plentiful in China than it was in Europe three centuries ago; but what
immense power is that empire possessed of, if we may judge by the civil
and military list maintained by it! Polybius tells us that provisions
were so cheap in Italy during his time that in some places the
stated club[16] at the inns was a _semis_ a head, little more than a
farthing! Yet the Roman power had even then subdued the whole known
world. About a century before that period the Carthaginian ambassador
said, by way of raillery, that no people lived more sociably amongst
themselves than the Romans, for that in every entertainment which, as
foreign ministers, they received they still observed the same plate
at every table. The absolute quantity of the precious metals is a
matter of great indifference. There are only two circumstances of any
importance—viz., their gradual increase and their thorough concoction
and circulation through the state; and the influence of both these
circumstances has been here explained.
In the following essay we shall see an instance of a like fallacy as
that above mentioned, where a collateral effect is taken for a cause,
and where a consequence is ascribed to the plenty of money; though it
be really owing to a change in the manners and customs of the people.
NOTES, OF MONEY.
[12] A private soldier in the Roman infantry had a denarius a day,
somewhat less than eightpence. The Roman emperors had commonly 25
legions in pay, which, allowing 5000 men to a legion, makes 125,000.
(Tacitus, _Ann._ lib. 4.) It is true there were also auxiliaries to
the legions, but their numbers are uncertain as well as their pay. To
consider only the legionaries, the pay of the private men could not
exceed £1,600,000. Now, the Parliament in the last war commonly allowed
for the fleet £2,500,000. We have therefore £900,000 over for the
officers and other expenses of the Roman legions. There seem to have
been but few officers in the Roman armies in comparison of what are
employed in all our modern troops, except some Swiss corps. And these
officers had very small pay: a centurion, for instance, only double a
common soldier. And as the soldiers from their pay (Tacitus, _Ann._
lib. 1) bought their own clothes, arms, tents, and baggage, this must
also diminish considerably the other charges of the army. So little
expensive was that mighty Government, and so easy was its yoke over
the world. And, indeed, this is the more natural conclusion from the
foregoing calculations; for money, after the conquest of Egypt, seems
to have been nearly in as great plenty at Rome as it is at present in
the richest of the European kingdoms.
[13] This is the case with the bank of Amsterdam.
[14] These facts I give upon the authority of Monsieur du Tot in his
_Reflexions politiques_, an author of reputation; though I must confess
that the facts which he advances on other occasions are often so
suspicious as to make his authority less in this matter. However, the
general observation that the augmenting the money in France does not at
first proportionably augment the prices is certainly just.
By the by, this seems to be one of the best reasons which can be given
for a gradual and universal augmentation of the money, though it has
been entirely overlooked in all those volumes which have been written
on that question by Melon, Du Tot, and Paris de Verney. Were all our
money, for instance, recoined, and a penny’s worth of silver taken from
every shilling, the new shilling would probably purchase everything
that could have been bought by the old; the prices of everything
would thereby be insensibly diminished; foreign trade enlivened; and
domestic industry, by the circulation of a greater number of pounds and
shillings, would receive some increase and encouragement. In executing
such a project, it would be better to make the new shilling pass for
twenty-four half-pence, in order to preserve the illusion, and make it
be taken for the same. And as a recoinage of our silver begins to be
requisite, by the continual wearing of our shillings and six-pences,
it may be doubtful whether we ought to imitate the example in King
William’s reign, when the clipped money was raised to the old standard.
[15] The Italians gave to the Emperor Maximilian the nickname of
Pochi-Danari. None of the enterprises of that prince ever succeeded,
for want of money.
OF INTEREST.
Nothing is esteemed a more certain sign of the flourishing condition
of any nation than the lowness of interest; and with reason, though
I believe the cause is somewhat different from what is commonly
apprehended. The lowness of interest is generally ascribed to the
plenty of money; but money, however plentiful, has no other effect, if
fixed, than to raise the price of labour. Silver is more common than
gold, and therefore you receive a great quantity of it for the same
commodities. But do you pay less interest for it? Interest in Batavia
and Jamaica is at 10 per cent., in Portugal at 6; though these places,
as we may learn from the prices of everything, abound much more
in gold and silver than either London or Amsterdam.
Were all the gold in England annihilated at once, and one-and-twenty
shillings substituted in the place of every guinea, would money be more
plentiful and interest lower? No surely; we should only use silver
instead of gold. Were gold rendered as common as silver, and silver as
common as copper, would money be more plentiful and interest lower?
We may assuredly give the same answer. Our shillings would then be
yellow, and our halfpence white; and we should have no guineas. No
other difference would ever be observed; no alteration on commerce,
manufactures, navigation, or interest; unless we imagine that the
colour of the metal is of any consequence.
Now, what is so visible in these greater variations of scarcity or
abundance of the precious metals must hold in all inferior changes.
If the multiplying gold and silver fifteen times makes no difference,
much less can the doubling or tripling them. All augmentation has no
other effect than to heighten the price of labour and commodities; and
even this variation is little more than that of a name. In the progress
towards these changes the augmentation may have some influence by
exciting industry; but after the prices are settled, suitable to the
new abundance of gold and silver, it has no manner of influence.
An effect always holds proportion with its cause. Prices have risen
about four times since the discovery of the Indies, and it is probable
that gold and silver have multiplied much more; but interest has not
fallen much above a half. The rate of interest, therefore, is not
derived from the quantity of the precious metals.
Money having merely a fictitious value, arising from the agreement
and convention of men, the greater or less plenty of it is of no
consequence, if we consider a nation within itself; and the quantity
of specie, when once fixed, though never so large, has no other
effect than to oblige every one to tell out a greater number of those
shining bits of metal for clothes, furniture, or equipage, without
increasing any one convenience of life. If a man borrows money
to build a house, he then carries home a greater load; because the
stone, timber, lead, glass, etc., with the labour of the masons and
carpenters, are represented by a greater quantity of gold and silver.
But as these metals are considered merely as representations, there
can no alteration arise from their bulk or quantity, their weight
or colour, either upon their real value or their interest. The same
interest, in all cases, bears the same proportion to the sum. And if
you lent me so much labour and so many commodities, by receiving 5 per
cent. you receive always proportional labour and commodities, however
represented, whether by yellow or white coin, whether by a pound or an
ounce. It is in vain, therefore, to look for the cause of the fall or
rise of interest in the greater or less quantity of gold and silver
which is fixed in any nation.
High interest arises from three circumstances: A great demand for
borrowing; little riches to supply that demand; and great profits
arising from commerce. And these circumstances are a clear proof of the
small advance of commerce and industry, not of the scarcity of gold
and silver. Low interest, on the other hand, proceeds from the three
opposite circumstances: A small demand for borrowing; great riches to
supply that demand; and small profits arising from commerce. And these
circumstances are all connected together, and proceed from the increase
of industry and commerce, not of gold and silver. We shall endeavour
to prove these points as fully and distinctly as possible, and shall
begin with the causes and the effects of a great or small demand for
borrowing.
When the people have emerged ever so little from a savage state, and
their numbers have increased beyond the original multitude, there
must immediately arise an inequality of property; and while some
possess large tracts of land, others are confined within narrow
limits, and some are entirely without any landed property. Those who
possess more land than they can labour employ those who possess none,
and agree to receive a determinate part of the product. Thus
the landed interest is immediately established; nor is there any
settled government, however rude, in which affairs are not on this
footing. Of these proprietors of land, some must presently discover
themselves to be of different tempers from others; and while one would
willingly store up the product of his land for futurity, another
desires to consume at present what should suffice for many years. But
as the spending a settled revenue is a way of life entirely without
occupation, men have so much need of somewhat to fix and engage them,
that pleasures, such as they are, will be the pursuit of the greatest
part of the landholders, and the prodigals amongst them will always
be more numerous than the misers. In a state, therefore, where there
is nothing but a landed interest, as there is little frugality, the
borrowers must be very numerous, and the rate of interest must hold
proportion to it. The difference depends not on the quantity of money,
but on the habits and manners which prevail. By this alone the demand
for borrowing is increased or diminished. Were money so plentiful as
to make an egg be sold for sixpence, so long as there are only landed
gentry and peasants in the state, the borrowers must be numerous and
interest high. The rent for the same farm would be heavier and more
bulky, but the same idleness of the landlord, with the higher prices of
commodities, would dissipate it in the same time, and produce the same
necessity and demand for borrowing.
Nor is the case different with regard to the second circumstance which
we proposed to consider—viz., the great or little riches to supply
this demand. This effect also depends on the habits and ways of living
of the people, not on the quantity of gold and silver. In order to
have in any state a great number of lenders, it is not sufficient nor
requisite that there be great abundance of the precious metals. It is
only requisite that the property or command of that quantity which is
in the state, whether great or small, should be collected in particular
hands, so as to form considerable sums, or compose a great moneyed
interest. This begets a number of lenders and sinks the rate of usury;
and this, I shall venture to affirm, depends not on the quantity
of specie, but on particular manners and customs, which make the specie
gather into separate sums or masses of considerable value.
For suppose that, by miracle, every man in Britain should have five
pounds slipped into his pocket in one night: this would much more than
double the whole money that is at present in the kingdom; and yet there
would not next day, nor for some time, be any more lenders, nor any
variation on the interest. And were there nothing but landlords and
peasants in the state, this money, however abundant, could never gather
into sums; and would only serve to increase the prices of everything,
without any further consequence. The prodigal landlord dissipates it
as fast as he receives it; and the beggarly peasant has no means, nor
view, nor ambition of obtaining above a bare livelihood. The overplus
of borrowers above that of lenders continuing still the same, there
will follow no reduction of interest. That depends upon another
principle, and must proceed from an increase of industry and frugality,
of arts and commerce.
Everything useful to the life of man arises from the ground; but few
things arise in that condition which is requisite to render them
useful. There must, therefore, besides the peasants and the proprietors
of land, be another rank of men, who, receiving from the former the
rude materials, work them into their proper form, and retain part
for their own use and subsistence. In the infancy of society, these
contracts betwixt the artisans and the peasants, and betwixt one
species of artisans and another, are commonly entered into immediately
by the persons themselves, who, being neighbours, are easily acquainted
with each other’s necessities, and can lend their mutual assistance
to supply them. But when men’s industry increases, and their views
enlarge, it is found that the most remote parts of the state can assist
each other as well as the more contiguous, and that this intercourse of
good offices may be carried on to the greatest extent and intricacy.
Hence the origin of merchants, the most useful race of men in the
whole society, who serve as agents between those parts of the
state that are wholly unacquainted and are ignorant of each other’s
necessities. Here are in a city fifty workmen in silk and linen, and a
thousand customers; and these two ranks of men, so necessary to each
other, can never rightly meet till one man erects a shop, to which all
the workmen and all the customers repair. In this province grass rises
in abundance: the inhabitants abound in cheese, and butter, and cattle;
but want bread and corn, which, in a neighbouring province, are in
too great abundance for the use of the inhabitants. One man discovers
this. He brings corn from the one province, and returns with cattle;
and supplying the wants of both, he is, so far, a common benefactor.
As the people increase in numbers and industry, the difficulty of
their intercourse increases: the business of the agency or merchandise
becomes more intricate, and divides, subdivides, compounds, and mixes
to a greater variety. In all these transactions it is necessary, and
reasonable, that a considerable part of the commodities and labour
should belong to the merchant, to whom, in a great measure, they are
owing. And these commodities he will sometimes preserve in kind, or
more commonly convert into money, which is their common representation.
If gold and silver have increased in the state together with the
industry, it will require a great quantity of these metals to represent
a great quantity of commodities and labour; if industry alone has
increased, the prices of everything must sink, and a very small
quantity of specie will serve as a representation.
There is no craving or demand of the human mind more constant and
insatiable than that for exercise and employment, and this desire
seems the foundation of most of our passions and pursuits. Deprive a
man of all business and serious occupation, he runs restless from one
amusement to another; and the weight and oppression which he feels from
idleness is so great that he forgets the ruin which must follow from
his immoderate expenses. Give him a more harmless way of employing his
mind or body, he is satisfied, and feels no longer that insatiable
thirst after pleasure. But if the employment you give him be
profitable, especially if the profit be attached to every particular
exertion of industry, he has gain so often in his eye that he acquires,
by degrees, a passion for it, and knows no such pleasure as that of
seeing the daily increase of his fortune. And this is the reason why
trade increases frugality, and why, among merchants, there is the same
overplus of misers above prodigals as, among the possessors of land,
there is the contrary.
Commerce increases industry, by conveying it readily from one member
of the state to another, and allowing none of it to perish or become
useless. It increases frugality, by giving occupation to men, and
employing them in the arts of gain, which soon engage their affection
and remove all relish for pleasure and expense. It is an infallible
consequence of all industrious professions to beget frugality, and make
the love of gain prevail over the love of pleasure. Among lawyers and
physicians who have any practice there are many more who live within
their income than who exceed it, or even live up to it. But lawyers
and physicians beget no industry, and it is even at the expense of
others they acquire their riches; so that they are sure to diminish the
possessions of some of their fellow-citizens as fast as they increase
their own. Merchants, on the contrary, beget industry, by serving as
canals to convey it through every corner of the state; and at the
same time, by their frugality, they acquire great power over that
industry, and collect a large property in the labour and commodities
which they are the chief instruments in producing. There is no other
profession, therefore, except merchandise, which can make the moneyed
interest considerable, or, in other words, can increase industry, and,
by also increasing frugality, give a great command of that industry to
particular members of the society. Without commerce, the state must
consist chiefly of landed gentry, whose prodigality and expense make a
continual demand for borrowing, and of peasants, who have no sums to
supply that demand. The money never gathers into large stocks or sums
which can be lent at interest. It is dispersed into numberless
hands, who either squander it in idle show and magnificence, or employ
it in the purchase of the common necessaries of life. Commerce alone
assembles it into considerable sums; and this effect it has merely
from the industry which it begets and the frugality which it inspires,
independent of that particular quantity of precious metal which may
circulate in the state.
Thus an increase of commerce, by a necessary consequence, raises a
great number of lenders, and by that means produces a lowness of
interest. We must now consider how far this increase of commerce
diminishes the profits arising from that profession, and gives rise to
the third circumstance requisite to produce a lowness of interest.
It may be proper to observe on this head that low interest and low
profits of merchandise are two events that mutually forward each
other, and are both originally derived from that extensive commerce
which produces opulent merchants and renders the moneyed interest
considerable. Where merchants possess great stocks, whether represented
by few or many pieces of metal, it must frequently happen that when
they either become tired of business or have heirs unwilling or unfit
to engage in commerce, a great deal of these riches will seek an
annual and secure revenue. The plenty diminishes the price, and makes
the lenders accept of a low interest. This consideration obliges
many to keep their stocks in trade, and rather be content with low
profits than dispose of their money at an under value. On the other
hand, when commerce has become very extensive, and employs very large
stocks, there must arise rivalships among the merchants, which diminish
the profits of trade, at the same time that they increase the trade
itself. The low profits of merchandise induce the merchants to accept
more willingly of a low interest, when they leave off business and
begin to indulge themselves in ease and indolence. It is needless,
therefore, to inquire which of these circumstances—viz., low interest
or low profits, is the cause, and which the effect. They both arise
from an extensive commerce, and mutually forward each other. No
man will accept of low profits where he can have high interest, and
no man will accept of low interest where he can have high profits.
An extensive commerce, by producing large stocks, diminishes both
interest and profits; and is always assisted in its diminution of the
one by the proportional sinking of the other. I may add, that as low
profits arise from the increase of commerce and industry, they serve
in their turn to the further increase of commerce, by rendering the
commodities cheaper, encouraging the consumption, and heightening the
industry. And thus, if we consider the whole connection of causes and
effects, interest is the true barometer of the state, and its lowness
is a sign almost infallible of the flourishing of a people. It proves
the increase of industry, and its prompt circulation through the whole
state, little inferior to a demonstration. And though, perhaps, it may
not be impossible but a sudden and a great check to commerce may have
a momentary effect of the same kind, by throwing so many stocks out of
trade, it must be attended with such misery and want of employment in
the poor that, besides its short duration, it will not be possible to
mistake the one case for the other.
Those who have asserted that the plenty of money was the cause of low
interest seem to have taken a collateral effect for a cause, since the
same industry which sinks the interest does commonly acquire great
abundance of the precious metals. A variety of fine manufactures,
with vigilant, enterprising merchants, will soon draw money to a
state if it be anywhere to be found in the world. The same cause, by
multiplying the conveniences of life and increasing industry, collects
great riches into the hands of persons who are not proprietors of
land, and produces by that means a lowness of interest. But though
both these effects—plenty of money and low interest—naturally arise
from commerce and industry, they are altogether independent of each
other. For suppose a nation removed into the Pacific Ocean, without
any foreign commerce, or any knowledge of navigation: suppose
that this nation possesses always the same stock of coin, but is
continually increasing in its numbers and industry: it is evident that
the price of every commodity must gradually diminish in that kingdom,
since it is the proportion between money and any species of goods
which fixes their mutual value; and, under the present supposition,
the conveniences of life become every day more abundant, without any
alteration on the current specie. A less quantity of money, therefore,
amongst this people will make a rich man, during the times of industry,
than would serve to that purpose in ignorant and slothful ages. Less
money will build a house, portion a daughter, buy an estate, support a
manufactory, or maintain a family and equipage. These are the uses for
which men borrow money, and therefore the greater or less quantity of
it in a state has no influence on the interest. But it is evident that
the greater or less stock of labour and commodities must have a great
influence, since we really and in effect borrow these when we take
money upon interest. It is true, when commerce is extended all over the
globe the most industrious nations always abound most with the precious
metals; so that low interest and plenty of money are in fact almost
inseparable. But still it is of consequence to know the principle
whence any phenomenon arises, and to distinguish between a cause and
a concomitant effect. Besides that the speculation is curious, it
may frequently be of use in the conduct of public affairs. At least,
it must be owned that nothing can be of more use than to improve, by
practice, the method of reasoning on these subjects, which of all
others are the most important; though they are commonly treated in the
loosest and most careless manner.
Another reason of this popular mistake with regard to the cause of
low interest seems to be the instance of some nations, where, after a
sudden acquisition of money or the precious metals by means of foreign
conquest, the interest has fallen not only among them but in all
the neighbouring states as soon as that money was dispersed and had
insinuated itself into every corner. Thus, interest in Spain
fell nearly a half immediately after the discovery of the West Indies,
as we are informed by Garcilasso de la Vega; and it has been ever
since sinking in every kingdom of Europe. Interest in Rome, after the
conquest of Egypt, fell from 6 to 4 per cent., as we learn from Dion.
The causes of the sinking of interest upon such an event seem different
in the conquering country and in the neighbouring states, but in
neither of them can we justly ascribe that effect merely to the
increase of gold and silver.