philosophical question which has been much disputed in Britain. I call
it a philosophical question, not a political one; for whatever may
be the consequence of such a miraculous transformation of mankind as
would endow them with every species of virtue and free them from every
species of vice, this concerns not the magistrate, who aims only at
possibilities. He cannot cure every vice by substituting a virtue in
its place. Very often he can only cure one vice by another, and in that
case he ought to prefer what is least pernicious to society. Luxury,
when excessive, is the source of many ills; but it is in general
preferable to sloth and idleness, which would commonly succeed in its
place, and are more pernicious both to private persons and to the
public. When sloth reigns, a mean, uncultivated way of life prevails
amongst individuals, without society, without enjoyment. And if the
sovereign, in such a situation, demands the service of his subjects,
the labour of the state suffices only to furnish the necessaries of
life to the labourers, and can afford nothing to those who are employed
in the public service.
NOTES, OF REFINEMENT IN THE ARTS.
[10] The inscription on the Place de Vendôme says 440,000.
[11] _Fable of the Bees._
OF MONEY.
Money is not, properly speaking, one of the subjects of commerce,
but only the instrument which men have agreed upon to facilitate
the exchange of one commodity for another. It is none of the wheels
of trade; it is the oil which renders the motion of the wheels more
smooth and easy. If we consider any one kingdom by itself, it is
evident that the greater or less plenty of money is of no consequence,
since the prices of commodities are always proportioned to the plenty
of money, and a crown in Henry VII.’s time served the same purpose
as a pound does at present. It is only the public which draws any
advantage from the greater plenty of money, and that only in its wars
and negotiations with foreign states. And this is the reason why all
rich and trading countries, from Carthage to Britain and Holland,
have employed mercenary troops, which they hired from their poorer
neighbours. Were they to make use of their native subjects, they would
find less advantage from their superior riches, and from their great
plenty of gold and silver, since the pay of all their servants must
rise in proportion to the public opulence. Our small army in Britain of
20,000 men is maintained at as great expense as a French army thrice
as numerous. The English fleet, during the late war, required as much
money to support it as all the Roman legions which kept the whole world
in subjection during the time of the emperors.[12]
The greater number of people and their greater industry are serviceable
in all cases—at home and abroad, in private and in public. But the
greater plenty of money is very limited in its use, and may even
sometimes be a loss to a nation in its commerce with foreigners.
There seems to be a happy concurrence of causes in human affairs which
checks the growth of trade and riches, and hinders them from being
confined entirely to one people, as might naturally at first be dreaded
from the advantages of an established commerce. Where one nation has
got the start of another in trade it is very difficult for the latter
to regain the ground it has lost, because of the superior industry and
skill of the former, and the greater stocks of which its merchants are
possessed, and which enable them to trade for so much smaller profits.
But these advantages are compensated, in some measure, by the low price
of labour in every nation which has not an extensive commerce, and
does not very much abound in gold and silver. Manufactures, therefore,
gradually shift their places, leaving those countries and provinces
which they have already enriched, and flying to others, whither they
are allured by the cheapness of provisions and labour, till they have
enriched these also and are again banished by the same causes. And, in
general, we may observe that the dearness of everything, from plenty
of money, is a disadvantage which attends an established commerce, and
sets bounds to it in every country by enabling the poorer states to
under-sell the richer in all foreign markets.
This has made me entertain a great doubt concerning the benefit of
banks and paper-credit, which are so generally esteemed advantageous
to every nation. That provisions and labour should become dear by the
increase of trade and money is, in many respects, an inconvenience;
but an inconvenience that is unavoidable, and the effect of that
public wealth and prosperity which are the end of all our wishes. It
is compensated by the advantages which we reap from the possession of
these precious metals, and the weight which they give the nation in
all foreign wars and negotiations. But there appears no reason for
increasing that inconvenience by a counterfeit money, which foreigners
will not accept in any payment, and which any great disorder in the
state will reduce to nothing. There are, it is true, many people in
every rich state who, having large sums of money, would prefer paper
with good security, as being of more easy transport and more safe
custody. If the public provide not a bank, private bankers will take
advantage of this circumstance; as the goldsmiths formerly did in
London, or as the bankers do at present in Dublin; and therefore it
is better, it may be thought, that a public company should enjoy the
benefit of the paper-credit which always will have place in every
opulent kingdom. But to endeavour artificially to increase such a
credit can never be the interest of any trading nation; but must lay
them under disadvantages, by increasing money beyond its natural
proportion to labour and commodities, and thereby heightening their
price to the merchant and manufacturer. And in this view, it must be
allowed that no bank could be more advantageous than such a one as
locked up all the money it received,[13] and never augmented the
circulating coin, as is usual, by returning part of its treasure into
commerce. A public bank by this expedient might cut off much of the
dealings of private bankers and money-jobbers; and though the state
bore the charge of salaries to the directors and tellers of this
bank (for, according to the preceding supposition, it would have no
profit from its dealings), the national advantage, resulting from the
low price of labour and the destruction of paper-credit, would be a
sufficient compensation. Not to mention that so large a sum, lying
ready at command, would be a great convenience in times of public
danger and distress; and what part of it was used might be replaced at
leisure, when peace and tranquillity were restored to the nation.
But of this subject of paper-credit we shall treat more largely
hereafter, and I shall finish this essay on money by proposing and
explaining two observations, which may perhaps serve to employ the
thoughts of our speculative politicians, for to these only I all along
address myself. It is enough that I submit to the ridicule sometimes in
this age attached to the character of a philosopher, without adding to
it that which belongs to a projector.
It was a shrewd observation of Anacharsis the Scythian, who had never
seen money in his own country, that gold and silver seemed to him of
no use to the Greeks but to assist them in numeration and arithmetic.
It is indeed evident that money is nothing but the representation
of labour and commodities, and serves only as a method of rating or
estimating them. Where coin is in greater plenty, as a greater quantity
of it is required to represent the same quantity of goods, it can have
no effect, either good or bad, taking a nation within itself; no more
than it would make any alteration on a merchant’s books if, instead
of the Arabian method of notation, which requires few characters,
he should make use of the Roman, which requires a great many. Nay,
the greater quantity of money, like the Roman characters, is rather
inconvenient, and requires greater trouble both to keep and transport
it. But notwithstanding this conclusion, which must be allowed just, it
is certain that since the discovery of mines in America industry has
increased in all the nations of Europe, except in the possessors of
those mines; and this may justly be ascribed, amongst other reasons,
to the increase of gold and silver. Accordingly, we find that in every
kingdom into which money begins to flow in greater abundance than
formerly everything takes a new face; labour and industry gain life,
the merchant becomes more enterprising, the manufacturer more diligent
and skilful, and even the farmer follows his plough with greater
alacrity and attention. This is not easily to be accounted for, if
we consider only the influence which a greater abundance of coin has
in the kingdom itself, by heightening the price of commodities, and
obliging every one to pay a greater number of these little yellow or
white pieces for everything he purchases. And as to foreign trade,
it appears that great plenty of money is rather disadvantageous, by
raising the price of every kind of labour.
To account, then, for this phenomenon, we must consider that though the
high price of commodities be a necessary consequence of the increase
of gold and silver, yet it follows not immediately upon that increase;
but some time is required before the money circulates through the
whole state, and makes its effects be felt on all ranks of people. At
first, no alteration is perceived; by degrees the price rises, first
of one commodity then of another, till the whole at last reaches
a just proportion with the new quantity of specie which is in the
kingdom. In my opinion, it is only in this interval or intermediate
situation, between the acquisition of money and rise of prices, that
the increasing quantity of gold and silver is favourable to industry.
When any quantity of money is imported into a nation, it is not at
first dispersed into many hands, but is confined to the coffers of a
few persons, who immediately seek to employ it to the best advantage.
Here are a set of manufacturers or merchants, we shall suppose, who
have received returns of gold and silver for goods which they sent to
Cadiz. They are thereby enabled to employ more workmen than formerly,
who never dream of demanding higher wages, but are glad of employment
from such good paymasters. If workmen become scarce, the manufacturer
gives higher wages, but at first requires an increase of labour;
and this is willingly submitted to by the artisan, who can now eat
and drink better, to compensate his additional toil and fatigue. He
carries his money to market, where he finds everything at the same
price as formerly, but returns with greater quantity and of better
kinds, for the use of his family. The farmer and gardener, finding
that all commodities are taken off, apply themselves with alacrity
to the raising more; and at the same time can afford to take better
and more clothes from their tradesmen, whose price is the same as
formerly, and their industry only whetted by so much new gain. It is
easy to trace the money in its progress through the whole commonwealth;
where we shall find that it must first quicken the diligence of every
individual, before it increase the price of labour.
And that the specie may increase to a considerable pitch before it have
this latter effect appears, amongst other instances, from the frequent
operations of the French king on the money; where it was always found
that the augmenting the numerary value did not produce a proportional
rise of the prices, at least for some time. In the last year of Louis
XIV. money was raised three-sevenths, but prices augmented only one.
Corn in France is now sold at the same price, or for the same number
of livres it was in 1683; though silver was then at thirty livres the
mark, and is now at fifty;[14] not to mention the great addition of
gold and silver which may have come into that kingdom since the former
period.
From the whole of this reasoning we may conclude that it is of no
manner of consequence, with regard to the domestic happiness of a
state, whether money be in a greater or less quantity. The good
policy of the magistrate consists only in keeping it, if possible,
still increasing; because, by that means, he keeps alive a spirit of
industry in the nation, and increases the stock of labour, in which
consists all real power and riches. A nation whose money decreases is
actually, at that time, much weaker and more miserable than another
nation which possesses no more money but is on the increasing hand.
This will be easily accounted for if we consider that the alterations
in the quantity of money, either on the one side or the other, are not
immediately attended with proportionable alterations in the prices of
commodities. There is always an interval before matters be adjusted to
their new situation, and this interval is as pernicious to industry
when gold and silver are diminishing as it is advantageous when these
metals are increasing. The workman has not the same employment from the
manufacturer and merchant, though he pays the same price for everything
in the market; the farmer cannot dispose of his corn and cattle, though
he must pay the same rent to his landlord. The poverty, and beggary,
and sloth which must ensue are easily foreseen.
The second observation which I proposed to make with regard to money
may be explained after the following manner. There are some kingdoms,
and many provinces in Europe (and all of them were once in the same
condition), where money is so scarce that the landlord can get
none at all from his tenants, but is obliged to take his rent in kind,
and either to consume it himself, or transport it to places where
he may find a market. In those countries the prince can levy few or
no taxes but in the same manner; and as he will receive very small
benefit from impositions so paid, it is evident that such a kingdom
has very little force even at home, and cannot maintain fleets and
armies to the same extent as if every part of it abounded in gold and
silver.[15] There is surely a greater disproportion betwixt the force
of Germany at present and what it was three centuries ago, than there
is in its industry, people, and manufactures. The Austrian dominions
in the empire are in general well peopled and well cultivated, and are
of great extent, but have not a proportionable weight in the balance
of Europe; proceeding, as is commonly supposed, from the scarcity of
money. How do all these facts agree with that principle of reason, that
the quantity of gold and silver is in itself altogether indifferent?
According to that principle, wherever a sovereign has numbers of
subjects, and these have plenty of commodities, he should of course be
great and powerful, and they rich and happy, independent of the greater
or lesser abundance of the precious metals. These admit of divisions
and subdivisions to a great extent; and where they would become so
small as to be in danger of being lost, it is easy to mix them with a
baser metal, as is practised in some countries of Europe, and by that
means raise them to a bulk more sensible and convenient. They still
serve the same purposes of exchange, whatever their number may be, or
whatever colour they may be supposed to have.
To these difficulties, I answer that the effect here supposed to flow
from scarcity of money really arises from the manners and customs of
the inhabitants, and that we mistake, as is too usual, a collateral
effect for a cause. The contradiction is only apparent, but it
requires some thought and reflection to discover the principles by
which we can reconcile reason to experience.
It seems a maxim almost self-evident that the prices of everything
depend on the proportion between commodities and money, and that any
considerable alteration on either of these has the same effect, either
of heightening or lowering the prices. Increase the commodities, they
become cheaper; increase the money, they rise in their value. As, on
the other hand, a diminution of the former and that of the latter have
contrary tendencies.
It is also evident that the prices do not so much depend on the
absolute quantity of commodities and that of money which are in a
nation, as in that of the commodities which come or may come to market,
and of the money which circulates. If the coin be locked up in chests,
it is the same thing with regard to prices as if it were annihilated;
if the commodities be hoarded in granaries, a like effect follows. As
the money and commodities, in these cases, never meet, they cannot
affect each other. Were we, at any time, to form conjectures concerning
the price of provisions, the corn which the farmer must reserve for
the maintenance of himself and family ought never to enter into the
estimation. It is only the overplus, compared to the demand, that
determines the value.
To apply these principles, we must consider that in the first and more
uncultivated ages of any state, ere fancy has confounded her wants
with those of nature, men, contented with the productions of their
own fields, or with those rude preparations which they themselves can
work upon them, have little occasion for exchange, or at least for
money, which, by agreement, is the common measure of exchange. The wool
of the farmer’s own flock, spun in his own family, and wrought by a
neighbouring weaver, who receives his payment in corn or wool, suffices
for furniture or clothing. The carpenter, the smith, the mason, the
tailor are retained by wages of a like nature; and the landlord
himself, dwelling in the neighbourhood, is contented to receive his
rent in the commodities raised by the farmer. The greatest part
of these he consumes at home, in rustic hospitality; the rest, perhaps,
he disposes of for money to the neighbouring town, whence he draws the
few materials of his expense and luxury.
But after men begin to refine on all these enjoyments, and live not
always at home, nor are contented with what can be raised in their
neighbourhood, there is more exchange and commerce of all kinds, and
more money enters into that exchange. The tradesmen will not be paid in
corn, because they want something more than barley to eat. The farmer
goes beyond his own parish for the commodities he purchases, and cannot
always carry his commodities to the merchant who supplies him. The
landlord lives in the capital, or in a foreign country, and demands
his rent in gold and silver, which can easily be transported to him.
Great undertakers, and manufacturers, and merchants arise in every
commodity; and these can conveniently deal in nothing but in specie.
And consequently, in this situation of society, the coin enters into
many more contracts, and by that means is much more employed than in
the former.
The necessary effect is, that, provided the money does not increase in
the nation, everything must become much cheaper in times of industry
and refinement than in rude, uncultivated ages. It is the proportion
between the circulating money and the commodities in the market which
determines the prices. Goods that are consumed at home, or exchanged
with other goods in the neighbourhood, never come to market; they
affect not in the least the current specie; with regard to it they
are as if totally annihilated; and consequently this method of using
them sinks the proportion on the side of the commodities and increases
the prices. But after money enters into all contracts and sales, and
is everywhere the measure of exchange, the same national cash has a
much greater task to perform: all commodities are then in the market;
the sphere of circulation is enlarged; it is the same case as if that
individual sum were to serve a larger kingdom; and therefore, the
proportion being here lessened on the side of the money, everything
must become cheaper, and the prices gradually fall.
By the most exact computations that have been formed all over Europe,
after making allowance for the alteration in the numerary value or
the denomination, it is found that the prices of all things have only
risen three, or at most, four times, since the discovery of the West
Indies. But will any one assert that there is not much more than four
times the coin in Europe that was in the fifteenth century and the
centuries preceding it? The Spaniards and Portuguese from their mines,
the English, French, and Dutch by their African trade, and by their
interlopers in the West Indies, bring home six millions a year, of
which not above a third part goes to the East Indies. This sum alone
in ten years would probably double the ancient stock of money in
Europe. And no other satisfactory reason can be given why all prices
have not risen to a much more exorbitant height, except that derived
from a change of customs and manners. Besides that more commodities
are produced by additional industry, the same commodities come more
to market after men depart from their ancient simplicity of manners;
and though this increase has not been equal to that of money, it has,
however, been considerable, and has preserved the proportion between
coin and commodities nearer the ancient standard.
Were the question proposed, Which of these methods of living in the
people, the simple or refined, is most advantageous to the state or
public? I should, without much scruple, prefer the latter, in a view to
politics at least; and should produce this as an additional reason for
the encouragement of trade and manufactures.
When men live in the ancient simple manner, and supply all their
necessaries from domestic industry or from the neighbourhood, the
sovereign can levy no taxes in money from a considerable part of his
subjects; and if he will impose on them any burdens, he must take his
payment in commodities, with which alone they abound—a method
attended with such great and obvious inconveniences, that they need
not here be insisted on. All the money he can pretend to raise must be
from his principal cities, where alone it circulates; and these, it
is evident, cannot afford him so much as the whole state could, did
gold and silver circulate through the whole. But besides this obvious
diminution of the revenue, there is also another cause of the poverty
of the public in such a situation. Not only the sovereign receives less
money, but the same money goes not so far as in times of industry and
general commerce. Everything is dearer where the gold and silver are
supposed equal, and that because fewer commodities come to market, and
the whole coin bears a higher proportion to what is to be purchased by
it, whence alone the prices of everything are fixed and determined.
Here then we may learn the fallacy of the remark, often to be met with
in historians, and even in common conversation, that any particular
state is weak, though fertile, populous, and well cultivated, merely
because it wants money. It appears that the want of money can never
injure any state within itself: for men and commodities are the
real strength of any community. It is the simple manner of living
which here hurts the public, by confining the gold and silver to few
hands and preventing its universal diffusion and circulation. On the
contrary, industry and refinements of all kinds incorporate it with
the whole state, however small its quantity may be; they digest it
into every vein, so to speak, and make it enter into every transaction
and contract. No hand is entirely empty of it. And as the prices of
everything fall by that means, the sovereign has a double advantage: he
may draw money by his taxes from every part of the state, and what he
receives goes farther in every purchase and payment.