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SKETCH III: Origin and Progress of Commerce - Henry Home, Lord Kames, Sketches of the History of Man, vol. 1 
Sketches of the History of Man Considerably enlarged by the last additions and corrections of the author, edited and with an Introduction by James A. Harris (Indianapolis: Liberty Fund, 2007). 3 Vols. Vol. 1.
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Origin and Progress of Commerce
The few wants of men in the first stage of society, are supplied by barter in its rudest form. In barter, the rational consideration is, what is wanted by the one, and what can be spared by the other. But savages are not always so clear-sighted: a savage who wants a knife, will give for it any thing that is less useful to him at the time, without considering either the present wants of the person he is dealing with, or his own future wants. An inhabitant of Guiana will for a fish-hook give more at one time, than at another he will give for a hatchet, or for a gun. Kempfer reports, that an inhabitant of Puli Timor, an island adjacent to Malacca, will, for a bit of coarse linen not worth three-halfpence, give provisions worth three or four shillings. But people improve by degrees, attending to what is wanted on the one side, and to what can be spared on the other; and in that lesson, the American savages in our neighbourhood are not a little expert.
Barter or permutation, in its original form, proved miserably deficient when men and their wants multiplied. That sort of commerce cannot be carried on at a distance; and, even among neighbours, it does not always happen that the one can spare what the other wants. Barter is somewhat enlarged by covenants: a bushel of wheat is delivered to me, upon my promising an equivalent at a future time. But what if I have nothing that my neighbour may have occasion for? or what if my promise be not relied on? Thus barter, even with the aid of covenants, proves still defective. The numberless wants of men cannot readily be supplied, without some commodity in general estimation, which will be gladly accepted in exchange for every other. That commodity ought not to be bulky, nor be expensive in keeping, nor be consumeable by time. Gold and silver are metals that possess these properties in an eminent degree. They are at the same time perfectly homogeneous in whatever country produced: two masses of pure gold or of pure silver are always equal in value, provided they be of the same weight. These metals are also divisible into small parts, convenient to be given for goods of small value.*
Gold and silver, when introduced into commerce, were probably bartered, like other commodities, by bulk merely. Rock-salt in Ethiopia, white as snow, and hard as stone, is to this day bartered in that manner with other goods. It is dug out of the mountain Lafta, formed into plates a foot long, and three inches broad and thick; and a portion is broken off equivalent in value to the thing wanted. But more ac-curacy came to be introduced into the commerce of gold and silver: instead of being given loosely by bulk, every portion was weighed in scales: and this method of barter is practised in China, in Ethiopia, and in many other countries. Even weight was at length discovered to be an imperfect standard. Ethiopian salt may be proof against adulteration; but weight is no security against mixing gold and silver with base metals. To prevent that fraud, pieces of gold and silver are impressed with a public stamp, vouching both the purity and quantity; and such pieces are termed coin. This was a notable improvement in commerce; and was probably at first thought complete. It was not foreseen, that these metals wear by much handling in the course of circulation; and consequently, that in time the public stamp is reduced to be a voucher of the purity only, not of the quantity. Hence proceed manifold inconveniencies; for which no other remedy occurs, but to restore the former method of weighing, trusting to the stamp for the purity only. This proves an embarrassment in commerce, which is remedied by the use of paper-money. And paper-money is attended with another advantage, that of preventing the loss of much gold and silver by wearing. Formerly in China, gold and silver were coined as among us; but the wearing of coin by handling obliged them to recur to scales; and now weight alone is relied on for determining the quantity. Copper is the only metal that is circulated among them without weighing; and it is with it that small debts are paid, and small purchases made.1
When gold or silver in bullion is exchanged with other commodities, such commerce passes under the common name of barter or permutation: when current coin is exchanged, such commerce is termed buying and selling; and the money exchanged is termed the price of the goods.
As commerce cannot be carried on to any extent without a standard for comparing goods of different kinds, and as every commercial country is possessed of such a standard, it seems difficult to say by what means the standard has been established. It is plainly not founded on nature; for the different kinds of goods have naturally no common measure by which they can be valued: two quarters of wheat can be compared with twenty; but what rule have we for comparing wheat with broad cloth, or either of them with gold, or gold with silver or copper? Several ingenious writers have endeavoured to account for the comparative value of commodities, by reducing them all to the labour employed in raising food; which labour is said to be a standard for measuring the value of all other labour, and consequently of all things produced by labour. “If, for example, a bushel of wheat and an ounce of silver be produced by the same quantity of labour, will they not be equal in value?” This standard is imperfect in many respects. I observe, first, that to give it a plausible appearance, there is a necessity to maintain, contrary to fact, that all materials on which labour is employed are of equal value. It requires as much labour to make a brass candlestick as one of silver, tho’ far from being of the same value. A bushel of wheat may sometimes equal in value an ounce of silver; but an ounce of gold does not always require more labour than a bushel of wheat; and yet they differ widely in value. The value of labour, it is true, enters into the value of every thing produced by it; but is far from making the whole value. If an ounce of silver were of no greater value than the labour of procuring it, that ounce would go for payment of the labour, and nothing be left to the proprietor of the mine: such a doctrine will not relish with the King of Spain; and as little with the Kings of Golconda and Portugal, proprietors of diamond-mines. Secondly, The standard under review supposes every sort of labour to be of equal value, which however will not be maintained. An useful art in great request may not be generally known: the few who are skilful will justly demand more for their labour than the common rate. An expert husbandman bestows no more labour in raising a hundred bushels of wheat, than his ignorant neighbour in raising fifty: if labour be the only standard, the two crops ought to afford the same price. Was not Raphael entitled to a higher price for one of his fine pictures, than a dunce is for a tavern-sign, supposing the labour to have been equal? Lastly, As this standard is applicable to things only that require labour, what rule is to be followed with respect to natural fruits and other things that require no labour?
Where a pound of one commodity gives the same price with a pound of another, these commodities are said to be of equal value; and therefore, whatever rule can be given for the price of commodities, that rule determines also their comparative values. Montesquieu (a) attempts to account for the price as follows. He begins with supposing, that there is but one commodity in commerce, divisible like gold and silver into parts, the parts like those of gold and silver uniform and equally perfect. Upon that supposition, the price, says he, of the whole commodity collected into a mass, will be the whole current gold and silver; and the price of any particular quantity of the former, will be the corresponding quantity of the latter, the tenth or twentieth part of the one corresponding to the tenth or twentieth part of the other. He goes on to apply the same computation to all the variety of goods in commerce; and concludes in general, that as the whole mass of goods in commerce corresponds to the whole mass of gold and silver in commerce as its price, so the price of the tenth or twentieth part of the former will be the tenth or twentieth part of the latter. According to this computation, all different goods must give the same price, or, which is the same, be of equal value, provided their weight or measure be the same. Our author certainly did not intend such an absurdity; and yet I can draw no other inference from his reasoning. In the very next chapter he admits the negroes on the coast of Afric to be an exception from the general rule, who, says he, value commodities according to the use they have for them. But, do not all nations value commodities in the same manner?2
Rejecting, then, the foregoing attempts to account for the comparative value of commodities, I take a hint from what was last said to maintain, that it is the demand chiefly which fixes the value of every commodity. Quantity beyond the demand renders even necessaries of no value; of which water is an instance. It may be held accordingly as a general rule, That the value of goods in commerce depends on a demand beyond what their quantity can satisfy; and rises in proportion to the excess of the demand above the quantity. Even water becomes valuable in countries where the demand exceeds the quantity: in arid regions, springs of water are highly valued; and, in old times, were frequently the occasion of broils and bloodshed. Comparing next different commodities with respect to value, that commodity of which the excess of the demand above the quantity is the greater, will be of the greater value. Were utility or intrinsic value only to be considered, a pound of iron would be worth ten pounds of gold; but as the excess of the demand for gold above its quantity is much greater than that of iron, the latter is of less value in the market. A pound of opium, or of Jesuits bark, is, for its salutary effects, more valuable than gold; and yet, for the reason given, a pound of gold will purchase many pounds of these drugs. Thus, in general, the excess of the demand above the quantity is the standard that chiefly fixes the mercantile value of commodities.* Interest is the price or premium given for the loan of money; and the rate of interest, like the price of other commodities, is regulated by the demand. Many borrowers and few lenders produce high interest: many lenders and few borrowers produce low interest.†3
The causes that make a demand seem not so easily ascertained. One thing is evident, that the demand for necessaries in any country, must depend on the number of its inhabitants. This rule holds not so strictly in articles of convenience; because some people are more greedy of conveniencies than others. As to articles of taste and luxury, the demand appears so arbitrary as not to be reducible to any rule. A taste for beauty is general, but so different in different persons, as to make the demand extremely variable: the faint representation of any plant in an agate, is valued by some for its rarity; but the demand is far from being universal. Savages are despised for being fond of glass beads; but were such toys equally rare among us, they would be coveted by many: a copper coin of the Emperor Otho is of no intrinsic value, and yet, for its rarity, would draw a great price.
The value of gold and silver in commerce, like that of other commodities, was at first, we may believe, both arbitrary and fluctuating; and, like other commodities, they found in time their value in the market. With respect to value, however, there is a great difference between money and other commodities. Goods that are expensive in keeping, such as cattle, or that are impaired by time, such as corn, will always be first offered in exchange for what is wanted; and when such goods are offered to sale, the vender must be contented with the current price: in making the bargain, the purchaser has the advantage; for he suffers not by reserving his money to a better market. And thus commodities are brought down by money, to the lowest value that can afford any profit. At the same time, gold and silver sooner find their value than other commodities. The value of the latter depends both on the quantity and on the demand; the value of the former depends on the quantity only, the demand being unbounded: and even with respect to quantity, these precious metals are less variable than other commodities.
Gold and silver, being thus sooner fixed in their value than other commodities, become a standard for valuing every other commodity, and consequently for comparative values. A bushel of wheat, for example, being valued at five shillings, a yard of broad cloth at fifteen, their comparative values are as one to three.
A standard of values is essential to commerce; and therefore where gold and silver are unknown, other standards are established in practice. The only standard among the savages of North America is the skin of a beaver. Ten of these are given for a gun, two for a pound of gunpowder, one for four pounds of lead, one for six knives, one for a hatchet, six for a coat of woollen cloth, five for a petticoat, and one for a pound of tobacco. Some nations in Africa employ shells, termed couries, for a standard.
As my chief view in this sketch is, to examine how far industry and commerce are affected by the quantity of circulating coin, I premise the following plain propositions. Supposing, first, the quantity of money in circulation, and the quantity of goods in the market, to continue the same, the price will rise and fall with the demand. For when more goods are demanded than the market affords, those who offer the highest price will be preferred: as, on the other hand, when the goods brought to market exceed the demand, the venders have no resource but to entice purchasers by a low price. The price of fish, flesh, butter, and cheese, is much higher than formerly; for these being now the daily food even of the lowest people, the demand for them is greatly increased.
Supposing a fluctuation in the quantity of goods only, the price falls as the quantity increases, and rises as the quantity decreases. The farmer whose quantity of corn is doubled by a favourable season, must sell at half the usual price; because the purchaser, who sees a superfluity, will pay no more for it. The contrary happens upon a scanty crop: those who want corn must starve, or give the market-price, however high. The manufactures of wool, flax, and metals, are much cheaper than formerly; for though the demand has increased, yet by skill and industry the quantities produced have increased in a greater proportion. More pot-herbs are consumed than formerly: and yet by skilful culture the quantity is so much greater in proportion, as to have lowered the price to less than one half of what it was eighty years ago.
It is easy to combine the quantity and demand, supposing a fluctuation in both. Where the quantity exceeds the usual demand, more people will be tempted to purchase by the low price; and where the demand rises considerably above the quantity, the price will rise in proportion. In Mathematical language, these propositions may be thus expressed, that the price is directly as the demand, and inversely as the quantity.
A variation in the quantity of circulating coin is the most intricate circumstance; because it never happens without making a variation in the demand for goods, and frequently in the quantity. I take the liberty, however, to suppose that there is no variation but in the quantity of circulating coin; for though that cannot happen in reality, yet the result of the supposition will throw light upon what really happens: the subject is involved, and I wish to make it plain. I put a simple case, that the half of our current coin is at once swept away by some extraordinary accident. This at first will embarrass our internal commerce, as the vender will insist for the usual price, which now cannot be afforded. But the error of such demand will soon be discovered; and the price of commodities, after some fluctuation, will settle at the one half of what it was formerly. At the same time, there is here no downfal in the value of commodities, which cannot happen while the quantity and demand continue unvaried. The purchasing for a sixpence what formerly cost a shilling, makes no alteration in the value of the thing purchased; because a sixpence is equal in value to what a shilling was formerly. In a word, when money is scarce, it must bear a high value: it must in particular go far in the purchase of goods; which we express by saying, that goods are cheap. Put next the case, that by some accident our coin is instantly doubled: the result must be, not instantaneous indeed, to double the price of commodities. Upon the former supposition, a sixpence is in effect advanced to be a shilling: upon the present supposition, a shilling has in effect sunk down to a sixpence. And here again it ought to be observed, that though the price is augmented, there is no real alteration in the value of commodities. A bullock that, some years ago, could have been purchased for ten pounds, will at present yield fifteen. The vulgar ignorantly think, that the value of horned cattle has arisen in that proportion. The advanced price may, in some degree, be occasioned by a greater consumption; but it is chiefly occasioned by a greater quantity of money in circulation.4
Combining all the circumstances, the result is, that if the quantity of goods and of money continue the same, the price will be in proportion to the demand. If the demand and quantity of goods continue the same, the price will be in proportion to the quantity of money. And if the demand and quantity of money continue the same, the price will fall as the quantity increases, and rise as the quantity diminishes.
These speculative notions will enable us with accuracy to examine, how industry and commerce are affected by variations in the quantity of circulating coin. It is evident, that arts and manufactures cannot be carried on to any extent without coin. Persons totally employed in any art or manufacture require wages daily or weekly, because they must go to market for every necessary of life. The clothier, the taylor, the shoemaker, the gardener, the farmer, must employ servants to prepare their goods for the market; to whom, for that reason, wages ought to be regularly paid. In a word, commerce among an endless number of individuals, who depend on each other even for necessaries, would be inextricable without a quantity of circulating coin. Money may be justly conceived to be the oil, that lubricates all the springs and wheels of a great machine, and preserves it in motion.* Supposing us now to be provided with no more of that precious oil than is barely sufficient for the easy motion of our industry and manufactures, a diminution of the necessary quantity must retard them: our industry and manufactures must decay; and if we do not confine the expence of living to our present circumstances, which seldom happens, the balance of trade with foreign nations will turn against us, and leave us no resource for making the balance equal but to export our gold and sil-ver. And when we are drained of these metals, farewell to arts and manufactures: we shall be reduced to the condition of savages, which is, that each individual must depend entirely on his own labour for procuring every necessary of life. The consequences of the balance turning for us, are at first directly opposite: but at the long-run come to be the same: they are sweet in the mouth, but bitter in the stomach. An influx of riches by this balance, rouses our activity. Plenty of money elevates our spirits, and inspires an appetite for pleasure: we indulge a taste for show and embellishment, become hospitable, and refine upon the arts of luxury. Plenty of money is a prevailing motive even with the most sedate, to exert themselves in building, in husbandry, in manufactures, and in other solid improvements. Such articles require both hands and materials, the prices of which are raised by the additional demand. The labourer now whose wages are thus raised, is not satisfied with mere necessaries, but insists for conveniencies, the price of which also is raised by the new demand. In short, increase of money raises the price of every commodity; partly from the greater quantity of money, and partly from the additional demand for supplying artificial wants. Hitherto a delightful view of prosperous commerce: but behold the remote consequences. High wages at first promote industry, and double the quantity of labour: but the utmost exertion of labour is limited within certain bounds; and a perpetual influx of gold and silver will not for ever be attended with a proportional quantity of work: The price of labour will rise in proportion to the quantity of money; but the produce will not rise in the same proportion; and for that reason our manufactures will be dearer than formerly. Hence a dismal scene. The high price at home of our manufactures will exclude us from foreign markets; for if the merchant cannot draw there for his goods what he paid at home, with some profit, he must abandon foreign commerce altogether. And, what is still more dismal, we shall be deprived even of our own markets; for in spite of the utmost vigilance, foreign commodities, cheaper than our own, will be poured in upon us. The last scene is to be deprived of our gold and silver, and reduced to the same miserable state as if the balance had been against us from the beginning.
However certain it may be, that an addition to the quantity of money must raise the price of labour and of manufactures, yet there is a fact that seems to contradict the proposition, which is, that in no other country are labour and manufactures so cheap as in the two peninsulas on the right and left of the Ganges, though in no other country is there such plenty of money. To account for this singular fact, political writers say, that money is there amassed by the nabobs, and withdrawn from circulation. This is not satisfactory: the chief exportation from these peninsulas is their manufactures, the price of which comes first to the merchant and manufacturer; and how can that happen without raising the price of labour? Rice, it is true, is the food of their labouring poor; and an acre of rice yields more food than five acres of wheat: but the cheapness of necessaries, though it hath a considerable influence in keeping down the price of labour, cannot keep it constantly down, in opposition to an overflowing current of money. The populousness of these two countries is a circumstance totally overlooked. Every traveller is amazed how such swarms of people can find bread, however fertile the soil may be. Let us examine that circumstance. One thing is evident, that, were the people fully employed, there would not be a demand for the tenth part of their manufactures. Here, then, is a country where hand-labour is a drug for want of employment. The people, at the same time, sober and inclining to industry, are glad to be employed at any rate; and whatever pittance is gained by labour, makes always some addition. Hence it is, that in these peninsulas, superfluity of hands overbalancing both the quantity of money and the demand for their manufactures, serves to keep the price extremely low.
What is now said discovers an exception to the proposition above laid down. It holds undoubtedly in Europe, and in every country where there is work for all the people, that an addition to the circulating coin raises the price of labour and of manufactures: but such addition has no sensible effect in a country where there is a superfluity of hands, who are always disposed to work when they find employment.
From these premises it is evident, that, unless there is a superfluity of hands, manufactures can never flourish in a country abounding with mines of gold and silver. This in effect is the case of Spain: a constant influx of these metals, raising the price of labour and manufactures, has deprived the Spaniards of foreign markets, and also of their own: they are reduced to purchase from strangers even the necessaries of life. What a dismal condition will they be reduced to, when their mines come to be exhausted! The Gold coast in Guinea has its name from the plenty of gold that is found there. As it is washed from the hills with the soil in small quantities, every one is on the watch for it; and the people, like gamesters, despise every other occupation. They are accordingly lazy and poor. The kingdom of Fidah, in the neighbourhood, where there is no gold, is populous: the people are industrious, deal in many branches of manufacture, and are all in easy circumstances.5
To illustrate this observation, which is of great importance, I enter more minutely into the condition of Spain. The rough materials of silk, wool, and iron, are produced there more perfect than in any other country; and yet flourishing manufactures of these, would be ruinous to it in its present state. Let us only suppose, that Spain itself could furnish all the commodities that are demanded in its American territories, what would be the consequence? The gold and silver produced by that trade would circulate in Spain: money would become a drug: labour and manufactures would rise to a high price; and every necessary of life, not excepting manufactures of silk, wool, and iron, would be smuggled into Spain, the high price there being sufficient to overbalance every risk: Spain would be left without industry, and without people. Spain was actually in the flourishing state here supposed when America was discovered: the American gold and silver mines enflamed the disease, and consequently was the greatest misfortune that ever befel that once potent kingdom. The exportation of our silver coin to the East Indies, so loudly exclaimed against by shallow politicians, is to us, on the contrary, a most substantial blessing: it keeps up the value of silver, and consequently lessens the value of labour and of goods, which enable us to maintain our place in foreign markets. Were there no drain for our silver, its quantity in our continent would sink its value so much as to render the American mines unprofitable. Notwithstanding the great flow of money to the East Indies, many mines in the West Indies are given up, because they afford not the expence of working; and were the value of silver in Europe brought much lower, the whole silver mines in the West Indies would be abandoned. Thus our East-India commerce, which is thought ruinous by many, because it is a drain to much of our silver, is for that very reason profitable to all. The Spaniards profit by importing it into Europe; and other nations profit, by receiving it for their manufactures.
How ignorantly do people struggle against the necessary chain of causes and effects! If money do not overflow, a commerce in which the imports exceed in value the exports, will soon drain a nation of money, and put an end to its industry. Commercial nations for that reason struggle hard for the balance of trade; and they fondly imagine, that it cannot be too advantageous. If greatly advantageous to them, it must in the same proportion be disadvantageous to those they deal with; which proves equally ruinous to both. They foresee indeed, but without concern, immediate ruin to those they deal with; but they have no inclination to foresee, that ultimately it must prove equally ruinous to themselves. It appears the intention of Providence that all nations should benefit by commerce as by sun-shine; and it is so ordered, that an unequal balance is prejudicial to the gainers as well as to the losers: the latter are immediate sufferers; but no less so, ultimately, are the former. This is one remarkable instance, among many, of providential wisdom in conducting human affairs, independent of the will of man, and frequently against his will. An ambitious nation, placed advantageously for trade, would willingly engross all to themselves, and reduce their neighbours to be hewers of wood and drawers of water. But an invincible bar is opposed to such ambition, making an overgrown commerce the means of its own destruction. The commercial balance held by the hand of Providence, is never permitted to preponderate much to one side; and every nation partakes, or may partake, of all the comforts of life. Engrossing is bad policy: men are prompted, both by interest and duty, to second the plan of Providence; and to preserve, as near as possible, equality in the balance of trade.
Upon these principles, a wise people, having acquired a stock of money sufficient for an extensive commerce, will tremble at a balance too advantageous: they will rest satisfied with an equal balance, which is the golden mean. A hurtful balance may be guarded against by industry and frugality: but by what means is a balance too favourable to be guarded against? With respect to that question, it is not the quantity of gold and silver in a country that raises the price of labour and manufactures, but the quantity in circulation; and may not that quantity be regulated by the state, permitting coinage as far only as is beneficial to its manufactures? Let the registers of foreign mints be carefully watched, in order that our current coin may not exceed that of our industrious neighbours. There will always be a demand for the surplus of our bullion, either to be exported as a commodity, or to be purchased at home for plate; which cannot be too much encouraged, being ready at every crisis to be coined for public service. The senate of Genoa has wisely burdened porcelane with a heavy tax, being a foreign luxury; but it has no less wisely left gold and silver plate free; which we most unwisely have loaded with a duty.*
The accumulating money in the public treasury, anciently the practice of every prudent monarch, prevents superfluity. Lies there any good objection against that practice, in a trading nation where gold and silver flow in with impetuosity? A great sum locked up by a frugal King, Henry VII. of England for example, lessens the quantity of money in circulation: profusion in a successor, which was the case with Henry VIII. is a spur to industry, similar to the influx of gold and silver from the new world. The canton of Bern, by locking up money in its treasury, possesses the miraculous art of reconciling immense weath with frugality and cheap labour. A climate not kindly, and a soil not naturally fertile, enured the inhabitants to temperance and to virtue. Patriotism is their ruling passion; they consider themselves as children of the republic; are fond of serving their mother; and hold themselves sufficiently recompensed by the privilege of serving her. The public revenue greatly exceeds the expence of government: they carefully lock up the surplus for purchasing land when a proper opportunity offers; which is a shining proof of their disinterestedness as well as of their wisdom. By that politic measure, much more than by war, the canton of Bern, from a very slender origin, is now far superior to any of the other cantons in extent of territory. But in what other part of the globe are there to be found ministers of state, moderate and disinterested like the citizens of Bern! In the hands of a British ministry, the greatest treasure would vanish in the twinkling of an eye; and do more mischief by augmenting money in circulation above what is salutary, than formerly it did good by confining it within moderate bounds. But against such a measure there lies an objection still more weighty than its being an ineffectual remedy: in the hands of an ambitious prince it would prove dangerous to liberty.
If the foregoing measures be not relished, I can discover no other means for preserving our station in foreign markets, but a bounty on exportation. The sum would be great: but the preserving our industry and manufactures, and the preventing an influx of foreign manufactures, cannot be purchased too dear. At the same time, a bounty on exportation would not be an unsupportable load: on the contrary, superfluity of wealth, procured by a balance constantly favourable, would make the load abundantly easy. A proper bounty would balance the growing price of labour and materials at home, and keep open the foreign market. By neglecting that salutary measure, the Dutch have lost all their manufactures, a neglect that has greatly benefited both England and France. The Dutch indeed act prudently in with-holding that benefit as much as possible from their powerful neighbours: to prevent purchasing from them, they consume the manufactures of India.
The manufactures of Spain, once extensive, have been extirpated by their gold and silver mines. Authors ascribe to the same cause the decline of their agriculture; but erroneously: on the contrary, superfluity of gold and silver is favourable to agriculture, by raising the price of its productions. It raises also, it is true, the price of labour; but that additional expence is far from balancing the profit made by high prices of whatever the ground produces. Too much wealth indeed is apt to make the tenant press into a higher rank: but that is easily prevented by a proper heightening of the rent, so as always to confine the tenant within his own sphere.
As gold and silver are essential to commerce, foreign and domestic, several commercial nations have endeavoured most absurdly to bar the exportation by penal laws; forgetting that gold and silver will never be exported while the balance of trade is on their side, and that they must necessarily be exported when the balance is against them. Neither do they consider, that if a people continue industrious, they cannot be long afflicted with an unfavourable balance; for the value of money, rising in proportion to its scarcity, will lower the price of their manufactures, and promote exportation: the balance will turn in their favour; and money will flow in, till by plenty its value be reduced to a par with that of neighbouring nations.
It is an important question, Whether a bank, upon the whole, be friendly to commerce. It is undoubtedly a spur to industry, like a new influx of money: but then, like such influx, it raises the price of labour and of manufactures. Weighing these two facts in a just balance, the result seems to be, that in a country where money is scarce, a bank properly constituted is a great blessing, as it in effect increases the quantity of money, and promotes industry and manufactures; but that in a country which possesses money sufficient for extensive commerce, the only bank that will not injure foreign commerce, is what is erected for supplying the merchant with ready money by discounting bills. At the same time, much caution and circumspection is necessary with respect to banks of both kinds. A bank erected for discounting bills, ought to be confined to bills really granted in the course of commerce; rejecting fictitious bills drawn merely for procuring a loan of money. And with respect to a bank purposely erected for lending money, there is great danger of extending credit too far; not only with respect to the bank itself, but with respect to the nation in general, by raising the price of labour and of manufactures, which is the never failing result of too great plenty of money, whether coin or paper.
The different effects of plenty and scarcity of money, have not escaped that penetrating genius, the sovereign of Prussia. Money is not so plentiful in his dominions as to make it necessary to withdraw a quantity by heaping up treasure. He indeed always retains in his treasury six or seven millions Sterling for answering unforeseen demands: but being sensible that the withdrawing from circulation any larger sum would be prejudicial to commerce, every farthing saved from the necessary expence of government, is laid out upon buildings, upon operas, upon any thing rather than cramp circulation. In that kingdom, a bank established for lending money would promote industry and manufactures.
[* ]Origo emendi vendendique à permutationibus coepit. Olim enim non ita erat nummus: neque aliud merx, aliud pretium vocabatur; sed unusquisque, secundum necessitatem temporum, ac rerum, utilibus inutilia permutabat, quando plerumque evenit, ut quod alteri superest, alteri desit. Sed quia non semper, nec facile concurrebat, ut, cum tu haberes quod ego desiderarem, invicem haberem, quod tu accipere velles, electa materia est, cujus publica ac perpetua aestimatio difficultatibus permutationum, aequalitate quantitatis subveniret: ea [que] materia forma publica percussa, usum dominiumque non tam ex substantia praebet, quam ex quantitate; nec ultra merx utrumque, sed alterum pretium vocatur; l. 1. Digest, De contrahenda emptione. [[“The origin of purchase and sale is derived from exchanges, for formerly money was not known, and there was no name for merchandise or the price of anything, but every one, in accordance with the requirements of the time and circumstances, exchanged articles which were useless to him for other things which he needed; for it often happens that what one has a superabundance of, another lacks. But, for the reason that it did not always or readily happen that you had what I wanted, or, on the other hand, that I had what you were willing to take, a substance was selected whose public and perpetual value, by its uniformity as a medium of exchange, overcame the difficulties arising from barter, and this substance, having been coined by public authority, represented use and ownership, not so much on account of the material itself as by its value, and both articles were no longer designated merchandise, but one of them was called the price of the other”: The Civil Law: Digest, bk. XVIII, Title 1 (“Concerning the contract of purchase”); Civil Law, trans. Scott, vol. 5, p. 3. Note added in 2nd edition.]]
[1. ]“And paper-money is . . . small purchases made”: added in 2nd edition.
[(a) ][[De l’esprit des lois. Liv. 22. ch. 7.]]
[2. ]Paragraph added in 2nd edition.
[* ]In a voyage to Arabia Foelix, ann. 1708, the King of the territory where the crew landed, gave them an ox weighing a thousand or twelve hundred pounds for a fusee, and three score pound-weight of rice for twenty-eight ounces of gun-powder. The goods bartered were estimated according to the wants of each party, or, in other words, according to the demand above the quantity.
[† ]From what is said in the treatise Des corps politiques [[by Jean Charles de Lavie, (liv. 6. ch. 8.) it appears doubtful whether high or low interest be the most friendly to commerce.]]
[3. ]“Interest is the . . . produce low interest”: added in 2nd edition.
[4. ]In the 1st edition the following note is appended to this paragraph: “It is commonly thought, that the rate of interest depends on the quantity of circulating coin; that interest will be high when money is scarce, and low when money abounds. But whatever be the cause of high or low interest, I am certain that the quantity of circulating coin can have no influence. Supposing, as above, the half of our money to be withdrawn, a hundred pounds lent ought still to afford but five pounds as interest; because if the principal be doubled in value, so is also the interest. If, on the other hand, the quantity of our money be doubled, the five pounds of interest will continue to bear the same proportion to the principal as formerly” [1:76].
[* ]Money cannot be justly said to be deficient where there is sufficiency to purchase every commodity, and to pay for every kind of labour that is wanted. Any greater quantity is hurtful to commerce, as will be seen afterward. But to be forced to contract debt even when one deals prudently and profitably, and consequently to be subjected to legal execution, is a proof, by no means ambiguous, of scarcity of money, which till of late was remarkably the case in Scotland.
[5. ]“The Gold coast . . . in easy circumstances”: added in 2nd edition.
[* ]That duty is wisely taken away by a late act.