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CHAPTER III.: OF WEALTH. - Jeremy Bentham, The Works of Jeremy Bentham, vol. 3 
The Works of Jeremy Bentham, published under the Superintendence of his Executor, John Bowring (Edinburgh: William Tait, 1838-1843). 11 vols. Vol. 3.
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The national wealth is the sum of the particular masses of the matter of wealth belonging respectively to the several individuals of whom the political community—the nation—is composed. Every atom of that matter, added by any one such individual to his own stock, without being taken from that of any other individual, is so much added to the stock of national wealth.
To add to his own particular stock, and to add in each portion of time more than by use or otherwise is taken from it in that same portion of time, is, with a very few exceptions, the constant aim and occupation of every individual in every civilized nation. Enjoyment is the offspring of wealth,—wealth of labour. What men want from government is, not incitement to labour, but security against disturbance—security to each for his portion of the matter of wealth, while labouring to acquire it, or occupied in enjoying it.
For the purpose of increasing wealth, individuals require neither to be forced to labour, nor allured. The want of that which is not to be had without labour is sufficient force: the assurance of being able to enjoy it, is sufficient allurement. Leave men to themselves: each man is occupied either in the acquisition of wealth (the instrument of enjoyment,) or in some actual enjoyment, which, in the eyes of the only competent judge, is of more value. If idleness be to be discouraged, it is not because it is the non-acquisition of wealth, but because it is the source of crimes.
Whoever takes upon him to add to national wealth by coercive, and thence vexatious measures, stands engaged to make out two propositions:—1. That more wealth will be produced by the coercion than would have been produced without it; 2. That the comfort flowing from the extra wealth thus produced, is more than equivalent to whatever vexation may be found attached to the measure by which it was produced.
The application of the matter of wealth to its several purposes, in the character of an instrument of general security, is evidently of anterior and superior importance to the increase of it. But this class of operations belongs to other heads—to legislation and administration in general—to the establishment of laws distributive and laws penal; and the institution, collation, and exercise of powers military, fiscal, judicial; and of police.
The operations coming under the head of Agenda—viz. on the part of government,—may be described as those which are conducive either to the increase of the national stock of the matter of wealth, or to the application of it in the most efficient mode, to any of its three uses, viz. subsistence, security, and enjoyment; and which not being attended with preponderant vexation, are not to be expected to be performed by the spontaneous exertions of individuals: of the three conditions requisite for the production of this or any other effect, viz. inclination, power, and knowledge, some one or more being wanting on the part of individuals.*
A particular case for the interference of government in this view, is where inclination and knowledge, both adequate to the purpose, and even power (so far as depends on the possession of the matter of wealth,) being pre-existent on the part of individuals, nothing but an allotment of political power of an appropriate kind, requires to be supplied on the part of government. Such is the case where corporate powers are requisite for the management of a common stock; and thereby for enabling individuals spontaneously associated for the purpose, to give a more effectual combination to their exertions in the pursuit of a common end.
Whenever non-agenda have been acta, the doing away of these male acta may form so many additions to the catalogue of agenda.
To this head belong those operations which consist in the removal of obstructions to sponte acta.†
From the catalogue of agenda, having for their object the increase of the national stock of the matter of wealth in all its three shapes together, must be distinguished any such measures, the aim of which is confined to the increasing of it in any one of those shapes, at the expense of either of the two others. Measures of this tendency will, so far as they are justifiable, find their justification in the same considerations which prescribe the application of the matter of wealth to its several uses.
In this way, if a sacrifice be made of the matter of wealth in the most agreeable of its shapes, to the same matter in one or other of the two necessary ones—of the matter of enjoyment to the matter of subsistence, or the matter of defence;—if the assumed necessity be real, the transformation belongs, by the supposition, to the catalogue of agenda.
If in any nation, for the use of the whole or any part of such nation, government were to establish, in the character of security funds, magazines of the matter of subsistence, not to be drawn upon but in times of extraordinary scarcity,—an institution of this sort would hardly be thought of, much less be regarded as beneficial and desirable, under the notion of its producing a clear addition to the aggregate mass of the national stock of the matter of wealth, in all its shapes taken together. In the catalogue of agenda it could not be placed in any other character than as a sacrifice of enjoyment to subsistence.
If the nature of the case be such, that the aggregate of the security-funds laid up in the country in question by dealers, may at all times be safely depended upon as sufficient, the establishment of such funds by government, on its own account, will be plainly indefensible: being pregnant with loss instead of gain (as, in the business of buying and selling, trust-management will naturally be, when compared with interested management,) it would disturb the operations of individual dealers, and be prejudicial rather than conducive to the end aimed at;—viz. national security in respect of subsistence.
If, on the other hand, in that same country, seasons are continually liable to recur in which the aggregate of these private security-funds cannot with safety be depended upon, the proposition is reversed: government need not scruple to insure its subjects in this way, against loss and distress by scarcity.
In each country the establishment of such security-funds is an affair of calculation. For the meridian of England, a very considerable stock of data have already been furnished by experience. But what is shorter than calculation, is the reflection that the world is wide, and should the country ever receive another visit from famine (a visit too unpleasant to be thought of,) what is not to be had here, may perhaps be to be got elsewhere.
In a similar manner, sacrifices may be made of enjoyment to national defence. An example of this kind was found in the English navigation act. It operated in diminution, rather than in augmentation, of the aggregate mass of the matter of wealth. It made England pay more for freight than she would otherwise; and pro tanto drove the foreign nations in question from this line of industry into some less profitable one. This loss, whatever was the amount of it, was the price paid by England for whatever addition it thus made to its stock of the matter of defence; viz. for a sort of navy of reserve, for an extra portion of possible marine force—convertible into actual at pleasure. The measure could only be deemed eligible by assuming the necessity for the maintenance of the sort of security-fund thus kept up; i. e. for that part of the national stock of maritime skill which owed its production and maintenance to this measure.*
Another example may be found in the allowances in money given for the encouragement of certain fisheries. The object was the same as in the former case; the mode of encouragement being, not as in that case indirect, but direct,—the money being given at the expense of national wealth, and thence of national enjoyment. If without this encouragement the trade would not have been beneficial enough to be carried on, the quantity of the matter of wealth thus bestowed upon it was so much taken from enjoyment and given to defence,—and thence, if not necessary to defence, thrown away. If the trade would have been beneficial, the result of the measure is, besides the transfer of so much of the matter of wealth from the account of enjoyment to the account of defence, a net addition to the quantity of the whole. But it is only in the supposed necessity of it for the purpose of defence, that such sacrifice of national enjoyment can receive its justification. Take away the necessity, there remains wealth, purchased at the expense of justice—enjoyment given to one man, at the expense of enjoyment taken from another. A case conceivable, and perhaps realized, is—that as to part, the allowance may fall under one of the above suppositions; as to another part, under the other.
Whatever is not sponte actum on the part of individuals, falls thereby into the class of non-agenda on the part of government. Coercion, the inseparable accompaniment, precedent, concomitant, or subsequent of every act of government, is in itself an evil: to be anything better than a pure evil, it requires to be followed by some more than equivalent good. Spontaneous action excludes it: action on the part of government, and by impulse from government, supposes it.
Among non-agenda, therefore, must be reckoned the attempting to give birth or increase to this or that particular branch of industry productive of wealth, under the notion of giving an increase thereby to the aggregate of the national mass of wealth.
No kind of productive labour of any importance can be carried on without capital. Hence it follows, that the quantity of labour applicable to any object is limited by the quantity of capital which can be employed on it.
If I possess a capital of £10,000, and two species of trade, each yielding twenty per cent. profit, but each requiring a capital of £10,000 for carrying them on, are proposed to me, it is clear that I may carry on the one or the other with this profit, so long as I confine myself to one; but that, in carrying on the one, it is not in my power to carry on the other; and that if I seek to divide my capital between them both, I shall not make more than twenty per cent.; but I may make less, and even convert my profit into a loss. But if this proposition be true in the case of one individual, it is true for all the individuals in a whole nation. Production is therefore limited by capital.
There is one circumstance which demonstrates that men are not sensible of this truth, apparently so obvious. When they recommend the encouragement of particular branches of trade, they do not pretend that they are more profitable than others;—but that they are branches of trade, and they cannot possess too many. In a word, they would encourage trade in general,—as if all trade did not yield its own reward—as if an unprofitable trade deserved to be encouraged—and as if a profitable trade stood in need of encouragement; as if, indeed, by these capricious operations, it were possible to do any other thing than transfer capital from one branch of trade to another.
The quantity of capital being given, the increase of wealth will, in a certain period, be in proportion to the good employment of this capital—that is to say, of the more or less advantageous direction which shall have been given to it.
The advantageous direction of capital depends upon two things:—1. The choice of the undertaking; 2. The choice of the means for carrying it on.
The probability of the best choice in both these respects will be in proportion to the degree of interest which the undertaker has in its being well made, in connexion with the means he has of acquiring the information relative to his undertaking.
But knowledge itself depends in a great measure upon the degree of interest which the individual has in obtaining it: he who possesses the greatest interest will apply himself with the greatest attention and constancy to obtain it.
The interest which a man takes in the concerns of another, is never so great as he feels in his own.
If we consider everything necessary for the most advantageous choice of an undertaking, or the means of carrying it on, we shall see that the official person, so fond of intermeddling in the detail of production and trade, is in no respect superior to the individuals he desires to govern, and that in most points he is their inferior.
A prime minister has not so many occasions for acquiring information respecting farming as a farmer—respecting distillation as a distiller—respecting the construction of vessels as a shipbuilder—respecting the sale of commodities, as those who have been engaged in it all their lives.
It is not probable that he should either have directed his attention to these objects for so long a time, or with the same degree of energy, as those who have been urged on by such powerful motives. It is therefore probable, that in point of information relative to these professions, he is inferior to those who follow them.
If by chance a minister should become informed of any circumstance which proves the superior advantage of a certain branch of trade, or of a certain process, it would not be a reason for employing authority in causing its adoption. Publicity alone would produce this effect: the more real the advantage, the more superfluous the exercise of authority.
To justify the regulatory interference of government in the affairs of trade, one or other of these two opinions must be maintained:—that the public functionary understands the interests of individuals better than they do themselves; or that the quantity of capital in every nation being infinite, or that the new branches of trade not requiring any capital, all the wealth produced by a new and favourite commerce is so much clear gain, over and above what would have been produced, if these advantages had not been conferred on this trade.
These two opinions being contrary to the truth, it follows that the interference of government is altogether erroneous—that it operates rather as an obstacle than a means of advancement.
It is hurtful in another manner. By imposing restraints upon the actions of individuals, it produces a feeling of uneasiness: so much liberty lost—so much happiness destroyed.
Divide the aggregate mass of profit-seeking industry into any number of branches: each calls, or at least has an equal right to call upon government for encouragement—for encouragement at the expense of the public purse; that is, of all the other branches. Gratify all alike,—there is, as between them at least, no injustice on the one hand, no profit on the other. Gratify any number short of the whole—injustice is certain—profit questionable.
The measures which present themselves in the character of non-agenda, may be distinguished into broad measures and narrow measures:—broad measures having for their effect, or their object, the augmentation of wealth in all its shapes without distinction: narrow measures having for their object the augmentation of wealth by the increase of profit-seeking industry in this or that particular branch in preference to others, under the notion of its producing more wealth in that than in others. We shall proceed more particularly to consider some of the measures which have been so employed.
Example 1. Forced frugality.
By raising money as other money is raised, by taxes (the amount of which is taken by individuals out of their expenditure on the score of maintenance,) government has it in its power to accelerate to an unexampled degree the augmentation of the mass of real wealth.
By a proportionable sacrifice of present comfort, it may make any addition that it pleases to the mass of future wealth; that is, to the increase of comfort and security. But though it has it in its power to do this, it follows not that it ought to exercise this power—to compel the community to make this sacrifice.
To a certain degree—to a degree which in the ordinary course of things is quite sufficient for the purpose, the community makes this sacrifice of itself. This voluntary sacrifice is, at least in the ordinary state of things, amply sufficient for the purpose—for every purpose; and as the impulse is spontaneous, so far all is right.
On the other hand, the application of money raised by taxes in the shape of capital to the endeavour to promote national opulence, can only be carried into effect at the expense of justice. In the first place, it operates unjustly by forcing a man to labour, though it were for his own benefit, when he wishes to enjoy. It operates unjustly in the second place, by forcing one man to labour for the sake of increasing the enjoyments of another man—increasing his enjoyments, or rather the stock of the instruments of enjoyment in his hands; for all that government can do in behalf of enjoyment, otherwise than by security, is to increase the quantity of the mass of instruments of enjoyment:—application of these instruments in such manner as to produce actual enjoyment, depending altogether upon the individual, and being an effect altogether out of the reach of government.*
The effect of forced frugality is produced by paying off national debts. In this case, the production of the effect is not only unexceptionable, but necessary: it is a collateral result, and that a very advantageous one, from a necessary act of justice.
On the buying-in or paying-off of the government annuities in which the debt in Great Britain consists, the money raised by taxes—of which the whole mass, with a trifling exception or two, bears not upon capital but upon income, passes into the hands of the expelled annuitants; who to make it afford them an income, as before, must employ it themselves in the shape of capital, or lend it to others, who will employ it in that shape.
If the sum of money paid by government to such annuitants on the redemption of their annuities be greater than the sum received by government on the creation of those same annuities, the quantity of the sum thus raised by forced frugality, and poured into the money market, receives a proportionable increase.
The effect of forced fruganty is also produced by the creating of paper money by government, or the suffering the creation of paper money on the part of individuals.
In this case, the effect is produced by a species of indirect taxation, which has hitherto passed almost unnoticed.
Example 2. Increasing money.
Labour, and not money, is the real source of wealth. All hands being employed, and employed in the most advantageous manner, wealth, real wealth, could admit of no further increase:—but money would be increasable ad infinitum.*
The effect of every increase of money (understand, of the ratio of the quantity of money employed in the purchase of things vendible, to the quantity of things vendible for money,) is to impose an unprofitable income tax upon the incomes of fixed incomists.†
If on the introduction of the additional money into the circulation, it pass in the first instance into hands which employ it in the way of unproductive expenditure,‡ the suffering from this tax remains altogether uncompensated:—if before it come into any hands of that description, it have come into hands by which it has been employed in the shape of capital,∥ the suffering by the income tax is partly reduced and partly compensated. It is reduced, by the mass of things vendible produced by means of it:—a mass, by the amount of which, were it not for the correspondent increase in the mass of money, the value of the mass of money would pro tanto have been increased, and the prices of things vendible decreased. It is in a certain degree, though in a very inadequate degree, compensated for§ by the same means;—viz. by the amount of the addition made to the quantity of sensible wealth—of wealth possessing a value in the way of use.¶ Here, as in the above case of forced frugality, national wealth is increased at the expense of national comfort and national justice.
On those who receive no share of the fresh addition to money—on those whose sole income consists in an unincreasing sum of money, the income tax bears with all its pressure; whilst those who receive a share of the fresh money equal to the amount of the depreciation, receive beforehand a compensation adequate (in money at least, howsoever it may be in regard to feelings) to their loss by the indirect tax.
In this case, the measure coincides with the one already reprobated,—the increasing the mass of real capital by money raised by taxes. The difference is, that the mode in which the money is raised is disadvantageous to a degree of usuriousness much beyond anything ever exemplified under that name;—the money being raised at an interest of 300 per cent., payable for ever by the possessors of fixed incomes—subject to a small deduction as an equivalent for the goods produced in each year by the addition made to the mass of real capital.
No sooner, however, does such additional sum of money pass on from the hands by which it is employed in the shape of capital, into those hands by which it is employed in adding to unproductive expenditure, than its operation in the way of making an addition to real wealth is at an end. No sooner does it go in addition to money employed in the purchase of articles for consumption, than its power of producing an addition to the mass of the matter of real wealth is at an end:—thenceforward and for ever it keeps on contributing by its whole amount to the increase of prices, in the same manner as if from the mines it had come in the first instance into an unproductive hand, without passing through any productive one.
In all cases where the addition thus made to wealth is not illusory in toto, it is so as to part, and that by far the greater part. Of the proportion between the illusory and the real part of the supposed addition to real wealth, the rise of prices in a country where no fresh money has been poured into unproductive hands, without first passing through a productive hand, is at once a demonstration and a measure. So much of the added wealth as hath not been accompanied by a counter-vailing addition to wealth, whether it have contributed anything to that addition or no, is over and above that portion which has been solely employed in producing the rise of prices.
Supposing that within the last half century, in the whole commercial world together, wealth has received an increase to the amount of one-fourth, and at the same time prices have doubled,—it follows, that of the money now existing in that world, nearly half has to a certainty been worse than thrown away, having been employed in the imposition of the unproductive income tax above described:—and as to the addition to wealth, it is a matter of uncertainty what part, and even whether any part, has been produced by the addition to money, since without any such addition it might have been produced as well as by it.
In respect of the ratio of money to things vendible—of the aggregate of the one, to the aggregate of the other,—the state of things most desirable is—that it should continue the same at all times—no increase at any one time, no decrease at any other.
The tendency of a decrease, if sudden, and to a certain degree considerable, is to produce general bankruptcy: the mass of pecuniary engagements entered into within any given period of time, being grounded of course on the existing ratio of money to things vendible at that time, and not on the supposed suddenly supervening, or any inferior ratio. If at any time, the mass of things vendible not being in the same proportion decreased, out of the quantity of money of all kinds habitually in circulation, a portion of any sort, in the supposed degree considerable, be suddenly defalcated, the deficiency must be supplied by some portion of another sort, or something that will be accepted as equivalent, or the supposed general bankruptcy follows of course.*
The tendency of the like decrease, in so far as it is permanent, but too gradual to be productive of general bankruptcy, is—to impose an unproductive income tax, parallel to that above mentioned, but upon a different set of parties—upon all parties charged with annuities, or other fixed payments, on the ground of contracts to which it is not in their power to put an end.
As to an increase in the ratio of money to things vendible, the tendency of it in respect of the unprofitable income tax, by increase of prices of things vendible—by depreciation of money—has been shown above.
So far as addition to money is made in the shape of metallic money, the mischief producible by it is confined to that of the depreciation, as above. So far as it is made in the shape of paper money—consisting in promises of metallic money—the amount of which promises is accordingly exigible in the shape of metallic money,—to the actual mischief of depreciation, is superadded the contingent mischief of general bankruptcy.
When governments add to money by paper money, it is commonly in a non-commercial way: when individuals, singly, or in association, make the like addition, it is most commonly in a commercial way;—though, in a non-commercial way, it is natural that these coiners of money at the public expense—these uncommissioned sovereigns, or unpunishable and irreproachable robbers (for they may be called both or either,) should put off as much of it as they can get anybody to take.
Whether by governments or individuals, it may now be seen at what expense the profit is acquired, and at how much cheaper a rate the end, whatever it be, would be accomplished without any such addition by money drawn out of the old stock.
Example 3. Forced reduction of the rate of interest.
Of reducing the rate of interest allowed to be given by individuals for money borrowed of individuals, the principal mischief consists in another sort of unproductive income tax, imposed upon all such individuals whose income arises out of a mass of money lent out at interest to individuals;—the produce of which tax, instead of being paid in to the public treasury for the service of the public, and in lieu of the burthen which would otherwise be to be imposed to the same amount in some other shape, is made over gratis to those whose circumstances oblige them to borrow money, or enable them to borrow it with a profit.
It imposes not, as in the former case, an indirect unproductive income tax, but a direct one. It is not, as in the case of the increase of money, gradual, and in its amount in some measure uncertain and questionable, but sudden and determinate. Reduction from 5 to 4 per cent. would be a tax of exactly 4s. in the pound.
As to the effect in the way intended, it would be purely illusory. To the proportion of money employed in the shape of capital it would make no addition: if by impoverishment it forced some who, by anterior opulence, had been either withholden from trade or withdrawn from it, to embark in trade so much capital as they thus embarked in a trade of their own, so much would they withdraw from the trade of those other traders, to whom otherwise it would have been lent.
Instead of adding to, it would defalcate from the aggregate mass of wealth. Being a tax on money, lent in the shape of capital within the country, it would in effect be a prohibition—prohibiting the keeping it there, and under a penalty equal to the amount of the tax. It would have the effect of a bounty on the exportation of it—on the exportation of it to any country where any rate of interest higher than the reduced rate would be to be had.
The expectation that the reduction of interest would produce an addition to the aggregate mass of wealth, is an illusion which has its source in another illusion. Increase of wealth, though not the effect, is apt to be an accompaniment of a reduction in the rate of interest. As capital increases, wealth increases;—and as capital increases, if the effectual demand for capital (for money in the shape of capital) do not increase in so great a proportion, men will not give so high a price for the use of it as they did before. The reduction in this case is the result of freedom; and though it do not itself increase wealth, it cannot take place any further than as wealth is increased by other causes. The reduction here contended against is the product of coercion: and whenever the illusion prevails, it may be carried into effect at any time, in the poorest country as well as the richest, in the most declining as well as the most prosperous, accelerating and aggravating the decline.*
The mischief that would be produced by a reduction in the rate of lawful interest, is over and above the constant mischief produced by the fixation of that rate.
Rates of interest—evils of fixation.
If it be reasonable for legislators to encourage inventive industry by fictitious rewards, it is much more reasonable that they should not oppose obstacles to the productiveness of natural rewards.
The natural reward of inventions, when carried into effect, is the profit to be derived from them in the way of trade. But all trade requires capital. If the inventor have it of his own, it is well; if not, he must seek it from others. Many circumstances, however, conspire to hinder his obtaining it.
Does he endeavour to borrow it, upon what conditions can he hope to find a lender? Upon the ordinary conditions, it is naturally impossible that he should find one. A new undertaking cannot fail of being hazardous, if it were only because it is new. It is therefore necessary to grant to the lender an advantage proportionate to the apparent degree of risk. There are two methods of granting this advantage: the English laws proscribe them both. One method consists in granting interest at a rate superior to the ordinary rate: but this is prohibited by the laws fixing the rate of interest. This prohibition is partly inefficacious, and partly pernicious; that it was altogether useless, would be its greatest elogium.†
The second method consists in granting a variable interest, proportioned to the profits of the undertaking.‡
In France, there is one branch of commerce at least, in which it is possible to limit the portion of property that one is willing to risk. It is in the business of banking. The sum employed in this manner is said to be en commandite. If this liberty be useful in this branch of commerce, why should it not be equally so in every other, and especially in newly-discovered branches, which have so many natural obstacles to overcome, which it is needless to increase by legal interference? This liberty, under certain restrictions for the prevention of monopolies from the unrestrained accumulation of capital, has been established in Ireland. When will England have the wisdom to imitate this example?*
An inventor, therefore, in want of funds can only apply to a tradesman or merchant to enter into partnership with him; but persons engaged in business are those who have the least portion of disposable capital; and as they are enabled to make their own terms, inventive industry is often stifled or oppressed.
Were it lawful for every one to engage in commercial undertakings for a limited amount, how many facilities would be afforded to men of genius! All classes of society would furnish assistance to inventive industry: those who wished to risk only a small sum—those who could annually dispose of a certain sum, would be enabled to engage in this species of lottery, which promised to yield them an interest above the ordinary rate. The most elevated classes might find an amusement in descending into the territories of industry, and there staking a small part of that wealth which they risk upon games of chance. The spirit of gaming, diverted from its pernicious direction, might serve to increase the productive energy of commerce and art.
There are some who are natural enemies to merit of every kind: every conquest achieved by industry in the career of invention, is a loss to them—every discovery an injury. Common-place men have a common interest, which they understand but too well: it is, that all should be common-place like themselves. It is to be regretted that Adam Smith, in his “Wealth of Nations,”—a work which will rise in public estimation in proportion as genius shall be held in honour—should have furnished arms which the adversaries of genius may direct against that work itself. It is to be regretted that, under the odious name of projects, a name applied to the most useful enterprises, even to the moment when they receive the sanction of success, they may there be seen indiscriminately stamped with the seal of opprobrium, and indiscriminately enveloped with contempt.
It is not only that he may prevent prodigals from obtaining money, but that he may prevent its reaching the hands of projectors, whom he places with them upon the same level, that he approves of the fixing of the rate of interest upon the footing upon which he found it. “If the legal rate of interest in Great Britain, for example, were fixed so high as 8 or 10 per cent., the greater part of the money which was to be lent, would be lent to prodigals and projectors, who alone would be willing to give this high interest. Sober people, who will give for the use of money no more than a part of what they are likely to make by the use of it, would not venture into the competition. A great part of the capital of the country would thus be kept out of the hands which were most likely to make a profitable and advantageous use of it, and thrown into those which were most likely to waste and destroy it. Where the legal rate of interest, on the contrary, is fixed but a very little above the lowest market rate, sober people are universally preferred as borrowers, to prodigals and projectors. The person who lends money gets nearly as much interest from the former as he dares to take from the latter, and his money is much safer in the hands of the one set of people, than in those of the other.”†
This is not the only passage in which this author attacks projectors (see b. i. ch. iv.;) but it is here that he attack them more directly; whilst as to prodigals, it has been elsewhere shown that it is not to them that money is lent, or that any are willing to lend at extraordinary interest. Friends will either not lend at all, or will lend at the ordinary rate. Strangers will only lend, to those who are without industry, upon security. But he who has security to offer, has no need to give a halfpenny more, because he is a prodigal: it is upon his security that the money will be lent, and not upon his character. Whether the security offered be present or future, certain or contingent, produces no difference: a future or contingent security, by means of a valuation, becomes as good a pledge as if it were present or certain. In a word, if money be lent upon the industry of the borrower, it is lent not to a prodigal, but to a projector. It is therefore upon the latter class alone, that the burthen of these prohibitory laws presses.
An opinion which derives all its force from the authority of the individual who publishes it, cannot be better combated than by that authority itself.
1. The prosperity of England has been progressive, ever since the number of projectors has been not only in an uninterrupted, but in an accelerated state of increase;—2. The aggregate of the good economy has always been greater than the aggregate of the bad;—3. With respect to commerce, each individual is a better judge of his own interests than government can be for him;—and 4. General laws must be much more defective with respect to commercial regulations. The members of a government may take notice of particular cases, but general laws can never regard them.
These are the general propositions of the work of Adam Smith;—truths precious and irrefragable, which no one has more successfully laboured to unfold than this illustrious politician. But if these principles are followed out, no laws ought to exist for the restraint of projectors, and for preventing them from obtaining loans of the capital of which they stand in need.
The censure which condemns projectors, falls upon every species of new industry. It is a general attack upon the improvement of the arts and sciences. Everything which is routine to-day was originally a project;* every manufacture, how old soever it may be, was once new; and when new, it was the production of that mischievous and bold race who ought to be destroyed—the race of projectors!
I know not what can be replied to this, unless it be said that the past projects have been useful, but that all future projects will not be so. Such an assertion would, however, require proof, strong in proportion to its opposition to general opinion. In every career, experience is considered as worth something. The warning to be derived from past failures may contribute to future security, if not to success.
Were it even proved that no projector ever engaged in a new branch of industry without being ruined, it would not be proper to conclude that the spirit of invention and of projects ought to be discouraged. Each projector, in ruining himself, may have opened a new path, by which others may have attained to wealth. So soon as a new die, more brilliant or more economical than the old ones, a new machine, or a new practice in agriculture,—has been discovered, a thousand dyers, ten thousand mechanicians, a hundred thousand agriculturists, may reap the benefit: and then—though the original author of the invention have been ruined in the bringing the discovery to perfection—as it respects the national wealth, of what consequence is this, when considered as the price of so much gain?
That restrictions of this nature are inefficacious, has been successfully shown by Adam Smith himself.* But if inefficacious, this is sufficient reason for their condemnation: unless they effect the purpose designed, they are positively mischievous.
They tend, in the first place, to drive away useful projectors. I do not say that they drive away all: had that been the case, we should not have attained our present degree of prosperity. But they drive away a part: unhappily, we cannot know what part, nor how great a part of their number. The talent required for operating upon matter, or directing the powers of nature, is extremely different from that required for operating upon the mind—the talent of meditating in a study, and thereby making discoveries, from that requisite for making known those discoveries to the world. The chance of success in the career of invention is in proportion to the talent of the individual; the chance of obtaining a loan of capital from another to make an invention productive, is in proportion to his reputation. But this latter, far from being in direct, is naturally in inverse proportion with the former. The more unaccustomed an individual is to society, the greater his dread of mingling in it, the less is he at his ease—the less is he master of his faculties, when he is obliged to mingle with it. The effect produced upon the mind of the individual who has, or who supposes that he has, made a great discovery, is a mixture of pride and timidity, both which feelings concur in alienating the minds of men, and diminishing the probability of success in every enterprise, inasmuch as it may depend upon the degree in which such individual succeeds in rendering himself and his projects estimable in the eyes of others. This pride has for its cause the superiority which he believes himself to possess above them; this timidity is caused by the faint hope he possesses of making them sensible of this superiority. But though pride united with courage is one of the most powerful means of subjugating men, pride united with timidity is one of the most certain causes of exposure to their aversion and contempt. That disposition, which under the name of modesty is so much praised as a companion well adapted to the introduction of true merit, and which is so necessary when inferiority of situation will not allow the employment of boldness in the service, is not true timidity, but skill which has learnt to assume this appearance; it is skill, which to strength, and consciousness of that strength, unites the knowledge of when, and how, and in what sense, and in what proportion, this strength ought to be displayed, for the most favourable exhibition of its pretensions; and when, and how, and in what sense, it ought to be hidden, that the protector whose assistance is desired, may enjoy the feeling of his own superiority. If ever timidity has effected anything at the expense of that assurance which assumes its appearance, it has been when allied with beauty, which causes everything to be forgiven, and which nothing can resist. Separated from this powerful protectrix, it labours in grief, in darkness, in awkwardness, embarrassment, and false shame—the bugbears of love and of esteem, but the frequent and afflictive companions, and most cruel enemies, of merit and solitary genius.
Not to speak of the obstacles which oppose the progress of an inventor incumbered with his projects and his wants, before he reaches the anti-chamber of the rich, or the noble, whom it may be necessary to persuade—suppose these obstacles overcome, and that he is admitted to their presence; how will the poor inventor, the necessitous man of genius, behave when he has arrived there? Oftentimes he will lose his presence of mind, forget what he was about to say, stammer out some unconnected propositions; and finding himself despised, indignant that his merit should be thus treated, he will retire, resolving never again to expose himself to such an adventure. And even when he is not devoid of courage, there is nothing more different, though in certain points the connexion may appear most intimate, than the talent of conceiving new ideas of certain kinds, and the talent of developing these same ideas. Altogether occupied with the idea itself, the inventor is most frequently incapable of directing his attention to all the accessories which must be re-united before his invention can be understood and approved: his attention being entirely occupied with what is passing in his own mind, he is incapable of attending to what passes in the minds of others—incapable of arranging and directing his operations, so that he may make the most favourable impression upon them.
Thus the ingenious philosopher, who has delivered the most excellent instructions respecting the art of developing the thoughts of others, and who possessed in so perfect a degree the talent of developing his own, well knew how necessary it was, that in every career of invention except that of eloquence, minds should be attended by an accoucheur. How many difficulties did not Diderot experience in effecting this development—he who possessed this talent in so excellent a degree—where the two parties were agreed, had a common interest, and were equally well disposed! How numerous were the difficulties experienced by the ingenious artists of every description to whom he applied, in making him comprehend the fruits of their studies, when they had for their interpreter the man the most capable and the best disposed to understand them! How much more difficult would they have found it, had they been applicants for the assistance necessary to render their projects available to a rich ignoramus, filled with the idea of the necessity which existed for his assistance, and puffed up with that pride which commonly accompanies wealth, when unattended by that politeness which education teaches, and full of that distrust which a poor projector cannot fail to inspire in the mind of an individual favoured with the gifts of fortune!
Should the inventor succeed in making his plan understood, he will still find it difficult to make the interest of the capitalist accord with his desires: it is in this respect that the prohibition displays its mischievous qualities. How shall the poor inventor dare to propose a loan at the ordinary rate of interest? This rate may at all times be obtained without risk: where, then, would be the advantage to the capitalist in such a bargain? Is it possible that it could be otherwise than disadvantageous to him? A loan at the ordinary rate of interest cannot be hoped for; it is only to a most intimate friend that such a loan would be granted. Deprived of this resource, how shall he dare to propose to the individual whose assistance he seeks, to expose himself to the rigour of the laws? Scarcely daring to ask for the assistance he needs, upon the most secure and unexceptionable conditions, how shall he propose conditions which the laws consider criminal? Whilst there are laws against usury, it may be said, there will still be usury. Yes, and whilst there are laws against theft, there will still be thieves: does it follow that the laws which forbid theft are without effect, and that theft is as common as if these laws did not exist?
In the same proportion as the tendency of these prohibitory laws is unfavourable to true merit in the career of invention, is it favourable to the cheat which assumes the appearance of merit, were it only by the advantage given to imposture, by preventing merit from entering into the competition. The essential requisite is not merit, but the gift of persuasion: this gift most naturally belongs to the superficial man, who knows the world, half enthusiast and half rogue; and not to the studious and laborious individual, who is only acquainted with the abstract subjects of his studies. It is true, that at all times truth possesses powerful advantages; but these advantages are less in proportion as the career to which it relates is more removed from the ordinary routine, respecting which ordinary minds are capable of forming a judgment upon what is presented to them. It has therefore happened, that of all projectors, those have been treated with the greatest confidence, whose projects are now known to have been founded upon no basis of truth. Were it possible to ascertain the amount furnished under the existing laws against usury by capitalists, to the authors of useful and practicable projects, it would most probably be found less than the amount which in the same space of time has been drawn by the professors of alchemy from the avaricious credulity of the ignorant or half learned.
Truth possesses, however, this advantage over error of every kind: it will ultimately prevail, how frequent or how deplorable soever may have been the disgraces it has undergone. This error respecting prohibitory laws is nearly discredited—this source of delusion is nearly closed for ever. As the world advances, the snares, the traps, the pitfalls, which inexperience has found in the path of inventive industry, will be filled up by the fortunes and the minds of those who have fallen into them and been ruined. In this, as in every other career, the ages gone by have been the forlorn hope, which has received for those who follow them the blows of fortune. There is not one reason for hoping less well of future projects than of those which are passed; but here is one for hoping better.
The more closely the reasons, on account of which Adam Smith would have desired to discourage projectors, are examined, the more astonishing it appears that he should have so widely deviated from the principles he had himself laid down. It is probable that his imagination had been pre-occupied with the idea of certain incautious or dishonest projectors, the history of whose proceedings had fallen under his own observation, and that he had a little too promptly taken these few individuals as exact models of the whole race. To preserve himself from the error of too hasty and indiscriminate generalizations, never to allow any proposition to escape without having made all the reservations necessary to confine it within the limits of the exact truth, is the last boundary, and even now the ideal boundary, of human wisdom.*
Nothing would more contribute to the preliminary separation of useless from useful projects, and to secure the labourers in the hazardous routes of invention from failure, than a good treatise upon projects in general. It would form a suitable appendix to the judicious and philosophical work of the Abbé Condillac upon Systems. What this is in matters of theory, the other would be in matters of practice. The execution of such a work might be promoted by the proposal of a liberal reward for the most instructive work of this kind.
A survey might be made of the different branches of human knowledge; and what each presents as most remarkable in this respect might be brought to view. Chemistry has its philosopher’s stone; medicine its universal panacea; mechanics its perpetual motion; politics, and particularly that part which regards finance, its method of liquidating, without funds and without injustice, national debts. Under each head of error, the insuperable obstacles presented by the nature of things to the success of any such scheme, and the illusions which may operate upon the human mind to hide the obstacles, or to nourish the expectation of seeing them surmounted, might be pointed out.
Above all, dishonest projectors, impostors of every kind, ought to be depicted;—the qualities of mind and character which they possess in common should be described; their volubility, their rapidity; that lightness, natural or affected, with which they treat the arguments opposed to them; that manner which they have, and which for the accomplishment of their ends it is necessary they should have, of declaiming, instead of analyzing and reasoning—of flying off in tangents when they are pressed—of giving birth to incidents—of pretending to be tired with the species of opposition they experience—of attaching themselves to the manner in which questions and doubts, or arguments, are proposed to them, instead of to the foundations of things themselves—of complaining of the prejudices which they pretend are experienced against them—and in quitting the ground under those circumstances, in which, if they were sincere, it would be most proper for them to maintain themselves there.
But throughout the whole work, that tone of malignity which seems to triumph in the disgraces of genius, and which seeks to envelope wise, useful, and successful projects, in the contempt and ridicule with which useless and rash projects are justly covered, should be guarded against. Such is the character, for example, of the works of the splenetic Swift. Under the pretence of ridiculing projectors, he seeks to deliver up to the contempt of the ignorant, the sciences themselves. They were hateful in his eyes on two accounts: the one, because he was unacquainted with them; the other, because they were the work, and the glorious work, of that race which he hated ever since he had lost the hope of governing part of it.
The projectors who seek to deceive ought to be unmasked—those who are deceived, to be instructed: the interests of science and justice equally demand that they should be distinguished. I cannot discern what purpose ridicule can serve, if it be not to confound the distinction between useless and useful projectors.
In conclusion, some general counsels might be added for the use of those who, little versed in the fundamental sciences in which the respective projects take their rise, may find themselves in a situation to be addressed by the author of a project, with the design of obtaining their assistance. In effect, it is true that the whole work would be a collection of more or less approved counsels; but in making the recapitulation, some general remarks might be added, which would not have been suitable elsewhere, but which might be particularly useful here. They might, for example, be advised to apply to those learned individuals who would be able to supply their ignorance; the class of learned men who ought to be found competent judges in each department might be pointed out; instructions might be furnished, to enable them to judge of the counsels of the judges themselves, by warning them of the interests and prejudices, to the seduction of which these judges may themselves be exposed.
Example 4. Increasing land—viz. by colonization.
Land is worth nothing, but in proportion as labour is applied to it. Land at a distance is worth less than land at home, by the amount of all the distance. Of the mass of labour which is employed in adding to real wealth, no inconsiderable portion is employed in lessening the expense of carriage—in reducing the expense of carriage from a great distance, to a level with the expense of carriage from a less distance. If it could be done without destruction to existing capital, and above all without vexation, and destruction of security of property, wealth might be increased by taking the existing population, and transplanting it from greater distances with reference to the metropolis, to lesser distances.
Land newly acquired, especially in the way of colonization, is acquired at a greater distance. The foundation of a colony is an introductory expense,—the government of it a continual standing expense,—war for the defence of it an occasional one. All this requires money: and money is not to be had for these expenses but from taxes. To the mother-country, the positive profit from a colony is equal to 0; the negative profit, the loss—the defalcation from national wealth—is equal to the amount of such taxes.*
When an excess of population in relation to territory exists or is foreseen, colonization is a very proper measure. As a means of increasing the general wealth of a country, or of increasing the revenue of the mother-country, it is a very improper measure. All the common ideas upon this subject are founded in illusions.
That colonies add to the general wealth of the world, is what cannot be doubted; for if labour be necessary to production, land is no less so. The soil also of many colonies, independently of what it annually produces, is rich in raw materials, which only require that they should be extracted and carried away, to give them value. But this wealth belongs to the colonists—to those who occupy the land, and not to the mother country.
When first established, colonies are not in a condition to pay taxes: in the end, they will not pay them. In order to establish them—to protect them—to keep them in dependence, expense is required;—and all these expenses must be discharged by taxes levied upon the mother-country.
Colonization requires an immediate expense—an actual loss of wealth, for a future profit—for a contingent gain. The capital which is carried away for the improvement of the land in the colonies, had it been employed in the mother-country, would have added to its increasing wealth, as well as to its population, and to the means of its defence; whilst, as to the produce of the colonies, only a small part ever reaches the mother-country.
If colonization be a folly when employed as a means of enrichment, it is at least an agreeable folly. New enjoyments, insomuch as enjoyments depend upon the novelty and variety of objects, result from it. The substitution of sugar for honey—of tea, coffee, and chocolate, for the beer and meat which composed the breakfast of maids of honour in the reign of Elizabeth—the indigo which varies our dyes—the cochineal which furnishes the most brilliant scarlet—the mahogany which ornaments our apartments—the vessels of gold and silver which decorate our tables,—are all sources of enjoyment, and the pleasure which results from these objects of luxury is in part the profit of colonization; whilst the medicinal and nutritive plants which have been received from the colonies, in particular bark and potatoes, are possessed of much superior utility.
Novelty and variety, in respect of means of enjoyment, add nothing to the quantity of wealth, which remains as it was, if the old productions are supplanted by the new ones. It is thus also with new fruits, new flowers, new colours, new clothes, new furniture, if the new supplant the old. But as novelty and variety are sources of pleasure, in proportion as they are increased, wealth increases also, if not in quantity, at least in value. And if these new wants are incentives to new labour, a positive increase of real wealth results from them.
These advantages, such as they are, can only be derived from a colony situated in a climate whose productions cannot be naturalized in the mother-country; whilst, as to the mines of Mexico and Potosi, their effect has been to add to the quantity of vessels composed of the precious metals, and to the quantity of coin. The addition to the vessels increases the amount of real wealth—the addition to the coin has all been lost: the new mass of gold and silver has had no other effect than to depreciate the old, and to diminish, in the same proportion, the value of all pecuniary revenues, without adding to the amount of real capital or future wealth.
However, in taking all interests into the calculation, it is certain that the welfare of mankind has been increased by the establishment of colonies. There can be no doubt on this subject, in respect to the nations who by degrees have become established there, and who owe their existence to colonization. The mother-countries also have themselves gained in happiness in another point of view. Let us take England, for example. According to the progress which population has made during the last century, it may be supposed that it would soon have attained its extreme limits—that is to say, that it would have exceeded the ordinary means of subsistence, if the superabundance had not found means of discharging itself in these new countries. But a long time before population has reached these limits, there will be a great diminution of relative opulence, a painful feeling of general poverty and distress, a superabundance of men in all the laborious classes, and a mischievous rivalry in offering their labour at the lowest price.
For the benefit of mankind at large, it is desirable that the offsets which are to be employed as new plants should be taken from the most healthy stocks and the most flourishing roots; that the people who go forth to colonize unoccupied lands, should go forth from the nation whose political constitution is most favourable to the security of individuals; that the new colonies should be swarms from the most industrious hive; and that their education should have formed them to those habits of frugality and labour which are necessary to make transplanted families succeed.
It may often be advantageous for colonies to remain a long time under the government of the mother-country, provided always that such government be what it ought to be.
It would, without doubt, have been advantageous to Egypt to have remained under the government of Great Britain—a government which would have bestowed upon it peace, security, the fine arts, and the enjoyment of the magnificent gifts which nature has lavished upon it. But in respect to wealth, the possession of Egypt, far from being advantageous to England, would have proved only a burthen.
I hear a universal cry raised against this paradox. So many profound politicians, divided upon every other point, are unanimous upon the importance of colonies,—are they only agreed that they may fall into an error? So many merchants,—have they deceived themselves in so simple a calculation as that of the profit or loss of colonial commerce? The experience of two or three centuries,—has it not opened the eyes of governments? would it not be extraordinary that they should still obstinately sustain the enormous weight of these distant establishments, if their advantages were not clear and manifest?
I might reply, that a long train of alchymists, after all the misfortunes of their predecessors, long continued obstinately to seek after the philosopher’s stone, and that this great work yet has its partisans;—I might reply, that many nations in the East have, during many ages, been governed by astrology;—I might enumerate a long list of errors which have misled both governments and people. But a question of this nature ought not to be obscured by declamation. He who alleges the number of partisans by which a system is supported, instead of supporting it by proofs, desires to intimidate, and not to convince his adversery. Let us examine all the arguments by which the advantages of colonies, in respect of wealth, have been endeavoured to be proved: we shall not find a single one which is not in opposition to the most firmly established principles of political economy.
I. The wealth of the colonies is poured into the mother-country: it is brought thither by commerce; it consequently animates manufactures, and they support the large towns: the prosperity of Bordeaux, for example, is one proof; its wealth depends upon its trade with the West Indies.
This reasoning proves nothing in favour of a system of colonies: there is no necessity for governing or possessing any island, in order that we may sell merchandise there. The inhabitants of the Antilles stand in need of the productions of England and France: were they independent states, it would still be necessary that they should buy them: during their state of dependence, what can they do more? They will not give their sugars to the mother-country; they exchange them for corn and cloth. Those who supply these commodities, if they had not sold them to these parties, would have sold them to others. Suppose that the inhabitants of St. Domingo, in place of buying their corn in France, were to buy it in England; France would lose nothing, because, on the whole, the consumption of corn would not be less: England having supplied St. Domingo, would not be able to supply other countries, which would be obliged to supply themselves from France.
Trade is in proportion to capital. This is the principle: the total amount of trade in each country is always in proportion to the capital which each country possesses. I am a merchant;—I have a capital of £10,000 employed in commerce. Suppose Spanish America were opened to me, could I, with my £10,000, carry on a greater trade than I do at present? Suppose the West Indies were shut against me, would my £10,000 become useless in my hands? should I not be able to apply them to some other foreign trade, or to make them useful in the interior of the country, or to employ them in some enterprise of domestic agriculture? It is thus that capital always preserves its value: the trade to which it gives birth may change its form or its direction, may flow in different channels, may be directed upon one manufacture or another, upon foreign or domestic undertakings; but the final result is, that these productive capitals always produce; and they produce the same quantity, the same value, or at least the difference does not deserve attention.
It is therefore the quantity of capital which determines the quantity of trade, and not the extent of the market, as has been generally believed. Open a new market,—the quantity of trade will not, unless by some accidental circumstance, be increased: shut up an old market,—the quantity of trade will not be diminished, unless by accident, and only for a moment.
Should the new market be more advantageous than the old ones, in this case the profit will be greater—the trade may become more extended; but the existence of this extra profit is always supposed but never proved.*
The mistake consists in representing all the profit of a new trade as so much added to the amount of national profit, without considering that the same capital employed in any other branch of trade would not have been unproductive. People suppose themselves to have created, when they have only transferred. A minister pompously boasts of certain new acquisitions, certain establishments upon far distant shores; and if the adventures which have been made have yielded a million of profit, for example, he does not fail to believe that he has opened a new source of national wealth; he supposes that this million of profit would not have existed without him, whilst he may have occasioned a loss: he will have done so, if the capital employed in this new trade have only yielded ten per cent., and that employed in the ordinary trade have yielded twelve.
The answer to this first objection may be reduced to two points:—1. That the possession of colonies is not necessary to the carrying on of trade with them; 2. That even when trade is not carried on with the colonies, the capital which such trade would have required, will be applied as productively to other undertakings.
II. The advocates of the colonial system would consider the above answer extremely weak: they see in this commerce two circumstances which render it more advantageous than that which is carried on with free nations.
“We established,” say they, “a double monopoly against the colonist: first, the monopoly of their productions, which we permit them to sell to us alone, and which we thus obtain from them at the lowest price;—secondly, the monopoly of their purchases, which we oblige them to make among ourselves, so that we are able to sell our produce and manufactures to them at a dearer rate than we could to a free people, among whom, other nations would enter into competition with us.”
Let us examine the effect of these two monopolies separately.
1. You prevent your colonies from selling their productions to any but yourselves; but you cannot oblige them to cultivate their lands, or to manufacture at a loss. There is a natural price for every commodity, determined by the average rate of profit in commerce in general. If the cultivator cannot obtain this natural price, he will not continue to cultivate; he will apply his capital to other undertakings. The monopoly may produce a forced reduction of price for a time; but the colonist will not continue to cultivate sugar, if he lose by its cultivation instead of gaining. It is therefore impossible for this monopoly to produce a constant reduction of the price of commodities below their natural price; whilst free competition is sufficient to reduce them and keep them at this natural price. The high price which you wish to remedy by the monopoly is an evil which will cure itself. Large profits in any one branch of trade will draw thither a large number of competitors: all merchants are rivals, and their rivalry naturally produces a reduction of price, till the rate of profit in each particular branch of trade be upon a level with all others.
2. You may oblige your colonist to buy everything of you; but the advantage you expect to derive from this exclusive commerce is deceptive.
If it respect commodities and manufactures, which, owing to a natural superiority, you are enabled to furnish of better quality and at a lower price than foreigners, it is clear that, without monopoly, your colonists would rather buy them of you than of others. The monopoly will not enable you to sell them at a higher price; your merchants, being all in a state of competition with each other, naturally seek to supplant each other by offering their goods at the lowest price possible.
While as to the productions and other articles which you are not able to furnish them upon terms equally favourable with foreigners, it is certain that, without the monopoly, your colonists will not buy them of you. Ought we to conclude, that the monopoly will be advantageous to you? Not in the least: the nation in general will gain nothing. It will only follow, that a species of industry will be cultivated among you, which does not naturally suit you; that bad commodities will be produced, and bad manufactures carried on.
The monopoly is similar to a reward bestowed by government for the maintenance of manufactures inferior to those of other nations. If this monopoly did not exist, the same capital would be applied to other species of industry in which you have a decided advantage. Instead of losing by this arrangement, you will gain a more stable prosperity; since the manufactures which cannot be maintained but by forced means are exposed to a thousand vicissitudes. Observe further, that this monopoly is burthened with a counter-monopoly. It is not permitted to you to purchase productions similar to those of your colonies, when you find them elsewhere at a lower price: in compensation for the restraint you impose upon your colonies, you impose one upon yourselves. If they can buy only of you, you can buy only of them. How many inconveniences result from this! When the harvest has been deficient in your colonies, you are not able to supply yourselves from those places where the season has been more favourable; in the midst of abundance, you are suffering from dearth. The monopoly has no effect in lowering the price of commodities; but the counter-monopoly is certain occasionally to produce extraordinarily high prices.
III. The partisans of the colonial system consider colonies under another point of view—the advantage they produce to the revenue. The taxes levied upon the commerce of the colonies, whether upon importation or upon exportation, produce a revenue which would cease, or be much diminished, if they were independent.
The taxes levied upon the commerce with the colonies may produce a considerable amount. But if they were free, would they carry on no commerce? Could not this commerce be taxed?—could it not be taxed as heavily as smuggling would permit? England levies taxes upon its commerce with France; France levies taxes upon its commerce with England. The possession of colonies is not necessary to the levying of taxes upon the commerce carried on with them.
I do not repeat here, that your taxes upon the articles of their production, and upon those of your importation from the colonies, are taxes of which you pay every farthing yourself: this has already been demonstrated. What you make the colonies to pay, are only the taxes upon your exportation to them.
I allow that you may thus gain more from your colonies than you would be able to gain from foreign nations; since the foreigners can quit your market when they please, if they cannot obtain among you certain articles so cheap as from others: you are therefore obliged to humour them. But your own subjects, obliged to supply themselves from you, are obliged to submit: you keep them in a prison, and you can put what price you please upon their existence.
An advantage, however, of this nature can only be deceptive. When you have made a prison of your colonies, it is necessary to keep all the doors carefully shut: you have to strive against the Proteus of smuggling; fleets are necessary to blockade their ports, armies to restrain a discontented people, courts of justice to punish the refractory. How enormous are the expenses to be deducted, before this forced commerce will yield a net revenue!
To the amount of the expenses of peace, add that of a single armament—of a single war, and you will perceive, that dependent colonies cost much to the mother-country, and never yield an equal return; that, far from contributing to the strength of a state, they are always its weak and vulnerable points; that they keep up among maritime nations continual jealousy; and that thus the people in France, and in England, are subjected to heavy taxes, which have no other effect than to render the productions of the colonies dearer than if they were free.
To these considerations opposed to the colonial system, drawn from political economy, many others may be added, derived from justice and humanity. This system is often mischievous to the people submitted to it; government is almost always, as it respects them, in a state either of jealousy or indifference: they are either neglected or pillaged—they are made places of banishment for the reception of the vilest part of society, or places to be pillaged by minions and favourites, whom it is considered desirable suddenly to enrich. The sovereign, at two thousand leagues distance from his subjects, can be acquainted neither with their wants, their interests, their manners, nor their character. Their most legitimate and weighty complaints, weakened by reason of distance, stripped of everything which might excite sensibility—of everything which might soften or subdue the pride of power, are delivered without defence into the cabinet of the prince, to the most insidious interpretations, to the most unfaithful representations: the colonists are still too happy, if their demand of justice be not construed into a crime, and if their most moderate remonstrances are not punished as acts of rebellion. In a word, little is cared for their affection—nothing is feared for their resentment—and their despair is contemned. The most violent procedures are easily disguised under an appearance of necessity, and the best intentions will not always suffice to prevent the sacrifice of the public to private interests.
If we proceed to consider the situation of colonies in detail, we shall not fail to be struck with its disadvantages. Have the colonists any lawsuits in their mother-country? Their witnesses must cross the seas; they are at the mercy of their agents; years glide away, and the expenses of justice continually accumulate. Is there danger of a revolt? are they threatened by an enemy? Succours arrive when the mischief is done: the remedy oftentimes proves an additional calamity. Do they want food? Famine has laid waste the country before the mother-country has been apprised of their necessities.
These are not mere assertions: they are borne out by a faithful summary of the history of every colony. It is tragical, even to horror! The evils suffered in these establishments, from the ignorance, the weakness, or the insensibility of European governments, exceed everything which can be imagined. When we consider the multitude of men destroyed, the fleets lost, the treasures swallowed up, the establishments pillaged—we are astonished to hear colonies spoken of as a means of enrichment. The natural development of their fruitfulness, and of their industry, has been retarded for ages; they have been covered a thousand times with ruins; nations have impoverished themselves, that they might hold them in servitude, when they might have been sharers in their wealth by leaving to them the enjoyment of the benefits of liberty.
There are many arguments which prove the inutility of their dependence. North America presents a striking fact which ought to enlighten Europe. Has the trade of England diminished, since her former subjects became free? Since she lost these immense possessions, has she exhibited any symptoms of decay?—has she had fewer sailors?—has her maritime power been weakened? She has found a new source of wealth in the independence of the United States. The emancipation of this great country has carried thither a greater number of men, more capital, and more industry. Great Britain, relieved from the expense of defence and government, has carried on a more advantageous commerce with a more numerous and wealthy people; and it is thus that everything concurs in proving, that the prosperity of a nation is a benefit in which all others participate, every one in proportion to his means; and that the colonial system is hurtful to Europeans, only because it is hurtful to the colonies.
Let us, however, see the consequences which we ought to draw from these data.
1. Ought we not to form any colonial establishment? Certainly not with the intention of enriching the mother-country: it is always a certain expense, for a contingent and far distant profit. But we have seen that, as a means of relieving the population—of preventing its excess, by providing a vent for those who find themselves overburthened upon their native soil, colonization offers an advantageous resource; and when it is well conducted, and free from any regulations which may hinder its prosperity, there may result from it a new people, with whom we shall possess all the connexions of language, of social habits, of natural and political ties.
2. Ought colonies already possessed to be emancipated? Yes, certainly; if we only consider the saving of the expenses of their government, and the superior advantages of a free commerce. But it is necessary to examine what is due to colonial establishments—to a family which has been created, and which ought not to be abandoned. Can they maintain themselves? Will not their internal tranquillity be interrupted? Will not one class of the inhabitants be sacrificed to another? for example, the free men to the slaves, or the slaves to the free men? Is it not necessary that they should be protected and directed, in their condition of comparative weakness and ignorance? Is not their present state of dependence their safeguard against anarchy, murder, and pillage? Such are the points of view under which this question ought to be considered.
When we shall have ceased to consider colonies with the greedy eyes of fiscality, the greater number of these inconveniences will cease of themselves. Let governments lay aside all false mercantile notions, and all jealousy of their subjects, and everything which renders their yoke burthensome will fall at once: there will no longer be any reason to fear hostile dispositions and wars for independence. If wisdom alone were listened to, the ordinary object of contention would be reversed—the mother-country would desire to see her children powerful, that they might become free, and the colonies would fear the loss of that tutelary authority which gave them internal tranquillity and security against external foes.
General Observations.—Given in the shape of money, encouragements (so called,) special encouragements, though they miss the good they aim at in the shape of special encouragement, produce, in the shape of general encouragement, another good which they do not aim at—the addition made, as above, by forced frugality at the expense of justice.
Given otherwise than in the shape of money—given by discouragements applied to rival branches—they make no addition to wealth by forced frugality, and therefore make no addition at all to wealth. Discouragements to the import, and thence to the production of foreign goods, are discouragements to the export, and thence to the production, of the home goods that would have been taken by the foreigners in exchange for their goods.
Of the favour shown to home goods in comparison with foreign goods, what is the result? That, in each country, men get their commodities either not so good, or not so cheap, and thence not in such plenty as they would otherwise. Such not only is the result of all these conflicting operations, on the part of all nations taken together, but, to the extent of the operation, would be so in each, even if there were no such retaliation anywhere else.
Giving birth or increase to this or that particular branch of productive industry, under the notion of giving an increase thereby to the aggregate of the national mass of wealth, is either useless or mischievous.
The aggregate mass of money employed in the shape of productive capital, will, in all branches of industry taken together, be productive of so much per cent. upon the amount of it—say 15 per cent., or more or less, according to the average rate of profit upon stock in the country in question, which is in the inverse ratio of that portion of the mass of money in circulation, which is employed within the year in the shape of productive capital, to that portion of it which is employed, as money is employed, by a man who is said to spend his income.*
If in one of these branches the rate of profit be greater than in others—in the one 16 per cent. for example, in the others but 15—the greater the portion of capital employed in this most productive branch, in preference to the other less productive ones, the greater the annual addition to the aggregate mass of national wealth. But so long as they do but know which of all the branches open to them is most productive, individuals that have unengaged pecuniary capital to employ, are already as completely disposed to employ it in this most profitable branch, as all the exertions that can be employed by government can make them be.†
When, by the exertions of government, a mass of capital, which otherwise would have gone into a branch of productive industry producing but 15 per cent., is directed into a branch producing 16 per cent., the profit by these exertions is not the 16 per cent., but the difference between that and the 15 per cent., viz. the one per cent. It is for the 16 per cent., however, and not the 1 per cent., that credit is commonly taken by those statesmen who go to market for glory with the merit of affording encouragement to trade: and if 10 per cent. be the profit upon stock in the new branch, the whole 10 per cent. is taken credit for as profit by the measure, though 5 per cent. less have been the real fruit of it.
It is for the encouragement or creation of particular branches of trade or industry that statesmen have founded and defended, and conquered or attempted to conquer colonies. It is for the sake of colonies, more than for anything else, that governments have been at the expense of a marine: and reciprocally for the sake of a marine that they have established or defended colonies. In Europe, those who are governed pay for the expense: in America, it is become a principle that those who govern should pay the expense. It is in Hindostan alone, that men pay in wealth for that security which before they never knew: a better bargain on both sides was never made. Ambition, always blind, stumbles sometimes upon profit—sometimes upon a loss, at the command of chance. Man is always ready to govern, no matter what the terms.
Divide productive industry into any number of branches,—for instance four, as with Adam Smith:—husbandry, including mines and fishing; manufactures for home consumption; manufactures for foreign consumption; and carrying trade. Every encouragement afforded to any one of the four branches operates to the amount in discouragement of all the others. If, however, the encouragement be given in the shape of capital granted or lent, it will make an addition, to the amount of it, to the aggregate of real capital, and thence, to the amount of a per centage upon that capital, to the annual aggregate of growing wealth. But the addition thus made to wealth will depend for its magnitude, not on the choice made of the branch of industry, unless as to an extremely minute part of it, but on the addition made to the productive capital of the community at the expense of its income. A mode that would bid as fair for disposing of the money to the best advantage, would be to let a certain number of commercial men draw lots for the money, with liberty to apply it each in his own way. But what, again, would contribute in an equal degree to the same end is, if the nation has a debt, to employ the same sum in the buying in or paying off a portion of the debt; for in that case the receivers of the money, in lieu of annuities, would employ each of them his money in some branch of industry, in his own way of course, under his own management, or that of somebody to whom he lends the money.
The first course is attended with expense, the other not. In the first way, the money being levied by taxes, which whether direct or indirect bear principally upon income, is so much added to national capital at the expense of national income—in the other way, the money is so much taken from income on the same score; but by the redemption of so much capital, it extinguishes or transfers into the hands of government so much income: in the latter case, the community is exonerated from a charge upon its income—a charge to which it continues subject in the other case.
Such are the general grounds, from which it appears, that these narrow measures deserve to be reckoned among the non-agenda;—we shall proceed to examine a variety of examples of measures of these kinds more in detail.
Example 1. False encouragements—loans.
Of all the means whereby a government may give a particular direction to production, the loan of pecuniary capital to individuals, to be employed in any particular branch of trade, is the least open to objection.
It ought, however, at all times, to be free from objection with respect to justice and prudence. All the treasure of the government, whence does it arise but from taxes, and these taxes levied by constraint?* To take from one portion of its subjects to lend to another, to diminish their actual enjoyments, or the amount which they would have laid up in reserve, is to do a certain evil for an uncertain good—is to sacrifice security for the hope of increasing wealth.
If loans of this nature were always faithfully repaid, their injustice would be limited to a certain period. Let us suppose that the capital thus employed is £100,000, and that the whole sum has been levied in one year—the injustice of the measure will have begun and ended in a year; and if the money thus lent has produced an increase of industry, it is an advantage to be set in opposition to the evil arising from the tax.
But these loans have a natural tendency to be ill employed, wasted, or stolen. Monarchs, and their ministers, are as liable to be deceived in the choice of individuals as in the selection of particular branches of commerce. Those who succeed with them prove only that they possess the talent of persuasion, or understand the practices of courts; but these are not the things which produce success in trade. It may be seen in the work of Mirabeau upon the Prussian Monarchy, that Frederick II., with all his vigilance and severity, was often deceived by the ignorance or dishonesty of those who obtained from his avaricious credulity loans of this nature. Thus, in the train of the first unjust tax for the formation of the capital lent, follow other taxes, rendered necessary to replace the thefts and dilapidations to which the first has been exposed.
It is also most probable, that the capital thus employed will only be applied upon branches of industry less productive than those towards which it would naturally have directed itself. What is the argument of the borrower? That the trade he wishes to establish is new, or that it is necessary to support an established trade. But why should the government intermeddle with it, if not because individuals who consider their own interests are not willing to meddle with it? The presumption is therefore against the enterprise.
Suppose even, that, by chance, this loan should take the most advantageous direction possible, the loan is not justified by this profit: it was unnecessary. For employing capital in the most advantageous manner, it is only necessary that the most advantageous employment should be known. If it be not well employed, it is because a better employment is not known. It is knowledge which is wanted: it is proper to teach, and not to lend. If the government cannot tell which is the most advantageous employment of capital, it is still less able to employ it well; if it can tell which is the best employment, that is all it need do. If the money of government had not taken this direction, that of individuals would, had they been instructed and left free.
There are circumstances in which loans of this nature are always justifiable: when they are not employed for the encouragement of new enterprises, but only to afford support to particular branches of commerce, labouring under temporary difficulties, and which need only to be sustained for a short time till the crisis of peril or suspension is past. This is not a speculation on the part of government, but rather an assurance against a calamity, which it seeks to prevent or to lighten. In such cases of distress, individuals will not of themselves assist the merchants whose affairs are thus in danger: it is necessary, therefore, that assistance be supplied; and, when supplied, it is not in the way of regulation, but of remedy.
Example 2. Gift, or gratuitous loan.
Were we to judge from the number of instances in which it has been adopted, we should conclude that gratuitous grants of capital for the encouragement of commerce were most excellent measures.
Their inconveniences are of the same kinds as those of loans, but they greatly exceed them in degree. In case of a loan, if it be repaid, the same sum may serve the same purpose a second time; and so of the rest: the oppressive act by which the government obtained the capital need not be repeated. But if, in place of being lent, it be given,—so often as this favour is repeated, so often must the amount be levied by taxes: and upon every occasion it may be said, that the produce of the tax is lost, if we consider the use which might have been made of it in lightening the public burthens.
Sometimes capital has been lent with this view without interest—sometimes at an interest below the ordinary rate. In the first case, if it be repaid, it is not the capital which is lost, but only the interest; in the second case, it is not all the interest, but only the difference between the lower and the ordinary rate. It is still the same false policy as to its kind: all the difference is in the degree.
It may be observed, that gratuitous grants are more likely to be wasted than loans: it may be, because in the latter case responsibility is always incurred: it may be, because money received as a gift tends to produce prodigality: as it has been obtained without labour, it seems to have the less value.
In some cases, capital has been given, not in the shape of money, but in that of goods; by advancing to a manufacturer, for example, those articles which he wants for the completion of his work.
This plan may have the good effect of insuring the employment of the articles furnished upon the intended object. Those articles, however, with which the government interferes, are ordinarily dearer, and worse in quality, than those which the individual, with the same sum of money, could have obtained at his own choice. It is not the best method of treating men worthy of confidence; and it will not succeed with those who are unworthy of trust, since, after they are put in possession of them, they can convert the articles into money, and spend the amount. There may be measures which would obviate this danger:—inspection, suretyship, &c.; but, when it regards a plan radically bad, the discussion of the comparative inconveniences of any particular scheme, whereby the risk may be diminished, is not worth the labour it would cost.
Example 3. Bounties upon production.
This mode of encouragement much exceeds the two former in the career of absurdity. In the two former cases, it was an expense, a risk, without sufficient reason for supposing it would prove successful, and even without sufficient reason in case of success. But a bounty is an expense incurred with the certainty of not obtaining the object sought, and even because it is certain that it cannot be obtained.
In the case of a bounty upon production, it is not only the end which is absurd, but the means also, which possess this particular character of contributing nothing towards the end.
It is uniformly because the trade in question is disadvantageous, that it is necessary to bestow money upon its maintenance: if it were advantageous, it would maintain itself. It is because the workman is not able to obtain from the buyer a price for his merchandise which will yield an ordinary profit, that it is necessary that he should receive from the government a bounty which shall make up the difference.
Whether the kind of product upon which it operates be advantageous or not, the bounty has no efficacy in increasing the ability of the producer to augment it. Since it follows the production—since he receives it when the thing is done, and not before, it is clear that he has possessed other means of producing it. The bounty may have operated upon his inclination, but it cannot have contributed to his ability.
Bounties have been bestowed upon particular branches of trade for all sorts of reasons:—on account of their antiquity, on account of their novelty—because they were flourishing, because they were decaying—because they were advantageous, because they were burthensome—because there were hopes of improving them, and because it was feared they would grow worse;—so that there is no species of commerce in the world which could not, by one or other of these contrary reasons, claim this kind of favour during every moment of its existence.
It is in the case of an old branch of trade that the evil of such measures is most enormous, and in that of a new one that its inefficacy is most striking. A long-established branch of trade is in general widely extended: this extent furnishes the best reason for those who solicit these favours for its support; and, to give it effect, it ought at the same time to be represented as gaining and losing,—gaining, that there may be a disposition to preserve it—losing, that there may be a disposition to assist it.*
In the case of a new branch of trade or industry, the futility of the measure is its principal feature. Here, there is no reason which carries the mask of an apparent necessity—no pompous descriptions of its extent. All which can be alleged is, that, once established, it will become great and lucrative, but what it wants is to be established. What, then, is done for its establishment? Measures are taken, which can only operate after it is established. When the trade is established, it will have such great success that it will yield, for example, fifty per cent. profit; but, to establish it, is requires such large advances, that it is doubtful if those who possess capital will make them, on account of the risks which are almost always inseparable from every new undertaking. What course does the government pursue? Does it give capital? No, this would be foolish. Does it lend capital? No, this would be to run too great risk; it will give a bounty upon the article when it shall have been made: till then, it says, we shall give no money. Thus, to the fifty per cent. you will gain by your merchandize, we will add a bounty of ten per cent. Very well: and, according to this reasoning, at what time will you refuse assistance? You refuse so long as the bestowment of it will be useful—you grant it in order that something may be done, and you do not give it till it is already done by means independent of you.
Mistrust, short-sightedness, a suspicious disposition, and a confused head, are very susceptible of union. Why are bounties preferred to advance of capital? They are afraid of being deceived in the latter case. If £10,000 are given at once, nothing may perhaps be done: to avoid this risk, they give, when the thing is done, £10,000 per annum, which they will never receive again.
Instead of being beneficial, the expense to the state becomes more burthensome in proportion as the trade becomes extended. The bounty instituted for one reason, is continued on an opposite account: at first it was given in order to obtain—in the end it is continued for fear of losing, the particular branch of trade. What would have been necessary for its establishment was a trifle—what must be paid for its continuance knows no bounds.
The capital bestowed upon a new branch of industry for an experiment, is always comparatively a small sum; but what is given as a bounty is always, or at least it is always hoped that it will be, a large one; for unless a large quantity of the merchandize be manufactured and sold, and consequently, unless a large bounty be paid for its production and sale, the object is considered as unaccomplished—it is considered that the bounty has not answered its end.
When the article is one which would not have been manufactured without the bounty, all that is paid is lost; but if it be one of those which, even without the bounty, the manufacturers would have found it their interest to produce, only a portion of the bounty is lost. As it makes an addition, and that a very sensible addition to the ordinary profit of the trade, it attracts a great number of individuals towards this particular enterprise: by their competition, the article is sold at the lowest rate, and the diminution of price is in proportion to the bounty itself (allowance being made for the necessary expenses of soliciting and receiving it.) In this state of things, it would appear, at first sight, that the bounty does neither good nor harm: the public gains by the reduction of price as much as it loses by the tax, which is the effective cause of this reduction.
This would be true, if the individuals who paid the tax in the one case were the same who profited by the bounty in the other—if the measure of this profit were exactly the measure of their contribution—if they received the one at the same time that they paid the other, and if all the labour lost in these operations had not cost anything. But all these suppositions are contrary to fact. There are not two taxes which affect all the members of the state—there is not one which affects them all equally. The tax is paid a long time before the indemnification by the reduction of price is received, and the expenses of this useless circulation are always considerable.
After all that can be said, it is clear that a bounty upon production cannot, in the long run, produce an increased abundance of the article in question, whatsoever may be the diminution of price which may result from it. The profit which the producer will obtain is not greater than before—the only difference is, that it comes to him from another hand. It is not individuals who give it him in a direct manner—it is the government. Without the bounty, those who pay for the article are those who enjoy it: with the bounty, they only pay directly a part of the price—the rest is paid by the public in general; that is to say, more or less, by those who derive no advantages from it.*
Although a bounty upon production adds nothing to the abundance of any article of general consumption, it diminishes the price to the buyer. Suppose that, in Scotland, there were a bounty upon the production of oats, and that the bounty were paid by a tax upon beer brewed from this grain, oats would not be more abundant than before; but they would be sold at a less price to the buyer, (though the merchant would make the same profit) whilst the beer brewed with this grain would be proportionally dearer: the consumer of oats would not find himself richer than before, but for the same price he would have a greater quantity of this grain in the form of food, and less in the shape of drink.
I speak here of relative abundance, in proportion to the ordinary consumption: I speak of superfluity, compared with habitual wants. The lower this commodity is in price, compared with others, the greater will be the demand for it: more will be produced in consequence of the increased demand, but more will not be produced than is demanded; the commodity, as it respects abundance, will remain upon the same footing as before. If a superfluity be required—if a quantity be required exceeding what is commonly produced, other measures must be resorted to than a bounty on production.
If a bounty upon production could be justified, it would seem that it ought to be so in the case where the article thus favoured was an article of general consumption—as corn in England, oats in Scotland, potatoes in Ireland, and rice in India; but it would only appear so as a means of producing equality, and not under any other point of view. In fact, this measure does not tend to produce abundance: what it does, is to take the money out of the pockets of the rich, to put it into the pockets of the poor. A commodity of general consumption is always the most necessary of all the articles of life—it is always that of which the poor make the greatest use. The richer a man is, the more he consumes of other commodities besides this universal commodity. Suppose, then, a bounty upon the production of oats in Scotland: if nothing be consumed there but oats, or if there be only a tax upon oats, the persons who reap the advantage of the bounty would be those who bear the burthen of the tax, and that in the same proportion, inasmuch as the expense of levying the tax would be the only result of this measure. But commodities of all kinds are consumed in Scotland, and taxes are there levied upon a great variety of commodities. Oats, the commodity of the poor, being the object not of a tax but of a bounty, and the articles consumed by the rich being the object not of a bounty but of a tax, from the produce of which the bounty upon the production of oats is paid, the result will be, that the poor will obtain the commodity of which they make the greatest use at a lower price.
I agree to this: but does it follow that their condition will be bettered? Not at all. Oats will be sold to the poor at a lower price, but they will have less money wherewith to buy them. All the means of subsistence in this class resolve themselves into the wages of labour; but the wages of labour necessarily depend upon the degree of opulence which a country possesses; that is, upon the quantity of capital applicable to the purchase of labour, in connexion with the number of those whose labour is for sale. The low price resulting from the bounty will produce no advantage to the labourers whilst the wealth of the country remains the same: if the commodity be lowered in price, they will be less paid; or, what comes to the same thing, as they work for a ration of oats, they will be obliged to give more labour for this ration if oats are at a lower price.
All that relates to this mode of encouragement may be summed up in a few words:—
The natural course of things gives a bounty upon the application of industry to the most advantageous branches—a bounty of which the division will always be made in the most equitable manner. If artificial bounties take the same course as the natural, they are superfluous—if they take a different course, they are injurious.
Example 4. Exemptions from taxes on production.
An exemption from a tax capable of being imposed upon any article in the hands of the maker or seller, is a modification of a bounty upon production: it is a disguised bounty.
This kind of negative favour may be extended to every species of tax upon trade. The methods of encouragement in this way are as numerous as those of discouragement. If, of two rival manufactures, the one be weighed down by a tax, and the other free, that which is taxed is, in respect of that which is not, in the same situation as if both were free from taxes, and a bounty were bestowed upon one.
But each manufacture is a rival to every other. If this rivalry be not special, it is at least general and indirect. For what reason? Because the power of purchasing is limited, as to every individual, by his fortune and his credit. Every article which is for sale, and which he can desire, is in a state of competition with every other; the more he expends for the one, the less can he spend for the others.
Exemption from taxes upon production cannot be blamed absolutely; for it is to be wished, if the thing were possible, that there were no taxes. But, relatively, any particular exemption may be blamed, when the article exempted has nothing which justifies this particular exemption. If it were equally fit for taxation, the favour granted to it is an injury to other productions.
That an object fit for taxation be exempt, is an evil: it renders necessary some other tax, which by the supposition is less proper, or it allows some injurious tax to remain.
Whilst, as to advantage, there is none. If more of this untaxed merchandise be produced, less is produced of that which is taxed.
The evil of an unjust tax is all the difference between a more or less eligible tax, and the worst of those which exist.
Example 5. Bounties on Exportation.
In the case of bounties upon exportation, the error is not so palpable as in that of bounties upon production, but the evil is greater. In both cases, the money is equally lost: the difference is in the persons who receive it. What you pay for production, is received by your countrymen—what you pay for exportation, you bestow upon strangers. It is an ingenious scheme for inducing a foreign nation to receive tribute from you without being aware of it; a little like that of the Irishman who passed his light guinea, by cleverly alipping it between two halfpence.
As a bounty upon production may sustain a disadvantageous trade, which would cease without it, by forming its sole profit, it is also possible that it may for a short time increase the profit of an advantageous trade, which would support itself without this aid.
Does the bounty support a disadvantageous trade? It does not produce a farthing of profit more than would have existed without it. Left to itself, this trade would have ceased and made way for a better; and the community loses the profits of a capital better employed in lucrative undertakings.
Does the bounty support an advantageous trade? The evil, in the end, will be greater, because the extra profit drawing more rivals into this career, their competition will reduce the price so low, that the bounty will constitute at last the whole profit of this trade.
However, till the price be thus reduced, the bounty is a net gain for the first undertakers; and the consumers being our fellow-countrymen, a part of this ill-employed money turns to their advantage by the low price of the commodity.
But in the case of a bounty upon exportation, the nation which pays it never receives any advantage: everything is lost, as if it were thrown into the sea, or at least as if it had been given to foreigners.
Without this bounty, the article would have been exported, or it would not: it would have been exported, if foreigners were willing to pay a price which would cover the expense of the manufacturing, of exporting, and the ordinary profit of trade; it would not have been exported, if they did not offer a sufficient price. In the first case, they would have obtained the article by paying its worth; in the second case, this disadvantageous commerce would not have been carried on.
Suppose a bounty upon exportation: what are its effects? The foreigners who heretofore had found the article too dear, become disposed to purchase it. Why? Because you pay them to induce them to do so. The more government gives to the exporter, the less need the foreigner give. But it is clear that he will not pay more than the lowest price which will satisfy the exporter: he need not give more; since, if one merchant refuse to supply him at this price, another will be quite ready to do it.
Suppose an article of our manufacture, already purchased by foreign nations without a bounty upon its exportation; what will happen if a bounty be given? Solely the lowering of its price to the foreigners. A bounty of one penny for every pound in weight is given upon an article which sold for fivepence per pound; the manufacturer would not have found it worth while to have sold it for less than fivepence per pound; he will now, however, find the same profit in selling it for fourpence, because his own government makes up the difference. He will sell at fourpence, because, if he do not, some other will; and because, in this case, instead of selling for fivepence, it may happen that he will not sell at all. Thus the whole which government gives is a net saving to the foreigners: the effect in the way of encouragement is nothing. The whole which is exported with the bounty is neither more nor less than would be without it.*
Though a bounty do not render such a branch of trade more flourishing than it would otherwise have been, it will not render it less flourishing; but the more flourishing it becomes, the greater will be the loss to the nation.
Disadvantageous branches of trade are often spoken of. People are uneasy—they fear that certain manufactures, left to themselves, will be unprofitable. It arises from error. It is not possible that any branch of trade, left to itself, can be disadvantageous to a nation: it may become so by the interference of government, by bounties, and other favours of the same nature. It is not to the merchant himself that it can become disadvantageous; for the moment he perceives there is nothing to be gained, he will not persevere in it: but to the nation in general it may become so—to the nation, in its quality of contributor; and the amount of the bounty is the exact amount of the loss.
The Irishman who passed his light guinea was very cunning; but there have been French and English more cunning than he, who have taken care not to be imposed upon by his trick. When a cunning individual perceives you have gained some point with him, his imagination mechanically begins to endeavour to get the advantage of you, without examining whether he would not do better were he to leave you alone. Do you appear to believe that the matter in question is advantageous to you? He is convinced by this circumstance that it is proportionally disadvantageous to him, and that the safest line of conduct for him to adopt, is to be guided by your judgment. Well acquainted with this disposition of the human mind, an Englishman laid a wager, and placed himself upon the Pontneuf, the most public thoroughfare in Paris, offering to the passengers a crown of six francs for a piece of twelve sous. During half a day he only sold two or three.
Since individuals in general are such dupes to their self-mistrust, is it strange that governments, having to manage interests which they so little understand, and of which they are so jealous, should have fallen into the same errors? A government, believing itself clever, has given a bounty upon the exportation of an article, in order to force the sale of it among a foreign nation: what does this other nation in consequence? Alarmed at the sight of this danger, it takes all possible methods for its prevention. When it has ventured to prohibit the article, everything is done. It has refused the six-franc pieces for twelve sous. When it has not dared to prohibit it, it has balanced this bounty by a counter-bounty upon some article that it exports. Not daring to refuse the crowns of six francs for twelve sous, it has cleverly slipped some little diamond between the two pieces of money—and thus the cheat is cheated.
A strife of this nature, painted in its true colours, and stripped of the eclât which dazzles by the magnitude of the object and the dignity of the agents, appears too absurd to be possible; but for one example among a thousand, we may refer to what has happened between England and Ireland respecting the trade in linens.
Example 6. Prohibition of rival productions.
This pretended mode of encouragement can never be productive of good; but it may produce evil:—hurtful or useless, such is the alternative.
1. I say useless. It is a particular privilege of this exercise of power, to be employed in certain cases without doing any harm; and these cases occur when the branch of production or trade which is prohibited would not have been introduced, even had there been no prohibition. In former times, it was declared felony in England to import pollards and crocards, a kind of base coin at that time. This prohibition is yet in existence, without producing any inconvenience. If, with the intention of encouraging the increase of poultry, or with any other similarly patriotic view, the importation and increase of phœnixes were prohibited, it is clear that the trade in poultry would neither gain nor lose much.
Among all the species of manufacture which England, with so much anxiety, has prohibited to her colonies, there are many which, in comparison with agriculture, are no more suitable to the Americans than the breeding of phœnixes, the cultivation of pine-apples in their fields, or the manufacture of stuffs from spiders’ webs.
Were the articles of foreign manufacture, loaded with the expenses of importation, neither better in quality nor lower in price than the articles of home manufacture, they would not be imported: the prohibition exists in the nature of things.
2. Hurtful. By the prohibition of a rival manufacture, you wish to insure the success of a favoured manufacture, and you at once create all the mischiefs of a monopoly. You enable the monopolists to sell at a higher rate, and you diminish the number of enjoyments; you grant them the singular privilege of manufacturing inferior articles, or of ceasing to improve them; you weaken the principle of emulation, which exists only when there is competition; in short, you favour the enriching of a small number of individuals, at the expense of all those who would have enjoyed the benefit; you give to a few bad manufacturers an excessive degree of wealth, instead of supplying the wants of ten thousand good ones; you also wound the feelings of the people, by the idea of injustice and violence attached to the partiality of this measure.
Prohibitions of foreign manufactures are most frequently applied to those objects which foreigners can supply less expensively, on account of some peculiar advantage arising from their soil or their industry. By such prohibitions, you refuse to participate in this natural advantage which they enjoy; you prefer what costs you more capital and labour; you employ your workmen and your capital at a loss, rather than receive from the hands of a rival what he offers you of a better quality or at a lower price. If you hope by this means to support a trade which would otherwise cease, it may be supported, it is true; but, left to itself, capital would only leave this channel where its disadvantages are unavoidable, to enter upon others where it would be employed with greater advantage. The greatest of all errors is to suppose, that by prohibitions, whether of foreign or domestic manufactures, more trade can be obtained. The quantity of capital, the efficient cause of all increase, remaining the same, all the increase thus given to a favoured commerce is so much taken from other branches.
The collateral evils of this prohibitory system ought not to be forgotten. It is a source of expense, of vexation, and of crimes.
The expense most evidently lost, is that of the custom-house officers, the inspectors, and other individuals employed; but the greatest loss is that of labour—both of the unproductive labour of the smuggler, and of those who are, or who appear to be, employed in the prevention of smuggling.
To destroy foreign commerce, it is only necessary to sell everything, and to purchase nothing:—such is the folly which has been passed off as the depth of political wisdom among statesmen.
Among the transactions between nation and nation, men have consented, at great expense, to support disadvantageous manufactures, that they may not buy of their rivals. We do not see such monstrous extravagance on the part of individuals. If a merchant were to act thus, we should say he was hastening to ruin. But his interest guides him much better: it is only public functionaries who are capable of this mistake, and they only when they are acting on account of others.
Covetousness desires to possess more than it can hold: malevolence likes better to punish itself than to allow a benefit to an adversary.
To have its eyes greater than its belly, is a proverb which nurses apply to children, and which always applies to nations. An individual corrects this fault by experience: the politician, when once affected by it, never corrects himself.
When a child refuses physic, mothers and nurses sometimes induce it to take it by threatening to give it to the dog or the cat. How many statesmen—children badly educated—persist in supporting a commerce by which they lose, that they may avoid the morfication of allowing a rival nation to carry it on!
The statesman who believes he can infinitely extend commerce, without perceiving that it is limited by the amount of capital, is the child whose eyes are larger than his belly.
The statesman who strives to retain a disadvantageous commerce, because he fears another nation will gain it, is the child who swallows the bitter pill, for fear it should be given to the cat or the dog.
These are not noble comparisons, but they are just ones:—when errors cover themselves with an imposing mask, one is tempted to set them in a light which will show them to be ridiculous.
Example 7. Prohibition of rival imports.
In regard to the prohibition of rival imports, simply inefficacious or mischievous is here the alternative.
If the foreign article cannot when imported, after payment of the expense of importation, be had as cheap in comparison of its quality as the home article meant to be favoured, it will not be imported;—so long as that is the case, a prohibition is put upon it by nature. If, had it not been for the prohibition, it could have been sold here cheaper, the prohibition is in point of burthen a tax upon us to the amount of the difference in price. I say, in point of burthen: for as to that benefit which it is the property of a real tax to produce, viz. a supply for expenditure, or a relief to an equal amount from the burthen of other taxes, it has no existence. It is upon the same footing with a tax the produce of which, as soon as collected, should be thrown into the sea.
As to the increase of wealth in general, the particular encouragement in question is, for the general reason so often given, of no avail. The quantity of capital, the efficient cause of wealth, remaining the same, whatever is added in consequence to the favoured trade, is so much taken from the rest.
Non agenda—Narrow measures.
Example 8. Taxation of rival branches of home manufactures.
The natural and only original object of taxation is revenue: but, considered merely as confined to that object, it does not belong to our present purpose. Measures are however to be considered with regard to their eventual effects of all kinds—as well those which were not designed (if there be any) as those which were.
A tax upon one of two rival branches of trade can have no effect in favour of the other, but in so far as it operates as a prohibition. If the same quantity of the commodity meant to be discouraged, be sold notwithstanding the tax, as would have been sold without the tax, the advantage gained by the commodity meant to be favoured, amounts to nothing.
So far as it operates as a prohibition, we have seen that good it can do none—it only transfers capital from one employment to another, without producing any increase of wealth: harm it may do, and is likely enough to do—though we have seen that it may also happen not to do any.
As a tax, it may do good or harm according to its particular nature:* good, if it stand instead of a worse—harm, if it stand instead of one less burthensome.
Example 9. Taxation of rival imports.
Whether the article thus taxed in the view of favouring another, be an article of home production or an article of import, makes in point of advantage no sort of difference. As far as it prevents the import, it has the effect of a prohibition: in which capacity we have seen, that with regard to the general increase of wealth, it is of no use. As far as it fails of preventing the import, it gives no encouragement to the particular trade in question; nor consequently to the particular portion of wealth employed in that trade: its effect is to levy money on the subject, in quality of a tax; but the persons on whom the money is levied are our own people, as much as if it were among the articles produced at home. As such, it may either be a good or a bad tax as it may happen;—though in regard to its temporary consequences, it cannot be productive of all the mischief of which a tax on a home manufacture is capable of being productive.
Example 10. Drawbacks on exportation.
What is called giving a drawback on exportation, is the restitution of a tax already levied;—from the amount already levied in way of a tax, a man is permitted to draw back so much of what he has disbursed.
What a bounty on exportation is to a bounty on production, a drawback is to a simple exemption from a tax levied on produce. In the first case of each pair, foreigners come in for their share of the boon indiscriminately with our own people; in the other case, they get the whole of it. In all cases, the expected advantage is equally imaginary.
In one point of view, however, the drawback is a more expensive way of throwing away money than the bounty. In the case of drawback, the money is received with one hand in order to be given back again with the other; and each operation is attended with a separate expense. To this public expense is to be added the private expense, which the individual must be at to pay the money, and get it back again—an expense of which the trouble and loss of time (which in the account of the financier go for nothing) always form a very considerable part, often the most considerable: instances† have not been wanting, in which the value of the supposed favour has been reduced literally to nothing by the trouble of obtaining it.
Example 11. Non-importation agreements.
Non-importation agreements, as far as they extend, have the effect of prohibitions:—happily they are not so extensive in their action, so frequent, so steady, so well executed.
Good they do none: happily, wanting the force of prohibitory laws, the mischief they do is seldom so extensive.
Example 12. Premiums for the importation of foreign arts and hands.
That there are cases in which it would be extremely well worth the while of individuals to pay extraordinary prices to get workmen from abroad, is not to be doubted. Meaning to employ my money to the best account in the way of trade or manufacture, and looking round as far as my reach of thought, and faculties and opportunities, will carry me, if I observe a branch of manufacture, for instance, new as yet to my country, and which, if imported from some country abroad, would pay me, for example, five per cent. interest for my capital, more than any other branch I have been able to find,—this five per cent. would be so much more gained to me, and through me to the nation I belong to, than if I had embarked my capital in that one of the old-established trades, which, of all that have fallen under my cognizance, would be the most advantageous. Extra expenses there doubtless are, and difficulties, incident to the business of getting workmen from a foreign country, even if there are no laws in that country or our own to add to the amount; but all difficulties and expenses of this nature I suppose provided for and surmounted, as in many instances they actually have been.
Still, then, the same argument, and still with undiminished force: the more evidently advantageous for the individual the employment of his money in this way, the more evidently unnecessary is it for government to employ that of the nation in this way.
In the first case, the burthen is borne by him who receives the benefit—in the other case, by those who receive no part of it: in the first case, the probability of success in the project, and the security against unnecessary expense, are at their highest pitch—in the other, at their lowest.
On the part of governments in general, the passion for getting arts and hands from abroad does not appear so conspicuous as the dread of losing their own.
Example 13. Fixation of prices.
The limitation of the price of commodities may have two opposite objects—1. The rendering them dearer; 2. The rendering them cheaper.
The first of these objects is least natural: so many commodities, so many means of enjoyment; to put them within the reach of the largest number, is to contribute to the general happiness. This motive, however, is not unexampled; and intoxicating liquors are an instance of its exercise. Legislators have often endeavoured, and not without reason, to increase their price, with the design of limiting their consumption on account of their dearness. But imposing a tax upon them suffices to increase their price; there is no necessity for resorting to the method of direct limitation.
Is the design of these limitations the obtaining of the article at a low rate,—the method will scarcely answer its end. Before the existence of the law, the article was sold at what may be called its average or natural price, that is to say, it was confined within certain limits—1. By the competition between the buyers and the sellers; 2. By a competition between the branch of trade in question, and that of other branches to which the merchant might find it to his advantage to transfer his capital.
Does the law endeavour to fix the price at a lower rate than this average or natural price—it may obtain a transient success, but by little and little this branch of trade will be abandoned. If the constraint be increased, the evil will grow worse; the constraint, in fact, can only act upon the existing stock: this being sold at a forced price, the merchant will take care not to replace it. What can the law effect? Can it oblige him to replenish his storehouse with the same commodities? No legislator has ever attempted it, or at least no one has ever attempted it with success. This would be to convert the officers of justice into commercial agents; it would be to give them a right to dispose of the capitals of the merchants, and to employ the merchants themselves as their clerks.
The most common fixation has been that of the rate of interest. It has already been discussed. (See Ch. III. §§ 6 & 7.)
The fixation of the price of wages (especially with regard to agriculture) has often been proposed, and even carried into effect, for the most opposite reasons: to prevent what is considered as an excess—to remedy what has been regarded as a deficiency.
In this latter point of view, this measure is liable to great objection. To fix the minimum of wages, is to exclude from labour many workmen who would otherwise have been employed; it is to aggravate the distress you wish to relieve. In fact, all that can be done is limited to determining, that if they are employed they shall not receive less than the price fixed; it is useless to enact that they shall be employed. Where is the farmer, where is the manufacturer, who will submit to employ labourers who cost them more than they yield? In a word, a regulation which fixes the minimum of wages, is a regulation of a prohibitory nature, which excludes from the competition all whose labour is not worth the price fixed.
The fixation of the rate of wages, in order to prevent their excess, is a favour conferred on the rich at the expense of the poor—on the master at the expense of the workman. It is a violation, with regard to the weakest class, of the principles of security and property.
Wealth—Means of Increase.
If we trace the progress of wealth in its natural channel, we shall clearly perceive that the interposition of government is only beneficial and necessary when employed in the maintenance of security, in the removal of obstacles, or the dissemination of knowledge.
Wealth may be increased—
I. By increasing the efficacy of labour.
II. By increasing the number of labourers.
III. By the more advantageous employment of capital.
IV. By increasing the mass of capital.
V. By means of trade.
I. By increasing the efficacy of labour.
This subject might furnish most interesting and instructive historic details: we shall confine ourselves to a simple enumeration of the means whereby it may be accomplished.
The efficacy of labour may be augmented—
1. By increase of skill and dexterity.
2. By saving the time occupied by superfluous movements.
3. By the invention of machines.
4. By employing, instead of human labour, more powerful and less costly prime movers,—as water, air, fire, explosive powders, and beasts of burthen.
The two first advantages are obtained by the division of labour; the third necessarily results from it. Adam Smith has developed this grand means of attaining perfection with great diligence, and, so to speak, particular affection. He relates, that the process of converting a morsel of brass wire into a pin requires eighteen operations, and employs as many different workmen, of whom the greater part borrow the assistance of machines;—whereby, although ten workmen would not separately have been able to make more than 240 pins a-day, they are enabled to make 4800. It is hence that this little branch of national wealth, which affords a more commodious adjustment than the buckles of the Romans and the skewers employed by Queen Elizabeth, has increased in proportion. What our country people throw away, would have been luxuries in the court of Darius.
5. By the simplification of intermediate processes.
6. By the saving of materials. The extension given to the quantity of gold employed in gilding silver wire, is an example equally suited to astonish the natural philosopher, and to charm the political economist.
Chemistry has introduced a multitude of economical processes into all the arts: it has taught the means of economically applying fuel—of producing great effect with little expense; it has substituted less costly for more expensive materials; it has imitated, and even rivalled, the productions of nature.
7. By the improvement of the products, that is to say, in proportion to the price. It is thus that porcelain has supplanted the coarse pottery of former times:—the potteries of Wedgwood and Bentley have excelled the porcelain of China.
8. By the diminution of the expense of carriage, by the multiplication of roads, canals, and iron railways. The advantage which the Low Countries have derived from their canals is incalculable. Governments may often usefully interfere in respect to these objects, either by advancing the capitals and sharing in the benefit, or by granting to the individuals interested the powers necessary for making arrangements among themselves, and defraying the expense. When, however, it is necessary for a government to take charge of these works, it is a proof that confidence does not exist; I mean confidence in the stability of the actual order of things, and in the protection of the laws. No other circumstance speaks so highly in praise of the British government, as the disposition of individuals to unite in carrying on great undertakings in canals, docks, ports, &c. A disposition to undertake such works denotes the prevalence of a feeling of security, which unites the future to the present, and embraces an horizon of large extent.
The advantage of machines consists in the increased efficacy of labour. To reduce the number of men employed upon any species of labour by half, without diminishing the quantity of the product, is in fact the same thing as doubling the number of men employed, with the same degree of efficacy as before. That which required two thousand men for its performance, being performed by one thousand, there remains one thousand men who may be employed either upon similar or other works.
But this supposes that the workmen, no longer required in the production of a given quantity of labour, are otherwise employed; for if they were without employment, the quantity of wealth produced would remain the same after the invention as before.
If a manufacturer found himself thus in a condition to execute, with one thousand workmen, what had heretofore required two thousand, it appears, at first sight, that the natural result would be, that he would employ the two thousand workmen to produce a double quantity of work. But unless his pecuniary capital be augmented, it will be impossible for him to employ the same number. The new machines, the new warehouses required for this increase of produce, require a proportionate increase of capital. The most ordinary case, therefore, will be the reduction of the number of workmen; and, as it respects them, the consequence is a temporary distress.
It is upon this circumstance that the popular opposition to the improvement of machines depends. It is a very reasonable opposition on the part of the handicraftsmen. It is they who suffer, whilst the benefit is, in the first instance, for the manufacturer, and in perpetuity for the public, who obtain a better article at a less price.
There are two kinds of countries where this objection has no force—countries badly peopled, and countries where the people are slaves. Do you desire an increase of population—do you desire children who may become workmen in future,—I give you fullgrown men—workmen actually prepared: you would charge yourself with the expense of their education,—I relieve you of it: you are willing to receive foreigners, and I give you natives. Such is the language an inventor may address to a sovereign; whilst to the individual proprietor he may say,—With one hundred slaves you are now able to raise a certain quantity from your mines; with fifty you will in future be able to raise the same quantity. If it were necessary to support the others in idleness, where would be the evil?
In stationary or retrograde countries, where the dismissed workman cannot easily find a new employment to which to apply himself, where there exists no capital ready to furnish him employment that suits him, this objection would not be without force. It is, however, a transient evil, to which transient remedies ought to be applied.
II. By the increase of the number of labourers.
I have nothing further to add upon this subject to what is said in the chapter on population (Ch. IV.;) but I shall point out those things which, in an indirect manner, tend to produce this effect.
1. By the banishment of all prejudices unfavourable to labour. Honour has tied the hands of some—religion of others. Some have been kept in a state of perpetual idleness—others in a state of periodical idleness. In some Catholic countries, the saints’ days occupy more than one hundred working days. The loss of these days alone ought not only to be considered, but also the bad habits which this idleness encourages. They have not worked upon the saint’s day; they do not work on the day following, because they were intoxicated the day past.
2. The amount of labour may be increased by giving productive employments to those classes of men who, owing to their station in life, produce nothing—to prisoners, beggars, monks, and soldiers. It has been pretended that, to make a good soldier, an individual ought to follow no other trade: an exception ought at least to be made in favour of those kinds of labour which may be useful in war, as the digging of ditches, the construction of bridges, the throwing up of embankments, and the formation and repair of roads.* These employments afford an inexhaustible means of increasing the most permanent part of the capital of a nation.
3. Substitute alluring for coercive motives—reward for punishment; with suitable precautions, abolish all services in kind, all forced labour and slavery. A country peopled with serfs will be always poor. Pay for labour in money, and the reward, mingling drop after drop with the labour, will sweeten its bitterness: every free labourer is worth two slaves. This reflection is often presented in this work, but it is so just and favourable to humanity, that it cannot be too often repeated; we ought not to be afraid to repeat it.
III. The more advantageous employment of capital.
We have already seen, that under the guidance of individual interest, capital of itself takes the most advantageous direction—at least certainly more advantageous than when under the guidance of government.
Of all employments of capital, the most advantageous for the state is the cultivation of the earth. It is, at the same time, as has been demonstrated by Adam Smith, the most beneficial in itself, and the most attached to the state. Most advantageous: the capitalist must find it nearly as advantageous as any other, since, unless this be the case, he will not engage in it; and this after he has deducted the rent he pays to the landlord, and which often amounts to a third of the produce. It is thus that the state gains by this employment more than it can possibly gain by any other. More attached to the state: the workman may carry away his industry, the money-lender his capital, the merchant may change his warehouses, but the farmer cannot carry away the land.
For the encouragement of this most advantageous employment of capital, what ought government to do? Nothing: that is to say, nothing in the way of positive encouragement; for it cannot too completely remove the clogs and obstacles to the free alienation of landed property,† or too greatly favour the conversion of goods held in common, into individual property.‡
The condition most favourable to the prosperity of agriculture exists when there are no entails, no unalienable endowments, no common lands, no right of redemption, no tithes, or taxes or dues which punish industry, and levy a contribution upon agriculture, increasing in proportion to the expenses incurred, and the greater care paid to cultivation.
Generally speaking, the great landed proprietors give themselves little care about the improvement of their domains. Some leave large tracts of country, sufficient for the maintenance of hundreds of families, in a state of nature, that they may enjoy the pleasures of the chase; others, prodigal in proportion to their wealth, expend everything in present enjoyments, and trouble themselves but little with the future. Where the system of leases and farms is upon a good footing, the evil is not great; but it is altogether otherwise when the administration is in the hands of a superintendent, still less interested than his masters in the increase of the rent. Were large properties divided into three or four parts, the proprietors would be animated with an entirely different spirit. The spur of necessity would render them intelligent and industrious. Where a nobleman employs twenty gardeners in raising pine apples and taking care of bowling greens. Five manufacturers would employ twenty husbandmen in producing corn for themselves and a hundred workmen. But let it not be supposed that I recommend agrarian laws and forced divisions: this would be to cut off an arm, in order to avoid a scratch.
In the scale of public utility, so far as it depends upon the general wealth, after agriculture come those manufactures whose products are sold within the country; after these, the manufactures whose products are exported; and in the last place, the carrying trade. Adam Smith has demonstrated this. Thus much for theory: it does not follow that in practice it would be proper to favour a branch of industry higher in the scale, at the expense of one which is placed below it. They all exercise a reciprocal influence upon one another, and benefits are divided among them with sufficient equality. If for a moment one branch become more advantageous than the others, a greater number of adventurers are soon drawn towards this side, and the equilibrium is not long in re-establishing itself. If any species of industry be more constantly useful to a nation, it is because the benefit more certainly remains—because the wealth which it produces is more secure.
IV. By increasing the mass of capital.
The mass of capital is increased when the products of labour exceed the amount of products consumed.
The addition made to the wealth of a nation in one year, is the total amount of the savings of all the individuals composing that nation in that year: it is the difference between the values produced or imported, and the values destroyed or exported in the course of the same year.
The addition made to the pecuniary wealth of a community is, in the same manner, the difference between the sum produced or imported, and the sum destroyed or exported in the period in question.
In the case of an individual, increase of money is increase of wealth. If his fortune consist to-day of one thousand guineas, and he has two thousand to-morrow, he will be twice as rich as he was the day before: he can command twice the quantity of the products of all kinds of labour.
The case is not the same with a nation. If its coin be to-day £1,000,000 sterling, and to-morrow it were to be £2,000,000, its wealth would not be doubled as was that of the individual. As it respects its internal condition, the nation would not be richer than before: instead of having at its command a double quantity of productions, it would only have the same.
It is true, that in exporting to other nations this suddenly acquired mass, the community in question would obtain an addition to the mass of its non-pecuniary wealth: but in proportion as this exchange is made, the case which we have supposed does not continue the same; it ceases to possess the additional million of coin.
This apparent contradiction between the two cases is easily removed. When an individual finds the quantity of coin which he possesses suddenly doubled, the value of the coin is not diminished by this addition: the community to which he belongs does not possess more than before, supposing that the amount has not been received from abroad. The proportion between the amount of coin and the things to be sold remains exactly the same.
The value of all the things sold in the course of a year is equal in value to the sum of the coin given in exchange for them; that is, to the value of the actual quantity of the coin, multiplied by the number of times it has been exchanged. Each of these masses is equal in value to the other; since, by the supposition, the one has been exchanged for the other.
This equality exists, whatever may be the difference in quantity between these two masses. When the million of coin, circulating three times during the year, has purchased the whole mass of goods which were to be sold, it has given to all its successive possessors the enjoyment of this mass. When, taking the same course, the two millions of coin have produced the same effects, they have only performed what the single million had performed before; since, by the supposition, the mass of goods has not been increased. In other terms, that is to say, the new mass of coin is swallowed up in the general mass of coin, and as much as it has increased its quantity, so much has it diminished its value.
The addition made to the coin of the community produces a proportional increase in the price of all vendible commodities—in the pecuniary price of all commodities not pecuniary; and consequently, it may be, in the price of every article—it may be, in that of the greater number of articles.
If an addition made to the coin of a community be employed in creating a portion of wealth not pecuniary, which would not have been created without it—if it produced by labour or exchange an increase of real wealth, the result is no longer the same. In proportion as the real wealth is increased, the addition made to the coin ceases to produce a diminution of relative value.
In order to simplify the case, and render it more striking, I have supposed a large and sudden addition. It is very seldom that an addition of this nature takes place with respect to the precious metals; but it has often happened with respect to paper money.
Thus the increase of the price of commodities, all other things remaining the same, is a proof of an addition to the coin, and a measure of its quantity.
This defalcation of value is equivalent to an indirect tax upon pecuniary revenues—a tax which may continually increase in amount—a tax which benefits those who issue the paper money, and of which the weight presses entirely upon the possessors of fixed revenues. There is a compensation for this tax to producers and merchants, who may raise the price of their commodities to all those who have part of this new money; but those whose fortune consists in a pecuniary revenue which cannot be increased, bear all the burthen.*
When this diminution of revenue takes place gradually, although it be an evil, this evil may result from the general prosperity, and may be compensated by a greater benefit. Losses which occur in the ordinary course of affairs, are experienced and hardly felt; they may be provided against. But when the government itself interferes, by operations whose effects are as great as they are sudden, in order to give a sudden increase to the mass of pecuniary capital, whether metallic or otherwise, it confounds all the calculations of prudence; it ruins one part of its subjects, and its imaginary wealth becomes the instrument of its destruction. This is what was experienced in France under the system of Law, and again under the reign of the assignâts.
V. By means of trade.
Some advantage results from every exchange, provided it be made intentionally and without fraud: otherwise such exchange would not be made; there would be no reason for making it. Under this point of view, the two contracting parties receive an equal benefit: each one of them surrenders what suits him less, that he may acquire what suits him more. In each transaction of this kind there are two masses of new enjoyments.
But though all trade be advantageous, a particular branch may be more advantageous to one of the parties than to the other. It is more advantageous to you than it is to me, if for an article which only costs you one day’s labour, you obtain from me an article which has cost me two. The real balance of trade is the quantity of labour received, exceeding the quantity of labour given in exchange.
It is not necessary in this place to examine to what degree soil, climate, situation, natural circumstances, &c. may give this advantage to one state over another; since this knowledge can have scarcely any influence upon practice. It is of greater importance to observe, that it may in a certain degree be acquired by art, and that the superiority of workmanship or of instruments is a species of monopoly established by fortune in favour of genius. Time is saved by ingenuity. The greater the number of new inventions in a country whose productions are carried into foreign lands, the more favourable will the real balance of commerce be to that country. The advantages belonging to dexterity are more permanent than those resulting from knowledge. The discoveries of chemistry are speedily disseminated: the skill of the Bengalese workmen will remain peculiar to them for ages.
The great politicians who so much value foreign commerce, consider it as a means of obtaining a balance in gold, and they hasten to interfere to prevent those exchanges which require an expenditure of the precious metals. If a merchant wish to send coin from London to Paris, it is to make a payment which will cost him less in this manner than any other, or that he may obtain some kind of merchandise which he values more than the coin. The politician is more clever than this. He is not willing that this gain should be made, because, he thinks, thus to gain would be to lose. Preventing the profits of every one, is the method he has discovered of preventing loss to all. He has therefore been employed in heaping one law upon another, that he may prevent the exportation of the precious metals: success would be a great misfortune, but it has never been obtained. Want of success in diminishing the evil has only increased the folly: I say in diminishing the evil, for it never entirely disappears. There will, for example, always be a greater or less expense on the part of the government in endeavouring to execute the law; more or less vexation, more or less restraint, a larger or smaller number of individuals punished for having rendered service to the country (by the breach of the law.) People will be accustomed to elude the prohibitions, and to escape the vigilance of government. Money being more or less lowered in value, the price of manufactures will be raised in proportion, and the exportation of manufactures diminished. Such has been the folly exhibited in Spain and Portugal; yet are they too happy only to have half succeeded. Grant to Midas his wish, he will die of hunger upon a heap of gold.
In recommending freedom of trade, I suppose the minds of merchants in their sound, that is, their ordinary state. But there have been times when they have acted as though they were delirious: such were the periods of the Mississippi scheme in France, and the South Sea scheme in England. The other classes of people would have had ground for seeking to divert their fellow-citizens from the purchase of the smoke sold by Law, or of the bubbles of the South Sea. What is here said, may be compared with the observations in § 8 of the present chapter, upon emigration. In laying down general rules, fortuitous and transient cases ought not to be forgotten.
What has been said respecting the precious metals is true respecting every article of trade and commerce, considered as general wealth. There cannot be any incompatibility between the wealth of each and the wealth of all. But the same rule does not apply to subsistence and defence. Individuals may find their individual profit, in commercial operations which may be opposed to the subsistence of all, or the defence of all. This particularly may happen to a small community in the neighbourhood of a large one. Establish an unlimited freedom of trade in the small community, the great one may ruin it by means of gold. In case of famine, it might purchase all its provisions; at the approach of war, it might purchase all its arms.
The conduct to be pursued, to insure the possession of the means of subsistence and defence, are infinitely diversified by the situation, the soil, the climate, and the extent of the country to which it may refer.
The great difficulty to be overcome as it respects subsistence, is the difference between good and bad harvests. If the produce be less than the consumption, the evil is evident: if it be greater, the abundance lessens the price, the farmer is ruined or discouraged, and the year of plenty may be followed by one of dearth. For the production of equality, some have established public granaries for storing up the superabundance of years of plenty; others have encouraged cultivation as much as possible, depending upon foreigners for drawing off the excess. Were we to judge from abstract reasoning alone, the first plan would appear best calculated to prevent accidents; but, forming our judgments from facts, the second appears least subject to abuse. It is from the adoption of this plan that England has enjoyed an abundance sufficiently regular. Freedom of trade, therefore, appears the best method for insuring an abundance of the means of subsistence.
In respect to subsistence and defence, there is no better security than that which results from the general prosperity. A superabundance is the best security against want.*
After the examination we have given to the different methods by which real wealth may be increased, we see that government may rely upon the intelligence and inclination of individuals for putting them in operation, and that nothing is necessary to be done on its part but to leave them in possession of the power, to insure to them the right of enjoyment, and to hasten the development of general knowledge. All that it can do with success may be ranged under this small number of heads:—
1. To encourage the study of different branches of natural philosophy. The difficulties of science form a barrier between practice and theory, between the artisan and the philosopher.
2. To institute prizes for discoveries and experiments.
3. To cause the processes employed in every branch of trade to be published. The French government, rising above little jealousies, has distinguished itself in this manner, and has rendered itself a benefactor to the human race.
4. To cause everything of the same nature in foreign countries to be observed with attention, and to give the knowledge they obtain the same publicity.
5. To cause the price of different articles of trade to be published. The price of an article is an extra reward for whoever can manufacture or furnish it at a cheaper rate.
6. To grant patents for a limited number of years.
With respect to a great number of inventions in the arts, an exclusive privilege is absolutely necessary, in order that what is sown may be reaped. In new inventions, protection against imitators is not less necessary than in established manufactures protection against thieves. He who has no hope that he shall reap, will not take the trouble to sow. But that which one man has invented, all the world can imitate. Without the assistance of the laws, the inventor would almost always be driven out of the market by his rival, who finding himself, without any expense, in possession of a discovery which has cost the inventor much time and expense, would be able to deprive him of all his deserved advantages, by selling at a lower price. An exclusive privilege is of all rewards the best proportioned, the most natural, and the least burthensome. It produces an infinite effect, and it costs nothing. “Grant me fifteen years,” says the inventor, “that I may reap the fruit of my labours; after this term, it shall be enjoyed by all the world.” Does the sovereign say, “No, you shall not have it,” what will happen? It will be enjoyed by no one, neither for fifteen years nor afterwards: everybody will be disappointed—inventors, workmen consumers—everything will be stifled, both benefit and enjoyment.
Exclusive patents in favour of inventions have been long established in England. An abuse, however, has crept into the system of granting them, which tends to destroy the advantage derivable from them. This privilege, which ought to be gratuitous, has afforded an opportunity for plundering inventors, which the duration of the custom has converted into a right. It is a real conspiracy against the increase of national wealth.
We may picture to ourselves a poor and timid inventor, after years consumed in labour and uncertainty, presenting himself at the Patent Office to receive the privilege which he has heard that the law bestows upon him. Immediately the great officers of the crown pounce upon him together, as vultures upon their prey:—a solicitor-general, who levies four guineas upon him; a keeper of the privy seal, four guineas and a half; a keeper of another seal, four guineas; a secretary of state, sixteen guineas; the lord chancellor, who closes the procession, as the first in dignity, so also the first in rapacity,—he cannot take less than twenty-six guineas.* Need it be added, that in carrying on this process of extortion, recourse is had to fraud—that the individual applying for a patent is referred from office, to office, that different pretexts may be afforded for pillage—that not one of these officers, great or small, takes the trouble to read a single word of the farago of nonsense which they sign, and therefore that the whole parade of consultation is only a farce.†
Suppose a law, granting the patent as at present, without condition;—suppose another law, prohibiting the obtaining of a patent under a penalty of fifty guineas: what exclamations should we not hear against such contradictory laws and such folly! And yet this supposed folly is only half as great as the folly actually displayed. People always allow themselves to be duped by words. The law, or rather the customary abuse which has the force of law, instead of a permission, is, as it respects the greater number of inventors, a real, although masked prohibition. If you wish to strip off this mask, translate the language of each into the language of the other.
These insults and oppressions have sometimes been approved as tending to repress the temerity of projectors; in the same manner, taxes upon law proceedings have been applauded as tending to repress the temerity of suitors: as if poverty were synonymous with temerity—as if the rich only had need of the assistance of the laws, or that they only were worthy of it—as if, indeed, this reason for only half opening the doors of the temple of justice were not equally conclusive for closing them altogether!
7. To class with the crime of forgery the injustice done by the artisan who puts upon his own productions the mark of another.—In order to prevent the commission of this crime through ignorance, it would be necessary to establish a register, in which every artisan might make an entry of his mark. This would tend to secure the privilege which nature has established in favour of skill, and which the legislator ought to maintain. It can never be obtained without labour, and it can never be abused.
[* ]Examples: Establishments for the propagation of knowledge; viz. on the subject of those arts on which the augmentation or preservation of the matter of wealth, in any of its shapes, depends. In England—1. The Board of Agriculture; 2. The Royal Institution; 3. The Veterinary school; 4. The Royal Academy: viz. to a certain degree, if considered in this point of view.
[† ]Examples: 1. Facilitating the conversion of inter-community of occupation of land into separate ownership.
[* ]Considered as a measure of special encouragement, having for its object the increase of the aggregate mass of wealth, it would belong to the head of non-agenda. Operating by discouragement applied to a rival branch of industry—viz. the same occupation in the hands of foreigners,—operating in this way, and not by grants of money, it made no addition to the general wealth in the way of forced frugality.
[* ]To the opulence of the Prussian empire Frederic the Great made some real additions, and some imaginary ones. The imaginary ones consisted in encouragements given to this and that branch of profit-seeking industry: the real ones consisted in money given on condition of being employed in the shape of capital. But to be given to Peter, it must have been taken from Paul and his brethren. This he scrupled not to do: his object being—the increase of his own power and grandeur, not the preservation of the means of enjoyment in the hands of his subjects: he was content to purchase opulence at the expense of justice. At a similar expense, Egypt not only was, but continues to be, enriched—enriched with pyramids and temples.
[* ]To this head belongs the investigation of the influence of money on real wealth—or say, for shortness, wealth. Money may well be put in contradistinction to everything else which is ever called wealth:—which is ever considered as a modification of the matter of wealth: for money, so long as it is kept in the shape of money, and in the same hands, is of no kind of use. In that shape no man can ever make any kind of use of it but by parting with it, or at least standing engaged to part with it. What value it has, is in the way of exchange: value in the way of use it has none. When out of that shape the materials are thrown into other shapes, then indeed they have their value, but for which they would have had none in the way of exchange. Paper money, not having in respect of its materials any value in the way of use, has no value but in the way of exchange: nor in that way, but on the supposition of its being capable of being exchanged for that money, or an equivalent for that money, of which it contains and conveys the promise.
[† ]The following is an indication of the indirect incometax resulting from increase of money:—In Britain (anno 1801) money is about £72,000,000: income about £216,000,000—(72 : 216 : : 1 : 3.)—Each million added to money, adds therefore three millions for ever to pecuniary income; and this (setting aside the 15 per cent. for ever (£150,000) for profit on the million if employed in the shape of capital) without addition to real income. If in every year, £2,000,000 be added to money (plus £300,000 for an equivalent to the addition made as above to real wealth) in 36 years (anno 1837) the nominal or pecuniary amount of a mass of real income equal to the amount of 1801, will be doubled, i. e. become £432,000,000: to which will be added £10,800,000 for an equivalent to the intermediate addition to real wealth (£300,000 × 36.) But the £432,000,000 of 1837 being worth no more than the £216,000,000 of 1801, each £100 of the £432,000,000 will be worth but £50 of the £216,000,000; that is, the income of each fixed incomist will by that time have been subjected to an indirect income tax of £50 per cent. He whose pecuniary income in 1837 is double what it is in 1801, will in point of wealth be neither a gainer nor a loser by the change. Not so in point of comfort. For by so much as he is a gainer in wealth in the one way, by so much he is a loser in the other: and by the nature and constitution of the human frame, sum for sum, enjoyment from gain is never equal to suffering from loss.
[‡ ]As if a proprietor of a mine of gold or silver, living solely on the income yielded to him from his mine, and spending his whole income, as income is spent by non-labouring hands, were to receive an increase of such his rent in the shape of gold or silver ready coined, and spend the whole of it as before;—or as if a government should issue paper money in discharge of its debts, or for defraying the consumptive part of its expenditure.
[∥ ]As in the case of paper money issued by a banker to a borrowing customer, agriculturist, miner, fisher, manufacturer, or merchant, to be employed in trade, &c.
[§ ]The compensation, besides being inadequate in quantity, is in its application unconformable to justice, being shared in larger proportion by the mercantile man, for whose benefit the tax has been imposed, than by the public on whom it has been imposed.
[¶ ]Money, inasmuch as while it remains in the same hands it possesses not any value in the way of physical use, has no other value than what at the instant of its passing from hand to hand it possesses in the way of exchange.
[* ]This is what governments should consider, when they engage to make payments of money in large masses at once to governments or individuals in foreign countries.
[* ]In Ireland, in 1788 or thereabouts, the reduction of the rate of interest from 6 to 5 per cent. was proposed in Parliament as a means of increasing wealth: but though proposed by the administration there, was rejected after a hard struggle. “The Defence of Usury,” which I sent over at the time, contributed to throw out the measure, as Parnell, then Chancellor of the Exchequer, very good-humouredly acknowledged to me.
[† ]For the proof of these positions, the reader is referred to Mr. Bentham’s “Defence of Usury, showing the impolicy of the legal restraints upon pecuniary bargains.” Inconsistency is the natural companion of laws dictated by narrow views: it it is lawful to lend or borrow at any rate of interest in maritime enterprises; as if the pretended dangers and pretended abuses, which render the indefinable evil named usury so much the object of dread, could only exist upon dry land, and depended upon the solidity or fluidity of the element upon which the enterprises were carried on.
[‡ ]In England, a capitalist cannot employ any portion of his capital in trade, without being considered a trader, and, consequently, responsible in the whole extent of his fortune. There is not statute law to this effect, but it is said to be a rule of common law.
[* ]This has been partially accomplished by 7 W. IV. & 1 Vict. c. 73, which empowers the crown to limit by patent the responsibility of the partners of trading companies.—Ed.
[† ]Wealth of Nations, b. ii. ch. 4.
[* ]See b. i. ch. ix.
[* ]Adam Smith, after having read the LETTER upon Projects, which was addressed to him, and printed at the end of the first edition of “The Defence of Usury,” declared to a gentleman, the common friend of the two authors, that he had been deceived. With the tidings of his death, Mr. Bentham received a copy of his works, which had been sent to him as a token of esteem.
[* ]When, at the expense of a war which has cost a hundred millions of money, and in which a hundred thousand lives have been sacrificed, England has got a new colony,—whatever portion of wealth in the shape of capital is transferred to the new spot, the Englishman considers as created. For a few negative hundred thousands a-year, he looks upon the positive hundred millions as well bestowed. On the strength of this negative increase in opulence, the Englishman increases in insolence; the German envies him; the Frenchman would devour him;—and thus it is that wars are never to have an end.
[* ]Bryan Edwards, in his History of the West Indies, even in exaggerating the utility of colonies, does not suppose the rate of profit upon capitals employed in the plantations greater than seven per cent., whilst it is fifteen per cent. upon capital employed in the mother-country.a
[* ]Each being multiplied by the number of times it has been employed within the year in making the purchases of which ultimate prices are composed.
[† ]It may, however, happen in some instances, that a branch of industry, which if pursued would be more profitable than any other, requires a mass of capital of such magnitude as individuals separately taken, or in small numbers, are not able to raise. But where this happens, it can only be in consequence of positive regulation of government, which in contemplation of the mischief apprehended from overgrown masses of capital, in certain cases forbids, limits, or seeks to limit, the quantity of capital that shall be applied under one management to any branch of industry,—by limiting the number of individuals who shall be allowed to contribute to it,—or by not suffering a man to embark in trade any part of his property without embarking the whole. In giving an encouragement in this shape, government does little or nothing more than remove obstacles of its own creating, and the good it does, if any, is done at no expense.
[* ]At least where the revenue of the government is not the produce of land, or the interest of money formed by an accumulation of rent. Of this nature is a part of the revenue of the republic of Berne.
[* ]It is true, though it may not be worth the expense of supporting it by bounties with a view to the increase of wealth, it may be proper to assist it as a means of subsistence or defence. It is still more true, that what ought not to be done with the intention of supporting an unprofitable branch of trade, may yet be proper for preventing the ruin of the workman actually employed in such business: but these are objects entirely distinct.
[* ]Adam Smith has made a mistake in saying, that a bounty upon production was a means of abundance, on which account it was better than a bounty on exportation.
[* ]The same effect is produced when it is endeavoured to favour the importation of corn, for example, by giving a bounty to the first importers. Its effect is to increase the price in foreign countries.
[* ]I mean always in virtue of its destructive properties: for in a general way, no laws except those by which other laws are repealed, can fail of doing harm, as being so much lumber, by the load they add to the system.
[† ]The drawback of the salt duty in favour of fisheries may be mentioned as one which formerly existed.
[* ]It is said that the success of the American armies was partly owing to their skill in these employments. Composed almost entirely of husbandmen, they excavated ditches and formed entrenchments and other works connected with camps, with a facility which astonished their adversaries. The Russian armies possess the same advantage in a still higher degree.
[† ]Upon this subject, see Vol. I. Principles of the Civil Code, p. 333.
[‡ ]Ibid. Vol. I. p. 341.
[* ]It is not without distrust that I here give this feeble extract, from a manuscript work of Mr. Bentham’s, On Prices, and upon the causes which increase Prices. It embraces so great a number of questions, that it is not possible to give a correct outline of the whole in so short an abridgment.—Note by Dumont.
[* ]See Vol. I. Principles of the Civil Code, Chapters IV. and V. Laws relative to subsistence and abundance.
[* ]If a patent be taken out for each of the three Kingdoms, the expense is estimated at £120 for England, £100 for Scotland, and £125 for Ireland. Vide Commons’ Report on Patents.—Ed.
[† ]It is scarcely necessary to remark, that in blaming the abuse, no reproach is intended to be cast upon the individuals, who, finding it established, profit by it. These fees form as lawful a portion of their emoluments as any other. It is, however, to be desired, that in order to put a stop to this insult and oppression, an indemnification were granted at the public expense, equal to the average value of these fees. If it be proper to levy a tax upon patents, it ought, instead of being levied in advance upon capital, to be postponed till the patent has produced some benefit.
[* ]Bryan Edwards, in his History of the West Indies, even in exaggerating the utility of colonies, does not suppose the rate of profit upon capitals employed in the plantations greater than seven per cent., whilst it is fifteen per cent. upon capital employed in the mother-country.a
[a]This fifteen per cent. was taken from one of the finance pamphlets of Treasury Secretary Rose. Some years before, to a question put by me to the late Sir Francis Baring, the answer was, six per cent. This meant, of course, over and above interest, then at five per cent.—Communicated by the Author.