acquisition of money will fall into a few hands, and be gathered into
large sums which seek a secure revenue, either by the purchase of land
or by interest; and consequently the same effect follows, for a little
time, as if there had been a great accession of industry and commerce.
The increase of lenders above the borrowers sinks the interest, and so
much the faster if those who have acquired those large sums find no
industry or commerce in the state, and no method of employing their
money but by lending it at interest. But after this new mass of gold
and silver has been digested, and has circulated through the whole
state, affairs will soon return to their former situation, while the
landlords and new money-holders, living idly, squander above their
income, and the former daily contract debt, and the latter encroach on
their stock till its final extinction. The whole money may still be in
the state, and make itself be felt by the increase of prices, but not
being now collected into any large masses or stocks, the disproportion
between the borrowers and lenders is the same as formerly, and
consequently the high interest returns.
Accordingly, we find in Rome that so early as Tiberius’s time interest
had again mounted to 6 per cent., though no accident had happened to
drain the empire of money. In Trajan’s time money lent on mortgages in
Italy bore 6 per cent.; on common securities in Bithynia, 12. And if
interest in Spain has not risen to its old pitch, this can be ascribed
to nothing but the continuance of the same cause that sunk
it—viz., the large fortunes continually made in the Indies, which come
over to Spain from time to time and supply the demand of the borrowers.
By this accidental and extraneous cause more money is to be lent in
Spain—that is, more money is collected into large sums than would
otherwise be found in a state where there are so little commerce and
industry.
As to the reduction of interest which has followed in England, France,
and other kingdoms of Europe that have no mines, it has been gradual,
and has not proceeded from the increase of money, considered merely in
itself, but from the increase of industry, which is the natural effect
of the former increase, in that interval, before it raises the price of
labour and provisions. For to return to the foregoing supposition, if
the industry of England had risen as much from other causes (and that
rise might easily have happened though the stock of money had remained
the same), must not all the same consequences have followed which we
observe at present? The same people would, in that case, be found in
the kingdom, the same commodities, the same industry, manufactures, and
commerce, and consequently the same merchants with the same stocks—that
is, with the same command over labour and commodities, only represented
by a smaller number of white or yellow pieces, which, being a
circumstance of no moment, would only affect the waggoner, porter, and
trunk-maker. Luxury, therefore, manufactures, arts, industry, frugality
flourishing equally as at present, it is evident that interest must
also have been as low, since that is the necessary result of all these
circumstances, so far as they determine the profits of commerce and the
proportion between the borrowers and lenders in any state.
NOTE, OF INTEREST.
[16] Price for a meal.
OF THE BALANCE OF TRADE.
It is very usual in nations ignorant of the nature of commerce to
prohibit the exportation of commodities, and to preserve among
themselves whatever they think valuable and useful. They consider not
that in this prohibition they act directly contrary to their intention,
and that the more is exported of any commodity the more will be raised
at home, of which they themselves will always have the first offer.
It is well known to the learned that the ancient laws of Athens
rendered the exportation of figs criminal, that being supposed a
species of fruit so excellent in Attica that the Athenians esteemed it
too delicious for the palate of any foreigner; and in this ridiculous
prohibition they were so much in earnest that informers were thence
called “sycophants” among them, from two Greek words which signify figs
and discoverer. There are proofs in many old Acts of Parliament of the
same ignorance in the nature of commerce, particularly in the reign
of Edward III.; and to this day in France the exportation of corn is
almost always prohibited—in order, as they say, to prevent famines,
though it is evident that nothing contributes more to the frequent
famines which so much distress that fertile country.
The same jealous fear with regard to money has also prevailed among
several nations, and it required both reason and experience to convince
any people that these prohibitions serve to no other purpose than to
raise the exchange against them and produce a still greater exportation.
These errors, one may say, are gross and palpable; but there still
prevails, even in nations well acquainted with commerce, a strong
jealousy with regard to the balance of trade, and a fear that all
their gold and silver may be leaving them. This seems to me, almost in
every case, a very groundless apprehension, and I should as soon
dread that all our springs and rivers should be exhausted as that
money should abandon a kingdom where there are people and industry. Let
us carefully preserve these latter advantages, and we need never be
apprehensive of losing the former.
It is easy to observe that all calculations concerning the balance
of trade are founded on very uncertain facts and suppositions. The
custom-house books are allowed to be an insufficient ground of
reasoning; nor is the rate of exchange much better, unless we consider
it with all nations, and know also the proportion of the several sums
remitted, which one may safely pronounce impossible. Every man who has
ever reasoned on this subject has always proved his theory, whatever
it was, by facts and calculations, and by an enumeration of all the
commodities sent to all foreign kingdoms.
The writings of Mr. Gee struck the nation with a universal panic when
they saw it plainly demonstrated by a detail of particulars that the
balance was against them for so considerable a sum as must leave them
without a single shilling in five or six years. But luckily twenty
years have since elapsed, with an expensive foreign war, and yet it is
commonly supposed that money is still more plentiful among us than in
any former period.
Nothing can be more entertaining on this head than Dr. Swift, an author
so quick in discerning the mistakes and absurdities of others. He says,
in his _Short View of the State of Ireland_, that the whole cash of
that kingdom amounted but to £500,000; that out of this they remitted
every year a neat million to England, and had scarce any other source
from which they could compensate themselves, and little other foreign
trade but the importation of French wines, for which they paid ready
money. The consequence of this situation, which must be owned to be
disadvantageous, was that in a course of three years the current money
of Ireland from £500,000 was reduced to less than two; and at present,
I suppose, in a course of thirty years, it is absolutely nothing. Yet I
know not how that opinion of the advance of riches in Ireland,
which gave the Doctor so much indignation, seems still to continue and
gain ground with everybody.
In short, this apprehension of the wrong balance of trade appears of
such a nature that it discovers itself wherever one is out of humour
with the ministry, or is in low spirits; and as it can never be refuted
by a particular detail of all the exports which counterbalance the
imports, it may here be proper to form a general argument which may
prove the impossibility of that event as long as we preserve our people
and our industry.
Suppose four-fifths of all the money in Britain to be annihilated in
one night, and the nation reduced to the same condition, with regard
to specie, as in the reigns of the Harrys and Edwards, what would be
the consequence? Must not the price of all labour and commodities sink
in proportion, and everything be sold as cheap as they were in those
ages? What nation could then dispute with us in any foreign market, or
pretend to navigate or to sell manufactures at the same price which
to us would afford sufficient profit? In how little time, therefore,
must this bring back the money which we had lost, and raise us to the
level of all the neighbouring nations? where, after we have arrived,
we immediately lose the advantage of the cheapness of labour and
commodities, and the further flowing in of money is stopped by our
fulness and repletion.
Again, suppose that all the money of Britain were multiplied fivefold
in a night, must not the contrary effect follow? Must not labour and
commodities rise to such an exorbitant height that no neighbouring
nations could afford to buy from us, while their commodities, on the
other hand, became so cheap in comparison that, in spite of all the
laws which could be formed, they would be run in upon us, and our money
flow out till we come to a level with foreigners, and lose that great
superiority of riches which had laid us under such disadvantages?
Now, it is evident that the same causes which would correct these
exorbitant inequalities, were they to happen miraculously,
must prevent their happening in the common course of nature, and must
for ever, in all the neighbouring nations, preserve money nearly
proportionable to the art and industry of each nation. All water,
wherever it communicates, remains always at a level. Ask naturalists
the reason: they tell you that were it to be raised in any one place,
the superior gravity of that part not being balanced, must depress it
till it meets a counterpoise; and that the same cause which redresses
the inequality when it happens must for ever prevent it without some
violent external operation.[17]
Can one imagine that it had ever been possible, by any laws, or even
by any art or industry, to have kept all the money in Spain which the
galleons have brought from the Indies? or that all commodities could
be sold in France for a tenth of the price which they would yield on
the other side of the Pyrenees, without finding their way thither, and
draining from that immense treasure? What other reason, indeed, is
there why all nations at present gain in their trade with Spain and
Portugal, but because it is impossible to heap up money, more than any
fluid, beyond its proper level? The sovereigns of these countries have
shown that they wanted not inclination to keep their gold and silver to
themselves had it been in any degree practicable.
But as any body of water may be raised above the level of the
surrounding element, if the former has no communication with the
latter, so in money, if the communication be cut off by any material
or physical impediment (for all laws alone are ineffectual), there
may, in such a case, be a very great inequality of money. Thus the
immense distance of China, together with the monopolies of our India
companies, obstructing the communication, preserve in Europe
the gold and silver, especially the latter, in much greater plenty
than they are found in that kingdom. But, notwithstanding this great
obstruction, the force of the causes above-mentioned is still evident.
The skill and ingenuity of Europe in general surpasses perhaps that of
China with regard to manual arts and manufactures, yet are we never
able to trade thither without great disadvantage; and were it not for
the continual recruits which we receive from America, money would very
soon sink in Europe and rise in China, till it came nearly to a level
in both places. Nor can any reasonable man doubt but that industrious
nation, were they as near us as Poland or Barbary, would drain us of
the overplus of our specie, and draw to themselves a larger share of
the West Indian treasures. We need have no recourse to a physical
attraction to explain the necessity of this operation; there is a moral
attraction arising from the interests and passions of men which is full
as potent and infallible.
How is the balance kept in the provinces of every kingdom among
themselves but by the force of this principle, which makes it
impossible for money to lose its level, and either to rise or sink
beyond the proportion of the labour and commodities which is in each
province? Did not long experience make people easy on this head, what
a fund of gloomy reflections might calculations afford a melancholy
Yorkshireman while he computed and magnified the sums drawn to London
by taxes, absentees, commodities, and found on comparison the opposite
articles so much inferior? And no doubt, had the Heptarchy subsisted in
England, the legislature of each state had been continually alarmed by
the fear of a wrong balance; and it is probable that the mutual hatred
of these states would have been extremely violent on account of their
close neighbourhood; they would have loaded and oppressed all commerce
by a jealous and superfluous caution. Since the Union has removed the
barriers between Scotland and England, which of these nations gains
from the other by this free commerce? Or if the former kingdom
has received any increase of riches, can it be reasonably accounted for
by anything but the increase of its art and industry? It was a common
apprehension in England before the Union, as we learn from L’Abbe du
Bos, that Scotland would soon drain them of their treasure were an
open trade allowed; and on the other side of the Tweed a contrary
apprehension prevailed—with what justice in both time has shown.
What happens in small portions of mankind must take place in greater.
The provinces of the Roman empire no doubt kept their balance with each
other, and with Italy, independent of the legislature, as much as the
several counties of Britain or the several parishes of each county. And
any man who travels over Europe at this day may see by the prices of
commodities that money, in spite of the absurd jealousy of princes and
states, has brought itself nearly to a level, and that the difference
between one kingdom and another is not greater in this respect than it
is often between different provinces of the same kingdom. Men naturally
flock to capital cities, seaports, and navigable rivers. There we find
more men, more industry, more commodities, and consequently more money;
but still the latter difference holds proportion with the former, and
the level is preserved.[18]
Our jealousy and our hatred of France are without bounds, and the
former sentiment at least must be acknowledged very reasonable
and well-grounded. These passions have occasioned innumerable barriers
and obstructions upon commerce, where we are accused of being commonly
the aggressors. But what have we gained by the bargain? We lost the
French market for our woollen manufactures, and transferred the
commerce of wine to Spain and Portugal, where we buy much worse liquor
at a higher price. There are few Englishmen who would not think their
country absolutely ruined were French wines sold in England so cheap
and in such abundance as to supplant, in some measure, all ale and
home-brewed liquors; but would we lay aside prejudice, it would not
be difficult to prove that nothing could be more innocent, perhaps
advantageous. Each new acre of vineyard planted in France, in order
to supply England with wine, would make it requisite for the French
to take the produce of an English acre, sown in wheat or barley, in
order to subsist themselves; and it is evident that we have thereby got
command of the better commodity.
There are many edicts of the French King prohibiting the planting of
new vineyards, and ordering all those already planted to be grubbed
up, so sensible are they in that country of the superior value of corn
above every other product.
Mareschal Vauban complains often, and with reason, of the absurd duties
which load the entry of those wines of Languedoc, Guienne, and other
southern provinces that are imported into Brittany and Normandy. He
entertained no doubt but these latter provinces could preserve their
balance notwithstanding the open commerce which he recommends. And it
is evident that a few leagues more navigation to England would make no
difference; or if it did, that it must operate alike on the commodities
of both kingdoms.
There is indeed one expedient by which it is possible to sink, and
another by which we may raise, money beyond its natural level in any
kingdom; but these cases, when examined, will be found to resolve into
our general theory, and to bring additional authority to it.
I scarce know any method of sinking money below its level but those
institutions of banks, funds, and paper-credit which are so much
practised in this kingdom. These render paper equivalent to money,
circulate it through the whole state, make it supply the place of gold
and silver, raise proportionally the price of labour and commodities,
and by that means either banish a great part of those precious metals,
or prevent their further increase. What can be more short-sighted than
our reasonings on this head? We fancy, because an individual would be
much richer were his stock of money doubled, that the same good effect
would follow were the money of every one increased, not considering
that this would raise as much the price of every commodity, and reduce
every man in time to the same condition as before. It is only in our
public negotiations and transactions with foreigners that a greater
stock of money is advantageous; and as our paper is there absolutely
insignificant, we feel, by its means, all the ill effects arising from
a great abundance of money without reaping any of the advantages.[19]
Suppose that there are twelve millions of paper which circulate in the
kingdom as money (for we are not to imagine that all our enormous funds
are employed in that shape), and suppose the real cash of the kingdom
to be eighteen millions: here is a state which is found by experience
able to hold a stock of thirty millions. I say, if it be able to hold
it, it must of necessity have acquired it in gold and silver had we not
obstructed the entrance of these metals by this new invention of paper.
Whence would it have acquired that sum? From all the kingdoms of the
world. But why? Because, if you remove these twelve millions, money in
this state is below its level compared with our neighbours; and
we must immediately draw from all of them till we be full and saturate,
so to speak, and can hold no more. By our present politics we are as
careful to stuff the nation with this fine commodity of bank-bills
and chequer notes as if we were afraid of being overburdened with the
precious metals.
It is not to be doubted but the great plenty of bullion in France is,
in a great measure, owing to the want of paper-credit. The French have
no banks; merchants’ bills do not there circulate as with us; usury or
lending on interest is not directly permitted, so that many have large
sums in their coffers; great quantities of plate are used in private
houses, and all the churches are full of it. By this means provision
and labour still remain much cheaper among them than in nations that
are not half so rich in gold and silver. The advantages of this
situation in point of trade, as well as in great public emergencies,
are too evident to be disputed.
The same fashion a few years ago prevailed in Genoa which still has
place in England and Holland, of using services of china ware instead
of plate; but the Senate, wisely foreseeing the consequence, prohibited
the use of that brittle commodity beyond a certain extent, while the
use of silver plate was left unlimited. And I suppose, in their late
distresses, they felt the good effect of this ordinance. Our tax on
plate is, perhaps, in this view, somewhat impolitic.
Before the introduction of paper-money into our colonies, they had gold
and silver sufficient for their circulation. Since the introduction of
that commodity, the least inconveniency that has followed is the total
banishment of the precious metals. And after the abolition of paper,
can it be doubted but money will return, while these colonies possess
manufactures and commodities, the only thing valuable in commerce, and
for whose sake alone all men desire money?
What pity Lycurgus did not think of paper-credit when he wanted to
banish gold and silver from Sparta! It would have served his
purpose better than the lumps of iron he made use of as money, and
would also have prevented more effectually all commerce with strangers,
as being of so much less real and intrinsic value.
It must, however, be confessed that, as all these questions of trade
and money are extremely complicated, there are certain lights in
which this subject may be placed so as to represent the advantages of
paper-credit and banks to be superior to their disadvantages. That they
banish specie and bullion from a state is undoubtedly true, and whoever
looks no farther than this circumstance does well to condemn them; but
specie and bullion are not of so great consequence as not to admit of
a compensation, and even an overbalance from the increase of industry
and of credit which may be promoted by the right use of paper-money.
It is well known of what advantage it is to a merchant to be able to
discount his bills upon occasion; and everything that facilitates this
species of traffic is favourable to the general commerce of a state.
But private bankers are enabled to give such credit by the credit they
receive from the depositing of money in their shops; and the Bank of
England in the same manner, from the liberty they have to issue their
notes in all payments. There was an invention of this kind which was
fallen upon some years ago by the banks of Edinburgh, and which, as it
is one of the most ingenious ideas that has been executed in commerce,
has also been found very advantageous to Scotland. It is there called
a bank-credit, and is of this nature: A man goes to the bank and finds
surety to the amount, we shall suppose, of five thousand pounds. This
money, or any part of it, he has the liberty of drawing out whenever
he pleases, and he pays only the ordinary interest for it while it
is in his hands. He may, when he pleases, repay any sum so small as
twenty pounds, and the interest is discounted from the very day of the
repayment. The advantages resulting from this contrivance are manifold.
As a man may find surety nearly to the amount of his substance, and his
bank-credit is equivalent to ready money, a merchant does hereby
in a manner coin his houses, his household furniture, the goods in his
warehouse, the foreign debts due to him, his ships at sea; and can,
upon occasion, employ them in all payments as if they were the current
money of the country. If a man borrows five thousand pounds from a
private hand, besides that it is not always to be found when required,
he pays interest for it whether he be using it or not; his bank-credit
costs him nothing except during the very moment in which it is of
service to him, and this circumstance is of equal advantage as if he
had borrowed money at much lower interest. Merchants likewise from this
invention acquire a great facility in supporting each other’s credit,
which is a considerable security against bankruptcies. A man, when his
own bank-credit is exhausted, goes to any of his neighbours who is not
in the same condition, and he gets the money, which he replaces at his
convenience.