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Title: An Inquiry into the Nature and Causes of the Wealth of Nations
Author: Adam Smith
Release date: June 1, 2002 [eBook #3300]
Most recently updated: July 3, 2025
Language: English
Other information and formats: www.gutenberg.org/ebooks/3300
Credits: Credits: Colin Muir and David Widger
*** START OF THE PROJECT GUTENBERG EBOOK AN INQUIRY INTO THE NATURE AND CAUSES OF THE WEALTH OF NATIONS ***
An Inquiry into the Nature and Causes of the Wealth of Nations
by Adam Smith
Contents
INTRODUCTION AND PLAN OF THE WORK.
BOOK I. OF THE CAUSES OF IMPROVEMENT IN THE PRODUCTIVE
POWERS OF LABOUR, AND OF THE ORDER ACCORDING TO WHICH ITS PRODUCE IS NATURALLY
DISTRIBUTED AMONG THE DIFFERENT RANKS OF THE PEOPLE.
CHAPTER I. OF THE DIVISION OF LABOUR.
CHAPTER II. OF THE PRINCIPLE WHICH GIVES OCCASION TO THE
DIVISION OF LABOUR.
CHAPTER III. THAT THE DIVISION OF LABOUR IS LIMITED BY
THE EXTENT OF THE MARKET.
CHAPTER IV. OF THE ORIGIN AND USE OF MONEY.
CHAPTER V. OF THE REAL AND NOMINAL PRICE OF
COMMODITIES, OR OF THEIR PRICE IN LABOUR, AND THEIR PRICE IN MONEY.
CHAPTER VI. OF THE COMPONENT PART OF THE PRICE OF COMMODITIES.
CHAPTER VII. OF THE NATURAL AND MARKET PRICE OF COMMODITIES.
CHAPTER VIII. OF THE WAGES OF LABOUR.
CHAPTER IX. OF THE PROFITS OF STOCK.
CHAPTER X. OF WAGES AND PROFIT IN THE DIFFERENT
EMPLOYMENTS OF LABOUR AND STOCK.
CHAPTER XI. OF THE RENT OF LAND.
BOOK II. OF THE NATURE, ACCUMULATION, AND
EMPLOYMENT OF STOCK.
CHAPTER I. OF THE DIVISION OF STOCK.
CHAPTER II. OF MONEY, CONSIDERED AS A PARTICULAR BRANCH
OF THE GENERAL STOCK OF THE SOCIETY, OR OF THE EXPENSE OF MAINTAINING THE
NATIONAL CAPITAL.
CHAPTER III. OF THE ACCUMULATION OF CAPITAL, OR OF
PRODUCTIVE AND UNPRODUCTIVE LABOUR.
CHAPTER IV. OF STOCK LENT AT INTEREST.
CHAPTER V. OF THE DIFFERENT EMPLOYMENTS OF
CAPITALS.
BOOK III. OF THE DIFFERENT PROGRESS OF OPULENCE IN
DIFFERENT NATIONS
CHAPTER I. OF THE NATURAL PROGRESS OF OPULENCE.
CHAPTER II. OF THE DISCOURAGEMENT OF AGRICULTURE IN THE
ANCIENT STATE OF EUROPE, AFTER THE FALL OF THE ROMAN EMPIRE.
CHAPTER III. OF THE RISE AND PROGRESS OF CITIES AND
TOWNS, AFTER THE FALL OF THE ROMAN EMPIRE.
CHAPTER IV. HOW THE COMMERCE OF TOWNS CONTRIBUTED TO THE
IMPROVEMENT OF THE COUNTRY.
BOOK IV. OF SYSTEMS OF POLITICAL ECONOMY.
CHAPTER I. OF THE PRINCIPLE OF THE COMMERCIAL OR
MERCANTILE SYSTEM.
CHAPTER II. OF RESTRAINTS UPON IMPORTATION FROM FOREIGN
COUNTRIES OF SUCH GOODS AS CAN BE PRODUCED AT HOME.
CHAPTER III. OF THE EXTRAORDINARY RESTRAINTS UPON THE
IMPORTATION OF GOODS OF ALMOST ALL KINDS, FROM THOSE COUNTRIES WITH WHICH THE
BALANCE IS SUPPOSED TO BE DISADVANTAGEOUS.
CHAPTER IV. OF DRAWBACKS.
CHAPTER V. OF BOUNTIES.
CHAPTER VI. OF TREATIES OF COMMERCE.
CHAPTER VII. OF COLONIES.
CHAPTER VIII. CONCLUSION OF THE MERCANTILE SYSTEM.
CHAPTER IX. OF THE AGRICULTURAL SYSTEMS, OR OF THOSE
SYSTEMS OF POLITICAL ECONOMY WHICH REPRESENT THE PRODUCE OF LAND, AS EITHER
THE SOLE OR THE PRINCIPAL SOURCE OF THE REVENUE AND WEALTH OF EVERY COUNTRY.
BOOK V. OF THE REVENUE OF THE SOVEREIGN OR COMMONWEALTH
CHAPTER I. OF THE EXPENSES OF THE SOVEREIGN OR COMMONWEALTH.
CHAPTER II. OF THE SOURCES OF THE GENERAL OR PUBLIC
REVENUE OF THE SOCIETY.
CHAPTER III. OF PUBLIC DEBTS.
INTRODUCTION AND PLAN OF THE WORK.
The annual labour of every nation is the fund which originally supplies it
with all the necessaries and conveniencies of life which it annually
consumes, and which consist always either in the immediate produce of that
labour, or in what is purchased with that produce from other nations.
According, therefore, as this produce, or what is purchased with it, bears
a greater or smaller proportion to the number of those who are to consume
it, the nation will be better or worse supplied with all the necessaries
and conveniencies for which it has occasion.
But this proportion must in every nation be regulated by two different
circumstances: first, by the skill, dexterity, and judgment with which its
labour is generally applied; and, secondly, by the proportion between the
number of those who are employed in useful labour, and that of those who
are not so employed. Whatever be the soil, climate, or extent of territory
of any particular nation, the abundance or scantiness of its annual supply
must, in that particular situation, depend upon those two circumstances.
The abundance or scantiness of this supply, too, seems to depend more upon
the former of those two circumstances than upon the latter. Among the
savage nations of hunters and fishers, every individual who is able to
work is more or less employed in useful labour, and endeavours to provide,
as well as he can, the necessaries and conveniencies of life, for himself,
and such of his family or tribe as are either too old, or too young, or
too infirm, to go a-hunting and fishing. Such nations, however, are so
miserably poor, that, from mere want, they are frequently reduced, or at
least think themselves reduced, to the necessity sometimes of directly
destroying, and sometimes of abandoning their infants, their old people,
and those afflicted with lingering diseases, to perish with hunger, or to
be devoured by wild beasts. Among civilized and thriving nations, on the
contrary, though a great number of people do not labour at all, many of
whom consume the produce of ten times, frequently of a hundred times, more
labour than the greater part of those who work; yet the produce of the
whole labour of the society is so great, that all are often abundantly
supplied; and a workman, even of the lowest and poorest order, if he is
frugal and industrious, may enjoy a greater share of the necessaries and
conveniencies of life than it is possible for any savage to acquire.
The causes of this improvement in the productive powers of labour, and the
order according to which its produce is naturally distributed among the
different ranks and conditions of men in the society, make the subject of
the first book of this Inquiry.
Whatever be the actual state of the skill, dexterity, and judgment, with
which labour is applied in any nation, the abundance or scantiness of its
annual supply must depend, during the continuance of that state, upon the
proportion between the number of those who are annually employed in useful
labour, and that of those who are not so employed. The number of useful
and productive labourers, it will hereafter appear, is everywhere in
proportion to the quantity of capital stock which is employed in setting
them to work, and to the particular way in which it is so employed. The
second book, therefore, treats of the nature of capital stock, of the
manner in which it is gradually accumulated, and of the different
quantities of labour which it puts into motion, according to the different
ways in which it is employed.
Nations tolerably well advanced as to skill, dexterity, and judgment, in
the application of labour, have followed very different plans in the
general conduct or direction of it; and those plans have not all been
equally favourable to the greatness of its produce. The policy of some
nations has given extraordinary encouragement to the industry of the
country; that of others to the industry of towns. Scarce any nation has
dealt equally and impartially with every sort of industry. Since the
down-fall of the Roman empire, the policy of Europe has been more
favourable to arts, manufactures, and commerce, the industry of towns,
than to agriculture, the Industry of the country. The circumstances which
seem to have introduced and established this policy are explained in the
third book.
Though those different plans were, perhaps, first introduced by the
private interests and prejudices of particular orders of men, without any
regard to, or foresight of, their consequences upon the general welfare of
the society; yet they have given occasion to very different theories of
political economy; of which some magnify the importance of that industry
which is carried on in towns, others of that which is carried on in the
country. Those theories have had a considerable influence, not only upon
the opinions of men of learning, but upon the public conduct of princes
and sovereign states. I have endeavoured, in the fourth book, to explain
as fully and distinctly as I can those different theories, and the
principal effects which they have produced in different ages and nations.
To explain in what has consisted the revenue of the great body of the
people, or what has been the nature of those funds, which, in different
ages and nations, have supplied their annual consumption, is the object of
these four first books. The fifth and last book treats of the revenue of
the sovereign, or commonwealth. In this book I have endeavoured to shew,
first, what are the necessary expenses of the sovereign, or commonwealth;
which of those expenses ought to be defrayed by the general contribution
of the whole society, and which of them, by that of some particular part
only, or of some particular members of it: secondly, what are the
different methods in which the whole society may be made to contribute
towards defraying the expenses incumbent on the whole society, and what
are the principal advantages and inconveniencies of each of those methods;
and, thirdly and lastly, what are the reasons and causes which have
induced almost all modern governments to mortgage some part of this
revenue, or to contract debts; and what have been the effects of those
debts upon the real wealth, the annual produce of the land and labour of
the society.
BOOK I.
OF THE CAUSES OF IMPROVEMENT IN THE
PRODUCTIVE POWERS OF LABOUR, AND OF THE ORDER ACCORDING TO WHICH ITS PRODUCE IS
NATURALLY DISTRIBUTED AMONG THE DIFFERENT RANKS OF THE PEOPLE.
CHAPTER I.
OF THE DIVISION OF LABOUR.
The greatest improvements in the productive powers of labour, and the
greater part of the skill, dexterity, and judgment, with which it is
anywhere directed, or applied, seem to have been the effects of the
division of labour. The effects of the division of labour, in the general
business of society, will be more easily understood, by considering in
what manner it operates in some particular manufactures. It is commonly
supposed to be carried furthest in some very trifling ones; not perhaps
that it really is carried further in them than in others of more
importance: but in those trifling manufactures which are destined to
supply the small wants of but a small number of people, the whole number
of workmen must necessarily be small; and those employed in every
different branch of the work can often be collected into the same
workhouse, and placed at once under the view of the spectator.
In those great manufactures, on the contrary, which are destined to supply
the great wants of the great body of the people, every different branch of
the work employs so great a number of workmen, that it is impossible to
collect them all into the same workhouse. We can seldom see more, at one
time, than those employed in one single branch. Though in such
manufactures, therefore, the work may really be divided into a much
greater number of parts, than in those of a more trifling nature, the
division is not near so obvious, and has accordingly been much less
observed.
To take an example, therefore, from a very trifling manufacture, but one
in which the division of labour has been very often taken notice of, the
trade of a pin-maker: a workman not educated to this business (which the
division of labour has rendered a distinct trade), nor acquainted with the
use of the machinery employed in it (to the invention of which the same
division of labour has probably given occasion), could scarce, perhaps,
with his utmost industry, make one pin in a day, and certainly could not
make twenty. But in the way in which this business is now carried on, not
only the whole work is a peculiar trade, but it is divided into a number
of branches, of which the greater part are likewise peculiar trades. One
man draws out the wire; another straights it; a third cuts it; a fourth
points it; a fifth grinds it at the top for receiving the head; to make
the head requires two or three distinct operations; to put it on is a
peculiar business; to whiten the pins is another; it is even a trade by
itself to put them into the paper; and the important business of making a
pin is, in this manner, divided into about eighteen distinct operations,
which, in some manufactories, are all performed by distinct hands, though
in others the same man will sometimes perform two or three of them. I have
seen a small manufactory of this kind, where ten men only were employed,
and where some of them consequently performed two or three distinct
operations. But though they were very poor, and therefore but
indifferently accommodated with the necessary machinery, they could, when
they exerted themselves, make among them about twelve pounds of pins in a
day. There are in a pound upwards of four thousand pins of a middling
size. Those ten persons, therefore, could make among them upwards of
forty-eight thousand pins in a day. Each person, therefore, making a tenth
part of forty-eight thousand pins, might be considered as making four
thousand eight hundred pins in a day. But if they had all wrought
separately and independently, and without any of them having been educated
to this peculiar business, they certainly could not each of them have made
twenty, perhaps not one pin in a day; that is, certainly, not the two
hundred and fortieth, perhaps not the four thousand eight hundredth, part
of what they are at present capable of performing, in consequence of a
proper division and combination of their different operations.
In every other art and manufacture, the effects of the division of labour
are similar to what they are in this very trifling one, though, in many of
them, the labour can neither be so much subdivided, nor reduced to so
great a simplicity of operation. The division of labour, however, so far
as it can be introduced, occasions, in every art, a proportionable
increase of the productive powers of labour. The separation of different
trades and employments from one another, seems to have taken place in
consequence of this advantage. This separation, too, is generally carried
furthest in those countries which enjoy the highest degree of industry and
improvement; what is the work of one man, in a rude state of society,
being generally that of several in an improved one. In every improved
society, the farmer is generally nothing but a farmer; the manufacturer,
nothing but a manufacturer. The labour, too, which is necessary to produce
any one complete manufacture, is almost always divided among a great
number of hands. How many different trades are employed in each branch of
the linen and woollen manufactures, from the growers of the flax and the
wool, to the bleachers and smoothers of the linen, or to the dyers and
dressers of the cloth! The nature of agriculture, indeed, does not admit
of so many subdivisions of labour, nor of so complete a separation of one
business from another, as manufactures. It is impossible to separate so
entirely the business of the grazier from that of the corn-farmer, as the
trade of the carpenter is commonly separated from that of the smith. The
spinner is almost always a distinct person from the weaver; but the
ploughman, the harrower, the sower of the seed, and the reaper of the
corn, are often the same. The occasions for those different sorts of
labour returning with the different seasons of the year, it is impossible
that one man should be constantly employed in any one of them. This
impossibility of making so complete and entire a separation of all the
different branches of labour employed in agriculture, is perhaps the
reason why the improvement of the productive powers of labour, in this
art, does not always keep pace with their improvement in manufactures. The
most opulent nations, indeed, generally excel all their neighbours in
agriculture as well as in manufactures; but they are commonly more
distinguished by their superiority in the latter than in the former. Their
lands are in general better cultivated, and having more labour and expense
bestowed upon them, produce more in proportion to the extent and natural
fertility of the ground. But this superiority of produce is seldom much
more than in proportion to the superiority of labour and expense. In
agriculture, the labour of the rich country is not always much more
productive than that of the poor; or, at least, it is never so much more
productive, as it commonly is in manufactures. The corn of the rich
country, therefore, will not always, in the same degree of goodness, come
cheaper to market than that of the poor. The corn of Poland, in the same
degree of goodness, is as cheap as that of France, notwithstanding the
superior opulence and improvement of the latter country. The corn of
France is, in the corn-provinces, fully as good, and in most years nearly
about the same price with the corn of England, though, in opulence and
improvement, France is perhaps inferior to England. The corn-lands of
England, however, are better cultivated than those of France, and the
corn-lands of France are said to be much better cultivated than those of
Poland. But though the poor country, notwithstanding the inferiority of
its cultivation, can, in some measure, rival the rich in the cheapness and
goodness of its corn, it can pretend to no such competition in its
manufactures, at least if those manufactures suit the soil, climate, and
situation, of the rich country. The silks of France are better and cheaper
than those of England, because the silk manufacture, at least under the
present high duties upon the importation of raw silk, does not so well
suit the climate of England as that of France. But the hardware and the
coarse woollens of England are beyond all comparison superior to those of
France, and much cheaper, too, in the same degree of goodness. In Poland
there are said to be scarce any manufactures of any kind, a few of those
coarser household manufactures excepted, without which no country can well
subsist.
This great increase in the quantity of work, which, in consequence of the
division of labour, the same number of people are capable of performing,
is owing to three different circumstances; first, to the increase of
dexterity in every particular workman; secondly, to the saving of the time
which is commonly lost in passing from one species of work to another;
and, lastly, to the invention of a great number of machines which
facilitate and abridge labour, and enable one man to do the work of many.
First, the improvement of the dexterity of the workmen, necessarily
increases the quantity of the work he can perform; and the division of
labour, by reducing every man’s business to some one simple operation, and
by making this operation the sole employment of his life, necessarily
increases very much the dexterity of the workman. A common smith, who,
though accustomed to handle the hammer, has never been used to make nails,
if, upon some particular occasion, he is obliged to attempt it, will
scarce, I am assured, be able to make above two or three hundred nails in
a day, and those, too, very bad ones. A smith who has been accustomed to
make nails, but whose sole or principal business has not been that of a
nailer, can seldom, with his utmost diligence, make more than eight
hundred or a thousand nails in a day. I have seen several boys, under
twenty years of age, who had never exercised any other trade but that of
making nails, and who, when they exerted themselves, could make, each of
them, upwards of two thousand three hundred nails in a day. The making of
a nail, however, is by no means one of the simplest operations. The same
person blows the bellows, stirs or mends the fire as there is occasion,
heats the iron, and forges every part of the nail: in forging the head,
too, he is obliged to change his tools. The different operations into
which the making of a pin, or of a metal button, is subdivided, are all of
them much more simple, and the dexterity of the person, of whose life it
has been the sole business to perform them, is usually much greater. The
rapidity with which some of the operations of those manufactures are
performed, exceeds what the human hand could, by those who had never seen
them, be supposed capable of acquiring.
Secondly, the advantage which is gained by saving the time commonly lost
in passing from one sort of work to another, is much greater than we
should at first view be apt to imagine it. It is impossible to pass very
quickly from one kind of work to another, that is carried on in a
different place, and with quite different tools. A country weaver, who
cultivates a small farm, must lose a good deal of time in passing from
his loom to the field, and from the field to his loom. When the two trades
can be carried on in the same workhouse, the loss of time is, no doubt,
much less. It is, even in this case, however, very considerable. A man
commonly saunters a little in turning his hand from one sort of employment
to another. When he first begins the new work, he is seldom very keen and
hearty; his mind, as they say, does not go to it, and for some time he
rather trifles than applies to good purpose. The habit of sauntering, and
of indolent careless application, which is naturally, or rather
necessarily, acquired by every country workman who is obliged to change
his work and his tools every half hour, and to apply his hand in twenty
different ways almost every day of his life, renders him almost always
slothful and lazy, and incapable of any vigorous application, even on the
most pressing occasions. Independent, therefore, of his deficiency in
point of dexterity, this cause alone must always reduce considerably the
quantity of work which he is capable of performing.
Thirdly, and lastly, everybody must be sensible how much labour is
facilitated and abridged by the application of proper machinery. It is
unnecessary to give any example. I shall only observe, therefore, that the
invention of all those machines by which labour is so much facilitated and
abridged, seems to have been originally owing to the division of labour.
Men are much more likely to discover easier and readier methods of
attaining any object, when the whole attention of their minds is directed
towards that single object, than when it is dissipated among a great
variety of things. But, in consequence of the division of labour, the
whole of every man’s attention comes naturally to be directed towards some
one very simple object. It is naturally to be expected, therefore, that
some one or other of those who are employed in each particular branch of
labour should soon find out easier and readier methods of performing their
own particular work, whenever the nature of it admits of such improvement.
A great part of the machines made use of in those manufactures in which
labour is most subdivided, were originally the invention of common
workmen, who, being each of them employed in some very simple operation,
naturally turned their thoughts towards finding out easier and readier
methods of performing it. Whoever has been much accustomed to visit such
manufactures, must frequently have been shewn very pretty machines, which
were the inventions of such workmen, in order to facilitate and quicken
their own particular part of the work. In the first fire engines {this was
the current designation for steam engines}, a boy was constantly employed
to open and shut alternately the communication between the boiler and the
cylinder, according as the piston either ascended or descended. One of
those boys, who loved to play with his companions, observed that, by tying
a string from the handle of the valve which opened this communication to
another part of the machine, the valve would open and shut without his
assistance, and leave him at liberty to divert himself with his
play-fellows. One of the greatest improvements that has been made upon
this machine, since it was first invented, was in this manner the
discovery of a boy who wanted to save his own labour.
All the improvements in machinery, however, have by no means been the
inventions of those who had occasion to use the machines. Many
improvements have been made by the ingenuity of the makers of the
machines, when to make them became the business of a peculiar trade; and
some by that of those who are called philosophers, or men of speculation,
whose trade it is not to do any thing, but to observe every thing, and
who, upon that account, are often capable of combining together the powers
of the most distant and dissimilar objects in the progress of society,
philosophy or speculation becomes, like every other employment, the
principal or sole trade and occupation of a particular class of citizens.
Like every other employment, too, it is subdivided into a great number of
different branches, each of which affords occupation to a peculiar tribe
or class of philosophers; and this subdivision of employment in
philosophy, as well as in every other business, improves dexterity, and
saves time. Each individual becomes more expert in his own peculiar
branch, more work is done upon the whole, and the quantity of science is
considerably increased by it.
It is the great multiplication of the productions of all the different
arts, in consequence of the division of labour, which occasions, in a
well-governed society, that universal opulence which extends itself to the
lowest ranks of the people. Every workman has a great quantity of his own
work to dispose of beyond what he himself has occasion for; and every
other workman being exactly in the same situation, he is enabled to
exchange a great quantity of his own goods for a great quantity or, what
comes to the same thing, for the price of a great quantity of theirs. He
supplies them abundantly with what they have occasion for, and they
accommodate him as amply with what he has occasion for, and a general
plenty diffuses itself through all the different ranks of the society.
Observe the accommodation of the most common artificer or daylabourer in a
civilized and thriving country, and you will perceive that the number of
people, of whose industry a part, though but a small part, has been
employed in procuring him this accommodation, exceeds all computation. The
woollen coat, for example, which covers the day-labourer, as coarse and
rough as it may appear, is the produce of the joint labour of a great
multitude of workmen. The shepherd, the sorter of the wool, the
wool-comber or carder, the dyer, the scribbler, the spinner, the weaver,
the fuller, the dresser, with many others, must all join their different
arts in order to complete even this homely production. How many merchants
and carriers, besides, must have been employed in transporting the
materials from some of those workmen to others who often live in a very
distant part of the country? How much commerce and navigation in
particular, how many ship-builders, sailors, sail-makers, rope-makers,
must have been employed in order to bring together the different drugs
made use of by the dyer, which often come from the remotest corners of the
world? What a variety of labour, too, is necessary in order to produce the
tools of the meanest of those workmen! To say nothing of such complicated
machines as the ship of the sailor, the mill of the fuller, or even the
loom of the weaver, let us consider only what a variety of labour is
requisite in order to form that very simple machine, the shears with which
the shepherd clips the wool. The miner, the builder of the furnace for
smelting the ore, the feller of the timber, the burner of the charcoal to
be made use of in the smelting-house, the brickmaker, the bricklayer, the
workmen who attend the furnace, the millwright, the forger, the smith,
must all of them join their different arts in order to produce them. Were
we to examine, in the same manner, all the different parts of his dress
and household furniture, the coarse linen shirt which he wears next his
skin, the shoes which cover his feet, the bed which he lies on, and all
the different parts which compose it, the kitchen-grate at which he
prepares his victuals, the coals which he makes use of for that purpose,
dug from the bowels of the earth, and brought to him, perhaps, by a long
sea and a long land-carriage, all the other utensils of his kitchen, all
the furniture of his table, the knives and forks, the earthen or pewter
plates upon which he serves up and divides his victuals, the different
hands employed in preparing his bread and his beer, the glass window which
lets in the heat and the light, and keeps out the wind and the rain, with
all the knowledge and art requisite for preparing that beautiful and happy
invention, without which these northern parts of the world could scarce
have afforded a very comfortable habitation, together with the tools of
all the different workmen employed in producing those different
conveniencies; if we examine, I say, all these things, and consider what a
variety of labour is employed about each of them, we shall be sensible
that, without the assistance and co-operation of many thousands, the very
meanest person in a civilized country could not be provided, even
according to, what we very falsely imagine, the easy and simple manner in
which he is commonly accommodated. Compared, indeed, with the more
extravagant luxury of the great, his accommodation must no doubt appear
extremely simple and easy; and yet it may be true, perhaps, that the
accommodation of an European prince does not always so much exceed that of
an industrious and frugal peasant, as the accommodation of the latter
exceeds that of many an African king, the absolute masters of the lives
and liberties of ten thousand naked savages.
CHAPTER II.
OF THE PRINCIPLE WHICH GIVES OCCASION
TO THE DIVISION OF LABOUR.
This division of labour, from which so many advantages are derived, is not
originally the effect of any human wisdom, which foresees and intends that
general opulence to which it gives occasion. It is the necessary, though
very slow and gradual, consequence of a certain propensity in human
nature, which has in view no such extensive utility; the propensity to
truck, barter, and exchange one thing for another.
Whether this propensity be one of those original principles in human
nature, of which no further account can be given, or whether, as seems
more probable, it be the necessary consequence of the faculties of reason
and speech, it belongs not to our present subject to inquire. It is common
to all men, and to be found in no other race of animals, which seem to
know neither this nor any other species of contracts. Two greyhounds, in
running down the same hare, have sometimes the appearance of acting in
some sort of concert. Each turns her towards his companion, or endeavours
to intercept her when his companion turns her towards himself. This,
however, is not the effect of any contract, but of the accidental
concurrence of their passions in the same object at that particular time.
Nobody ever saw a dog make a fair and deliberate exchange of one bone for
another with another dog. Nobody ever saw one animal, by its gestures and
natural cries signify to another, this is mine, that yours; I am willing
to give this for that. When an animal wants to obtain something either of
a man, or of another animal, it has no other means of persuasion, but to
gain the favour of those whose service it requires. A puppy fawns upon its
dam, and a spaniel endeavours, by a thousand attractions, to engage the
attention of its master who is at dinner, when it wants to be fed by him.
Man sometimes uses the same arts with his brethren, and when he has no
other means of engaging them to act according to his inclinations,
endeavours by every servile and fawning attention to obtain their good
will. He has not time, however, to do this upon every occasion. In
civilized society he stands at all times in need of the co-operation and
assistance of great multitudes, while his whole life is scarce sufficient
to gain the friendship of a few persons. In almost every other race of
animals, each individual, when it is grown up to maturity, is entirely
independent, and in its natural state has occasion for the assistance of
no other living creature. But man has almost constant occasion for the
help of his brethren, and it is in vain for him to expect it from their
benevolence only. He will be more likely to prevail if he can interest
their self-love in his favour, and shew them that it is for their own
advantage to do for him what he requires of them. Whoever offers to
another a bargain of any kind, proposes to do this. Give me that which I
want, and you shall have this which you want, is the meaning of every such
offer; and it is in this manner that we obtain from one another the far
greater part of those good offices which we stand in need of. It is not
from the benevolence of the butcher, the brewer, or the baker that we
expect our dinner, but from their regard to their own interest. We address
ourselves, not to their humanity, but to their self-love, and never talk
to them of our own necessities, but of their advantages. Nobody but a
beggar chooses to depend chiefly upon the benevolence of his
fellow-citizens. Even a beggar does not depend upon it entirely. The
charity of well-disposed people, indeed, supplies him with the whole fund
of his subsistence. But though this principle ultimately provides him with
all the necessaries of life which he has occasion for, it neither does nor
can provide him with them as he has occasion for them. The greater part of
his occasional wants are supplied in the same manner as those of other
people, by treaty, by barter, and by purchase. With the money which one
man gives him he purchases food. The old clothes which another bestows
upon him he exchanges for other clothes which suit him better, or for
lodging, or for food, or for money, with which he can buy either food,
clothes, or lodging, as he has occasion.
As it is by treaty, by barter, and by purchase, that we obtain from one
another the greater part of those mutual good offices which we stand in
need of, so it is this same trucking disposition which originally gives
occasion to the division of labour. In a tribe of hunters or shepherds, a
particular person makes bows and arrows, for example, with more readiness
and dexterity than any other. He frequently exchanges them for cattle or
for venison, with his companions; and he finds at last that he can, in
this manner, get more cattle and venison, than if he himself went to the
field to catch them. From a regard to his own interest, therefore, the
making of bows and arrows grows to be his chief business, and he becomes a
sort of armourer. Another excels in making the frames and covers of their
little huts or moveable houses. He is accustomed to be of use in this way
to his neighbours, who reward him in the same manner with cattle and with
venison, till at last he finds it his interest to dedicate himself
entirely to this employment, and to become a sort of house-carpenter. In
the same manner a third becomes a smith or a brazier; a fourth, a tanner
or dresser of hides or skins, the principal part of the clothing of
savages. And thus the certainty of being able to exchange all that surplus
part of the produce of his own labour, which is over and above his own
consumption, for such parts of the produce of other men’s labour as he may
have occasion for, encourages every man to apply himself to a particular
occupation, and to cultivate and bring to perfection whatever talent or
genius he may possess for that particular species of business.
The difference of natural talents in different men, is, in reality, much
less than we are aware of; and the very different genius which appears to
distinguish men of different professions, when grown up to maturity, is
not upon many occasions so much the cause, as the effect of the division
of labour. The difference between the most dissimilar characters, between
a philosopher and a common street porter, for example, seems to arise not
so much from nature, as from habit, custom, and education. When they came
in to the world, and for the first six or eight years of their existence,
they were, perhaps, very much alike, and neither their parents nor
play-fellows could perceive any remarkable difference. About that age, or
soon after, they come to be employed in very different occupations. The
difference of talents comes then to be taken notice of, and widens by
degrees, till at last the vanity of the philosopher is willing to
acknowledge scarce any resemblance. But without the disposition to truck,
barter, and exchange, every man must have procured to himself every
necessary and conveniency of life which he wanted. All must have had the
same duties to perform, and the same work to do, and there could have been
no such difference of employment as could alone give occasion to any great
difference of talents.
As it is this disposition which forms that difference of talents, so
remarkable among men of different professions, so it is this same
disposition which renders that difference useful. Many tribes of animals,
acknowledged to be all of the same species, derive from nature a much more
remarkable distinction of genius, than what, antecedent to custom and
education, appears to take place among men. By nature a philosopher is not
in genius and disposition half so different from a street porter, as a
mastiff is from a grey-hound, or a grey-hound from a spaniel, or this last
from a shepherd’s dog. Those different tribes of animals, however, though
all of the same species are of scarce any use to one another. The strength
of the mastiff is not in the least supported either by the swiftness of
the greyhound, or by the sagacity of the spaniel, or by the docility of
the shepherd’s dog. The effects of those different geniuses and talents,
for want of the power or disposition to barter and exchange, cannot be
brought into a common stock, and do not in the least contribute to the
better accommodation and conveniency of the species. Each animal is still
obliged to support and defend itself, separately and independently, and
derives no sort of advantage from that variety of talents with which
nature has distinguished its fellows. Among men, on the contrary, the most
dissimilar geniuses are of use to one another; the different produces of
their respective talents, by the general disposition to truck, barter, and
exchange, being brought, as it were, into a common stock, where every man
may purchase whatever part of the produce of other men’s talents he has
occasion for.
CHAPTER III.
THAT THE DIVISION OF LABOUR IS
LIMITED BY THE EXTENT OF THE MARKET.
As it is the power of exchanging that gives occasion to the division of
labour, so the extent of this division must always be limited by the
extent of that power, or, in other words, by the extent of the market.
When the market is very small, no person can have any encouragement to
dedicate himself entirely to one employment, for want of the power to
exchange all that surplus part of the produce of his own labour, which is
over and above his own consumption, for such parts of the produce of other
men’s labour as he has occasion for.
There are some sorts of industry, even of the lowest kind, which can be
carried on nowhere but in a great town. A porter, for example, can find
employment and subsistence in no other place. A village is by much too
narrow a sphere for him; even an ordinary market-town is scarce large
enough to afford him constant occupation. In the lone houses and very
small villages which are scattered about in so desert a country as the
highlands of Scotland, every farmer must be butcher, baker, and brewer,
for his own family. In such situations we can scarce expect to find even a
smith, a carpenter, or a mason, within less than twenty miles of another
of the same trade. The scattered families that live at eight or ten miles
distance from the nearest of them, must learn to perform themselves a
great number of little pieces of work, for which, in more populous
countries, they would call in the assistance of those workmen. Country
workmen are almost everywhere obliged to apply themselves to all the
different branches of industry that have so much affinity to one another
as to be employed about the same sort of materials. A country carpenter
deals in every sort of work that is made of wood; a country smith in every
sort of work that is made of iron. The former is not only a carpenter, but
a joiner, a cabinet-maker, and even a carver in wood, as well as a
wheel-wright, a plough-wright, a cart and waggon-maker. The employments of
the latter are still more various. It is impossible there should be such a
trade as even that of a nailer in the remote and inland parts of the
highlands of Scotland. Such a workman at the rate of a thousand nails
a-day, and three hundred working days in the year, will make three hundred
thousand nails in the year. But in such a situation it would be impossible
to dispose of one thousand, that is, of one day’s work in the year. As by
means of water-carriage, a more extensive market is opened to every sort
of industry than what land-carriage alone can afford it, so it is upon the
sea-coast, and along the banks of navigable rivers, that industry of every
kind naturally begins to subdivide and improve itself, and it is
frequently not till a long time after that those improvements extend
themselves to the inland parts of the country. A broad-wheeled waggon,
attended by two men, and drawn by eight horses, in about six weeks time,
carries and brings back between London and Edinburgh near four ton weight
of goods. In about the same time a ship navigated by six or eight men, and
sailing between the ports of London and Leith, frequently carries and
brings back two hundred ton weight of goods. Six or eight men, therefore,
by the help of water-carriage, can carry and bring back, in the same time,
the same quantity of goods between London and Edinburgh as fifty
broad-wheeled waggons, attended by a hundred men, and drawn by four
hundred horses. Upon two hundred tons of goods, therefore, carried by the
cheapest land-carriage from London to Edinburgh, there must be charged the
maintenance of a hundred men for three weeks, and both the maintenance and
what is nearly equal to maintenance the wear and tear of four hundred
horses, as well as of fifty great waggons. Whereas, upon the same quantity
of goods carried by water, there is to be charged only the maintenance of
six or eight men, and the wear and tear of a ship of two hundred tons
burthen, together with the value of the superior risk, or the difference
of the insurance between land and water-carriage. Were there no other
communication between those two places, therefore, but by land-carriage,
as no goods could be transported from the one to the other, except such
whose price was very considerable in proportion to their weight, they
could carry on but a small part of that commerce which at present subsists
between them, and consequently could give but a small part of that
encouragement which they at present mutually afford to each other’s
industry. There could be little or no commerce of any kind between the
distant parts of the world. What goods could bear the expense of
land-carriage between London and Calcutta? Or if there were any so
precious as to be able to support this expense, with what safety could
they be transported through the territories of so many barbarous nations?
Those two cities, however, at present carry on a very considerable
commerce with each other, and by mutually affording a market, give a good
deal of encouragement to each other’s industry.
Since such, therefore, are the advantages of water-carriage, it is natural
that the first improvements of art and industry should be made where this
conveniency opens the whole world for a market to the produce of every
sort of labour, and that they should always be much later in extending
themselves into the inland parts of the country. The inland parts of the
country can for a long time have no other market for the greater part of
their goods, but the country which lies round about them, and separates
them from the sea-coast, and the great navigable rivers. The extent of the
market, therefore, must for a long time be in proportion to the riches and
populousness of that country, and consequently their improvement must
always be posterior to the improvement of that country. In our North
American colonies, the plantations have constantly followed either the
sea-coast or the banks of the navigable rivers, and have scarce anywhere
extended themselves to any considerable distance from both.
The nations that, according to the best authenticated history, appear to
have been first civilized, were those that dwelt round the coast of the
Mediterranean sea. That sea, by far the greatest inlet that is known in
the world, having no tides, nor consequently any waves, except such as are
caused by the wind only, was, by the smoothness of its surface, as well as
by the multitude of its islands, and the proximity of its neighbouring
shores, extremely favourable to the infant navigation of the world; when,
from their ignorance of the compass, men were afraid to quit the view of
the coast, and from the imperfection of the art of ship-building, to
abandon themselves to the boisterous waves of the ocean. To pass beyond
the pillars of Hercules, that is, to sail out of the straits of Gibraltar,
was, in the ancient world, long considered as a most wonderful and
dangerous exploit of navigation. It was late before even the Phoenicians
and Carthaginians, the most skilful navigators and ship-builders of those
old times, attempted it; and they were, for a long time, the only nations
that did attempt it.
Of all the countries on the coast of the Mediterranean sea, Egypt seems to
have been the first in which either agriculture or manufactures were
cultivated and improved to any considerable degree. Upper Egypt extends
itself nowhere above a few miles from the Nile; and in Lower Egypt, that
great river breaks itself into many different canals, which, with the
assistance of a little art, seem to have afforded a communication by
water-carriage, not only between all the great towns, but between all the
considerable villages, and even to many farm-houses in the country, nearly
in the same manner as the Rhine and the Maese do in Holland at present.
The extent and easiness of this inland navigation was probably one of the
principal causes of the early improvement of Egypt.
The improvements in agriculture and manufactures seem likewise to have
been of very great antiquity in the provinces of Bengal, in the East
Indies, and in some of the eastern provinces of China, though the great
extent of this antiquity is not authenticated by any histories of whose
authority we, in this part of the world, are well assured. In Bengal, the
Ganges, and several other great rivers, form a great number of navigable
canals, in the same manner as the Nile does in Egypt. In the eastern
provinces of China, too, several great rivers form, by their different
branches, a multitude of canals, and, by communicating with one another,
afford an inland navigation much more extensive than that either of the
Nile or the Ganges, or, perhaps, than both of them put together. It is
remarkable, that neither the ancient Egyptians, nor the Indians, nor the
Chinese, encouraged foreign commerce, but seem all to have derived their
great opulence from this inland navigation.
All the inland parts of Africa, and all that part of Asia which lies any
considerable way north of the Euxine and Caspian seas, the ancient
Scythia, the modern Tartary and Siberia, seem, in all ages of the world,
to have been in the same barbarous and uncivilized state in which we find
them at present. The sea of Tartary is the frozen ocean, which admits of
no navigation; and though some of the greatest rivers in the world run
through that country, they are at too great a distance from one another to
carry commerce and communication through the greater part of it. There are
in Africa none of those great inlets, such as the Baltic and Adriatic seas
in Europe, the Mediterranean and Euxine seas in both Europe and Asia, and
the gulfs of Arabia, Persia, India, Bengal, and Siam, in Asia, to carry
maritime commerce into the interior parts of that great continent; and the
great rivers of Africa are at too great a distance from one another to
give occasion to any considerable inland navigation. The commerce,
besides, which any nation can carry on by means of a river which does not
break itself into any great number of branches or canals, and which runs
into another territory before it reaches the sea, can never be very
considerable, because it is always in the power of the nations who possess
that other territory to obstruct the communication between the upper
country and the sea. The navigation of the Danube is of very little use to
the different states of Bavaria, Austria, and Hungary, in comparison of
what it would be, if any of them possessed the whole of its course, till
it falls into the Black sea.
CHAPTER IV.
OF THE ORIGIN AND USE OF MONEY.
When the division of labour has been once thoroughly established, it is
but a very small part of a man’s wants which the produce of his own labour
can supply. He supplies the far greater part of them by exchanging that
surplus part of the produce of his own labour, which is over and above his
own consumption, for such parts of the produce of other men’s labour as he
has occasion for. Every man thus lives by exchanging, or becomes, in some
measure, a merchant, and the society itself grows to be what is properly a
commercial society.
But when the division of labour first began to take place, this power of
exchanging must frequently have been very much clogged and embarrassed in
its operations. One man, we shall suppose, has more of a certain commodity
than he himself has occasion for, while another has less. The former,
consequently, would be glad to dispose of; and the latter to purchase, a
part of this superfluity. But if this latter should chance to have nothing
that the former stands in need of, no exchange can be made between them.
The butcher has more meat in his shop than he himself can consume, and the
brewer and the baker would each of them be willing to purchase a part of
it. But they have nothing to offer in exchange, except the different
productions of their respective trades, and the butcher is already
provided with all the bread and beer which he has immediate occasion for.
No exchange can, in this case, be made between them. He cannot be their
merchant, nor they his customers; and they are all of them thus mutually
less serviceable to one another. In order to avoid the inconveniency of
such situations, every prudent man in every period of society, after the
first establishment of the division of labour, must naturally have
endeavoured to manage his affairs in such a manner, as to have at all
times by him, besides the peculiar produce of his own industry, a certain
quantity of some one commodity or other, such as he imagined few people
would be likely to refuse in exchange for the produce of their industry.
Many different commodities, it is probable, were successively both thought
of and employed for this purpose. In the rude ages of society, cattle are
said to have been the common instrument of commerce; and, though they must
have been a most inconvenient one, yet, in old times, we find things were
frequently valued according to the number of cattle which had been given
in exchange for them. The armour of Diomede, says Homer, cost only nine
oxen; but that of Glaucus cost a hundred oxen. Salt is said to be the
common instrument of commerce and exchanges in Abyssinia; a species of
shells in some parts of the coast of India; dried cod at Newfoundland;
tobacco in Virginia; sugar in some of our West India colonies; hides or
dressed leather in some other countries; and there is at this day a
village in Scotland, where it is not uncommon, I am told, for a workman to
carry nails instead of money to the baker’s shop or the ale-house.
In all countries, however, men seem at last to have been determined by
irresistible reasons to give the preference, for this employment, to
metals above every other commodity. Metals can not only be kept with as
little loss as any other commodity, scarce any thing being less perishable
than they are, but they can likewise, without any loss, be divided into
any number of parts, as by fusion those parts can easily be re-united
again; a quality which no other equally durable commodities possess, and
which, more than any other quality, renders them fit to be the instruments
of commerce and circulation. The man who wanted to buy salt, for example,
and had nothing but cattle to give in exchange for it, must have been
obliged to buy salt to the value of a whole ox, or a whole sheep, at a
time. He could seldom buy less than this, because what he was to give for
it could seldom be divided without loss; and if he had a mind to buy more,
he must, for the same reasons, have been obliged to buy double or triple
the quantity, the value, to wit, of two or three oxen, or of two or three
sheep. If, on the contrary, instead of sheep or oxen, he had metals to
give in exchange for it, he could easily proportion the quantity of the
metal to the precise quantity of the commodity which he had immediate
occasion for.
Different metals have been made use of by different nations for this
purpose. Iron was the common instrument of commerce among the ancient
Spartans, copper among the ancient Romans, and gold and silver among all
rich and commercial nations.
Those metals seem originally to have been made use of for this purpose in
rude bars, without any stamp or coinage. Thus we are told by Pliny (Plin.
Hist Nat. lib. 33, cap. 3), upon the authority of Timaeus, an ancient
historian, that, till the time of Servius Tullius, the Romans had no
coined money, but made use of unstamped bars of copper, to purchase
whatever they had occasion for. These rude bars, therefore, performed at
this time the function of money.
The use of metals in this rude state was attended with two very
considerable inconveniences; first, with the trouble of weighing, and
secondly, with that of assaying them. In the precious metals, where a
small difference in the quantity makes a great difference in the value,
even the business of weighing, with proper exactness, requires at least
very accurate weights and scales. The weighing of gold, in particular, is
an operation of some nicety in the coarser metals, indeed, where a small
error would be of little consequence, less accuracy would, no doubt, be
necessary. Yet we should find it excessively troublesome if every time a
poor man had occasion either to buy or sell a farthing’s worth of goods,
he was obliged to weigh the farthing. The operation of assaying is still
more difficult, still more tedious; and, unless a part of the metal is
fairly melted in the crucible, with proper dissolvents, any conclusion
that can be drawn from it is extremely uncertain. Before the institution
of coined money, however, unless they went through this tedious and
difficult operation, people must always have been liable to the grossest
frauds and impositions; and instead of a pound weight of pure silver, or
pure copper, might receive, in exchange for their goods, an adulterated
composition of the coarsest and cheapest materials, which had, however, in
their outward appearance, been made to resemble those metals. To prevent
such abuses, to facilitate exchanges, and thereby to encourage all sorts
of industry and commerce, it has been found necessary, in all countries
that have made any considerable advances towards improvement, to affix a
public stamp upon certain quantities of such particular metals, as were in
those countries commonly made use of to purchase goods. Hence the origin
of coined money, and of those public offices called mints; institutions
exactly of the same nature with those of the aulnagers and stamp-masters
of woollen and linen cloth. All of them are equally meant to ascertain, by
means of a public stamp, the quantity and uniform goodness of those
different commodities when brought to market.
The first public stamps of this kind that were affixed to the current
metals, seem in many cases to have been intended to ascertain, what it was
both most difficult and most important to ascertain, the goodness or
fineness of the metal, and to have resembled the sterling mark which is at
present affixed to plate and bars of silver, or the Spanish mark which is
sometimes affixed to ingots of gold, and which, being struck only upon one
side of the piece, and not covering the whole surface, ascertains the
fineness, but not the weight of the metal. Abraham weighs to Ephron the
four hundred shekels of silver which he had agreed to pay for the field of
Machpelah. They are said, however, to be the current money of the
merchant, and yet are received by weight, and not by tale, in the same
manner as ingots of gold and bars of silver are at present. The revenues
of the ancient Saxon kings of England are said to have been paid, not in
money, but in kind, that is, in victuals and provisions of all sorts.
William the Conqueror introduced the custom of paying them in money. This
money, however, was for a long time, received at the exchequer, by weight,
and not by tale.
The inconveniency and difficulty of weighing those metals with exactness,
gave occasion to the institution of coins, of which the stamp, covering
entirely both sides of the piece, and sometimes the edges too, was
supposed to ascertain not only the fineness, but the weight of the metal.
Such coins, therefore, were received by tale, as at present, without the
trouble of weighing.
The denominations of those coins seem originally to have expressed the
weight or quantity of metal contained in them. In the time of Servius
Tullius, who first coined money at Rome, the Roman as or pondo contained a
Roman pound of good copper. It was divided, in the same manner as our
Troyes pound, into twelve ounces, each of which contained a real ounce of
good copper. The English pound sterling, in the time of Edward I.
contained a pound, Tower weight, of silver of a known fineness. The Tower
pound seems to have been something more than the Roman pound, and
something less than the Troyes pound. This last was not introduced into
the mint of England till the 18th of Henry the VIII. The French livre
contained, in the time of Charlemagne, a pound, Troyes weight, of silver
of a known fineness. The fair of Troyes in Champaign was at that time
frequented by all the nations of Europe, and the weights and measures of
so famous a market were generally known and esteemed. The Scots money
pound contained, from the time of Alexander the First to that of Robert
Bruce, a pound of silver of the same weight and fineness with the English
pound sterling. English, French, and Scots pennies, too, contained all of
them originally a real penny-weight of silver, the twentieth part of an
ounce, and the two hundred-and-fortieth part of a pound. The shilling,
too, seems originally to have been the denomination of a weight. “When
wheat is at twelve shillings the quarter,” says an ancient statute of
Henry III. “then wastel bread of a farthing shall weigh eleven shillings
and fourpence”. The proportion, however, between the shilling, and either
the penny on the one hand, or the pound on the other, seems not to have
been so constant and uniform as that between the penny and the pound.
During the first race of the kings of France, the French sou or shilling
appears upon different occasions to have contained five, twelve, twenty,
and forty pennies. Among the ancient Saxons, a shilling appears at one
time to have contained only five pennies, and it is not improbable that it
may have been as variable among them as among their neighbours, the
ancient Franks. From the time of Charlemagne among the French, and from
that of William the Conqueror among the English, the proportion between
the pound, the shilling, and the penny, seems to have been uniformly the
same as at present, though the value of each has been very different; for
in every country of the world, I believe, the avarice and injustice of
princes and sovereign states, abusing the confidence of their subjects,
have by degrees diminished the real quantity of metal, which had been
originally contained in their coins. The Roman as, in the latter ages of
the republic, was reduced to the twenty-fourth part of its original value,
and, instead of weighing a pound, came to weigh only half an ounce. The
English pound and penny contain at present about a third only; the Scots
pound and penny about a thirty-sixth; and the French pound and penny about
a sixty-sixth part of their original value. By means of those operations,
the princes and sovereign states which performed them were enabled, in
appearance, to pay their debts and fulfil their engagements with a smaller
quantity of silver than would otherwise have been requisite. It was indeed
in appearance only; for their creditors were really defrauded of a part of
what was due to them. All other debtors in the state were allowed the same
privilege, and might pay with the same nominal sum of the new and debased
coin whatever they had borrowed in the old. Such operations, therefore,
have always proved favourable to the debtor, and ruinous to the creditor,
and have sometimes produced a greater and more universal revolution in the
fortunes of private persons, than could have been occasioned by a very
great public calamity.
It is in this manner that money has become, in all civilized nations, the
universal instrument of commerce, by the intervention of which goods of
all kinds are bought and sold, or exchanged for one another.
What are the rules which men naturally observe, in exchanging them either
for money, or for one another, I shall now proceed to examine. These rules
determine what may be called the relative or exchangeable value of goods.
The word VALUE, it is to be observed, has two different meanings, and
sometimes expresses the utility of some particular object, and sometimes
the power of purchasing other goods which the possession of that object
conveys. The one may be called ‘value in use;’ the other, ‘value in
exchange.’ The things which have the greatest value in use have frequently
little or no value in exchange; and, on the contrary, those which have the
greatest value in exchange have frequently little or no value in use.
Nothing is more useful than water; but it will purchase scarce any thing;
scarce any thing can be had in exchange for it. A diamond, on the
contrary, has scarce any value in use; but a very great quantity of other
goods may frequently be had in exchange for it.
In order to investigate the principles which regulate the exchangeable
value of commodities, I shall endeavour to shew,
First, what is the real measure of this exchangeable value; or wherein
consists the real price of all commodities.
Secondly, what are the different parts of which this real price is
composed or made up.
And, lastly, what are the different circumstances which sometimes raise
some or all of these different parts of price above, and sometimes sink
them below, their natural or ordinary rate; or, what are the causes which
sometimes hinder the market price, that is, the actual price of
commodities, from coinciding exactly with what may be called their natural
price.
I shall endeavour to explain, as fully and distinctly as I can, those
three subjects in the three following chapters, for which I must very
earnestly entreat both the patience and attention of the reader: his
patience, in order to examine a detail which may, perhaps, in some places,
appear unnecessarily tedious; and his attention, in order to understand
what may perhaps, after the fullest explication which I am capable of
giving it, appear still in some degree obscure. I am always willing to run
some hazard of being tedious, in order to be sure that I am perspicuous;
and, after taking the utmost pains that I can to be perspicuous, some
obscurity may still appear to remain upon a subject, in its own nature
extremely abstracted.
CHAPTER V.
OF THE REAL AND NOMINAL PRICE OF
COMMODITIES, OR OF THEIR PRICE IN LABOUR, AND THEIR PRICE IN MONEY.
Every man is rich or poor according to the degree in which he can afford
to enjoy the necessaries, conveniencies, and amusements of human 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. The value of any
commodity, therefore, 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.
The real price of every thing, what every thing really costs to the man
who wants to acquire it, is the toil and trouble of acquiring it. What
every thing is really worth to the man who has acquired it and who wants
to dispose of it, or exchange 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.
Wealth, as Mr Hobbes says, is power. But the person who either acquires,
or succeeds to a great fortune, does not necessarily acquire or succeed to
any political power, either civil or military. His fortune may, perhaps,
afford him the means of acquiring both; but the mere possession of that
fortune does not necessarily convey to him either. The power which that
possession immediately and directly conveys to him, is the power of
purchasing a certain command over all the labour, or over all the produce
of labour which is then in the market. His fortune is greater or less,
precisely in proportion to the extent of this power, or to the quantity
either of other men’s labour, or, what is the same thing, of the produce
of other men’s labour, which it enables him to purchase or command. The
exchangeable value of every thing must always be precisely equal to the
extent of this power which it conveys to its owner.
But 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. The different degrees of
hardship endured, and of ingenuity exercised, must likewise be taken into
account. 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, besides, 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 produce. 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.
But 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. The butcher seldom carries his beef or
his mutton to the baker or the brewer, in order to exchange them for bread
or for beer; but he carries them to the market, where he exchanges them
for money, and afterwards exchanges that money for bread and for beer. The
quantity of money which he gets for them regulates, too, the quantity of
bread and beer which he can afterwards purchase. It is more natural and
obvious to him, therefore, to estimate their value by the quantity of
money, the commodity for which he immediately exchanges them, than by that
of bread and beer, the commodities for which he can exchange them only by
the intervention of another commodity; and rather to say that his
butcher’s meat is worth three-pence or fourpence a-pound, than that it is
worth three or four pounds of bread, or three or four quarts of small
beer. 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.
Gold and silver, however, like every other commodity, vary in their value;
are sometimes cheaper and sometimes dearer, sometimes of easier and
sometimes of more difficult purchase. The quantity of labour which any
particular quantity of them can purchase or command, or the quantity of
other goods which it will exchange for, depends always upon the fertility
or barrenness of the mines which happen to be known about the time when
such exchanges are made. The discovery of the abundant mines of America,
reduced, in the sixteenth century, the value of gold and silver in Europe
to about a third of what it had been before. As it cost less labour to
bring those metals from the mine to the market, so, when they were brought
thither, they could purchase or command less labour; and this revolution
in their value, though perhaps the greatest, is by no means the only one
of which history gives some account. But as a measure of quantity, such as
the natural foot, fathom, or handful, which is continually varying in its
own quantity, can never be an accurate measure of the quantity of other
things; so a commodity which is itself continually varying in its own
value, can never be an accurate measure of the value of other commodities.
Equal quantities of labour, at all times and places, may be said to be of
equal value to the labourer. In his ordinary state of health, strength,
and spirits; in the ordinary degree of his skill and dexterity, he must
always lay down the same portion of his ease, his liberty, and his
happiness. The price which he pays must always be the same, whatever may
be the quantity of goods which he receives in return for it. Of these,
indeed, it may sometimes purchase a greater and sometimes a smaller
quantity; but it is their value which varies, not that of the labour which
purchases them. At all times and places, that is dear which it is
difficult to come at, or which it costs much labour to acquire; and that
cheap which is to be had easily, or with very little labour. Labour alone,
therefore, never varying in its own value, is alone the ultimate and real
standard by which the value of all commodities can at all times and places
be estimated and compared. It is their real price; money is their nominal
price only.
But though equal quantities of labour are always of equal value to the
labourer, yet to the person who employs him they appear sometimes to be of
greater, and sometimes of smaller value. He purchases them sometimes with
a greater, and sometimes with a smaller quantity of goods, and to him the
price of labour seems to vary like that of all other things. It appears to
him dear in the one case, and cheap in the other. In reality, however, it
is the goods which are cheap in the one case, and dear in the other.
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 conveniencies 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.
The distinction between the real and the nominal price of commodities and
labour is not a matter of mere speculation, but may sometimes be of
considerable use in practice. The same real price is always of the same
value; but on account of the variations in the value of gold and silver,
the same nominal price is sometimes of very different values. When a
landed estate, therefore, is sold with a reservation of a perpetual rent,
if it is intended that this rent should always be of the same value, it is
of importance to the family in whose favour it is reserved, that it should
not consist in a particular sum of money. Its value would in this case be
liable to variations of two different kinds: first, to those which arise
from the different quantities of gold and silver which are contained at
different times in coin of the same denomination; and, secondly, to those
which arise from the different values of equal quantities of gold and
silver at different times.
Princes and sovereign states have frequently fancied that they had a
temporary interest to diminish the quantity of pure metal contained in
their coins; but they seldom have fancied that they had any to augment it.
The quantity of metal contained in the coins, I believe of all nations,
has accordingly been almost continually diminishing, and hardly ever
augmenting. Such variations, therefore, tend almost always to diminish the
value of a money rent.
The discovery of the mines of America diminished the value of gold and
silver in Europe. This diminution, it is commonly supposed, though I
apprehend without any certain proof, is still going on gradually, and is
likely to continue to do so for a long time. Upon this supposition,
therefore, such variations are more likely to diminish than to augment the
value of a money rent, even though it should be stipulated to be paid, not
in such a quantity of coined money of such a denomination (in so many
pounds sterling, for example), but in so many ounces, either of pure
silver, or of silver of a certain standard.
The rents which have been reserved in corn, have preserved their value
much better than those which have been reserved in money, even where the
denomination of the coin has not been altered. By the 18th of Elizabeth,
it was enacted, that a third of the rent of all college leases should be
reserved in corn, to be paid either in kind, or according to the current
prices at the nearest public market. The money arising from this corn
rent, though originally but a third of the whole, is, in the present
times, according to Dr Blackstone, commonly near double of what arises
from the other two-thirds. The old money rents of colleges must, according
to this account, have sunk almost to a fourth part of their ancient value,
or are worth little more than a fourth part of the corn which they were
formerly worth. But since the reign of Philip and Mary, the denomination
of the English coin has undergone little or no alteration, and the same
number of pounds, shillings, and pence, have contained very nearly the
same quantity of pure silver. This degradation, therefore, in the value of
the money rents of colleges, has arisen altogether from the degradation in
the price of silver.
When the degradation in the value of silver is combined with the
diminution of the quantity of it contained in the coin of the same
denomination, the loss is frequently still greater. In Scotland, where the
denomination of the coin has undergone much greater alterations than it
ever did in England, and in France, where it has undergone still greater
than it ever did in Scotland, some ancient rents, originally of
considerable value, have, in this manner, been reduced almost to nothing.
Equal quantities of labour will, at distant times, be purchased more
nearly with equal quantities of corn, the subsistence of the labourer,
than with equal quantities of gold and silver, or, perhaps, of any other
commodity. Equal quantities of corn, therefore, will, at distant times, be
more nearly of the same real value, or enable the possessor to purchase or
command more nearly the same quantity of the labour of other people. They
will do this, I say, more nearly than equal quantities of almost any other
commodity; for even equal quantities of corn will not do it exactly. The
subsistence of the labourer, or the real price of labour, as I shall
endeavour to shew hereafter, is very different upon different occasions;
more liberal in a society advancing to opulence, than in one that is
standing still, and in one that is standing still, than in one that is
going backwards. Every other commodity, however, will, at any particular
time, purchase a greater or smaller quantity of labour, in proportion to
the quantity of subsistence which it can purchase at that time. A rent,
therefore, reserved in corn, is liable only to the variations in the
quantity of labour which a certain quantity of corn can purchase. But a
rent reserved in any other commodity is liable, not only to the variations
in the quantity of labour which any particular quantity of corn can
purchase, but to the variations in the quantity of corn which can be
purchased by any particular quantity of that commodity.
Though the real value of a corn rent, it is to be observed, however,
varies much less from century to century than that of a money rent, it
varies much more from year to year. The money price of labour, as I shall
endeavour to shew hereafter, does not fluctuate from year to year with the
money price of corn, but seems to be everywhere accommodated, not to the
temporary or occasional, but to the average or ordinary price of that
necessary of life. The average or ordinary price of corn, again is
regulated, as I shall likewise endeavour to shew hereafter, by the value
of silver, by the richness or barrenness of the mines which supply the
market with that metal, or by the quantity of labour which must be
employed, and consequently of corn which must be consumed, in order to
bring any particular quantity of silver from the mine to the market. But
the value of silver, though it sometimes varies greatly from century to
century, seldom varies much from year to year, but frequently continues
the same, or very nearly the same, for half a century or a century
together. The ordinary or average money price of corn, therefore, may,
during so long a period, continue the same, or very nearly the same, too,
and along with it the money price of labour, provided, at least, the
society continues, in other respects, in the same, or nearly in the same,
condition. In the mean time, the temporary and occasional price of corn
may frequently be double one year of what it had been the year before, or
fluctuate, for example, from five-and-twenty to fifty shillings the
quarter. But when corn is at the latter price, not only the nominal, but
the real value of a corn rent, will be double of what it is when at the
former, or will command double the quantity either of labour, or of the
greater part of other commodities; the money price of labour, and along
with it that of most other things, continuing the same during all these
fluctuations.
Labour, therefore, it appears evidently, is the only universal, as well as
the only accurate, measure of value, or the only standard by which we can
compare the values of different commodities, at all times, and at all
places. We cannot estimate, it is allowed, the real value of different
commodities from century to century by the quantities of silver which were
given for them. We cannot estimate it from year to year by the quantities
of corn. By the quantities of labour, we can, with the greatest accuracy,
estimate it, both from century to century, and from year to year. From
century to century, corn is a better measure than silver, because, from
century to century, equal quantities of corn will command the same
quantity of labour more nearly than equal quantities of silver. From year
to year, on the contrary, silver is a better measure than corn, because
equal quantities of it will more nearly command the same quantity of
labour.
But though, in establishing perpetual rents, or even in letting very long
leases, it may be of use to distinguish between real and nominal price; it
is of none in buying and selling, the more common and ordinary
transactions of human life.
At the same time and place, the real and the nominal price of all
commodities are exactly in proportion to one another. The more or less
money you get for any commodity, in the London market, for example, the
more or less labour it will at that time and place enable you to purchase
or command. At the same time and place, therefore, money is the exact
measure of the real exchangeable value of all commodities. It is so,
however, at the same time and place only.
Though at distant places there is no regular proportion between the real
and the money price of commodities, yet the merchant who carries goods
from the one to the other, has nothing to consider but the money price, or
the difference between the quantity of silver for which he buys them, and
that for which he is likely to sell them. Half an ounce of silver at
Canton in China may command a greater quantity both of labour and of the
necessaries and conveniencies of life, than an ounce at London. A
commodity, therefore, which sells for half an ounce of silver at Canton,
may there be really dearer, of more real importance to the man who
possesses it there, than a commodity which sells for an ounce at London is
to the man who possesses it at London. If a London merchant, however, can
buy at Canton, for half an ounce of silver, a commodity which he can
afterwards sell at London for an ounce, he gains a hundred per cent. by
the bargain, just as much as if an ounce of silver was at London exactly
of the same value as at Canton. It is of no importance to him that half an
ounce of silver at Canton would have given him the command of more labour,
and of a greater quantity of the necessaries and conveniencies of life
than an ounce can do at London. An ounce at London will always give him
the command of double the quantity of all these, which half an ounce could
have done there, and this is precisely what he wants.
As it is the nominal or money price of goods, therefore, which finally
determines the prudence or imprudence of all purchases and sales, and
thereby regulates almost the whole business of common life in which price
is concerned, we cannot wonder that it should have been so much more
attended to than the real price.
In such a work as this, however, it may sometimes be of use to compare the
different real values of a particular commodity at different times and
places, or the different degrees of power over the labour of other people
which it may, upon different occasions, have given to those who possessed
it. We must in this case compare, not so much the different quantities of
silver for which it was commonly sold, as the different quantities or
labour which those different quantities of silver could have purchased.
But the current prices of labour, at distant times and places, can scarce
ever be known with any degree of exactness. Those of corn, though they
have in few places been regularly recorded, are in general better known,
and have been more frequently taken notice of by historians and other
writers. We must generally, therefore, content ourselves with them, not as
being always exactly in the same proportion as the current prices of
labour, but as being the nearest approximation which can commonly be had
to that proportion. I shall hereafter have occasion to make several
comparisons of this kind.
In the progress of industry, commercial nations have found it convenient
to coin several different metals into money; gold for larger payments,
silver for purchases of moderate value, and copper, or some other coarse
metal, for those of still smaller consideration, They have always,
however, considered one of those metals as more peculiarly the measure of
value than any of the other two; and this preference seems generally to
have been given to the metal which they happen first to make use of as the
instrument of commerce. Having once begun to use it as their standard,
which they must have done when they had no other money, they have
generally continued to do so even when the necessity was not the same.
The Romans are said to have had nothing but copper money till within five
years before the first Punic war (Pliny, lib. xxxiii. cap. 3), when they
first began to coin silver. Copper, therefore, appears to have continued
always the measure of value in that republic. At Rome all accounts appear
to have been kept, and the value of all estates to have been computed,
either in asses or in sestertii. The as was always the denomination of a
copper coin. The word sestertius signifies two asses and a half. Though
the sestertius, therefore, was originally a silver coin, its value was
estimated in copper. At Rome, one who owed a great deal of money was said
to have a great deal of other people’s copper.
The northern nations who established themselves upon the ruins of the
Roman empire, seem to have had silver money from the first beginning of
their settlements, and not to have known either gold or copper coins for
several ages thereafter. There were silver coins in England in the time of
the Saxons; but there was little gold coined till the time of Edward III
nor any copper till that of James I. of Great Britain. In England,
therefore, and for the same reason, I believe, in all other modern nations
of Europe, all accounts are kept, and the value of all goods and of all
estates is generally computed, in silver: and when we mean to express the
amount of a person’s fortune, we seldom mention the number of guineas, but
the number of pounds sterling which we suppose would be given for it.
Originally, in all countries, I believe, a legal tender of payment could
be made only in the coin of that metal which was peculiarly considered as
the standard or measure of value. In England, gold was not considered as a
legal tender for a long time after it was coined into money. The
proportion between the values of gold and silver money was not fixed by
any public law or proclamation, but was left to be settled by the market.
If a debtor offered payment in gold, the creditor might either reject such
payment altogether, or accept of it at such a valuation of the gold as he
and his debtor could agree upon. Copper is not at present a legal tender,
except in the change of the smaller silver coins.
In this state of things, the distinction between the metal which was the
standard, and that which was not the standard, was something more than a
nominal distinction.
In process of time, and as people became gradually more familiar with the
use of the different metals in coin, and consequently better acquainted
with the proportion between their respective values, it has, in most
countries, I believe, been found convenient to ascertain this proportion,
and to declare by a public law, that a guinea, for example, of such a
weight and fineness, should exchange for one-and-twenty shillings, or be a
legal tender for a debt of that amount. In this state of things, and
during the continuance of any one regulated proportion of this kind, the
distinction between the metal, which is the standard, and that which is
not the standard, becomes little more than a nominal distinction.
In consequence of any change, however, in this regulated proportion, this
distinction becomes, or at least seems to become, something more than
nominal again. If the regulated value of a guinea, for example, was either
reduced to twenty, or raised to two-and-twenty shillings, all accounts
being kept, and almost all obligations for debt being expressed, in silver
money, the greater part of payments could in either case be made with the
same quantity of silver money as before; but would require very different
quantities of gold money; a greater in the one case, and a smaller in the
other. Silver would appear to be more invariable in its value than gold.
Silver would appear to measure the value of gold, and gold would not
appear to measure the value of silver. The value of gold would seem to
depend upon the quantity of silver which it would exchange for, and the
value of silver would not seem to depend upon the quantity of gold which
it would exchange for. This difference, however, would be altogether owing
to the custom of keeping accounts, and of expressing the amount of all
great and small sums rather in silver than in gold money. One of Mr
Drummond’s notes for five-and-twenty or fifty guineas would, after an
alteration of this kind, be still payable with five-and-twenty or fifty
guineas, in the same manner as before. It would, after such an alteration,
be payable with the same quantity of gold as before, but with very
different quantities of silver. In the payment of such a note, gold would
appear to be more invariable in its value than silver. Gold would appear
to measure the value of silver, and silver would not appear to measure the
value of gold. If the custom of keeping accounts, and of expressing
promissory-notes and other obligations for money, in this manner should
ever become general, gold, and not silver, would be considered as the
metal which was peculiarly the standard or measure of value.
In reality, during the continuance of any one regulated proportion between
the respective values of the different metals in coin, the value of the
most precious metal regulates the value of the whole coin. Twelve copper
pence contain half a pound avoirdupois of copper, of not the best quality,
which, before it is coined, is seldom worth seven-pence in silver. But as,
by the regulation, twelve such pence are ordered to exchange for a
shilling, they are in the market considered as worth a shilling, and a
shilling can at any time be had for them. Even before the late reformation
of the gold coin of Great Britain, the gold, that part of it at least
which circulated in London and its neighbourhood, was in general less
degraded below its standard weight than the greater part of the silver.
One-and-twenty worn and defaced shillings, however, were considered as
equivalent to a guinea, which, perhaps, indeed, was worn and defaced too,
but seldom so much so. The late regulations have brought the gold coin as
near, perhaps, to its standard weight as it is possible to bring the
current coin of any nation; and the order to receive no gold at the public
offices but by weight, is likely to preserve it so, as long as that order
is enforced. The silver coin still continues in the same worn and degraded
state as before the reformation of the cold coin. In the market, however,
one-and-twenty shillings of this degraded silver coin are still considered
as worth a guinea of this excellent gold coin.
The reformation of the gold coin has evidently raised the value of the
silver coin which can be exchanged for it.
In the English mint, a pound weight of gold is coined into forty-four
guineas and a half, which at one-and-twenty shillings the guinea, is equal
to forty-six pounds fourteen shillings and sixpence. An ounce of such gold
coin, therefore, is worth £ 3:17:10½ in silver. In England, no duty or
seignorage is paid upon the coinage, and he who carries a pound weight or
an ounce weight of standard gold bullion to the mint, gets back a pound
weight or an ounce weight of gold in coin, without any deduction. Three
pounds seventeen shillings and tenpence halfpenny an ounce, therefore, is
said to be the mint price of gold in England, or the quantity of gold coin
which the mint gives in return for standard gold bullion.
Before the reformation of the gold coin, the price of standard gold
bullion in the market had, for many years, been upwards of £3:18s.
sometimes £ 3:19s, and very frequently £4 an ounce; that sum, it is
probable, in the worn and degraded gold coin, seldom containing more than
an ounce of standard gold. Since the reformation of the gold coin, the
market price of standard gold bullion seldom exceeds £ 3:17:7 an ounce.
Before the reformation of the gold coin, the market price was always more
or less above the mint price. Since that reformation, the market price has
been constantly below the mint price. But that market price is the same
whether it is paid in gold or in silver coin. The late reformation of the
gold coin, therefore, has raised not only the value of the gold coin, but
likewise that of the silver coin in proportion to gold bullion, and
probably, too, in proportion to all other commodities; though the price of
the greater part of other commodities being influenced by so many other
causes, the rise in the value of either gold or silver coin in proportion
to them may not be so distinct and sensible.
In the English mint, a pound weight of standard silver bullion is coined
into sixty-two shillings, containing, in the same manner, a pound weight
of standard silver. Five shillings and twopence an ounce, therefore, is
said to be the mint price of silver in England, or the quantity of silver
coin which the mint gives in return for standard silver bullion. Before
the reformation of the gold coin, the market price of standard silver
bullion was, upon different occasions, five shillings and fourpence, five
shillings and fivepence, five shillings and sixpence, five shillings and
sevenpence, and very often five shillings and eightpence an ounce. Five
shillings and sevenpence, however, seems to have been the most common
price. Since the reformation of the gold coin, the market price of
standard silver bullion has fallen occasionally to five shillings and
threepence, five shillings and fourpence, and five shillings and fivepence
an ounce, which last price it has scarce ever exceeded. Though the market
price of silver bullion has fallen considerably since the reformation of
the gold coin, it has not fallen so low as the mint price.
In the proportion between the different metals in the English coin, as
copper is rated very much above its real value, so silver is rated
somewhat below it. In the market of Europe, in the French coin and in the
Dutch coin, an ounce of fine gold exchanges for about fourteen ounces of
fine silver. In the English coin, it exchanges for about fifteen ounces,
that is, for more silver than it is worth, according to the common
estimation of Europe. But as the price of copper in bars is not, even in
England, raised by the high price of copper in English coin, so the price
of silver in bullion is not sunk by the low rate of silver in English
coin. Silver in bullion still preserves its proper proportion to gold, for
the same reason that copper in bars preserves its proper proportion to
silver.
Upon the reformation of the silver coin, in the reign of William III., the
price of silver bullion still continued to be somewhat above the mint
price. Mr Locke imputed this high price to the permission of exporting
silver bullion, and to the prohibition of exporting silver coin. This
permission of exporting, he said, rendered the demand for silver bullion
greater than the demand for silver coin. But the number of people who want
silver coin for the common uses of buying and selling at home, is surely
much greater than that of those who want silver bullion either for the use
of exportation or for any other use. There subsists at present a like
permission of exporting gold bullion, and a like prohibition of exporting
gold coin; and yet the price of gold bullion has fallen below the mint
price. But in the English coin, silver was then, in the same manner as
now, under-rated in proportion to gold; and the gold coin (which at that
time, too, was not supposed to require any reformation) regulated then, as
well as now, the real value of the whole coin. As the reformation of the
silver coin did not then reduce the price of silver bullion to the mint
price, it is not very probable that a like reformation will do so now.
Were the silver coin brought back as near to its standard weight as the
gold, a guinea, it is probable, would, according to the present
proportion, exchange for more silver in coin than it would purchase in
bullion. The silver coin containing its full standard weight, there would
in this case, be a profit in melting it down, in order, first to sell the
bullion for gold coin, and afterwards to exchange this gold coin for
silver coin, to be melted down in the same manner. Some alteration in the
present proportion seems to be the only method of preventing this
inconveniency.
The inconveniency, perhaps, would be less, if silver was rated in the coin
as much above its proper proportion to gold as it is at present rated
below it, provided it was at the same time enacted, that silver should not
be a legal tender for more than the change of a guinea, in the same manner
as copper is not a legal tender for more than the change of a shilling. No
creditor could, in this case, be cheated in consequence of the high
valuation of silver in coin; as no creditor can at present be cheated in
consequence of the high valuation of copper. The bankers only would suffer
by this regulation. When a run comes upon them, they sometimes endeavour
to gain time, by paying in sixpences, and they would be precluded by this
regulation from this discreditable method of evading immediate payment.
They would be obliged, in consequence, to keep at all times in their
coffers a greater quantity of cash than at present; and though this might,
no doubt, be a considerable inconveniency to them, it would, at the same
time, be a considerable security to their creditors.
Three pounds seventeen shillings and tenpence halfpenny (the mint price of
gold) certainly does not contain, even in our present excellent gold coin,
more than an ounce of standard gold, and it may be thought, therefore,
should not purchase more standard bullion. But gold in coin is more
convenient than gold in bullion; and though, in England, the coinage is
free, yet the gold which is carried in bullion to the mint, can seldom be
returned in coin to the owner till after a delay of several weeks. In the
present hurry of the mint, it could not be returned till after a delay of
several months. This delay is equivalent to a small duty, and renders gold
in coin somewhat more valuable than an equal quantity of gold in bullion.
If, in the English coin, silver was rated according to its proper
proportion to gold, the price of silver bullion would probably fall below
the mint price, even without any reformation of the silver coin; the value
even of the present worn and defaced silver coin being regulated by the
value of the excellent gold coin for which it can be changed.
A small seignorage or duty upon the coinage of both gold and silver, would
probably increase still more the superiority of those metals in coin above
an equal quantity of either of them in bullion. The coinage would, in this
case, increase the value of the metal coined in proportion to the extent
of this small duty, for the same reason that the fashion increases the
value of plate in proportion to the price of that fashion. The superiority
of coin above bullion would prevent the melting down of the coin, and
would discourage its exportation. If, upon any public exigency, it should
become necessary to export the coin, the greater part of it would soon
return again, of its own accord. Abroad, it could sell only for its weight
in bullion. At home, it would buy more than that weight. There would be a
profit, therefore, in bringing it home again. In France, a seignorage of
about eight per cent. is imposed upon the coinage, and the French coin,
when exported, is said to return home again, of its own accord.
The occasional fluctuations in the market price of gold and silver bullion
arise from the same causes as the like fluctuations in that of all other
commodities. The frequent loss of those metals from various accidents by
sea and by land, the continual waste of them in gilding and plating, in
lace and embroidery, in the wear and tear of coin, and in that of plate,
require, in all countries which possess no mines of their own, a continual
importation, in order to repair this loss and this waste. The merchant
importers, like all other merchants, we may believe, endeavour, as well as
they can, to suit their occasional importations to what they judge is
likely to be the immediate demand. With all their attention, however, they
sometimes overdo the business, and sometimes underdo it. When they import
more bullion than is wanted, rather than incur the risk and trouble of
exporting it again, they are sometimes willing to sell a part of it for
something less than the ordinary or average price. When, on the other
hand, they import less than is wanted, they get something more than this
price. But when, under all those occasional fluctuations, the market price
either of gold or silver bullion continues for several years together
steadily and constantly, either more or less above, or more or less below
the mint price, we may be assured that this steady and constant, either
superiority or inferiority of price, is the effect of something in the
state of the coin, which, at that time, renders a certain quantity of coin
either of more value or of less value than the precise quantity of bullion
which it ought to contain. The constancy and steadiness of the effect
supposes a proportionable constancy and steadiness in the cause.
The money of any particular country is, at any particular time and place,
more or less an accurate measure or value, according as the current coin
is more or less exactly agreeable to its standard, or contains more or
less exactly the precise quantity of pure gold or pure silver which it
ought to contain. If in England, for example, forty-four guineas and a
half contained exactly a pound weight of standard gold, or eleven ounces
of fine gold, and one ounce of alloy, the gold coin of England would be as
accurate a measure of the actual value of goods at any particular time and
place as the nature of the thing would admit. But if, by rubbing and
wearing, forty-four guineas and a half generally contain less than a pound
weight of standard gold, the diminution, however, being greater in some
pieces than in others, the measure of value comes to be liable to the same
sort of uncertainty to which all other weights and measures are commonly
exposed. As it rarely happens that these are exactly agreeable to their
standard, the merchant adjusts the price of his goods as well as he can,
not to what those weights and measures ought to be, but to what, upon an
average, he finds, by experience, they actually are. In consequence of a
like disorder in the coin, the price of goods comes, in the same manner,
to be adjusted, not to the quantity of pure gold or silver which the coin
ought to contain, but to that which, upon an average, it is found, by
experience, it actually does contain.
By the money price of goods, it is to be observed, I understand always the
quantity of pure gold or silver for which they are sold, without any
regard to the denomination of the coin. Six shillings and eight pence, for
example, in the time of Edward I., I consider as the same money price with
a pound sterling in the present times, because it contained, as nearly as
we can judge, the same quantity of pure silver.
CHAPTER VI.
OF THE COMPONENT PART OF THE PRICE OF COMMODITIES.
In that early and rude state of society which precedes both the
accumulation of stock and the appropriation of land, the proportion
between the quantities of labour necessary for acquiring different
objects, seems to be the only circumstance which can afford any rule for
exchanging them for one another. If among a nation of hunters, for
example, it usually costs twice the labour to kill a beaver which it does
to kill a deer, one beaver should naturally exchange for or be worth two
deer. It is natural that what is usually the produce of two days or two
hours labour, should be worth double of what is usually the produce of one
day’s or one hour’s labour.
If the one species of labour should be more severe than the other, some
allowance will naturally be made for this superior hardship; and the
produce of one hour’s labour in the one way may frequently exchange for
that of two hour’s labour in the other.
Or if the one species of labour requires an uncommon degree of dexterity
and ingenuity, the esteem which men have for such talents, will naturally
give a value to their produce, superior to what would be due to the time
employed about it. Such talents can seldom be acquired but in consequence
of long application, and the superior value of their produce may
frequently be no more than a reasonable compensation for the time and
labour which must be spent in acquiring them. In the advanced state of
society, allowances of this kind, for superior hardship and superior
skill, are commonly made in the wages of labour; and something of the same
kind must probably have taken place in its earliest and rudest period.
In this state of things, the whole produce of labour belongs to the
labourer; and the quantity of labour commonly employed in acquiring or
producing any commodity, is the only circumstance which can regulate the
quantity of labour which it ought commonly to purchase, command, or
exchange for.
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. He
could have no interest to employ them, unless he expected from the sale of
their work something more than what was sufficient to replace his stock to
him; and he could have no interest to employ a great stock rather than a
small one, unless his profits were to bear some proportion to the extent
of his stock.
The profits of stock, it may perhaps be thought, are only a different name
for the wages of a particular sort of labour, the labour of inspection and
direction. They are, however, altogether different, are regulated by quite
different principles, and bear no proportion to the quantity, the
hardship, or the ingenuity of this supposed labour of inspection and
direction. They are regulated altogether by the value of the stock
employed, and are greater or smaller in proportion to the extent of this
stock. Let us suppose, for example, that in some particular place, where
the common annual profits of manufacturing stock are ten per cent. there
are two different manufactures, in each of which twenty workmen are
employed, at the rate of fifteen pounds a year each, or at the expense of
three hundred a-year in each manufactory. Let us suppose, too, that the
coarse materials annually wrought up in the one cost only seven hundred
pounds, while the finer materials in the other cost seven thousand. The
capital annually employed in the one will, in this case, amount only to
one thousand pounds; whereas that employed in the other will amount to
seven thousand three hundred pounds. At the rate of ten per cent.
therefore, the undertaker of the one will expect a yearly profit of about
one hundred pounds only; while that of the other will expect about seven
hundred and thirty pounds. But though their profits are so very different,
their labour of inspection and direction may be either altogether or very
nearly the same. In many great works, almost the whole labour of this kind
is committed to some principal clerk. His wages properly express the value
of this labour of inspection and direction. Though in settling them some
regard is had commonly, not only to his labour and skill, but to the trust
which is reposed in him, yet they never bear any regular proportion to the
capital