of the numerous -class of nobles, and many other circumstances mentioned above, entirely -destroy even the shadow of proportion. It is out of my way to enter into -any long detail upon this head, with respect to different countries. - -I shall therefore confine myself to a very few observations upon the -method of laying this tax in England; and upon a project which has been -long in agitation in France, to raise their land-tax by way of tithe -upon the fruits. - -This scheme was first proposed to the late King of France by the -_Marechal de Vauban_, in 1699, and the proposal was renewed some years -ago in a performance called the _Reformateur_. But as it would prove -hurtful and burdensome to France, in a great degree, from a circumstance -which has not been attended to, the examination of this system of -taxation will serve as a good illustration of this part of our subject. - -The land-tax in England has, in my humble opinion, two remarkable -defects. First, The sums imposed at so many shillings in the pound[49] -upon every district of the kingdom, whether cities, towns, universities, -or open country, even upon the King’s palaces, inns of court, &c. are -not distributed according to any rule of proportion upon the property of -individuals; but this operation is left to assessors. - -Footnote 49: - - That the assessments, in the annual act for the land-tax, are - generally understood to be at the rate of 1, 2, 3, or 4 shillings in - the pound, is true; but it is to be observed, that no such rate is - mentioned in the statute with respect to real estates or land. The - rate of a certain number of shillings in the pound occurs only with - regard to personal property. - -Secondly, All personal estates, except property in the public funds, and -stock upon land, supposed necessary for agriculture, are charged in the -same proportion as land-rents. - -I shall now point out the inconveniences and bad consequences of these -two capital defects. - -When a tax is imposed at so many shillings in the pound upon the income -of a whole district, every article of the property which produces it -ought to be specified. If this be omitted, there is a legislative -authority vested in those who make the distribution. - -The articles which compose the whole property, and the revenue of each -article being once determined, the state has it in its power to impose -the tax according to what proportion it thinks fit; of one, two, or more -shillings in the pound. But then, in favour of the contributors, the -different articles which produce the supposed total, ought either to be -specified in the law, or reference should be made to a book of valuation -where they are recorded. - -It is no easy matter to frame the valuation of all the property of a -country: and it is a scheme I should be very far from proposing, unless -the spirit of a nation took such a turn as to wish for it. But where a -determinate sum has been in use to be levied upon a certain district, it -does not appear so difficult to make a proportional distribution of it -according to equity, and to adhere for the future to that distribution, -considering it as a _proportional_ valuation, if not a _real_ one. This -is done every year, and without it no such tax could be raised. But when -annual distributions are made, discontents constantly arise; and the -pretended equality thereby observed, produces worse effects than the -inequalities which would follow from the other scheme: because the -change in the relative value of possessions would then be chiefly owing -to the industry of every proprietor in improving his lot. - -How valuations in England were made originally I cannot tell[50]; but in -Scotland, it is very certain, that as to lands they were all set down in -a book of valuation at their supposed rents at that time. So let the sum -raised be what it will, every man at least knows that his proportion -must be according to his valuation in the general register. - -Footnote 50: - - There is no vestige in the history of England, since Dooms-day book, - of any regular valuation being made of all the _lands_ of the kingdom, - nor of any tax imposed, _singly_, on that branch of property. - - The subsidies, monthly assessments, and pound rates, in the different - stages of the monarchy, have all been mixed duties; composed of a - charge upon the lands, upon the money and personal estates of the - subject, and frequently including a poll-tax, where qualities, that is - rank, were differently charged. - - The whole operation of distributing and raising this duty, has been by - commissioners named by the King, or by parliament, who sometimes upon - oath, and sometimes not, inquired into the extent of every one’s - private fortune, and assessed them accordingly. Whoever wishes to have - a more full account of this confused method of raising a land-tax in - England, may consult Davenant’s Ways and Means, Article of Monthly - Assessments, and Aids upon a Pound-rate. - -In England, the case is totally different. The proportion every district -is to pay, is indeed recorded by an original distribution made many -years ago in King William’s time. By this it appears what every city, -county, university, &c. is to pay according as the tax is imposed at -one, two, three, or four shillings in the pound. This is precisely the -regulation in France, as shall be more fully observed; but still such -regulations nowise prevent the most grievous inconveniences which attend -this tax; because the burden of it does not consist in the total amount, -so much as in the partial distribution upon the inhabitants in every -subdivision. - -In England, let me suppose the proportion of the general sum for a -particular district to be ten thousand pounds, at four shillings in the -pound. How is this to be levied as the law stands? Instead of books of -valuation, which shew at least the proportion of every man’s property, -if not the real value of it, assessors are constantly called in, who -examine the rents of all the lands according to the last leases of them. -If they have been improved and let at a higher rent than formerly, the -proportion of the tax is augmented. If they have not been let, but still -remain in the possession of him who improved them, the tax is not -augmented. If the tax be found to fall too heavy upon the lands and -houses, then personal estates are made to contribute, as is the case in -London. All questions or disputes about the repartition of the tax are -determined, without appeal to the courts of law, by the commissioners -appointed for laying on the tax; as in France they are determined by the -Intendant. Without this regulation all would run into confusion, for the -reason I am now going to mention, and which regards the second defect in -this tax. - -Any proprietor of lands is entitled, from the words of the statute, to -insist that the whole personal estates of those of the district shall -enter into computation of the total value upon which the sum imposed is -to be assessed. Were such questions to come before a court of law, where -the judges are obliged to determine almost according to the letter of -it, I believe no land-tax could be levied in that kingdom. But manners, -not laws, govern mankind. The spirit of the English nation is such, as -to be incompatible with every thing which savours of oppression. Hence -the few complaints against the assessors, or those who judge between -parties. And as the land-tax is levied without any complaints, except as -to the total amount; while that remains the case, the fewer the -innovations made upon it are, the better. - -In France, the sum of the _taille_ to be raised upon the kingdom for the -year is determined in the King’s council; and the proportion of every -district (called an _Election_) is there particularly specified. The -district of an Intendant is called a generality, and comprehends in it -several elections. The Intendant, therefore, makes the distribution of -the general sum imposed upon every election, and upon every town, -village, and parish in it, according to a certain proportion; and rules -are prescribed to the collectors of every parish, concerning the method -of taxing every species of income, every emolument of industry, even -every animal in the possession of those who are subject to this tax. -This proportion is calculated to carry the most scrupulous attention to -every man’s gain, upon all effects belonging to him, and upon every -possibility of making profit by industry. All this is carried into -execution with the greatest seeming equality in the minute subdivisions. - -But as the first imposition of the tax is not proportioned to the actual -value of the income it is intended to affect, and as the Intendant does -not set out by a particular valuation of every man’s possession, before -he distributes the tax upon the several parishes, he is obliged to make -up the deficiencies by second and third distributions. - -Although this _taille_ affects every species of property producing an -income, as well as every kind of industry and employment, it does not -affect every landlord for his rent, so much as every cultivator under -lease, for his supposed profits. - -Land-rents in France belong, for the most part, to the higher classes; -and these, whether they be well born or not, are exempted from this tax, -providing they be _noble_; a word which has no reference to birth, but -to certain privileges which any man, who has money, may acquire. - -It was in order to avoid this exemption, that the Marechal de Vauban -wanted to substitute a tenth instead of the present _taille_; for a -reason we shall presently see. - -All the land-rents, therefore, of the nobles are exempted from the -taille, and are only affected by vingtiemes and dixiemes but when they -cultivate their own lands, their privilege of exemption from the taille -is confined to as much as four ploughs can labour; and this farming must -be carried on by menial servants, unmarried, in order to prevent such -proprietors from defrauding the tax, by really letting their lands under -pretext of holding them in farm. - -This exemption, as to their land-rents, is more apparent, however, than -real. It is not the _lands_ of the nobles, but the _rent_ paid out of -them which is exempted from the taille; consequently, by imposing an -exorbitant taille upon the lessee, very little remains for the -land-rent; and this tax being laid upon a set of people who are loaded -with many others, is in the end more burdensome to the proprietor, than -if he paid it himself. But a change in this policy is impracticable. The -gentlemen of France will probably never submit to a _taille_; and -although, by yielding up that point of delicacy, their rents might be -raised in the end; yet as matters stand, they know they enjoy the rents -they have, free of tax, and if once they were made to pay any part of -them, they do not know where such payments might terminate. - -To avoid the infinite oppression which results from the French principle -of sharing every man’s profit as soon as he makes it, the Marechal de -Vauban proposed to abolish the taille, as it is paid at present, -together with the _capitation_, _industrie_, and all the train of -cumulative taxes committed to the management of the Intendants; and to -establish in their room what he called a royal Tenth, meaning by this -term, a proportion of all the fruits of the earth, similar to what is -established in favour of the clergy. This he proposed to lay on, -according to the exigencies of the state, from one twentieth part to one -tenth upon every article of the gross produce of land, over all France. -This he imagined to be equal to one tenth of the land-rent. And the -author of a book published under the title of the _Reformateur_, -containing a new plan of taxation, in which there are some things worthy -of observation, follows in this particular the Marechal de Vauban, -without ever considering the true nature of a tax of this kind. - -Of all the taxes upon the income of land-property, the tithe is the -worst; and it has undoubtedly been established among men, before -agriculture or taxes were understood. Lands in all countries are of -different qualities: some are proper for bearing rich crops of grain, -others are indifferent; some produce pasture, others forrest; the -revenue of some consists in wine, in mines, and in a thousand different -productions, which cost, some more, some less expence to cultivate. The -tithe takes without distinction a determinate proportion of the fruits, -in which is comprehended the tithe of all the industry and expence -bestowed to bring them forward. As an example of this, let me suppose a -field of corn, which cannot pay the proprietor above ¼ of the grain it -produces, many I know cannot pay above ⅕, but let me suppose it ¼: -another may pay with ease ⅓; another even ⅖; the fields about Padoua pay -½; grass fields pay still more; and rich hay fields will pay in some -places ⅔, and even ¾. - -How then is it possible there should be any equality in a tax which -carries off, without distinction, a certain proportion of the fruits, -when those fruits bear no determinate proportion at all to the expence -of raising them? But besides the inequality of this tax among -proprietors, I ask how it is possible that any rent should be determined -for lands, which are subject to a _variable_ tithe, sometimes at 1⁄10, -sometimes at 1⁄20 of the produce? Let me demonstrate the impossibility -of such a plan, by an example. - -I suppose the Marechal’s plan established, and that the tithe to be -imposed is to be deducted from the rent stipulated between master and -tenant. This was his intention: he has in many places declared, that all -tithes were to come out of the land-rent, which indeed is the only fund -upon which a land-tax ought to be established. And he has as often -declared that he never intended this land-tax should exceed one tenth of -the rent, or two shillings in the pound. - -I suppose a field, producing every year 1000 bushels of grain, to be -let: it is to pay a variable tithe, sometimes of 100 bushels, sometimes -of 50, according to the exigencies of the state. I farther suppose one -third of the produce to be equal to what the farmer can pay the landlord -for rent. And I suppose the rent to be paid in bushels of grain. - -According to these suppositions, the rent must be 333⅓ bushels subject -to the tithe. Suppose it to be laid on at ⅒, or 100 bushels. Deduct this -from 333⅓, remains to the proprietor 233⅓. The tithe comes next year to -1⁄20; this makes 50 of deduction, remains to him 283⅓. So instead of 10 -_per cent._ of his rent, he pays in the first case 30 _per cent._ and -when at the lowest, he pays _15 per cent._ which is thrice as much as -the Marechal proposed to take. - -But how are masters and tenants to reckon with one another? Lands are -not let according to a determinate proportion of increase. Suppose an -estate in lands of different kinds, how is the tithe to be deducted -then? Is the master to take the tenant’s word both for the quantity and -the value of every article he has paid as tithe, of every field, of -every article in his possession, even of the chickens in his yard? If on -the other hand, this variable tithe is to be thrown upon the possessor, -which, indeed, is the only possible supposition, which way are lands to -be let, when we see that the difference of the imposition, at different -times, is no less than 15 _per cent._ or three shillings in the pound? -This, however, would be the only method for masters and tenants to -reckon. - -But let me suppose another proprietor to let a grass field adjacent to -that which bears grain, and that both were to be of an equal rent, -supposing all tithes out of the way. The gross produce of the grass -would be to the rent, little above the proportion of 4 to 3. Let us then -call the gross produce 1000, as in the other case, ¾ of which would be -750, for the rent. One tenth of the whole taken from that would leave -the rent at 650, or little above 13½ _per cent._ deduction at the -highest tithe, and 6¾ _per cent._ at the lowest. - -What inequality, therefore, would not such an imposition occasion upon -land-rents, and what inextricable difficulties in letting of grounds? -From what has been said, without farther inquiry, we may declare that no -land-tax can possibly be raised, with any equality, by a royal tithe; -and the Marechal has never considered farther, than how the King could -with certainty and ease to himself, appropriate a portion of the lands -in his kingdom, leaving the proprietors and their tenants to settle -accounts the best way they could. - -On the whole, nothing can make us approve of the Marechal’s, royal -tithe, unless it be the present oppression which proceeds from the -method of levying the taille; by which it happens that in France few -incline to acquire the full property of lands. - -Most of the great estates consist of fee-farm rents. A man of three -thousand a year land estate, covers sometimes with his nominal property -(_dominium directum_) a whole country of fifty parishes; but the real -property (_dominium utile_) of this vast extent is subdivided into a -number of small fees, of which he is only lord paramount; and what -remains is the property of the lower classes, who pay what is called -_Rentes Seignoriales_, or noble rents, consisting in money and grain. -These rents can nowise be affected by any tithe imposed, because they -bear no proportion to the produce: and supposing they did, as in some -provinces, where they are called _agriers_, (which is the ⅙ or ⅛ sheaf -paid to the lord) the tithe, instead of taking a tenth of the _agrier_, -takes a tenth of the whole crop; consequently, only one tenth of this -sixth or eighth sheaf falls upon the lord; the tithe of all the rest -falls upon the poor proprietor or lessee, who the more he is industrious -is oppressed the more by this imposition; because it carries off the -tenth of his expence and labour, as well as of the farm which he rents. - -This is the tax which the Marechal de Vauban recommended to be raised -universally over all the land-property of France, when the tithe was at -the highest. To this the late reformer adheres; but proposes the -twentieth instead of the tenth; and after a nice calculation of the -gross produce of France, he estimates one twentieth part of it to be -worth about 95 millions of livres _per annum_. Hence I conclude, that -the twentieth part of the income, or one shilling in the pound of all -the revenue of solid property in France, fairly collected, would not -much exceed one third of that sum, or about 30 millions, or 1 333 -333_l._ sterling. This first part, therefore, of the Marechal’s tithe, -imposed at 1⁄20, would lay a tax equal to three shillings in the pound -on the poor lessees and vassals of the nobles, while, contrary to his -express intention, the whole fee-farm and noble rents of France, would -escape taxation. From this we may conclude, that no tax upon land-rents -can possibly be raised by way of tithe: as also that when it is taken in -kind it is the most oppressive, the most unequal, and the most -discouraging to industry, that ever was contrived. - -The Marechal’s principal motive for proposing this mode of taxation, was -to avoid the difficulty of obliging the nobles to pay the taille. He -found also, that there would be great ease in collecting this revenue -for the King, without demanding money of the lower classes. The -consequence, however, would have been, either to ruin all lessees, if -they continued to pay the same rent for the lands as formerly; or to -introduce the greatest inequality imaginable among proprietors, if the -tithe had been totally cast upon their rents: but as to the method of -settling accounts between master and tenant, in consequence of this -tithe, both the Marechal and the reformer are totally silent. - -The Marechal’s _Dixme royale_, with all its defects, is a book of great -value, from two considerations. - -The first, that he had all possible access to come at the true state of -the nation. The second, that he wrote with great impartiality, and with -a sincere desire to serve the landed interest, without intending to hurt -that of the King his master. From this book, we have an opportunity of -judging of his notions of taxation; and from the consequences he himself -points out, we discover the miserable state of the common people in -France, whose situation at this day is not much changed for the better. - -The Marechal’s scheme was to reduce the whole revenue of France under -four heads. - -The first, a general tithe of all the fruits of the earth, without -distinction, which we have already explained. - -The second, a tithe upon every income whatsoever, even upon the profits -of labour, servants wages, employments, possessions, and trades of all -denominations. - -The third, was a modification of the _gabelle_, or the duty upon salt. - -The fourth, which he calls the fixed revenue, was to be composed of the -domain, and several other branches of taxes which he allowed to subsist, -judging them, I suppose, not hurtful to the state. - -I shall now shew wherein the Marechal’s plan of taxation is contrary to -principles, and leave the reader to make his conclusions. - -First, he has declared in many places, that his intention was only to -impose a tax upon the income of land, which he understands to be that -part which remains after the deduction of all expences of cultivation -&c. in other words, what every one understands by land-rent, and which, -no doubt, is the only proper object of taxation: but in order to impose -upon this part his royal dixme when at the real tenth, he takes the -tenth part of the whole produce, instead of the tenth part of what goes -for the rent; and, as far as I have been able to discover, he never -perceives that there is the greatest difference between these two -quantities. - -The second article was the tithe of every income, not consisting of the -fruits of the earth. - -Where an income arises from a branch of property which can render it -determinate, I shall form no objection to a tithe or two shillings in -the pound upon it. But when he comes to tax lawyers, attorneys, -physicians, &c. according to the value of their emoluments, I own I -cannot find a possibility of preventing abuse in the collection, or -inequality in the imposition of the tax. - -The Marechal’s principal point in view was agreeable to the standing -maxim in France, to make every one contribute according to his income. -Very right, so far as it is possible, without implying much greater -inconveniences than what can be compensated by this imaginary equality. -I call it imaginary, because in the execution it will be found, that no -body will really pay what they ought, except those whose income cannot -be concealed. Whenever any part can be hid, there must, in my opinion, -result a great inequality, and great oppression, in endeavouring to -ascertain it. - -A short observation will suffice to give a view of his notions with -regard to merchants and trade in general. His intention was to be very -indulgent to this class of inhabitants; and he feels all the advantages -of trade. He proposes, however, to proscribe all notes of hand payable -to bearer, as it is a method of concealing wealth and exacting interest -for money; which he supposes to be contrary to scripture. Trade would be -ill carried on with the Marechal’s restrictions. - -When he comes to the lower classes, which he supposes to comprehend one -half of the people, to wit, all tradesmen, manufacturers, and -day-labourers, their wives and children; he takes the example of a -weaver, as a middle term, to judge of the gains of the tradesmen and -manufacturers. He supposes this weaver to have a wife and family, to -work 180 days only (because of the many holidays, as well as accidental -avocations) at 10½_d._ sterling a day. This makes his year’s labour -worth 7_l._ 17_s._ 5_d._ sterling. Of this he takes 10_s._ 10½_d._ for -the greatest tithe. Besides this, he exacts of him for his salt-tax, for -four persons in his family, 12_s._ 9_d._ So that this man, whose whole -labour is only worth 7_l._ 17_s._ 5_d._ sterling, is to pay 1_l._ 3_s._ -7½_d._ of cumulative taxes out of it, which is above ⅐ of the whole fund -of his poor subsistence: after which he adds, “This, in my opinion, is a -tax high enough for a weaver, who has only his two hands to gain his -bread with, and who has house rent, meat and clothes to provide for a -family, who frequently can gain very little for themselves.” To this I -must agree. - -I shall give one specimen more of what the Marechal considered as an -ease procured to day-labourers, in their then situation; which relief, -however, they have not hitherto obtained. - -These he also supposes to work 180 days in the year, at not quite 8¾_d._ -sterling. He values his year’s labour at 6_l._ 10_s._ 6_d._ sterling, -and here is the employment of this sum according to the plan. - - He is to pay for tithe of his _industrie_ £ 0 8 8½ - For his salt-tax 0 12 9 - For five English quarters of rye 4 7 1 - For clothes to the family, utensils, and repairs 1 1 11½ - ——————— - 6 10 6 - -I have been the more particular upon this part of the plan, because it -gives us a notion of what the Marechal thought a moderate easy tax laid -upon 8 000 000 of inhabitants, to wit, 2 000 000 men and 6 000 000 women -and children, according to his calculation. - -I come next to the tax he proposed to lay upon salt, of which mention -has been made. - -This tax is of the nature of an excise, and is called the _gabelle_, -which we have explained already in a note; and the objections to it, as -the Marechal has proposed them, are no less than three very material -ones. - -First, the proportion of the duty is far too great, considering the -value of the commodity. The second is, that being imposed upon an -article of subsistence, it operates immediately on the price of the -salt, and only consequentially on the price of labour. This is no great -objection, were the proportion moderate; because insensibly the price of -labour would rise, were the tax generally and exactly levied in -proportion to the consumption: but this was not the case; and this -circumstance opens the last objection, and the greatest of all, to wit, -that the tax, proportional in its nature, is rendred cumulative, by -being raised at the end of the year, in order to oblige every one to -consume the salt required. - -Now by this mode of levying the tax it loses every advantage, and -becomes an addition to the tithe laid upon the industry of the consumer. -If every man in England were to be rated at the end of the year, in -proportion to the excise of as much beer as he may reasonably be -supposed to consume, would that be an excise? certainly not. It would be -a poll-tax to all intents and purposes, which no man could draw back. - -I have little or nothing to object to the fourth article of the -Marechal’s plan. He proposed no essential change, either as to the -imposition, or method of levying the taxes which composed it. The -principal heads of them are, - -1_mo_, The royal domain, or the king’s landed estate, together with all -casualties attached to royalty, or feudal superiority; stamp-duties, and -the _controle_ of public acts by notaries. - -2_do_, The customs upon importation and exportation. - -3_tio_, Certain taxes of the purely proportional kind; among which was -one upon tobacco, and one upon liquors drank in public houses in the -country. Here entire liberty is left to the consumers; and the taxes are -principally calculated to affect, or, as he calls it, to punish luxury, -intemperance, and vanity. With this view, he wittily proposes an -imposition upon large and ridiculous wigs, at that time much in fashion, -and upon several other articles of extravagance. - -This is a short sketch of the Marechal’s system of _royal tithe_, -considered as to the principles only, upon which the several taxes were -intended to be imposed. The treatise contains several admirable things; -especially with regard to recapitulations of inhabitants, lands, houses, -animals, &c. highly deserving the attention of the statesman, who -intends to execute any plan for national improvement. - -I shall now set before the reader the Marechal’s calculation, as to the -amount of the four articles, when at the lowest, and at the highest -taxation. When the tithe is understood to mean the 20th part of the -fruits, &c. - - I. The tithe of the lands 60 000 000 - II. The tithe of all revenue and industry 15 422 500 - III. The salt-tax at eighteen livres the minot[51] 23 400 000 - IV. The fixed revenue 18 000 000 - —————————— - Total of the four articles, when at the lowest taxation 116 822 500 - —————————— - When the tithe is understood to mean the tenth part of - the fruits, the two first articles are just double of - what they are stated at above, viz. 150 845 000 - - The salt-tax at thirty livres the minot 39 000 000 - The fixt revenue never changes, and stands always at 18 000 000 - —————————— - Total of the four articles, when at the highest - taxation 207 845 000 - —————————— - -Footnote 51: - - The _minot_ is a measure of capacity equal to three Paris bushels, or - the fourth part of a septier; which is about one half of an English - quarter. This makes the _minot_ to be about an English bushel. The - Marechal proposed that this quantity, when at the lowest price, should - be sold for 18 livres, or 1_l._ 6_s._ 1½_d._ sterling; and when at the - highest, at 30 livres, 2_l._ 3_s._ 6½_d._ from which we may judge of - the exorbitancy of the gabelle, even after all the diminution he - thought proper to make upon it. The French money mentioned in the - Marechal’s Dixieme royale, is here converted into 52¼_d._ sterling, - for the French crown of three livres: because the silver coin in - France, at the time he wrote, was 30 livres 10 sols the marc (Dutot, - chap. 1. art. 6.); and at present it is at 49 livres 16 sols. - -In imposing this tax upon the fruits, he allowed no exemptions, not even -in favours of the princes of the blood: for this he gave an excellent -reason. Tithes, said he, were the ancient patrimony of kings. The Roman -emperors and kings of France enjoyed them. From those duties no noble -was exempted. This appears from the ecclesiastical tithe, which, he -alledged, to be nothing but the royal patrimony, alienated in favour of -the church; consequently, there is nothing derogatory in paying the -tithe, although nothing be more so than paying the taille. So great is -the difference between terms, when the ideas of a nation are connected -with them! - - ------------------------------------------------------------------------- - - - CHAP. XII. - _Miscellaneous Questions relating to Taxes._ - - -The subjects of credit, debts, and taxes, have been so extensively -treated of in the two last books, that I hope no question I now can -propose will serve for any purpose, but to suggest the solution of it, -so far as it comes under the principles we have been deducing. - -QUEST. 1. What is the most proper method for imposing a land tax? - -I answer, that according to equity and justice, all impositions -whatsoever ought to fall equally and proportionally on every one, -according to his superfluity; but in land-taxes this equality is not so -essential as in most others. The great hurt arising from inequality in -taxation proceeds from the inequality occasioned thereby in the -competition between the classes of the industrious. When the same tax -affects people of the same class differently, those who bear the -heaviest load gain less, though their industry be equal. But in -land-taxes the case is different: the tax there only diminishes an -income already made, and in fact diminishes the value of the property; -so that were land-taxes made perpetual deductions, the whole loss of the -tax would fall at once upon the actual possessors at the time it is -imposed. Every subsequent purchaser, by deducting the land-tax out of -the rent, would calculate the value of the remainder only; and the -consequence of the tax would be, virtually, to transfer a part of the -land-property to the state. - -The consequences of such a change upon property may produce a variety of -new combinations. The state may then sell this portion of their -property; they may with the price received pay off part of their debts; -they may acquire certain districts of the country, where, being both -sovereign and proprietor, they may abolish taxes, which would then in a -great measure affect themselves only, and establish manufactures for -foreign exportation. - -Although an absolute equality in this tax is not so very requisite, -still the inequality ought to be ascertained, and every income intended -to be affected by the tax should be specified in one way or other. For -this purpose, the best method seems to be, to make the regulation of any -one year a rule for the subsequent years, until it be judged proper to -make a new general valuation of every part. This is a consequence of -what has been said: a fluctuating annual valuation, which is the case in -France, produces numberless inconveniences; and upon the whole, they are -far greater than those which it is intended to avoid. - -I agree that the same land may be worth more one year than another; but -it is impossible by a fluctuating valuation to ascertain that difference -over a whole country, to the satisfaction of every one; and although, by -fixing it at one rate upon every possession, inequalities must take -place, yet fixing it from rising in proportion to improvement, will -prove an encouragement to industry, which will greatly overbalance such -an inequality. Every one then will be in the way of acquiring an -addition to his income, free of land-tax; and if this be thought too -great an encouragement to improvement, let the regulation be only fixed -for a determinate time; suppose a century. This is no more than giving -every one a lease as it were of their land-tax for a hundred years; and -experience shews, that without granting long leases it is impossible -that lands should ever be improved. - -Were innovations practicable, according as right reason and plain -principles direct, it is very certain that a land-tax might be imposed -in a better way than I have here suggested. But to what purpose would it -be to lay down schemes beyond the power of execution, when the -principles already deduced so plainly point them out? - -QUEST. 2. Which is the best method of levying taxes; by farm, or by the -management of commissioners appointed by the state? - -The best way to answer this question, is to shew the inconveniences and -advantages of both. The arguments against farming are, - -1_mo_, The great fortunes made by the farmers occasion jealousy, and -expose to the eyes of the people a set of men who are become rich at -their expence; hence envy arises, and hatred against government. - -2_do_, In years of scarcity, war, or public calamity, deductions of the -rent, or annual sums paid by the farmers, are demanded, and can hardly -be refused, and the farmers always overvalue their loss; here therefore -is an unequal bargain: the farmer _must_ gain, the state _may_ lose. - -3_tio_, The people pay less willingly to the farmers than to the King; -magistrates in general support the raising of duties with more -unwillingness, and severities upon delinquents are less easily born. - -These inconveniences are avoided in the management. There men of the -best abilities may be entrusted with that employment; experience shews -that many branches of taxation have been carried to great perfection -under management, and men of probity and capacity will act with as great -zeal for the public as for themselves. - -The principal arguments for farming are; the advantage of having a fixed -and certain revenue to depend on at regular terms; that the farmers act -with more zeal for themselves, and with greater impartiality in -employing under-officers, as well as more frugality, and therefore can -afford to give a higher rent, with considerable profit to themselves, -than can be made effectual under the best management: besides, every one -judges himself capable to administer the King’s affairs, because he -finds profit in it; but people think twice before they undertake to be -farmers of a revenue they do not well understand. - -In the administration of taxes, it ought to be the object of a -statesman’s attention and care to profit of every advantage attending -the different modes of levying them. It is not sufficient to inquire -into the general consequences of the two modes of administration, the -management and the farming of taxes: those of the cumulative kind -especially, affecting the lower classes, would be very improper objects -of a farm; because it would be in a manner delivering over the greater -part of a people to the rapacity of tax-gatherers. - -On the other hand, the farming of proportional taxes is not liable to so -many inconveniences. The farmers there are principally employed in -watching over those who _advance_ the taxes, and who are themselves, as -has been said, in reality the tax-gatherers over the people. - -When therefore circumstances permit, without inconvenience, the -fabrication of exciseable goods to be incorporated with the farm, this -of all others is the best method of levying taxes. Examples of this are -familiar almost every where. The farmers of the salt and of the tobacco -in France are in this situation. In retailing those commodities, they -collect the price they pay for the composition; that is, for the farm of -them. It is not the same of the aids in France. There the farmer -superintends the immediate tax-gatherer, to wit, the retailer of -spirituous liquors, or of other things subject to the tax. The -circumscribing the number of places where exciseable commodities are -fabricated, and the shutting them up within inclosures, would greatly -facilitate the levying of all excises, whether by farm or by management. - -In order therefore to decide whether the preference ought to be given to -the management or to the farm, circumstances are to be weighed. When a -tax is new, or has been ill managed, or has fallen, without any visible -cause, below what it formerly produced, or ought to have done; when the -amount is unknown, by being of an extensive collection: in such cases, -short farms, and even several subdivisions of them in a country, may be -of use. But when a tax is well understood, and a good plan of levying it -laid down, it may be well raised, and perhaps better improved, under a -management; as also, when it is of a nature to be easily understood, and -when the very exercise of levying it points out all the frauds possible -to be committed. - -Davenant, who well understood this question, in his 4th Discourse upon -revenues, recommends farms which are not _absolute_, but _limited_, as -the best. By limited, he understands, that the farm should first be -given for a fixed sum; that the farmers should carry on an open -administration, liable to the government’s inspection in every -particular; that in case the profits of the farm should exceed the rent -stipulated, a certain sum should be ascertained for the charge of -management, and the surplus should belong to the King, allowing a -certain poundage to the farmers to animate their diligence[52]. - -Footnote 52: - - This plan of Davenant’s was carried into execution in France by - Monsieur Silhouëtte, in 1759. - -He very justly observes, that a tax, when farmed, in order to be -improved, will naturally draw, at first, a less rent than the sum -liquidated as a free profit by the former management; because the -farmers will be willing to secure to themselves a good profit; and next, -because they will be obliged to make a considerable advance, as a -security for fulfilling their engagement, which must also be considered -as a deduction out of the produce of the tax. - -All the advantage therefore in farming must be looked for after the -expiration of the lease; for which reason, the shorter the term is, the -better: three years, it seems, was the common term in England, in -Davenant’s time. - -All new imposed taxes ought to be raised with the greatest lenity, not -to revolt the minds of the people: the first year’s deficiency is well -bestowed, if government can but discover the different ways which may be -fallen upon to defraud the tax, and form a good judgment how far the -amount of it may go in time, when the management is brought to -perfection. As long therefore as a management continues to improve a tax -newly laid on, I should not think of farming it: but when, either from -the extent of the imposition, or the nature of it, frauds begin to -multiply, and management begins to become more and more difficult, then -is the time immediately to put it into farm, either for different -districts of a country, or in sub-farms. If this be delayed, frauds will -daily increase; and the difficulty of preventing them will carry -government to the expedient of imposing penalties, severe in proportion -to the frequency of the crime. Commissioners will constantly put these -in execution with reluctance; the management will become slack; or if -penalties are rigorously exacted, they will become a handle for -oppression; and even though justice be done, and none but delinquents be -punished, yet still the people will be ill affected with the punishment -of an action which in itself they are too apt not to consider as a -crime: whereas in farming, frauds will be prevented by vigilance more -than by fear of punishment; and this is by far the better expedient. -Thus instead of feuds daily increasing, they will daily diminish, and -the tax will improve yearly. - -Here Davenant well observes, that _nothing but divine wisdom can at -first create perfect order; but in all human affairs it must be the work -of time, and the result of much labour and application_. - -One good reason for managing a tax before it be farmed, is to learn the -nature of it, and of the frauds it is liable to. When these are not -rightly known, the farmer can more easily surprize the government, and -obtain from it new regulations, under the pretext of preventing frauds; -which regulations they may abuse, and turn to other purposes than those -intended. - -Davenant has a very good remark, p. 154. That a new tax, imposed upon -consumption, and ill levied, equally raises the price upon the -consumers, and the whole profit centers in the hands of those who -retail. That when an old excise becomes ill levied, the profit is -divided between the inferior officers (who collect it) and the -retailers. The reason is, that a branch which is well understood, is not -so liable to _frauds_ as to _collusion_. This shews that in every case, -such a duty should never be imposed without exerting every endeavour to -have it rightly collected. The state should also keep a watchful eye -upon the augmentations made in the price of exciseable commodities, in -order to keep the augmentation justly proportioned to the duty. If this -be neglected, the overcharge hurts consumption, diminishes the produce -of the tax, and enriches the retailers only. Here competition is -necessary to be introduced: the public may even erect a manufacture -which may regulate prices, and so soon as they are properly ascertained, -the selling price may be fixed by an assize. - -An ill levied imposition is attended with this additional inconvenience, -that it establishes inequality among the industrious of the same class; -consequently, an unequal competition. This happens when particular -officers are diligent and exact in doing their duty, while others are -remiss. The profits of retailers are _high_ in proportion to the -_negligence_ of the officers of the revenue; and their extraordinary -profits, enable them to undersell and to ruin those who are exactly -looked after: the consequence of this is, to diminish the number of -retailers; to introduce hurtful monopolies; and in general, to hurt the -whole branch of the manufacture. All remissness, therefore, in -collecting an excise, draws along with it a prejudice to the Prince and -his people: and the relative profit, which balances this loss, falls -into the pockets of the fraudulent manufacturer, and the corrupt and -negligent collector. This is not all: the deficiency must be made up in -another way; for taxes must produce the sums wanted. Thus the remissness -in collection occasions a new additional burden to be laid on the -people. - -QUEST. 3. What is meant by _income_, when applied to individuals, and to -a state, and what is the nature of the _expence_ which must diminish it, -when it is considered as the object of taxation? - -The great intricacy of this question proceeds from hence, that what is -really an expence to one is the income of the other: so that without -applying our reasoning to every particular fact, no general explanation -can be rendred intelligible. My reason for proposing it in this place, -is, that in commenting upon some passages of Davenant, in his discourses -upon the revenues of England, I may have an opportunity of illustrating -some things which have been already examined. - -Davenant was an admirable writer; he had a remarkable genius for -political theory, and his sentiments upon many things are very generally -adopted. My intention here is not to refute opinions, but to avail -myself of his combinations, in order to explain my own ideas. - -In his first discourse upon revenues, we find the following passage. - -"The number of the people leads us to know what the yearly _income_ may -be from land, and what from mines, houses, and homesteads, rivers, -lakes, meers, ponds, and what from trade, labour, industry, arts and -sciences: for where a nation contains so many acres of arable land, so -many of pasture and meadow, such a quantity of wood and coppices, -forrests, parks and commons, heaths, moors, mountains, roads, ways, and -barren and waste land; and where the different value of this is -computed, by proper mediums, it is rational to conclude, that such a -part of the people’s expence is maintained from land, &c. and such a -part from mines, houses, &c. and that such a part is maintained from -trade, labour, &c. and the poor exceeding so much the rich in numbers, -the common people are the proper medium by which we may judge of this -expence. - -“There is a certain sum requisite to every one for food, raiment, and -other necessaries; as for example, between 7 and 8_l._ _per annum_; but -some expending less, and some more, it may not be improper to compute, -that the mass of mankind, in England, expend, one with another, near -8_l._ _per annum_: from whence it may be concluded, that an _annual -income of so many millions_ is needful for the nourishment of such and -such a number of people.” - -The reasoning here takes a wrong turn. It is of no consequence to -compute the value of things consumed without alienation. It is of no use -to know that the value of the physical-necessary of an Englishman is -8_l._ a year; because if this sum is supposed to be an exact quantity of -income, no one farthing of tax can be imposed upon it. So that imposing, -for example, 5 _per cent._ upon this article would only be raising the -physical-necessary to 8_l._ 8_s._ which 8s. must be paid, not by the -physical-necessarian, but by some body having superfluity who employs -him: and if there was not superfluity enough in England to answer to -8_s._ a head, such a tax could not be levied. - -He afterwards supposes that the income of this class may amount to about -twenty millions a year, which at 8_l._ each, answers to two millions and -a half of people. He states the income of lands at fourteen millions, -and the income of trade at ten millions, in all at forty four millions a -year: and hence he concludes, that taxes ought to be imposed in some -proportion to this total. - -Now if he supposes the first article of twenty millions, arising from -the income of those who are employed in arts and manufactures, according -to the former calculation of 8_l._ a head, to be as ready a fund for -taxation as the land-rents, we must examine, by the principles we have -deduced, whether there be any ground for such a supposition. - -Let me suppose one of this great class to work a whole day for his -victuals only. Here is an alienation of work for food. It is impossible, -however, to raise a tax in money upon this alienation; because it may -easily be supposed that neither party has a farthing. The only method -therefore, in such a case, to impose a tax, would be, either to oblige -the workman to set apart a portion of his day’s work for one who would -pay the public for the value of it, or to oblige the person who gives -him his food, to pay the public for the privilege of employing him in -his service. The one and the other are examples of proportional taxes. -But this method of taxation is absolutely unknown. In this example there -is an alienation, which, I have said, constantly implies a superfluity -of one kind or other. The labour of the person working is, here, -superfluous to himself; therefore a part of it may be applied towards -the public. But the bread he receives is in no part superfluous, and -therefore cannot be laid under taxation _as to him_. But then the bread -given for the labour is superfluous to the person who gives it; and as -this implies that he has a superfluity of bread, the state may demand a -share of that superfluity. - -By this exposition of the matter it appears, that in order to raise a -tax, in whatever way it be done, some kind of superfluity must be -supposed. It also points out how it should be laid on: for if by -mistaking the proper object, a part of the _bread_ should be taken from -the _workman_, instead of being taken from the _man who employs him_, -the tax would affect the physical-necessary of the labourer, instead of -affecting the superfluity of the employer. - -Let us next suppose a workman able to do no more than what is requisite -to dig the ground for roots to eat, instead of digging it to procure -bread from a man who has bread to spare; still there will be no -alienation; consequently, no possibility of establishing a tax: for if -you either take a part of his labour, or of his food, you deprive him -equally of his physical-necessary. Yet the work of this man, and his -food, may be valued at so much money; and thus may enter, in one sense, -into Davenant’s general article of income or expence; but it does not -follow that any tax can be raised upon such an income. - -To estimate, therefore, the total value, in any nation, of what is the -object of taxation, we must go another way to work. The first article -must be the _annual income_ of all _funds_. By funds, here, I understand -the capital wealth already made, in opposition to the produce of -industry, which may be considered as the materials of which such funds -are composed. The fund therefore is the accumulation of savings, which, -not having been spent by the industrious, form a capital of a nature to -produce an income, either from land, or from any other valuable thing. -Thus land-rents, annuities, interest of money, emoluments of offices, -salaries, even wages of servants, in short, every fixed income, I range -in this first article, which I call _annual income_, produced from a -capital already formed, either real or supposed. - -This may be laid under taxation by a pound-rate, or otherwise, and forms -that kind of tax which I call cumulative and arbitrary; because a man -who has any sort of visible revenue, comes under this general rate, let -him have ever so many necessary deductions out of it, ever so many debts -and incumbrances. From such circumstances, cumulative taxes frequently -turn out extremely burdensome. - -The second object of taxation is upon alienations made for money. -Whenever we come to dispose of money in the purchase of any thing, the -state has an opportunity of exacting a part of it as a tax; but while it -remains hid, it can neither be come at, or laid under contribution, -without extortion or violence. - -All branches of expence may be laid under taxation by excises, which I -call _proportional taxes_; because a man is never subjected to them, but -in proportion to his expence; and his expence ought naturally to proceed -from his income. - -As for trade, I do not clearly see how the profits of it can be -regularly taxed. In France, indeed, they are taxed under the first head, -and are considered as an income. Such an imposition is not well judged; -because _there_ the materials for making the fund are taxed as if they -were the income of a fund already made. It is only the savings out of -the profits upon trade, placed so as to produce a permanent revenue, -which properly can be considered as a fund: the _income_ therefore of -these savings, and not the savings themselves, should come under that -branch of taxation. - -Customs are improperly called taxes upon trade. If ill imposed they stop -trade, or render it less profitable, by diminishing the demand for the -goods so taxed; but they take nothing from the profits already made. - -In a trading nation, the great branches of commerce produce a certain -determinate profit, subject, I allow, to augmentations and diminutions, -from accidents and circumstances impossible to be foreseen: and the -customs imposed upon exportation and importation differ from excises -more in the method of levying them than in any thing else. - -Davenant, in my opinion, would have given a better idea of the sum which -taxes might have been supposed capable of producing in England, had he -examined the amount of all the branches of revenue, and of all the -species of sale, than in the manner he has done. These two points known, -it would be expedient next to inquire, in what manner the several -articles could be made subject to either cumulative, or proportional -taxes. - -I must now take notice of another passage of Davenant, where he explains -himself upon the question before us: it is in his fifth discourse upon -revenues, where he says, - - "By annual income, we mean the whole that arises in any country from - land and its product, from foreign trade, and domestic business, as - arts, manufactures, &c. and by annual expence we understand what is - _of necessity_ consumed to cloath and feed the people, or what is - _necessary_ for their defence in time of war, or for their ornament in - time of peace: and where the annual income exceeds the expence there - is superlucration arising, which may be called wealth or national - stock. - - “The revenue of a government is part of this annual income, as - likewise a part of its expence, and where it bears too large a - proportion with the whole, as in France, the common people must be - miserable and burdened with heavy taxes.” - -I must comment a little upon this passage. - -I have no objection to this exposition of the matter; the ideas are -intelligible and clear: but I object against the application of his -doctrine to taxes; because it would lead to error. Here are my reasons: - -1_mo_, Income is called the whole of the earth’s productions: this I may -admit to be just, except when we consider income as an object of -taxation. But if we retain the same definition to express the income of -one, for example, who labours the soil for his own subsistence, as well -as of another who labours it as a trade, the difference in paying their -taxes out of it will be very great. He who draws nothing from the ground -but his physical-necessary, can be laid under no taxation; because he -has no superfluity. And if he be obliged either to give a part of his -crop in tax, or to sell any part of it for money to be paid to the -public, this diminishes his physical-necessary, and forces him to -starve: whereas the other who exercises labour as a trade, may be -obliged to pay a part of his surplus by way of tax or rent; and still -his physical-necessary may remain untouched. - -It is for this reason, that in treating of these matters, I am always at -the greatest pains to point out, that nothing can be the object of -taxation, except what is over and above the physical-necessary of every -one. - -In all countries where a _land-tax_, _steuer_, _taille_, or by whatever -name it goes, is established, care must be taken to prevent the -husbandmen from confining their labour to such a small spot of ground as -is barely sufficient to produce their own physical-necessary, unless -when they have a trade to assist them in paying what the public demands -of them. - -From this circumstance, and this only, it happens, that the land-tax in -England is so little burdensome, comparatively to what it is in many -nations of Europe. Lands in England are let in large portions: no body -will let a farm so small as to be proportioned to the supplying of the -mere physical wants of the farmer. But in other countries, where the -oeconomy is different; where inheritances in land are constantly -divided, as moveables, among all the children; the lots become so small, -that the proprietor can draw no more from them than his own subsistence; -and then when a land-tax is imposed, this poor little portion being -valued in proportion to what it can produce, as well as the greatest -estate in land, the husbandman is starved, although the tax demanded of -him be laid on in the exact proportion to the produce of his land, while -he that has a surplus is quite easy. - -I would therefore recommend, in countries where this minute subdivision -of lands has taken place, that for the future none under a certain -extent or value should be suffered to be divided among the children, but -ordered to be sold, and the price divided among them; and that the same -regulation should be observed upon the death of such proprietors whose -lands are not sufficient to produce three times the physical-necessary -of the labourers. This would engage a people to exercise agriculture as -a trade, and to give over that trifling husbandry which produces no -surplus, and which involves so many poor people in the oppression of -land-taxes. This plan can never be recommended as a plan to be executed -all at once: it must be done by degrees, and in proportion to the -progress of industry. The principle is so evident, that I never found -any one who did not immediately agree to the justness of my observation; -although in imposing land-taxes I have nowhere found it attended to[53]. - -Footnote 53: - - Some small attention is paid to the poorer sort of landholders in - England: for, by the annual act for a land-tax, no poor person shall - be liable to the pound-rate, whose lands, &c. are not worth 20_s._ - _per annum_ value. - -Here then is the use of theory; it directs us in practice to avoid -difficulties, which might otherwise be judged unsurmountable. - -2_do_, I farther observe, that it is a more hurtful error still to -mistake the produce of industry for the taxable income arising from it, -than to mistake the gross produce of land for the rent: because the -profits upon industry bear a smaller proportion to its produce, than the -rents of lands do to their full fruits. - -The best method of raising money upon the lower classes of the -industrious, is rightly to lay their consumption under proportional -taxes, which they may easily draw back; because they will raise the -price of their work proportionally. - -From this we may conclude, contrary to the common opinion, that the test -of well imposed taxes is to raise prices in proportion. When they are -rightly imposed, every one who sells a commodity which has paid a tax, -will draw it back, whether he be industrious or not. If he consumes it, -he cannot draw it back, but by raising the price of his work, which -again he cannot do, unless the tax be made so general as to affect all -his competitors; and unless the consumption he has made be unavoidable -to every one of them. - -When we reflect upon the large quantities of exciseable goods which are -consumed as superfluities, we must conclude that the rise of prices, -daily complained of, proceeds more from our manners than from the taxes -we pay. - -3_tio_, The expence of a people is not merely what is sufficient to -subsist them; but what they consume, either in fruits, of manufactures. -Had indeed Davenant computed the value of this necessary quantity, and -deducted it from the income, according to his acceptation of income; the -remainder would have been a tolerable good representation of what I mean -by income, or taxable fund; because whatever a people consume beyond the -necessary, I consider as a superfluity which may be laid under taxation. - -4_to_, I must also differ from him in his idea concerning -superlucration, wealth, or national stock. - -According to him, this is the quantity of income remaining after the -following deductions: 1_mo_, What is _necessary_ to clothe and feed the -people, 2_do_, What is _necessary_ for their defence in time of war, and -ornament in time of peace. But according to my notions, I must also -deduct all that is consumed in superfluities; for what is consumed, -whether _necessarily_ or _superfluously_, never can make an article of -superlucration, wealth, or national stock. - -The superlucration then of a nation consists in the augmentations made -upon her stock of every kind, capable of producing a proportional -income: it is the converting into something durable the well employed -time of the inhabitants. In this sense the new pavement of London, the -roads, buildings, ships, &c. in England, are all articles of -superlucration, as well as the improvement of the lands, and -consolidation of the balance of her trade, which has created that part -of the public funds belonging to natives. - -QUEST. 4. Is it possible to convert a land-tax into one of the -proportional kind? - -This is a curious speculation; and as it is a short exercise upon -several principles of this science, it comes in properly at the -conclusion of our work. - -To make a land-tax proportional, the proprietors of land should be -enabled to draw back the burden, in the sale of the earth’s productions. -This they cannot do, as matters stand. The farmers who pay no land-tax -undersell them; because they have no tax to draw back. - -Since the tax, therefore, cannot be drawn back directly, let us apply -our principles to discover a method how this might be done indirectly. - -Let nothing but lands be subject to this imposition. - -Let every part of them be valued, and recorded in a general register. - -Let bread, butchers-meat, and subsistence of all kinds, be laid under an -excise, _in all markets_, and nowhere else, at a rate sufficient to -raise the tax intended to be laid upon the lands; and let the amount of -this tax be drawn back by the landlords, in proportion to the valuation -by which they have paid the land-tax. - -That this is a reasonable imposition, appears from the whole plan of -this work. We have seen, in the first book, how the great body of the -people is divided into labourers and free hands; that the free hands are -the inhabitants of towns, who go to market for subsistence, and consume -what corresponds to the land-rents; consequently the landlords, who at -present pay a cumulative tax, which they cannot draw back in any shape, -are justly intitled to the amount of this proportional tax, laid upon -the great articles which produce their land-rents, and which are -consumed by the inhabitants not employed in agriculture. - -Every one who has writ concerning taxes has endeavoured to contract the -object of them as much as possible: more, I imagine, with a view to ease -the public than the people. I have followed another course. I have been -for multiplying the objects of taxation as much as possible, and for -making them more in proportion to expence than to property or income. -But that I may conform myself in some measure to the ideas of those who -have examined the same subject, I shall propose a tax, which would fill -up the place of every other; and could it be levied, would be the best -perhaps ever thought of. - -It is a tax, at so much _per cent._ upon the sale of every commodity. - ------------------------------------------------------------------------- - - - CHAP. XIII. - _Recapitulation of the Fourth Book._ - - PART I. _Of the Interest of Money._ - -[Sidenote: INTROD.] - -I introduce the subject of credit and debts, by giving a general idea of -its extent. It comprehends the method of establishing a solid security -for money borrowed; of extending the object of such security in -proportion to circumstances; of supporting the credit of the borrowers, -when over-stretched; and of preventing, as far as possible, the fatal -consequences of a bankruptcy, when it can be no longer supported. - -I shew how all mysteries relating to credit proceed from our ignorance -only of its true nature; which is confidence established upon a visible -and palpable fund of payment. I observe how delicate a thing credit is, -and how gently it must be dealt with; how incompatible the forms of -common law are with the discussion of questions which arise between -merchants; how necessary it is to form a jurisprudence peculiar to -trade, and to support it by manners more than by authority; and when -credit is once set upon its true basis, how all aerial schemes, bubbles, -and public bankruptcies will be avoided. - -CHAP. I. Here I shew how impossible it is to establish credit by -authority; how inseparably it is connected with liberty and -independence; and still how compatible it may be with that supreme power -which is vested in every government. - -CHAP. II. The object of credit is money lent; the basis of loan is the -payment of interest. If money be wanting, credit will die; consequently, -there must be a method found for augmenting and diminishing the quantity -of money in proportion to the demand for it. It is augmented, by -converting land into paper-money; it is diminished, by relieving the -land of the engagement upon it, and extinguishing the paper-money. This -is no more than a contrivance for turning into a _circulating value_, -which is the principal characteristic of _money_, the obligations of -private men, which in all countries are considered to be of an equal -value with any coin. - -I here explain what is meant by money _stagnated_, and by money -_realized_. Money, while it is employed in circulation, can carry no -interest; the moment it lies idle to one man, were it but for a day, it -may be worth interest to another, who willingly pays for the use of it, -when he has occasion either to buy what he wants, or to pay what he -owes. If no body be found who wants it, then it is said to _stagnate_ in -the hands of the proprietors. This denotes that circulation is full. He -therefore desires to _realize_ it; that is, to purchase with it some -kind of income. For this purpose, if it be coin, he sends it to some -place where coin is wanted. If it be paper, he demands of the debtor in -the paper either to give him an interest for it, or to convert it into -coin, which is the money of the world. Both are called realizing; and in -proportion as money is realized, circulation diminishes. - -Hence I conclude, that as the use of circulating money is to carry on -alienation, so the use of stagnated money is to produce an interest; -consequently, a perpetual interest is better than money, when it is not -wanted for the use of circulation. If therefore, by the policy of a -country, the capital of every perpetual interest can be immediately -converted into money for the use of circulation, the inconvenience of -capitals not demandable is removed; because although you cannot make the -debtor pay, you can sell what he owes you to another, who will; and this -equally suits your convenience. - -CHAP. III. The simplicity of manners among the primitive christians, -circumscribing very much the uses for money in circulation, a great -quantity of the coin was consequently locked up. Paper money _then_ was -superfluous; because even coin itself so far exceeded all the uses of -their circulation, that it was considered in the light of jewels and -plate with us. - -Taking interest for it, when lent, appeared to them as unreasonable, as -if a lady, in these times, were to ask a price for lending her jewels to -a friend. - -However, as money was necessary on many occasions to those who had none -locked up, the Jews, who have always despised land-property, made a -trade of lending; and this drew an odium upon the practice. I can -ascribe it to no other cause. Our manners are totally changed; and -Christians lend money at interest as well as Jews. Neither trade, -industry, or credit, can subsist without it; and as money cannot be -lent, without allowing interest to be taken, interest is become the -basis of the whole system of credit, and comes to be examined in the -following chapters. - -CHAP. IV. Before industry was established, the calls for money to borrow -were few, and chiefly confined to Princes in time of war, and prodigal -proprietors of land in time of peace. Their demands were urgent, and the -interest they paid was in proportion. The lenders possessed but a small -part of the coin of the country; because the bulk of the people locked -up all they could. Those who hoarded, would not lend; and this greatly -diminished the fund of borrowing: besides, Princes and prodigals had no -sooner spent the money borrowed, than it fell again into the hands of -those who hoarded; and the lenders found, no doubt, great difficulties -in procuring fresh supplies. - -When industry and trade brought money out of its repositories, when the -necessity of permitting interest appeared evident to the church, the -coin then began to make its appearance, and was ready to be lent. This -opened a market for money. The price of money is the rate of interest. -At this market, the borrowers and lenders appear in competition among -themselves, according to circumstances. If more money is demanded to be -borrowed than is offered to be lent, the competition takes place among -the borrowers, and interest rises. If more is offered to be lent than is -demanded to be borrowed, interest falls. Those who borrow money may be -divided into two classes, viz. those who intend to spend it, and those -who intend to trade with it. - -When more money is to be lent than the first class demands, the rate of -interest will be regulated by what merchants _can_ give for it: when -there is less, it will rise to what the prodigals _will_ give for it. - -But this first class must have good credit, or their borrowing will be -cut off. When therefore a statesman finds, that the borrowing of such -people hurts the commercial interest of his country, by keeping interest -high, he should weaken their credit, by tying up their lands by entails. -When their borrowing becomes necessary for the encouragement of -industry, and for bringing all the money there is into circulation, then -their credit should be enlarged, by promoting an expeditious sale of -every branch of their property. - -CHAP. V. Thus, without the aid of law, the interest of money is -regulated by demand. But a state must not totally overlook the interest -of the class who spend more than their incomes. It would be inhuman to -throw them into the jaws of usurers. Statutes therefore prevent interest -from rising above a certain rate. This preserves them, and renders the -dissipation of their fortunes more gradual. - -But although a statesman has it in his power to guard his people against -the oppression of usury, by preventing the rate of money from rising -above the ordinary standard of demand, he cannot equally force it down -below this standard, even although the interests of trade should require -it: because if the monied men can lend their capitals abroad, at a -higher interest than they can procure for them at home, they will -distress the landed interest, by demanding what they owe, and all the -money will be sent abroad, as was the case in Scotland in 1762. - -This was not the case a hundred years ago. No money then could be lent -abroad by Englishmen; because those who would give high interest had no -credit. Thus government could bring it down at will; monied men were -forced to consent; and the price of land rose in proportion as interest -fell. - -As it is the extravagance of men of property which raises the rate of -money above what is consistent with the interest of trade, the -expedients to bring it down, are, 1. To circumscribe borrowing by the -prodigal: 2. To suspend borrowing by the state: and 3. To throw as much -public money as possible into the market, by paying off debts. When a -statesman has by such measures brought the rate of money considerably -below the legal price, he may, by a new statute, prevent its rising -again so high as formerly; but still he must keep in his eye the rate of -money, and state of credit in rival nations, in order to avoid the -inconveniences already mentioned. - -CHAP. VI. If Great Britain were to regulate the rate of money below what -the fluctuations of demand are commonly found to carry it, then in time -of war, as soon as demand, which can be subject to no statute, got up to -the high standard, the whole landed interest would be torn to pieces by -their creditors: for the debtors could not borrow from one to pay -another, because no man would give them credit. This would put an end to -all their expence; the funds which supply it at present (the land-rents) -would be carried off by creditors; and all the industrious who serve -such proprietors of land would suffer considerably for want of -employment. The conclusion which the generality of people would draw -from this phænomenon would be, that high interest, instead of being -hurtful, is advantageous to trade. - -CHAP. VII. Hence we may conclude, that low interest is principally -advantageous for carrying on foreign commerce, and that the best method -to keep it low, is to keep circulation full, by facilitating the melting -down of property. - -This expedient has been contrived by merchants in the establishment of -banks upon mortgage; and there is a possibility that landed men, some -centuries hence, may find out that they may imitate the example of -traders, and contrive the means of borrowing cheaper than they can do at -present. - -Were a particular nation to carry such expedients into execution with -success, it would have the effect of bringing down the rate of money -every where. This would sink the general average of the whole, but never -would prevent the operation of those principles by which it had been -brought down; and the most intelligent nations would still have the same -advantages as before, of keeping their interest low relatively to their -neighbours, which is the great _desideratum_ for the support of public -credit, as well as of foreign trade. - -CHAP. VIII. But although it is of very great advantage to trade to have -interest low, we cannot judge of the prosperity of trade from this -circumstance alone. - -That nation gains the most upon her trade who draws the greatest balance -from the rest of the world. Now the balance cannot be judged of by the -rate of interest; because this depends more upon manners and policy than -upon the state of industry. Industry must be supported by superior -dexterity, natural advantages, and promptitude of payments, as well as -by low interest. Prompt payment alone, is of more consequence to the -industrious populace, than a small difference upon the rate of interest. -That encourages the whole class of manufacturers. Low interest is -principally an advantage to the merchants who are obliged to employ -credit for collecting their work; and merchants themselves who trade -upon credit, often gain more by quick returns than what will compensate -a considerable difference in the rate of interest. Low interest may more -properly be called the barometer of public credit than of foreign -commerce. - -CHAP. IX. From what has been said, I conclude, that the rate of interest -does not sink as wealth increases; because it is influenced by many -circumstances, which do not depend upon opulence. It depends upon the -spirit and manners of a people, and will fluctuate with them. - - ------------------------------------------------------------------------- - - - PART II. _Of Banks._ - -CHAP. I. Having deduced the principles which regulate the rate of -interest, I proceed to investigate those which influence domestic -circulation; and as banks are the great engine by which circulation is -carried on, in tracing the nature of banks we shall fully understand its -policy and principles. - -Banks either circulate notes, or transfer credit written in their books: -the first are called banks of circulation; the latter banks of deposit. - -All banks are founded on credit, and according to the nature of their -institution, I may divide the credit they are built on into three kinds, -viz. private, mercantile, and public. - -Private credit is when the ground of confidence is real property, -pledged for the security of the loan. - -Mercantile credit is when the cause of confidence is in the trading -stock, abilities, integrity, and good fortune of the person who obtains -it. - -Public credit every one understands. It is when the ground of confidence -is a fund secured by public faith, in favour of the creditors, for the -interest and capital due, which last however is never exigible from the -state. - -Private credit is the most solid of the three; mercantile credit is the -most precarious; and public credit depends entirely upon the maxims of -every government with regard to public faith. - -It is the object of confidence, not the quality of the person obtaining -credit, which determines the nature of the credit. A merchant may grant -bond on the credit of his lands; a landed man’s bill, as member of a -mercantile company, may only affect his stock in trade, and a Prince may -pledge a province for a sum of money. - -The debts of a state, and the bills of merchants, are more easily -transferred than private securities. - -Public and mercantile credit stand upon a more precarious bottom than -private security. A suspicion of insolvency will shake the two former; -real insolvency only will destroy the latter. - -These are some of the peculiarities which characterize the differences -between the three kinds of credit. The justness of the distinctions I -have made appear from them, and from other circumstances mentioned in -this chapter; and the utility of such distinctions will appear from -their application as we proceed. - -CHAP. II. To establish private credit, on the most solid and extensive -bottom, the effects of debtors should be rendred of a ready conversion -into money; the sale of lands should be rendred easy and expeditious; no -entails or cloggs by mortgage and the like, should be allowed; debts -upon possessions ought to be registred, and those due to banks (the -great public debtors) should always be considered in a most favourable -light. - -CHAP. III. Banks of circulation upon private credit, are of great use in -the infancy of industry. In countries where it is only taking root, the -greatest obstruction it meets with is a scarcity of money. When money is -scarce, payments are ill made; and when the uses for money increase, if -money be not made to augment in proportion, alienation will cease to go -on, and payments will daily be more precarious. This is so evident that -I shall not insist upon it. - -Now as every individual in a state does, less or more, support industry -by consuming its produce, money must be provided for every one in -proportion to the value of his property. This opens at once the -principle of banks upon private credit. - -He who has money will, every where, willingly lend to every one who can -give good security for it; and the obligation granted by the borrower is -considered by the lender as better to him than the money he lends. -Before the establishment of banks, such loans were made in coin; but as -people discovered that a good obligation was as good as coin, they -discovered also, that when obligations could be made to circulate, they -might supply its place. - -For this purpose, banks found out an expedient of dividing obligations -secured upon property into small parts of the capital sum; and by -delivering them back to the borrower, with an obligation to pay them in -coin to the bearer on demand, they constituted themselves debtors to the -public for every note. The consequence of this was, that the coin of the -country became less useful in circulation; and as the banks demanded it, -and even gave premiums for obtaining it, it came into their hands, and -served the purpose of changing notes; that is, of subdividing the sums -mentioned in them, into the lowest denominations of the money of the -country. - -There is not a nation in Europe so ignorant as not to feel the use of -this policy; but there are few who have discovered how to establish the -confidence of the public in this general debtor, the bank. The reason -is, that people imagine a bank should at all times be able to turn all -their paper into coin. Were this possible to be done, where would be the -use of banks? How could they multiply money? - -From this short exposition, we may understand the difference between -banks upon private, mercantile, and public credit. The first lend upon -the security of possessions; the second, upon bills of exchange, which -is called discounting; the third, upon the security of the public funds. - -CHAP. IV. A scarcity of money only being found to stop the progress of -industry, and thereby to circumscribe the gains of merchants who supply -consumption; and they perceiving that men of property become bad -customers, more from the impossibility of making payments than for want -of an inclination to consume, joined together, and formed a considerable -stock which they exposed to the eyes of the public. This gave them -credit, and every one who had money to lend was fond of placing it in -their hands. Other people who wanted to borrow, applied to them for -money. Their answer was, we have no coin; but if you want money for any -purpose, we can assist you in credit, if you will give us security upon -your estate. Here is, said they, a note of ours, which any body will -take from you as payment for what you want. This was the same thing to -the man who wanted money for a particular use, as if they had given him -coin; and as such demands became frequent, the notes were printed, and -insensibly banking was established. - -States perceiving the abuse which might follow, were every one allowed -to issue paper in this manner, judged it proper to erect companies, who -lent them considerable sums as a security for their faith to the public; -and the superior credit of such companies drew the confidence of the -public, and circumscribed the dealings of individuals. Thus the trade of -Lombards, who had formerly supported circulation by their bills of -exchange payable to order, received a farther extension by the -establishment of banks, who, by issuing notes payable to bearer, rendred -them, in all commercial countries, every bit as useful as any coin. - -Banks once established, regulations became necessary; and of these the -first and fundamental one, was, to issue no notes but upon good -security. If it be asked, what security should be taken? The answer is, -the best those who want credit can give. In a country where trade and -industry are little known, but where a taste for refinement is taking -place, demand must be encouraged, in order to augment the supply. And as -this demand for consumption should, naturally, come from men of landed -property; the bank, therefore, should first resolve to issue notes upon -the security of that kind of property. - -When industry becomes more extended, and when trade becomes more secure, -from the solidity of mercantile funds, banks may then begin to discount -bills of exchange, and as this branch of credit enlarges, the bank will -by degrees participate of the nature of those secured upon mercantile -credit. - -When public credit, again, is well established, they will lend upon -government securities, pledged in their hands, and thus become founded -upon public credit. - -According therefore to the principal object of their trade, they are -said to stand upon private, mercantile, or public credit. - -When a proprietor of lands gives his bond to a bank, it should be -understood, that as long as he regularly pays the interest of the money -borrowed, the bank is not to demand the capital. - -For this bond they give notes, which are considered as ready money, and -therefore carry no interest. So the profit of the bank is to receive -interest for what they lend, and to pay none for what they owe. - -What they owe is the paper they issue. They owe this to the public; and -the security which the public has, is the security which the bank -received from the person who borrowed from them. - -Hence the solidity of banks upon mortgage. Their notes become money, and -this money is secured upon the whole stock of the bank, and the whole -property engaged to them. - -But as the stock of the bank is of a determinate value, and as the notes -they issue may very far exceed it, the credit of a bank will be -precarious, unless the value of the securities upon which they lend, be -equal to all the notes in circulation. It will also be precarious in -proportion as the securities themselves are so. Hence the interest the -public has to take care that banks give credit upon nothing but the best -security. - -CHAP. V. A bank, therefore, which lays down a rule to lend upon the -mortgage of solid property only, would destroy confidence, if it should -launch out in giving credit to those who have no solid property to -pledge. - -CHAP. VI. The use of all banks is to support domestic circulation: this -is two-fold; that carried on by consumers, and that carried on by -traders and manufacturers, who supply consumption. - -The circulation carried on among the first is in proportion to their -income, and their credit should be in proportion to the funds which -produce it. The circulation carried on by the last is in proportion to -the demand for their industry. - -If a bank be established on the credit of solid funds, it is very plain -that they cannot support the circulation of manufacturers and dealers -upon the same terms, or in the same way they do that of proprietors. -They may indeed discount bills; but they cannot give a permanent credit -upon a security which is not founded upon property. This opens a new -combination. - -Trade and industry are dispersed through many hands, and if the stock of -those who carry them on be compared with what is necessary for that -purpose, it will appear very small. What is deficient in stock must be -made up to them in credit; and this will be in proportion to their -integrity, capacity, and good fortune. A frail security for paper, which -is to become the money of a nation! Such securities must either be -rejected by every bank whatever, or the whole fabric will tumble into -ruin. But this subaltern class of dealers may have recourse to -merchants, whose wealth and funds are solid and extensive. To these a -bank may give credit, and they again, in their dealings with the other -class, may indemnify themselves of all the risk they run, by profits in -proportion to it. - -This class of merchants I call _exchangers_; because they deal -principally by bills of exchange in the credits they give, which are of -the greatest advantage to an infant trade and a growing industry. - -CHAP. VII. When banks were first established, there was no money known -but coin, and many there still are, who do not clearly see how money can -possibly be made of any thing but metal. The scarcity of coin raised the -rate of interest, and when banks began to lend their paper, they exacted -the same interest as if they had been lending coin. Hence they were -obliged to promise payment of their notes, in coin, upon demand. In -consequence of this, the policy of circulation proceeds upon the -supposition, that bank notes are equal to coin in every respect; and -when any interruption happens in the ready exchanging them at the bank, -all runs into confusion. I shall afterwards shew how this might be -prevented. - -While a country has a balance of trade, either at par or in her favour, -no body has occasion for coin, except to reduce bank notes to their -lowest denomination of money. But when a balance is due to other nations -which must be paid in gold and silver, every one who wants coin for that -purpose, runs to the banks, which are obliged to pay in it, and then -they are thrown into distress. Hence we may conclude, that a bank taking -upon itself the obligation of paying in coin, without carrying its -policy farther than the banking trade, cannot stand its ground in a -country which owes, upon an average, a balance to other nations. This -opens a new and a most curious combination. - -CHAP. VIII. In the mechanical operations of trade, when they are not -combined upon principles, and directed by a superior policy, every -balance due from one nation to another upon the whole of their -reciprocal payments, that is, in consequence of their debts and expences -abroad, as well as in the course of their mercantile operations, must be -paid in the metals. - -For transacting this balance, there is a set of merchants who deal in -the business of exchange. Every debtor to another country is supposed to -have value in his hands for it, which he converts into bank-paper; with -this he buys a bill of exchange, drawn upon the place where he is -debtor, and the exchanger who sells it, demands coin of the bank, which -he sends off for payment of his bills. If during this operation the bank -should stand with its hands across, and only think of expedients to -provide coin, it is evident, that if specie should totally fail in the -country, trade must be at an end, and the credit of the bank would be -undone: for no body will enter into every combination necessary to -discover the impossibility of converting the whole paper currency of a -nation into gold and silver. Thus a bank which cannot pay in coin, will -be supposed to be ruined, though in reality it may be worth half the -property of the state. - -Is it not then of great consequence to banks, and to a nation, that the -principles of their trade, and the security of their paper, should be -well understood? And is it not wonderful, that they themselves have not -made evident a thing which they must understand far better than any one -who has not had their experience? - -CHAP. IX. When a country gentleman owes money in town, beyond what his -rents can pay, does he not borrow from some body who has money? Does not -this borrowing prevent his lands and his houses from being torn to -pieces by those who have a right to demand money of him? Would he not be -laughed at, if he were to delay pledging a part of his property, in -order to secure the whole? - -The case is just the same with banks. They owe a sum of coin equal to -all the paper they have in circulation. In this they represent the -country gentleman. Foreign nations demand payment from them in coin; -because it is the same thing whether this demand be made directly on the -bank, or on those who can demand it of the bank. Such nations represent -the town. Must not then the bank borrow upon the credit of the -securities pledged at the time they issued their notes, and which to -them represent the gentleman’s lands? And can they borrow from any but -those who have money? Their own country can have none to lend, while -they owe a balance; they must therefore borrow from other nations, and -transfer what they borrow to their creditors abroad. - -Hence I conclude, that as nations which have coin pay what they owe with -it, and thereby diminish its quantity; so nations whose money is their -land, must pay in land, to the diminution of that species of property: -and as a man who owes a thousand pounds upon his estate is only -proprietor of it for the remaining value; in like manner, a country -which pays an annual interest to other nations, is only proprietor of -what remains. - -CHAP. X. If the country gentleman, who is pushed by his creditors for -money, which he cannot expect to draw from his rents as they become due, -should borrow, for a few weeks, from one who, after that time, will have -occasion for his money himself, he will be put to all the expence of -giving security for it, and at the end of that short time, he will be at -as great a loss as ever to find money to reimburse the man who had lent -it him. This represents the expedient used by banks to obtain temporary -credits, instead of a permanent loan upon a regular interest. - -CHAP. XI. When trade goes on well, and produces a regular balance in -favour of a country, the trade of banking is easy, and few employments -require less capacity. But when the balance begins to be unfavourable, -and when, in self-defence, they are obliged to deal in exchange, the -case is different. - -Whatever balance is due abroad must be paid by the banks, as has been -said, either in coin or in credit. As long as they pay in coin, the -business of paying the balance is left to exchangers, who conduct the -operation. But whenever banks borrow abroad, upon a permanent loan, and -thereby acquire a fund to draw upon, the business of exchange falls -naturally into their hands, and they may profit of it according to -circumstances. In this case, not one shilling of coin can go out of the -country, in the way of payment; because there will be a loss to any one -who sends it away, when he can pay cheaper by a bill. - -CHAP. XII. But the most complicated combinations arise from the -consequences of a wrong balance on the state of domestic circulation. I -hope this matter will be more easily comprehended, from the short -recapitulation I am now to give of it, after all that has been said upon -the doctrine of taxes, and of the difficulty of paying them, when money -is sent abroad. - -Money is the instrument of alienation; and when this instrument is taken -away, alienation must cease. Now, it is a matter of indifference as to -circulation, whether money be rendered scarce by being sent out of the -country by the state in time of war, or by the subjects who owe it to -strangers in time of peace. A determinate quantity of money is requisite -for domestic circulation. In whatever way this comes to be diminished, -it is the duty and interest of banks to fill up the void as fast as -possible, by readily furnishing credit at all times to those who can -give security for what they demand. If banks, by paying balances, shall -have exhausted their fund of coin, the fault is their own. Why did they -not in time provide the necessary funds abroad? But in whatever manner -they pay the balance, the consequence is, to take a sum of money equal -to it out of domestic circulation; and this cannot be replaced but by -more money lent by them upon new securities. If an ill grounded fear -should at such a time engage them to refuse credit, when demanded, the -country will be in a worse situation than if banks had never been -established, from the sudden diminution of money, which, without that -establishment, never could have happened. - -But if banks would consider the whole foreign balance as immediately -their own debt (and it is so, when they are obliged to pay it) they -would provide the easiest method of acquitting it: since none of the -expence incurred can fall upon them, in any proportion to the gain they -make, in receiving interest for all they lend, and in paying none for -what they owe within the sphere of their own circulation. - -CHAP. XIII. Whatever contracts circulation, hurts a bank, and offers no -relief to it with respect to the payment of balances. If they borrow -money at home, they cut off the branch they stand upon, unless they -continue at the same time to give credit to all who demand to borrow -upon good security. This last combination was omitted in the chapter I -am now recapitulating; because of the multiplicity of those I was -obliged to introduce, in order to demonstrate how hurtful it is for -banks voluntarily to diminish the circulation of the country where they -are established. I shall therefore bring it in here, and refer to the -chapter for the other combinations which cannot be abridged. - -Did banks, upon mortgage, make it a rule to borrow all the money offered -to them, at a small deduction from the common interest, while at the -same time they continued to lend as formerly to every person of good -credit; the consequence in a little time would be, that they would -become the absolute center of all borrowing and lending, and the -greatest part of the expence of drawing securities would be saved. - -Every person who had money to lend, would lend it to the bank; and every -one who had money to borrow, would borrow it of the bank. Upon these two -operations, the difference of interest paid, and received, would more -than balance the additional expence of so great a detail. But then -indeed some new law would be necessary to facilitate securities. The -clogs laid upon solid property oblige the bank to insist upon -conditions, which put it out of the power of many persons of good credit -to borrow from them. But I do not propose plans: my aim is confined to -principles; and from those I have mentioned a new clause in bank notes -would arise, viz. to pay in coin, or by a transfer of interest at a -determinate rate, at the option of the bearer, not of the bank. - -CHAP. XIV. This would be an optional clause, very different from that -lately introduced into Scotland, where the option of paying interest was -left to the bank. This has since been wisely suppressed; because it -proved a heavy clog upon circulation, and enabled the bank to avoid -doing what their own interest, and that of the nation, required of them, -viz. the ready payment of all balances against the country. But in -suppressing optional clauses, government should facilitate the means of -paying balances, and of providing coin. This is done by establishing and -supporting the credit of the banks, in proportion to the solidity and -extent of their funds. An example of this nature occurred in Ireland, in -April 1760, when the parliament interested itself directly in the -support of the credit of some private bankers. A mint also is necessary; -or if this should be judged improper or superfluous, some assistance at -least should be given in conveying coin from the place of its -fabrication. - -CHAP. XV. All branches of policy are brought to perfection by degrees, -when, instead of being established at once on sound principles, they -introduce themselves mechanically, by custom and practice only. When -therefore a national bank is not found to answer all the purposes -expected from it, private people imitate their plan, and fill up the -void. Thus in Scotland, when the banks of Edinburgh did not sufficiently -support circulation in the more distant parts of the country, private -banking companies were erected, and degenerated into a great abuse. -Every one issued notes payable to bearer. Thus the public was filled -with paper money, the credit of which was quite unknown to many, who -were however forced to receive it. - -Whatever is payable to bearer, is payable to the public; and no doubt -the public has a good right to prevent the issuing of notes by any but -such as it has confidence in. When a note is payable to order, every one -who circulates it is responsible for the value; but when it is payable -to bearer, there is no recourse upon any but the first grantor of the -obligation. Such regulations therefore should be made in this respect as -may give a solidity to the paper, facilitate a general circulation, and -prevent the establishment of a currency confined to particular districts -within the same country, which tends to introduce a course of exchange -from one town to another. This would be the case, were the circulation -of every county carried on by the county bank. A communication, -therefore, of interest between the banks of a country is requisite, or -else the obligation to pay should not be confined to the place where the -bank is established. - -CHAP. XVI. Here I resume the principles I have deduced, in a short -sketch of a general plan of regulations for a bank of circulation. - -CHAP. XVII. If proper regulations upon the banking trade should be found -inconsistent with the laws and manners of a people, which require a more -extensive liberty to every one to carry on what commerce he thinks fit, -I think it is reasonable that every company of merchants who issue -paper, payable to bearer, without the sanction of government, should be -obliged to subject their books to some kind of public inspection, that -it might be seen whether the credit they grant to individuals be of a -sufficient solidity to answer for the notes they circulate. - -CHAP. XVIII. The numberless distresses of the Scots banks at the end of -last war, made it necessary to show, in a particular chapter, what the -consequences might have been, had the banks at that time totally -withdrawn their credits, and given up business. This step would, 1_mo_, -have cut off their whole profits of banking. 2_do_, It would have ruined -the whole class of exchangers; and with them, 3_tio_, the whole trade -and manufactures of Scotland. - -CHAP. XIX. Here I take a farther step into those intricate combinations. -I now shew how the whole obligation, both of paying in coin, and -discharging foreign balances, may be taken off from those who administer -a national bank. Their notes are proposed to be paid by a proportional -transfer of interest. All interest due by banks on that account, and to -banks for credit given, is proposed to be paid in coin at certain terms. -Those who have occasion for coin are to buy it at the mint: but this -coin is entirely calculated for domestic circulation; and therefore a -very moderate quantity of it will be necessary. And for the payment of -all sums due to foreign nations, I lay it upon government, according to -the plan proposed in the 5th chapter, upon exchange. - -Thus the whole policy of circulation is divided into three distinct -branches: - -1_mo_, The melting down of property, and keeping circulation full at all -times. This is the business of banks. - -2_do_, The providing of coin is the business of mints. - -3_tio_, The granting bills on foreign parts, for value in the national -currency, is the business of the state. - -CHAP. XX. The objection to this doctrine is, that if notes are not -payable in coin, they cease to be of value. The answer is short. The use -of paper money is to keep reckonings of value between people who have -property; the use of coin is to avoid giving credit to people who have -none. - -The value of the paper in the country is ascertained by the value of the -interest which is paid for it in coin; and by not paying the capitals in -coin, you prevent its being carried off without necessity, whenever a -balance becomes due; which balance might be paid by the means of credit. - -CHAP. XXI. I shew, by many arguments, (afterwards employed in the 10th -chapter, upon public credit, and which render this combination more -simple than I should otherwise have been able to make it in this place) -that the return of a favourable balance of trade will clear the bank of -all the foreign debts contracted by it, for the relief of the country; -as a like favourable balance on the trade of Great Britain has the -effect of setting that nation free from a proportional part of the money -due to strangers. In this case, the favourable balance is incorporated -in the public funds due to natives: in the other case, it is -incorporated with the stock of the bank securities, and enables them to -relieve that part of them which was engaged for the interest paid out of -the country. - -CHAP. XXII. The constitution of the bank of England differs essentially -in some particulars from that of banks upon mortgage, and private -credit. It is not so much calculated for multiplying the currency, by -melting down private property, as for facilitating the circulation of -the trade of London, and exchequer of Great Britain. - -The grounds of confidence upon which the notes of this company stand are -very great. - -1_mo_, A capital of eleven millions sterling, for which they are -creditors to the nation. - -2_do_, A sum of credit-cash at all times in their hand, of about eleven -millions more. - -3_tio_, The bills of exchange of all the great merchants of Europe, -which they discount. - -4_to_, When they issue paper to government upon the faith of taxes, or -circulate exchequer bills, they have the security of the public faith -for the short advance of a few months. - -This bank, I have said, is more useful for promoting circulation than -for augmenting it. It has however lent its assistance in this respect on -very critical occasions. It has circulated exchequer bills; and tallies, -which, from discredit at the time, were as ill calculated to supply the -use of money, as lands or houses are, from their unwieldy nature. The -great advantage the public reaped from such operations, abundantly shew -the utility of banks, which are calculated for that very purpose. - -The principal operations of this bank are, to receive and pay away the -greatest part of all the national revenue, expences, and debts; to -discount bills of exchange payable at London, and to supply the country -with coin. - -The demand of London for subsistence and manufactures from the country -of England is so great, that the whole amount of what is sent up to that -city, for taxes, and for land-rents there expended by the proprietors, -does not compensate it. From which it follows, that by the bank’s not -giving credit upon private securities, the whole of their paper is in a -manner confined to the capital; and if any part of that paper casually -goes into the country, it quickly returns, in payment of what would -otherwise be remitted in bills. So that paper circulation in the country -of England is very inconsiderable, when compared with the coin. - -The intention of this chapter is to examine and compare the principles -of the two species of banking, and to point out their several -consequences as to circulation; from which I am led to think, that if -banks of circulation were to be established in the country towns of note -in England, they would greatly promote industry every where, and -occasion no inconvenience from their contrast with the national bank. - -CHAP. XXIII. After deducing the principles upon which the solidity of -paper money is established, I proceed to point out the bad consequences -of issuing bank-notes upon a precarious security. The bank established -in France by Mr. Law, and the fatal catastrophe it brought upon that -nation, furnish excellent matter for illustrating the doctrine of paper -credit. - -The late King of France left, at his death, a debt upon his kingdom of -142 millions sterling; the coin being at 28 livres the marc of silver. - -CHAP. XXIV. In a few months after his death, the debt was reduced to 100 -millions, by the turn of a wheel. The coin was put at 40 livres the -marc. But as the hundred millions sterling, _in intrinsic value_, after -the reduction, contained as many livres in _verbal denomination_, as the -hundred and forty millions did before, the greatest inconvenience -discovered by the people was confined to the necessity imposed upon them -to sell their old coin at the King’s price. - -At this time Law set up his bank, and without doubt assisted people in -that respect, with very great benefit to himself. - -CHAP. XXV. He divided the capital stock of the bank into 1200 shares, of -5000 livres each (the livre at this time was exactly a shilling -sterling); and the purport of the notes he issued was, that payment -should be made, at all times, in livres of the same intrinsic value. - -This bank was established on the principles of the Scots banks, and lent -sums upon every species of good security. The consequence was, that in -less than three years, France, from being in the most miserable -situation for want of money, credit, consumption, and industry, was -raised, as by magic, to the greatest affluence. The reason was plain: -there wanted nothing but an instrument to set all the inhabitants to -work. This Law gave them in a moment; and their own work was the cause -of the affluence which astonished them. - -This effect was produced by an inconsiderable sum of notes: they did not -exceed three millions sterling when Law gave up his bank. But credit and -confidence were established by that small sum; and the notes brought out -all the coin which had been formerly locked up. It is not a great -quantity of money, but an exact proportion of it, according to demand, -which supports trade and industry. That proportion may be sustained by -the means of banks, but by no other expedient whatever. - -CHAP. XXVI. Law’s bank was no sooner established, than he sought to -enlarge his bottom. He found a trading company ruined in their affairs, -though intitled to great privileges. He found also large sums of public -state billets circulating at great discredit, from an ill paid interest. -He got a grant of the company to himself and associates. He opened a -subscription for 200,000 shares, of 500 livres each. He took payment in -those discredited obligations; and when he had got the state billets, -(given in at subscribing) he engaged the Regent to promise punctual -payment of the interest. This was no sooner done, than the discredited -paper, which was become an action, or a share, as we have called it, -only by being subscribed for to Mr. Law, rose above par. The nation -cried out, a _Miracle_! Law was a saviour, in the eyes of some, a -conjuror in the opinion of others. - -His credit and his capacity for conducting the greatest undertaking -within the power of numbers and computation, being established, inspired -the Duke of Orleans with a scheme of unbounded ambition, which, in -favour of many who have never rightly comprehended the nature of it, I -have been at very great pains to trace, in the eight following chapters. -And as a recapitulation is useful to assemble ideas within a small -compass, which have been dispersed through many combinations in the work -itself, I shall here, in a few lines, give a general idea of the whole -plan. - -The Regent perceiving the use of paper money, well secured on solid -property, resolved to take the bank into his own hands, in order to -issue paper sufficient to pay off the whole debt of France. Now paper -issued for paying debts is secured upon no fund at all. It is the same -as if it were issued for payment of meat and drink. The whole security -therefore was his own word. - -But the difficulty was to prevent this paper from instantly returning -upon the bank; because it far exceeded all the uses of circulation, and, -consequently, could not be suspended in it. - -The expedient fallen upon was to raise the value of the actions of Law’s -company, (which by the subsequent incorporation of new privileges were -multiplied beyond 600 000) to a great height, by promising great -dividends upon them. The company accordingly promised a dividend of 200 -livres a year, upon a capital which was originally worth no more than -500 livres. - -The great quantity of paper money dispersed had sunk the rate of -interest to 2 _per cent._ The dividend, therefore, combined with the -rate of interest, carried the market price of the action to 10 000 -livres. Here was a new fund provided as an outlet for all the bank notes -paid to the creditors; and in proportion as they bought the actions from -the Regent, or the company, whom I here consider as the same, the notes -were to be cancelled. - -By this operation all the debts of France were to be converted into -actions of the company of the Indies, and were to share its fate. But -then it must be remembred, that this company had in a manner the whole -revenue of France in farm; and by a recapitulation of the different -branches of their profits, their income amounted to eighty millions of -livres a year. So that if matters had been well managed, had credit been -supported by fair dealing, had no arbitrary acts of power, in tampering -with denominations of coin and money, taken place, and had the Regent -supported and encouraged the company; they in fact might have been able -to pay more than all that was required of them; and the very diminution -of the interest of the public debts, by the fall of money to 2 _per -cent._ was, in effect, cutting off one half of the capital. So that if -we suppose the total value of the 2000 millions of debt equal to 100 -millions sterling, the debts of France, by this scheme, would have been -reduced to an annuity of 2 _per cent._ on a 100 millions, or two -millions sterling a year paid to the company, who then represented the -creditors of the nation. - -But the project was too great; the capacity of those who were in the -management was too small, and the time was too short for bringing about -so great a revolution: thus it failed; but in a way which suggests no -reason to believe that it might not have been supported. - -CHAP. XXXIV. The denomination of the paper was reduced to one half by an -act of power: a man who, for example, had a bank note for 100_l._ had it -reduced to 50_l._ This at once destroyed the whole credit of France. But -it would have stood its ground, without doubt, had the Regent called the -fifty pounds with which he paid such a note, one hundred pounds; -although, if you abstract from the interests of debtors and creditors, -which never were attended to, it was absolutely the same thing. The -altering the denomination of paper implies, however, this additional -injustice above that of altering the denomination of coin, that it -changes the value of the paper in all cases; because it contains no -other value than the denomination: whereas coin has a value independent -of that, which no law can alter. - -CHAP. XXXV. The form of a bank proposed for France, in this chapter, is -pretty much the same with that mentioned in chap. 16; only here I have -not even admitted the payment of the interest in coin, for fear that an -act of power, by carrying off a few thousand louis d’ors on a present -exigency, might totally ruin the credit of such a bank, and consequently -draw ruin on the whole nation. - -This bank is intended merely as an office for keeping accounts between -people of property, and thereby of greatly increasing and supporting -circulation. - -CHAP. XXXVI. Having dismissed the subject of banks of circulation, I -come next to those of deposit. Here I deduce the principles upon which -the bank of Amsterdam is established. - -This bank issues no paper, and grants credit upon no security but coin -locked up in their vaults. Consequently, the ground of their credit is -the faithful preservation of this coin. Were it at any time to be -diminished below the value of the credits written in their books, the -nature of the bank would be changed. Were the coin to be lent on good -security, such a bank would then immediately become a bank of -circulation upon mortgage; since it would be the same as if the credit -had been at first granted upon that security. Were the coin disposed of -for no value, the bank would be from that moment bankrupt in fact, -although the secret might be kept for a long time. - -CHAP. XXXVII. The intention of establishing a bank of this nature at -Amsterdam was to fix the seat of trade in that city. The ordering all -bills of exchange to be paid to the bank in coin, and the giving to the -holders of the bills only a credit in bank for the value, was an -effectual means of obliging the proprietors of that credit to carry on -their trade in the place where their funds were established beyond a -possibility of removing them, except by transferring them to others who, -by accepting of the transfer, came under the same necessity. Were indeed -trade to become incompatible with the situation of the city, as if an -earthquake should fill up the port, then the bank would either be -removed elsewhere, or the credit writ in their books would become of no -more value than gold in an inaccessible mine. This regulation also -prevented the circulation of bad coin; because when payment of bills was -made to the bank, they took care that nothing but good coin should be -received. - -From these regulations it appears that money cannot be multiplied by -banks of deposit; but on the other hand, it cannot be diminished by -exportation, without the act of the bank; and the transfer of credit -answers every use of coin in trade, and prevents also its waste in -circulation. - -CHAP. XXXVIII. Coin is liable to constant vicissitudes. Its denomination -may be changed by an act of power, and its real weight may be diminished -in circulation. But when it is locked up, all these inconveniences are -prevented. Bank money, therefore, being the value of the coin locked up, -is constantly the same: whereas all coin which circulates is liable to -variations; consequently, these variations are relative to the coin -which circulates, and not to the bank-money. The difference between the -one and the other is called _agio_. - -CHAP. XXXIX. Many have imagined the treasure of the bank of Amsterdam to -be immense; because no body can ever take any thing from it, and that it -is constantly receiving new augmentations: but the policy of the bank -itself destroys this supposition, and shews plainly, that the sum locked -up never can exceed what is absolutely necessary for circulating the -trade of the city. - -It is true, no person can go to the bank and demand to have the amount -of his written credit paid him in coin. But were the written credits to -exceed the uses found for them, the value of such bank-money would -diminish; consequently, the value of the circulating coin would -increase, which is the same thing. Now as this would prove a great -discredit to the bank, they employ a set of cashiers or brokers to keep -the balance even. Their business is to buy and sell bank credit with -current coin, and to these the bank gives credit. When there is a demand -for bank credit, the cashiers sell it for coin, and both parties going -to the bank, a new credit is written, or the cashier’s credit is -transferred to the buyer. When, on the other hand, coin is demanded for -bank credit, the cashiers pay for it with coin which the bank lends -them; and for their repayment, they transfer to the bank the credit they -have bought with it. This needs a little explanation. Suppose one to -have credit in bank for a thousand gilders, which he wants to send away -in coin. He goes to the cashier and sells his thousand gilders of bank -credit: the bank lends this thousand gilders to the cashier, and the man -who sells the credit gets the coin, and makes a transfer of the credit -in favour of the cashier. But as he owes this sum to the bank, he -transfers this credit to the bank itself, in payment of the thousand -gilders borrowed; and then the bank may expunge it, if they please, from -their books; because it is due to themselves. Thus although no money can -be demanded of the bank by one who has credit, they can give the money -to a third party who does it for them. - ------------------------------------------------------------------------- - - - PART III. _Of Exchange._ - -CHAP. I. Foreign circulation is carried on by bills of exchange. - -When reciprocal debts are contracted by different countries, the -creditors in both take payment at home for the bills they draw to the -order of those who pay; and they again indorse the bills to their -creditors abroad. - -In this contract four parties concur: the domestic and foreign -creditors; the domestic and foreign debtors. This operation can extend -no farther than to the amount of reciprocal and equal debts; if there be -a balance owing upon one side, this balance must be paid in value, -either in money or merchandize. Now as a debt is much easier discharged -by compensation than by payment, merchants endeavour to profit of this -compensation; but as every one endeavours alike when there is a balance -on one side, it operates upon the whole of the exchange, and every one -must bear his share of the expence of paying it. - -If London should owe a balance to the world, after compensating all that -the world owes to her, every London-debtor to the world will wish to -compensate; consequently, he will look out for one who is creditor to -the world: but this search betrays the secret, and shews that he is the -demander; upon which the other avails himself of his situation, and -refuses to compensate without profit. Hence the secrecy said to be -requisite in this branch of trade. It is requisite to the trader only, -whose interest is concerned; because whatever one set of merchants in a -place wish to conceal, another set have constantly an interest to -divulge. The interest of the state consists in preserving an equality of -profit and loss among them all; and in facilitating to them the paying -and receiving the balances due upon the total of all their transactions. -The loss of the nation is upon the balance due by the country; the -expence of paying the balance, which is the price of exchange, is only a -relative loss to some of her subjects, and a relative gain to others. - -The attention, therefore, of a statesman in what regards exchange, is, -1_mo_, To take care that the true par between the value of the national -money and the money of other nations, shall be as much as possible -proportional to the quantity of metal contained in each. - -2_do_, To remove domestic inconveniences in paying with the metals, or -national coin, every unavoidable balance. - -3_tio_, To hinder the expence of acquitting a small balance from -occasioning a loss on the compensation of reciprocal debts. - -And, 4_to_, When he finds an inconvenience in allowing the metals or -coin to go out of the country, he must assist in having the balance paid -in the way of credit. - -CHAP. II. The best method for determining exactly the true and intrinsic -value of the metals, coin, or money, in which the balance due to or from -a foreign nation, is to be paid, is to compare the respective value of -fine bullion with the respective denominations of the coin in the two -places exchanging; and to state the difference only, as the price paid -for the exchange. To render this more practicable, a proposal for -rendring all mint-weights more determinate is set forth in a note. - -CHAP. III. When upon the whole of a nation’s trade with the rest of the -world, a balance is due, it must be paid, either in intrinsic value, -which totally discharges it, or by giving security for it, and paying -interest until the charge can be obtained. We consider in this chapter -the methods of discharging it. - -A statesman is the best judge when his people ought to pay with bullion, -and when with credit. If he approves of their paying with bullion, that -is, with gold and silver, he should render the exportation of the metals -as easy as possible. If a duty be laid upon coinage, he need not be -afraid that any one will send off the coin, as long as bullion can be -found; and when this runs short, if he does not choose that his coin -should go out, he must lend his assistance in paying with credit. If he -finds it against his interest either to pay in one way or in the other, -he must put a stop to the trade which creates the balance: for while -such trade is permitted, he will find it beyond his power to prevent the -payment of that balance in the most hurtful way possible to his country. - -I here observe, that in countries unacquainted with trade, and in others -where the whole external commerce is carried on by strangers, a good -expedient for cutting off such hurtful branches of traffic is to lay all -the restraints possible on the exportation of the metals, in order to -promote the exportation of what the country can offer in return. But -when trade and industry are established, these restrictions cease to be -useful; because merchants then find a profit upon exporting domestic -productions, which they never can have upon exporting an intrinsic -value. - -A statesman, therefore, should conduct his operations according to the -situation of his country. If foreign trade be unprofitable, cut it off -as much as possible, and lay every restraint upon the exportation of -coin. If it be profitable, lay no restrictions on payments; because you -are sure you will gain upon the whole. And if, in any particular case, -you incline to keep your coin at home, mortgage your country, and pay -with your credit. - -If, when you are obliged to check foreign trade, and lay prohibitions on -the exportation of coin, exchange is found to rise to a great height -against you, yet will this exchange produce no national loss: it will be -paid within the country by those who consume foreign commodities, to -those who are at the trouble and expence of transacting the balance. - -CHAP. IV. Here I demonstrate what before I had in a manner taken for -granted, viz. that the price of exchange is neither a national loss, or -a national gain; but whether it be favourable or unfavourable, it -produces an instability in the profits upon trade, and should therefore -be kept at par by all possible methods. I also shew how exchange is -favourable to exportation, when the balance is against a country, and -how the exchange is unfavourable in that respect in proportion as the -balance is for that country: and as whatever exchange is gained by -exporters is lost by importers, and _vice versa_, some have concluded, -that an unfavourable balance does of itself destroy its own pernicious -effects, and sets the balance even. I endeavour to disprove this -proposition, by shewing how the importers are indemnified, as to their -loss by the exchange, from the additional price they get for their -foreign commodities at home; whereas the exporters cannot raise their -prices abroad; because foreign competition will not permit them. So that -in one case the wrong balance hurts the rich consumer at home, who can -bear the loss; and in the other, the right balance hurts the poor -manufacturer, who cannot. Hence I conclude, that it is greatly for the -interest of a trading state to keep exchange, at all times, as nearly at -par as possible. - -That this is a practicable scheme, I prove by a matter of fact, and by -an experiment made in France by a late minister; where, upon a certain -occasion, the exchange having risen to a great height against France, he -immediately brought it to par, by ordering bills upon Holland to be -furnished at that rate, to those who should demand them; and by taking -upon himself the expence of sending the money paid for such bills, to -the place upon which they were drawn. - -I observe, however, that such operations can only be recommended to -statesmen who preside over the interests of flourishing trading nations; -because in proportion as they are benefited by facilitating the payment -of the casual balances due by them from time to time, in so far is a -prodigal nation hurt, by facilitating the dissipation of their property, -and by contriving a ready method of transferring it to foreigners. - -CHAP. V. When a nation owes a balance, after all the payments they have -been able to make, either in coin, bullion, bills, or merchandize, it is -evident, that what remains can only be satisfied by obtaining credit for -it, at the expence of mortgaging the country and paying interest for the -remaining balance. When this, however, happens to be the case, it -involves the nation-debtor in a multitude of expensive operations -conducted by exchangers, who constantly find a profit in carrying them -on, though at a very great loss to individuals within the country. To -prevent this inconvenience, I propose, that the statesman should take -upon himself the obtaining of credit abroad, for the balance due by the -country he governs; and that the expence incurred by this operation -should be defrayed by the public, whereby every individual within the -state will contribute his share towards maintaining an uniformity in the -profits upon trade, and supporting the stability of commerce, from the -regularity of the course of exchange at all times. This operation -resembles very much another of which we have already spoken in treating -of banks of circulation upon mortgage. There we recommended the payment -of foreign balances as a proper branch of bank administration: here we -recommend it to a statesman to interpose voluntarily between his -subjects and their foreign creditors. This is the best method of -supporting commerce, when it happens accidentally to fall under the -discouragement of an unfavourable balance. - - ------------------------------------------------------------------------- - - - PART IV. _Of Public Credit._ - -CHAP. I. The credit of a state resembles, in most things, that of an -individual: they differ however in this, that when a private man -contracts a debt, he himself is answerable for it. When a state -contracts a debt, those who contract the obligation in the name of the -state are not responsible for it. Hence it happens, that private people -are commonly more anxious about paying their debts than statesmen are -who administer for the public. Another difference is, that public debts -do not so much affect the prosperity of a state as private debts do that -of the debtor. The interest of a private debtor is simple and -uncompounded; that of a state is so complex, that the debts they owe, -_when due to citizens_, are, on the whole, rather advantageous than -burdensome: they produce a new branch of circulation among individuals, -but take nothing from the general patrimony. - -In deducing the principles of public credit, we must suppose it the -established maxim in the state to adhere to the faith of their -engagements; and that a permanent fund is appropriated for the payment -of the interest of all the money borrowed: a liberty must be supposed, -at the same time, to redeem the obligation by adequate payment; and also -an easy transfer of the capital from hand to hand, to indemnify every -creditor for the loss of his capital, which is not demandable from the -state, as the case commonly is in private securities. - -The consequence of the swelling of public debts, is, to occasion a -proportional augmentation of contributions out of private property. The -consequence of this again, is, to produce a vibration in the balance of -domestic wealth. This creates a monied interest, which swells in -proportion as public debts increase; and which may swell to so great a -height as to transfer the income of a whole nation from the nominal -proprietors to the public creditors. - -A statesman, therefore, ought carefully to attend to the spirit of the -nation he governs, before he gives way to a regular and systematical -augmentation of public debts. In monarchies, the proprietors of lands -may bear for a while the temporary diminutions of their annual income, -though they will not easily be made to subscribe to a plan which -evidently tends to deprive them of all they have, and to transfer their -power and property to a set of men whom they have always considered as -their inferiors. - -In monarchies, therefore, a great increase of public debts will more -probably bring on a national bankruptcy, than in governments which -participate of the republican form. - -The consequences, therefore, of the swelling of public debts may be, -either, 1_mo_, To disturb the tranquillity of the state, by an attempt -to transfer the property of it from the real possessors to a new created -monied interest: or, - -2_do_, If a systematical plan of borrowing upon solid security be not -laid down, it may mechanically draw on a general bankruptcy: or, - -3_tio_, If debts be allowed to swell beyond due bounds, so as to hurt -the interest of the great body of the proprietors, the state may be -engaged to adopt the fatal expedient of a spunge: or, - -4_to_, If the spirit of the people prove compatible with the system of -borrowing and supporting public credit to the utmost extent, then the -whole income of the nation will remain in perpetual fluctuation, passing -from one set of creditors to another, the statesman still retaining the -administration of it for their use: or, - -5_to_, If the debts contracted become the property of foreigners, these -will either remove into the country where their funds are, or the income -of the whole will be converted into a foreign tribute. - -CHAP. II. While public expence was defrayed from treasures, public -credit was a thing unknown. While supplied from rapine and extortion, it -never could exist. During the simplicity of ancient manners, when there -was neither industry or circulation, credit was unnecessary: the coin -was more than sufficient to serve every purpose of alienation. - -When trade and industry began to make a progress in Europe, in the Hans -towns, and in the republics of Genoa and Venice, the consequences of -their credit were soon felt by Princes, who aukwardly began to imitate -their example; first, by borrowing money upon mortgages of their lands -and principalities; and afterwards, by imposing taxes and selling them -for what they could get to a most rapacious set of men, the -tax-gatherers. This spread oppression, and this again soon brought the -Prince to poverty. - -Taxes, however, once established in this violent method, and upon urgent -occasions, came, in time, to be improved, and formed a large fund, which -now serves as a solid basis for public credit. - -CHAP. III. While taxes were only appropriated for a time, for the -repayment of the debts contracted by a state, the attention both of the -state and of the lenders was totally fixed upon the discharge of the -capitals: but in proportion as money increased, in consequence of the -whole system of modern political oeconomy, the lenders formed to -themselves a new point of view, viz. the acquisition of a permanent -interest arising from a transferable capital. - -In order to make this change of policy from borrowing with an intention -to repay the capital, to borrowing with an intention to pay a perpetual -interest, the more sensible, I have traced in this chapter the progress -of the first, by a review of the plan of public credit in England until -the end of the last century. - -Here I analize briefly the sentiments of Dr. Davenant, and compare them -with those established in our days, when the latter policy has taken -place; and upon the whole I determine, that the difference in the system -of public credit then and at present, has proceeded principally from the -difference in the state of circulation, and from the expedients now -fallen upon for increasing the quantity of money, in proportion to the -uses found for it. - -CHAP. IV. I then compare the state of public credit in France, during -the administration of Cardinal de Richlieu, with that of England after -the revolution. Here I endeavour to point out the influence which the -different forms of government have upon the stability of public credit, -both in contracting and in paying off public debts. - -In France, the power of the Prince furnishes many expedients for paying -off capitals, which had been borrowed at an exorbitant interest in times -of public distress. - -In England, the limited power of the crown, and the responsibility of -ministers for their exercise of it, is a great security to those who -lend money to the state; and consequently, proves a very great advantage -in contracting debts upon reasonable terms. - -The longer the two states subsist, the greater will the advantage be -found in favour of that which adheres the most strictly to the faith of -its public engagements. - -When the credit of France and England are compared together, the -difference between them is most remarkable. The strict adherence to the -faith of public engagements has established, in England, so nice and -scrupulous a credit, that the smallest deviation from its principles may -prove fatal to the whole system. The credit of France, on the other -hand, has been accustomed to a rougher usage; and the frequent acts of -power, to the prejudice of creditors, rather occasion a temporary damp -than a total destruction of their credit for the future. Such acts of -power, however, in critical circumstances, prove extremely hurtful; and -the advantage of a well established credit will, in all probability, -either open the eyes of that nation to their own interest, or bring -calamities upon them, which now appear little to be feared, in their -present situation. - -CHAP. V. This chapter contains a short sketch of the plan of public -credit, as carried on in Great Britain, from the end of the last -century, to the conclusion of the peace in 1763. I here enumerate the -principal operations, calculated for enlarging the fund of British -circulation, by engaging the bank of England to turn into money the -discredited bills and tallies of the exchequer. I have pointed out the -principle which circumscribes this power in the bank within certain -limits. I have traced the progress and fluctuations of the interest of -money; which have constantly been in proportion to the demand for -borrowing or lending in the market at the time. I have mentioned the -rise of the sinking fund, and the use which has been made of it. I have -endeavoured to explain the methods of borrowing by _premium_, and have -pointed out the inconvenience attending that plan, as long as the -principal view of diminishing a nation’s debt is confined to expedients -for lowering the interest of the capital. I have given a progressive -state of the augmentation of the debts of Great Britain at the end of -every war; to which I have subjoined a short state of the nation at the -last peace. - -I conclude my chapter, by assigning reasons for the present low state of -public credit in Great Britain; which has been principally owing to the -large sums of borrowed money invested in the funds before the peace, -upon the prospect of a sudden rise in their price, on the return of -public tranquillity. This rise would, undoubtedly, have happened, had it -not been obstructed by the necessity which the nominal stockholders were -put to, of bringing their funds to market, in order to answer the -demands of those from whom they had borrowed what they had invested in -stock: and until this operation be compleated, that is, until the funds -of Great Britain become vested in the real proprietors of them, the -state of public credit will constantly be undetermined. - -CHAP. VI. Having given a short sketch of the present state of public -credit in England, I endeavour, in this chapter, to extract, from the -best private authorities to which I could have access, a parallel view -of the affairs of France, so far as relates to its revenues, taxes, and -debts, at the peace 1763. - -By the revenue of France, I here understand, not only what comes clear -and nett into the King’s coffers, but also what is farther levied upon -his people. The parallel therefore will not hold between the revenue of -France and that of England, as represented in the preceeding chapter, -without attending to this difference. - -The nett revenue of England charged with all its debts and expence of -government, we have said to amount to 10 213 000_l._ The gross revenue -of France, on the other hand, appears to amount to 24 740 834_l._ -sterling. - -But if from this be deducted that part which never enters the royal -treasure, and which is expended in levying the revenue, and in -appropriations for particular perpetual expences, to the amount of 6 815 -111_l._ sterling, there will remain of net income, paid into the King’s -coffers, and charged with all the debts and expence of government, only -17 925 723_l._ sterling. - -If from this sum we deduct the total amount of the net revenue of Great -Britain, (10 213 000_l._ sterling) the remaining sum of 7 712 723_l._ -sterling, will shew the excess of the French revenue above that of -England. - -The foregoing sum of 17 925 723_l._ sterling, arises from the following -branches: - -1_mo_, Those which compose the King’s ordinary revenue; which, at the -peace 1763, amounted to 12 546 666_l._ sterling, burdened with the -payment of 2 022 222_l._ sterling of interest of the debts charged upon -it. - -2_do_, The extraordinary taxes established for a limited time, after the -peace of Aix-la-Chapelle. These amount to 2 326 133_l._ and are totally -appropriated for the payment of capitals, and interest upon them, -incurred during the late wars, according to the principles of public -credit in practice in England, during the reign of K. William and Q. -Anne: and so soon as this fund has cleared the charges upon it, it is to -cease, being no permanent branch of revenue. - -3_tio_, The extraordinary revenue raised on account of the last war. -This amounts to 3 052 923_l._ sterling, and consists of the second and -third twentieth penny, granted for a very limited time, and -appropriated, as the former branch, for discharging the debts lately -contracted. The sum of these three branches made the total of the 17 925 -723_l._ paid in to the King’s treasury, and burdened with all the public -debts. - -If we therefore suppose the two last branches of French revenue to be -continued until all the debts charged upon them are paid, then we shall -find the state of that kingdom reduced to the King’s ordinary revenue of -12 546 666_l._; from which however must be deduced at least one half of -the capitation. This half amounts to 1 182 222_l._ sterling, and is so -burdensome, that its continuance will be impossible. The revenue -therefore will be reduced to 11 364 444_l._ sterling, charged with 2 022 -454_l._ sterling, interest of debts; of which indeed 711 111_l._ are -annuities upon lives, and must therefore be extinguished in time. - -According to this view, the revenue of France will be 11 364 444_l._ -sterling, charged with the annual payment of 2 022 222_l._ interest of -debts: and the revenue of Great Britain is 10 213 000_l._ charged with -the annual sum of 4 860 000_l._ interest of debts. - -What remains free for France is 9 342 222_l._ sterling; and for England, -5 353 000_l._ - -But out of this free revenue of France must be deducted the permanent -articles of expence charged upon the ordinary revenue, exclusive of the -interest of debts already deducted. These articles amount to the sum of -8 468 889_l._ which being deducted from 9 342 222_l._ leaves a free -balance of no more than 873 333_l._ - -On the other hand, if we suppose the net amount of the revenue of Great -Britain, after paying the interest of its debts, to be, as above, 5 353 -000_l._; and if the expence of the current service of the year, -including the civil list, be supposed to amount to 4 800 000_l._ -sterling, as it nearly did, before the commencement of last war, there -will remain of free balance 533 000_l._[54] - -Footnote 54: - - But if the current annual expence should not exceed 3 600 000_l._ or 4 - 400 000_l._ including the civil list, which is nearly the present - estimate, we may then add 400 000_l._ to the free balance, and state - it at 950 000_l._ in round numbers. - -From all which we may conclude, that, abstracting from extraordinary -supplies for extraordinary exigencies, the revenue of both nations is -pretty nearly in proportion to their current expence; and, therefore, -their respective powers, when engaged in war, will be in proportion to -their credit at the time. - -CHAP. VII. In comparing the credit of the two nations, two things enter -into consideration. First, the confidence of the world, in the solidity -of their respective public faith. This I take to be totally in favour of -the British nation. The second is, the solidity and extent of the funds, -which are to be provided in security of the sums to be borrowed upon -future emergencies. These resources, in France, we have seen to consist -in their dixiemes, vingtiemes, double capitation, and extraordinary -impositions upon the clergy, and other bodies politic; taxes so -burdensome in their nature, and so contrary to the spirit of the French -nation, that it is hardly possible they ever can be made so permanent as -to answer any other purpose than a short temporary appropriation. - -The true resources of France are confined to those taxes upon -consumption above enumerated, which do not enter into the ordinary -revenue, and which are now imposed and appropriated only for a time. -When these taxes become free, they may no doubt be rendered perpetual, -and appropriated for a future fund of credit. - -On the side of Great Britain, the case is different. The greatest part -of her revenue is already perpetual; and the only two branches of annual -grants, the land-tax and malt-duty, are not so excessively burdensome, -nor so repugnant to the genius of the people, as to render the raising -of them at all precarious. And were this nation once to adopt the system -of raising money, in time of peace, sufficient to defray the charges of -government, the sinking fund would prove a resource for the future, far -above any thing that France can boast of. - -CHAP. VIII. Having by this short sketch of the state of credit in Great -Britain and France, prepared a sort of canvass for our farther -reasoning, I proceed to apply principles to some combinations, which -might be formed concerning the consequences of an over-stretched credit. - -In proportion as credit is used for borrowing money to be sent abroad, -either a supply of currency must be provided for filling up the void, or -alienation, trade, industry, &c. must suffer a check. - -And even if money should be borrowed to be spent at home, an additional -quantity of it must be added to circulation; because this new expence of -the state will require it. - -Every fund of property may be converted into money, with the assistance -of credit, providing the statesman lends his hand to the operation: and -the fundamental principle for supporting credit of all kinds, is, to -provide every one with money who has property to pledge for it. - -When money is borrowed by a state, to be spent abroad, the loan must -either be made in coin, or in paper. If in the first, it is exported; -because coin is the money of the world: if in paper, it must either be -converted into coin, and exported, or it must be remitted by bills, -drawn upon countries, debtors to England, for example; or, in the last -place, it must be paid in the way of credit, by constituting England -debtor to the Continent for it. When it is paid by bills drawn upon -countries, debtors to England, then the consequence of such a loan is to -convert the balance of trade into a capital in the public funds. - -In whatever way money is borrowed by a state, whether from natives, or -foreigners, the consequences are the same. The operation of a favourable -balance of trade will transfer what is owing to foreigners in favour of -natives; and a wrong balance of trade will transfer the property of -natives to foreigners. - -If no check be put to the augmentation of public debts, if they be -allowed constantly to accumulate, and if the spirit of a nation can -patiently submit to the natural consequences of such a plan, it must end -in this, that all property, that is income, will be swallowed up by -taxes; and these will be transferred to the creditors, the state -retaining the administration of the revenue. - -The state, in that case, will always consider those who enjoy the -national income as the body of proprietors. This income will continue -the same, and the real proprietors will pay the taxes imposed; which may -be mortgaged again to a new set of men, who will retain the denomination -of creditors; until by swallowing up the former, they slip into their -places, and become the body of proprietors in their turn, and thus -perpetuate the circle. - -CHAP. IX. But as a thousand accidents may put an end to public credit, -before such intricate revolutions can be accomplished, the consequence -must be a bankruptcy. This may either happen by a deliberate act of -government, or from the natural consequences proceeding from an -over-stretched credit. - -I here endeavour to shew, that it is impossible to form a supposition of -circumstances, in which a deliberate act of bankruptcy can be a prudent -measure. The only end that could be proposed to be attained thereby, -would be, to relieve those who are oppressed by taxes. But a sudden -abolition of taxes would have the effect of ruining the landed interest, -as well as all the manufacturing classes. Sudden revolutions are -constantly pernicious; and no revolution can be so sudden as that of a -bankruptcy. If such a revolution should happen, from circumstances which -can neither be foreseen or prevented, the best expedient would still be, -to adhere, as much as possible, to the faith of public engagements; -because no expedient would be so productive of good consequences, in -such a calamitous situation. - -While the debts of a nation are due to its subjects, and while there -remains any balance due in favour of the nation, no increase of debts -can _necessarily_ bring on a bankruptcy. It is a contradiction to -suppose that a nation can become bankrupt to itself. But when, on the -general state of payments between a nation and the world, there is found -an annual balance due, which cannot be compensated either in the way of -payment, or in the way of credit, then indeed a bankruptcy becomes -unavoidable. - -From this reasoning we may conclude, that the method of determining the -exact extent of public credit, is to keep a watchful eye upon the -increase of debts due to foreigners, and to compare these with the -favourable balance upon the trade of the nation. When those debts and -this balance begin to draw near to an equality, if part of the capital -of the public debts be not immediately paid off, by an augmentation upon -public contributions, the infallible consequence will be a -state-bankruptcy. - -CHAP. X. The first requisite for contracting public debts, is to -establish a fund for fulfilling public engagements. This procures the -confidence of the lender. The next is, to establish an extensive plan of -credit at home, which may be sufficient at all times to keep circulation -full. - -When, from the effects of borrowing, too great sums are, from time to -time, drawn out of circulation, the void must speedily be filled up. If -this be neglected, taxes will not be paid, as has been often observed: -besides, if money be allowed to become too scarce, in proportion to the -demand for it, interest will rise, and borrowing will become -proportionally more burdensome to the state in general. - -Foreign expence frequently drains the fund of circulation at home: hence -a multitude of inconveniences arise. To prevent these, I suggest a new -scheme of borrowing, by opening subscriptions in foreign countries where -the interest is annually to be paid. This being to be remitted by the -country borrowing, a statesman may, with the greater ease, obviate the -inconveniences which might arise to circulation from such remittances. - -In this chapter, I endeavour to prove by new arguments and -illustrations, that national distress is more owing to a scanty -circulation, than to circumscribed property; and a statesman who -neglects to employ every method for keeping up the circulating -equivalent within the state he governs, to the full proportion of all -the uses found for it, fails in the most essential requisite for -promoting the prosperity of his people, and the establishment of his own -credit. - -Having pointed out the methods of contracting debts, I proceed to the -method of paying them. This may be accomplished in six different ways, -by the help of a sinking fund; which, - -1_mo_, May be applied annually, to the discharge of certain capitals, at -the option of the state. Or, - -2_do_, According to a certain rule, to determine the preference. - -3_tio_, By appropriating the fund, for the payment of a proportional -part of the whole outstanding capital. Or, - -4_to_, By reducing the interest of the capitals. Or, - -5_to_, By converting the whole of the capitals into determinate -annuities, proportionate to the extent of the sinking fund. Or, - -6_to_, By the means of lotteries, where the state may gain what -gamesters are willing to lose. - -I point out the advantages and inconveniences of every plan. The first -five expedients are too plain to require a recapitulation. The sixth -amounts briefly to a supposition, that the interest of the public debts -is brought, by a proper chain of administration, to a lower rate than in -any other part of Europe. In this situation, accidental circumstances -will occasion (as at present) fluctuations in the price of the stocks. -When they fall below par, let government open subscriptions for -lotteries, to be paid in stock at the market price. Subscriptions also -might be opened, and the old capitals might be received at the market -price, and constituted a-new at the current interest, with a small -premium above the rate at the time. By such means, the sum of the old -capitals would be reduced, and a small benefit would accrue to the -subscribers. Then, upon the rise of the stocks, the interest on these -subscriptions might be reduced again; from which a double benefit would -result; the price of stocks would be supported on one hand, and the -capitals of the public debts would be reduced on the other. - - - CHAP. XIV. - _Recapitulation of the Fifth Book._ - - - _Of Taxes._ - -INTROD. Having already explained the effect of taxes upon domestic -circulation; it now remains to investigate the principles by which they -are to be imposed on their proper objects. - -CHAP. I. I divide taxes into proportional, which affect consumption, or, -more properly, what may be called expence; cumulative, which affect -property; and personal, which consist in personal service. These I -explain by giving examples of each. - -CHAP. II. Proportional taxes may be so imposed as to affect almost every -expence of living; and as all expence should arise from income, not from -stock, the first principle of taxation, is, to confine all impositions -to income only: whatever affects a capital is oppressive and unjust. But -as in all expence there is alienation, although in all alienation -expence is not implied, the best method to avoid the mistake of taxing -stock instead of income, is, to impose the tax in such a manner as to -affect the consumers only; in which case, whoever buys to sell again -will draw the tax completely back. - -CHAP. III. In this chapter, I fully explain the operation of drawing -back proportional taxes. - -When the commodities charged with such taxes are either not consumed by -purchasers, or by the industrious classes, they are constantly drawn -back, except so far as the consumption made by the latter is an article -of superfluity. - -Hence I conclude, that the price of _labour_ is raised by proportional -taxes, in proportion to industry only, though the price of the -_commodity taxed_ be raised in proportion to the tax. Consequently, the -more taxes are found to increase the price of labour, the more we may -conclude in favour of the industry of the manufacturing classes: and the -more they bring into the exchequer, the more we may conclude in favour -of the ease and opulence of those who consume the objects of such taxes. - -CHAP. IV. The proper object of cumulative taxes, is the large -possessions of the higher classes of a people, which can bear a -diminution in favour of the state, without danger of encroaching upon -their necessary or easy subsistence. It is not so when they are laid -upon the lower classes; because these are either composed of the -industrious, or of beggars. The first should be enabled to draw back -from the rich, what they advance for the public service. The latter have -nothing to give; to tax them is but adding to their misery, without -relieving the wants of the state. - -The great advantages of proportional taxes over the cumulative, may be -reduced to three. - -1_mo_, The proportion between the tax and the object taxed is -determinate. - -2_do_, The proportion may be known to every body. - -3_tio_, The time of paying the tax is regular and gradual; because in -paying for the commodity you pay for the tax, and your liberty in buying -such commodities is unrestrained; consequently, the expence is supposed -to be in proportion to what your income can afford. Whereas in the -cumulative taxes, it is, first, hardly possible to preserve the -proportion between the tax and the ease of a person’s circumstances. In -the second place, it is impossible for the state to ascertain exactly -that proportion. And in the last place, the demand for the tax is made -at a time when people are often unprepared. - -CHAP. V. The principal inconveniences alleged against proportional -taxes, are, 1. That they raise prices: 2. Discourage consumption: and 3. -That they are oppressive and expensive in the collection. These -inconveniences are more apparent than real, as will appear from what -follows. - -1_mo_, A proportional tax, rightly imposed, and properly levied, will -undoubtedly raise the price of the objects taxed; but it will only -consequentially raise the price of the labour of the industrious man who -pays it; because he will draw it back in proportion only to his -diligence and frugality. - -The price of labour is _regulated_ by demand, and is _influenced_ only -by proportional taxes. - -2_do_, As to discouraging consumption, if taxes raise prices, this -circumstance proves the increase of consumption; because if consumption -were to diminish, taxes would not be paid, and prices would fall of -course, even to the detriment of the industrious. These are always the -consequences of proportional taxes, when wrong imposed. - -3_tio_, As to the expence and oppression in levying them, these -inconveniences are, in a great measure, in proportion to the disposition -of the people to defraud the public: for when they are fairly paid, and -honestly collected, proportional taxes are little more expensive, and -infinitely less oppressive than any other. I conclude my chapter by some -observations drawn from the practice of different countries, which point -out a method of avoiding both the oppression and the expence of levying -proportional taxes. - -CHAP. VI. All taxes are paid out of the circulating money of a country; -consequently, they cannot exceed a certain proportion of that sum. It is -not, therefore, from the value of the property, or the quantity of -consumption, that any one can form a guess of the probable amount of -taxes, so much as from the easy and expeditious circulation, which -facilitates alienation and sale. - -Were taxes, indeed, paid in kind, they might bear a proportion to fruits -and labour; but then they would diminish the fund of subsistence: -whereas they now draw a share of that quantity of money which circulates -through the hands of every individual. - -The great difference between cumulative and proportional taxes, consists -in this. That in the first, he who pays them cannot draw them back in -proportion to his industry; in the last, he may: but so far as any one -of an industrious class proves idle or extravagant, every proportional -tax will affect his daily profits, as every cumulative tax will affect -the income of a fund already acquired. This deduction of principles is -of great use in imposing taxes; because it points out the method of -giving to many cumulative taxes usually imposed on the lower classes, -all the advantages of those of the proportional kind. - -CHAP. VII. Taxes ought to be imposed for the benefit of the public, not -of private people: and while that object is fulfilled, taxes are -beneficial in every respect. When they are properly levied, they only -abridge unnecessary private expence: when they are properly applied by -the state, they advance improvement every where; and those who have -fortunes already acquired, will be brought to contribute to the ease of -the lower classes. - -Thus by the help of cumulative and proportional taxes, rightly imposed, -and rightly expended, circulation is greatly increased; industry is -advanced; the public good is augmented, not diminished; and the burden -of payments becomes so equally proportioned, as not to be felt in any -degree sufficient to overbalance the advantages resulting from the -general system. - -CHAP. VIII. Having said that cumulative taxes affect the income of funds -already acquired, I observe, that this income proceeds from moveable or -immoveable property. The first of which will constantly avoid the grasp -of every statesman who attempts to lay a tax upon it. Cumulative taxes, -therefore, if carried to their utmost extent, may absorb the whole -income of _immoveable property_; but of that only. - -Proportional taxes, again, have been said to affect the superfluity of -those who consume the objects of them; consequently, if every thing -which is consumed were first to suffer an alienation for money, a -proportional tax might be imposed upon it. - -The method, therefore, of carrying proportional taxes to their utmost -extent, is, to draw to market every thing consumable; and insensibly to -raise the tax upon it, so high as to absorb, as much as possible, the -whole superfluity of the consumers. - -Taxes being carried to that height, the state will become proprietors of -the whole income of the immoveable funds, and the industrious classes -alone will augment their wealth, in proportion to their frugality. - -From this general principle it appears, that for the establishment of -proportional taxes, consumption is requisite, together with alienation; -consequently, where alienation takes place without consumption, as in -the sale of lands, and other immoveable subjects, a proportional tax -cannot be, properly, imposed. And also where consumption takes place -without alienation, as when the fruits of the earth are consumed by -those who raise them, proportional taxes cannot, with any propriety, be -levied. Farther, - -As taxes do not bear a proportion to effects, but to circulation, it -follows, that they can only be raised, properly, upon alienation by -sale. Many examples however may be found of proportional taxes, imposed -in different countries, where neither sale or even alienation takes -place. These I observe to be the worst kind of proportional taxes, and -the most oppressive to those who pay them. - -From the principle that taxes are in proportion to circulation, and not -in proportion to consumption, we discover the reason why of old they -were so difficult to be raised. Consumption then went on as now, in many -respects, in proportion to the number of inhabitants; but circulation, -that is, alienation by sale, bore no proportion to it. - -The effect of every increase in circulation is to swell the amount of -taxes; and when they are extensively imposed in a country of industry, -the whole currency is thereby made to flow through the coffers of the -public, as the blood of the human body flows through the heart, and is -by that diffused through every member. - -CHAP. IX. I next examine the consequences of a total abolition of taxes, -the better to discover the effects which such an alteration would -produce, first, upon the prosperity of the whole community; and next, -upon that of the principal classes of inhabitants, which compose it. -These I reduce to three. - -1_mo_, Those who administer government, and who are maintained from the -amount of taxes. - -An abolition of them, with respect to this numerous class, would draw -consequences along with it, directly destructive to their interest; and, -consequently, prejudicial to that of all the industrious classes who -supply their consumption. - -2_do_, With respect to the second class, which I suppose to be composed -of the industrious part of the people, I observe, that an abolition of -taxes must proportionally imply a diminution of circulation; this would -produce a proportional diminution upon alienation; consequently, would -interrupt the industry of many, and thereby throw them into a hurtful -competition among themselves for subsistence. And as it has been proved, -that the industrious classes pay no taxes, as matters stand, providing -they be diligent and frugal, they consequently would _gain_ nothing, and -must _lose_ a great deal by the abolition of them. - -3_tio_, In the third class I comprehend those whom we have hitherto -considered as the opulent and idle consumers. Of this category the -proprietors of land form a considerable branch. They, we have said, draw -back no part, either of the cumulative or proportional taxes, which -affect them; but although they be deprived of that immediate -indemnification, competent to the industrious, they reap, in another -way, advantages which more than compensate all the burden laid upon -them. These proceed from the consequences of that spirit of industry -which is diffused over the whole people; in consequence of which, their -lands are improved, the produce of them is readily disposed of, and what -proves superfluous for domestic consumption meets with a ready market -abroad, and thereby supports the value of all productions within the -country. - -It may be asked, then, where the burden of taxes falls, since every -class of inhabitants seems to gain some advantage by them? - -I answer, that they imply no burden when rightly imposed. The -augmentation of industry, in consequence of the increase of circulation, -provides a fund of well employed time, which, converted into money, is -more than sufficient to pay all the taxes not immediately affecting the -income of solid property; and the constant improvement of this, in -consequence of the former, is more than sufficient to indemnify the -land-proprietors. - -Taxes, in this light, resemble the expence laid out upon new -establishments for improvement; because in their consequences they -augment the prosperity and ease of the whole people, not by being -levied, but by being properly applied, as is farther explained in the -next chapter. - -CHAP. X. Here I examine whether taxes be a spur to industry, as some -pretend. - -The doubt concerning this point has arisen from what daily experience -has shewn, that nations become industrious in proportion to the taxes -they pay. It is not very evident, that the _payment_ of a tax by any -person should enable him to discharge it with more facility, unless it -be from the profit he reaps in drawing it back from others, with an -additional profit to himself. But it is palpable that the amount of -taxes being properly _expended_ by a state, will increase circulation, -and give fresh encouragements to industry of every kind. - -I close this chapter with a short representation of the nature of -ancient and modern circulation, accompanied with observations upon their -respective effects in rendring mankind industrious. - -CHAP. XI. Of all cumulative taxes, that laid upon land-property produces -the greatest amount, with the least oppression to the contributors. This -leads me into a particular inquiry into the nature of the land-tax, as -it is established in Great Britain, and in France. - -To render a land-tax equal and easily born, the imposition ought to be -preceeded by a fair valuation of every article of revenue intended to be -taxed, and no other income but that proceeding from an immoveable fund -of property, ought to be affected by it. From this I am led to -disapprove of the method of assessment established in England by the -land-tax; and also of blending a tax upon solid property, with an equal -imposition upon personal estates, which we have shewn to be of a nature -incompatible with cumulative taxation. - -The defects of this kind of imposition in France (where it is called the -_taille_) are different. There the rents of lands, which are the proper -object of every land-tax, are frequently withdrawn from under the -influence of it, in consequence of the privileges enjoyed by the higher -classes, which are exempted from the _taille_. The consequence is, that -the French land-tax falls upon that part of the lower classes who are -employed in the cultivation of the soil. From this proceeds a double -inconvenience. - -If those who cultivate are proprietors, their portions are, commonly, -very small, and a land-tax which would be light to a considerable -proprietor, is quite intolerable to those who draw little more from -their portion than what is necessary for their own subsistence. If those -who cultivate are lessees to the more considerable proprietors, the -burden falls upon them independently of the land-rent, which ought -naturally to bear it. - -As a proof that this is a true representation of the matter, I review -the Marechal de Vauban’s scheme for new modelling the system of French -taxation: and from the intolerable oppression which would follow the -execution of it, we may judge of the present state of taxes in a nation -where that scheme was intended as a considerable alleviation of their -burden. - -Nothing but the establishment of industry and extensive credit, with a -substitution of proportional taxes, instead of the many cumulative ones, -imposed on the lower classes in France, can ever produce a facility in -paying the considerable impositions laid upon that nation. - -CHAP. XII. The most proper method of imposing a land-tax is, without -doubt, to confine the imposition to the rent of lands only, and to lay -it on in proportion to them. But how is it to be expected that ever such -a plan can take place in a nation where the proprietors of land govern -the state? In France, the power of the King has never been able to -establish a tax upon the rent of lands, for any longer duration than -that of a foreign war. In a neighbouring nation, it has now been -established for the greatest part of a century. Were it there to become -perpetual, it might be converted into a new domain, or it might prove a -fund for discharging, at once, a very great part of the national debt. - -When taxes are imposed, it is of great consequence to establish a right -administration of them. The easiest method for a state, is to give them -in farm; and this was the general practice every where, on the first -establishment of taxes. But here no general rule can be laid down. - -Cumulative taxes are better administred by commissioners, than let out -in farm. The operation of levying them is simple; but when they are -farmed, the lower classes of the people are apt to be oppressed. When -farms are properly established, an open management of them is absolutely -requisite: from this new improvements naturally arise, which give to the -farm almost every advantage of the management by commissioners. This -improvement is, to divide the profits upon the farm between the state -and the farmers: a plan put in execution in France not many years ago. - -No question whatever appears more difficult to resolve, than that of -ascertaining the fund out of which taxes ought to be paid. Through the -whole course of this inquiry, I have endeavoured to shew, that the real -fund of taxes is the money circulating among the inhabitants, either in -consequence of sale, or of payments. In order to expose this question in -a new light, I have commented upon two passages of Davenant, where he -estimates this fund from the quantity of national consumption. - -From this he is led to compute the yearly taxable expence of every man -in England at 8_l._ sterling; when perhaps the circulation of money -through the hands of many may not be twenty shillings: whereas, -according to my theory, it is these twenty shillings only that can be -laid under any taxation whatever. - -I thought this method of comparing the result of Davenant’s reasoning -with mine, might better serve to support the latter than any other I -could contrive. - -The last question proposed in this chapter is no more than a hint to -shew, that a proportional tax, laid upon meat and drink, is the most -proper equivalent for a land-tax; because those who purchase their -subsistence with money are, according to the principles of the first -book, those who consume that part of the fruits of the earth which is -equivalent to the land rent. If this be arbitrarily laid under an -imposition, by a pound rate, or otherwise, the proper drawback, if any -be allowed, should be from a tax laid upon those who consume that part -of the earth’s produce which belongs to the landlords. - -I have now concluded this inquiry, according to the plan I at first -proposed. It is the fruit of eighteen years close, though agreeable -application; interrupted only by many intervals of bad health, and many -strokes of adverse fortune. - -It never was, till lately, my intention to offer to the public, during -my life, what I had composed purely for my own instruction and -amusement. But upon comparing my sentiments in several points with those -of the generality of my friends, they have been found so widely -different, that I was thought in duty bound to my country, to submit -them to the criticism of the public. - -To this I have the more willingly submitted, as I thereby shall pursue -my first intention in taking my pen; which was, to clear up my ideas on -this subject. And since I can now draw no farther knowledge from my own -inquiries, I must expect it from the criticisms of those who may think -it worth their while to animadvert upon my notions. - - FINIS. - - A TABLE OF COINS, - - Shewing the Quantity of Fine Metal contained in them. - - The number of grains of fine metal in every coin is sought for in the - regulations of the mint of the country where it is coined, and is - expressed in the grains in use in that mint: from that weight it is - converted into those of other countries, according to the following - proportions: - - 3840 Troy-grains, 4676.35 Paris-grains, 5192.8 Holland-aces or grains, - and 4649.06 Colonia-grains, are supposed to be equal weights; and the - coins in the table are converted according to those proportions. - - Table of Coins, reduced to Grains of fine Metal, according to the Troy, Paris, Colonia, - and Holland-weights. - - ───────────────────────┬─────────────────────────────────┬───────────────────────────────── - │ Gold Coins │ Silver Coins. - ───────────────────────┼───────┬───────┬────────┬────────┼───────┬───────┬────────┬──────── - │Troy. │Paris. │Colonia.│Holland.│Troy. │Paris. │Colonia.│Holland. - ───────────────────────┴───────┴───────┴────────┴────────┴───────┴───────┴────────┴──────── - English Coins. - ───────────────────────┬───────┬───────┬────────┬────────┬───────┬───────┬────────┬──────── - 1 A Guinea by statute │118.651│ 144.46│ 143.65 │160.45 │ │ │ │ - 2 A Crown by statute │ │ │ │ │ 429.68│ 523.2 │ 520.2 │ 581. - 3 A Shilling by │ │ │ │ │ 85.935│ 104.65│ 104. │ 116.2 - statute │ │ │ │ │ │ │ │ - 4 A Silver Pound │ │ │ │ │1718.7 │2093. │2080.8 │2324.1 - sterling by │ │ │ │ │ │ │ │ - statute 1601 │ │ │ │ │ │ │ │ - 5 A Gold Pound │ 113. │ 137.61│ 136.8 │152.8 │ │ │ │ - sterling by │ │ │ │ │ │ │ │ - statute 1728 │ │ │ │ │ │ │ │ - 6 A Silver Pound │ │ │ │ │1639.38│1996.4 │1984.7 │2216. - sterling in │ │ │ │ │ │ │ │ - currency = 20⁄65 │ │ │ │ │ │ │ │ - lib. troy │ │ │ │ │ │ │ │ - 7 A Silver Pound │ 113. │ 137.61│ 136.8 │152.8 │1638.5 │1995.3 │1983.7 │2215.7 - sterl. at the │ │ │ │ │ │ │ │ - proportion of gold│ │ │ │ │ │ │ │ - to silver as 1 to │ │ │ │ │ │ │ │ - 14½ │ │ │ │ │ │ │ │ - 8 A Gold Pound │ 118.4 │ 144.18│ 143.34 │160.11 │1718.7 │2093. │2080.8 │2324.1 - sterling at the │ │ │ │ │ │ │ │ - same proportion of│ │ │ │ │ │ │ │ - 1 to 14½ │ │ │ │ │ │ │ │ - 9 A Pound sterling at │ 115.769│ 140.98│140.16 │156.55 │1678.6 │2041.2 │2032.2 │2269.9 - the mean │ │ │ │ │ │ │ │ - proportion in gold│ │ │ │ │ │ │ │ - and in silver │ │ │ │ │ │ │ │ - 10 A Shilling current =│ │ │ │ │ 81.961│ 97.8 │ 99. │ 110.82 - 1⁄65 of a pound │ │ │ │ │ │ │ │ - troy │ │ │ │ │ │ │ │ - 11 A Guinea in silver, │ │ │ │ │1804.6 │2197.6 │2184.8 │2440.3 - or 21 shillings │ │ │ │ │ │ │ │ - standard weight │ │ │ │ │ │ │ │ - 12 A Guinea at the │ │ │ │ │1720.4 │2095.1 │2082.8 │2326.4 - proportion of 1 to│ │ │ │ │ │ │ │ - 14½, worth in │ │ │ │ │ │ │ │ - silver │ │ │ │ │ │ │ │ - 13 A Pound troy, or 12 │5760. │7019.2 │6973.5 │7789.2 │ │ │ │ - ounces English │ │ │ │ │ │ │ │ - weight │ │ │ │ │ │ │ │ - ───────────────────────┴───────┴───────┴────────┴────────┴───────┴───────┴────────┴──────── - French Coins. - ───────────────────────┬───────┬───────┬────────┬────────┬───────┬───────┬────────┬──────── - 1 A Louis d’or │ 113.27│ 137.94│ 137.13 │ 153.17 │ │ │ │ - 2 A Crown of six │ │ │ │ │ 409.94│ 499.22│ 496.3 │ 554.3 - livres │ │ │ │ │ │ │ │ - 3 A Crown of three │ │ │ │ │ 204.97│ 249.61│ 248.15 │ 277.1 - ditto │ │ │ │ │ │ │ │ - 4 A Livre │ │ │ │ │ 68.34│ 83.23│ 82.74 │ 92.42 - 5 A Louis d’or, or 24 │ │ │ │ │1639.7 │1996.9 │1985.2 │2217.4 - livres in silver │ │ │ │ │ │ │ │ - 6 A Marc of Paris │3783.87│4608. │4581.1 │5116.9 │3783.87│4608. │4581.1 │5116.9 - weight, fine gold │ │ │ │ │ │ │ │ - or silver │ │ │ │ │ │ │ │ - 7 A Marc of gold coin │3398.3 │4138.5 │4114.3 │4593.4 │ │ │ │ - effective weight, │ │ │ │ │ │ │ │ - in fine │ │ │ │ │ │ │ │ - 8 A Marc of silver │ │ │ │ │3402.3 │4143.4 │4119.2 │4600.9 - coin effective │ │ │ │ │ │ │ │ - weight, in fine │ │ │ │ │ │ │ │ - ───────────────────────┴───────┴───────┴────────┴────────┴───────┴───────┴────────┴──────── - German Coins. - ───────────────────────┬───────┬───────┬────────┬────────┬───────┬───────┬────────┬──────── - 1 A Carolin legal │ 115.45│ 140.6 │ 139.78 │ 156.12 │ │ │ │ - weight │ │ │ │ │ │ │ │ - 2 A Ducat of the │ 52.8 │ 64.37│ 64. │ 71.48 │ │ │ │ - Empire ditto │ │ │ │ │ │ │ │ - 3 A Florin of │ │ │ │ │ 179.73│ 218.87│ 217.6 │ 243. - Convention │ │ │ │ │ │ │ │ - 4 A Dollar of │ │ │ │ │ 269.59│ 328.31│ 326.4 │ 364.5 - Convention │ │ │ │ │ │ │ │ - 5 A Dollar of │ 17.85│ 21.74│ 21.615 │24.14 │ │ │ │ - Exchange, the │ │ │ │ │ │ │ │ - Carolin = 9 flor. │ │ │ │ │ │ │ │ - 42 kreutzers │ │ │ │ │ │ │ │ - 6 A Florin current = │ 10.54│ 12.84│ 12.77 │14.26 │ │ │ │ - 1⁄11 of a Carolin │ │ │ │ │ │ │ │ - 7 A Carolin in silver │ │ │ │ │1674. │2038.6 │2026.8 │2263.8 - at the proportion │ │ │ │ │ │ │ │ - of 1 to 14½ │ │ │ │ │ │ │ │ - ───────────────────────┴───────┴───────┴────────┴────────┴───────┴───────┴────────┴──────── - Dutch Coins. - ───────────────────────┬───────┬───────┬────────┬────────┬───────┬───────┬────────┬──────── - 1 A Dutch Ducat │ 51.76│ 63. │ 62.67 │ 70. │ │ │ │ - 2 A Florin in silver │ │ │ │ │ 148. │ 180.3 │ 179.2 │ 200.21 - ───────────────────────┴───────┴───────┴────────┴────────┴───────┴───────┴────────┴──────── - - [The Binder is desired to place this TABLE before the Index in Vol. II. - and not to cut off the Margin, but to fold it.] - ------------------------------------------------------------------------- - - INDEX. - - N. B. For the analysis of the subject, see the Table of Contents - prefixed to each volume. - - A. - - _Agriculture_, the most essential requisite for population, Vol. I. p. - 21. 25. - The extension of, how to be regulated, _id._ 28. - When it may be said to be carried to its utmost extent, _id._ 82. - The difference between, when exercised as a trade, and when as the - direct means of subsistence, _id._ 88. - Remarks on the state of, in Spain, _id._ 89. - In Germany, _id.._ 91. - In England and France, _id._ 102. - In Scotland, _id._ 103. - Whether the efficient cause of the multiplication of mankind, or - their multiplication of agriculture, id. 114. - What species of, most advantageous to modern society, _id._ 127. - The natural distribution of, _id._ 139. - - _Agio of the bank of Amsterdam_, explained, II. 296. - - _Aides in the French taxes_, explained, II. 502. _n._ - - _America_, the alterations in the modes of government in Europe, - occasioned by the discovery of, I. 10. 51. - - _Amsterdam_, remarks relative to the bank of, II. 56. - Original intention of the bank there, _id._ 292. - Principles of circulation through it, _id._ 298. - Its credit compared with the bank of England, _id._ 308. - Dangers to which it is liable, _id._ _ib._ - - _Animal food_, detrimental to population, I. 117. - - _Animals_, their numbers in all countries proportioned to the quantity - of food produced for them, I. 18. - This proposition illustrated in mankind, _id._ 19. 113. - - _Anne_, Queen, state of the revenue of England at her accession, II. - 381. - - _Antients_, their simplicity of manners, how compatible with a great - multiplication, I. 152. - - _Arbitrary power_, its influence on trade, I. 244. - - _Army_, regular, the necessity of, in an industrious state, argued, I. - 136. - - _Army_, how to raise a supply of men for, without having recourse to - the hiring foreign troops, I. 450. - - _Athenians_, Xenophon’s plan for the proper employment of, I. 460. - - _Athens_, surprizing quick reduction of its wealth, I. 438. - - B. - - _Balance between nations_, the nature of, in a commercial view, - explained, II. 334. - Hints for the payment of, without the intervention of coin or - bullion, _id._ 344. - - _Balance of power_, the nature of, inquired into, I. 448. - - _Balance of trade_, what, II. 21. - Reflections relating to, I. 416. - Whether any judgment can be formed concerning it, barely from the - quantity of specie found in a nation, I. 429. - Whether the state of specie furnishes any rule to judge of it, _id._ - 435. - A wrong one raises the price of bullion to the value of coin, II. 5. - Between England and France, the state of, how to be discovered, _id._ - 18. - How the payment of a wrong one affects circulation, _id._ 169. - - _Bank_, whether landed men might not as well issue their own notes on - their landed security, as apply there, II. 131. - - _Banks_, the two general classes of, II. 146. - Of circulation, what, _id._ 150. - How a good one may be obliged to stop payment, _id._ 152. - On what the solidity of it depends, _id._ 153. - On what kind of credit such banks ought to issue their notes, _id._ - _ib._ - How their obligation to pay in coin arose, and the consequences of - that obligation, _id._ 157. - How affected by a wrong balance of trade, _id._ 161. - How a grand balance may be paid by, without the assistance of coin, - _id._ 162. - How hurt by leaving the payment of a wrong balance to exchangers, - _id._ 165. - Upon what principles they ought to borrow abroad, and give credit at - home, _id._ 178. - Of Edinburgh, hints for the advantage of, _id._ 187. - How they may be enabled to discharge notes on demand, _id._ 200, 213. - Subaltern, and their competition with each other, II. 202. - National, necessary regulations for, proposed, II. 205. - When, and in what case, they shall be obliged to keep open books, - _id._ 208. - Whether it is their interest to grant credit and cash accounts to - exchangers and others, and to make a trade of sending the coin out - of the country, _id._ 211. - How by the return of a favourable balance, the debts of foreigners - may be paid off, and the nation delivered from that burden, _id._ - 218. - Dangerous to an idle nation, _id._ 232. - Of the first establishment of that of Mr. Law, _id._ 235. - The Royal Missisippi, _id._ 243. - - _Bank of Amsterdam_, original intention of, II. 292. - The principle of its circulation of coin explained, _id._ 298. - - _Bank of England_, the interest of, examined, I. 629. - State of, II. 158. - Its situation in the year 1745, _id._ 176. - Its principal operations traced, _id._ 220. - Its circulation with the exchequer explained, II. 225. - Hints for the advantage of, proposed, _id._ 229. - How the paper of, tends to supply circulation, _id._ 233. - Its credit compared with that of the bank of Amsterdam, _id._ 308. - - _Banks of deposit and transfer_, II. 291. - - _Bank notes_, the nature of, explained, II. 151. - Of the optional clauses contained in, _id._ 195. - - _Bankers and exchangers_, subaltern ones, the use of, II. 154. - - _Banking_, that branch of credit best deserving the attention of a - statesman, II. 149. - The nature of, in Scotland, _id._ 155. - - _Bankruptcies_, national, how occasioned, II. 456. - The natural consequences of, traced, _id._ 457. - As supposed to take place by a concerted act of power, _id._ 458. - The supposition of a nation becoming bankrupt to itself inconsistent, - _id._ 462. - - _Barter_, the first species of trade, I. 175. - - _Beer_, remarks on the late additional duty on, II. 512. - - _Belloni_, Mr. mistakes of, pointed out, with respect to estimating the - exportation of commodities of a particular country, by the quantity - of money found in it, I. 430. - - _Bills of mortality_, plan for the improvement of, I. 72. - - _Birmingham_, no silver coin counterfeited there, II. 99. _note._ - - _Brakenridge_, Dr. his account of the state of population in Great - Britain, I. 95. - Remarks on, _id._ 97. - - _Bread_, the price of, how limited in the greatest famine, I. 397. - - _Britain, Great_, remarks on the state of population in, I. 95. - By what means her credit is supported, II. 107. - Short state of its present taxes, debts, and funds, _id._ 398. - Compared with those of France, _id._ 438. - - _Bullion_, how the price of, is regulated, I. 564. II. 20. - Why dearer in England than in France, _id._ 14. - The advantages of this to France, _id._ _ib._ Brought to the mint, - when trade is favourable, _id._ 35. - The causes of its rise and fall in the English market explained, II. - 332. - - _Buyers and sellers_, the interest of, examined, I. 628. - - C. - - _Canada_, the principles of the European trade to, inquired into, I. - 186. - - _Cantillon_, Mr. his remark on the course of exchange between London - and Paris, II. 17. - - _Capet_, Hugh, the nature of his jurisdiction compared with that of a - king of Poland, I. 240. - - _Charity_, modern, shewn to be impolitic, I. 467. - - _Child_, remarks on that position of his, that the legislature can keep - down the rate of interest to the level most advantageous for trade, - II. 122. - - _Circulation_, in a political sense, explained, I. 374. - Illustrated by a party at quadrille, _id._ 375. - How to be excited, _id._ 378. - Illustrated, _id._ 381. - When it should be checked, _id._ 384. - Foreign and domestic, to be distinguished, _id._ 389. - How affected by the payment of a wrong balance of trade, II. 170. - Comparative inquiry into the state of, among the ancients and - moderns, II. 558. - - _Cities_, the growth of, accounted for, I. 48. - Described as under a feudal government, _id._ 51. - In what respects advantageous to a country, _id._ 55. - See _Corporations_. - - _Classes of mankind_, the advantages of calculations and bills of - mortality distinguishing them, I. 72. - - _Coin_, new regulations for, proposed, I. 634. - The term defined, II. 46. - What the best form to be given to it, _id._ 67. - Difference between, and medals, _id._ 67. - Gold, silver, and copper, remarks on, _id._ 68. - Never found to exceed the uses of circulation, _id._ 112. - How the obligation of banks to pay in, arose, and the consequences of - that obligation, _id._ 157. - French, account of its variation about the time of the death of Louis - XIV. _id._ 236. - See _Money_. - - Coinage, duty on, II. 2. - Its first introduction must reduce the prices of commodities, _id._ - 3. - Consequences of the exclusive privilege of, _id._ 4. - The price of, in France, _id._ 17. - How the paying for, affects the profits on goods exported, _id._ 26. - How it affects the profits on goods imported, _id._ 28. - How it influences the prices of inland commodities, II. 33. - Experiment in, proposed, _id._ 39. - How the imposition of, will affect the creditors of Great Britain, - _id._ 53. - How it advances the credit of France, _id._ 54. - Whether the imposition of, in England, would not frequently stop the - mint, _id._ 57. - When adviseable to impose a duty on, _id._ 29. - How imposed, _id._ 30. - By authority, _id._ 31. - By consent, _id._ ib. - The consequences, _id._ _ib._ _id._ 34. - - _Colbert_, Mr. remarks on, I. 67. - - _Commerce_, an examination of the various principles by which it is - regulated, I. 191. - - _Commodities_, in trade, what considerations enter into the fixing - prices on them, I. 182. - Consumable, distinguished from permanent property, _id._ 361. - By what the prices of them are regulated, _id._ 528. - - _Companies_, mercantile, an inquiry into the advantages and - disadvantages of, I. 471. - - _Competition_, its effect on trade, I. 196. - Three questions relative to, _id._ 200. - Among nations, its operation, _id._ 232. - Among workmen, the nature of, examined, _id._ 317. - - _Conquerors_, why the government of, heavy to be borne, I. 10. - - _Consumers and producers_, their relation to each other, and the - political balance between, considered, I. 264. - - _Consumption of productions of the earth_, the question whether a - frugal or prodigal one, be for the advantage of population, argued, - I. 141. - - _Corn_, difference between the price of it being lowered by plenty, and - by importation, I. 292. - Expedient proposed to assist a people during a scarcity of, _id._ - 294. - - _Corn trade_, general reflexions on, I. 214. - On exportation and importation of, _id._ 230. - - _Corporations_, reflexions on, I. 331. - Whether checks upon industry, _id._ 332. - Regulations of German ones, _id._ 333. - - _Corsicans_, the real state of their contest with Genoa, I. 419. - - _Corvée_, in the French revenue, what, II. 485. _n._ - - _Country_, the love of, in individuals, how to be understood, I. 164. - - _Courage_, where likely and where unlikely to be found, I. 452. - - _Credit_, a definition of, II. 105. - Why seldom found perfectly solid, under a pure monarchy, _id._ 106. - Why that of France is so fluctuating, _id._ 106. - Why that of Great Britain so well established, _id._ 107. - Not yet fixed upon true principles, _id._ 130. - The various kinds of, _id._ 141. - Their characteristic differences, _id._ 143. - The nature of, examined into, I. 365. - Its commercial advantages, _id._ 366. - Public, how the internal balance of wealth is affected by it, _id._ - 370. - - _Credit_, public, brief sketch of the birth and progress of, I. 208. - The utmost extent of, how to be determined, II. 463. - The rise and fall of, explained, _id._ 351. - Of anticipations, or borrowing money upon assignments of taxes, for - the discharge of principal and interest, _id._ 354. - Of France, state of, before the death of Louis XIV. _id._ 367. - A comparison between that of France and England, in the times of - Richlieu and Davenant, _id._ 377. - Of Great Britain, the present state of, _id._ 380. - - _Credit_, private, the subdivisions of, II. 144. - How to carry, to its greatest extent, _id._ 145. - - _Credit_, debts and taxes, consequences of the change produced in the - policy of industrious trading states, by the establishment of, II. - 441. - - _Creditors_, the interest of, always the predominant, and what - determines the interest of a nation, I. 611. - Public, the interest of, examined, _id._ 625. - - _Cumulative tax_, the term defined, II. 500. - See _Tax_. - - _Crop_, plentiful, of Grain in England, inquiry what proportion it - bears to the annual consumption, I. 109. - Difference between a reputed good and bad one, _id._ 112. - - D. - - _Davenant_, Dr. his correction of Sir William Petty’s computations, I. - 42. - His scheme for land and poll taxes to raise the government supplies, - inquiry into the expediency of, II. 362. - His reasons for recommending the farming of taxes, _id._ 581. - - _Debts_, public, the various consequences of, II. 348. - The methods of contracting and paying off, _id._ 465. - The two classes of, _id._ 473. - The consequence which would result from an immediate discharge of - them, _id._ 474. - Of England, at the peace of Ryswick, what, _id._ 360. - Progress of, traced, _id._ 381. - - _Demand_, a definition of that word, in a commercial view, I. 172. - High, and great, distinguished, _id._ 188. - Distinguished from competition, _id._ 197, 487. - The different acceptations of that word enumerated, _id._ 484. - - _Demand_ and work, an inquiry into the causes which influence an - alteration of the balance between, I. 217. - The duty of a statesman to assist and permit gentle vibrations - between, id. 229. - - _Democracy_, how it differs from monarchy, I. 242. - How they affect trade respectively, _id._ 243. - - _Dependance_, in society, three kinds of, distinguished, I. 238. - On courts, the principles on which it subsists, analized, _id._ 357. - - _Depopulation_, the most effectual causes of, I. 108. - - _Desertion_, among soldiers, the cause of, pointed out, I. 136. - - _Diseases_, political, certain sign of, I. 69. - - _Dissipation_, the benefits of, to industry, I. 367. - - _Ducats_, examination of the new regulation of, in Holland, I. 612. - - _Dutot_, M. his sentiments on paper credit with reference to the - affairs of France, II. 241, 245. - - E. - - _Edinburgh_, hints for the improvement of the banks there, II. 187. - - _England_, the idleness and luxury of manufacturers, of more prejudice - to its foreign trade, than the high taxes, II. 504. - - _England or France_, which the most populous, I. 102. - - _Equality of possessions in a state_, the consequences of, examined - into, I. 367. - - _Estate_, the difference between one near the metropolis, and one in a - remote province, I. 55. - - _Evil_, no such thing in the universe, I. 482. _n._ - - _Europe_, the great revolution in the political system of, and the - cause to which it is owing, I. 10. - - _Excess_, import of that term, I. 308. - Distinguished from sensuality and luxury, _id._ 311. - - _Exchange_, the best measure for valuing currency, I. 570. - How the course of it is regulated, II. 13, 21. - Whether the loss which the course of it marks on the trade of Great - Britain with France, be real or apparent, _id._ 25. - The first principles of, _id._ 310. - The difficulties which occur in paying balances, _id._ 315. - How these payments are effected, _id._ 332. - The operations of, between London and Paris, _id._ 335. - - _Exchequer_, its circulation with the bank, explained, II. 225. - - _Excise_, the accounts of, how settled between the exchequer and the - bank, II. 226. - When it first took place, _id._ 362. - Its effects at that time, _id._ _ib._ In what the oppression of - levying consists, _id._ 511. - Defect of, and the ill effects arising, _id._ 512. - Hints for remedying, _id._ 515. - - _Expence_, the word defined, and the senses in which it is used, - distinguished, I. 205. - - _Exportation_, the proper means of encouraging, I. 283. - Reflections on premiums for, _id._ 297. - What the most profitable branches of, _id._ 341. - The proper conduct when that of a nation is reduced to the articles - of natural produce, _id._ 343. - Why those manufacturers who work for, the poorest of those in a - state, II. 10. - Theory of the prices on articles of, _id._ 11. - - F. - - _Fall of man_, consequences of, shewn, I. 455. _n._ - Conclusions drawn, on the supposition that it had not taken place, - _id._ _ib._ - - _Feudal system of government_, how departed from in the present forms, - I. 10. - Why taxes so little found under, _id._ 501. - Subordination of the different ranks under, how founded, _id._ 240. - Its influence on trade, _id._ 245. - - _Feudal governments_, three remarkable stages, through which they have - changed to the present forms, I. 356. - - _Fisheries_, hints for the proper establishment of, I. 480. - - _Fleuri_, Cardinal, his experiment to fix the par of exchange, II. 340. - - _Foreign ministers_, political hint, as to their accommodations in the - countries where they are sent to reside, I. 420. - - _Forestalling_, why a crime, I. 200. - - _Forests_, whether extended by an increase in the consumption of - firewood, I. 145. - - _Foundling_ hospitals recommended, I. 75. - - _Foundlings_, opportunity for providing for, pointed out, I. 287. - - _Fourage_, in the French taxes, what, II. 496. _n._ - - _France_, reflections on the state of agriculture in, I. 141. - The progress of luxury in, compatible with the prosperity of her - foreign trade, _ib._ 288. - The principle on which the raising and sinking of the numerary value - of the coin there in former times is accounted for, _ib._ 612. - The policy of, with regard to its coin, why not easily understood, - II. 32. - Remarks on the currency of its coin, _id._ 58. - Regulations of, with regard to coin, bullion, and plate, _id._ 70. - Price of coinage there upon silver, _id._ 71. - Ditto upon gold, _id._ 72. - Proportion between a French grain weight to a grain troy, _id._ 73. - Proportion between the louis and the guinea, _id._ 74. - Advantages of the French regulations, _id._ 75. - High price of bullion at Paris in 1760, _id._ 76. - Present state of the wearing of the French silver coin, _id._ 77. - Fluctuations of credit in, _id._ 106. - Chronological anecdotes of banking there, _id._ 250. - How its credit was destroyed in 1720, _id._ 284. - How a bank may even now be safely established there, _id._ 289. - State of their debts, funds, and appropriations, at the peace of - 1763, _id._ 403. - Extent of annual supplies of, from 1756 to 1762, _id._ 420. - Courts of justice in, how rendered oppressive, _id._ 432. - Method of levying the taxes in, _id._ 437. - The nature of the taxes imposed there, explained, _id._ 496, 501. - - _France and England_, which the most populous, I. 102. - - _Free_ gifts in France, as imposed in 1759, II. 419. _n._ - - _Freedom_ of a people, in what it consists, I. 237. - - _Frugality_, the proper means of preventing the ill effects of, when it - takes place in a luxurious state, I. 281. - - _Fund_, sinking, the first foundation of, II. 385. - - G. - - _Gabelle_, in the French taxes, explained, II. 501, _n._ - - _Gardens_, kitchen, why most frequently found in the neighbourhood of - cities, I. 139. - - _Gee_, Mr. remarks on his observations on the balance of the English - trade, I. 431. - - _Germany_, Remarks on the state of agriculture in, I. 91. - - _Governing_, in what the art of, consists, I. 12. - - _Government_, the republican form of, most favourable to trade and - industry, I. 242. - - _Grain_, inquiry into what proportion a plentiful crop of, in England, - bears to the current annual consumption, I. 109. - Inquiry into the difference between a plentiful year and a year of - scarcity, _id._ 113. - The price of, regulated by the abilities of the lowest class of - people to purchase it, _id._ 401. - The good effects which would result from preserving the price at some - uniform standard, II. 509. - - _Greece_, antient, remark on the disproportion between the prices of - necessaries, and elegances in, I. 403. - Accounted for, _id._ 439. - Its treasures supposed equal to the mines of the new world, _id._ - 437. - - _Guinea and louis_, proportion between, II. 74. - - _Guineas_, an examination into the consequences of bringing down their - currency to twenty shillings, I. 583. - - H. - - _Harris_, examination of a passage in, concerning coin, I. 609. - - _Helots_, their cruel treatment under the Spartan government, I. 254. - - _Henry_ VII. wise regulation of, for the preservation of bullion, II. - 327. - - _Holland_, the principles of its constitution inquired into, I. 214. - Regulations observed in, with regard to coin and bullion, II. 78. - Regulations of the Dutch mint, _id._ 79. - How they reckon their silver standard, _id._ _ib._ - Mint price of fine silver, _id._ 80. - Price of coinage there, _id._ _ib._ - Of the Dutch gold coins, _id._ _ib._ - Mint price of fine Gold, _id._ 81. - Price of coinage upon ducats, _id._ 82. - The rider, _id._ _ib._ - Utility of not fixing the denomination of ducats, _id._ 83. - How to find the proportion of the metals in the coin of Holland, and - a wonderful phænomenon in the value of ducats, _id._ 84. - Quantity of fine silver in a florin piece, _id._ 85. - Quantity of fine gold in a florin of riders, _id._ _ib._ - Investigation of the proportion as to the ducat, _id._ _ib._ - Proportion between the mint weights of Holland, England, France, and - Germany, _id._ 87. - Defects of the silver currency of Holland, _id._ 91. - Frauds of money-jobbers there, _id._ 94. - Reason of the apparent scarcity of silver coin there, _id._ 96. - The great multiplication of taxes there, _id._ 529. - _Horses_, whether the keeping a superfluous number in large cities, a - public disadvantage, I. 145. - _Hume_, Mr. examination of his doctrine concerning the influence of - riches on the price of commodities, I. 398. - Concerning the balance of trade, _id._ 416. - - J. - - _Jacob_ the patriarch, an idea of primitive society, borrowed from the - history of him and his family, I. 23. - _Janizaries, Turkish_, and the Pretorian cohorts of Rome, parallel - between, I. 247. - _Idle_ persons, the multiplication of, a load on society, I. 61. - _Jews_, their law relating to interest, II. 112. - The only money-lenders in Europe, until a commercial system - prevailed, _id._ 113. - _Imitation_, influence of the taste for, I. 280. - _Indies_, account of the French company of, II. 247. - Its revenue, _id._ 257. - _Industrie_, in the French taxes, explained, II. 496. _n._ - Remarks on this tax, _id._ 498. - _Industry_, an inquiry into the effects of, I. 133. - a definition of, _id._ 166. - Distinguished from labour, _id. ib._ - Why difficult to introduce in a country where slavery is established, - _id._ 167. - Whether the cause or the effect of trade, _id._ 170. - How it is stimulated, _id._ 193. - The difference between the progress of, in antient and modern times, - accounted for, _id._ 193. - Brief sketch of the progress and revolutions of, _id._ 207. - A strong argument for a general exercise of, _id._ 210. - The means of extending liberty to the lowest denominations of a - people, _id._ 218. - Flourishes best under a republican government, _id._ 242. - Excluded by the system of Lycurgus, _id._ 258. - The revolution it produces in the wealth of a nation, pointed out, - _id._ 452. - The proper direction of, hinted, _id._ 457. - In what instance it destroys simplicity of manners, _id._ 459. - Antient and modern, the difference of, shewn, I. 462. - See _Industrie_. - - _Inhabitants_, an examination into that maxim which asserts the number - of, to be the riches of a country or state, I. 60. - - _Innovations_, inconveniences attending, I. 632. - - _Interest_, private, the proper spring of action in the individuals of - a well governed state, I. 164. - - _Interest of money_, how permitted under the Mosaic dispensation, II. - 112. - When it obtained in Europe, _id._ 113. - Upon what principles the rate of, is regulated, _id._ 115. - No statute for regulating in England, before the time of Henry VIII. - _id._ 116. - Different classes of borrowers, _id._ 117. - Extortions in, how prevented, _id._ 118. - Whether in the power of the legislature to command the rate of, _id._ - 122. - The lowering of, the rise of land, _id._ 123. - Proper conduct of a statesman in relation to, _id._ 124. - Probable consequences of reducing it below the level of the stocks, - _id._ 125. - A low rate most essential to states carrying on the most extensive - foreign commerce, _id._ 129. - Whether the rate of, a sure barometer of the state of commerce, _id._ - 135. - Whether it falls in proportion to the increase of wealth, _id._ 139. - How affected by the manners of a people, _id._ _ib._ - _Ireland_, the causes which influenced Great Britain to open her ports - for the importation of provisions from, I. 231. - _Island_, the progress of society illustrated, in a supposed one, I. - 128. - - K. - - _Kings_, their rights not founded on tacit contracts between them and - their people, I. 240. - In the old feudal systems, more formidable abroad than at home, _id._ - 356. - Compared with the domestic influence of those under the present - commercial systems, _id._ _ib._ - - L. - - _Labour_, the different obligations to, in antient and modern times, I. - 59. - How the methods of, are to be improved, _id._ 193. - _Land_, the disproportion between the rents of arable and pasture, - accounted for, I. 43. - What the general raising of rents of land may be supposed to - indicate, _id._ 45. - Considerations on the taxes on, II. 561. - No regular valuation of, made, since doomsday book, _id._ 564. - The tax on, how levied in England, _id._ 565. - What the most proper method of imposing a tax on, _id._ 577. - _Landed interest_, examination into, I. 622. - _Landed men_, inquiry whether they might not issue their own notes on - the security of their land, without the intervention of a bank, II. - 131. - _Landed property_, the inconvenience of minute subdivisions of, I. 85. - Inquiry into the expediency of the equal distribution of, _id._ 124. - _Landholder and stockholder_, how comparatively affected by taxation, - II. 448. - _Land tax in Scotland_, defect in, II. 497. - _Law_, Mr. account of the establishment of his bank, II. 235, 239. - _Laws_, none really invariable, in any government, I. 7. - _Levity_, remarks on the influence of, in luxury, I. 280. - _Liberty_, public, in what it is understood to consist, I. 237. - Capable of subsisting under despotic forms of government, _id._ _ib._ - _Liberty_, universal, established in Europe, and the consequences of, - I. 70. - _Linen manufacture_, by what means it has been augmented in Scotland - and Ireland, I. 86. - _Loans upon interest_, if deemed unlawful in a religious view, - expedient to avoid, I. 370. - _Locke_, Mr. mistake of, corrected, in relation to a proposed - alteration of silver coinage, I. 554, 602. - _Lotteries_, the advantage of, to the government, II. 400. _n._ - When only proper to be used for paying of public debts, _id._ 479. - _Lowndes_, Mr. examination into the present propriety of his scheme for - regulating the coin in 1695, I. 602. - _Luxury_, the term defined, I. 31, 307. - The parent of public distress, _ib._ 212. - In what instance to be encouraged, _ib._ 263. - This farther explained, _id._ 276. - How to be effected, _id._ 277. - Changes in the modes of, ever distressing to manufacturers, _id._ - 280. - Political improvement of this circumstance, _id._ _ib._ - The interests affected by, _id._ 307. - The mind, _id._ 308. - The body, _id._ 309. - The fortune, _id._ _ib._ - The state, _id._ _ib._ - Its different effects on different antient nations, remarked, and - accounted for, _id._ 324. - Its effects in modern times, _id._ 325. - Prejudicial to courage, _id._ 452. - Modern, the cause of, hinted, _id._ 462. - _Lycurgus_, the tendency of his laws to encourage population, shewn, - I. 70. - Why there was no industry in his republic, _id._ 193. - His republic the most perfect plan of political œconomy, _id._ 250. - His laws transmitted by tradition only, _id._ 251. - The sanction he obtained for them, _id._ _ib._ - His regulation of property, _id._ 252. - Cloathing, _id._ 253. - The cruel treatment of the helots, _id._ 254. - His plan of education, _id._ 255. - Remarks on the austerity of his institutions, _id._ 256. - His care to guard against the Spartans having an intercourse with - foreign nations, _id._ 257. - Conclusions drawn from a supposed adoption of his system by any - modern nation, _id._ 259. - - M. - - _Machines_, the introduction of, into manufactures, whether hurtful or - beneficial to a date, I. 119, 295. - _Mankind_, in what respect alike in all ages, I. 6. - The distribution of their residence in a country, how determined, - _id._ 46. - Their number in a free country, in the _ratio_ of their food, _id._ - 113. - _Manners of a people_, national peculiarities in, noticed, I. 8. - The simplicity of, how it affects population, I. 36. - _Manufactures_, the principles which determine the residence of, I. 49. - Their flourishing or decaying in particular places, accounted for, - _id._ 182. - The proper method of lowering the prices of, to render them vendible - at foreign markets, _id._ 283. - Why particular ones cannot be furnished so cheap at home, as by other - countries, _id._ 284. - The importance of their being properly situated, _id._ 289. - _Manufacturers_, why those who work for exportation are the poorest, - II. 10. - More hurt by their own idleness and extravagance than by taxes, _id._ - 505. - _Markets_, public, their great use in trade, I. 180. - _Marriage_, political considerations on, I. 71. - _Master_, his right to share in the profits of his journeymen, proved, - I. 318. - _Maxims_, general ones, the danger of adopting, I. 60. - _Medals and coin_, the difference between, II. 68. - _Megens_, Mr. his sentiments concerning the coin of the bank of - England, II. 158. - _Melon_, M. de, his remark on the proper qualifications of a statesman, - I. 377. - _Merchant_, observations on the profession of, I. 177. - _Metal_, the term defined, II. 46. - Why a scale of value realized in, can never be exact, _ib._ _id._ 54. - How the proportion of those in coin, is kept nearly the same in all - European markets, _id._ 62. - Why this proportion so different between Europe and Asia, _id._ 63. - How to determine the true intrinsic value of those in which a balance - to foreign nations is to be paid, _id._ 316. - How to remove the inconveniences which occur in such payments, _id._ - 325. - _Metropolis_, the growth of, accounted for, I. 48. - A large one, whether disadvantageous to a country, _id._ 52. - _Militia_, reflections on, I. 136. - _Mind_, the effects of luxurious gratifications on, I. 308. - _Minot_, a French measure, what, II. 576, _n._ - _Mint_, French unit of weight in, II. 70. - Weights of Holland, England, France, and Germany, proportion among, - _id._ 87. - _Missisippi bank of France_, account of the establishment of, II. 243, - 252, 265. - Inquiry into the motives for its plan, _id._ 256. - Not intentionally a bubble, _id._ 263. - How the failure might have been prevented, _id._ 276. - How the credit of France was destroyed in May 1720, _id._ 284. - _Modesty_, reflections on, with reference to the Spartans, I. 258. - _Monarchy and democracy_, compared, I. 242. - Their different influences on trade, _id._ 243. - _Monasteries_, magnificent ones, how advantageous to a country, I. 468. - _Money_, the term defined, I. 32. - How to be procured, _id._ _ib._ - The plenty of, productive of luxury, _id._ 33. - The effects of the introduction of, on trade, _id._ 176. - Observations on that of Sparta, _id._ 259. - An inquiry into the principles of the circulation of, _id._ 360. - Real, and symbolical, what, _id._ 364. - Illustrated, _id._ 381. - Ready, caution necessary in taxing it, _id._ 387. - No real and adequate proportion between, and goods, _id._ 394. - In countries of simplicity, _id._ 395. - In countries of industry, _id._ 397. - Paper, whether advantageous to a nation, _id._ 408. - Whether a tenfold increase of, in Europe, would raise the prices of - commodities in the same proportion, _id._ 413. - Whether any judgment can be formed concerning the balance of trade of - a nation, barely from the quantity of specie that is found in it, - _id._ 429. - The dissipation of by individuals, not expedient to be checked, _id._ - 471. - Defined, _id._ 526. - A scale for measuring the value of things, _id._ _ib._ - On what principles the value of things is determined, _id._ 527. - The prices of things not regulated by the quantity of, _id._ _ib._ - Necessity of distinguishing between, and price, _id._ 529. - Of account, what, and how contrived, _id._ _ib._ - Bank, _id._ 531. - Angola, _id._ _ib._ - Usefulness of the precious metals in making, _id._ 532. - Standard, how to be adjusted, _id._ 533. - Debasing and raising a standard, what, _id._ 534. - Alteration of the standard, how to be discovered, _id._ _ib._ - Of alloy, _id._ _ib._ - Incapacities of metals to constitute invariable measures of value, - _id._ 535. - The obligation of such measures to be invariable, _id._ _ib._ - Consequences of their variation, _id._ 536. - Defects of a silver standard, _id._ 537. - Arguments in favour of a silver standard, _id._ _ib._ - Answers to those arguments, _id._ 538. - Usefulness of an universal measure, _id._ 539. - Why metals incapacitated from performing the office of, _id._ 540. - Wearing in circulation, _id._ _ib._ - Inaccuracy in coining, _id._ 541. - Coinage adding to the value, without adding to the weight, _id._ - _ib._ - The smallest defects of, profited by in trade, _id._ _ib._ - Five remedies against the effects of the variation in the value of - metals, _id._ 542. - Remedies against other inconveniences, _id._ 544. - Remedies against the wearing of coin, _id._ _ib._ - Remedies against inaccuracy in coinage, _id._ _ib._ - Remedies against the expence of coinage, _id._ _ib._ - Remedies against arbitrary changes in the value of coin, _id._ 545. - How the market price of the metals is made to vary, _id._ _ib._ - The variation to be referred to the rising metal, not to the sinking, - _id._ 546. - Of account, how made to vary in its value, from the variation of the - metals, and the consequences, _id._ 547. - What the mean proportional between the value of the metals, _id._ - _ib._ - The unit to be attached to the mean proportion, upon a new coinage, - not after the metals have varied, _id._ 548. - The unit better to be affixed to one metal than to both, _id._ 549. - To what variation the unit is exposed, from the wearing of the coin, - _id._ _ib._ - To what variation the unit is exposed, from the inaccuracy in the - fabrication of coin, _id._ 550. - Variations to which the unit is exposed, from the imposition of - coinage, _id._ 551. - When coinage imposed, bullion cheaper than coin, _id._ _ib._ - Exception, _id._ 552. - Variation to which the unit is exposed, from the arbitrary raising - and debasing the coin by Princes, _id._ _ib._ - How this variation affects the interests of debtors and creditors, - _id._ 553. - A mistake of Mr. Locke in relation to, corrected, _id._ 555. - Defects in the British coinage, _id._ 558. - Of the standard of English coin and money unit, _id._ _ib._ - Coinage free in England, _id._ 559. - The standard, when attached to the gold coin, _id._ 560. - Consequences of that regulation, _id._ _ib._ - Silver, sometimes considered as a money of accompt, _id._ 561. - Jobbers in, their practices explained, _id._ 562. 565. - Why silver bullion is dearer than coin, _id._ _ib._ - What regulates the price of bullion, _id._ 564. - The intrinsic value of the currency, _id._ _ib._ - Paper, the use of, not hurtful in debasing the standard, _id._ 571. - The standard how shewn to have been debased, _id._ 574. - Proof that the standard has been debased by law, _id._ 575. - The standard at present reduced to the value of the gold, _id._ _ib._ - How the disorder in the coin may be remedied without inconveniences, - _id._ 576. - If the present standard be departed from, all other arbitrary, _id._ - 577. - The present standard not the same with that of Queen Elizabeth, _id._ - 578. - Anecdotes of its alterations, _id._ _ib._ - Debasing the standard, chiefly affects permanent contracts, _id._ - 581. - Why silver so scarce, _id._ 583. - Consequences of fixing the guinea at twenty shillings, _id._ _ib._ - How to fix the pound sterling at the standard of Queen Elizabeth, - _id._ 587. - The consequences of this reformation, _id._ 588. - Sufferers by the debasement of the standard, have a right to redress, - _id._ 590. - But not the whole class of creditors, _id._ _ib._ - Whose claim ought to be liable to conversion, _id._ 591. - Objections against the principles before laid down, _id._ 593. - Answers to them, _id._ 595. - Upon whom the loss incurred by the wear of it, falls, _id._ 598. - Inland dealings not able to support the standard where there are - money-jobbers, or foreign commerce, _id._ 599. - Public currency supports the authority of the coin, not the value of - the pound sterling, _id._ 601. - In what sense the standard debased by law, and in what sense by the - operation of other political causes, _id._ 614. - The payments made by bankers regulate all other, _id._ 615. - Regulation proposed for the coin, _id._ 634. - The first introduction of coinage must reduce the prices of - commodities, II. 3. - Why the doctrine of money appears so intricate, _id._ 45. - The difference between raising the value of coin by imposing coinage, - and raising the denomination of it, _id._ 50. - Whether it is the interest of England to debase the standard of, - _id._ 64. - The borrowing of, for carrying on trade, more relative to the - merchant than the manufacturer, _id._ 137. - _Montesquieu_, Mr. examination of his doctrine concerning the influence - of riches on the prices of commodities, I. 398. - _Multiplication of people_, the three principles of, I. 90. - Whether the efficient cause of agriculture, or agriculture of - multiplication, _id._ 114. - - N. - - _Nation_, every interest in, intitled to protection, I. 589. - _Nations_, trading, compared to a fleet of ships, I. 233. - _Navigation_, remarks on the consequences of the act of, in England, I. - 343. - _Naturalization of strangers_, ineffectual in the view of lowering the - prices of manufactures, I. 290. - _Necessaries_, an inquiry into the cause of a rise in the prices of, I. - 291. - Physical and political, distinguished and explained, _id._ 312. - The consumption of, how to be ascertained, _id._ 314. - And superfluities, vague terms when different ranks of people are - compared, _id._ 258. - _Netherlands_, Austrian, the cities of, in a state of depopulation, and - the reason, I. 334. _n._ - _Nobility_, the advantages of a numerous one, to a state, I. 63. - Why their spirit ought to be preserved, _id._ _ib._ - Their behaviour in the field compared with that of traders, _id._ 64. - Poor, reflexions on their situation, _id._ _ib._ - - O. - - _Oeconomy_, general definition of, I. 1. - Family and political, distinguished, _id._ 2. - Political, when brought to perfection, _id._ 83. - _Ounces_, different, a comparison of, II. 323. _n._ - - P. - - _Padua_, observations on the soil and produce of the country round, I. - 140. - _Paper money_, how realized, II. 110. - _Paris_, remarks on the state of agriculture round, I. 139. - _Partisans in France_, what, and cardinal Richlieu’s sentiments on - their conduct, II. 369. - Their extortions, why not then to be remedied, _id._ 370. - The present regulation of them, _id._ _ib._ - _Pay of the soldiery_, political plan for the regulation of, I. 449. - _Payments_, those made by bankers regulate all others, I. 615. - _Petty_, Sir William, his computations of the number of inhabitants and - consumption of provisions in England, I. 41. - _Population_, how limited, I. 18. 113. - What the most essential requisite for, _id._ 25. - Reflexions on the best means for promoting, _id._ 72. - Inquiry into the state of, in Great Britain, I. 95. - Antient and modern, politically considered, _id._ 125. - _Populous_, inquiry into the meaning of this word, when affirmed of a - country, I. 102. - _Populousness of antient nations_, inquiry into the question - concerning, I. 38. - _Posts for the conveyance of letters_, their great use in commerce, I. - 180. - _Pound sterling_, two legal ones in England, I. 568. - Current value of, _id._ 569. - How determined, _id._ 570. - What the good measure of, _id._ _1_ - The value of, how marked by bullion, _id._ 571. - How to fix it at the standard of Queen Elizabeth, _id._ 587. - The consequences of this reformation, _id._ 588. - _Premiums on exportation of commodities_, reflexions on, I. 297. - _Prerogative_, regal, often arbitrarily exercised, from a view to - establish public liberty on a more extensive bottom, I. 248. - _Price_, what understood by, II. 46. - _Prices_, how regulated on necessaries and on superfluities, I. 440. - The rise of, on articles of home consumption accounted for, II. 9. - How kept down on articles of exportation, _id._ _1_ - _Princes_, how those who incline to rob their subjects may avoid - robbing themselves at the same time, II. 65. - _Producers and consumers_, an analysis of the principles which - influence the alterations in the political balance between, I. 264. - _Profit and loss_, explained and distinguished, I. 206. - _Profits_, how they consolidate into prime cost, II. 8. - Consolidated, the ill effects of, and how to remedy, I. 289. - _Property_, how regulated under the Spartan government, I. 252. - Inconsumable, what, I. 360. - Consumable, what, _id._ 361. - Consequences of the alienation of both kinds, _id._ _1_ - Incorporeal, _id._ 369. - Landed and monied, the different ways of life of the possessors of - each compared, II. 478. _n._ - Permanent, the expediency of its contributing to the burdens of the - state, I. 387. - Solid, how understood, II. 149. - _Provisions_, those produced in most countries, nearly consumed by the - respective inhabitants, I. 109. - The consequences of an augmentation in the value of, I. 226. - _Public money_, heinous nature of all attempts to defeat the - application of, I. 297. - _Public spirit_, an improper principle of action in the governed, I. - 164. - _Public works_, not the produce of the wealth of a nation, I. 464. - - Q. - - _Quadrille_, the idea of circulation of wealth in a state, illustrated - by the game of, I. 375. - - R. - - _Rank_, the obligation individuals are under to uphold that which they - have once attained, I. 313. - _Remuage_, in the French duties, explained, II. 550 _n._ - _Revenue of England_, at the revolution, its amount, II. 364. - State of, at the accession of Queen Anne, II. 381. - _Riches_, an inquiry into the effects of, before the introduction of - trade and industry, I. 437. - _Richlieu_, cardinal, his sentiments on the public credit of France, - II. 367. - His sentiments of the extortions committed by the farmers of the - French taxes, _id._ 369. - Why not capable of being remedied at that time, _id._ 370. - His scheme for payment of the public debts, _id._ 372. - _Roads_, the advantages of good ones to a country, pointed out, I. 57. - The making and improving of, shewn to have a tendency to destroy - simplicity of manners, I. 459. - _Romans_, ancient, reflexions on the agriculture of, I. 88. - The consequences of their subduing the Grecian states, _id._ 439. - _Rome_, antient, remarks on the disproportion between the prices of - necessaries and elegances in, I. 403. - Accounted for, _id._ 439. - Consular and imperial, its ornaments compared, _id._ 457. - - S. - - _Scotland_, remarks on the state of agriculture in, I. 103. - Similar instances in other parts of Europe, _id._ 105. - Accounted for, _id._ 106. - Remark on the variation of the price of oatmeal in, _id._ 403. - The nature of banking there, II. 155. 179. 184. - - _Security_, real, what, II. 144. - - _Self-interest_, its extensive influence and use, in a political view, - I. 162. - - _Sensuality_, the term distinguished from those of luxury and excess, - I. 311. - - _Silver_, in coin, the scarcity of, to what owing, I. 547. 558. 583. - Why exported preferably to gold, _id._ 567. - Why any remains in England, _id._ 569. - Rising in value, _id._ _1_ - The rising of, the debasement of the standard, _id._ 616. - Question relating to the scarcity of, in England, II. 61. - - _Simplicity of manners_, shewn to be relative, I. 456. - - _Slavery_, the origin of, traced, I. 22. - Its effects on the multiplication and employment of mankind, _id._ - 36. - Whether industry can be introduced in a state where the former is - established, _id._ 168. - Its operation in America, _id._ 169. - Real, preferable to a nominal liberty, _id._ 244. - - _Society_, primitive, an idea of, illustrated in the history of Jacob - the patriarch, I. 23. - Reflexions on the present state of, compared with remote times of - primitive simplicity, _id._ 69. - The best bond of, _id._ 84. - The best principle on which it is to be governed, _id._ 163. - - _Societies_, human, in what respects they all agree, I. 6. - - _Soil_, a rich one, its disadvantageous effects on the inhabitants of - it, traced, I. 34. - Why less fruitful countries flourish most, _id._ 35. - - _South-Sea-scheme_, comparison of, with that of the Missisippi, II. - 387. _n._ - - _Spain_, remarks on the state of husbandry there, I. 89. - On the depopulation of, _id._ 107. - - _Spartans_, how prevented from having an intercourse with foreign - nations, I. 257. - Their modesty, _id._ 258. - The only articles of trade among, _id._ _1_ - Observations on their money, _id._ 259. - Conclusions drawn from a supposed adoption of their system by any - modern nation, _id._ _1_ - See _Lycurgus_. - - _Spirit of a people_, whereon formed, I. 8. - - _Standard of English coinage_, remarks on, I. 558. - When attached to the gold coin, _id._ 560. - How shewn to have been debased, _id._ 574. - Not the same now with that of Queen Elizabeth, _id._ 578. - Anecdotes of its alterations, _id._ _1_ - The debasing of, shewn chiefly to affect permanent contracts, _id._ - 581. - In what sense debased by law, and in what sense, by the operation of - political causes, _id._ 614. - Of Elizabeth, its advantage over that of Mary I. _id._ 621. - Alteration of, how it affects different interests, _id._ 632. - A more easy method of making a change in, proposed, _id._ 633. - Whether it is the interest of princes to debase, II. 64. - The proper arguments against it, _id._ 67. - - _Standing armies_, the nature and use of, explained, I. 442. - The consequence of trade and industry, _id._ 445. - The history of, _id._ 446. - - _State_, how to preserve a trading one from decay, I. 224. - Every change in, advantageous to some class or other, _id._ 428. - - _Statesman_, the term defined, I. 149. 151. - Modern, his extraordinary influence and advantages, beyond those of - former ages, _id._ 321. - The criterion of his abilities, _id._ 377. - His actions not to be estimated by the rules of private morality, - _id._ 482. - - _Stews_, public, how far expedient, I. 386. - - _Subordination_, how produced in society, I. 21. - Political, explained and distinguished, _id._ 238. - The boundaries of, deduced, _id._ 242. - Wherein that which now subsists in trading nations differs from that - which obtained under the old feudal systems, _id._ 248. - _Superfluities_, domestic competition in the manufacture of them, to be - discouraged, _id._ 271. - - T. - - _Taille_, in the French taxes, explained, II. 496. _n._ - _Tariffee_, in the French taxes, explained, II. 498. _n._ - _Taxes_, general reflexions on, I. 13. - From what principle the imposition of them is justifiable; and the - proper application of them, _id._ 269. - The proper use of, in regulating the several articles of trade, to - suit temporary circumstances, _id._ 321. - Why the right of imposing, scarcely any where attached to royalty, - _id._ 335. - The plan of, under pure monarchies, and under limited monarchies, - compared, _id._ 353. - The necessity of, under a decay of foreign trade, _id._ 354. - Their internal effects on the people, _id._ 371. - Their operation on industry, _id._ 385. - The expediency of distinguishing raisers and consumers in, _id._ 388. - To be regulated by the proportion between foreign and domestic - circulation, _id._ 390. - Only a liquidation of the antient personal services, _id._ 442. - History of, _id._ 443. - The perpetuity of, argued, _id._ 445. - The consequences of a total cessation of, II. 461. - The word defined, and the various kinds of, specified, _id._ 484. - The various objects of, or funds for taxation, _id._ 486. - Proportional, affect only the idle, _id._ 488. - In what manner they raise the price of commodities, _id._ 493. - Where they ultimately fall, _id._ 494. - Cumulative, what, in England and in France, _id._ 496. - The height of, in England, not so prejudicial to its foreign trade, - as the idleness and luxury of manufacturers, _id._ 504. - Proportional, their effects, _id._ 507. - Good method of raising, _id._ 514. - Cumulative, the nature of, explained, _id._ 518. - Compared with proportional, _id._ 520. - How a cumulative tax is convertible into a proportional one, _id._ - _1_ - Consequences of, when the amount is properly applied, _id._ 523. - Of the extent of taxation, _id._ 527. - The hardship of, in those instances where no alienation takes place, - _id._ 530. - The difficulty of establishing, upon barter, _id._ _1_ - Draw an additional sum of money into circulation, _id._ 531. - The extent of cumulative taxes, _id._ 538. - Method of ascertaining the value of landed property, _id._ 539. - Impossibility of establishing, upon the income springing from money, - _id._ _1_ - Interest of a whole people considered with respect to, _id._ 542. - Consequences of abolishing taxes relative to the cumulative interest - of a whole state, _id._ 543. - Consequences of such abolition, to those who are fed by the produce - of taxes, _id._ 546. - Judiciously imposed, and equitably levied, enrich a nation, _id._ - 554. - Whether they promote industry, _id._ 556. - Upon land, considerations on, _id._ 561. - On land, how levied in England, _id._ 565. - What the most proper method of imposing, on land, _id._ 577. - What the best method of levying, generally, _id._ 579. - On land, whether possible to be converted into one of the - proportional kind, _id._ 592. - _Taxation_, why so little found under feudal governments, I. 50. - _Temple_, Sir William, his symbolical representation of a flourishing - state, I. 71. - _Theft_, why encouraged by Lycurgus among the Spartans, I. 257. - _Theory_, reflexions on the benefit of, in the arts, I. 67. - Its use, in political researches, _id._ 542. - Not exactly confirmed by experience, and why, II. 8. - And practice, remarks on the difference between, in political - subjects, I. 298. - _Tithes_, under what species of taxation to be ranked, II. 497. - The most oppressive kind of tax upon landed property, _id._ 568. - _Trade_, its beneficial tendency traced, I. 118. - A definition of, _id._ 166. - Whether the cause or the effect of industry, _id._ 170. - The progress of, traced, _id._ 175. - A republican form of government, and those which approach nearest to - it, most favourable to, _id._ 242. - Its influence in creating national connexions, _id._ 266. - Its natural, division, _id._ 301. - Infant, by what means, to be encouraged, _id._ 302. - Foreign, the ruling principles of, _id._ 304. - Inland, as supposed to take place on the extinction of foreign trade, - _id._ 305. - Inquiry into the expediency of laying it open, _id._ 424. - Natural consequences of it, _id._ 425. - The interest of, examined, _id._ 628. - _Trade_, inland, how it may be made a resource on the decay of foreign, - I. 319. - _Trade_, foreign, passive and active distinguished, I. 184. - The progress of, traced, _id._ 185. - Illustrated, _id._ 191. - An examination of the principles on which it may be established and - preserved as long as possible, _id._ 267. - On what it is founded, _id._ 273. - Inquiry into the causes of the decay of, _id._ 278. - The proper remedies proposed, _id._ 279, 319. - Its extensive uses, _id._ 326. - The proper remedies in cases of successful rivalship in particular - articles of it, _id._ 328. - How to put a stop to it in manufactures, when the balance of it turns - against a nation, _id._ 336. - Cautions against hasty measures in such instances, _id._ 338. - The natural consequences which will result upon the cessation of it, - _id._ 350. - _Trading nation_, the true policy of, I. 262. - _Traittes_, in the French taxes, explained, II. 501. _n._ - _Troops_, foreign, how they become necessary to a state, I. 449. - Plan to supersede the necessity of, _id._ 450. - - V. - - _Value_, the exact scale of, what, II. 55. - _Vauban_, Marechal, observations on his scheme of raising the land-tax - in France, II. 562, 567. - _Vice_, the proper method of checking, among a people, I. 386. - _Vineyards_, reflexions on the political tendency of, I. 88. - _Visa_, the nature of that commission explained, II. 376. - _Ustencil_, in the French taxes, what, II. 496. _n._ - - W. - - _Wants_, reciprocal, the political use of, among a people, I. 28. - _War_, all history full of, I. 448. - The different methods of raising the supplies for, by the different - powers of Europe, II. 371. _n._ - _Wealth of a nation_, the ill consequences of its remaining in few - hands, I. 26. - Of antient nations, how differently acquired, _id._ 324. - Natural consequences of its being withdrawn from foreign trade, to - domestic circulation, _id._ 351. - Whether to be estimated by the quantity of coin in it, II. 42. - The last sacrifice a statesman ought to make in cases of emergency, - I. 339. - Observations on that of a trading nation, _id._ 355. - Two kinds of circulation of, in a state, _id._ 373. - _Weights_ in different places, the uncertainty of, shewn, II. 323. _n._ - _Wood_, whether an increase in the consumption of, for firing, a public - disadvantage, I. 145. - _Wool_, inquiry into the principles which operate in regulating the - trade in, I. 274. - _Woollen manufacture_, by what means it has been augmented in England, - I. 86. - _Words_, synonimous, observation respecting, I. 310. - _Work_, an examination into the alterations of the balance between, and - _demand_, I. 217. - The proper means of lowering the price of, when increased by the - augmentation of the value of subsistence, _id._ 227. - - X. - - _Xenophon_, his plan for the proper employment of the Athenian people, - I. 460. - -FINIS. - ------------------------------------------------------------------------- - -The reader is desired to correct the following errors, especially such -as are distinguished by an asterisk *, which pervert the sense entirely. - - ERRATA. - - Page. Line. - 2. 8. of, r. as - 7. 2, 7. manufactures, r. manufacturers - 9. 32. their grains, r. their gains - 71. 26. * 55.162, r. 51.162 - 73. 13. * 801.61, r. 801.68 - 82. 4. * 1½, r. ½ - 85. 15. * 24.572, r. 25.572 - 87. 1. * price, r. piece - 93. 15. * 1201.26, r. 120126 - 118. 16. this, r. the - 119. 18. * seems, r. comes - 132. 32. * considerable, r. inconsiderable - 143. 27. case, r. ease - 149. 9. property, r. prosperity - 152. 24. that, r. their - 156. 4. advance-profits, r. advance; profits - 157. last. _dele_, back. - 158. 17. _dele_, the - 160. at the end, _add_, * severely felt. - 168. penult. * of, r. to - 182. 26. * brought, r. bought - 197. 15. * no, r. the same - 249. 3. last, r. East - 254. 13. * 5000, r. 500 - 261. 15. he, r. the - 326. 9. * exportation, r. importation - 333. 23. * bills to, r. bills on - 344. 16. exchange-property, r. exchange - 369. 21. * mixed, r. raised - 394. 12. * determinate, r. indeterminate - 406. 14. _after_ King’s library, _add_, and archives of France. - 411. 24. * 1762, r. 1744. - 429. last. 4 444 444, r. 14 444 444 - -N. B. In page 182. line 10. _for_ quarterly, _read_ half-yearly, _and -then the note at the bottom of the page may be struck out_. - ------------------------------------------------------------------------- - - Transcriber’s Note - -The last numbered page is p. 646. It is followed by a large table, and -the index, which are not paginated. These have been assigned page -numbers, continuing from ‘646’ for ease of reference here. The Index was -printed in two columns, but is given here in a single column. - -Several long accounting tables employ ‘Carry over’ and ‘Brought over’ -lines to bridge page breaks. These are no longer required, and have been -removed. - -Spelling, generally, is not ‘corrected’, given the age of the text, -unless there is a clear preponderance of an alternate more standard -spelling. ‘Knowledge’ appears three times as ‘knowlege’, but more than -twenty times as ‘knowledge’. Verbs ending with -er (‘enter’, ‘render’) -are frequently spelled without the ‘e’ when used in other tenses, as -‘entred’, ‘rendring’, etc. - -The word ‘Missisippi’ appears as the modern variant ‘Mississippi’ in the -table of contents and index. The two instances (pp. 243, 261) in the -text proper have been retained. - -Diacritical marks in non-English languages are frequently missing, and -have not been added. - - --- - - Indexing Issues - -No attempt was made to validate all the references in the Index. Several -issues did arise during the preparation of this transcription: - -The entry for ‘Remuage’ is corrupt, indicating a note on p ‘50?’. The -note now appears as note 46 on p. 550. - -The entry for ‘Ustensil’ misspells the word ‘Ustencil’, and transposes -the last digits of the correct page number (‘496’) as ‘469’. - - --- - -Errors deemed most likely to be the printer’s have been corrected, and -are noted here. The references are to the page and line in the original. -The following issues should be noted. - -The changes requested in the Errata table above have also been made, and -are marked with an asterisk. The brackets show the specific change made -to the line. The editor’s final request - - 2.8 * [of/as] affecting Replaced. - 7.1 * manufacture[r]s Inserted. - 9.32 * their g[r]ains will purchase Removed. - 15.26 Is not this called par[./?] Replaced. - 66.15 _a[n/u] cours du jour_ Replaced. - 71.26 * 5[5/1].162 : 55.38 :: 100 : 108.2. Replaced. - 73.13 * 801.6[1/8] :: 1 : 14.47 Replaced. - 77.13 23 mar[k/c]s 7 ounces 152 grains Replaced. - 77.22 23 mar[k/c]s 7 ounces 152 grains Replaced. - 85.15 * _f._ 2[4/5].572 in silver florins Replaced. - 86.9 [i/I] this case Capitalized. - 87.1 * the weight of the p[ri/ie]ce Replaced. - 93.15 * 1201[.]26 aces fine Removed. - 93.17 263 : 12012[0/6>] Replaced. - 103.23 to shew how eve[ry/n] the most surprizing Replaced. - effect - 118.16 * 26th chapter of th[is/e] second book Replaced. - 119.18 * hen a state [seems/comes] to contract Replaced. - 132.32 * at a very [in]considerable interest Added. - 143.27 * [c/e]ase of transfer Replaced. - 149.9 * depends the pro[per/speri]ty of trade Replaced. - 152.24 * in security of th[at/eir] good faith Replaced. - 156.4 * of their advance[-/;]profits[,] Replaced./Removed. - 157.26 * are quickly thrown[ back] into circulation Removed. - 158.17 * searching after[ the] principles, not after Removed. - facts, - 168.31 * What are the consequences [of/to] circulation Replaced. - 182.26 * these bills will be b[r]ought from Removed. - 197.15 * and pay [no/the same] interest Replaced. - 249.3 * the [l/E]ast India company Replaced. - 254.13 * upon the value of 500[0] livres Removed. - 261.15 * If that was [t]he case Added. - 326.9 * for articles of [ex/im]portation Replaced. - 333.23 * he will sell his bills [to/on] the country Replaced. - 344.16 * in regulating exchange[-property]. Removed. - 368.19 far beyond [t]heir due proportion Restored. - 369.21 * when taxes were [mixed/raised] Replaced. - 394.12 * perpetual or [in]determinate annuities Added. - 406.10 * library[ and archives of France] Added. - 411.24 * during the war 17[62/44] Replaced. - 469.5 the whole [t]he> lender Restored. - 524.24 extrava[va]gance of your neighbour Removed. - 588.5 exportation and importa[ta]tion Removed. - 608.20 their own debt[) / (']and it is so, Reversed. - 613.6 and the fatal catastrop[h]e Inserted. - 627.21 In order to make [t]his change of policy Added. - 646.29 no farther knowle[d]ge Inserted. - 659l.22 _Usten[s/c]il_ Replaced. - -*** END OF THE PROJECT GUTENBERG EBOOK AN INQUIRY INTO THE PRINCIPLES OF -POLITICAL OECONOMY (VOL. 2 OF 2) *** - -Updated editions will replace the previous one--the old editions will -be renamed. - -Creating the works from print editions not protected by U.S. copyright -law means that no one owns a United States copyright in these works, -so the Foundation (and you!) can copy and distribute it in the -United States without permission and without paying copyright -royalties. 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