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CHAPTER II.: [OF MONEY, THE CIRCULATING MEDIUM.] - Dugald Stewart, Lectures on Political Economy, vol. 1 
Lectures on Political Economy. Now first published. Vol. I. To which is Prefixed, Part Third of the Outlines of Moral Philosophy, edited by Sir William Hamilton (Edinburgh, Thomas Constable, 1855).
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[OF MONEY, THE CIRCULATING MEDIUM.]
OF THE ORIGIN AND USE OF MONEY.]
The Division of Labour, wherever it has been carried to any considerable extent, presupposes the establishment of some common medium of exchange. Without this previous arrangement it would be impossible for an individual to devote himself exclusively to a particular species of employment; divesting himself of every care for the supply of his other wants, and trusting to the fruits of his own labour for the power of commanding the produce of that of his neighbours; and it is thus that the use of money becomes a powerful, and indeed necessary auxiliary to the other circumstances which lay the foundation of the progressive improvement of the species. It would lead me into a detail inconsistent with my present plan, to attempt the slightest historical sketch with respect to the origin of this invention, and to the successive forms which it assumes in proportion as the operations of commerce become more extensive and complicated. These different stages in this history, from the first and simplest operations of barter, to the refinements of paper credit, have been traced by various writers, particularly by Mr. Harris in his Essay upon Money and Coins,* and by Mr. Smith in the Wealth of Nations.†
In process of time, among all civilized nations, gold, silver, and copper have supplanted all other commodities as the great instruments of commerce. For this purpose, indeed, these metals are so admirably adapted, that we may justly consider them, particularly the two first, as destined for it by nature, independently of all convention or of all laws.1
The circumstances which recommend silver and gold as the fittest materials for money, are chiefly the following.—First, When pure, and unmixed with base metals, they have everywhere the same characteristics, and in all respects the same qualities. Secondly, They are divisible into minute parts, which are again susceptible of a complete re-union by fusion. Thirdly, They are durable, portable, easily kept, and not liable to injury from want of use. Fourthly, They are susceptible of any form, and any impression. Fifthly, They are not too common, nor to be obtained without a valuable consideration in land and labour. To the provision which nature has thus made for facilitating commerce, in the qualities which so remarkably characterize these metals, it may be worth while to add the advantages which we derive from the variety of metals in which these qualities are to be found. In rich and commercial countries, coins of gold and silver alone would by no means answer all the purposes of exchange. Coins of gold and silver are not well adapted for that retail trade in which, however, the greatest number of subjects are principally concerned. Coins of silver, again, are too bulky for larger payments. It is necessary, therefore, that coins should be made of different metals. Accordingly, in all such countries, this has taken place sooner or later in the progress of commercial refinement. With respect to the history of the coins in England, a great deal of very curious information has been lately brought together, and very perspicuously stated by Lord Liverpool, in his Treatise on the Coins of the Realm, [1805.]
The enumeration which has been already given of the qualities which so peculiarly fit the precious metals to perform the function of media of exchange, seems of itself fully sufficient to account for the universal use made of them in commerce, abstracting altogether from the useful purposes to which they are applicable in the various arts. In stating this remark, it is scarcely necessary for me to add, that I would by no means be understood to deny the important uses of which gold and silver are susceptible, or the intrinsic value which they derive from their beauty and subserviency to the arts of decoration. On this subject I am ready to admit all that has been urged by Mr. Smith, in that part of his work where he attempts to shew that, except iron, they are more useful than any other metal. He says—“The demand for those metals arises partly from their utility and partly from their beauty. If you except iron, they are more useful than perhaps any other metal. As they are less liable to rust and impurity, they can more easily be kept clean; and the utensils either of the table or the kitchen are often upon that account more agreeable when made of them. A silver boiler is more cleanly than a lead, copper, or tin one; and the same quality would render a gold boiler still better than a silver one. Their principal merit, however, arises from their beauty, which renders them peculiarly fit for the ornaments of dress and furniture. No paint or dye can give so splendid a colour as gilding. The merit of their beauty is greatly enhanced by their scarcity. . . . These qualities of utility, beauty, and scarcity, are the original foundation of the high price of those metals, or of the great quantity of other goods for which they can everywhere be exchanged. This value was antecedent to, and independent of, their being employed as coin, and was the quality which fitted them for that employment. That employment, however, by occasioning a new demand, and by diminishing the quantity which could be employed in any other way, may have afterwards contributed to keep up or increase their value.”*
In the whole of this passage I certainly agree with Mr. Smith, excepting where he says, that the intrinsic value of gold and silver was the quality which fitted them for their employment as coin. It appears to me, that this intrinsic value, which I shall allow to gold and silver in its fullest extent, ought to be regarded in the theory of money as merely accidental circumstances, from which it is proper to abstract with all possible care, as tending only to embarrass our conceptions; for the same reason, that in studying the theory of mechanics, we abstract from the effects of friction, the rigidity of ropes, and the weight of the materials of which machines are composed. The considerations, undoubtedly, mentioned by Mr. Smith, add to the exchangeable value of money, by increasing the demand for the materials of which it is made, in the very same manner as this value would be increased by a deficiency to the same extent, in the ordinary supply coming from the mines. But I cannot help thinking, that the quantity of gold and silver employed in the arts, bears but a very trifling proportion to that which circulates in the shape of money or bullion over the commercial world, so trifling, indeed, as to render it of little moment in the present argument, or at most to place it on the same footing with those circumstances in mechanics, from which, though it is necessary to attend to them in practice, it is nevertheless convenient to abstract in theory, in studying the principle on which any of the simple mechanical powers produces its effect. At any rate, when gold is converted into coin, its possessor never thinks of anything but its exchangeable value, or supposes a coffer of guineas to be more valuable, because they are capable of being transformed into a service of plate for his own use; whatever satisfaction the possessor of a service of plate may derive from the consideration that it may be converted into guineas. Why, then, should we suppose, that if the intrinsic value of gold and silver were annihilated completely, they might not still perform, as well as now, all the functions of money, supposing them to retain all those recommendations formerly stated, which give them so decided a superiority over everything else which could be employed for the same purpose. Supposing the supply of the precious metals, at present afforded by the mines, to fail entirely all over the world, there can be little doubt that all the plate now in existence would be gradually converted into money, and gold and silver would soon cease to be employed in the ornamental arts. In this case, a few years would obliterate entirely all idea of the intrinsic value of these metals; while their value would be understood to arise from those characteristical qualities which recommend them as media of exchange. But so far from sinking in their exchangeable value, they would every day become more valuable in the market than before, in proportion as their quantity was diminished by the slow waste occasioned by commercial circulation. Mr. Smith’s doctrine, at the same time, I must own, coincides with the general opinion on this subject; and Mr. Harris carries it so far, as to propose it as a questionable point, whether coins would have preserved their value and been continued as money, if silver and gold had not been applicable to other purposes. I confess I can see no good reason for this observation; as, independently of the intrinsic value of these metals, their peculiar adaptation to their different ends, as signs or measures of value, could not have failed to have given them an exclusive title to this employment. I am therefore disposed to think, that Bishop Berkeley was not wide of the truth, (for I would not go so far as to adopt his idea in its full extent,) when he proposed the following doubts in his pamphlet, entitled The Querist, “Whether money is to be considered as having an intrinsic value, or as being a commodity, a standard, a measure, or a pledge, as is variously suggested by writers? And whether the true idea of money, as such, be not altogether that of a ticket or counter?”* The ingenious author certainly did not mean, in this query, to deny that gold and silver have an intrinsic value, but only to insinuate, that this is an accidental or secondary consideration from which we ought to abstract entirely in forming a precise idea of their function as money. This is perfectly evident from the qualifying words “as such,” which he introduces into the Query.
The same functions might be performed by a variety of other metals, but by none which unites so many advantages; and hence the general consent of mankind in applying them to this purpose; in consequence of which they have come to be essentially distinguished from those local media of exchange to which accidental circumstances have given currency in particular nations. It is this general consent alone which distinguishes them, when employed as money, from anything else which circulates in a country; from the paper currency, for instance, which circulates in Scotland and England. Were this island insulated from the rest of the world, the former, as a medium of exchange, would possess no advantage over the latter, excepting in so far as it diminished the opportunities of fraud; nor would it make the smallest difference on the national wealth, whether the circulating medium consisted of gold or paper, or whether the materials were abundant or scanty. This observation, self-evident as it may appear to some, may perhaps to others require a little illustration.
In a country which had no communication with others, it is obvious and indisputable, that the precious metals, when formed into money, would be useful only as a medium of exchange and scale of valuation. On this supposition, the observation of Anacharsis the Scythian, quoted by Mr. Hume in one of his Political Discourses, seems to be perfectly just, that gold and silver appeared to be of no use to the Greeks, but to assist them in enumeration and arithmetic.* I shall afterwards, however, endeavour to show, that Mr. Hume carried this principle a great deal too far, when he concluded, that the prices of commodities are regulated entirely by the plenty or scarcity of the coin in circulation.†
In a country which has commercial dealings with others, the case is very different; the precious metals being, by those essential qualities formerly mentioned, so much distinguished from the other media of exchange that have been occasionally employed, that they are objects of universal request among mankind; influencing in a great variety of ways, by their local plenty or scarcity, the relative condition of nations.
Among the other commodities which have been used for the same purpose, the small shells, called Cowries, which are employed in Africa and some parts of Asia, are perhaps the most deserving of attention, when we consider, notwithstanding their total inutility in every other respect, the value set upon them as media of exchange over such extensive regions of the earth. “I am informed from good authority,” says Major Rennell, “that about a hundred tons of Cowries are annually shipped from England alone to Guinea. These are originally shipped from the Maldive Islands to Bengal, and from Bengal to England. In Bengal, twenty-four hundred more or less are equal to a shilling, and, notwithstanding, some articles in the market may be purchased for a single cowry. But in the inland parts of Africa, they are about ten times as dear, varying from two hundred and twenty to two hundred and eighty. M. Beaufoy was told that in Kassina they were at the rate of about two hundred and fifty; and Mr. Park reports, that they are about the same price at Sego, but cheaper at Timbuctoo, which is about the centre of the cowry country; dearer towards Manding, which is the western extremity of it. Hence they are probably carried in the first instance to Timbuctoo, the gold market, and thence distributed to the east and west.”1
It would be a curious speculation to examine the combinatious of circumstances which thus affect the value of an article that derives its whole worth from its arbitrary application to facilitate commercial operations. The facts which have been stated are sufficient to show, that the minute subdivision of value which these shells are fitted to express, has created a demand for them even where the precious metals are in abundance; and this demand would manifestly be much greater if the precious metals did not exist at all. These last, however, abstracting entirely from their application in the useful arts, are incomparably better adapted for the purposes of exchange than cowries, or any other substitute which has yet been thought of, and therefore I have not the smallest doubt, that their employment as media of exchange would have been as universal as it now is, though they had possessed no intrinsic utility or value whatever. In consequence, indeed, of these qualities, the attention of men was directed to them at an earlier period than it otherwise would have been; and the estimation in which they were held as articles of merchandise, may have suggested their advantageous properties as media of exchange. But the only utility which is essential to gold and silver as media of exchange, is their peculiar adaptation to that purpose; and though I would not take it upon me to say that their uses in the arts detract from their value in this respect, yet these are so far from being essential to their qualities as money, that they are in some respects disadvantageous, by rendering the theory of money more complicated than it otherwise would have been.
Having mentioned the extensive use of Cowries as a medium of exchange, I cannot help taking notice here, though the subject is not immediately connected with our present inquiry, of some particulars concerning the current prices of some commodities estimated in this way, extracted from the last communication which was received in this country from Mr. Mungo Park, and which is dated 16th November 1805. The particulars which I have to state, are copied from a letter received by me some time ago from a friend in London, who had an opportunity of perusing the original document. In this letter Mr. Park states, that in Manding, a town containing eleven thousand inhabitants, he opened a booth for the sale of European commodities, of which he took down some of the prices in cowries. Thus, a piece of gold worth in our currency twelve shillings and sixpence, sold for three thousand cowries. A dollar, sold by Mr. Park as a piece of European manufacture, brought from six to twelve thousand cowries. Currency for currency, a cowrie is stated to be worth the twentieth part of our penny. A prime male slave brought forty thousand cowries; a prime female slave ninety thousand; one young female slave brought forty thousand; a horse, from two to ten prime male slaves; a fat cow, fifteen thousand cowries; an ass, seventeen thousand; a sheep, from three to five thousand.
The doctrine which the foregoing observations tend to establish is, if I mistake not, agreeable to the opinion of Mr. Locke, who observes, “that the general consent of nations has placed an imaginary value on silver, because of the qualities fitting it for the purposes of exchange.”* This remark of Locke’s has been severely commented on by Mr. Law, in a small treatise entitled Money and Trade Considered.† “It is reasonable to think,” he says, “silver was bartered, as it was valued, for its uses as a metal, and was given as money according to its value in barter. The additional use of money to which silver was applied, would add to its value, because, as money, it remedied the disadvantages and inconveniences of barter; and consequently the demand for silver increasing, it received an additional value equal to the greater demand its use as money occasioned.
“And this additional value is no more imaginary than the value silver had in barter, as a metal; for such value was because it served such uses, and was greater or less according to the demand for silver as a metal, proportioned to its quantity. The additional value silver received from being used as money, was because of its qualities which fitted it for that use, and that value was according to the additional demand its use as money occasioned.
“If either of these values be imaginary, then all value is so; for no goods have any value, but from the uses they are applied to, and according to the demand for them, in proportion to their quantity.”‡
I confess, it does not appear to me that Mr. Law’s reasonings are precise or conclusive. In as far as his criticism refers to Mr. Locke’s use of the word imaginary, I do not think it necessary to enter into any argument concerning its justice, but I own that the idea which Mr. Locke meant to express, appears to me clear and unquestionable. That idea was, that the general consent of men, by adopting silver as the medium of exchange, bestows on it, in addition to the recommendations which it derives from its subserviency to the arts, a value which it did not intrinsically possess. This ideal value is precisely of the same kind with that which the credit of a bank stamps on paper currency, with this difference, that the latter is local, while the former is universal. Mr. Locke’s remark farther intimates, that the general consent of men was not the effect of caprice, but of certain peculiarities in the nature and qualities of silver, which have eminently fitted it for the purposes of exchange; a proportion which coincides exactly with an assertion formerly quoted from Turgot, [p. 334,] that gold and silver seem destined by nature to be the great instruments of commerce, independently of all law and of all convention.
In further prosecution of the same argument, Mr. Law adds, “that he cannot conceive how different nations could agree to put an imaginary value on anything, especially upon silver, by which all other goods are valued; or that any one country would receive that as a value, which was not valuable equal to what it was given for; or how that imaginary value could have been kept up.”* The extensive use which is made of cowries in Africa, and some parts of Asia, may serve as a sufficient answer to these observations. Nor is the fact less applicable, though we admit, that these shells, being used in countries where gold and silver are also employed, are therefore to be considered merely as tokens or representatives of the precious metals; for if articles possessing no intrinsic value, should possess a value as representing the precious metals, why might not gold and silver derive their value from the useful commodities which they represent and enable us to purchase?
“But,” says Mr. Law, “for the same reasons a crown passing in France for seventy-six sols, should pass in Scotland for seventy-six pence, and in Holland for seventy-six stivers. But on the contrary, even in France where the crown is raised, it is worth no more than before when at sixty sols.”† I must confess that I do not understand the scope of this argument, nor can I conceive how it applies to the question under discussion. According to the literal interpretation of this passage, Mr. Law is combating a phantom of his own imagination; for, by whom was it ever supposed that one nation adopted the money of another, ascribing to the precious metals an imaginary value for no other reason than that others had done the same? I have before said, that the general use of the precious metals is the obvious result of those circumstances which so peculiarly adapt these metals for the purposes of money. This general coincidence Mr. Locke expresses by the word consent. But it is perfectly evident from the context, that he did not mean consent arising from any stipulation or imitation among nations; but a consent analogous to that which Cicero ascribes to the human race, in the fundamental principles of religion and virtue. If this observation be just, it affords a sufficient explanation of the fact, that a crown may pass in France for seventy-six sous, while in Scotland it may not bring seventy-six pence, nor in Holland seventy-six stivers. The properties which universally belong to the precious metals, account completely for the universality of their use as media of exchange; but it would be surprising, indeed, if all nations had adjusted their values agreeably to some common standard. The case of the precious metals is similar to measures of longitudinal extension. In taking the standard of these from the human body, there has been a pretty general consent among nations. But it would not follow from this, that the Paris foot, and London foot, &c., should be exactly of the same length. Such a coincidence could have resulted only from an express compact. The truth however is, that in consequence of the commercial connexions of different nations, the relative values of the coined metals have been pretty accurately adjusted in the general market of the world; and it is owing to this that all arbitrary operations in the mints of particular States are unjust, inexpedient, and in many respects ineffectual; a consequence which has not escaped the notice of Mr. Law himself.*
It must not, therefore, be imagined, when I lay so great stress on the properties of the precious metals, abstracting from their intrinsical value, in studying the theory of money, that I would mean to insinuate any apology for those arbitrary operations on the coinage, which have been so often practised by different princes. If gold and silver possessed no intrinsic value, such operations might be no less iniquitous than they always have been; for their iniquity arises, not from the useful purposes to which the precious metals are subservient in the arts, but from the universality of their employment as media of exchange. And, indeed, one of my chief reasons for dwelling so long on the present subject, was to prevent so very important a truth as that which relates to the good faith that ought to be maintained with regard to the coinage, from being placed on what I conceive to be an unsound foundation. The pains which Mr. Law has bestowed on this argument is the more surprising, that the doctrine which he wishes to refute would have accorded better with the general scope of his book than that which he supports; and indeed, in one passage, he seems to give up completely the very point for which he had been so long contending. “Money is not the value for which goods are exchanged, but the value by which they are exchanged; the use of money is to buy goods, and silver, while money, is of no other use.”* An observation which coincides entirely with that above quoted from Mr. Hume, [p. 338.]
From the function of the precious metals as media of exchange, they gradually and naturally came to form the common scale of valuation. For this end, indeed, they are admirably adapted, from the mathematical exactness with which metals, in consequence of their divisibility and fusibility, are fitted to express every conceivable variation of value; a quality, indeed, of so much importance in their use as money, that it probably contributed more than anything else to establish their employment among commercial nations. The existence, too, of such a standard, would necessarily render the ideas of relative value much more precise and definite than they otherwise would have been; by leading men to an arithmetical statement of relations, which probably, in the infancy of commerce, would have been estimated in a very gross and inaccurate manner.
The two great functions, then, of the precious metals, when employed for the purposes of Money, are to furnish, first, a universal medium of exchange; and secondly, an accurate scale of valuation. The truth is, that the second idea is, in some measure, involved in the first; and it is for this reason that I have not included it in my definition; for although in rude nations articles have been used as media of exchange, which are incapable of expressing all the different gradations of value, such could not possibly have furnished the means of carrying on the business of a great commercial country; it is therefore implied necessarily in the nature of money, that it furnishes an accurate scale of valuation; and consequently this last function of money is to be considered as inseparably connected with that universality of its use, to which I have directed your attention as its leading and fundamental property.
To the conclusion which the foregoing reasonings tend to establish, I know it has been objected, that it is obviously contradicted by the perpetual variations that take place in the relative values of money and of commodities. When we see that silver, according to its plenty or scarcity, combined with other circumstances, fluctuates in its exchangeable value compared with that of corn, do we not ascribe an intrinsic value to the one as well as the other? and may not silver be considered as the commodity, and corn the price, with as little impropriety as the converse?—For my own part, I do not perceive the force of this objection. That gold and silver may be considered as commodities, I allow. But would not the case have been the same although they had possessed no intrinsical qualities whatever? and would not their adaptation to the purposes of commerce, and their employment as media of exchange, have occasioned a considerable demand for them? Indeed, may I not venture to add, that these circumstances would have rendered the demand for them as great as it is at present? Of what intrinsic utility, for instance, are cowries, which perform the functions of money over a great part of Africa and Asia? and does not even this local employment of them render them an article of commerce and a commodity for sale in the hands of those traders who, after bringing them from Bengal, ship them again to Guinea?
The same doctrine concerning the precious metals will be found perfectly consistent with the principles which regulate the Course of Exchange between different countries. Even when they exist in the shape of Bullion, what constitutes their exchangeable value is their convertibility into the current coins of the country; and any increased demand for these in a particular country may be regarded, not as a symptom of any new call for them for the purposes of the arts, but as a symptom of some accident in the course of trade which has drained the country of its circulating specie. The truth of all this indeed is virtually acknowledged in those countries where a paper currency forms the chief circulating medium; and accordingly, whatever objections may be made to bank notes, from their supposed tendency to raise the prices of commodities, or from their insecurity in case of a revolution, no one, abstracting from these and similar circumstances, would at any time wish to see silver and gold, when able to supply himself with paper. But of this subject of Paper Currency, I shall afterwards have occasion to treat fully. In the meantime, I shall only observe, that its advantages are necessarily confined to countries which enjoy the blessings of a free and settled government. Were such governments generally established, paper would everywhere supply more and more, except in the smaller operations, the ordinary medium of circulation; and the precious metals would be limited in a great measure to the functions of liquidating the debts of different nations, and regulating the quantity of the circulating medium by restraining the paper currency within its due limits.
The observations which I have hitherto made on the subject of metallic money, apply equally to Silver and Gold; both of which are used, without any discrimination, in common mercantile transactions. It is necessary, however, according to the opinion of all our latest and best writers on Political Economy, that one of these metals should be considered as the standard or level, or measure of value; with respect to which, the other is to be regarded as a mere commodity; for silver and gold, in their mutual relations, like other commodities, are variable in their value, according as the quantity of either is increased or diminished. Consequently, it is not possible that they should both be the measure of value at the same place and time. This doctrine is maintained by Sir William Petty, Mr. Locke, and Mr. Harris, the last of whom speaks of silver as the measure of value in this country. On the other hand, it is one great object of Lord Liverpool’s late publication on the Coinage, [1805,] to demonstrate, that gold coin has now become in this country the measure; and that this is the idea not only of the people of Great Britain, but of all the merchants of foreign countries who have any intercourse with it, and even of those who deal the most extensively in the precious metals.
“After full consideration of this subject,” says his Lordship, “I offer as the result of my opinion,—First, That the coins of this realm, which are to be the principal measure of property and instrument of commerce, should be made of one metal only. Secondly, That in this kingdom the gold coins only have been for many years past, and are now in the practice and opinion of the people, the principal measure of property and instrument of commerce. In a country like Great Britain, so distinguished for its affluence and for the extent of its commercial connexions, the gold coins are best adapted to be the principal measure of property; in this kingdom, therefore, the gold coin is now the principal measure of property and standard coin, or, as it were, the sovereign archetype by which the weight and value of all other coins shall be regulated. It is the measure of almost all contracts and bargains, and by it, as a measure, the price of all commodities, bought and sold, is adjusted and ascertained.”
In answer to Mr. Locke, who had said “that gold is not the money of the world and measure of commerce, nor fit to be so,” his Lordship observes, “It is difficult to determine what Mr. Locke means, when he asserts that gold is not fit to be the money of the world. Gold, as a metal, is equally homogeneous, equally divisible into exact portions or parts, and not more consumable, or more subject to decay, than silver; gold has some of those qualities even in a higher degree than silver. Mr. Locke must mean, therefore, that gold is, on account of its value, not fit to be the money of the world, or the measure of property and commerce. It cannot, I think be doubted, that the metal of which this principal measure of property is made, should correspond with the wealth and commerce of the country for which it is intended. Coins should be made of metals more or less valuable in proportion to the wealth and commerce of the country in which they are to be the measure of property. In very poor countries coins have been, and still are, principally made of copper, and sometimes even of less valuable materials. In countries advanced to a certain degree of commerce and opulence, silver is the metal of which coins are principally made. In very rich countries, and especially in those where great and extensive commerce is carried on, gold is the most proper metal, of which this principal measure of property and this instrument of commerce should be made; in such countries gold will in practice become the principal measure of property, and the instrument of commerce, with the general consent of the people, not only without the support of law, but in spite almost of any law that may be enacted to the contrary, for the principal purchases and exchanges cannot then be made, with any convenience in coins of less valuable metal.”
I must own I do not fully see the force of his Lordship’s reasoning upon this subject; but Lord Liverpool seems to have reflected so much upon it, and enjoyed such opportunities of being well informed in all things relating thereto, that I am doubtful of my own opinion, wherever I am forced to differ from him. Of the advantages, indeed, which he thus enjoyed, his Lordship appears to have been fully sensible; and in one place of his book, appears to express an opinion pretty strongly of the inability of speculative men, that is, men without his practical knowledge, to oppose or criticise his opinions.
Admonished by these hints, I shall not on this occasion prosecute the discussion of this complicated subject any farther.
I cannot, however, dismiss the subject altogether, without taking notice of an idea which has been suggested by many political writers, and which is well entitled to a careful consideration, though I do not mean to offer any decided opinion with regard to it;—that the stamp of the sovereign affixed to the metals which compose the current coin, ought alone to denote the degree of purity, and that their value ought to depend totally on their weight. The only inconvenience which would attend this measure, would be the difficulty of breaking through the present plan, and the trouble which would be occasioned by the necessity of weighing. Of these, the last only is permanent in its operation. The conveniences which would attend a general adoption of this plan, would be great. It would put an end to all clipping, washing, and paring of the coins, and to all that jobbing which proceeds from a minute knowledge of the state of the currency in different countries. In truth, such a regulation, if everywhere adopted, would secure to the world at large those advantages which Holland derived from the Bank at Amsterdam.
OF REAL AND NOMINAL PRICES.]
The remarks which I now proceed to offer, relate to a distinction intimately connected with the subject which has just been under our consideration; I mean that between the real and nominal prices of commodities. In the practical conclusion which Mr. Smith ultimately adopts on the question to which this distinction applies, I do not differ from him very widely; though I think that it has been stated by him in too general and unqualified terms. But as I deem the metaphysical process by which he arrives at this conclusion is by no means satisfactory, and as I have been often puzzled with it myself, I shall offer no apology for making a few observations on it, premising only, that I consider the question to which I am first to direct your attention, as chiefly an object of speculative curiosity.
“Every man is rich or poor,” says Mr. Smith, “according to the degree in which he can afford to enjoy the necessaries, conveniences, and amusements of life. But after the division of labour has once thoroughly taken place, it is but a very small part of these with which a man’s own labour can supply him. The far greater part of them he must derive from the labour of other people, and he must be rich or poor according to the quantity of that labour which he can command, or which he can afford to purchase.”* —It appears to me that the latter clause of this sentence is by no means a just inference from the former; and the only conclusion to which it properly leads, is that every man is rich or poor according to the means which he possesses of purchasing those necessaries, conveniences, or amusements, which are supplied by the labour of others. That the riches of an individual do not depend on the quantity of labour which he can command, is obvious from what Mr. Smith himself has so ingeniously shown with regard to the effects of the division of labour in increasing its productive powers. [See p. 312, seq.]—In a country, therefore, where a separation of arts and professions has taken place, the national riches depend much less on the quantity of labour, than on the skill of the labourer, a proper division of work, and the advantages which are derived from the use of machinery. Consequently no estimate can be formed of the comparative riches of individuals from merely knowing the quantities of labour which they are able to command.
“The value of any commodity, therefore,” continues Mr. Smith, “to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities.”† —I have sometimes thought that part of the obscurity in which Mr. Smith has involved this subject, arises from the vague use which he makes of the phrase “measure of value.” I need not remark, that this expression is borrowed from the mathematical sciences, in which important advantages are sometimes gained by employing one species of quantity to measure another. Thus angles are measured by the arc of a circle; and velocities and forces are measured by a reference to extended magnitudes. This seems to be the idea which Mr. Smith has annexed to the word throughout the greater part of the chapter in question. But in this sense, the speculation cannot possibly admit of any useful application; as he confesses that it is difficult, or rather impossible, to ascertain the proportion between different quantities of labour. For he proceeds:—
“Though labour be the real measure of the exchangeable value of all commodities, it is not that by which their value is commonly estimated. It is often difficult to ascertain the proportion between two different quantities of labour. The time spent in two different sorts of work, will not always alone determine this proportion. There may be more labour in an hour’s hard work, than in two hours’ easy business; or in an hour’s application to a trade which it cost ten years’ labour to learn, than in a month’s industry at an ordinary and obvious employment. But it is not easy to find any accurate measure either of hardship or ingenuity. In exchanging, indeed, the different productions of different sorts of labour for one another, some allowance is commonly made for both. It is adjusted, however, not by any accurate measure, but by the higgling and bargaining of the market, according to that sort of rough equality which, though not exact, is sufficient for carrying on the business of common life.”
“Every commodity,” he adds, however, “is more frequently exchanged for, and thereby compared with other commodities, than with labour. It is more natural, therefore, to estimate its exchangeable value by the quantity of some other commodity, than by that of the labour which it can purchase. The greater part of people, too, understand better what is meant by a quantity of a particular commodity, than by a quantity of labour. The one is a plain palpable object, the other an abstract notion, which though it can be made sufficiently intelligible, is not altogether so natural and obvious.
“When barter ceases, and money has become the common instrument of commerce, every particular commodity is more frequently exchanged for money than for any other commodity. . . . It is more natural and obvious, therefore, to estimate the value of commodities by the quantity of money, the commodity for which they are immediately exchanged, than by that of the commodity for which they are exchanged only by the intervention of another commodity. Hence it comes to pass, that the exchangeable value of every commodity is more frequently estimated by the quantity of money, than by the quantity either of labour or of any other commodity which can be had in exchange for it.”*
From this quotation, it appears manifestly that there is no analogy between Mr. Smith’s conclusion touching the mensuration of value by labour, and the measures employed by mathematicians. These last substitute quantities easily compared for quantities that are compared with greater difficulty; whereas the measure of value proposed by Mr. Smith is acknowledged to be founded on a mere abstract notion. The truth is, however, that what Mr. Smith was really in quest of in this chapter, was not a measure of value, but a universal standard for the measurement of value; or, in other words, a unit fixed in the unalterable principles of human nature, by a comparison with which, the comparative values of money at different times might be estimated. It is obvious that it gives us no idea of the wealth of an individual to say, that in the time of Henry VII. his income amounted to £5000, unless we also knew how far a pound sterling would go in these days.
On what principle, then, shall the value of money at different times be estimated, or how shall the real prices of commodities and labour be computed? This I conceive to be the simple statement of the question, which Mr. Smith undertakes to resolve; and in this, as in many others, a precise idea of its nature will be found to contribute much to the success of our inquiries.
That labour is the real measure of the exchangeable value of all commodities, Mr. Smith attempts to show in the second paragraph of his fifth chapter, by a different process of reasoning, but, in my opinion, one not more satisfactory.
“The real price of everything,” he observes, “what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What everything is really worth to the man who has acquired it, and who wants to dispose of it, or change it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people. What is bought with money or with goods, is purchased by labour, as much as what we acquire by the toil of our own body. That money or those goods, indeed, save us this toil. They contain the value of a certain quantity of labour, which we exchange for what is supposed, at the time, to contain the value of an equal quantity. Labour was the first price; the original purchase-money that was paid for all things. It was not by gold or by silver, but by labour that all the wealth of the world was originally purchased; and its value to those who possess it, and who want to exchange it for some new productions, is precisely equal to the quantity of labour which it can enable them to purchase or command.”*
The fallacy of the argument contained in this passage, consists in the application to all the various stages of society, of a description which applies only in fact to that rude period which preceded the accumulation of stock, and, what may be regarded as nearly coeval in point of time, the establishment of positive institutions regulating the acquisition and protecting the enjoyment of property. I have endeavoured to shew, in my other course of lectures, that prior to the establishment of law, the only foundation of an exclusive and permanent property is labour; and hence it seems to follow, as a necessary consequence, that in this rude state of things, the only circumstance which could regulate the exchangeable value of commodities, was the quantity of labour which the preparation of them required; some allowance being probably made for superior hardship incurred, or skill exerted. This incontrovertible principle, accordingly, Mr. Smith turns in various strong lights; after which, he makes an abrupt conclusion, with which it is not easy to trace its connexion, that the value of a commodity to those who possess it, and want to exchange it, is precisely equal to the quantity of labour which it can enable them to command. It is difficult to reconcile this passage, considered at least in its application to the more advanced periods of society, with the analysis which Mr. Smith has given in a different chapter, of the component parts of the price of commodities:—“As soon as stock has accumulated in the hands of particular persons, some of them will naturally employ it in setting to work industrious people, whom they will supply with materials and subsistence, in order to make a profit by the sale of their work, or by what their labour adds to the value of the materials. In exchanging the complete manufacture either for money, for labour, or for other goods, over and above what may be sufficient to pay the price of the materials, and the wages of the workmen, something must be given for the profits of the undertaker of the work, who hazards his stock in this adventure. The value which the workmen add to the materials, therefore, resolves itself in this case into two parts, of which the one pays their wages, the other the profits of their employer upon the whole stock of materials and wages which he advanced.”*
With these principles in his view, it is not a little curious that Mr. Smith should have satisfied his mind with the reasoning just quoted from another part of his work.
Another metaphysical argument afterwards offered by Mr. Smith in proof of the same proposition, is, that “as a measure of quantity, such as the natural foot, &c., which is continually varying in its own extent, never can be an accurate measure; so a commodity, like silver or gold, which is continually varying in its own value, can never be an accurate measure of value. But equal quantities of labour must at all times be of equal value to the labourer;”* and so on.—The step of this reasoning to which I would more particularly direct your attention, is that in which it is said, that equal quantities of labour must at all times be of equal value to the labourer. What idea are we here to annex to the term value? In the previous chapter, we are told that this word has two different meanings; sometimes expressing the utility of a commodity, and sometimes the power of purchasing other goods. The first of these is called value in use, the other value in exchange. The distinction is illustrated by the examples of water and a diamond. The same distinction, illustrated by the very same examples, occurs in Mr. Harris’s work On Coins, and in the treatise by Mr. Law, entitled, Money and Trade Considered. I have some doubts, however, with respect to its accuracy; for what is value in use, but a circuitous expression for utility; and what possible advantage can arise from substituting the former phrase for the latter? On the other hand, is not the idea of value in exchange sufficiently conveyed by the word value; which in speculations of this sort is seldom or never employed as synonymous with intrinsic utility, and which in itself seems to involve the very nature of the comparison? Both of these, and similar phrases, have been employed in the present discussion. The principal advantage of the common mode of speaking over that employed by Mr. Smith, is, that the latter, after distinguishing the two kinds of value, often makes use of the word without any limiting epithet; and thereby not only puzzles his readers, but imposes on himself. Thus, when it is said that a commodity like silver, which is continually varying in its own value, can never be an accurate measure, the word value plainly means exchangeable value. But this word as plainly alters its meaning in the next sentence, when it is remarked, that equal quantities of labour are of equal value to the labourer. Here the word value cannot mean exchangeable value, as it is expressly supposed that the exchangeable value varies. We must, therefore, conclude, according to Mr. Smith’s definition, that it was value in use which he meant; though I need hardly observe, it is rather an awkward mode of expressing the simple proposition, that equal quantities of labour always cost the same exertion to the labourer, to say, that equal quantities of labour will always be of equal value to the labourer. It is in this last sense however alone, that the proposition can be interpreted. There is no difference, therefore, between labour and silver and gold, which entitles the former to be established as a standard of value, in preference to the latter. And where Mr. Smith adds, that in those cases where the same quantities of labour purchase different quantities of goods, it is the value of the latter which varies, not of the former, the assertion amounts merely to this, that the exchangeable value of labour varies, while the labourer continues to make the same sacrifices of his ease and happiness. But might not this proposition be converted in many cases to the necessaries of life, &c., the exchangeable value of which varies, while their value in use remains the same?
Mr. Smith’s doctrine on this subject has been plainly suggested by that state of society which preceded the accumulation of stock, when the labour of one man being universally exchanged against that of another, the exchangeable value of commodities was thus rated according to the quantities of labour which they could command. How wide a difference there is between this state of things, and the circumstances of a community like ours, where the labourer has to exchange his labour, not only against the labour of his fellow-citizen, but against value arising from the profits of stock and the rents of land, and where commodities involving all the three constituents of price are continually exchanged against one another. The sacrifices which the labourer makes, must, indeed, remain always the same, and he will naturally be led to bestow the epithets of cheapness or dearness, according to the extent of his own exertions. But how does this afford a standard or fixed value for comparing different values in different ages and nations? Is it not evident, that those who subsist by labour form only one of the classes of society; that the price of labour enters as an element into that of most of the commodities which are purchased by the other classes; and that the same circumstances which are favourable to the one class, are equally so to the other? Why, therefore, should the standard of value be taken from the labour of one class in preference to the limited revenue of the other?
A very important distinction, however, follows in the next paragraph, though it has been introduced with a sort of apology for the deviation from strict philosophical accuracy, for which I must own I see no reason. “In this popular sense, therefore, labour, like commodities, may be said to have a real and a nominal price. Its real price may be said to consist in the quantity of the necessaries and conveniences of life which are given for it, its nominal price in the quantity of money. The labourer is rich or poor, is well or ill rewarded, in proportion to the real, not to the nominal price of his labour.”* It is somewhat surprising that Mr. Smith should not have seen, after stating those very just and accurate views, that they apply not only to labour, but to commodities of every description. Mr. Smith says, that the nominal value of a commodity is the quantity of money, its real value the quantity of the conveniences and necessaries of life which it will purchase. Is not this a more precise, as well as a more obvious and intelligible mode of speaking, than to measure the price of commodities by their price in labour; a thing which Mr. Smith himself tells us is a mere abstract notion, and which must have its own real price measured ultimately by this very standard?
My last lecture was chiefly occupied with an examination of Mr. Smith’s doctrine, concerning the real and nominal price of commodities,—a doctrine which, as I have already hinted, seems to me to be rather of a metaphysical than of a political nature. Indeed, Mr. Smith himself acknowledges that it does not admit of any practical application of which we can avail ourselves in comparing together the prices of commodities at different periods. It is not the wages of labour, it must always be remembered, either nominal or real, by which this ingenious writer proposes to measure the price of commodities; for he tells us himself, in the same chapter, that the subsistence of the labourer, or the real price of his labour, is very different in different circumstances, “more liberal in a society advancing to opulence, than in one standing still,” &c. It is the quantity of labour employed by the labourer, which he holds out again and again, not as affording an approximation to the truth, but as a universal standard by which we may, with the greatest accuracy, estimate the comparative values of different commodities, as well from century to century, as from year to year. He acknowledges, at the same time, that it is a test to which we cannot appeal in fact.*
From this passage, if I do not misunderstand it, it appears to have been admitted by Mr. Smith, that his theory does not afford a rule, of which we can avail ourselves for the purpose of actually calculating the comparative value of prices at different times and places. He seems, at the same time, to have considered the theory as mathematically accurate in itself, but as unsusceptible of a practical application. If the remarks which I made yesterday be just, the theory, even considered abstractly, proceeds on an erroneous principle. In some of the practical rules which Mr. Smith afterwards suggests, I agree with him very nearly, under proper limitations. But I am unable to conceive their connexion with the premises from which he deduces them. I shall, therefore, endeavour to establish the justness of my own opinions on this point; in doing which, I may perhaps be able to point out some of the circumstances which have misled the speculations of this very profound writer.
In general, it will be remembered, that the precise object of the present inquiry is, to find some standard by which we may compare the exchangeable value of commodities at different times and places, or something by which the varying price of the precious metals, when considered as media of exchange, may be estimated. In the observations which I am to make on this subject, I shall retain Mr. Smith’s language, in order to point out more clearly in what respects I differ from his opinions; taking care, however, when I make use of the word value, to add the terms intrinsic or exchangeable, according to the sense in which I wish to be understood. The same distinction, as I have already hinted, may perhaps be expressed by the terms utility and value; but, on the present occasion, I flatter myself that by adopting Mr. Smith’s phraseology, I shall be able, with greater conciseness, to show in what the defects of his reasoning consist.
The following general principles, which I shall state with all brevity, are intended to facilitate some of our subsequent reasonings. They may, perhaps, also be found to throw additional light on some points which I have already noticed.
I. It was before observed, in quoting Mr. Smith’s distinction between Value in use, and Value in exchange, that a commodity may possess the one species of value in the greatest possible degree, while it possesses little or none of the other. As a necessary limitation, however, of this remark, it may be proper to add, that although value in use does not imply any value in exchange, yet value in exchange necessarily implies some degree at least of value in use. The truth of this is manifest; for value in exchange depending, as I shall afterwards have occasion to show, on the proportion between the demand and the supply, some intrinsic recommendation, either real or apprehended, must be supposed to account for the demand which the object occasions. This recommendation may, indeed, be of the most trifling nature; arising, perhaps, merely from beauty, fashion, or curiosity. But whether trifling or important, some degree of it must either belong to the object, or be generally ascribed to it, before it can become the subject of competition to purchasers.
II. The degrees of utility are infinite in number, extending from those slight and evanescent recommendations which operate on the fancy or caprice of the opulent, to what is necessary for the support of life. Articles of the last kind possess the highest degree of utility, and are, I think, the only ones to whose value in use it is possible to annex any definite meaning.
III. However slight the intrinsic utility of a commodity may be, a certain degree of scarcity, combined with a certain degree of demand, may bestow on it any conceivable value in exchange; that is, the caprice of the opulent may incline them to purchase it, by parting with any given quantity of the superfluous articles of use or necessity which they may possess. In this case, the greatness of its exchangeable value means nothing more than the power which it conveys to the possessor of purchasing a comparatively great quantity of other commodities; the exchangeable value of these things in the market being to each other inversely as their quantities.
IV. As the terms, price and exchangeable value, necessarily imply the relation of one thing to another, the common impressions of high and low price, or great and small exchangeable value, convey no definite ideas whatever, excepting to those who have in view some standard of comparison. A difficulty, therefore, occurs here precisely similar to that which has so long puzzled mathematicians on the subject of a universal standard of longitudinal extension. But fortunately, the speculations of political economists do not require the same mathematical accuracy in their solution, which is so desirable in the other case. Whatever room for regret the astronomical or natural philosopher may find in the looseness of the language employed in different ages and nations with respect to longitudinal measures, very little inconvenience is experienced by those whose speculations come home immediately to the business of common life. For all purposes of this kind, common language, which has adopted the dimensions of the human body as a standard, is sufficiently definite and precise; for though the Roman foot, the Paris foot, &c., deviate considerably from a mathematical equality, yet as we have reason to believe, that in different ages the average stature of man has varied only within very narrow limits, this measure of extension is, in most instances, sufficient for the purposes of the historian, politician, and philologist. In like manner, in Political Economy, the great object of research is, to obtain some standard of price or exchangeable value, not exhibiting to all mankind a mathematical sameness or stability, for that is impossible in the nature of things, but bearing such a relation to the fixed circumstances of the human race as may reduce the vagueness of ordinary language within such limits as to enable one age or nation, to avail itself of the political experience of another. Thus when we look at a drawing, it is impossible to form an estimate of the magnitude of the object which the painter meant to represent. But if a human figure is introduced into the landscape, though the size of men is subject to some variation, it affords us at least such a standard of comparison, as reduces the difference between the painter’s conception and ours to a comparative trifle. The application of this illustration to the present subject is sufficiently obvious.
V. It seems farther evident, in the fifth place, that in order to obtain such a standard as we are now in quest of, it is necessary to fix on some commodity for which the demand shall at all times bear, as nearly as possible, the same proportion. Were the case otherwise, the exchangeable value of this commodity must be subject to occasional variations; insomuch, that, on the one hand, by a conceivable increase of the demand, the supply continuing the same, the exchangeable value of the commodity might rise to a monopoly price; or, on the other hand, by a conceivable increase of the supply, without a change on the demand, its exchangeable value might be extinguished altogether. This last supposition has been actually realized in the case of water.
VI. In the sixth place, the uniformity of the demand for a commodity, can arise only from its being a necessary of life; as, in every other case, fashion and accidental circumstances may be supposed more or less to operate.
VII. In the seventh place, a regular adaptation of the supply to the demand, can exist only in things which depend on human industry, proportioning its exertions to the known extent of the market.
Agreeably to these principles, corn, or whatever constitutes the ordinary food of the people, seems more likely to furnish a standard of valuation than anything else. First, The demand is less subject to variation, the commodity itself forming to the great mass of the people a necessary of life; and the consumption of individuals among the labouring classes of mankind, subsisting on the same species of food being found, in different ages and nations, to approach wonderfully near to the same standard. Secondly, The quantity of corn raised may be expected to adapt itself within narrow limits to the effectual demand. The value in use, therefore, of this commodity, may be considered as remaining always the same.
We have thus arrived at the very same conclusion which Mr. Locke has deduced from a different view of the same subject; and as the general scope of his reasoning seems to be just in itself, and to afford some additional illustrations of the subject which I have been considering, I shall quote the substance of his argument as stated by himself in his Considerations on Lowering the Rate of Interest.
[§ 15.]—“That supposing wheat a standing measure, that is, that there is constantly the same quantity of it, in proportion to its vent, we shall find money to run the same variety of changes in its value, as all other commodities do. Now that wheat in England does not come nearest to a standing measure, is evident by comparing wheat with other commodities, money, and the yearly income of land, in Henry VII.’s time and now; for supposing that in the first of Henry VII., N let 100 acres of land to A for sixpence per annum per acre, rack-rent, and to B another 100 acres of land, of the same soil and yearly worth with the former, for a bushel of wheat per acre, rack-rent, (a bushel of wheat about that time being probably sold for about sixpence,) it was then an equal rent. If, therefore, these leases were for years yet to come, it is certain that he that paid but sixpence per acre, would pay now fifty shillings per annum; and he that paid a bushel of wheat per acre, would now pay about twenty-five pounds per annum, which would be near about the yearly value of the land, were it to be let now. The reason whereof is this: that there being ten times as much silver now in the world (the discovery of the West Indies having made the plenty) as there was then, it is nine-tenths less worth now, than it was at that time; that is, it will exchange for nine-tenths less of any commodity now, which bears the same proportion to its vent, as it did two hundred years since, which of all other commodities wheat is likeliest to do. For in England, and this part of the world, wheat being the constant and most general food, not altering with the fashion, not growing by chance, but as the farmers sow more or less of it, which they endeavour to proportion, as near as can be guessed, to the consumption, abstracting the overplus of the precedent year in their provision for the next, and vice versa, it must needs fall out that it keeps the nearest proportion to its consumption (which is more studied and designed in this than other commodities) of any thing, if you take it for seven or twenty years together; though, perhaps, the plenty or scarcity of one year, caused by the accidents of the season, may very much vary it from the immediately precedent, or following. Wheat, therefore, in this part of the world, (and that grain which is the constant general food of any other country,) is the fittest measure to judge of the altered value of things, in any long tract of time; and therefore, wheat here, rice in Turkey, &c., is the fittest thing to reserve a rent in, which is designed to be constantly the same for all future ages. But money is the best measure of the altered value of things in a few years, because its vent is the same, and its quantity alters slowly. But wheat, or any other grain, cannot serve instead of money, because of its bulkiness, and too quick change of its quantity. For had I a bond to pay me one hundred bushels of wheat next year, it might be a fourth part loss, or gain to me; too great an inequality and uncertainty to be ventured in trade, besides the different goodness of several parcels of wheat in the same year.”
It appears from these very judicious observations of Mr. Locke, as well as from what I had occasion to state formerly, that the accuracy of wheat, considered as a standard of valuation, proceeds on the supposition, that the quantity constantly bears the same proportion to the demand. But though this may be expected to be the case on the average of a number of years, the proportion must necessarily vary much, as Mr. Locke has suggested, from year to year, in consequence of the accidents of the seasons.
Hence, I apprehend, arises the true principle of the rule for measuring prices by the wages of labour, as these do not vary from year to year with the money price of corn, but in general are regulated by its average price. It is not, therefore, in consequence of any metaphysical theory concerning labour considered abstractly, that I would appeal to the wages of labour as a measure of value; I merely consider them, when accurately ascertained, and when due allowances are made for collateral circumstances, as an evidence of the average price of corn and the necessaries of life, at any particular period. Mr. Smith’s reasoning, you will observe, reverses this order, and deduces the rule founded on the money price of corn from a metaphysical speculation concerning the fixed and unalterable value of labour.
The oldest writer by whom I have found the wages of labour suggested as a criterion for ascertaining the real price of commodities, [in 1765,] is Mr. Rice Vaughan, who, after a variety of preliminary observations extremely deserving of attention, expresses himself thus:—
“But there is only one thing from whence we may certainly track out the prices, and which carries with it a constant resultance of the prices of all other things which are necessary for a man’s life; and that is the price of labourers’ or servants’ wages, especially those of the meaner sort. And as there is to be found no other certain and constant cause of the raising of the prices of all things, but two, viz., the one, the raising of the values of monies; the other, the great abundance of gold and silver coming into these parts, in this latter age, out of the Indies; although the hire of labourers did continually rise, yet it did rise so much and no more, as the value was raised. But after the discovery of the Indies, you shall find the price of the labourers’ wages raised in proportion, far exceeding the raising of monies; and therefore, for my part, I am certainly persuaded, that as long as the values of monies are raised, and the Indies do yield that abundance of gold and silver which they do, that both the hire of labourers, and generally the price of all things, especially of those things necessary for life, will rise; however, for a year, two or three, through uncertain accidents, sundry particulars may stand at a stay, or abate, but that the hire of labourers and servants carrieth with it a resultance of the prices of all things generally necessary for a man’s life; besides, that reason doth convince that there must be a convenient proportion between their wages and their food and raiment, the wisdom of the statute doth confirm it, which doth always direct the rate of labourers and servants to be made with a regard of prices of victuals, apparel, and other things necessary to their use.”*
The same criterion of price or value is repeatedly referred to by Mr. Harris in his Essay on Coins, [1757.] But he does not appear to me to have been so successful as Mr. Rice Vaughan, in fixing on the real grounds on which the opinion rests. The following are the principal passages in his book relative to this subject:—
“The values of land and labour do, as it were of themselves, mutually settle or adjust one another; and as all things or commodities are the products of those two, so their several values are naturally adjusted by them. But as in most productions labour hath the greatest share; the value of labour is to be reckoned the chief standard that regulates the values of all commodities, and more especially as the value of land is, as it were, already allowed for in the value of labour itself.”†
“It may be reasonably allowed, that a labouring man ought to earn, at least, twice as much as will maintain himself in ordinary food and clothing, that he may be enabled to breed up children, pay rent for a small dwelling, find himself in necessary utensils, &c.; so much, at least, the labourer must be allowed, that the community may be perpetuated. And as the world goes, there is no likelihood that the lowest kind of labourers will be allowed more than a bare subsistence; if they will not be content with that, there will be others ready to step into their places; and less, as above observed, cannot be given them. And hence the quantity of land that goes to maintain a labourer becomes his hire; and this hire again becomes the value of the land, the expenses of manuring and tilling it being also included.”*
In another passage he observes,—“Though we reckon by money, yet labour and skill are the main standards by which the values of all or most things are ultimately ascertained, and there will require a greater or less bulk of money, to purchase the very same thing, according as there is a greater or less quantity of money in circulation; that is, according as the material of money is cheaper or dearer, or in greater or lesser plenty.”†
In these extracts, notwithstanding the general indistinctness which runs through the passages now quoted, there are some hints not undeserving of attention: for although the author has not touched on what appears to me to be the fundamental principle, yet he has suggested some collateral advantages which we derive from the wages of labour considered as a test of the exchangeable value of gold and silver at different periods.
Of these, the two following seem to be the most important:—First, As the wages of common or unskilled labour may be presumed to be nearly the minimum at which an individual with a family can be subsisted, the knowledge of this minimum affords the lowest points of the scale on which the comparative riches of individuals are to be graduated. In proportion as their daily income rises above this point, they are removed from the lowest class of independent citizens, and rank higher or lower, among the superior orders of the community. In the second place, a tolerable estimate may be formed of the power and influence of an individual, from the number of labourers to whom he can furnish employment; and as far as the value of labour regulates the price of commodities, a knowledge of its current price will enable us to form an estimate of the effective power of money, at any particular time, in commanding a supply of the conveniences and accommodations of life.
From the foregoing reasonings, it sufficiently appears that if the current price of labour could be accurately ascertained in different times and places, it would furnish to the political economist important lights for comparing the actual circumstances of mankind in different states of society. It is, however, but very rarely that this accuracy can be obtained. The price of corn, on the other hand, though it has been but in few cases regularly recorded, is yet in general better known, and has been more frequently taken notice of by historians and political writers. To these, accordingly, we are forced to appeal in inquiries of this nature. In doing so, however, it is necessary always to remember, that the standard of comparison must be taken, not from the accidental prices of particular years, but from the average prices of a considerable period.
It appears farther from what has been stated, that neither the current wages of labour, nor the average price of corn, important as they are in the light of political data, can furnish anything like a mathematical standard for judging of the effective power of money, or the exchangeable value of commodities in different countries. A great variety of other circumstances must be taken into account, in order to form a reasonable estimate. After all, we can only hope to obtain such an imperfect help to our conceptions, as the average height of the human figure affords, when it is the only scale introduced into a landscape.
To what degree the wages of labour are liable to be affected by accidental circumstances, particularly by the advancing, stationary, or declining state of the society, has been shown very fully and ably by Mr. Smith himself, in the eighth chapter of his first book. Beside, however, the considerations there suggested, many others must be combined, in order to obtain the necessary corrections of the conclusions to which we are led by the standard of value now recommended. But the statement of these will be less tedious, when introduced in the course of the practical applications of this doctrine which will afterwards occur.
There is one consideration, however, so obvious and important, that I think it proper to mention it in this place; I mean the necessity of paying due attention to the general habits of the people in the article of food, before we build any reasonings on the prices of what are now considered as necessaries of life. This remark I take the earliest opportunity of stating, because it leads to the correction of a very fertile source of error in political speculations; and in no instance, perhaps, is it more likely to mislead us, than in the conclusions which we form with respect to the condition of the labouring classes, and the value of money, at different periods, from the comparative prices of wheat alone, forgetting that this was not the common food of the people till very lately, and that even at present it is only one of their various articles of subsistence.
From the household book of Sir Edward Coke, it appears that in the year 1596, rye-bread and oatmeal formed a very considerable proportion of the diet of servants, even in the greatest families.—In 1626, barley-bread is stated in the grant of a monopoly by King Charles to be the usual food of the lower classes.—Of the relative proportion of wheat consumed in England and Wales about the era of the Revolution, some idea may be formed from an estimate of the produce of the arable land by Gregory King, whose schemes, according to Dr. Davenant, are all so accurate as not to be controverted.—In the supplement to the Corn Tracts, there is an estimate of the proportional consumption of the different kinds of grain about thirty years ago, which deserves attention on account of the esteem in which the author of that work [Ch. Smith] has always and most deservedly been held by the best judges, for the extent and accuracy of his information. After remarking that bread made of wheat has become much more generally the food of the common people since the year 1689, than before, he adds, that “it is still very far from being the food of the people in general,” &c., estimating the bread consumers in 1764 at not more than one-half of the population.—Mr. Benjamin Bell, in a volume of Essays published some years ago, and which contain some important views concerning the agricultural interests of this country, which he has illustrated by a large collection of facts, ascertained with uncommon care, states the proportion of the whole inhabitants of Great Britain, who are fed on oats and barley, at a fourth of the whole population, giving it at the same time, as his opinion, that the estimate probably falls short of the truth. Indeed, I apprehend there can be little doubt that it does so very considerably.
I have entered into these details, in order to show with how great latitude it is necessary to receive all those estimates of the efficiency, or exchangeable value of money, at different times and places, which are founded on a comparison of the prices of wheat. A similar remark may be made with respect to those inferences which have been so often drawn from the same data, in proof of the misery of the lower orders, occasioned by the astonishing fluctuations of the prices of necessaries during the earlier periods of our history. That these inferences are just, when confined within certain limits, I do not mean to deny. But it is certainly pushing them too far, when we assume the wide ranges in the price of this article at particular times, as a scale for measuring the abundance or scarcity of necessaries at these periods. Thus, for example, when Stowe informs us, that in the year 1317, the harvest in England was all got in before the 1st September, and that wheat from £4 a quarter fell to 6s. 8d., this is a fact sufficient of itself to demonstrate by how small a proportion of the people wheat was then regarded as an indispensable necessary. The variation in the price of oats, as stated on the same authority, is no less astonishing, being from £3, 4s., to 5s. 4d. But it is very observable, that no mention is made of the price of barley, which appears then to have formed the ordinary food of by far the greater proportion of the people; an omission which affords a presumption, that its fluctuations were confined within much narrower limits. In the year 1270, the price of wheat fell to 6s. 8d. per quarter, while the rate of wages was 1d. a-day in harvest, and ½d. out of harvest. In such circumstances, it is quite superfluous to remark, that the average price of wheat had no relation whatever to the price of labour.
I shall take this opportunity of remarking, though the observation has not any immediate connexion with the present argument, that in accounting for the different prices of butchers’ meat at different periods, some allowance ought to be made for the changes in the national habits with respect to food, which arose naturally from the Protestant Reformation. It is observed by Dr. Campbell, in his Political Survey of Great Britain, that before the Reformation the people may be supposed to have lived one-third of the year on fish. I presume he meant to say, that during one-third of the year fish served as a substitute for flesh: and I am inclined to think that this estimate is rather below than above the truth, as a paper, preserved among the Harleian Manuscripts, affords a proof, that even in the time of Queen Elizabeth, the number of fish-days appointed for the royal household was one hundred and forty-five. Dr. Campbell elsewhere remarks, that in consequence of the regard paid to Lent, the rising stock was preserved; and that it was with a view to this circumstance that so many proclamations were issued for keeping Lent long after the reformed religion was established. It appears, too, that while this demand continued, the sea was ransacked for many articles which would now be rejected by the meanest persons, but which were then presented at the best tables. Thus, in the Appendix to the tenth volume of Dr. Henry’s History of Great Britain, a bill of fare is given, which contains porpoises and seals, as “part of the goodly provisions collected for the installation of an Archbishop of York.” (1466.)
The observations already made on the difference in the relative importance of wheat as an article of request in national diet at different periods, will explain sufficiently the circumstances which give to the wages of common labour, wherever they are accurately ascertained, an advantage over the average price of wheat as a standard for estimating the exchangeable value of money. “They carry with them,” to use the words of Rice Vaughan, “a constant resultance of the prices of all other things necessary for a man’s life.” The political regulations, however, it must be confessed, which in almost every country prevent the wages of labour from finding their proper level, together with the varying effects of villanage, from the first decline of that institution till its final abolition, render even facts of this description less accurate tests of the exchangeable value of money, than we should be apt to conclude from a theoretical view of the subject. But notwithstanding this objection, these undoubtedly form the most important data to which we can appeal in comparing together the effective powers of money in different periods of society.
Were it possible to ascertain with accuracy the rates of wages in different times, and to combine them with the prices, not only of the necessaries, but of the conveniences and luxuries of life, it would throw more light on that most interesting branch of history, the condition and manners of the people, than is to be collected from all the narratives which record the political and military transactions of our ancestors. It is much to be regretted that our earlier writers were so little aware of this truth, and that among modern authors a false idea of historical dignity should prevent a due attention to the scattered details which may still be gleaned from a careful and industrious examination of our ancient monuments. To the universality, indeed, of this remark, Mr. Hume’s history forms a striking exception; and it is to the sanction of his name that we are probably indebted, in a great measure, for those researches which have rendered the work of Dr. Henry so valuable an accession to the stock of British literature.
ON THE EFFECTS OF PLENTY OR SCARCITY OF THE PRECIOUS METALS UPON PRICES.]
I now proceed to offer some remarks on the principles by which the relative values of money and commodities are adjusted in commercial transactions. It is a subject of extreme difficulty, and I am much afraid that what I have to state will tend more to invalidate the reasonings of others, than to establish any satisfactory conclusions of my own.
I begin with examining a speculation of Montesquieu, which has contributed greatly to mislead those of his successors. This I shall state in Montesquieu’s own words, after which I shall consider particularly the different steps of his argument.
“Money is the price of merchandise or manufactures. But how will this price be fixed? that is to say, by what price of money will each thing be represented?
“If we compare the mass of gold and silver in the whole world, with the quantity of merchandise therein contained, it is certain that every commodity or merchandise in particular, may be compared to a certain portion of the entire mass of gold and silver. As the total of the one is to the total of the other, so part of the one will be to part of the other. Let us suppose that there is only one commodity or merchandise in the world, or only one to be purchased, and that this is divisible like money, a part of this merchandise will answer to a part of the mass of gold and silver, the half of the total of the one to the half of the total of the other; the tenth, the hundredth, the thousandth part of the one, to the tenth, the hundredth, the thousandth part of the other. But as that which constitutes property amongst mankind is not all at once in trade; and as the metals or money which are the signs of property, are not all in trade at the same time, the price is fixed in the compound ratio of the total of things, with the total of signs, and that of the total of things in trade, with the total of signs in trade also. And as the signs which are not in trade to-day, may be in trade to-morrow; and the signs not now in trade may enter into trade at the same time, the establishment of the price of things always fundamentally depends on the proportion of the total of things to the total of signs.” . . . “If since the discovery of the Indies, gold and silver have increased in Europe in the proportion of one to twenty, the price of provisions and goods must have been increased in the proportion of one to twenty. But if, on the other hand, the number of articles of merchandise has increased as one to two, it necessarily follows that the price of these articles and provisions has risen in the proportion of one to twenty, and fallen in proportion of one to two,—it necessarily follows, I say, that the proportion is only as one to ten.”1
It is observed by Sir James Steuart,* that this theory of Montesquieu is of an older date than his writings, being alluded to in one of the papers of the Spectator, and very explicitly stated by Mr. Locke. The ideas of this last writer are strongly expressed in a passage which has been already quoted during this Lecture, from his considerations on lowering the rate of interest.†
It is, however, from Montesquieu and Mr. Hume, that this theory has chiefly derived its authority, and it is surprising to what a degree it has influenced the opinions of commercial politicians since their time, although neither of these eminent writers have attempted any explanation whatever of the principle on which it proceeds. In the passage above quoted from the Spirit of Laws, it is said to be certain; and it is represented by Mr. Hume as next to a self-evident proposition,—“That the prices of everything depend on the proportion between commodities and money, and that any considerable alteration on either has the same effect, either of heightening or lowering the price. Increase the commodities, they become cheaper; increase the money, they rise in their value. As, on the other hand, a diminution of the former, and that of the latter, have contrary tendencies.
“It is also evident, that the prices do not so much depend on the absolute quantity of commodities and that of money which are in a nation, as on that of the commodities which come or may come to market, and of the money which circulates.”‡
The same doctrine has been repeated by numberless writers of a later date; and among others, by Dr. Wallace, in a small book entitled Characteristics of the present Political State of Great Britain; a coincidence the more remarkable that it is the great object of the latter to oppose some consequences that have been deduced by Mr. Hume, and I apprehend, very logically, from the theory.
“Let us suppose,” says Dr. Wallace, “that there is a certain quantity of money and of commodities in any country. The quantity of money may be said to represent the commodities, and to determine the prices of them. The prices of particular commodities may vary in different circumstances; but if the sums of the money and of the commodities continue much the same, the prices, on the whole, cannot much alter. In such a case, if no more money comes into the country, unless the dispositions of the people are remarkably changed by some extraordinary accident or revolution, it will be very difficult to carry on a great deal of more work on a sudden, as speedily to increase the sum of the commodities.
“But, if a great sum of money should be brought into the nation at once, and be distributed in any way whatever, provided the labouring and industrious part of the nation do not get such sums as will keep them idle; though some part of it would undoubtedly be hoarded up, and would thereby be rendered useless, yet the greatest part of it would be employed and become useful. . . . Every one would be enabled to spend a little more, and to carry on his business better. By these means there would be everywhere more labour. Of course, the commodities, or real riches, which are quite different from money, would be greatly increased.
“Again: If the stock of money should be increased by this industry; or, if another sum of money should be introduced by other means, and be distributed as before, this would again increase the stock of commodities. And so on continually, or to a certain limit.”*
The general conclusion in which these authors agree, has been adopted with great zeal by Mr. Arthur Young, who has produced various arguments in defence of his opinion, which I do not think it necessary to quote.
Among the consequences inferred by Mr. Hume from this doctrine, the two following are the most important:—The first is the advantage of hoarding large sums in public treasuries, so as to prevent completely their circulation. The second consequence deduced from this principle is, that banks, funds, and paper credit of every kind are injurious to the commerce and wealth of a nation. The contrariety of these conclusions of Mr. Hume to the prevailing opinions among our best political writers, together with their alarming aspect when considered in relation to the policy of this country, excited the attention of Dr. Wallace, the learned and ingenious author of the Dissertation on the Numbers of Mankind; and gave rise to the publication just quoted, in which he opposes the applications which Mr. Hume makes of Montesquieu’s principle, without, however, expressing any doubts concerning the principle itself.
The most elaborate refutation that I know of these speculations of Montesquieu and Mr. Hume, is in Sir James Steuart’s Political Œconomy; and I shall, accordingly, avail myself freely of his ideas wherever I find them to my purpose; attempting, as far as I am able, to avoid that profusion of vague and indefinite words with which this very ingenious and well-informed writer is so apt to obscure his meaning. Much additional light has been thrown on this subject by several foreign authors, particularly by Mr. Pinto, in his celebrated Essay on Circulation and Credit. I need scarcely add, with respect to Mr. Smith, that in treating of this important article of Political Economy, as far as it was connected with his great plan, he has displayed his usual superiority over all other writers; establishing, in the most satisfactory manner, some general principles which conclude decisively against the theory in question. But I shall avoid his view of the subject, as it is more generally known, and as he has passed over some topics more slightly than he probably would have done, if Mr. Hume had not given the sanction of his name to Montesquieu’s errors. [?]
In order to avoid circumlocution, I shall distinguish this doctrine by ascribing it to Montesquieu; although, from what has been already said, it appears to have been current in this country at a much earlier period. I shall direct my remarks, too, more particularly against his statement of the doctrine than against Mr. Hume’s, as he has been at more pains to explain the sense in which he wishes it to be understood. Indeed, in his attempt to unfold the nature of his doctrine, it is surprising that he did not discover the vagueness of the ideas which he annexes to the words which he employs.
“Let us suppose,” says Montesquieu, “that there is but one commodity to be bought and sold,” &c. [above, p. 372.] In this passage, he uses the French word répondre, by which he would seem to intimate, that the tenth or hundredth part of the commodities is equal in exchangeable value to the tenth or hundredth part of the money. But whether this was Montesquieu’s idea or not, it is of little consequence, as it follows necessarily from his fundamental principle, that the whole money in circulation is either equal in value to the whole commodities, or that it is equal to some determinate part, such as a half, &c., and that this proportion never varies. Unless we admit this conclusion, we must reject the general principle, that the price of commodities varies proportionally with the quantity of money. The truth is, that it is not an easy matter to put any precise or intelligible interpretation on the language which has been employed by Montesquieu, and those who have followed him on this subject. They tell us that the money represents a commodity; that it is the sign of the commodity; that it answers to the commodity. These are expressions which, if they have any determinate meaning, seem to imply, that the whole of the money is equal to the whole of the commodity, the half to the half, and so on in proportion. If this be not the meaning of these expressions, when introduced in order to prove or illustrate the principle, that prices must bear relation to the quantity of money, what other interpretation can be put upon them?
“Were a statesman,” says Sir James Steuart, “to perform the operation of circulation and commerce, by calling in, from time to time, all the proprietors of specie in one body, and all those of alienable commodities, workmen, &c., in another; and were he, after informing himself of the respective quantities of each, to establish a general tariff of prices, according to our author’s [Hume’s] rule; this idea of representation might easily be admitted, because the particles of manufactures would then seem to be adapted to the pieces of the specie, as the rations of forage for the horses of an army are made larger or smaller, according as the magazines are well or ill provided at the time; but has this any resemblance to the operations of commerce?”*
It is indeed wonderful how much this subject has been perplexed by the use of words that are indefinite or equivocal in their meaning. Coin has been called a representation; and because it is a representation, it must bear an exact proportion to the thing represented. And since in some particular examples this representation has been found to hold, the rule has been made general. If, for instance, a merchant has £1000 worth of grain, the thousandth part of the commodity is said to be equivalent to the thousandth part of the sum, because both are determinate in their quantity. But the parcels of this corn, though exactly proportioned to the quantities of money, do not draw their value from this proportion, but from the total value of the whole mass; a value which is determined, not by the amount of the specie in the country, but by the complicated operations of competition. To call coin a representation of commodities and labour, because the possession of the one commands the enjoyment of the other, is plainly an abuse of language. Coin, indeed, by being the established medium of exchange, may be regarded as a universal equivalent. But it is not the only equivalent for things alienable; for although it were banished altogether, alienations and exchanges would still continue, though in a more inconvenient form. And even at present this takes place in many instances, as where a peasant receives meat and clothes as an equivalent for personal service.
Why, then, should coin be considered as the representation of all the manufactures and industry of a country more than any other equivalent? If it did represent or answer to them, in the only sense in which the proposition seems intelligible, it would follow that “every commodity of a country,” as Sir James Steuart observes, “should be sold, like the parcel of grain in the foregoing example, by the rule of three.”* If the proposition, indeed, be supposed to imply no more than this, that the value of every commodity is reckoned in pounds, shillings, and pence, the word representation is not inaptly employed. But in this sense the proposition is nugatory, and altogether foreign to the present question.
It is not, however, in considering coin as the only equivalent for things vendible, that the principal fault of this theory consists. When stripped of equivocal language, it will be found necessarily to involve the following supposition: that as in every bargain of buying and selling, the price paid is equivalent to the thing bought,—therefore, for everything bought, there must exist a sum of money of equal value; a proposition of which the fallacy is obvious, as it overlooks completely that virtual multiplication of the quantity of money which arises from its circulation. It takes for granted that money has been employed which was never given in payment before, and never will be given again; a supposition which is contrary to one of the most familiar and indisputable facts, that a guinea will pass through many hands in a day, and in the course of a year may pay for a hundred times its value in commodities. It may be proper to illustrate this idea a little more fully, because, familiar as the fact is, it leads to consequences which have not always been attended to, in discussing the question now under consideration.
In Mr. Pinto’s Treatise on Circulation and Credit, it has been shewn with much ingenuity, how a quick circulation makes money go far in exchanges. And the following anecdote is mentioned by this very well-informed writer as an illustration:—“Pendant le siège de Tournay en 1745, et quelque temps auparavant, la communication étant coupée, on était embarrassé, faute d’argent, de payer le prêt à la Garnison. On s’avisa d’emprunter des Cantines la somme de 7000 florins. C’était tout ce qu’il y avoit. Au bout de la semaine les 7000 florins étaient revenus aux Cantines, où la même somme fut empruntée encore une fois. Cela fut répété ensuite jusqu’à la reddition pendant sept semaines, de sorte que les mêmes 7000 florins firent l’effet de 4900 florins.”* It was, therefore, with very good reason, that Bishop Berkeley long ago proposed the following query, “Whether less money swiftly circulating be not in fact equivalent to more money slowly circulating?”†
From these observations it seems evident, that the quantity of money and notes in circulation, must bear but a small proportion to the value of goods to be bought and sold, and that this proportion must vary according to the quickness with which the money circulates or shifts from one hand to another. According to Mr. Pinto, there is not in the whole world half the silver coin which would pay all the expenses of Paris for a single year, if the same piece were never to change its possessor but once.
In order to illustrate this subject a little farther, I shall suppose that a labouring man gains ten shillings a week, which he receives always on Saturday, and that he spends proportionally through the week these ten shillings on his family, so as to have no money in his pocket next Saturday. This man may be said, on a medium, to be possessed of five shillings; and a hundred men in this situation may be said to be in possession of £25. This is all they have used, though they have each of them spent ten shillings a week.
I make a second supposition, that each of these men lives on credit; that his ten shillings are spent by the time they are earned; and that every man pays his debt when he receives his weekly wages. In this case, the money may never have been a single hour in their hands; and it is a chance of a hundred to one, if they are masters of twenty shillings amongst them; and yet each of them, as before, spends ten shillings a week.
I have only another supposition to make, that each of these hundred labourers will live at the same rate as formerly; that they ask no credit; and that they are paid their wages once a year. They will thus receive at once £26; which, having no other use for their money, they will gradually spend on their families in the course of a year, at the rate of ten shillings a week. It is evident, that these men will at a medium be possessed of £13 a piece, and that their whole money will be equal to £1300; though their wages and consumption are the same as those of a hundred men who could not produce twenty shillings among them.
The obvious inferences from these suppositions are, firstly, that £25 with a quick circulation, will go as far as £1300 with a slow circulation; secondly, that even where the circulation is equally quick, £1 with credit will purchase as much as £25 without credit; and, thirdly, that as both the circulation and quantity of money may vary in consequence of a variety of causes, both natural and moral, it is extremely improbable that the money in circulation should always bear a fixed and invariable proportion to the value of all the commodities used in commerce. Yet it is demonstrable, that if the price of commodities bears a constant proportion to their total amount, as Mr. Hume and Montesquieu have both maintained, the whole amount of the commodities must either be equal to the whole money, or bear some fixed and invariable proportion to it.
As a farther proof of the fallaciousness of the reasonings formerly quoted from Montesquieu, it may be worth while to take notice of some remarkable facts which have been preserved with respect to prices among the ancients. These facts will exhibit a striking contrast to the state of modern Europe, and will, I hope, throw some additional light on the subject under discussion, the simple structure of society in the ancient world enabling us to trace whatever relation subsists between the quantity of money and its exchangeable value, more easily than when it is affected by such a complication of circumstances, as operate so powerfully on that order of things which falls under our observation. The same facts will afford an additional illustration of what I have already so often remarked concerning the essential changes which, in modern Europe, trade, and industry, and the freedom of the lower orders, have produced on the circumstances of mankind.
“It is a question with me,” says Sir James Steuart, “whether the mines of Potosi and Brazil have produced more riches to Spain and Portugal than the treasures heaped up in Asia, Greece, and Egypt, after the death of Alexander furnished to the Romans, during the two hundred years which followed the defeat of Perseus and the conquest of Macedonia.”* Soon after this inundation of wealth, the Roman republic went to destruction; and a succession of the most prodigal princes ever known in history succeeded each other for two hundred years; giving all the circulation to these treasures which was compatible with the actual state of commerce at the time. It is, however, extremely remarkable, that while in consequence of the extravagance of the Romans, the prices of superfluities rose to an excessive height, those of necessaries kept astonishingly low. Of this the most satisfactory evidence is produced by Dr. Wallace, in his Dissertation on the Numbers of Mankind; and by Dr. Arbuthnot in his Tables of Ancient Coins.
In times somewhat earlier, before this great influx of money, the cheapness of the necessaries of life was much greater. According to Polybius, the Sicilian medimnus of wheat was even in his time sold commonly in some parts of Italy at four oboli, and the same quantity of barley for two: at which rate, if we admit Dr. Wallace’s computation, the English quarter of wheat would have sold at a price equivalent to about fifteen pence. Polybius informs us farther, that there was such plenty of provisions in the north of Italy at that time, that a traveller was well entertained at an inn with all necessaries, and seldom paid more than a quarter of an obolus, equal to a third of a penny. Long before this period, however, immense prices had been paid for things merely ornamental; and the plenty of money could not fail to be great.
But afterwards, the contrast between the extravagance of the rich, and the simple manners of the people in general, became far more conspicuous under Augustus. In illustration of this, I shall point out a few facts, taken at random from Dr. Arbuthnot’s work on Ancient Coins, Weights, and Measures. Before proceeding to these, I shall just mention that the debts of Julius Cæsar, before he had been in any public office at Rome, amounted to 1300 talents, a sum which Dr. Arbuthnot estimates at £221,875 sterling. According to a Latin translation of Appian, the debts of the same person, before he held any foreign command, amounted to £2,000,000 sterling. A Greek manuscript has a different reading, and states them at half this sum. But, on either supposition, the fact is sufficient to convey an idea of the quantity of the precious metals which then existed in Rome; for as great debts are the effect of great credit, so they are an indication of great riches. Æsopus the player, as noticed by Arbuthnot, spent a sum equal to £4000 sterling on a single dish; Vitellius the Emperor consumed upon one supper a sum equal to £87,000 sterling, and in the course of seven months that he continued Emperor, spent upon eating and drinking a sum amounting to upwards of £4,000,000 sterling.
I have mentioned these facts, chiefly to have an opportunity of introducing a most extraordinary circumstance, that nearly about the same time when the debts of Julius Cæsar amounted to the enormous sum stated above, Pomponius Atticus, who lived with great hospitality, and even with some degree of simple elegance, associating with all the first characters in Rome, did not spend more than £9, 13s. 9d. a month, or in the whole year £116, 5s. On this point we have the decisive evidence of Cornelius Nepos, in the following remarkable passage:—“Nec hoc præteribo, (quanquam nonnullis leve visum iri putem,) cum imprimis lautus esset Eques Romanus, et non parum liberaliter domum suam omnium ordinum homines invitaret; scimus non amplius, quam terna millia aeris, peræque in singulos menses, ex Ephemeride eum expensum sumtui ferre solitum. Atque hoc non auditum sed cognitum prædicamus. Sæpe enim propter familiaritatem, domesticis rebus interfuimus.”*
These facts appear to me to illustrate strongly the essential difference between the state of society in ancient and modern times. In truth, the circulation of money among the Romans had little or no resemblance to what is now called circulation in our systems of Political Economy. Fortunes were then made by corruption, fraud, and plunder, instead of trade and regular industry. The consequence was, that there was no relation whatever between the prices of articles ministering to the desires of the great, and of articles subservient to the necessities of the poor. It is to be observed, too, that in the curious examples collected by Dr. Arbuthnot, of such articles as brought the most extravagant prices, we only find those which could not be multiplied in proportion to the demand. These prices, therefore, arose not from the abundance of money, but from the impossibility of suiting the supply to the market. The cheapness of necessaries did not proceed from their plenty, but from the small number of individuals who were led by their situation to purchase them. As none who were fed by the labour of slaves, or on grain distributed gratuitously, had any occasion to go to market, the competition must have been confined to a comparatively inconsiderable portion of the community. The manner, too, in which the market was then provided, must be taken into account. It was supplied partly by the surplus corn produced on the lands of great men, laboured by slaves, who, being fed on the lands, the surplus cost a mere trifle; and as the number of buyers was very small, this surplus must necessarily have been sold very cheap. Besides, the grain distributed among the people must have kept down the market, as a part of it must have sometimes been superfluous to those who received, and consequently must have come to be sold in competition with that which was raised at private expense.
In judging of the very low prices of grain in our own country some centuries ago, similar considerations must be taken into account. A very large proportion of the inhabitants then drew their subsistence directly from the soil, and consequently, the demand for grain in the markets must have been comparatively inconsiderable. In such a state of society, the demand must have been proportioned, not to the consumers, but to the buyers.
Shall we, therefore, say, that the quantity of money in a State has no effect whatever on price? That it does not vary with it proportionally, and that in estimating its effects on the commercial system, the rate of circulation must always be combined with the amount of the circulating mass, is a proposition abundantly evident. Much, too, must depend on the manner in which the money is distributed, among the different classes of the community, and in various other circumstances connected with the condition and habits of the people, of which it is easy to perceive the general influence, but which it is impossible to subject to calculation in accounting for particular phenomena. It does not, however, follow from this as a consequence, that the relative proportion of money and commodities, though not the only cause which regulates prices, may not, in certain circumstances, operate on them very powerfully, how difficult soever it may be from the extreme complacency of the subject, to trace the extent of its influence.
A distinction of Mr. Smith’s relative to this question is extremely worthy of attention, though it may be doubted whether it authorizes all the important consequences which he supposes it to involve.
“The quantity of the precious metals may increase in any country from two different causes: either, first, from the increased abundance of the mines which supply it; or secondly, from the increased wealth of the people from the increased produce of their annual labour. The first of these causes is no doubt necessarily connected with the diminution of the value of the precious metals; but the second is not.
“When more abundant mines are discovered, a greater quantity of the precious metals is brought to market, and the quantity of the necessaries and conveniences of life for which they must be exchanged being the same as before, equal quantities of the metals must be exchanged for smaller quantities of commodities. So far, therefore, as the increase of the quantity of the precious metals in any country arises from an increased abundance of the mines, it is necessarily connected with some diminution of their value.
“When, on the contrary, the wealth of any country increases, when the annual produce of its labour becomes gradually greater and greater, a larger quantity of coin becomes necessary in order to circulate a greater quantity of commodities; and the people, as they can afford it, as they have more commodities to give for it, will naturally purchase a greater and a greater quantity of plate. The quantity of their coin will increase from necessity, the quantity of their plate from vanity and ostentation, or from the same reason that the quantity of fine statues, pictures, and of every other luxury and curiosity, is likely to increase among them. But as statuaries and painters are not likely to be worse rewarded in times of wealth and prosperity, than in times of poverty and depression, so gold and silver are not likely to be worse paid for.”* After illustrating at some length this remark, Mr. Smith states, that “From about 1570 to about 1640, during a period of about seventy years, the variation in the proportion between the value of silver and that of corn held a quite opposite course. Silver sunk in its real value, or would exchange for a smaller quantity of labour than before; and corn rose in its nominal price, and instead of being commonly sold for about two ounces of silver the quarter, or about ten shillings of our present money, came to be sold for six and eight ounces of silver the quarter, or about thirty or forty shillings of our present money.”†
On this distinction Mr. Smith founds his reply to Mr. Hume’s celebrated argument against banks and paper credit. “These,” says Mr. Hume, “render paper equivalent to money, circulate it throughout the whole state, make it supply the place of gold and silver, raise proportionably the price of labour and commodities, and by that means either banish a great part of those precious metals, or prevent their farther increase. What can be more short-sighted than our reasonings on this head? We fancy, because an individual would be much richer, were his stock of money doubled, that the same good effect would follow were the money of every one increased; not considering that this would raise as much the price of every commodity, and reduce every man in time to the same condition as before. It is only in our public negotiations and transactions with foreigners, that a greater stock of money is advantageous; and as our paper is there absolutely insignificant, we feel, by its means, all the ill effects arising from a great abundance of money, without reaping any of the advantages.
“Suppose that there are twelve millions of paper which circulate in the kingdom as money, (for we are not to imagine that all our enormous funds are employed in that shape,) and suppose the real cash of the kingdom to be eighteen millions: Here is a State which is found by experience to be able to hold a stock of thirty millions. I say, if it be able to hold it, it must of necessity have acquired it in gold and silver, had we not obstructed the entrance of these metals by this new invention of paper. Whence would it have acquired that sum? From all the kingdoms of the world. But why? Because, if you remove these twelve millions, money in this State is below its level, compared with our neighbours; and we must immediately draw from all of them, till we be full and saturate, so to speak, and can hold no more. By our present politics we are as careful to stuff the nation with this fine commodity of bank-bills and chequer-notes, as if we were afraid of being overburthened with the precious metals.
“It is not to be doubted, but the great plenty of bullion in France, is in a great measure owing to the want of paper-credit. The French have no banks: merchants’ bills do not there circulate as with us: usury or lending on interest is not directly permitted; so that many have large sums in their coffers: great quantities of plate are used in private houses; and all the churches are full of it. By this means, provisions and labour still remain cheaper among them, than in nations that are not half so rich in gold and silver. The advantages of this situation, in point of trade, as well as in great public emergencies, are too evident to be disputed.”*
In opposition to this doctrine, Mr. Smith labours to prove, that “the whole paper money of every kind which can easily circulate in any country, never can exceed the value of the gold and silver of which it supplies the place, or which, the commerce being supposed the same, would circulate there if there had been no paper money.”* A few pages after Mr. Smith proceeds to an examination of Mr. Hume’s doctrine in the following words:—
“The increase of paper money, it has been said, by augmenting the quantity, and consequently diminishing the value of the whole currency, necessarily augments the money price of commodities. But as the quantity of gold and silver, which is taken from the currency, is always equal to the quantity of paper which is added to it, paper money does not necessarily increase the quantity of the whole currency. From the beginning of the last century to the present time, provisions never were cheaper in Scotland than in 1759, though, from the circulation of ten and five shilling bank-notes, there was then more paper money in the country than at present. The proportion between the price of provisions in Scotland and that in England, is the same now as before the great multiplication of banking companies in Scotland. Corn is, upon most occasions, fully as cheap in England as in France; though there is a great deal of paper money in England, and scarce any in France. In 1751 and in 1752, when Mr. Hume published his Political Discourses, and soon after the great multiplication of paper money in Scotland, there was a very sensible rise in the price of provisions, owing, probably, to the badness of the seasons, and not to the multiplication of paper money.
“It would be otherwise, indeed, with a paper money consisting in promissory notes, of which the immediate payment depended, in any respect, either upon the good-will of those who issued them, or upon a condition which the holder of the notes might not always have it in his power to fulfil, or of which the payment was not exigible till after a certain number of years, and which in the meantime bore no interest. Such a paper money would, no doubt, fall more or less below the value of gold and silver, according as the difficulty or uncertainty of obtaining immediate payment was supposed to be greater or less; or according to the greater or less distance of time at which payment was exigible.”*
That this reasoning of Mr. Smith involves some very sound and important principles, cannot be disputed. At the same time, I believe, it is now very generally admitted, that it also involves some material mistakes and oversights. The assertion, in particular, that the whole paper money of every kind that can easily circulate in any country, never can exceed the value of the gold and silver of which it supplies the place, is an assumption completely refuted by our actual experience since Mr. Smith’s time. Indeed, if we had had no such experience, it would have been easily susceptible of refutation from a theoretical view of the subject. On this point, however, I shall not now enlarge, as it will again come under our consideration before the completion of these lectures.
Another oversight of still greater consequence, is almost equally manifest, I mean the inattention manifested by Mr. Smith to that remarkable depreciation in the value of money which has taken place during the last century, and more especially during the present reign. To what causes this depreciation is to be ascribed, whether to the substitution of factitious instead of real money, or to the weight of our public burdens, or to both of these circumstances combined, is a different question, on which I shall afterwards hazard some remarks. But the fact is too obvious to the most careless observer to admit of a moment’s controversy. The truth seems to be, that Mr. Smith has been led to his general conclusion, by too partial attention to the price of corn as a standard of the value of money. He did not sufficiently reflect on the effects of an extended and improved agriculture in preventing an increase of the price of grain, in comparison with that of other commodities. He was farther confirmed in his opinion by the partial view which he took of the nature of paper-credit, already noticed. Proceeding on the supposition that factitious money could only supply the place of that quantity of gold and silver which would otherwise have circulated in its stead, he could perceive no possible way in which it could have any tendency to depreciate the value of money; and as the best information which he could obtain, satisfied him, that the annual supply of bullion from America did not materially exceed the annual consumption, it appeared to him, as a necessary consequence, that the common complaints of a depreciation in the value of money were altogether founded in ignorance and prejudice.
During the eventful interval which has elapsed since the publication of the Wealth of Nations, the question concerning the effects of paper currency on prices has assumed completely a new aspect, inasmuch, that granting all Mr. Smith’s principles in their fullest extent, no fair inference whatever could be drawn from them at all applicable to the present condition of the commercial world; as his whole reasoning on this subject proceeds on the supposition, that the issues of bank-notes are limited by the obligation of paying them in specie on demand. But the problem still remains concerning the effects on prices of a paper currency that is not convertible at pleasure into gold and silver. On this point, however, I shall not at present enlarge.
Having been led to allude to the depreciation of money, I shall avail myself of the opportunity which the subject affords, to mention a circumstance which escaped me yesterday, in treating of the real and nominal prices of commodities.
In the passage which I then quoted, [above, p. 362,] from Mr. Locke, that profound writer observes, that “wheat in this part of the world, (and that grain which constitutes the general food of any other country,) is the fittest measure to judge of the altered value of things in any long tract of time. Therefore, wheat here, rice in Turkey, &c., is the fittest thing to reserve a rent in,” &c.
That this principle of Mr. Locke, although stated by him in terms much too strong and unqualified, contains a great deal of truth and good sense, I formerly remarked; and the utility of the practical rule which it recommends, has been sufficiently confirmed by the experience of those who have had the prudence to adopt it. It is remarked by Mr. Smith, in his Wealth of Nations, that “the rents in England which have been reserved in corn, have preserved their value much better than those which have been reserved in money.” I have introduced this passage from Mr. Smith, merely to do justice to the uncommon foresight of the great man, by whose advice the memorable statute, mentioned by Mr. Smith, was passed, which first introduced a provision of this sort into college leases. This person was Sir Thomas Smith, principal Secretary of State to Edward VI. and Queen Elizabeth; whose merits in this respect cannot fail to rise in our estimation, when we consider how very near he lived to the period when the depreciation of the precious metals first furnished a subject of political discussion. One of his biographers gives an articulate account of this provision.
OF MONEY AS THE STANDARD OF VALUE.
From the reasonings which I have been for some time past engaged in stating, in opposition to Montesquieu and Hume, we were led to conclude, that the prices of goods, more particularly of articles of the first necessity, have much less connexion with the quantity of the precious metals at the time, than these two writers seem to have supposed. For a complete discussion of the subject, I shall refer to the second book of Sir James Steuart’s Political Œconomy, and to the digression concerning the variations in the value of silver and gold, in the eleventh Chapter of the first Book of Mr. Smith’s Inquiry.
The remaining observations which I think it necessary to state, on the money price of commodities, I shall despatch in a very few words; referring to Mr. Smith’s Inquiry for his doctrine concerning the component parts of price in what he calls the natural price of commodities, as distinguished from that which they actually bring in the market. It is sufficient for my purpose to mention one or two of his most important principles.
From an analysis of the price of different articles, Mr. Smith was led to infer, that in every society the price of any commodity resolves itself into one or other, or all of these three following parts: the price of labour,—the rent of land,—and the profits of stock and wages; and in proportion as a commodity is more manufactured, that part of the price which resolves itself into profit and wages, becomes greater in proportion to the other two, &c.
He further observes, that “There is in every society or neighbourhood an ordinary or average rate both of wages and profit in every different employment of labour and stock. This rate is naturally regulated, as I shall show hereafter, partly by the general circumstances of the society, their riches or poverty, their advancing, stationary, or declining condition; and partly by the particular nature of each employment.
“There is likewise in every society or neighbourhood an ordinary or average rate of rent, which is regulated too, as I shall show hereafter, partly by the general circumstances of the society or neighbourhood in which the land is situated, and partly by the natural or improved fertility of the land.
“These ordinary or average rates may be called the natural rates of wages, profit, and rent, at the time and place in which they commonly prevail.”*
Mr. Smith afterwards states, that “The natural price, therefore, is, as it were, the central price, to which the prices of all commodities are continually gravitating. Different accidents may sometimes keep them suspended a good deal above it, and sometimes force them down even somewhat below it. But whatever may be the obstacles which hinder them from settling in this centre of repose or continuance, they are constantly tending towards it.” . . . .
“But though the market price of every particular commodity is in this manner continually gravitating, if one may say so, towards the natural price, yet sometimes particular accidents, sometimes natural causes, and sometimes particular regulations of police, may, in many commodities, keep up the market price, for a long time together, a good deal above the natural price.”†
Abstracting even from these circumstances, there are other causes which may produce the same effect. These Mr. Smith refers to three heads: First, Particular accidents giving one society of men an advantage over others; secondly, Local peculiarities of soil and climate; and thirdly, Particular regulations of police. An illustration of these circumstances would lead me into details inconsistent with my general plan.
With respect to the relative market prices of different commodities, the general principle, I may add, is subject to various important limitations, but they rise or fall according to the scarcity, compared with the demand. In applying this rule, proper allowances must be made for various accidental circumstances. Thus, if there is more grain in a country than supplies the demand, the price will fall because grain is a perishable commodity. In broad cloth, again, if there be more than sufficient for the demand, the price will be less liable to be affected, because it can be longer kept than grain, and at a smaller expense. The truth of the maxim, too, it must be remembered, depends on the supposition that the demand and the quantity destined for the supply are both limited.
Another general principle, which I have already in some measure hinted at, it may not be improper again to notice, as I shall probably refer to it more than once in the course of our future inquiries. Abstracting from legislative interference, and all aids to the indigent, whether legal or voluntary, it seems evident that in a free country, where the lower orders have nothing to depend upon but the fruits of their own industry, a limit is necessarily fixed on the price of articles of the first necessity, by the wages of labour. Mr. Smith has shown, with much ingenuity, that the money-price of labour has a tendency to adjust itself not to the temporary or occasional, but to the average or ordinary price of the necessaries of life, and that the average price of corn is regulated by the value of silver, that is, by the richness or barrenness of the mines which supply the market with that metal. On the other hand, it appears to be, at least, equally clear, that however much the price of corn may vary from year to year, the wages of labour fix a limit beyond which it cannot rise, abstracting from the circumstances already mentioned. On this point, Sir James Steuart reasons thus:—
“The number of the buyers of subsistence, nearly determines the quantity to be sold; because it is a necessary article, and must be provided in a determinate proportion for every one, and the more the sale is frequent, the more the price is determinate. Next, as to the standard; this, I apprehend, must depend upon the faculties of the buyers, and these again must be determined by the extent of those of the greatest number of them; that is to say, by the extent of the faculties of the lower classes of the people. This is the reason why bread, in the greatest famine, never can rise above a certain price; for did it exceed the faculties of the great classes of a people, their demand would be withdrawn, which would leave the market overstocked for the consumption of the rich; consequently, those persons who in times of scarcity are forced to starve, can be such only whose faculties fall, unfortunately, below the standard of those of the great class; consequently, in countries of industry, the price of subsistence never can rise beyond the powers to purchase of that numerous class, who enjoy nothing beyond their physical-necessary; consequently, never to such an immoderate height as to starve considerable numbers of the people, a thing which very commonly happens in countries where industry is little known, where multitudes depend merely upon the charity of others, and who have no resource left so soon as this comes to fail them.
“The faculties, therefore, of those who labour for a physical-necessary, must, in industrious nations, determine the standard value of subsistence, and the value in money which they receive for their work, will determine the standard of their faculties, which must rise or fall according to the proportion of the demand for their labour.”*
I have quoted this passage in Sir James Steuart’s words, because, though somewhat obscurely expressed, it suggests a principle, sound and important; and because it seems, on a superficial view, to be contradicted by facts, which a few years ago fell under our observation. In reality, however, the fact and theory are perfectly consistent, inasmuch as the latter, proceeding on the supposition that the poor have no resources but their own industry, is plainly inapplicable to a state of things where the poor are secured in a legal provision, and where a general spirit of humanity prompts to such exertions as this country never fails to exhibit during the pressure of a scarcity. It must be remembered, too, that the ordinary principles which regulate the prices of necessaries, were, during the late years of dearth, deranged completely by the sudden emission of an immense quantity of paper occasioned by the stoppage of issues of specie at the Bank of England, a circumstance of which I shall have occasion to take particular notice afterwards, and which, therefore, I shall content myself at present with merely mentioning.
On this question, I know, very opposite opinions have been entertained by some writers of high reputation for commercial knowledge. One writer, Mr. Boyd,* overlooking almost entirely the effects of the scarcity occasioned by the bad harvest in 1799, a scarcity demonstrated beyond the possibility of a doubt, and relieved very imperfectly by importations, amounting in twelve months to seven or eight millions sterling;—has ascribed in a pamphlet, which for some time gained a large share of the public attention, the high price of necessaries during the following winter, chiefly to the rapid addition which had been made to the circulating medium. That the augmentation of the quantity of money, or of paper performing the functions of money, has a tendency to depreciate that money or paper, he states, as a principle universally recognised, and as no less invariable in its operation than the law of gravitation.
In opposition to this reasoning, an author of the highest personal respectability, Sir Francis Baring,† and of unquestionable eminence as a commercial politician, has stated it confidently as a first principle, though without offering the slightest proof of it, that bank-notes circulating at par cannot contribute to raise prices by any possible means. Into the discussion of these questions I cannot enter at present; although I must own that the subject does not appear to me to have been exhausted in either of these publications.
One consideration only which I shall endeavour to illustrate very fully in another part of the course, I shall suggest very briefly; that abstracting altogether from the point in dispute between these two writers, the sudden addition made to the circulating medium of this country, about the very period when the scarcity took place, may have operated very powerfully on prices, by a process of which neither of them has taken any notice. In consequence of this addition an increased facility was given to all who possessed credit, to add to the fund of their expenditure, and such as felt their limited incomes inadequate to meet the increasing exigencies of the times, were enabled, by encroaching silently on their capitals, or by anticipating their future resources, to relieve themselves from the pressure of the present moment, and to maintain their former rank in society. Their consumption accordingly, was not diminished to the same extent as it must otherwise have been from absolute necessity, and that economy, which is the natural and most effectual palliative for the evils of scarcity, was thus counteracted in its operation.
This inconvenience, however great as it is, was certainly accompanied with a consequence, on which it is impossible to reflect without satisfaction, although it probably contributed more than any other single cause to enhance the price of necessaries. The circumstance to which I allude is the increased facility which the higher and middling classes thus acquired of enlarging the funds of their charity. That the amount of voluntary contributions was in this manner greatly augmented, cannot, I think, be reasonably denied; and that these, added to the legal provisions for poor, rendered the price of provisions much higher than it otherwise would have been, seems equally indisputable. The competition was thus kept up much beyond what the unassisted means of the poor could have produced; and the operation of those circumstances was prevented which would have limited prices long before they approached that height which they actually reached. Numbers must have been left to perish from want of food; and a melancholy remedy would have been provided against the evils of dearth, by a diminution of the numbers of competitors. But on this subject I shall again have an opportunity of treating before the conclusion of these Lectures.—(End of Interpolation from Notes.)
Having finished the very slight view which our time permitted me to take of money considered as a medium of exchange, and of the principles which regulate its value in relation to that of commodities, I proceeded (at our last meeting) to consider the tendency which this important invention has, to facilitate the accumulation of stock or capital, which Turgot and Mr. Smith have shown to be so intimately connected with the increase of National Wealth; in this respect its effects in promoting the progress of society are no less striking than those which it produces, (as I had occasion formerly to remark,) by facilitating the separation of professions, and the distribution of labour among the different orders of the community.
Before the introduction of gold and silver in trade, undertakings of every kind, but especially those of manufactures and of commerce, must evidently have been extremely confined, on account of the perishable nature of every other species of property which could be employed as a medium of exchange, and the trouble attending the preservation of them. “A great number of those arts,” as M. Turgot observes, “which are indispensable for the use of the most indigent members of society, require that the same materials should pass through many different hands, and undergo, during a considerable space of time, difficult and various operations. Such, for example, is the art of preparing leather for the purposes of the shoemaker. Whoever has seen the work-house of a tanner, must immediately perceive the impossibility of one, or even several indigent persons providing themselves with leather, tan, utensils, &c., causing the requisite buildings to be erected, and procuring the means of their subsistence till such time as their leather can be sold. In this art, and many others, must not those that work have learned the craft in some degree before they begin to exercise it on materials which are not to be obtained without expense? In what manner are the materials to be collected for the manufactory; the ingredients and the necessary tools for their preparation? How shall this multitude of workmen subsist till the commodity comes to market; a multitude of whom none individually could earn his subsistence by the preparation and sale of a single hide? Who shall defray the expenses for the instruction of the apprentices, and maintain them till their labour can be useful? All this, it is manifest, requires the aid of a proprietor of capital, who shall supply the advances necessary for the purchase and preparation of materials, and for the wages of the workmen employed in preparing them. This capitalist, on the other hand, will naturally expect that the sale of the commodity will not only return to him his advances, but will afford an emolument sufficient to indemnify him for what his money would have procured him, if he had turned it towards the acquisition of land; and, moreover, a salary due to his trouble, and attention, and risk. In proportion as the capital returns to him by the sale of his works, he employs it in new purchases for supporting his family, or maintaining his manufactory. By this continual circulation he lives on his profits; accumulating what he can save to increase his stock, and thereby to enlarge his enterprises still farther.”*
Similar observations might be made to illustrate the necessity of advances for lucrative enterprises in commerce, and also in agriculture, wherever the cultivation of land is carried on to a considerable extent.
All such enterprises, therefore, must necessarily have been confined within very narrow limits, till the accumulation of stock was facilitated by the introduction of money; an invention which thus appears to be not only subservient to the prompt circulation of wealth, but to be essentially connected with its production.
Since capitals then are indispensably necessary to all lucrative enterprises, a certain command of stock may be said, in the ordinary course of things, to be implied in every reasonable project for the augmentation of personal property. And it is thus, that according to the common proverb, “Money has the power of begetting money,” [“Money breeds money.”] Hence those industrious individuals who have not adequate funds of their own, will be willing to share the profits of their enterprises with such owners of capital as may agree to trust them with the employment of their stock. On this principle is founded in reason and equity the practice of lending upon interest; or, in other words, the commerce of money. The lender selling the use of his stock, and the borrower buying it, in a manner perfectly analogous to that in which the proprietor of an estate sells, and the farmer who rents it buys or hires the temporary use of the land.
Of this subject I propose to treat at greater length than of some other articles that may appear at first view, of still more fundamental and general importance. My principal reason for doing so is, that it leads to some interesting discussions which continue to divide the opinions of very eminent writers; and which have been less exhausted than most of the questions connected with this part of the course, by the profound and comprehensive speculations of Mr. Smith.
One of the first authors who in this country investigated with success the principles that regulate the rate of interest, was Mr. Hume, in his Political Discourses, published in 1752. Long indeed before his time, political writers had admitted the general maxim, that a low rate of interest was the most certain of all signs of national prosperity; but they seem very generally to have misapprehended the manner in which these two effects are connected. The lowness of interest was ascribed by Locke, Law, and Montesquieu, to the abundance of money, in proof of which they appealed to the fall of interest, through the greater part of Europe, since the discovery of the Spanish West Indies. But this doctrine, as Mr. Hume observes, is contradicted by the most obvious facts. “Interest in Batavia and Jamaica is at ten per cent., in Portugal at six, though these places, as we may learn from the prices of everything, abound much more in gold and silver than either London or Amsterdam.”* The fact is unquestionably as Mr. Hume states it, although the test to which he appeals, in the difference of prices, is not perhaps so conclusive as he appears to have imagined.
As a further presumption against the same doctrine, Mr. Hume remarks, that “Prices have risen about four times since the discovery of the Indies, and gold and silver have probably multiplied much more; but interest has not fallen much above half. The rate of interest, therefore, is not derived from the quantity of the precious metals.”†
The same conclusion to which Mr. Hume is thus led by an induction from facts, is very clearly and concisely deduced by Mr. Smith from a theoretical view of the subject.
“Before the discovery of the Spanish West Indies, ten per cent. seems to have been the common rate of interest through the greater part of Europe. It has since that time in different countries sunk to six, five, four, and three per cent. Let us suppose that in every particular country, the value of silver has sunk precisely in the same proportion as the rate of interest, and that in those countries, for example, where interest has been reduced from ten to five per cent., the same quantity can now purchase just half the quantity of goods which it could have purchased before. This supposition,” continues Mr. Smith, “will not probably be found anywhere agreeable to the truth; but it is the most favourable to the opinion we are going to examine; and even upon this supposition it is utterly impossible that the lowering of the value of silver could have the smallest tendency to lower the rate of interest. If a hundred pounds are in those countries now of no more value than fifty pounds were then, ten pounds must now be of no more value than five pounds were then; whatever were the causes that lowered the value of the capital, the same must necessarily have lowered that of the interest, and exactly in the same proportion. The proportion between the value of the capital and that of the interest must have remained the same, though the rate had never been altered. By altering the rate, on the contrary, the proportion between these two values is necessarily altered. If a hundred pounds now are worth no more than fifty were then, five pounds now can be worth no more than two pounds ten shillings were then. By reducing the rate of interest, therefore, from ten to five per cent., we give for the use of a capital which is supposed to be equal to one half of its former value, an interest which is equal to one-fourth only of the value of the former interest.”*
“High interest,” according to Mr. Hume, “arises from three circumstances;—a great demand for borrowing,—little riches to supply that demand,—and great profits arising from commerce; and these circumstances are a clear proof of the small advance of commerce and industry, not of the scarcity of gold and silver. Low interest, on the other hand, proceeds from the three opposite circumstances: a small demand for borrowing, great riches to supply that demand, and small profits arising from commerce,—circumstances which are all connected together, and proceed from the increase of industry and commerce, not of gold and silver.”† This analysis of Mr. Hume’s seems to be accurate and satisfactory; and I shall accordingly, in the further prosecution of the subject, follow the arrangement which he has adopted, beginning, in the first place, with the causes and effects of a great or small demand for borrowing.
“When a people,” says Mr. Hume, “have emerged ever so little from a savage state, and their numbers have increased beyond the original multitude, there must immediately arise an inequality of property; and while some possess large tracts of land, others are confined within narrow limits, and some are entirely without any landed property. Those who possess more land than they can labour, employ those who possess none, and agree to receive a determined part of the produce. In this manner the society comes to consist of two orders of men, proprietors and cultivators; and a landed interest arises with privileges, and views, and habits, strikingly discriminated from those which belong to the other members of the community. As the spending of a settled revenue is a way of life entirely without occupation, men have so much need of somewhat to fix and engage them, that pleasures, such as they are, will be the pursuit of the greater part of the landholders, and the prodigals among them will always be more numerous than the misers. In a state, therefore, where there is nothing but a landed interest, as there is little frugality, the borrowers must be very numerous, and the rate of interest must bear a proportion to it. The difference depends not on the quantity of money, but on the habits and manners which prevail.”*
This reasoning of Mr. Hume is perfectly just in the main; but the conclusion is perhaps expressed in too unqualified a manner. In a state where there is nothing but a landed interest, it is manifest that whatever the waste and profusion of the proprietors may be, it is scarcely possible that their expense should in general exceed their income, because there are, by the supposition, no articles of luxury in commerce to form an object for their expenditure. Mr. Hume’s reasoning, therefore, seems rather to apply to a country where commerce has made a certain progress, although not a considerable one; such a progress as to excite in the landed interest a taste for the luxuries and vanities of life, without having established a monied interest of sufficient opulence to supply the increased demand for borrowing. And, if I am not mistaken, this view of the subject receives confirmation from a fact mentioned by Mr. Hume himself, in the first edition of his Political Discourses, that about four centuries ago, money in Scotland, and probably in other parts of Europe, was only at five per cent., and afterwards rose to ten before the discovery of the West Indies.
This fact Mr. Hume states, on the authority of an eminent lawyer, who had verified it by an examination of ancient papers and records; and it certainly forms an exception to Mr. Hume’s general proposition, inasmuch as the monied interest in Scotland was still more inconsiderable four centuries ago than towards the end of the fifteenth century. Of its state at the former period, an idea may be formed from the account of Froissart, (who was at Dalkeith in the year 1360,) and who tells us, that “even in the Doulce Escoche, or lowlands, a complete ignorance prevailed of the commonest arts of life. The meanest articles of manufacture, horse-shoes, harness, saddles, bridles, were all imported, ready made from Flanders.” The same author estimates the houses in Edinburgh, then the capital, at four thousand, and tells us that they were small wooden cottages covered with straw. In the reign of Robert II., (about the year 1380,) the inhabitants of the capital are supposed to have hardly exceeded sixteen thousand.1
Before the end of the following century, commerce and luxury had made considerable progress. In a poem, written during the reign of James III., and entitled Tales of the Priests of Peebles, “taverns and dice are reprobated; and a merchant’s cupboard of plate is estimated at three thousand Scottish pounds, or about seven thousand five hundred of modern sterling currency.”2 The same poem complains of the degeneracy of the Peers from the wisdom, virtue, and valour of their ancestors, and that in consequence of their frequent poverty, they endeavoured to replenish their coffers by unworthy marriages with the opulent bastard daughters of priests, or heiresses of merchants, or by selling the right of marriage of their sons to rich commoners.3
In such a state of society it is certainly not surprising that the rate of interest should have risen greatly beyond what it was in times of comparative simplicity; and yet, if Mr. Hume’s conclusion were admitted without any limitation, the case should have been reversed. He seems indeed to have been sensible of this himself; for he remarks, (after stating the fact now under consideration,) that the lowness of the rate of interest in Scotland four centuries ago, was owing to this, that though the lenders were then few, the borrowers were still fewer. This concession, however, is plainly in direct opposition to his general principle; and confirms the necessity of that limitation with which I already said it ought to be adopted.
From what has been now observed, it appears, both a priori, and from the fact, that the rise of interest in Scotland before the discovery of the West Indies, resulted from the first operation of an infant commerce on the manners of a people among whom the national wealth was accumulated chiefly, but not exclusively in the hands of the landed proprietors; whatever opinion, however, we may form on this point, it is equally clear that the demand for borrowing depends on the general state of manners and habits, and not on the quantity of the precious metals.
The case is precisely similar with regard to the second circumstance mentioned in Mr. Hume’s enumeration,—the quantity of stock which exists to supply the demand of the borrowers. This effect also depends on the habits and way of living of the people, not on the quantity of gold and silver. In order to have, in any state, a greater number of lenders, it is not sufficient, nor requisite, that there be great abundance of the precious metals. It is only requisite that the property, or command of that quantity which is in the state, whether great or small, should be collected in particular hands, so as to form considerable sums, or compose a great monied interest. This begets a number of lenders, and sinks the rate at which money may be borrowed; and it evidently depends, not on the quantity of specie, but on particular manners and customs which accumulate a superfluity of specie in the hands of a certain description of individuals.
This description of individuals, too, naturally arises, in the farther progress of society, from the physical circumstances of our condition, combined with our moral constitution. The rude materials of all those objects which minister to our wants, are derived ultimately from the ground; but they are seldom furnished by nature in that form in which they can be applied to immediate use. There must, therefore, beside the cultivators and proprietors of land, be another order of men, who, receiving from the former the rude materials, work them into their proper form, and retain part for their own use and subsistence. In the infancy of society, these contracts betwixt the artisans and the peasants, and betwixt one species of artisan and another, are commonly entered into immediately by the persons themselves, who, being neighbours, are readily acquainted with each other’s necessities, and can lend their mutual assistance to supply them. But when men’s industry increases, and their views enlarge, it is found that the most remote parts of the state can assist each other as well as the more contiguous; and that this intercourse of good offices may connect together in a thousand ways the most different orders of individuals in the most extensive and populous community. Hence the origin of merchants, who serve as agents betwixt those parts of the state that are wholly unacquainted, and are ignorant of each other’s necessities. It is manifest, too, that as the people increase in numbers and industry, the difficulties of their mutual intercourse must increase; and of consequence the business of the agency or merchandise will become so complicated as naturally to divide and subdivide itself into various branches, from the same causes which give rise to the division of labour in the mechanical arts, and to the separation of trades and professions. In all these commercial transactions, it is necessary and reasonable, that a certain part of the commodities should remain with the merchant, to whose industry and skill in facilitating their exchanges, the existence of a great proportion of them is entirely owing; and thus gradually arises and multiplies that order of men, called the Commercial Interest, who have exerted so powerful an influence over the policy and manners of Modern Europe.
I have already illustrated the effects of Manufactures and Commerce in exciting a spirit of Agricultural industry, by leading the husbandman to increase his surplus produce, in order to have something to give in exchange for the articles that minister to his comfort or vanity. Commerce, at the same time, turns to account every particle of the produce of this industry, and instead of allowing it to perish on the spot where it is obtained, circulates it through the state, so as to render it at once an addition to the national stock, and a stimulus to the industry of others. Of this circulation merchants are the great agents and instruments; and as they take a more enlarged and comprehensive survey of the different interests of the community than any other description of men, they acquire a far greater command of the circulating stock. The habits of frugality, too, naturally connected with their education and profession, and that love of money, which is the never-failing consequence of commercial pursuits, render their expenditure less in proportion to their revenue than that of landed proprietors, or even than those of men who follow the more liberal walks of lucrative industry. In this manner, while they open channels for the free circulation of wealth, and thereby increase its quantity, they become themselves basins or reservoirs in which this wealth is locally accumulated. It is on this accumulation of wealth in particular hands, more than on the general wealth of the community, that the supply of stock to satisfy the demand for borrowing depends; and it appears from what has been said, how much both the existence of the stock and its partial accumulations are the consequences of commerce.
It may be said, indeed, that the increase of commerce, if it adds to the number of lenders, adds also to the number of borrowers, or rather that it creates a new order of borrowers, who contract debts, not from necessity, but to increase their capital and enlarge their trade. The observation is just, undoubtedly; but the two circumstances do by no means compensate each other: for, in a great commercial country, there will be always a large proportion of individuals, who, after having acquired a competency by their industry, will be desirous to indulge in ease and indolence; and a still larger proportion of their descendants who, inheriting affluence from their forefathers, will be unwilling to burden themselves with the cares of a laborious profession. Such individuals constitute what is properly called the Monied Interest, in contradistinction not only to the landed interest, but to the trading and manufacturing interests in which the owners themselves employ their own capitals. The growth of this monied interest, or, in other words, the quantity of stock to supply the demand of borrowers, will evidently keep pace with the general increase of capital, that is, with the increase of national stock.1
The stock belonging to the monied interest, it is farther manifest, is not at all regulated by the value of the money, whether paper or coin, which serves as the instrument of the loans. The capitals are, indeed, commonly lent out and paid back in money; and hence the lenders are distinguished by the name of the Monied Interest; but the truth is, (as Mr. Smith remarks,* ) that the money is merely the deed of assignment, (as it were,) which conveys from one hand to another those capitals which the owners do not care to employ themselves. Those capitals may be greater in any proportion than the amount of the money which serves as the instrument of their conveyance; the same pieces of money successively serving for many different loans, as well as for many different purchases. The truth of this observation is sufficiently obvious from what was formerly stated on the subject of Circulation.—[P. 378, seq.]
While the progress of commerce thus creates a monied interest, it undoubtedly adds to the number of borrowers; but, by doing so, it does not necessarily raise the rate of interest. To understand the reason of this, it is of importance to attend to the different effects produced by a demand for money to be spent in consumption, and a demand for money to be employed in trade. The former has, undoubtedly, a tendency to raise the rate of interest; and there is no fixed limit which it may not be conceived to pass, as there is no fixed limit to the extravagance and improvidence of the prodigal. But the case is very different with respect to the latter; for the rate of interest paid by merchants will be always limited by the profits of trade; and the same circumstances which produce an increase in their demand for borrowed money, must necessarily sink these profits, by bringing a greater number of mercantile stocks into competition with each other. It is evident that when the stocks of many rich merchants are turned into the same trade, their mutual competition must tend to lower its profits; and, in like manner, when there is an increase of stock in all the different trades carried on in the same society, the same competition must produce the same effect in them all. It is farther evident, that the præmium given by a merchant for the use of money, will be proportioned to the profit he expects to make by his commercial speculations. And, accordingly, this is the third circumstance mentioned by Hume as a cause of low interest;—low profits arising from commerce.1
As low profits arising from commerce necessarily produce a low rate of interest, so a low rate of interest has a tendency, in its turn, to reduce still more the profits of trade, by inducing many to continue their stock in commerce, in order to derive from it all the advantages which the capitalist has a right to expect when he superintends the employment of his own money. It is owing to this circumstance, that in Holland almost every man is a man of business; for the interest of money is so low, that none but the very wealthiest people are able to live on the revenue which their capital affords. The Dutch carry on trade upon lower profits than any people in Europe; but low as these profits are, they are sufficient to render trade the general and fashionable pursuit in a country, where people of good credit are accustomed to borrow at three per cent., and where Government was able to borrow at two. These two causes, therefore, low profits and low interest, mutually act and react on each other; and they are both of them necessary consequences of an extensive and flourishing commerce. We may add, that, as low profits arise from the increase of commerce and industry, they serve in their turn to the farther increase of commerce, by rendering the commodities cheaper, increasing their consumption, and heightening the industry.
“In this manner,” says Mr. Hume, “if we consider the whole connexion of causes and effects, interest is the true barometer of the state, and its lowness is a sign almost infallible of the flourishing condition of a people. It proves the increase of industry, and its prompt circulation through the whole state, little inferior to a demonstration. And though, perhaps, it may not be impossible but a sudden and a great check to commerce may have a momentary effect of the same kind by throwing so many stocks out of trade, it must be attended with such misery and want of employment to the poor, that, besides its short duration, it will not be possible to mistake the one case for the other.”*
From the reasonings which have been already stated, and which, I must not at present attempt to recapitulate, we were led to conclude with Mr. Hume, (in opposition to the opinions of Locke, Law, and Montesquieu,) that the rate of interest has no necessary connexion with the plenty or scarcity of the precious metals, depending entirely on the habits and manners of a people, more particularly on the state of their commerce and industry. The result of the whole was, that the lowness of interest may be regarded as an almost infallible sign of a flourishing commerce, evincing at once an active spirit of national industry, and a prompt circulation of wealth through all those channels in which it can be employed with advantage.
I shall only take notice farther before leaving this part of the subject, (and the remark may probably appear superfluous, after what has been already stated,) of the two different senses in which the value of money is to be understood in commercial disquisitions. On some occasions this phrase expresses the quantity of the precious metals we give in exchange for commodities: on other occasions, it expresses the proportion between a sum of money, and the interest it bears in the market.
These two different modes of valuing money have, in truth, very little connexion with each other, inasmuch as its exchangeable value in relation to the different articles of trade may be low, while the rate of interest is high, and vice versa. One obvious reason of this (although not the only one) is, that the money brought into the market for the purchase of commodities, is that which is circulated to procure the necessaries and accommodations of life: that which is lent on interest, is what is actually drawn out of circulation to be accumulated into a capital.
I should hardly have thought it necessary to mention this ambiguity in the word value, when applied to money, if it had not escaped the attention of some respectable writers.
In a late publication (for example) on the Corn Trade,1 there are some tables for converting the ancient money of England and of Scotland, into the present sterling money, which tables, we are told, proceed on the two following principles:—
1. In England and in Scotland, at the time of the Conquest, there were twenty shillings in the coinage pound of silver, which continued with very little variation in England, till the year 1347, and in Scotland till 1306; but now, there are sixty-two shillings in the coinage pound of silver in both kingdoms, so that £100 at that time, were equal to £310 of the present money, in point of sale or denomination.
2. Prior to the sixteenth century, the interest or yearly value of money, in both England and Scotland, was about sixteen per cent.; whereas it is now reduced to five per cent.
“Money therefore,” says this author, “being raised or reduced in value according to its yearly legal produce, £100 bearing interest at ten per cent., is equal in value to £200, bearing only five per cent.; and so of other sums in proportion. So that £100 of ancient money, being equal in value to £310 in point of denomination, and money being now worth only five per cent. yearly, therefore the £310, with the interest at sixteen per cent., were equal to £992 of the present money.”
On these principles, accordingly, a laborious table has been constructed, exhibiting the prices of wheat in England from 1223 to 1784; first, in the money of the times; and secondly, in what is supposed to be an equivalent money price at present.
It is sufficiently obvious, that in the observations now quoted, the two meanings of the phrase value of money, which have just been distinguished, are confounded together.
It would be easy to confirm and illustrate the foregoing reasonings by an appeal to facts, as well as to reconcile to them some apparent exceptions which occur in the history of commercial nations. I must, however, at present, confine myself to a few particulars, which seem to me more peculiarly interesting from their connexion with the history of this country, and to one or two anomalous cases which may be supposed, at first view, to contradict our general conclusions.
The first English Act of Parliament in which we find any rate of interest mentioned, is the 37th of Henry VIII., enacted in 1546. This Act prohibits, under severe penalties, all interest above ten per cent., and consequently proves, that before that period, a higher rate of interest had sometimes been taken. In the earlier ages of the English history, all loans of money for interest were regarded as usurious;—a prejudice which prevailed also all over the rest of Europe, and which (as will afterwards appear) is not altogether of modern origin. In the very preamble to this law of Henry VIII., the practice of taking interest is stigmatized as immoral and criminal; and although it authorized it, from political considerations, yet the prejudice continued so strong, that in the following reign (of Edward VI.) the Statute of Henry was repealed, and all interest prohibited. By the 13th of Elizabeth, the Statute of Henry VIII. was revived with additional clauses, still prohibiting the taking of interest above ten per cent. It appears from D’Ewes’s Journal of Queen Elizabeth’s Parliaments, that while this Act was depending in the House of Commons, it occasioned warm debates, and drew from many of the members violent invectives against usury or interest of every kind, as unchristian, detestable, and damnable. It was said to be,—“præter naturam,”—“idem ac hominem occidere,”—“proxima homicidio,” &c. &c.1
Mr. Hume (in the Third Appendix to his History of England) remarks, that “by a lucky accident in language, which has a great effect on men’s ideas, the invidious word usury, which formerly meant the taking of any interest for money, came at this period to express only the taking of exorbitant and illegal interest.” The Act of Queen Elizabeth violently condemns all usury, but permits ten per cent. interest to be paid.
I shall have occasion afterwards to consider the origin of these prejudices against usury, and also to examine the policy of those restrictions which our legislators have thought proper to continue on money loans to the present day. In this inquiry I have referred to the English laws, only as affording a document of the different rates at which money appears to have been actually lent at different periods; for although the legal rate of interest does not with precision determine the market rate, (as it merely fixes the limit which it cannot exceed,) yet as the object of our lawgivers has plainly been to adapt the changes in the legal rate, to that market-rate which would naturally have arisen from the varying circumstances of society, and as the market-rate has been, on the whole, below the legal rate, the progress of our laws affords us sufficient data for comparing the actual rates of interest in England, with the general principles formerly stated.
The Law of Elizabeth authorizing interest under ten per cent., continued in force till the 21st of James I. (1623,) when it was made penal to take above eight per cent. Soon after the Restoration, it was reduced to six per cent., at which rate, by the way, it had been fixed nine years before under the usurpation of Cromwell; and by the 12th of Queen Anne it was farther reduced to five per cent., at which rate it still continues.
It appears, therefore, that since the reign of Henry VIII., a gradual abatement in the rate of interest has accompanied the growing commercial prosperity of the country. The demand for money at that epoch must have been great in consequence of the general spirit of improvement which was rising over the kingdom, and at the same time the ready money accumulated in the coffers of individuals comparatively inconsiderable. The kings of England, both before and after this period, borrowed large sums in Genoa and the Netherlands, and so low was their credit, that beside the exorbitant interest of ten or twelve per cent., they were obliged to make the city of London join in the security.1 It is somewhat curious, that the Act which, in 1623, reduced the interest of money to eight per cent., states in its preamble the declining circumstances of the nation, although it affords itself the most unequivocal of all documents of its advancing wealth; for (as Mr. Chalmers justly remarks) “such laws can never be safely enacted till all parties, the lenders as well as the borrowers, are properly prepared to receive them.” Accordingly, Stowe tells us (speaking of the reign of James VI.) “that it would in time be incredible, were there not due mention made of it, what great increase there is, within these few years, of commerce and wealth throughout the kingdom; of the great building of royal and mercantile ships; of the repeopling of cities, towns, and villages; beside the sudden augmentation of fair and costly buildings.” Nor will this account be suspected of any exaggeration, when we reflect, that during the reign of James the nation enjoyed a longer interval of peace than it has ever done since, no less than twenty-two years of almost uninterrupted tranquillity; a fact which has been alluded to by some historians, as involving a reproach on his glory as a sovereign, although, in truth, it is more than sufficient to expiate all the follies and absurdities which debased his character.
The picture given by Lord Clarendon of the state of England during the first part of the reign of Charles I., is no less flattering. Nor was the progress of the country, although interrupted for a time by the civil wars, retarded on the whole by that event. On the contrary, Mr. Chalmers has remarked, that “these wars, unhappy as they were while they continued, both to king and people, produced in the end the most salutary influences, by bringing the higher and lower ranks closer together, and by continuing in all a vigour of design and activity of practice, that in prior ages had no example.”1
One of the first consequences of real hostilities, was the establishment of taxes, to which the people had seldom contributed, and which produced before their final conclusion, the sum of £95,512,025. In this estimate, indeed, are included the sales of confiscated lands, compositions for estates, and such other more oppressive modes of raising money; but the wealth of the country may be judged of from this, that there were collected by excises only £10,200,000, and by tonnage and poundage £5,700,000. The opulence which industry had been collecting for ages, was thus brought into circulation by means of the tax-gatherer; and the evils resulting from the dormant hoards of country gentlemen, and other descriptions of individuals, remedied, in a great measure, by the liberality with which they contributed to the wants of the sovereign.
In consequence of these and other causes, the legal rate of interest was reduced in 1651 to six per cent. And the same rate was continued by a law of Charles II., passed soon after the Restoration.
The activity and ardour which the civil commotions of the country had excited, began now to be turned to the arts of peace. The several manufactures and new productions of husbandry that were introduced from abroad, before the Revolution, not only formed a new epoch, but evince a vigorous application to the useful arts, in the intermediate period. The common highways were repaired and enlarged, and rivers were deepened for the purposes of water conveyance, while foreign trade was increased by opening new markets, and by withdrawing the alien duties, which had always obstructed the vent of native manufactures.
But above all, says Mr. Chalmers, the change of manners, and the intermixture of the higher and middle ranks by marriages, induced the gentry, and even the younger branches of the nobility, to bind their sons apprentices to merchants, and thereby to ennoble a profession that was before only gainful, to invigorate traffic by their greater capitals, and to extend its operation by their superior knowledge. And accordingly, Child, Petty, and Davenant, agree in asserting that the commerce and riches of England did never, in any former age, increase so fast as in the busy period from the Restoration to the Revolution. From an authentic account of the customs, (referred to by Mr. Chalmers,) it appears that they were more than doubled during this short interval; and we are told by Dr. Davenant, that the tonnage of the merchant ships was, in the year 1688, double of what it had been in 1666; and the tonnage of the Royal Navy, which in 1660 was only 62,594 tons, was in 1688 increased to 101,032 tons.1
Towards the end of King William’s reign, the interest of money began to fall; and it continued so low, even amid the pressures of the subsequent war, that Parliament enacted in 1713, that the legal interest should not rise higher than five per cent. after September 1714. This law continues in force in the present times; and since the period it was enacted, the market rate seems to have been, on the whole, below the legal rate, notwithstanding the effects of the funding system, and of some other accidental circumstances in keeping up the rate of interest. About seven years ago, the Bank of England was in the practice of discounting bills at four per cent. And in the reign of George I., the natural rate of interest fell to three per cent., while the Government seldom borrowed at more than four.2
The effects produced on the market rate of interest by public loans, and more particularly by those high gratuities which, in times of difficulty, Government is under the necessity of giving, are sufficiently evident. But on this subject I shall not enlarge at present; although it is of great importance, not only in consequence of its connexion with the variations of interest in this country, but with those general principles which influence the progress of national improvement.
During the whole period which has been now under our review, from the reign of Henry VIII. till the present century, while the interest of money has been gradually diminishing, the wages of labour (which may be expected always to increase with the increase of national stock) have been continually rising.
Agreeably to the same general principles, we find a small difference in the market rate of interest in the two United Kingdoms, corresponding to their unequal measures of national prosperity. The market rate of interest in Scotland is rather higher than in England, although the legal rate of interest be the same in both. In the latter country, the competition of great and numerous stocks in every branch of trade, must necessarily diminish the profits of the trader; and the diminution is still farther aggravated by that increase in the wages of labour which a superabundance of stock produces. In Scotland, the comparative poverty of the country is accompanied with consequences precisely opposite.
In Ireland the legal rate of interest is six per cent. An attempt was made a few years ago to lower it to five, but without success. I am not acquainted with the arguments which were employed on the opposite sides of the question; but the consideration which appears to have had the chief weight was, that a considerable portion of the stock and capital of the kingdom was English; that the only temptation the proprietors had to lay it out in Ireland was the additional interest paid there, and that if this were reduced the greater part of it would be withdrawn.1
In France, the legal rate of interest has not been always regulated by the market rate, during the course of the present century, but has been, in several instances, violently altered by Government for political purposes. In 1720, it was reduced from five to two per cent. In 1724, it was raised to three and one-third per cent. In 1725, it was again raised to five per cent. In 1766, during the administration of M. Laverdi, it was reduced to four per cent. The Abbé Terray raised it afterwards to the old rate of five per cent. Although, however, the legal rate of interest in France has frequently been lower than in England, the market rate has generally been higher, the ingenuity of borrowers and lenders being employed there as in other countries, to evade the law, where it did not happen to be accommodated to the commercial circumstances of the nation. From this statement of the comparative market rates of interest in France and in England, it would appear that the profits of trade were higher in the former country than in the latter; a conclusion which is strongly corroborated by another well-known fact, that many British subjects have chosen to employ their capitals rather there than at home, notwithstanding the low degree of importance which was attached in France to mercantile opulence. If the foregoing principles concerning interest be just, we must also conclude from these facts, that the accumulation of stock in France was less than in England, or at least, that the national prosperity was not so rapidly advancing; and, accordingly, we find, that the wages of labour were lower, and the condition of the common people greatly inferior, in respect of the comforts and accommodations of life.
In earlier times the case was different. About the period when Elizabeth fixed the rate of interest at ten per cent., Henry IV. of France reduced it from eight and one-third per per cent. (at which it was fixed by Francis I., anno 15221 ) to six and one-half per cent; a fact which Mr. Hume refers to in his History, as evincing the great advance of France above England in commerce about the middle of the sixteenth century. In the Appendix to the twenty-fifth volume of the MonthlyReview, a writer who professes to speak from good information concerning the present state of that kingdom, (1798,) assures us, that the interest of money is from six to seven per cent., all restraints upon usury being now taken away. The same writer tells us, that the wages of labour have in general risen greatly of late, and that in some places the wages of rustic labour have been nearly doubled. These facts, supposing them to be accurately stated, afford no exception to our general principles; for the interest of money appears to have risen in a very inconsiderable proportion when compared with the wages of labour, more particularly when it is considered that, even under the old Government, the market rate of interest was higher than in England. Indeed, there can be little doubt that in our own country, the market rate of interest would be at present six or seven per cent. if the legal restraints were abolished.
If we extend our view to our West Indian colonies, we find the same general principles apply, although the results are somewhat different, in consequence of particular combinations of circumstances. As a new colony must always for some time be more understocked in proportion to the extent of its territory, than the greater part of other countries, the stock which exists, as Mr. Smith has remarked,* is applied to the cultivation only of what is most fertile and most favourably situated, the lands near the sea-shore, and along the banks of navigable rivers—lands, too, which are frequently purchased at a price below the value even of their natural produce. Stock employed in the purchase and improvement of such lands must yield a very large profit, and consequently afford to pay a very large interest. As the colony increases, the profits of stock gradually diminish. When the most fertile and best situated lands have been all occupied, less profit can be made by the cultivation of what is inferior both in soil and situation, and less interest can be afforded for the stock which is employed. In the greater part of our colonies, accordingly, both the legal and the market rate of interest have been considerably reduced during the course of the present century. As riches, improvement, and cultivation have increased, interest has sunk; so that, although still higher than in this part of the world, it is low when compared with what it was at a more early period. It runs in general from six to eight per cent.
But although the rate of interest in these colonies is plainly regulated by the general principles formerly explained, it must be confessed, that it does not appear, on a superficial view, to bear the same relation to the wages of labour which it does in Europe. The truth is, (as Mr. Smith has further observed,* ) that new colonies are not only understocked, in proportion to the extent of their territory, but underpeopled in proportion to the extent of their stock. The rapid accumulation of their stock, at the same time, enables the planters to increase the number of their hands faster than they can find them in a new settlement, and, of consequence, those whom they do find are very liberally rewarded. This combination of high wages of labour and of high profits of stock, is seldom to be found but in the peculiar circumstances of new colonies. And even in these, as improvement goes on, their mutual relation comes to approach more and more to the general theory. Thus, in the West Indies, while the profits of stock have gradually diminished during the last hundred years, the wages of labour continue unabated. The reason, according to Mr. Smith, is obvious, for “the demand for labour increases with the increase of stock, whatever be its profits; and after these are diminished, stock may not only continue to increase, but to increase much faster than before.”† The connexion between the increase of stock, and that for the demand for useful labour, is fully explained by Mr. Smith in that part of his work where he treats of the accumulation of stock.‡ The further illustration of it has no connexion with our present subject.
Another case is mentioned by the same ingenious and profound writer, as affording an apparent exception to the foregoing doctrine; I mean the case of a country whose state has been suddenly altered by the acquisition of new territory, or of new branches of trade. Here “the profits of stock, and with them the interest of money, may rise, even although the country is fast advancing in the acquisition of riches. The stock of the country not being sufficient for the whole accession of business, which such acquisitions present to the different people among whom it is divided, is applied to those particular branches only which afford the greatest profit. Part of what before had been employed in other trades, is of course withdrawn from them, and turned into some of the new and more profitable ones. In all those old trades, therefore, the competition comes to be less than before; and as the market is less fully supplied with the different sorts of goods, their price rises more or less, and yields a greater profit to those who deal in them, and who can therefore afford to borrow at a higher interest. . . . This accession of business, to be carried on by the old stock, must diminish the quantity employed in a great number of particular branches in which the competition being less, the profits must be greater.”* So that, through all the different branches of trade, both old and new, the demand for borrowed money must necessarily yield a higher interest to the lenders.
In Bengal, and the other British settlements in the East Indies, the wages of labour are very low, while the profits of stock and the interest of money are very high. The truth is, that the same cause which lowers the wages of labour, viz., the diminution of the capital stock of the society, or of the funds destined for the maintenance of industry, raises the profits of stock. By the wages of labour being lowered, the owners of what stock remains in the society can bring their goods cheaper to market than before, and at the same time they can sell them dearer, as the market is not so well supplied. These unnatural profits, arising from the ruined state of these countries, afford of consequence a proportionally exorbitant interest. “In Bengal,” according to Mr. Smith, “money is frequently lent to the farmers at forty, fifty, and sixty per cent., and the succeeding crop is mortgaged for the payment. As the profits which can afford such an interest must consume almost the whole rent of the landlord, so such enormous usury must in its turn eat up the greater part of these profits.”* And hence, on the one hand, the rapid accumulation of wealth by our countrymen in that part of the world; and on the other, the oppressed and impoverished condition of the natives.
In a country which had obtained that complete measure of opulence and of population of which its physical advantages admitted, and which at the same time was not on the decline, both the wages of labour and the profits of stock would probably be very low. The country being, by the supposition, fully peopled, the competition for employment would reduce the wages of labour to that minimum which was just sufficient to prevent the race of labourers from diminishing; and the stock being fully adequate to all the business that could be transacted, the competition would be as great, and consequently the rate of profit as low as possible.
It may be doubted, however, whether this hypothetical case was ever realized in its full extent in the history of mankind. At first view, perhaps, China may appear to approach to the description; and undoubtedly it seems to have continued longer in a stationary condition, than any other country with which we are acquainted. It is, however, very well remarked by Mr. Smith, that although China may have acquired that full complement of riches which is consistent with the nature of its laws and institutions, there is the greatest reason to believe that this complement is far short of what its physical advantages might admit under a different system of policy. Of this a judgment may be formed from the contempt in which foreign commerce is held; from the exclusion of foreign vessels from all the ports, one or two excepted; and above all, from the oppressive extortions to which men of small capital are liable from the inferior mandarins. This last circumstance of itself, added to the comparative security of the rich, must establish a monopoly in favour of the latter, and increase greatly the profits of trade. Accordingly twelve per cent. is said to be the common interest of money in China.1 The wages of labour are no higher than what is sufficient for the most scanty subsistence of the labourer, the population being incomparably beyond what the stock engaged in business is able to employ.
In what has now been said, we have considered the riches or poverty of a country as the only causes which influence the rate of interest. It is possible, however, that other adventitious circumstances may operate to the same effect. When the law, for example, does not enforce the performance of contracts, the precariousness of repayment places all debtors in the same situation with persons of doubtful credit, and subjects them to the same usurious conditions. In accounting for the high rate of interest during the earlier periods of the modern history of Europe, this cause ought not to be overlooked.
The same effect takes place in a still greater degree where the law absolutely prohibits interest. Necessity must frequently produce evasions of the law; and in such cases a premium will be expected, not only in proportion to the profits to be made by the use of the money, but to the danger to which the lender is exposed in the event of a discovery.
From the general principles which we have now been endeavouring to illustrate, it is easy to conceive in what manner the prices of commodities may sometimes continue stationary while the wages of labour are progressive; for the same cause which raises the wages of labour, (viz., the increase of national stock,) has a tendency to lower the profits of the merchant, and, consequently, the variations in these two elements of price may so balance each other, as to bring the commodity to the market at the same rate as before.
Before leaving this part of our subject, it may be worth while to add, that the ordinary market price of land is regulated, in every commercial country, by the ordinary market rate of interest. If the return to be expected from vesting a capital in land, were equal to what could be obtained by lending the same sum upon interest, the superior security, together with the other advantages connected with landed property, would induce every person who wished to derive an income from his money without superintending the employment of it himself, to prefer the former species of income to the latter. The truth is, that these advantages are such, as to compensate a certain difference in the pecuniary return, and accordingly the market rent of land may be always expected to fall short of the market interest of money. What the difference between them is, in particular cases, will no doubt depend somewhat on the judgment or fancy of the individual; but it is evident that there are certain limits within which it must be confined. If the pecuniary difference was very great, the market would be glutted with land, its ordinary price would fall, and the balance would be restored. On the other hand, if the advantages of landed property were more than sufficient to compensate the pecuniary difference, everybody would buy land, and the rise in its price would restore the natural proportion between the rent of a capital so employed and the market rate of interest. When interest was at ten per cent., land was commonly sold for ten and twelve years’ purchase. As interest sunk to six, five, and four per cent., the price of land rose to twenty, five-and-twenty, and thirty years’ purchase; so that, in general, the price of land may be expected to vary inversely with the value of money.
In farther illustration of this subject, I may observe, that land, when let on lease, may be considered as so much capital let out by landlords to the farmers; and consequently, a very close analogy must exist between the condition of the capitalist, or landed interest, and that of the properties of disengaged capital, or monied interest. A pecuniary augmentation of rent, however, is not an augmentation of the rent of the capital alone, but of the capital itself, being immediately convertible into property, by a rate determined by the number of years’ purchase which land may be worth in the market. In this respect, too, the same general principles apply to the rent of land, and to the interest of money, any additional annual dividend declared by our chartered companies instantly resolving itself into capital.
This doctrine, at the same time, it is necessary to remark, although just and unquestionable in the main, must be understood with certain limitations. Landed property has many circumstances peculiar to itself, which, by stamping upon it a value independent of the pecuniary returns it affords, prevents its price from being regulated by the same general principles which apply to other articles of commercial speculation. Local causes, for example, may, in particular districts, alter the general proportion of buyers to sellers, and may thus occasion a local rise or fall in the price of land, while the market rate of interest is nearly the same over the whole kingdom.1 In places where thriving manufactures have been established, land has been observed to sell more briskly, and for more years’ purchase than in other districts, for there the number of buyers may be expected to exceed the number of sellers. In such manufacturing districts, the riches of one set of men not arising from the extravagance and waste of another, as it does in other places where men live idly on the produce of their land, the industrious part of the community brings an increase of wealth from a distance, without injuring the interests of their neighbours. And when the thriving tradesman has got more than he can well employ in trade, his next thoughts are to look out for a purchase in the vicinity, where the estate may be under his eye, and may remove neither himself nor his children from the business to which they have been accustomed. The extraordinary demand for land, therefore, in such situations, must occasion an extraordinary enhancement of its price.
In regulating the proportion, too, between the price of land and the value of money, a good deal, it is evident, will depend on the habits of the landed gentry in point of frugality or of dissipation. Where it is fashionable for them to live beyond their income, debts will increase and multiply, and lay them under a necessity, first of encumbering and then of selling their estates. This is generally the cause why men part with their land, for it happens rarely that a clear and unencumbered estate is exposed to sale merely for a pecuniary profit. Mr. Locke remarks, that “there is scarce one in a hundred that thinks of selling his patrimony, till mortgages have pretty well eat into the freehold, and the weight of growing debts force the proprietor, whether he will or no, out of his possessions. . . . . It is seldom,” he adds, “that a thriving man turns his land into money, to make the greater advantage; the examples of it are so rare, that they are scarce of any consideration in the number of sellers.”
“This I think may be the reason,” continues the same writer, “why, in Queen Elizabeth’s days, (sobriety, frugality, and industry, bringing in daily increase to the growing wealth of the kingdom,) land kept up its price, and sold for more years’ purchase than corresponded to the interest of money, then busily employed in a thriving trade, which made the natural interest much higher than it is now, as well as the legal rate fixed by Parliament.”1
In these observations of Mr. Locke there is much truth and good sense, but I apprehend that they are by no means so strictly applicable to the present state of our country as they were at the time when he wrote. The attachment to landed property is now greatly diminished. The personal consideration arising from it has sunk in the public estimation, in consequence of the progress of commerce and of luxury, and the rank of an individual is measured chiefly by the extent of his expenditure. The extravagance and dissipation of the metropolis, are preferred to the simple and frugal enjoyments of the country; and land, like any other article of property, is valued chiefly in proportion to the revenue it affords. Although, therefore, it still possesses, and must necessarily possess, certain advantages over every other species of property, these advantages are not so great now as they formerly were, and consequently the price of land may be expected to be more accurately regulated by the interest of money, than when the feudal ideas were more prevalent, and the commerce of England comparatively in its infancy.
The question concerning the expediency of subjecting the commerce of money to the regulation of law is to be considered in another part of the course.
In the observations which I have hitherto made on National Wealth, my principal object has been, to illustrate some of the most important elementary principles connected with that article of Political Economy, with a view chiefly to facilitate and assist your studies in the perusal and examination of Mr. Smith’s Inquiry. The greater part of these disquisitions have been entirely of a speculative nature, aiming merely to analyze and explain the actual mechanism of society, without pointing out any of the conclusions, susceptible of a practical application, to which they may lead. A few disquisitions of this last description may, indeed, have insensibly blended themselves with our analytical inquiries; but in these instances I have departed from my general plan, and my only apology is, that the limits of my course left me little prospect of being able to resume, in a systematical order, the consideration of the questions which gave occasion to these digressions.*
[* ] [In two parts. The first was published in 1757, the second in 1758. The work is anonymous: but by Mr. M’Culloch it is ascribed to Joseph Harris, Assaymaster of the Mint; whereas by Watt and the Catalogues in general, the author is called William Harris, D.D.,—which last is, I presume, an error.—Mr. Stewart’s reference will be found in Part I. chap. ii.]
[† ] [Book I. chap. iv.; Vol. I. p. 33, seq., tenth edition.]
[1 ] See Turgot, [Sur la Formation et la Distribution des Richesses, sect. xlv. Œuvres, Tome V. p. 48.]
[* ] [Book I. chap. xi.; Vol. I. p. 268, seq., tenth edition.]
[* ] [Query xxiii.]
[* ] [Essays, Vol. I. Of Money.]
[† ] [Ibid.]
[1 ] [Proceedings of the Association for promoting the Discovery of the Interior Parts of Africa, &c., 1798.] Appendix, p. 86.
[* ] [(First) Considerations on Interest and Money.]
[† ] [First published in 1705.]
[‡ ] [Chap. i. p. 15, seq., Glasgow edition, 1750.]
[* ] [Ibid.]
[† ] [Ibid.]
[* ] [Mr. Stewart probably refers to the following passage:—“It is unjust to raise or allay money, because, then all contracts are paid with a lesser value than was contracted for; and as it has bad effects on home or foreign trade, so no nation practises it that has regard to justice, or understands the nature of trade and money.”—(Money, &c. Chap. iv. p. 79, seq., Edit. 1750.) And so on throughout the chapter.]
[* ] [Chap. vii. p. 188. Edit. 1750.]
[* ] [Wealth of Nations, Book I. chap. v.; Vol. I. pp. 43, 44, tenth edition.]
[† ] [Ibid.]
[* ] [Ibid. pp. 45, 46.]
[* ] [Ibid. p. 44.]
[* ] [Ibid. Book I. chap. vi.; Vol. I. p. 72, tenth edition.]
[* ] [Ibid. chap. v.; Vol. I. p. 48, tenth edition.]
[* ] [Ibid. Book I. chap. v.; Vol. I. p. 49, tenth edition.]
[* ] [See the quotation given above, p. 351.]
[* ] [A Treatise of Money, &c., chap. xi. p. 105, seq.]
[† ] [Part I. chap. i. § 7.]
[* ] [Ibid. § 8.]
[† ] [Ibid. chap. ii. 22.]
[1 ]Spirit of Laws, B. XXII. c. vii., viii.
[* ] [Political Œconomy, Book II. chap. xxviii.; Works, Vol. II. p. 84.]
[† ] [Above, p. 362.]
[‡ ] [Essays, Vol. I. Of Money.]
[* ] [Part I. pp. 21-23.]
[* ] [Political Œconomy, Book II. chap. xxviii.; Works, Vol. II. p. 100.]
[* ] [Ibid. p. 102.]
[* ] [Partie I. p. 34, Note, orig. edit.]
[† ] [Querist, Q. xxii.]
[* ] [Political Œconomy, Book II. chap. xxx.; Works, Vol. II. p. 135, seq.]
[* ] [Excellentium Imperatorum Vitæ, Atticus.]
[* ] [Wealth of Nations, Book I. chap. xi.; Vol. I. p. 294, seq., tenth edition.]
[† ] [Ibid. p. 299, seq.]
[* ] [Essays, Vol. I. On the Balance of Trade.]
[* ] [Wealth of Nations, Book II. chap. ii.; Vol. I. p. 448, tenth edition.]
[* ] [Ibid., pp. 490-492.]
[* ] [Ibid. Book I. chap. vii.; Vol. I. p. 82, tenth edition.]
[† ] [Ibid. pp. 87, 90.]
[* ] [Political Œconomy, Book II. chap. xxviii.; Works, vol. II. pp. 82, 83.]
[* ] [A Letter, &c., on the Stoppage of Issues in Specie at the Bank of England, &c. 1800.]
[† ] [Observations on the Publication of Walter Boyd, Esq., M.P., &c. 1801.]
[* ] [Réflexions sur la Formation et la Distribution des Richesses, lxi.; Œuvres, Tome V. pp. 65-67.]
[* ] [Essays, Vol. I. Of Interest.]
[† ] [Ibid.]
[* ] [Wealth of Nations, Book II. chap. iv.; Vol. II. p. 39, seq., tenth edition.]
[† ] [Essays, Vol. I. Of Interest.]
[* ] [Ibid.]
[1 ] See Pinkerton, [History of Scotland, 1797, Vol. I. p. 148, and p. 25.]
[2 ] Ibid. p. 433.
[3 ] Ibid. pp. 435, 436.
[1 ] Smith, Vol. II. p. 120, Irish Edition. [Wealth of Nations, Book II. chap. iv.; Vol. II. p. 35, seq., tenth edition.]
[* ] [Ibid.]
[1 ] If the foregoing observations be well founded, they lead to a limitation or correction of the terms in which Hume states the First cause he assigns for the low interest of money,—a small demand for borrowing; for this cause operates in the way he mentions, only in a country where the mercantile interest bears but a small proportion to the rest of the community. I would propose, therefore, to add to his words; a small demand for borrowing among those classes who live by their revenue.
[* ] [Essays, Vol. I. Of Interest.]
[1 ] Dirom’s Inquiry, &c. [Lond. 1796.]
[1 ] Postlethwayt, [Dictionary, &c., Art. Interest.]
[1 ] Guthrie, [History, &c.]: Chalmers’s Estimate, p. 29.
[1 ] Eden, [State of the Poor,] Vol. I. p. 146; Chalmers’s Estimate, p. 37, second edition.
[1 ] Guthrie, [History, &c.] p. 311.
[2 ] Chalmers’s Estimate, &c., p. 98.
[1 ] Crumpe’s Essay, &c., [1796,] p. 340. (In pencil.—Mem.—To inquire about the Register of Mortgages in Ireland and in England.—Lord Mansfield.)
[1 ] Sir James Steuart’s Political Œconomy, [Book IV. chap. iv.; Works, Vol. III. p. 156.]
[* ] [Wealth of Nations, Book I. chap. ix.; Vol. I. p. 140, seq., tenth edition.]
[* ] [Ibid.] (In pencil.—Memorandum.—Consult Bryan Edwards.)
[† ] [Ibid.]
[‡ ] [Ibid. Book II., passim.]
[* ] [Ibid. Book I. chap. ix.; Vol. I. p. 142, tenth edition.]
[* ] [Ibid. p. 143.]
[1 ] (In pencil)—Postlethwayt states the rate of interest in China at thirty per cent. See Dictionary, Article, Interest.—Consult Sir G. Staunton.
[1 ] See Locke, Vol. II. p. 20. [(First) Considerations on Interest and Money.]
[1 ] Vol. II. p. 26. [Ibid.]
[* ] [Book II. is concluded in the ensuing Volume.]