BOOK II.

OF TRADE AND INDUSTRY.

INTRODUCTION.

Before I enter upon this second book, I must premise a word of

connexion, in order to conduct the ideas of my reader by the same way

through which the chain of my own thoughts, and the distribution of my

plan have naturally led me.

My principal view hitherto has been to prepare the way for an

examination of the principles of modern politics, by inquiring into

those which have, less or more, operated regular effects in all the ages

of the world.

In doing this, I confess, it has been impossible for me not to

anticipate many things which, according to the plan I have laid down,

will in some measure involve me in repetitions.

I propose to investigate principles which are all relative and depending

upon one another. It is impossible to treat of these with distinctness,

without applying them to the objects on which they have an influence;

and as the same principles extend their influence to several branches of

my subject, those of my readers who keep them chiefly in their eye, will

not find great variety in the different applications of them.

In all compositions of this kind, two things are principally requisite.

The first is, to represent such ideas as are abstract, clearly, simply,

and uncompounded. This part resembles the forging out the links of a

chain. The second is, to dispose those ideas in a proper order; that is,

according to their most immediate relations. When such a composition is

laid before a good understanding, memory finishes the work, by cementing

the links together; and providing any one of them can be retained, the

whole will follow of course.

Now the relations between the different principles of which I treat, are

indeed striking to such as are accustomed to abstract reasoning, but not

near so much so, as when the application of them is made to different

examples.

The principle of self-interest will serve as a general key to this

inquiry; and it may, in one sense, be considered as the ruling principle

of my subject, and may therefore be traced throughout the whole. This is

the main spring, and only motive which a statesman should make use of,

to engage a free people to concur in the plans which he lays down for

their government.

I beg I may not here be understood to mean, that self-interest should

conduct the statesman: by no means. Self-interest, when considered with

regard to him, is public spirit; and it can only be called

self-interest, when it is applied to those who are to be governed by it.

From this principle men are engaged to act in a thousand different ways,

and every action draws after it certain necessary consequences. The

question therefore constantly under consideration comes to be, what will

mankind find it their interest to do, under such and such circumstances?

In order to exhaust the subject of political oeconomy, I have proposed

to treat the principles of it in relation to circumstances; and as these

are infinite, I have taken them by categories; that is, by the more

general combinations, which modern policy has formed. These, for the

sake of order, I have represented as all hanging in a chain of

consequences, and depending on one another. See Book I. Chap. ii.

I found this the best method for extending my plan, from which it is

natural to infer, that it will also prove the best for enabling my

readers to retain it.

I shall do what I can to diversify, by various circumstances, the

repetitions which this disposition must lead me into. There is no seeing

a whole kingdom, without passing now and then through a town which one

has seen before. I shall therefore imitate the traveller, who, upon such

occasions, makes his stay very short, unless some new curiosity should

happen to engage his attention.

I have said, that self-interest is the ruling principle of my subject,

and I have so explained myself, as to prevent any one from supposing,

that I consider it as the universal spring of human actions. Here is the

light in which I want to represent this matter.

The best way to govern a society, and to engage every one to conduct

himself according to a plan, is for the statesman to form a system of

administration, the most consistent possible with the interest of every

individual, and never to flatter himself that his people will be brought

to act in general, and in matters which purely regard the public, from

any other principle than private interest. This is the utmost length to

which I pretend to carry my position. As to what regards the merit and

demerit of actions in general, I think it fully as absurd to say, that

no action is truly virtuous, as to affirm, that none is really vitious.

It might perhaps be expected, that, in treating of politics, I should

have brought in public spirit also, as a principle of action; whereas

all I require with respect to this principle is, only a restraint from

it; and even this is, perhaps, too much to be taken for granted. Were

public spirit, instead of private utility, to become the spring of

action in the individuals of a well-governed state, I apprehend, it

would spoil all. I explain myself.

Public spirit, in my way of treating this subject, is as superfluous in

the governed, as it ought to be all-powerful in the statesman; at least,

if it is not altogether superfluous, it is fully as much so, as miracles

are in a religion once fully established. Both are admirable at setting

out, but would shake every thing loose were they to continue to be

common and familiar. Were miracles wrought every day, the laws of nature

would no longer be laws: and were every one to act for the public, and

neglect himself, the statesman would be bewildered, and the supposition

is ridiculous.

I expect, therefore, that every man is to act for his own interest in

what regards the public; and, politically speaking, every one ought to

do so. It is the combination of every private interest which forms the

public good, and of this the public, that is, the statesman, only can

judge. You must love your country. Why? Because it is yours. But you

must not prefer your own interest to that of your country. This, I

agree, is perfectly just and right: but this means no more, than that

you are to abstain from acting to its prejudice, even though your own

private interest should demand it; that is, you should abstain from

unlawful gain. Count Julian, for example, who, from private resentment,

it is said, brought the Moors into Spain, and ruined his country,

transgressed this maxim. A spy in an army, or in a cabinet, who betrays

the secrets of his country, and he who sells his trust, are in the same

case: defrauding the state is, among many others, a notorious example of

this. To suppose men, in general, honest in such matters, would be

absurd. The legislature therefore ought to make good laws, and those who

transgress them ought to be speedily, severely, and most certainly

punished. This belongs to the coercive part of government, and falling

beyond the limits of my subject, is ever taken for granted.

Were the principle of public spirit carried farther; were a people to

become quite disinterested, there would be no possibility of governing

them. Every one might consider the interest of his country in a

different light, and many might join in the ruin of it, by endeavouring

to promote its advantages. Were a rich merchant to begin and sell his

goods without profit, what would become of trade? Were another to defray

the extraordinary expence of some workmen in a hard year, in order to

enable them to carry on their industry, without raising their price,

what would become of others, who had not the like advantages? Were a man

of a large landed estate to distribute his corn rents at a low price in

a year of scarcity, what would become of the poor farmers? Were people

to feed all who would ask charity, what would become of industry? These

operations of public spirit ought to be left to the public, and all that

is required of individuals is, not to endeavour to defeat them.

This is the regular distribution of things, and it is only this which

comes under my consideration.

In ill-administred governments I admire as much as any one every act of

public spirit, every sentiment of disinterestedness, and nobody can have

a higher esteem for every person remarkable for them.

The less attentive any government is to do their duty, the more

essential it is that every individual be animated by _that_ spirit,

which then languishes in the very part where it ought to flourish with

the greatest strength and vigour; and on the other hand, the more public

spirit is shewn in the administration of public affairs, the less

occasion has the state for assistance from individuals.

Now as I suppose my statesman to do his duty in the most minute

particulars, so I allow every one of his subjects to follow the dictates

of his private interest. All I require is an exact obedience to the

laws. This also is the interest of every one; for he who transgresses

ought most undoubtedly to be punished: and this is all the public spirit

which any perfect government has occasion for.

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CHAP. I.

_Of the reciprocal Connections between Trade and Industry._

I am now going to treat of trade and industry, two different subjects,

but which are as thoroughly blended together, as those we have discussed

in the first book. Similar to these in their mutual operations, they are

reciprocally aiding and assisting to each other, and it is by the

constant vibration of the balance between them, that both are carried to

their height of perfection and refinement.

_TRADE_ _is an operation, by which the wealth, or work, either of

individuals, or of societies, may be exchanged, by a set of men called

merchants, for an equivalent, proper for supplying every want, without

any interruption to industry, or any check upon consumption_.

_INDUSTRY_ _is the application to ingenious labour in a free man, in

order to procure, by the means of trade, an equivalent, fit for the

supplying every want_.

I must observe, that these definitions are only just, relatively to my

subject, and to one another: for _trade_ may exist without _industry_,

because things produced partly by nature may be exchanged between men;

_industry_ may be exercised without _trade_, because a man may be very

ingenious in working to supply his own consumption, and where there is

no exchange, there can be no _trade_. _Industry_ likewise is different

from _labour_. _Industry_, as I understand the term, must be voluntary;

_labour_ may be forced: the one and the other may produce the same

effect, but the political consequences are vastly different.

_Industry_, therefore, is only applicable to free men; _labour_ may be

performed by slaves.

Let me examine this last distinction a little more closely, the better

to try whether it be just, and to point out the consequences which

result from it.

I have said, that without the assistance of one of the three principles

of multiplication, to wit, slavery, industry, or charity, there was no

possibility of making mankind subsist, so as to be serviceable to one

another, in greater numbers than those proportioned to the spontaneous

fruits of the earth. Slavery and industry are quite compatible with the

selfish nature of man, and may therefore be generally established in any

society: charity again is a refinement upon humanity, and therefore, I

apprehend, it must ever be precarious.

Now I take slavery and industry to be equally compatible with great

multiplication, but incompatible with one another, without great

restrictions laid upon the first. It is a very hard matter to introduce

industry into a country where slavery is established; because of the

unequal competition between the work of slaves and that of free men,

supposing both equally admitted to market. Here is the reason:

The slaves have all their particular masters, who can take better care

of _them_, than any statesman can take of the industrious freemen;

because their liberty is an obstacle to his care. The slaves have all

their wants supplied by the master, who may keep them within the limits

of sobriety. He may either recruit their numbers from abroad, or take

care of the children, just as he finds it his advantage. If the latter

should prove unprofitable, either the children die for want of care, or

by promiscuous living few are born, or by keeping the sexes asunder,

they are prevented from breeding at all. A troop of manufacturing

slaves, considered in a political light, will be found all employed, all

provided for, and their work, when brought to market by the master, may

be afforded much cheaper, than the like performed by freemen, who must

every one provide for himself, and who may perhaps have a separate

house, a wife, and children, to maintain, and all this from an industry,

which produces no more, nay not so much, as that of a single slave, who

has no avocation from labour. Why do large undertakings in the

manufacturing way ruin private industry, but by coming nearer to the

simplicity of slaves. Could the sugar islands be cultivated to any

advantage by hired labour? Were not the expences of rearing children

supposed to be great, would slaves ever be imported? Certainly not: and

yet it is still a doubt with me, whether or not a proper regulation for

bringing up the children of slaves might not turn this expedient to a

better account, than the constant importation of them. But this is

foreign to the present purpose. All I intend here to observe is, the

consequences of a _competition_ between the work of slaves and of free

men; from which competition I infer, that, without judicious

regulations, it must be impossible for industry ever to get the better

of the disadvantages to which it will necessarily be exposed at first,

in a state where slavery is already introduced.

These regulations ought to prevent the competition between the

industrious freemen and the masters of slaves, by appropriating the

occupation of each to different objects: to confine slavery, for

example, to the country; that is, to set the slaves apart for

agriculture, and to exclude them from every other service of work. With

such a regulation _perhaps_ industry might succeed. This was not the

case of old; industry did not succeed as at present: and to this I

attribute the simplicity of those times.

It is not so difficult to introduce slavery into a state where liberty

is established; because such a revolution might be brought about by

force and violence, which make every thing give way; and, for the

reasons above-mentioned, I must conclude, that the consequences of such

a revolution would tend to extinguish, or at least, without the greatest

precaution, greatly check the progress of industry: but were such

precautions properly taken; were slavery reduced to a temporary and

conditional service, and put under proper regulations; it might prove,

of all others, the most excellent expedient for rendering the lower

classes of a people happy and flourishing; and for preventing that

vitious procreation, from which the great misery to which they are

exposed at present chiefly proceeds. But as every modification of

slavery is quite contrary to the spirit of modern times, I shall carry

such speculations no farther. Thus much I have thought it necessary to

observe, only by the way, for the sake of some principles which I shall

have occasion afterwards to apply to our own oeconomy; for wherever any

notable advantage is found accompanying slavery, it is the duty of a

modern statesman to fall upon a method of profiting by it, without

wounding the spirit of European liberty. And this he may accomplish in a

thousand ways, by the aid of good laws, calculated to cut off from the

lower classes of a people any interest they can have in involving

themselves in want and misery, opening to them at the same time an easy

progress towards prosperity and ease.

Here follows an exposition of the principles, from which I was led to

say, in a former chapter, that the failure of the slavish form of feudal

government, and the extension thereby given to civil and domestic

liberty, were the source from which the whole system of modern polity

has sprung.

Under the feudal form, the higher classes were perhaps more free than at

present, but the lower classes were either slaves, or under a most

servile dependence, which is entirely the same thing as to the

consequence of interrupting the progress of private industry.

I cannot pretend to advance, as a confirmation of this doctrine, that

the establishment of slavery in our colonies in America was made with a

view to promote agriculture, and to curb manufactures in the new world,

because I do not know much of the sentiments of politicians at that

time: but if it be true, that slavery has the effect of advancing

agriculture, and other laborious operations which are of a simple

nature, and at the same time of discouraging invention and ingenuity;

and if the mother-country has occasion for the produce of the first, in

order to provide or to employ those who are taken up at home in the

prosecution of the latter; then I must conclude, that slavery _has been_

very _luckily_, if not _politically_, established to compass such an

end: and therefore, if any colony, where slavery is not common, shall

ever begin to rival the industry of the mother-country, a very good way

of frustrating the attempt will be, to encourage the introduction of

slaves into such colonies without any restrictions, and allow it to work

its natural effect.

Having given the definition of trade and industry, as relative to my

inquiry, I come now to examine their immediate connections, the better

to cement the subject of this book, with the principles deduced in the

former.

In treating of the reciprocal wants of a society, and in shewing how

their being supplied by labour and ingenuity naturally tends to increase

population on one hand, and agriculture on the other, the better to

simplify our ideas, we supposed the transition to be direct from the

manufacturer to the consumer, and both to be members of the same

society. Matters now become more complex, by the introduction of trade

among different nations, which is a method of collecting and

distributing the produce of industry, by the interposition of a third

principle. Trade receives from a thousand hands, and distributes to as

many.

To ask, whether trade owes its beginning to industry, or industry to

trade, is like asking, whether the motion of the heart is owing to the

blood, or the motion of the blood to the heart. Both the one and the

other, I suppose, are formed by such insensible degrees, that it is

impossible to determine where the motion begins. But so soon as the body

comes to be perfectly formed, I have little doubt of the heart’s being

the principle of circulation. Let me apply this to the present question.

A man must first exist, before he can feel want; he must want, that is,

desire, before he will demand; and he must demand, before he can

receive. This is a natural chain, and from it we have concluded in Book

I. that population is the cause, and agriculture the effect.

By a parallel reason it may be alledged, that as wants excite to

industry, and are considered as the cause of it; and as the produce of

industry cannot be exchanged without trade; so trade must be an effect

of industry. To this I agree: but I must observe, that this exchange

does not convey my idea of trade, although I admit, that it is the root

from which the other springs; it is the seed, but not the plant; and

trade, as we have defined it, conveys another idea. The workman must not

be interrupted, in order to seek for an exchange, nor the consumer put

to the trouble of finding out the manufacturer. The object of trade

therefore is no more than a new want, which calls for a set of men to

supply it; and trade has a powerful effect in promoting industry, by

facilitating the consumption of its produce.

While wants continue simple and few, a workman finds time enough to

distribute all his work: when wants become more multiplied, men must

work harder; time becomes precious; hence trade is introduced. They who

want to consume, send the merchant, in a manner, to the workman, for his

labour, and do not go themselves; the workman sells to this interposed

person, and does not look out for a consumer. Let me now take a familiar

instance of infant trade, in order to shew how it grows and refines:

this will illustrate what I have been saying.

I walk out of the gates of a city in a morning, and meet with five

hundred persons, men and women, every one bringing to market a small

parcel of herbs, chickens, eggs, fruit, &c. It occurs to me immediately,

that these people must have little to do at home, since they come to

market for so small a value. Some years afterwards, I find nothing but

horses, carts, and waggons, carrying the same provisions. I must then

conclude, that either those I met before are no more in the country, but

purged off, as being found useless, after a method has been found of

collecting all their burdens into a few carts; or that they have found

out a more profitable employment than carrying eggs and greens to

market. Which ever happens to be the case, there will be the

introduction of what I call trade; to wit, this collecting of eggs,

fruit, fowl, &c. from twenty hands, in order to distribute it to as many

more within the walls. The consequence is, that a great deal of labour

is saved; that is to say, the cart gives time to twenty people to

labour, if they incline; and when wants increase, they will be ready to

supply them.

We cannot therefore say, that trade will force industry, or that

industry will force trade; but we may say, that trade will facilitate

industry, and that industry will support trade. Both the one and the

other however depend upon a third principle; to wit, a taste for

superfluity, in those who have an equivalent to give for it. This taste

will produce demand, and this again will become the main spring of the

whole operation.

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CHAP. II.

_Of Demand._

This is no new subject; it is only going over what has been treated of

very extensively in the first book under another name, and relatively to

other circumstances. _These_ ideas were there kept as simple as

possible; _here_ they take on a more complex form, and appear in a new

dress.

The wants of mankind were said to promote their multiplication, by

augmenting the demand for the food of the free hands, who, by supplying

those wants, are enabled to offer an equivalent for their food, to the

farmers who produced it; and as this way of bartering is a

representation of trade in its infancy, it is no wonder that trade, when

grown up, should still preserve a resemblance to it.

_Demand_, considered as a term appropriated to trade, will now be used

in place of _wants_, the term used in the first book relatively to

bartering; we must therefore expect, that the operations of the same

principle, under different appellations, will constantly appear similar,

in every application we can make of it, to different circumstances and

combinations.

Whether this term be applied to bartering or to trade, it must

constantly appear reciprocal. If I demand a pair of shoes, the shoemaker

either demands money, or something else for his own use. To prevent

therefore the ambiguity of a term, which, from the sterility of

language, is taken in different acceptations, according to the

circumstances which are supposed to accompany it, I shall endeavour

shortly to analyze it.

_1mo._ Demand is ever understood to be relative to merchandize. A demand

for money, except in bills of exchange, is never called demand. When

those who have merchandize upon hand, are desirous of converting them

into money, they are said to offer to sale; and if, in order to find a

buyer, they lower their price, then, in place of saying the demand for

money is high, we say the demand for goods is low.

_2do._ Suppose a ship to arrive at a port loaded with goods, with an

intention to purchase others in return, the operation only becomes

double. The ship offers to sale, and the demand of the port is said to

be high or low, according to the height of the price offered, not

according to the quantity demanded, or number of demanders. When all is

sold, then the ship becomes demander; and if his demand be

proportionally higher than the former, we say upon the whole, that the

demand is for the commodities of the port; that is, the port offers, and

the ship demands. This I call reciprocal demand.

_3tio._ Demand is either simple or compound. Simple, when the demander

is but _one_, compound, when _they are more_. But this is not so much

relative to persons as to interests. Twenty people demanding from the

same determined interest form but a simple demand; it becomes compound

or high, when different interests produce a competition. It may

therefore be said, that when there is no competition among buyers,

demand is simple, let the quantity demanded be great or small, let the

buyers be few or many. When therefore in the contract of barter the

demand upon one side is simple, upon the other compound, that which is

compound is constantly called the demand, the other not.

_4to._ Demand is either great or small: great, when the _quantity_

demanded is great; small, when the _quantity_ demanded is small.

_5to._ Demand is either high or low: high, when the competition among

the _buyers_ is great; low, when the competition among the _sellers_ is

great. From these definitions it follows, that the consequence of a

great demand, is a great sale; the consequence of a high demand, is a

great price. The consequence of a small demand, is a small sale; the

consequence of a low demand, is a small price.

_6to._ The nature of demand is to encourage industry; and when it is

regularly made, the effect of it is, that the supply for the most part

is found to be in proportion to it, and then the demand is commonly

simple. It becomes compound from other circumstances. As when it is

irregular, that is, unexpected, or when the usual supply fails; the

consequence of which is, that the provision made for the demand, falling

short of the just proportion, occasions a competition among the buyers,

and raises the current, that is, the ordinary prices. From this it is,

that we commonly say, demand raises prices. Prices are high or low

according to demand. These expressions are just; because the sterility

of language obliges us there to attend to circumstances which are only

implied.

Demand is understood to be _high_ or _low_, relatively to the common

rate of it, or to the competition of buyers, to obtain the provision

made for it. When demand is relative to the quantity demanded, it must

be called great or small, as has been said.

_7mo._ Demand has not always the same effect in raising prices: we must

therefore carefully attend to the difference between a demand for things

of the first necessity for life, and for things indifferent; also

between a demand made by the immediate consumers, and one made by

merchants, who buy in order to sell again. In both cases the competition

will have different effects. Things of absolute necessity must be

procured, let the price be ever so great: consumers who have no view to

profit, but to satisfy their desires, will enter into a stronger

competition than merchants, who are animated by no passion, and who are

regulated in what they offer by their prospect of gain. Hence the great

difference in the price of grain in different years; hence the uniform

standard of the price of merchandize, in fairs of distribution, such as

Frankfort, Beaucaire, &c. hence, also, the advantage which consumers

find in making their provision at the same time that merchants make

theirs; hence the sudden rise and fall in the price of labouring cattle

in country markets, where every one provides for himself.

Let what has been said suffice at setting out: this principle will be

much better explained by its application as we advance, than by all the

abstract distinctions I am capable to give of it.

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CHAP. III.

_Of the first Principles of bartering, and how this grows into Trade._

I must now begin by tracing trade to its source, in order to reduce it

to its first principles.

The most simple of all trade, is that which is carried on by bartering

the necessary articles of subsistence. If we suppose the earth free to

the first possessor, this person who cultivates it will first draw from

it his food, and the surplus will be the object of barter: he will give

this in exchange to any one who will supply his other wants. This (as

has been said) naturally supposes both a surplus quantity of food

produced by labour, and also free hands; for he who makes a trade of

agriculture cannot supply himself with all other necessaries, as well as

food; and he who makes a trade of supplying the farmers with such

necessaries, in exchange for his surplus of food, cannot be employed in

producing that food. The more the necessities of man increase, _cæteris

paribus_, the more free hands are required to supply them; and the more

free hands are required, the more surplus food must be produced by

additional labour, to supply their demand.

This is the least complex kind of trade, and may be carried on to a

greater or less extent, in different countries, according to the

different degrees of the wants to be supplied. In a country where there

is no money, nor any thing equivalent to it, I imagine the wants of

mankind will be confined to few objects; to wit, the removing the

inconveniencies of hunger, thirst, cold, heat, danger, and the like. A

free man who by his industry can procure all the comforts of a simple

life, will enjoy his rest, and work no more: And, in general, all

increase of work will cease, so soon as the demand for the purposes

mentioned comes to be satisfied. There is a plain reason for this. When

the free hands have procured, by their labour, wherewithal to supply

their wants, their ambition is satisfied: so soon as the husbandmen have

produced the necessary surplus for relieving theirs, they work no more.

Here then is a natural stop put to industry, consequently to bartering.

This, in the first book, we have called _the moral impossibility of

augmenting numbers._

The next thing to be examined, is, how bartering grows into trade,

properly so called and understood, according to the definition given of

it above; how trade comes to be extended among men; how manufactures,

more ornamental than useful, come to be established; and how men come to

submit to labour, in order to acquire what is not absolutely necessary

for them.

This, in a free society, I take to be chiefly owing to the introduction

of money, and a taste for superfluities in those who possess it.

In antient times, money was not wanting; but the taste for superfluities

not being in proportion to it, the specie was locked up. This was the

case in Europe four hundred years ago. A new taste for superfluity has

drawn, perhaps, more money into circulation, from our own treasures,

than from the mines of the new world. The poor opinion we entertain of

the riches of our forefathers, is founded upon the modern way of

estimating wealth, by the quantity of coin in circulation, from which we

conclude, that the greatest part of the specie now in our hands must

have come from America.

It is more, therefore, through the taste of superfluity, than in

consequence of the quantity of coin, that trade comes to be established;

and it is only in consequence of trade that we see industry carry things

in our days to so high a pitch of refinement and delicacy. Let me

illustrate this by comparing together the different operations of

barter, sale, and commerce.

When reciprocal wants are supplied by barter, there is not the smallest

occasion for money: this is the most simple of all combinations.

When wants are multiplied, bartering becomes (for obvious reasons) more

difficult; upon this money is introduced. This is the common price of

all things: it is a proper equivalent in the hands of those who want,

perfectly calculated to supply the occasions of those who, by industry,

can relieve them. This operation of buying and selling is a little more

complex than the former; but still we have here no idea of trade,

because we have not introduced the merchant, by whose industry it is

carried on.

Let this third person be brought into play, and the whole operation

becomes clear. What before we called wants, is here represented by the

consumer; what we called industry, by the manufacturer; what we called

money, by the merchant. The merchant here represents the money, by

substituting credit in its place; and as the money was invented to

facilitate barter, so the merchant, with his credit, is a new refinement

upon the use of money. This renders it still more effectual in

performing the operations of buying and selling. This operation is

trade: it relieves both parties of the whole trouble of transportation,

and adjusting wants to wants, or wants to money; the merchant represents

by turns both the consumer, the manufacturer, and the money. To the

consumer he appears as the whole body of manufacturers; to the

manufacturers as the whole body of consumers; and to the one and the

other class his credit supplies the use of money. This is sufficient at

present for an illustration. I must now return to the simple operations

of money in the hands of the two contracting parties, the buyer and the

seller, in order to show how men come to submit to labour in order to

acquire superfluities.

So soon as money is introduced into a country it becomes, as we have

said above, an universal object of want to all the inhabitants. The

consequence is, that the free hands of the state, who before stopt

working, because all their wants were provided for, having this new

object of ambition before their eyes, endeavour, by refinements upon

their labour, to remove the smaller inconveniencies which result from a

simplicity of manners. People, I shall suppose, who formerly knew but

one sort of cloathing for all seasons, willingly part with a little

money to procure for themselves different sorts of apparel properly

adapted to summer and winter, which the ingenuity of manufacturers, and

their desire of getting money, may have suggested to their invention.

I shall not here pursue the gradual progress of industry, in bringing

manufactures to perfection; nor interrupt my subject with any further

observations upon the advantages resulting to industry, from the

establishment of civil and domestic liberty, but shall only suggest,

that these refinements seem more generally owing to the industry and

invention of the manufacturers (who by their ingenuity daily contrive

means of softening or relieving inconveniencies, which mankind seldom

perceive to be such, till the way of removing them is contrived) than to

the taste for luxury in the rich, who, to indulge their ease, engage the

poor to become industrious.

Let any man make an experiment of this nature upon himself, by entring

into the first shop. He will no where so quickly discover his wants as

there. Every thing he sees appears either necessary, or at least highly

convenient; and he begins to wonder (especially if he be rich) how he

could have been so long without that which the ingenuity of the workman

alone had invented, in order that from the novelty it might excite his

desire; for perhaps when it is bought, he will never once think of it

more, nor ever apply it to the use for which it at first appeared so

necessary.

Here then is a reason why mankind labour though not in want. They become

desirous of possessing the very instruments of luxury, which their

avarice or ambition prompted them to invent for the use of others.

What has been said represents trade in its infancy, or rather the

materials with which that great fabric is built.

We have formed an idea of the wants of mankind multiplied even to

luxury, and abundantly supplied by the employment of all the free hands

set apart for that purpose. But if we suppose the workman himself

disposing of his work, and purchasing, with it, food from the farmer,

cloaths from the clothier, and in general seeking for the supply of

every want from the hands of the person directly employed for the

purpose of relieving it; this will not convey an idea of trade,

according to our definition.

Trade and commerce are an abbreviation of this long process; a scheme

invented and set on foot by merchants, from a principle of gain,

supported and extended among men, from a principle of general utility to

every individual, rich or poor, to every society, great or small.

Instead of a pin-maker exchanging his pins with fifty different persons,

for whose labour he has occasion, he sells all to the merchant for money

or for credit; and, as occasion offers, he purchases all his wants,

either directly from those who supply them, or from other merchants who

deal with manufacturers in the same way his merchant dealt with him.

Another advantage of trade is, that industrious people in one part of

the country, may supply customers in another, though distant. They may

establish themselves in the most commodious places for their respective

business, and help one another reciprocally, without making the distant

parts of the country suffer for want of their labour. They are likewise

exposed to no avocation from their work, by seeking for customers.

Trade produces many excellent advantages; it marks out to the

manufacturers when their branch is under or overstocked with hands. If

it is understocked, they will find more demand than they can answer: if

it is overstocked, the sale will be slow.

Intelligent men, in every profession, will easily discover when these

appearances are accidental, and when they proceed from the real

principles of trade; which are here the object of our inquiry.

Posts, and correspondence by letters, are a consequence of trade, by the

means of which merchants are regularly informed of every augmentation or

diminution of industry in every branch, in every part of the country.

From this knowledge they regulate the prices they offer; and as they are

many, they serve as a check upon one another, from the principles of

competition which we shall hereafter examine.

From the current prices the manufacturers are as well informed as if

they kept the correspondence themselves: the statesman feels perfectly

where hands are wanting, and young people destined to industry, obey, in

a manner, the call of the public, and fall naturally in to supply the

demand.

Two great assistances to merchants, especially in the infancy of trade,

are public markets for collecting the work of small dealers, and large

undertakings in the manufacturing way by private hands. By these means

the merchants come at the knowledge of the quantity of work in the

market, as on the other hand the manufacturers learn, by the sale of the

goods, the extent of the demand for them. These two things being justly

known, the price of goods is easily fixt, as we shall presently see.

Public sales serve to correct the small inconveniencies which proceed

from the operations of trade. A set of manufacturers got all together

into one town, and entirely taken up with their industry, are thereby as

well informed of the rate of the market as if every one of them carried

thither his work, and upon the arrival of the merchant, who readily

takes it off their hands, he has not the least advantage over them from

his knowledge of the state of demand. This man both buys and sells in

what is called wholesale (that is by large parcels) and from him

retailers purchase, who distribute the goods to every consumer

throughout the country. These last buy from wholesale merchants in every

branch, that proportion of every kind of merchandize which is suitable

to the demand of their borough, city, or province.

Thus all inconveniencies are prevented, at some additional cost to the

consumer, who, for reasons we shall afterwards point out, must naturally

reimburse the whole expence. The distance of the manufacturer, the

obscurity of his dwelling, the caprice in selling his work, are quite

removed; the retailer has all in his shop, and the public buys at a

current price.

------------------------------------------------------------------------

CHAP. IV.

_How the Prices of Goods are determined by Trade._

In the price of goods, I consider two things as really existing, and

quite different from one another; to wit, the real value of the

commodity, and the profit upon alienation. The intention of this chapter

is to establish this distinction, and to shew how the operation of trade

severally influences the standard of the one and the other; that is to

say, how trade has the effect of rendering fixt and determined, two

things which would otherwise be quite vague and uncertain.

I. The first thing to be known of any manufacture when it comes to be

sold, is, how much of it a person can perform in a day, a week, a month,

according to the nature of the work, which may require more or less time

to bring it to perfection. In making such estimates, regard is to be had

only to what, upon an average, a workman of the country in general may

perform, without supposing him the best or the worst in his profession;

or having any peculiar advantage or disadvantage as to the place where

he works.

Hence the reason why some people thrive by their industry, and others

not; why some manufactures flourish in one place and not in another.

II. The second thing to be known, is the value of the workman’s

subsistence and necessary expence, both for supplying his personal

wants, and providing the instruments belonging to his profession, which

must be taken upon an average as above; except when the nature of the

work requires the presence of the workman in the place of consumption:

for although some trades, and almost every manufacture, may be carried

on in places at a distance, and therefore may fall under one general

regulation as to prices, yet others there are which, by their nature,

require the presence of the workman in the place of consumption; and in

that case the prices must be regulated by circumstances relative to

every particular place.

III. The third and last thing to be known, is the value of the

materials, that is the first matter employed by the workman; and if the

object of his industry be the manufacture of another, the same process

of inquiry must be gone through with regard to the first, as with regard

to the second: and thus the most complex manufactures may be at last

reduced to the greatest simplicity. I have been more particular in this

analysis of manufactures than was absolutely necessary in this place,

that I might afterwards with the greater ease point out the methods of

diminishing the prices of them.

These three articles being known, the price of manufacture is

determined. It cannot be lower than the amount of all the three, that

is, than the real value; whatever it is higher, is the manufacturer’s

profit. This will ever be in proportion to demand, and therefore will

fluctuate according to circumstances.

Hence appears the necessity of a great demand, in order to promote

flourishing manufactures.

By the extensive dealings of merchants, and their constant application

to the study of the balance of work and demand, all the above

circumstances are known to them, and are made known to the industrious,

who regulate their living and expence according to their certain profit.

I call it certain, because under these circumstances they seldom

overvalue their work, and by not overvaluing it, they are sure of a

sale: a proof of this may be had from daily experience.

Employ a workman in a country where there is little trade or industry,

he proportions his price always to the urgency of your want, or your

capacity to pay; but seldom to his own labour. Employ another in a

country of trade, he will not impose upon you, unless perhaps you be a

stranger, which supposes your being ignorant of the value; but employ

the same workman in a work not usual in the country, consequently not

demanded, consequently not regulated as to the value, he will proportion

his price as in the first supposition.

We may therefore conclude from what has been said, that in a country

where trade is established, manufactures must flourish, from the ready

sale, the regulated price of work, and certain profit resulting from

industry. Let us next inquire into the consequences of such a situation.

------------------------------------------------------------------------

CHAP. V.

_How foreign Trade opens to an industrious People, and the consequences

of it to_ the Merchants _who set it on foot_.

The first consequence of the situation described in the preceding

chapter, is, that wants are easily supplied, for the adequate value of

the thing wanted.

The next consequence is, the opening of foreign trade under its two

denominations of passive and active. Strangers and people of distant

countries finding the difficulty of having their wants supplied at home,

and the ease of having them supplied from this country, immediately have

recourse to it. This is passive trade. The active is when merchants, who

have executed this plan at home with success, begin to transport the

labour of their countrymen into other regions, which either produce, or

are capable of producing such articles of consumption, proper to be

manufactured, as are most demanded at home; and consequently will meet

with the readiest sale, and fetch the largest profits.

Here then is the opening of foreign trade, under its two denominations

of active and passive: but as our present point of view is the

consequences of this revolution to the merchants, we shall take no

farther notice, in this place, of that division: it will naturally come

in afterwards.

What then are the consequences of this new commerce to our merchants,

who have left their homes in quest of gain abroad?

The first is, that arriving in any new country, they find themselves in

the same situation, with regard to the inhabitants, as the workman in

the country of no trade, with regard to those who employed him; that is,

they proportion the price of their goods to the eagerness of acquiring,

or the capacity of paying, in the inhabitants, but never to their real

value.

The first profits then, upon this trade, must be very considerable; and

the demand from such a country will be _high_ or _low_, _great_ or

_small_, according to the spirit, not the real wants of the people: for

these in all countries, as has been said, must first be supplied by the

inhabitants themselves, before they cease to labour.

If the people of this not-trading country (as we shall now call it) be

abundantly furnished with commodities useful to the traders, they will

easily part with them, at first, for the instruments of luxury and ease;

but the great profit of the traders will insensibly increase the demand

for the productions of their new correspondents; this will have the

effect of producing a competition between themselves, and thereby of

throwing the demand on their side, from the principles I shall

afterwards explain. This is perpetually a disadvantage in traffic: the

most unpolished nations in the world quickly perceive the effects of it;

and are taught to profit of the discovery, in spite of the address of

those who are the most expert in commerce.

The traders will, therefore, be very fond of falling upon every method

and contrivance to inspire this people with a taste of refinement and

delicacy. Abundance of fine presents, consisting of every instrument of

luxury and superfluity, the best adapted to the genius of the people,

will be given to the prince and leading men among them. Workmen will

even be employed at home to study the taste of the strangers, and to

captivate their desires by every possible means. The more eager they are

of presents, the more lavish the traders will be in bestowing and

diversifying them. It is an animal put up to fatten, the more he eats

the sooner he is fit for slaughter. When their taste for superfluity is

fully formed, when the relish for their former simplicity is

sophisticated, poisoned, and obliterated, then they are surely in the

fetters of the traders, and the deeper they go, the less possibility

there is of their getting out. The presents then will die away, having

served their purpose; and if afterwards they are found to be continued,

it will probably be to support the competition against other nations,

who will incline to share of the profits.

If, on the contrary, this not-trading nation does not abound with

commodities useful to the traders, these will make little account of

trading with them, whatever their turn may be; but if we suppose this

country inhabited by a laborious people, who, having taken a taste for

refinement from the traders, apply themselves to agriculture, in order

to produce articles of subsistence, they will sollicit the merchants to

give them part of their manufactures in exchange for those; and this

trade will undoubtedly have the effect of multiplying numbers in the

trading nation. But if food cannot be furnished, nor any other branch of

production found out to support the correspondence, the taste for

refinement will soon die away, and trade will stop in this quarter.

Had it not been for the furs in those countries adjacent to Hudson’s

Bay, and in Canada, the Europeans never would have thought of supplying

instruments of luxury to those nations; and if the inhabitants of those

regions had not taken a taste for the instruments of luxury furnished to

them by the Europeans, they never would have become so indefatigable nor

so dexterous hunters. At the same time we are not to suppose, that ever

these Americans would have come to Europe in quest of our manufactures.

It is therefore owing to our merchants, that these nations are become in

any degree fond of refinement; and this taste, in all probability, will

not soon exceed the proportion of the productions of their country. From

these beginnings of foreign trade it is easy to trace its increase.

One step towards this, is the establishing correspondences in foreign

countries; and these are more or less necessary in proportion as the

country where they are established is more or less polished or

acquainted with trade. They supply the want of posts, and point out to

the merchants what proportion the productions of the country bear to the

demand of the inhabitants for manufactures. This communicates an idea of

commerce to the not-trading nation, and they insensibly begin to fix a

determined value upon their own productions, which perhaps bore no

determined value at all before.

Let me trace a little the progress of this refinement in the savages, in

order to shew how it has the effect of throwing the demand upon the

traders, and of creating a competition among them, for the productions

of the new country.

Experience shews, that in a new discovered country, merchants constantly

find some article or other of its productions, which turns out to a

great account in commerce; and we see that the longer such a trade

subsists, and the more the inhabitants take a taste for European

manufactures, the more their own productions rise in their value, and

the less profit is made by trading with them, even in cases where the

trade is carried on by companies; which is a very wise institution for

one reason, that it cuts off a competition between our merchants.

This we shall shew, in its proper place, to be the best means of keeping

prices low in favour of the nation; however it may work a contrary

effect with respect to individuals who must buy from these monopolies.

When companies are not established, and when trade is open, our

merchants, by their eagerness to profit of the new trade, betray the

secrets of it, they enter into competition for the purchase of the

foreign produce, and this raises prices and favours the commerce of the

most ignorant savages.

Some account for this in a different manner. They alledge that it is not

this competition which raises prices; because there is also a

competition among the savages as to which of them shall get the

merchandize; and this may be sufficient to counterbalance the other, and

in proportion as the quantity of goods demanded by the savages, as an

exchange for the produce of their country, becomes greater, a less

quantity of this produce must be given for every parcel of the goods.

To this I answer, That I cannot admit this apparent reason to be

consistent with the principles of trade, however ingenious the conceit

may be.

The merchant constantly considers his own profit in parting with his

goods, and is not influenced by the reasons of expediency which the

savages may find, to offer him less than formerly; for were this

principle of proportion admitted generally, the price of merchandize

would always be at the discretion of the buyers.

The objection here stated is abundantly plain; but it must be resolved

in a very different manner. Here are two solutions:

1. Prices, I have said, are made to rise, according as demand is _high_,

not according as it is _great_. Now, in the objection, it is said, that,

in proportion as the demand is _great_, a less proportion of the

equivalent must go to every parcel of the merchandize; which I apprehend

to be false: and this shews the necessity of making a distinction

between the _high_ and the _great_ demand, which things are different in

trade, and communicate quite different ideas.

2. In all trade there is an exchange, and in all exchange, we have said,

there is a reciprocal demand implied: it must therefore be exactly

inquired into, on which hand the competition between the demanders is

found; that is to say, on which hand it is _strongest_; according to the

distinction in the second chapter.

If the inhabitants of the country be in competition for the

manufactures, goods will rise in their price most undoubtedly, let the

quantity of the produce they have to offer be large or small; but so

soon as these prices rise above the faculties, or desire of buying, in

certain individuals, their demand will stop, and their equivalent will

be prevented from coming into commerce. This will disappoint the

traders; and therefore, as their gains are supposed to be great, either

a competition will take place among themselves, who shall carry off the

quantity remaining, supposing them to have separate interests; or, if

they are united, they may, from a view of expediency, voluntarily sink

their price, in order to bring it within the compass of the faculties,

or intention, to buy in those who are still possessed of a portion of

what they want.

It is from the effects of competition among sellers that I apprehend

prices are brought down, not from any imaginary proportion of quantity

to quantity in the market. But of this more afterwards, in its proper

place.

So soon as the price of manufactures is brought as low as possible, in

the new nation; if the surplus of their commodities does not suffice to

purchase a quantity of manufactures proportioned to their wants, this

people must begin to labour: for labour is the necessary consequence of

want, real or imaginary; and by labour it will be supplied.

When this comes to be the case, we immediately find two trading nations

in place of one; the balance of which trade will always be in favour of

the most industrious and frugal; as shall be fully explained in another

place.

Let me now direct my inquiry more particularly towards the consequences

of this new revolution produced by commerce, relative to the not-trading

nation, in order to shew the effect of a passive foreign trade. I shall

spare no pains in illustrating, upon every occasion, as I go along, the

fundamental principles of commerce, demand, and competition, even

perhaps at the expence of appearing tiresome to some of my readers.

------------------------------------------------------------------------

CHAP. VI.

_Consequences of the introduction of a passive foreign Trade among a

People who live in Simplicity and Idleness._

We now suppose the arrival of traders, all in one interest, with

instruments of luxury and refinement, at a port in a country of great

simplicity of manners, abundantly provided by nature with great

advantages for commerce, and peopled by a nation capable of adopting a

taste for superfluities.

The first thing the merchants do, is to expose their goods, and point

out the advantages of many things, either agreeable or useful to mankind

in general, such as wines, spirits, instruments of agriculture, arms,

and ammunition for hunting, nets for fishing, manufactures for clothing,

and the like. The advantages of these are presently perceived, and such

commodities are eagerly sought after.

The natives on their side produce what they most esteem, generally

something superfluous or ornamental. The traders, after examining all

circumstances, determine the object of their demand, giving the least

quantity possible in return for this superfluity, in order to impress

the inhabitants with a high notion of the value of their own

commodities; but as this parsimony may do more hurt than good to their

interest, they are very generous in making presents, from the principles

mentioned above.

When the exchange is completed, and the traders depart, regret is

commonly mutual; the one and the other are sorry that the superfluities

of the country fall short. A return is promised by the traders, and

assurances are given by the natives, of a better provision another time.

What are the first consequences of this revolution?

It is not evident, that, in order to supply an equivalent for this new

want, more hands must be set to work than formerly. And it is evident

also, that this augmentation of industry will not essentially increase

numbers, as was supposed to be the effect of it through the whole train

of our reasoning in the first book. Why? Because _there_ the produce of

the industry was supposed to be consumed at home; and _here_ it is

intended to be exported. But if we can find out any additional

consumption at home even implied by this new trade, I think it will have

the effect of augmenting numbers. An example will make this plain.

Let me suppose the superfluity of this country to be the skins of wild

beasts, not proper for food; the manufacture sought for, brandy. The

brandy is sold for furs. He who has furs, or he who can spare time to

hunt for them, will drink brandy in proportion: but I cannot find out

any reason to conclude from this simple operation, that one man more in

the country must necessarily be fed, (for I have taken care to suppose,

that the flesh of the animals is not proper for food) or that any

augmentation of agriculture must of consequence ensue from this new

traffic.

But let me throw in a circumstance which may imply an additional

consumption at home, and then examine the consequences.

A poor creature, who has no equivalent to offer for food, who is

miserable, and ready to perish for want of subsistence, goes a-hunting,

and kills a wolf; he comes to a farmer with the skin, and says; You are

well fed, but you have no brandy; if you will give me a loaf, I will

give you this skin, which the strangers are so fond of, and they will

give you brandy. But, says the farmer, I have no more bread than what is

sufficient for my own family. As for that, replies the other, I will

come and dig in your ground, and you and I will settle our account as to

the small quantity I desire of you. The bargain is made; the poor fellow

gets his loaf, and lives at least; perhaps he marries, and the farmer

gets a dram. But had it not been for this dram, (that is, this new want)

which was purchased by the industry of this poor fellow, by what

argument could he have induced the farmer, to part with a loaf.

I here exclude the sentiment of charity. This alone, as I have often

observed, is a principle of multiplication, and if it was admitted here,

it would ruin all my supposition; but as true it is, on the other hand,

that could the poor fellow have got bread by begging, he would not

probably have gone a-hunting.

Here then it appears, that the very dawning of trade, in the most

unpolished countries, implies a multiplication. This is enough to point

out the first step, and to connect the subject of our present inquiries

with what has been already discussed in relation to other circumstances.

I proceed.

So soon as all the furs are disposed of, and a taste for superfluity

introduced, both the traders and the natives will be equally interested

in the advancement of industry in this country. Many new objects of

profit for the first will be discovered, which the proper employment of

the inhabitants, in reaping the natural advantages of their soil and

climate, will make effectual. The traders will therefore endeavour to

set on foot many branches of industry among the savages, and the

allurements of brandy, arms, and clothing, will animate these in the

pursuit of them. Let me here digress for a few lines.

If we suppose slavery to be established in this country, then all the

slaves will be set to work, in order to provide furs and other things

demanded by the traders, that the masters may thereby be enabled to

indulge themselves in the superfluities brought to them by the

merchants. When liberty is the system, every one, according to his

disposition, becomes industrious, in order to procure such enjoyments

for himself.

In the first supposition, it is the head of the master which conducts

the labour of the slave, and turns it towards ingenuity: in the second,

every head is at work, and every hand is improving in dexterity. Where

hands therefore are principally necessary, the slaves have the

advantage; where heads are principally necessary, the advantage lies in

favour of the free. Set a man to labour at so much a day, he will go on

at a regular rate, and never seek to improve his method: let him be

hired by the piece, he will find a thousand expedients to extend his

industry. This is exactly the difference between the slave and the free

man. From this I account for the difference between the progress of

industry in antient and modern times. Why was a _peculium_ given to

slaves, but to engage them to become dextrous? Had there been no

_peculium_ and no _libertini_, or free men, who had been trained to

labour, there would have been little more industry any where, than there

was in the republic of Lycurgus, where, I apprehend, neither the one or

the other was to be found. I return.

When once this revolution is brought about; when those who formerly

lived in simplicity become industrious; matters put on a new face. Is

not this operation quite similar to that represented in the fifth

chapter of the first book? There I found the greatest difficulty, in

shewing how the mutual operations of supplying food and other wants

could have the effect of promoting population and agriculture, among a

people who were supposed to have no idea of the system proposed to be

put in execution. Here the plan appears familiar and easy. The

difference between them seems to resemble that of a child’s learning a

language by grammar, or learning it by the ear in the country where it

is spoken. In the first case, many throw the book aside, but in the

other none ever fail of success.

I have said, that matters put on a new face; that is to say, we now find

two trading nations instead of one, with this difference, however, that

as hitherto we have supposed the merchants all in one interest, the

compound demand, that is, the competition of the buyers, has been, and

must still continue on the side of the natives. This is a great

prejudice to their interest, but as it is not supposed sufficient to

check their industry, nor to restrain their consumption of the

manufactures, let me here examine a little more particularly the

consequences of the principle of demand in such a situation; for

although I allow, that it can never change sides, yet it may admit of

different modifications, and produce different effects, as we shall

presently perceive.

The merchants we suppose all in one interest, consequently there can be

no competition among them; consequently no check can be put upon their

raising their prices, as long as the prices they demand are complied

with. So soon as they are raised to the full extent of the abilities of

the natives, or of their inclination to buy, the merchants have the

choice of three things, which are all perfectly in their option, and the

preference to be given to the one or the other depends intirely upon

themselves, and upon the circumstances I am going to point out.

First, they may support the _high_ demand; that is, not lower their

price; which will preserve a high estimation of the manufactures in the

opinion of the inhabitants, and render the profits upon their trade the

greatest possible. This part they may possibly take, if they perceive

the natives doubling their diligence, in order to become able, in time,

to purchase considerable cargoes at a high value; from which supposition

is implied a strong disposition in the people to become luxurious, since

nothing but want of ability prevents them from complying with the

highest demand: but still another circumstance must concur, to engage

the merchants not to lower their price. The great proportion of the

goods they seek for, in return, must be found in the hands of a few.

This will be the case if slavery be established; for then there must be

many poor, and few rich: and they are commonly the rich consumers who

proportion the price they offer, rather to their desires, than to the

value of the thing.

The second thing which may be done is, to open the door to a _great_

demand; that is, to lower their prices. This will sink the value of the

manufactures in the opinion of the inhabitants, and render profits less

in proportion, although indeed, upon the voyage, the profits may be

greater.

This part they will take, if they perceive the inhabitants do not

incline to consume great quantities of the merchandize at a high value,

either from want of abilities or inclination; and also, if the profits

upon the trade depend upon a large consumption, as is the case in

merchandize of a low value, and suited chiefly to the occasions of the

lower sort. Such motives of expediency will be sufficient to make them

neglect a _high_ demand, and prefer a _great_ one; and the more, when

there is a likelihood that the consumption of low-priced goods in the

beginning may beget a taste for others of a higher value, and thus

extend in general the taste of superfluity.

A third part to be taken, is the least politic, and perhaps the most

familiar. It is to profit by the competition between the buyers, and

encourage the rising of demand as long as possible; when this comes to a

stop, to make a kind of auction, by first bringing down the prices to

the level of the highest bidders, and so to descend by degrees, in

proportion as demand sinks. Thus we may say with propriety, according to

our definitions of demand, that it commonly becomes _great_, in

proportion as prices sink. By this operation, the traders will profit as

much as possible, and sell off as much of their goods as the profits

will permit.

I say, this plan, in a new discovered country, is not politic, as it

both discovers a covetousness and a want of faith in the merchants, and

also throws open the secrets of their trade to those who ought to be

kept ignorant of them.

Let me next suppose, that the large profits of our merchants shall be

discovered by others, who arrive at the same ports in a separate

interest, and who enter into no combination which might prevent the

natural effects of competition.

Let the state of demand among the natives be supposed the same as

formerly, both as to _height_ and _greatness_, in consequence of the

operation of the different principles, which might have induced our

merchants to follow one or other of the plans we have been describing;

we must however still suppose, that they have been careful to preserve

considerable profits upon every branch.

If we suppose the inhabitants to have increased in numbers, wealth, and

taste for superfluity, since the last voyage, demand will be found

rather on the rising hand. Upon the arrival of the merchants in

competition with the former, both will offer to sale; but if both stand

to the same prices, it is very natural to suppose, that the former

dealers will obtain a preference; as _cæteris paribus_, it is always an

advantage to know and to be known. The last comers, therefore, have no

other way left to counterbalance this advantage, but to lower their

prices.

This is a new phoenomenon: here the fall of prices is not voluntary as

formerly; not consented to from expediency; not owing to a failure of

demand, but to the influence of a new principle of commerce, to wit, a

double competition. This I shall now examine with all the care I am

capable of.

------------------------------------------------------------------------

CHAP. VII.

_Of double Competition._

When _competition_ is much stronger on one side of the contract than on

the other, I call it _simple_, and then it is a term synonimous with

what I have called _compound demand_. This is the species of competition

which is implied in the term _high demand_, or when it is said, that

_demand raises prices_.

_Double competition_ is, when, in a certain degree, it takes place on

both sides of the contract at once, or vibrates alternately from one to

the other. This is what restrains prices to the adequate value of the

merchandize.

I frankly confess I feel a great want of language to express my ideas,

and it is for this reason I employ so many examples, the better to

communicate certain combinations of them, which otherwise would be

inextricable.

The great difficulty is to distinguish clearly between the principles of

_demand_, and those of _competition_: here then follows the principal

differences between the two, relatively to the effects they produce

severally in the mercantile contract of buying and selling, which I here

express shortly by the word _contract_.

_Simple demand_ is what brings the quantity of a commodity to market.

Many demand, who do not buy; many offer, who do not sell. This demand is

called _great_ or _small_; it is said to _increase_, to _augment_, to

_swell_; and is expressed by these and other synonimous terms, which

mark an augmentation or diminution of quantity. In this species, two

people never demand the same thing, but a part of the same thing, or

things quite alike.

_Compound demand_ is the principle which raises prices, and never can

make them sink; because in this case more than one demands the very same

thing. It is solely applicable to the buyers, in relation to the price

they offer. This demand is called _high_ or _low_, and is said to

_rise_, to _fall_, to _mount_, to _sink_, and is expressed by these and

other synonimous terms.

_Simple competition_, when between buyers, is the same as _compound_ or

_high demand_, but differs from it in so far, as this may equally take

place among sellers, which _compound demand_ cannot, and then it works a

contrary effect: it makes prices _sink_, and is synonimous with _low

demand_: it is this competition which overturns the balance of work and

demand; of which afterwards.

_Double competition_ is what is understood to take place in almost every

operation of trade; it is this which prevents the excessive rise of

prices; it is this which prevents their excessive fall. While _double

competition_ prevails, the balance is perfect, trade and industry

flourish.

The capital distinction, therefore, between the terms _demand_ and

_competition_ is, that _demand_ is constantly relative to the buyers,

and when money is not the price, as in barter, then it is relative to

that side upon which the greatest _competition_ is found.

We therefore say, with regard to _prices_, demand is _high_ or _low_.

With regard _to the quantity of merchandize_, demand is _great_ or

_small_. With regard _to competition_, it is always called _great_ or

_small_, _strong_ or _weak_.

_Competition_, I have said, is, with equal propriety, applicable to both

parties in the contract. A _competition_ among buyers is a proper

expression; a _competition_ among sellers, who have the merchandize, is

fully as easily understood, though it be not quite so striking, for

reasons which an example will make plain.

You come to a fair, where you find a great variety of every kind of

merchandize, in the possession of different merchants. These, by

offering their goods to sale, constitute a tacit competition; every one

of them wishes to sell in preference to another, and at the same time

with the best advantage to himself.

The buyers begin, by cheapning at every shop. The first price asked

marks the covetousness of the seller; the first price offered, the

avarice of the buyer. From this operation, I say, competition begins to

work its effects on both sides, and so becomes double. The principles

which influence this operation are now to be deduced.

It is impossible to suppose the same degree of eagerness, either to buy

or to sell, among several merchants; because the degree of eagerness I

take to be exactly in proportion to their view of profit; and as these

must necessarily be influenced and regulated by different circumstances,

that buyer, who has the best prospect of selling again with profit,

obliges him, whose prospect is not so good, to content himself with

less; and that seller, who has bought to the best advantage, obliges

him, who has paid dearer for the merchandize, to moderate his desire of

gain.

It is from these principles, that competition among buyers and sellers

must take place. This is what confines the fluctuation of prices within

limits which are compatible with the reasonable profits of both buyers

and sellers; for, as has been said, in treating of trade, we must

constantly suppose the whole operation of buying and selling to be

performed by merchants; the buyer cannot be supposed to give so high a

price as that which he expects to receive, when he distributes to the

consumers, nor can the seller be supposed to accept of a lower than that

which he paid to the manufacturer. This competition is properly called

double, because of the difficulty to determine upon which side it

stands; the same merchant may have it in his favour upon certain

articles, and against him upon others; it is continually in vibration,

and the arrival of every post may less or more pull down the heavy

scale.

In every transaction between merchants, the profit resulting from the

sale must be exactly distinguished from the value of the merchandize.

The first _may_ vary, the last never _can_. It is this profit alone

which can be influenced by competition; and it is for that reason we

find such uniformity every where in the prices of goods of the same

quality.

The competition between sellers does not appear so striking, as that

between buyers; because he who offers to sale, appears only passive in

the first operation; whereas the buyers present themselves one after

another; they make a demand, and when the merchandize is refused to one

at a certain price, a second either offers more, or does not offer at

all: but so soon as another seller finds his account in accepting the

price the first had refused, then the first enters into competition,

providing his profits will admit his lowering the first price, and thus

competition takes place among the sellers, until the profits upon their

trade prevent prices from falling lower.

In all markets, I have said, this competition is varying, though

insensibly, on many occasions; but in others, the vibrations are very

perceptible. Sometimes it is found strongest on the side of the buyers,

and in proportion as this grows, the competition between the sellers

diminishes. When the competition between the former has raised prices to

a certain standard, it comes to a stop; then the competition changes

sides, and takes place among the sellers, eager to profit of the highest

price. This makes prices fall, and according as they fall, the

competition among the buyers diminishes. They still wait for the lowest

period. At last it comes; and then perhaps some new circumstance, by

giving the balance a kick, disappoints their hopes. If therefore it ever

happens, that there is but one interest upon one side of the contract,

as in the example in the former chapter, where we supposed the sellers

united, you perceive, that the rise of the price, occasioned by the

competition of the buyers, and even its coming to a stop, could not

possibly have the effect of producing any competition on the other side;

and therefore, if prices come afterwards to sink, the fall must have

proceeded from the prudential considerations of adapting the price to

the faculties of those, who, from the height of it, had withdrawn their

demand.

From these principles of competition, the forestalling of markets is

made a crime, because it diminishes the competition which ought to take

place between different people, who have the same merchandize to offer

to sale. The forestaller buys all up, with an intention to sell with

more profit, as he has by that means taken other competitors out of the

way, and appears with a single interest on one side of the contract, in

the face of many competitors on the other. This person is punished by

the state, because he has prevented the price of the merchandize from

becoming justly proportioned to the real value; he has robbed the

public, and enriched himself; and in the punishment, he makes

restitution. Here occur two questions to be resolved, for the sake of

illustration.

Can competition among buyers possibly take place, when the provision

made is more than sufficient to supply the quantity demanded? On the

other hand, can competition take place among the sellers, when the

quantity demanded exceeds the total provision made for it?

I think it may in both cases; because in the one and the other, there is

a competition implied on one side of the contract, and the very nature

of this competition implies a possibility of its coming on the other,

provided separate interests be found upon both sides. But to be more

particular.

1. Experience shews, that however justly the proportion between the

demand and the supply may be determined in fact, it is still next to

impossible to discover it exactly, and therefore buyers can only

regulate the prices they offer, by what they may reasonably expect to

sell for again. The sellers, on the other hand, can only regulate the

prices they expect, by what the merchandize has cost them when brought

to market. We have already shewn, how, under such circumstances, the

several interests of individuals affect each other, and make the balance

vibrate.

2. The proportion between the supply and the demand is seldom other than

_relative_ among merchants, who are supposed to buy and sell, not from

necessity, but from a view to profit. What I mean by _relative_ is, that

their demand is _great_ or _small_, according to prices: there may be a

great demand for grain at 35 shillings _per_ quarter, and no demand at

all for it at 40 shillings; I say, among merchants.

Here I must observe, how essential it is, to attend to the smallest

circumstance in matters of this kind. The circumstance I here have in my

eye, is the difference I find in the effect of competition, when it

takes place purely among merchants on both sides of the contract, and

when it happens, that either the consumers mingle themselves with the

merchant-buyers, or the manufacturers, that is, the furnishers, mingle

themselves with the merchant-sellers. This combination I shall

illustrate, by the solution of another question, and then conclude my

chapter with a few reflections upon the whole.

Can there be no case formed, where the competition upon one side may

subsist, without a possibility of its taking place on the other,

although there should be separate interests upon both?

I answer. The case is hardly supposable among merchants, who buy and

sell with a view to profit; but it is absolutely supposable, and that is

all, when the direct consumers are the buyers; when the circumstances of

one of the parties is perfectly known; and when the competition is so

strong upon one side, as to prevent a possibility of its becoming

double, before the whole provision is sold off, or the demand satisfied.

Let me have recourse to examples.

Grain arriving in a small quantity, at a port where the inhabitants are

starving, produces so great a competition among the consumers, who are

the buyers, that their necessity becomes evident; all the grain is

generally bought up before prices can rise so high as to come to a stop;

because nothing but want of money, that is, an impossibility of

complying with the prices demanded by the merchants, can restrain them:

but if you suppose, even here, that prices come naturally to a stop; or

that, after some time, they fall lower, from prudential considerations,

then there is a possibility of a competition taking place among the

sellers, from the principles above deduced. If, on the contrary, the

stop is not natural, but occasioned by the interposition of the

magistrate, from humanity, or the like, there will be no competition,

because then the principles of commerce are suspended; the sellers are

restrained on one side, and they restrain the buyers on the other. Or

rather, indeed, it is the magistrate, or compassion, who in a manner

fixes the price, and performs the office of both buyer and seller.

A better example still may be found, in a competition among sellers;

where it may be so strong, as to render a commodity in a manner of no

value at all, as in the case of an uncommon and unexpected draught of

fish, in a place of small consumption, when no preparations have been

made for salting them. There can be then no competition among the

buyers; because the market cannot last, and they find themselves

entirely masters, to give what price they please, being sure the sellers

must accept of it, or lose their merchandize. In the first example,

humanity commonly stops the activity of the principle of competition; in

the other it is stopt by a certain degree of fair-dealing, which forbids

the accepting of a merchandize for nothing.

In proportion therefore as the rising of prices can stop demand, or the

sinking of prices can increase it, in the same proportion will

competition prevent either the rise or the fall from being carried

beyond a certain length: and if such a case can be put, where the rising

of prices cannot stop demand, nor the lowering of prices augment it, in

such cases double competition has no effect; because these circumstances

unite the most separate interests of buyers and sellers in the

mercantile contract, and when upon one side there is no separate

interest, there can then be no competition.

From what has been said, we may form a judgment of the various degrees

of competition. A book not worth a shilling, a fish of a few pounds

weight, are often sold for considerable sums. The buyers here are not

merchants. When an ambassador leaves a court in a hurry, things are sold

for less than the half of their value: he is no merchant, and his

situation is known. When, at a public market, there are found consumers,

who make their provision; or manufacturers, who dispose of their goods

for present subsistence; the merchants, who are respectively upon the

opposite side of the contract to these, profit of their competition; and

those who are respectively upon the same side with them, stand by with

patience, until they have finished their business. Then matters come to

be carried on between merchant and merchant, and then, I allow, that

profits may rise and fall, in the proportion of quantity to demand; that

is to say, if the provision is less than the demand, the competition

among the demanders, or the rise of the price, will be in the compound

proportion of the falling short of the commodity, and of the prospect of

selling again with profit. It is this combination which regulates the

competition, and keeps it within bounds. It can affect but the profits

upon the transaction; the intrinsic value of the commodity stands

immoveable: nothing is ever sold below the real value; nothing is ever

bought for more than it may probably bring. I mean in general. Whereas

so soon as consumers and needy manufacturers mingle in the operation,

all proportion is lost. The competition between them is too strong for

the merchants; the balance vibrates by jerks. In such markets merchants

seldom appear: the principal objects there, are the fruits and

productions of the earth, and articles of the first necessity for life,

not manufactures strictly so called. A poor fellow often sells, to

purchase bread to eat; not to pay what he did eat, while he was employed

in the work he disposes of. The consumer often measures the value of

what he is about to purchase, by the weight of his purse, and his desire

to consume.

As these distinctions cannot be conveyed in the terms by which we are

obliged to express them, and as they must frequently be implied, in

treating of matters relating to trade and industry, I thought the best

way was, to clear up my own ideas concerning them, and to lay them in

order before my reader, before I entred farther into my subject.

All difference of opinion upon matters of this nature proceeds, as I

believe, from our language being inadequate to express our ideas, from

our inattention, in using terms which appear synonimous, and from our

natural propensity to include, under general rules, things which, upon

some occasions, common reason requires to be set asunder.

------------------------------------------------------------------------

CHAP. VIII.

_Of what is called Expence, Profit, and Loss._

As we have been employed in explaining of terms, it will not be amiss to

say a word concerning those which stand in the title of this chapter.

The term _expence_, when simply expressed, without any particular

relation, is always understood to be relative to money. This kind I

distinguish under the three heads, of _private_, _public_, and

_national_.

1. _Private_ expence is, what a private person, or private society, lays

out, either to provide articles of consumption, or something more

permanent, which may be conducive to their ease, convenience, or

advantage. Thus we say, _a large domestic expence_, relative to one who

spends a great income. We say, a merchant has been at _great expence_

for magazines, for living, for clerks, &c. but never that he has been at

any in buying goods. In the same way a manufacturer may expend for

building, machines, horses, and carriages, but never for the matter he

manufactures. When a thing is bought, in order to be sold again, the sum

employed is called money _advanced_; when it is bought not to be sold,

it may be said to be _expended_.

2. _Public expence_ is, the employment of that money, which has been

contributed by individuals, for the current service of the state. The

contribution, or gathering it together, represents the effects of many

articles of _private expence_; the laying it out when collected, is

_public expence_.

3. _National expence_, is what is expended out of the country: this is

what diminishes national wealth. The principal distinction to be here

attended to, is between _public expence_, or the laying out of public

money, and _national expence_, which is the alienating the nation’s

wealth in favour of strangers. Thus the greatest _public expence_

imaginable, may be no national expence; because the money may remain at

home. On the other hand, the smallest _public_, or even _private

expence_, may be a national expence; because the money may go abroad.

_Profit_, and _loss_, I divide into _positive_, _relative_, and

_compound_. _Positive profit_, implies no loss to any body; it results

from an augmentation of labour, industry, or ingenuity, and has the

effect of swelling or augmenting the public good.

_Positive loss_, implies no profit to any body; it is what results from

the cessation of the former, or of the effects resulting from it, and

may be said to diminish the public good.

_Relative profit_, is what implies a loss to some body; it marks a

vibration of the balance of wealth between parties, but implies no

addition to the general stock.

_Relative loss_, is what, on the contrary, implies a profit to some

body; it also marks a vibration of the balance, but takes nothing from

the general stock.

The _compound_ is easily understood; it is that species of profit and

loss which is partly _relative_, and partly _positive_. I call it

compound, because both kinds may subsist inseparably in the same

transaction.

------------------------------------------------------------------------

CHAP. IX.

_The general consequences resulting to a trading Nation, upon the

opening of an active foreign Commerce._

Did I not intend to confine myself to very general topics in this

chapter, I might in a manner exhaust the whole subject of modern

oeconomy under this title; for I apprehend that the whole system of

modern politics is founded upon the basis of an active foreign trade.

A nation which remains passive in her commerce, is at the mercy of those

who are active, and must be greatly favoured, indeed, by natural

advantages, or by a constant flux of gold and silver from her mines, to

be able to support a correspondence, not entirely hurtful to the

augmentation of her wealth.

These things shall be more enlarged upon as we go along: the point in

hand, is, to consider the consequences of this trade, relatively to

those who are the actors in the operation.

When I look upon the wide field which here opens to my view, I am

perplexed with too great a variety of objects. In one part, I see a

decent and comely beginning of industry; wealth flowing gently in, to

recompence ingenuity; numbers both augmenting, and every one becoming

daily more useful to another; agriculture proportionally extending

itself; no violent revolutions; no exorbitant profits; no insolence

among the rich; no excessive misery among the poor; multitudes employed

in producing; great oeconomy upon consumption; and all the instruments

of luxury, daily produced by the hands of the diligent, going out of the

country for the service of strangers; not remaining at home for the

gratification of sensuality. At last the augmentations come insensibly

to a stop. Then these rivers of wealth, which were in brisk circulation

through the whole world, and which returned to this trading nation as

blood returns to the heart, only to be thrown out again by new

pulsations, begin to be obstructed in their course; and flowing abroad

more slowly than before, come to form stagnations at home. These,

impatient of restraint, soon burst out into domestic circulation. Upon

this cities swell in magnificence of buildings; the face of the country

is adorned with palaces, and becomes covered with groves; luxury shines

triumphant in every part; inequality becomes more striking to the eye;

and want and misery appear more deformed, from the contrast: even

fortune grows more whimsical in her inconstancy; the beggar of the other

day, now rides in his coach; and he who was born in a bed of state, is

seen to die in a gaol, or in an alms-house. Such are the effects of

great domestic circulation.

The statesman looks about with amazement; he, who was wont to consider

himself as the first man in the society in every respect, perceives

himself, perhaps, eclipsed by the lustre of private wealth, which avoids

his grasp when he attempts to seize it. This makes his government more

complex and more difficult to be carried on; he must now avail himself

of art and address as well as of power and force. By the help of

cajoling and intrigues, he gets a little into debt; this lays a

foundation for public credit, which, growing by degrees, and in its

progress assuming many new forms, becomes, from the most tender

beginnings, a most formidable monster, striking terror into those who

cherished it in its infancy. Upon this, as upon a triumphant war-horse,

the statesman gets a-stride, he then appears formidable a-new; his head

turns giddy; he is choaked with the dust he has raised; and at the

moment he is ready to fall, to his utter astonishment and surprize, he

finds a strong monied interest, of his own creating, which, instead of

swallowing him up as he apprehended, flies to his support. Through this

he gets the better of all opposition, he establishes taxes, multiplies

them, mortgages his fund of subsistence, either becomes a bankrupt, and

rises again from his ashes; or if he be less audacious, he stands

trembling and tottering for a while on the brink of the political

precipice. From one or the other of these perilous situations, he begins

to discover an endless path which, after a multitude of windings, still

returns into its self, and continues an equal course through this vast

labyrinth: but of this last part, more in the fourth book.

It is now full time to leave off rhapsody, and return to reasoning and

cool inquiry, concerning the more immediate and more general effects and

revolutions produced by the opening of a foreign trade in a nation of

industry.

The first and most sensible alteration will be an increase of demand for

manufacturers, because by supplying the wants of strangers, the number

of consumers will now be considerably augmented. What again will follow

upon this, must depend upon circumstances.

If this revolution in the state of demand should prove too violent, the

consequence of it will be to _raise_ demand; if it should prove gradual,

it will _increase_ it. I hope this distinction is well understood, and

that the consequence appears just: for, if the supply do not increase in

proportion to the demand, a competition will ensue among the demanders;

which is the common effect of such sudden revolutions. If, on the other

hand, a gentle increase of demand should be accompanied with a

proportional supply, the whole industrious society will grow in vigour,

and in wholsome stature, without being sensible of any great advantage

or inconveniency; the change of their circumstances will even be

imperceptible.

The immediate effects of the violent revolution will, in this example,

be flattering to some, and disagreeable to others. Wealth will be found

daily to augment, from the rising of prices, in many branches of

industry. This will encourage the industrious classes, and the idle

consumers at home will complain. I have already dwelt abundantly long

upon the effects resulting from this to the lower classes of the people,

in providing them with a certain means of subsistence. Let me now

examine in what respect even the higher classes will be made likewise to

feel the good effects of this general change, although at first they may

suffer a temporary inconveniency from it.

Farmers, as has been observed, will have a greater difficulty in finding

servants, who, instead of labouring the ground, will choose to turn

themselves to manufactures. This we have considered in the light of

purging the lands of superfluous mouths; but every consequence in this

great chain of politics draws other consequences after it, and as they

follow one another, things put on different faces, which affect classes

differently. The purging of the land is but one of the first; here

follows another.

The desertion of the hands employed in a trifling agriculture will at

first, no doubt, embarrass the farmers; but in a little time every thing

becomes balanced in a trading nation, because _here_ every _industrious_

man must advance in prosperity, in spite of all general combinations of

circumstances.

In the case before us, the relative profits upon farming must soon

become greater than formerly, because of this additional expence which

must affect the whole class of farmers; consequently, this additional

expence, instead of turning out to be a loss to either landlord or

farmer, will, after some little time, turn out to the advantage of both:

because the produce of the ground, being indispensably necessary to

every body, must in every article increase in its value. Thus in a short

time accounts will be nearly balanced on all hands; that is to say, the

same proportion of wealth will, _cæteris paribus_, continue the same

among the industrious. I say among the industrious; for those who are

either idle, or even negligent, will be great losers.

A proprietor of land, inattentive to the causes of his farmer’s

additional expence, may very imprudently suffer his rents to fall,

instead of assisting him on a proper occasion, in order to make them

afterwards rise the higher.

Those who live upon a determined income in money, and who are nowise

employed in traffic, nor in any scheme of industry, will, by the

augmentation of prices, be found in worse circumstances than before.

In a trading nation every man must turn his talents to account, or he

will undoubtedly be left behind in this universal emulation, in which

the most industrious, the most ingenious, and the most frugal will

constantly carry off the prize.

This consideration ought to be a spur to every body. The richest men in

a trading nation have no security against poverty, I mean proportional

poverty; for though they diminish nothing of their income, yet by not

increasing it in proportion to others, they lose their rank in wealth,

and from the first class in which they stood, they will slide insensibly

down to a lower.

There is one consequence of an additional beneficial trade, which raises

demand and increases wealth; but if we suppose no proportional

augmentation of supply, it will prove at best but an airy dream which

lasts for a moment, and when the gilded scene is passed away, numberless

are the inconveniencies which are seen to follow.

I shall now point out the natural consequences of this augmentation of

wealth drawn from foreign nations, when the statesman remains

inattentive to increase the supply both of food and manufactures, in

proportion to the augmentation of mouths, and of the demand for the

produce of industry.

In such a situation profits will daily swell, and every scheme for

reducing them within the bounds of moderation, will be looked upon as a

hurtful and unpopular measure: be it so; but let us examine the

consequences.

We have said, that the rise of demand for manufactures naturally

increases the value of work: now I must add, that under such

circumstances, the augmentation of riches, _in a country, either not

capable of improvement as to the soil, or where precautions have not

been taken for facilitating a multiplication of inhabitants, by the

importation of subsistence_, will be productive of the most calamitous

consequences.

On one side, this wealth will effectually diminish the mass of the food

before produced; and on the other, will increase the number of useless

consumers. The first of these circumstances will raise the demand for

food; and the second will diminish the number of useful free hands, and

consequently raise the price of manufactures: here are shortly the

outlines of this progress.

The more rich and luxurious a people are, the more delicate they become

in their manner of living; if they fed on bread formerly, they will now

feed on meat; if they fed on meat, they will now feed on fowl. The same

ground which feeds a hundred with bread, and a proportional quantity of

animal food, will not maintain an equal number of delicate livers. Food

must then become more scarce; demand for it rises; the rich are always

the strongest in the market; they consume the food, and the poor are

forced to starve. Here the wide door to modern distress opens; to wit, a

hurtful competition for subsistence. Farther, when a people become rich,

they think less of oeconomy; a number of useless servants are hired, to

become an additional dead weight on consumption; and when their starving

countrymen cannot supply the extravagance of the rich so cheaply as

other nations, they either import instruments of foreign luxury, or seek

to enjoy them out of their own country, and thereby make restitution of

their gains.

Is it not therefore evident, that if, before things come to this pass,

additional subsistence be not provided by one method or other, the

number of inhabitants must diminish; although riches may daily increase

by a balance of additional matter, supposed to be brought into the

country in consequence of the hitherto beneficial foreign trade. This is

not all. I say farther, that the beneficial trade will last for a time

only. For the infallible consequence of the rise of prices at home will

be, that those nations which at first consumed your manufactures,

perceiving the gradual increase of their price, will begin to work for

themselves; or finding out your rivals who can supply them cheaper, will

open their doors to them. These again, perceiving the great advantages

gained by your traders, will begin to supply the market; and since every

thing must be cheaper in countries where we do not suppose the

concurrence of all the circumstances mentioned above, these nations will

supplant you, and be enriched in their turn.

Here comes a new revolution. Trade is come to a stop: what then becomes

of all the hands which were formerly employed in supplying the foreign

demands?

Were revolutions so sudden as we are obliged to represent them, all

would go to wreck; in proportion as they happen by quicker or slower

degrees, the inconveniencies are greater or smaller.

Prices, we have said, are made to rise by competition. If the

competition of the strangers was what raised them, the distress upon the

manufacturers will be in proportion to the suddenness of their deserting

the market. If the competition was divided between the strangers and the

home consumers, the inconveniencies which ensue will be less; because

the desertion of the strangers will be in some measure made up by an

increase of home consumption which will follow upon the fall of prices.

And if, in the third case, the natives have been so imprudent as not

only to support a competition with the strangers, and thereby disgust

them from coming any more to market, but even to continue the

competition between themselves, the whole _loss_ sustained by the

revolution will be national. Wealth will cease to augment, but the

inconveniencies, in place of being felt by the manufacturers, will only

affect the state; those will continue in affluence, extolling the

generosity of their countrymen, and despising the poverty of the

strangers who had enriched them.

Domestic luxury will here prove an expedient for preserving from ruin

the industrious part of a people, who, in subsisting themselves, had

enriched their country. No change will follow in their condition; they

will go on with a painful assiduity to labour, and if the consequences

of it become now hurtful to one part of the state, they must, at least,

be allowed to be essentially necessary for the support of the other.

But that luxury is no necessary concomitant of foreign trade, in a

nation where the true principles of it are understood, will appear very

plain, from a contrast I am now going to point out, in the example of a

modern state, renowned for its commerce and frugality. The country I

mean, is Holland.

A set of industrious and frugal people were assembled in a country, by

nature subject to many inconveniencies, the removing of which

necessarily employed abundance of hands. Their situation upon the

continent, the power of their former masters, and the ambition of their

neighbours, obliged them to keep great bodies of troops. These two

articles added to the numbers of the community, without either enriching

the state by their labour exported, or producing food for themselves or

countrymen.

The scheme of a commonwealth was calculated to draw together the

industrious; but it has been still more useful in subsisting them: the

republican form of government, being there greatly subdivided, vests

authority sufficient in every part of it, to make suitable provision for

their own subsistence; and the tye which unites them, regards only

matters of public concern. Had the whole been governed by one sovereign,

or by one council, this important matter never could have been

effectuated.

I imagine it would be impossible for the most able minister that ever

lived, to provide nourishment for a country so extended as France, or

even as England, supposing these as fully peopled as Holland is: even

although it should be admitted that a sufficient quantity of food might

be found in other countries for their subsistence. The enterprise would

be too great, abuses would multiply; the consequence would be, that the

inhabitants would die for want. But in Holland the case is different,

every little town takes care of its own inhabitants; and this care,

being the object of application and profit to so many persons, is

accomplished with success.

When once it is laid down as a maxim in a country, that food must of

necessity be got from abroad, in order to feed the inhabitants at home,

the corn trade becomes considerable, and at the same time certain,

regular, and permanent. This was the case in Holland: as the inhabitants

were industrious, the necessary consequence has been, a very

extraordinary multiplication; and at the same time such an abundance of

grain, that instead of being in want themselves, they often supply their

neighbours. There are many examples of England’s being supplied with

grain from thence, and, which is still more extraordinary, from the

re-exportation of the very produce of its own fruitful soil.

It is therefore evident, that the only way to support industry, is to

provide a supply of subsistence, constantly proportional to the demand

that may be made for it. This is a precaution indispensably necessary

for preventing hurtful competition. This is the particular care of the

Dutch: so long as it can be effectual, their state can fear no decline;

but whenever they come to be distressed in the markets, upon which they

depend for subsistence, they will sink into ruin. It is by mere dint of

frugality, cheap and parsimonious living, that the navigation of this

industrious people is supported. Constant employment, and an

accumulation of almost imperceptible gains, fills their coffers with

wealth, in spight of the large outgoings to which their own proper

nourishment yearly forces them. The large profits upon industry in other

countries, which are no proof of generosity, but a fatal effect of a

scanty subsistence, is far from dazzling their eyes. They seldom are

found in the list of competitors at any foreign port; if they have their

cargo to dispose of, they wait with pleasure in their own vessels,

consuming their own provisions, and at last accept of what others have

left. It may be said, that many other circumstances concur in favour of

the Dutch, besides the article of subsistence. I shall not dispute this

matter; but only remind my reader of what was said in the first book; to

wit, that if a computation be made of the hands employed in providing

subsistence, and of those who are severally taken up in supplying every

other want, their numbers will be found nearly to balance one another in

the most luxurious countries. From this I conclude, that the article of

food, among the lower classes, must bear a very high proportion to all

the other articles of their consumption; and therefore a diminution upon

the price of subsistence, must be of infinite consequence to

manufacturers, who are obliged to buy it. From this consideration, let

us judge of the consequence of such augmentations upon the price of

grain, as are familiar to us; 30 or 40 _per cent._ seems nothing. Now

this augmentation operates upon two thirds, at least, of the whole

expence of a labouring man: let any one who lives in tolerable affluence

make the application of this to himself, and examine how he would manage

his affairs if, by accidents of rains or winds, his expences were to

rise 30 _per cent._ without a possibility of restraining them; for this

is unfortunately the case with all the lower classes. From whence I

conclude, that the keeping food cheap, and still more the preserving it

at all times at an equal standard, is the fountain of the wealth of

Holland; and that any hurtful competition in this article must beget a

disorder which will affect the whole of the manufacturers of a state.

------------------------------------------------------------------------

CHAP. X.

_Of the Balance of Work and Demand._

It is quite impossible to go methodically through the subject of

political oeconomy, without being led into anticipations. We have

frequently mentioned this balance of work and demand, and shewed how

important a matter it is for a statesman to attend to it. The thing,

therefore, in general is well understood; and all that remains to be

done, is to render our ideas more determined concerning it, and more

adequate, if possible, to the principles we have been laying down.

We have treated fully of demand, and likewise of competition. We have

observed how different circumstances influence these terms, so as to

make them represent ideas entirely different; and we have said that

double competition supports the balance we are now to speak of, and that

single competition overturns it.

The word demand in this chapter is taken in the most simple acceptation;

and when we say that the balance between work and demand is to be

sustained in equilibrio, as far as possible, we mean that the quantity

supplied should be in proportion to the quantity _demanded_, that is,

_wanted_. While the balance stands justly poised, prices are found in

the adequate proportion of the real expence of making the goods, with a

small addition for profit to the manufacturer and merchant.

I have, in the fourth chapter, observed how necessary a thing it is to

distinguish the two constituent parts of every price; the value, and the

profit. Let the number of persons be ever so great, who, upon the sale

of a piece of goods, share in the profits; it is still essential, in

such enquiries as these, to suppose them distinctly separate from the

real value of the commodity; and the best way possible to discover

exactly the proportion between the one and the other, is by a scrupulous

watchfulness over the balance we are now treating of, as we shall

presently see.

The value and profits, combined in the price of a manufacture produced

by one man, are easily distinguished, by means of the analysis we have

laid down in the fourth chapter. As long as any market is _fully_

supplied with this sort of work, and _no more_; those who are employed

in it live by their trade, and gain no unreasonable profit: because

there is then no violent competition upon one side only, neither between

the workmen, nor between those who buy from them, and the balance gently

vibrates under the influence of a double competition. This is the

representation of a perfect balance.

This balance is overturned in four different ways.

Either the demand diminishes, and the work remains the same:

Or the work diminishes, and the demand remains:

Or the demand increases, and the work remains:

Or the work increases, and the demand remains.

Now each of these four combinations may, or may not, produce a

competition upon one side of the contract only. This must be explained.

If demand diminishes, and work remains the same, which is the first

case, either those who furnish the work will enter into competition, in

which case they will hurt each other, and prices will fall below the

reasonable standard of the even balance; or they will not enter into

competition, and then prices continuing as formerly, the whole demand

will be supplied, and the remainder of the work will lie upon hand.

This is a symptom of decaying trade.

Let us now, on the other hand, suppose demand to increase, and work to

remain as before.

This example points out no diminution on either side, as was the case

before, but an augmentation upon one; and is either a symptom of growing

luxury at home, or of an increase in foreign trade.

Here the same alternation of circumstances occurs. The demanders will

either enter into competition and raise the price of work, or they will

enter into no competition; but being determined not to exceed the

ordinary standard of the perfect balance, will defer making their

provision till another time, or supply themselves in another market;

that is to say, the new demand will cease as soon as it is made, for

want of a supply.

Whenever, therefore, this perfect balance of work and demand is

overturned by the force of a simple competition, or by one of the scales

preponderating, one of two things must happen; either a part of the

demand is not answered, or a part of the goods is not sold.

These are the immediate effects of the overturning of the balance.

Let me next point out the object of the statesman’s care, relatively to

such effects, and shew the consequences of their being neglected.

We may now simplify our ideas, and instead of the former combinations,

make use of other expressions which may convey them.

Let us therefore say, that the _fall_ or _rise_ upon either side of the

balance, is _positive_, or _relative_. _Positive_, when the side we talk

of really augments beyond, or diminishes below the usual standard.

_Relative_, when there is no alteration upon the side we speak of, and

that the subversion of the balance is owing to an alteration on the

other side. As for example:

Instead of saying demand diminishes, and work remains the same, let us

say, demand diminishes _positively_, or work increases _relatively_;

according as the subject may lead us to speak either of the one or of

the other. This being premised,

If the scale of work shall preponderate _positively_, it should be

inquired, whether the quantity furnished has really swelled, in all

respects, beyond the proportion of the consumption, (in which case the

statesman should diminish the number of hands, by throwing a part of

them into a new channel) or whether the imprudence of the workmen has

only made them produce their work unseasonably; in which case, proper

information, and even assistance should be given them, to prevent

merchants from taking the advantage of their want of experience: but

these last precautions are necessary only in the infancy of industry.