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Tuesday April. 12. 1763 - Adam Smith, Glasgow Edition of the Works and Correspondence Vol. 5 Lectures On Jurisprudence [1762]

Edition used:

Lectures On Jurisprudence, ed. R.. L. Meek, D. D. Raphael and P. G. Stein, vol. V of the Glasgow Edition of the Works and Correspondence of Adam Smith (Indianapolis: Liberty Fund, 1982).

Part of: The Glasgow Edition of the Works and Correspondence of Adam Smith, 7 vols.

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Tuesday April. 12. 1763

This system,55 so different from that I have been endeavouring to explain, had been hinted at by preceding writers, but Mr. Mun was the first who formed it into a regular system.56 — Many writers have since adopted it. Mr. Locke has likewise followed it, and made it indeed have somewhat more of a philosophicall air and the appearance of probability by some amendments. He allowed that other commodities as corn, cloth, cattle, etc. were part of the wealth of a nation, but affirmed at the same time that they make but a small or at least an insignificant part of it as being perishable, whereas gold and silver by their durableness became a reall partg of wealth, on a stock of which the nation might rely in all emergencies and by which it would be supported in plenty and opulence.57 But it is evident on the slightest attention that the | perishable quality of all other commodities is so far from making them inferiorh to gold and silver, which can not be consumed, that the very thing which <?makes> them to be of greater real worth is their consumptib<il>ity. ’Tis this whichi gives them their value in the country; and it is even of no consequence whether the thing thus consumed be of home or of foreign produce. The consumption being great occasions a greater quantity to be made. If it be made at home, there is a greater quantity to be made by the people, and thus encourages industry and manufactures. If it be a foreign production, then a greater quantity of some other produce must be raised at home in order to supply the demand by being exchanged for it. The consumption encouraging industry promotes opulence, as every one who is industrious in his way producesj more than he can destroy or consume himself. Cash (or something in the place of it) we will find makes the smallest part of the riches of a country. The highest computation of the cash in Great Britain makes it not above 30 mills; it is | probably less, but can not be more by no computation. This must in every light be but a very small part of the nationall opulence. For as one proof of this, the nationall debt is now about 120 or 130 mills. This must not be a very great burden as the interest of it is paid so easily, which it could not be if the nationall opulence was no more than 30 mills, as it would be a 5th or 6th part of the whole, which could not be raised. 30 mills must undoubtedly bear a very small proportion to the stock or opulence of the country. If we suppose that in G. Britain there are 10 mills of inhabitants, and that each of these consumes to the value of 10£, per annum, the consumption amounts in all to 1000000.k Nor is this computation at all extravagant. For if we consider the immoderate consumption of the wealthy, which could hardly be conceivd to be so great if we did not see it, this will abundantly make up for the others who consume | less. The consumption of children is not nearly so great; but few grown consume less than 10£, and the luxury of the rich affords the greater quantity for the poor by increasing the production. The pay of a soldier is 9 per ann., and he has besides this kept as his arrears nearlyl 3£ for cloaths and lodging, so that his paym consumption amounts to 12£. Others indeed sometimes consume less than this, but the luxury of others fully equalls it. The consumption therefor amounts to 100 mills. The stock which can afford this must <be> far larger. For we can hardly imagine that the stock yields above 10 per cent by the industry of the people. For it is out of this stored stock that all the industrious people are maintain’d till their work be brought to market. The stock therefore which produced this must be about 1000 mills. In this light it is easy to conceive how 20 mills could be spared in the kingdom for the extraordinary | expenses of the war. But if the stock was only 30 mills, we can hardly imagine that they could have spared two thirds of the stock without the greates<t> disturbance. Nor could even 1/5 or 1/6 have been dispensed with; but if the stock be 1000 mills it is no great diminution. In this case the cash is but a small part of the stock. The land tax, when imposedn in King Williams time, when it was supposed to be 4sh. in the pound or 1/5 of the rent, amounted to 2,500,000 in England alone; if this was 1/5, the produce of the rent would be 12½ mills. But it is well known that in most counties the rentalls were given in so much below the real rent, that even then it was not above 2 shillings in the pound. But even in those counties where a just rentall was given in, the land is so much improvd (especially since the bounty on corn was given, which has had the good effect of causing the country to be well cultivated) that it will not be above 1/3o of the rent; | and on the whole it is a sufficient allowance if we say that this which is called 4sh. is equall to two shills in the pound of the reall rent, and hence the rent would be about 25 mills. The rent of the land in England can not be computed at above 1/3 of the produce; it is not in reality so much. In this country indeed, in all the low parts of it, where the rents are at the highest as they generally are at a rack–rent, it will be in that proportion. But as England is a more opulent country the reward of the farmer must be the higher. A man who can not subsist and is at the point of starving will accept of any bargain which will give him a subsistence, however poor. But one who has a stock which alone could maintain him for some years will not accept of one which is not at least tollerably profitable; and as this is the case with many of the farmers in England the rent is seldom so high. But granting that it was 1/3 of the produce, the produce must be worth 75p mills. If we | should set apart for the seed necessary to maintain the crop, and the expence of keeping up the stock of cattle, and all others, 15 mills, which is certainly more than is nec<e>ssary, there remains 60 for the annuall consumption, in cattle, corn, and other produce of the ground. For this 75 millions is the value of the coarse and rough produce of the ground, without any manufacturing; of the grain from the thresher, of the wool from the shearer, of the flax from the puller, and of the cattle from the feeder. Now it is very strange if all the industry bestowed upon the corn to turn it into bread and beer, and the wool and flax to work them into cloths of all the various sorts, does not make them worth 40 millions more, that is, in all 100, so that here theq produce58 cannot be much under 1000 mills.r If again we suppose that every one over head has a 6pence pr. day, which is not too much on the whole, he will need two pence of this for bread and | beer, 2d for butcher meat, and the remaining 2d for other nec<e>ssaries as cloaths, lodging, etc. This <is> much about soldiers pay, without there arrears which is about £9 per ann., and this being taken over head make<s> 99,000,000s £, or we may say 100 mills, for anual consumption in the nation. So that every shape the cash amounting to 30 mills bears a very small proportion to the stock of the whole kingdom of G.B. But it is probably still less than 30 mills. The only method we have to judge of the quantity of money requisite to carry on the circulation is thet ammount of the rent of land estates. This according to the computation of the land tax is but 12½ mills in the half year. The landholders in fact pay all the others. They pay off the rents to clear a mortgage or pay the steward; they again pay the shopkeeper or baker or butcher; and they again pay the great dealer whether at home or abroad who supplies them with goods, or other correspondents. So that the land rent circulates thro the country and pays all the | nation. It is collected in the hands of the tenents, and is paid out again by the landlords who receive it from them. Hence it is that before the term of payment there is a great scarcity of money, but afterwards there is great plenty, and the other terms of payment generally come soon after. Before this term the tenents have been collecting it together, and after that time it is soon diffused thro the kingdom. It must therefore amount at least to £12,500000. It is true the whole is not assembled in the hands of the tenants, and if you should allow as much more for the other transactions, which is more than can be wantedu in that time, it will not be above 25 mills. We cant shew where there is any more employed or to be found at one time, and to shew that more is employed at different times proves nothing. Twelve and 1/2 mills are absolutely necessary for the circulation, and if we consider that of this and the other 12½ allowed to carry on trade in the absence | of it,v a great part, tho not so much as in this country, consists in bank notes, the computation of 28 or even of 20 mills is sufficient; and thew part of the wealth of the kingdom which is in cash is but a very small one compared to the whole stock.

Money therefore can not be that in which the opulence of the state consist<s>. If it had, then the supplies necessary to the war could not have been raised, being 2/3 of the whole stock; but when we compute it at 1000 mills we need not be surprised that it was so little felt. They observe indeed in favours of this system that every one endeavours, when he leaves trade, to sell off his stock and turn it into money; money is the great thing he has in view and desire<s> to have in a considerable quantity. But it is not because he will be any thing the richer on that account, not for the money itself, but that he may | have it in his power to command goods of all the sorts he may want with the greater certainty, from the baker, the butcher, the wine merchant, the clothier, etc. To onex of these he can give £150 and purchase goods for it more easily than he could have done for a quantity of linnen cloth which they did not want. He can in the same manne<r> purchase a land estate with much greater ease, or an annuity. The workman to whom he gives £150 gives him to the amount of 50 or £70 of stuff, 50 he has to his workmen, and the rest he has to himself; and this he could not have done in any other manner than by money. He desires to live at ease and leisure and for this end he desires money, not for its own sake but as it procures him means of a comfortable subsistence. Even the miser, who appear places59 the greatest esteem on the money itself, pleases himself not with the money itself but with the consideration that he has what may be a mean<s> | of abundance when he pleases to employ it as such, and that he is above want or danger of being reduced to necessity. Money is not the ultimate objecty of any mans desires. But as we generally look no farther than money, and commonly say we want money, they have been of opinion that the great quantity of money should be the view of a nation also. This system has occasioned many errors in the practise of this and other nations {which are partly inneffectuall and partly prejudiciall, as they tend to increase that—} in endeavouring to raise the quantity of money, which can be of no service farther than as a medium of circulation; and whatever is above that is a dead stock,60 which had it been sent abroad would have given returns which would have increased the industry and wealth of the nation.

One of these hurtfull regulations which has been practised by many countries is the prohibition on the exportation of coin and bullion. It is, as I before observed, still felony against the king to export coin,61 and this prohibition formerly extended to bullion also. ’Till the reign of King William there were in Britain two sorts of money, | the milled and the unmilled money. The first of these was not liable to be clipped nor impared (as the art of Blank in MS.z , now often practised, was not then known). The other was very much injured in this manner, and reduced in its value perhaps 1/8 part. This raised a great outcry, for which indeed there wasa some reason as one had not the value which the coin ought to have born, and great confusion was like to have ensued. On this the Parliament came to the generalb resolution of calling in all the clipped coin, and giving out the same nominall value of the just weight and standard. This was accordingly done, and the recoinage together with the loss on the clipped money cost the nation 2 millions. The next thing to be done, after having thus supplied the nation with money, was to prevent its being carried abroad; for which purpose[s] the old laws were revived making it felony to export it, and as a naturall consequence of that regulation it was made capitall also to export bullion. This latter regulation was however soon repealed, and bullion was allowed to be exported under | certain regulations and directions.62 This the merchants found absolutely necessary, as otherwise no foreign trade could have been carried on, and therefore petitioned and obtained that it should be abrogated. The prevailing notion however was that the greater quantity of current specie there was in the country, so much the better; they thought they could never have enough of it. For this reason the coinage of bullion was encouraged, being thought to increase its value. For which purpose the mintage was made to cost nothing,63 and any one who carried to the Mint a pound of <gold> got out the whole, without any charges, in 44½ guineas, or a pound of silver in 63 shill., paying nothing but a few shillings to the servants who gave it to him, and even this was alsoc forbidden.—It was imagined that the making it into money increased publick opulence; but a guinea or a shilling is in fact worth no more than the worth of the quantity of bullion equall to the metall containd in it. Hence it came that coind gold can never bear a greater price | than the uncoined ingot of equall weight. For if it was but a sixpence in the pound higher, one would send it to the Mint and turn it into coin; and henced the uncoin’d gold must always be at least equall to the coined. It is generally even above it, as being fitter for exportation and not liable to the danger of incurring any penalty. And as ingots are worse to be got than coin’de metall, notwithstanding of the penalty64 attending it <a> great part of the coin is put into the melting pot, and unless one be an arrant fool it is impossible he can be discovered, as it can be done in an instant. If one is known to have got so much money from the bank, it is nobodies business to enquire nor can they learn how he has disposed of it. For tho it be missing he cant be obliged to tell where he disposed of it. In this manner these regulations are in a great measure inneffectuall. They are however prejudiciall as far as they take effect, for they endeavour to throw more into the channell of circulation than is naturally proper. This can never go above that which is nec<e>ssary for the circulation, nor sink far below it. There can be no fear of want of money, for if their be too little it will | soon be supplied by the exportation of goods, and if too great it will be sent abroad for goods either in specie or melted down. And their is one peculiar conveniency in gold and silver, that being melted down they lose hardly any thing; silver very little and gold nothing at all, being the most fix’d of all metalls tho 20 times melted. The coinage being performd for nothing encourages the melting and exportation of coin as well as bullion. But if a small duty was imposed on the minting of money, this would soon be prevented. An oz of silver or gold when coind is better adapted for exchange than before, and thef coinage is at some charge; it being therefore of more value, it is reasonable that it should have a higher price; and the Master of the Mint might give out the pound of gold not into 44½ guineas, but might turn the gold which uncoind is worth 44½ guineas into 45. There would then be no temptation to melt or export the coin. The Master of the Mintg should not however be allowed to take any price he inclined for the coinage, for it is necessary that he should be the only coiner | and have a monopoly of the coinage. It is therefore necessary that here, as in all other monopolies, there should be a fixed or assized price. By this means the £1400065 which is expended annually on the coinage might be saved and laid out to some other purpose. In this manner the prohibition on the exportation is in a great part inneffectual. It is however in some measure effectuall, and where it is, it not only raises the prices of commodities at home but makes them trade at a dissadvantage. Portugall has little or nothing else to give in exchange for our corn and other goods but money. If therefore the exportation of it be prohibited by high penalties, the Portugese merchant who byes any commodities must pay not only the naturall price and what is requisite for the expense of transportation, but must also give a price on account of the risque the English merchant runns in getting it out of the country.66 Every one who has been there knows the difficulty of getting money out of the country; allmosth all those who are not merchants must be employed in carrying it aboard a ship in their pockets, one by one. If this prohibition was taken off, more of the gold and silver | might be carried out of the kingdom, but then more goods would be brought in, and that in a greater price than the difference of the money, as the dissadvantage they at present byei under would be taken off. They being necessitated to have foreign goods, as they get them cheeper than their own, arej brought by this means to sell cheep and bye dear. The ballance of trade being thus against them they must pay the rest by cash, and if a prohibition be put on the exportation of coin or mettalls the price must be still raised higher, and more money paid for less goods.— —

2dly., every unnecessary accumulation of wealth can serve no good purpose whatever. It is so much dead stock, which brings nothing into the country, hinders the produce at home, and prevents exportation. The money being increased, the prices of goods and of labour must increase proportionably, and industry will be at a stand, as they can not afford to sell cheep and will be undersold by all other nations. There can be no sale abroad; and as all others work cheaper, the goods <of> other countries will be brought in; and if they be prohibited will be smuggled, as no prohibition | will prevent it when their is a great profit. Money will indeed go out of the kingdom in this manner; but still if their be supplies, as the Spanish and Portugese American mines, the mony may still be dammed up to an unnaturall height even altho as much goes out as comes in, as a dam in a river will raise the waters altho as much (after it comes to the head<)> runs over as comes to it. By this means the price of labour will still continue to be unnaturally high, so that all others will undersell them and their manufactures will not even be sufficient to supply themselves, as others can do it cheeper.67 Tho the Spanish wool be absolutely necessary, as far as <has> yet been found, tok the working of fine cloth, yet none has ever been exported from Spain. The quality which we have fondly attributed to our wool, that no cloth could be made without it and that if we could keep it at home we should have all the cloathin<g> trade, seems to be realy the case with the Spanish wool. Yet they have never manufactu<re>d | any for sale. The greatness of the moneyd price of all commodities make[i]s it impossible for them to serve other countries, and they are even supplied by the goods of other countries smuggled in upon them.—This seems to be one great cause[s] amongst many others of the misery of Spain and Portugal. It dimi<ni>shes their industry, lessens the stock, and destroys opulence.

3dly., another bad consequence of this system is improper and absurd encouragement of some trades or branches of trades, and the oppression or prohibition of others. For as some tradesl seem to have a ballance, these must draw money from the kingdom andm diminish the wealth of the kingdom. These were therefore hurtfull and were restraind. Others in which the ballance being for us mony must be brought into the kingdom, were encouraged with great care. The French trade was for this reason discouraged in every branch, for as they have all the productions and manufactures which we have they have no occasions for ours, and besides, having some of both which we[e] have not, money must be sent for these.— | The Portugese again, having none of their own of those which we have, and few besides, pay us all in money, and were therefore much encouraged. They by this means supply us almost solely with fruits and wines, which are not only dearer, as being from a country of less industry and at a greater distance, but are of an inferior quality. The French trade would however be much more beneficiall, as they would afford us much more goods and of greater variety to be wrought up by the industry of the people.

[55 ]i.e. the theory or hypothesis that the opulence of a nation consists in, or can be measured by, its stock of gold and silver. This principle was in all probability discussed and criticized (along the lines of the account in LJ(B) 251–3, below) in the passages missing before 133.

[56 ]England’s Treasure by Forraign Trade (1664).

[g]Replaces an illegible word

[57 ]This account of Locke’s views on this matter is probably based—although not very soundly based—on Civil Government, §§ 46–50.

[h]Replaces ‘liable’

[i]‘whi’ deleted

[j]Reading doubtful

[k]Sic

[l]Reading doubtful

[m]‘is’ deleted

[n]Reading doubtful

[o]Several illegible words deleted

[p]Replaces an illegible figure

[q]Illegible word deleted

[58 ]Sic. Possibly something like ‘the stock which produced this’ was intended.

[r]‘I’ deleted

[s]Replaces ‘99,900,000’

[t]‘value’ deleted

[u]Reading doubtful

[v]‘20 mills’ deleted

[w]Reading doubtful

[x]Reading doubtful

[59 ]‘appear’ is interlined. Probably it was intended to substitute ‘appears to place’ for ‘places’.

[y]Replaces ‘and’

[60 ]Harris, I.51.

[61 ]Not so: Hale, I.655; cf. p. 299 above.

[z]Blank in MS.

[a]Replaces ‘is’

[b]Reading doubtful

[62 ]15 Charles II, c. 7 (1663).

[63 ]18 and 19 Charles II, c. 5 (1666).

[c]Reading of last two words doubtful

[d]‘it’ deleted

[e]‘silver’ deleted

[64 ]6 and 7 William III, c. 17 (1695).

[f]Reading of last two words doubtful

[g]Replaces ‘bank’

[65 ]Reading doubtful. The figure might possibly be ‘64000’, but it is given as ‘about fourteen thousand’ in LJ(B) 260, below.

[66 ]Cf. John Law, Money and Trade Considered (1705), II.25.

[h]‘all’ deleted

[i]Reading doubtful

[j]Illegible word deleted

[67 ]Cf. Hume, ‘Of the Balance of Trade’, Essays, I.333–4.

[k]‘supp’ deleted

[l]‘or branches’ interlined and deleted

[m]Reading doubtful